| February 14, 200l MEMORANDUM FOR: The Honorable Chairman Commission on Audit Quezon City Thru: The Director Commission on Audit Regional Office No. 2 Tuguegarao City We have examined the financial operations of the Batanes GeneralHospital, Basco, for the period ended December 31, 2000. The audit was aimed at ascertaining the propriety of disbursements, the reliability of financial reports and the adequacy of accounting books and records. Likewise, we identified the practices that require compliance with laws, rules and regulations, for the purpose of recommending measures to correct them. Our findings and recommendations are discussed in detail in the attached report. Part I is the agency background which gives the law creating the hospital, its major accomplishments vis-à-vis the corresponding targets, and financial profile. Part II is the results of the financial statement audit. Part III discusses our findings and recommendations, and Part IV are the annexes. We rendered a qualified opinion on the presentation of the financial statements of the hospital. We acknowledge the cooperation extended to us by the officials and employees of the hospital, thus facilitating the preparation and submission of this report. PACITA V. ELIZONDO State Auditor III Team Leader NOTED BY: GLORIA C. GARCIA State Auditor IV Regional Field Auditor EXECUTIVE SUMMARY INTRODUCTION Creation and Mandated Functions The Batanes General Hospital (BGH) originated as a public dispensary by virtue of Philippine Rehabilitation Act of 1946. In 1993, Republic Act (RA) 7160, known as the Local Government Code of 1991, authorized its devolution to the Provincial Government of Batanes and became the Batanes Provincial Health Office. With the passage of RA 8454, it was re-nationalized and upgraded to a tertiary level II hospital, and was renamed as the Batanes General Hospital. It is the mandated function of the hospital to provide quality health care to all through upgraded equipment and facilities, adequate and competent technical manpower, upgraded human resource capabilities, adequate medicines and supplies, and expansion of building and structures. Financial Profile For calendar year 2000, the Batanes General Hospital received a total allotment of P29,595,000.00. It incurred expenditures totalling P25,501,l44.27, thus, leaving a balance of P4,093,855.73. The assets, liabilities, residual equity and residual equity during the year amounted to P17,067,086.16, P11,852,145.79 and P5,214,940.37, respectively. SCOPE OF AUDIT The audit covered the accounts and operations of the Batanes General Hospital for the period ended December 31, 2000. We also included in the report the results of the comprehensive audit conducted by the audit team covering the period August 1, 1999 to September 30, 2000. The audit was aimed at ascertaining the propriety of disbursements, the reliability of financial reports and the adequacy of accounting books and records. Likewise, we ascertained the agency?s compliance with laws, rules and regulations and budgetary requirements as well as adherence to prescribed policies and procedures. We also evaluated systems and operational procedures applied by management to determine if resources were utilized economically, efficiently and effectively. We post-audited and certified accounts up to November, 2000. The results, however, of the value for money audit conducted are in a separate report. STATE AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS We rendered a qualified opinion on the fairness of the presentation of the financial statement, since the fixed assets transferred by the Provincial Government to the hospital were not booked-up. SUMMARY OF SIGNIFICANT FINDINGS AND RECOMMENDATIONS For the exception cited above the Auditor recommended that the hospital should book-up all properties acquired be it through purchase or donation in order to reflect the correct figures in the financial statements. The following are the other significant findings and the corresponding recommendations: 1. Failure of management to follow strictly the rules and regulations stated particularly in Section 4 of the memorandum of Agreement with PCSO, resulted to uneconomical and wasteful use of government resources. Comply with the provisions of the Memorandum of agreement to avoid the uneconomical and wasteful use of government resources. Coordinate with the DOH regarding inspection of the medical equipment and with the Dealer/Supplier on the possible repair/rehabilitation of those that were found defective and without accessories in order to maximize their use. 2. Disbursements covering various purchases and travelling allowances totalling P7,159,042.72 were suspended in the audit due to the doubtful validity of supporting documents. Comply strictly with the provisions of COA Circular No. 85-55A, dated September 8, 1985 and Executive Order No. 284 to avoid suspension and/or disallowances in audit. Likewise, limit the granting of official travel in order to avoid waste of government funds and time. 3. Disregard for principles of internal control and the seeming laxity of concerned officials in the processing of claims resulted to audit suspensions and disallowances totalling P7,385,988.01 and P120,288.60, respectively. Cause the immediate settlement of the audit suspensions and disallowances. Direct the Accountant to take extra caution in the processing of claims to avoid suspensions and disallowances in audit. 4. Inventory Report of equipment was not prepared and submitted due to failure of management to conduct the required physical count, hence, their existence, condition and whereabouts could not be ascertained. Prepare and submit inventory report of equipment, supplies and materials, and conduct physical count of same to ascertain their existence, whereabouts and actual physical condition. 5. Failure of the accountant to book-up equipment and other assets transferred from the Provincial Government after the re-nationalization of the hospital, resulted to understatement of the fixed asset account. Require the Accountant to book-up all properties of the agency whether acquired through purchase or donation, in order to reflect the correct figures in the financial statements. The above findings and recommendations were discussed with management on December 15, 2000. Their views and reactions are incorporated in the report where appropriate. During the calendar year 2000, the Batanes General Hospital showed a very remarkable performance in two (2) major programs, surpassing even its accomplishments during the previous year. Based on the reported accomplishments under its program on Hospital Care, the hospital was able to serve 17,960 out of 13,785 targeted number of in-patients/out-patients, equivalent to and efficiency rating of 130%. Likewise, under the National Voluntary Blood Service Program, the agency exceeded its target with its accomplishment of 170 blood donors recruited, representing 212% of its target of 80. Other significant accomplishments are shown on Annex "A". TABLE OF CONTENTS PAGE NO. PART I - INTRODUCTION 1 PART II - RESULTS OF FINANCIAL STATEMENTS AUDIT 3 PART III - FAVORABLE OBSERVATIONS, FINDINGS AND RECOMMENDATIONS 8 PART IV - ANNEXES 20-A PART I - AGENCY BACKGROUND INTRODUCTION The Batanes General Hospital (BGH) is a government hospital in Basco, the capital town of Batanes. This hospital started as a public dispensary by virtue of Philippine Rehabilitation Act of l946. It was later on converted into a 25-bed capacity hospital and was named Batanes Emergency Hospital funded out of local funds. In 1955, it became a national hospital, funded entirely out of national funds. Its bed capacity was increased in 1974 to fifty and in 1997 it was further increased to seventy-five. On December 2, 1982, The President of the Philippines issued Executive Order No. 85l which provided for the reorganization of the Ministry of Health. The Provincial Health Office and Provincial Hospital were merged to constitute a new Integrated Provincial Health Office. The Executive Order was issued in l982, although its implementation actually took effect in l984. In l993, Republic Act (RA) 7160, otherwise known as the Local Government Code of 1991, devolved the hospital to the Provincial Government of Batanes and became the Batanes Provincial Health Office. With the passage of RA 8454, however, it was re-nationalized and upgraded to a tertiary level II hospital, now renamed as Batanes General Hospital. On March 17, 1999, the Department of Health issued Department Order No. 99, s. 1999 transferring the technical and administrative supervision and control from the Regional Health Office No. 2 to the Regional Field Office for National Capital Region (NCR). OBEJCTIVES AND FUNCTIONS It is the agency's objective to provide quality hospital health care to all, and such is vested with the following functions: 1. Caters to the health needs of the six municipalities of Batanes with a total population of 14,894 people; 2. It serves as the referral hospital for six Rural Health Units and one District Hospital; 3. Provides service capability in Medicine, Surgery, Pediatrics, OB-Gyne, Orthopedics, Neurology, X-ray, Laboratory, Dietary, Dental and Out-patient services; 4. Maintains a hospital pharmacy where patients can procure their medicines; 5. Initiates or participates in community outreach programs; 6. Prepares birth certificates of hospital births for transmittal to the Local Civil Registrar; 7. Issues death certificates for hospital deaths. ORGANIZATIONAL SET-UP The Batanes General Hospital is under the able stewardship of Dr. Epifanio B. Pagalilauan, District Health Officer II, who assumed office as OIC, Chief of Hospital on June 1, 2000. His predecessor, Felipe A. Cablay, retired on February 5, 2000. The two divisions under him are the Finance and Administrative Division, and the Medical Services Division, headed by Mrs. Adoracion M. de Sagon, Administrative Officer III, and Dr. Alma B. Bercasio, Medical Officer IV, respectively. The total manpower complement when the hospital was still devolved was 92, however, upon its re-nationalization in 1999, this was reduced to 85, including the position of the District Officer II which NCR had graciously provided pending the approval by DBM of a plantilla position for Chief of Hospital. Out of the 84 existing plantilla positions, only 82 were filled up leaving two positions vacant. These are the positions of two Medical Officer III. MAJOR ACCOMPLISHMENTS Among the major accomplishments for the year are shown in Annex "A" FINANCIAL PROFILE The Batanes General Hospital operates under the Modified Disbursement System, released monthly from the Department of Health, Regional Office No. 2. A Comparative Allotment, Expenditures and Balances for l999 and 2000 are shown in detail on Annex "B" of this report. PART II - RESULTS OF FINANCIAL STATEMENTS AUDIT 1. State Auditor's Report on the Financial Statements 2. Financial Statements: a. Balance Sheet b. Statement of Operations c. Notes to Financial Statements STATE AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS The OIC, Chief of Hospital Batanes General Hospital Basco, Batanes Pursuant to Section 2, Article IX-D of the Philippine Constitution and pertinent provisions of Presidential Decree No. 1445, we have audited the accompanying balance sheet of the Batanes General Hospital as of December 31, 2000, and the related statement of operations for the year then ended. These financial statements are the responsibility of the hospital. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted state auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement/s. It also included assessing the accounting principles used and the financial statement presentation. We believe that our audit provides reasonable basis for our opinion. As discussed in Finding No. 5 of the Report, the validity and accuracy of the fixed asset account was not ascertained due to unrecorded equipment turned-over by the Provincial Government to the Hospital. In our opinion, except for the unrecorded equipment stated in the foregoing paragraph, financial statements referred to above present fairly in all material respects, the financial position of the Batanes General Hospital as of December 3l, 2000, and the results of its operations for the year then ended in accordance with applicable laws, rules and regulations and in conformity with generally accepted state accounting principles. COMMISSION ON AUDIT PACITA V. ELIZONDO State Auditor III Team Leader February 14, 2001 NOTES TO FINANCIAL STATEMENTS 1. Cash - Disbursing Officer (Account 8-70-500 - P90,828.99) This consisted of unliquidated cash advances for the following: Name of Accountable Officer / Designation Particulars Amount -------------- -------------- ---------- 1) Mr. Cresencio G. Blacer Cash advance for the purchase of Supplies & materials P 10,834.79 2) Dr. Epifanio Pagalilauan/ Cash Advance for traveling Chief of Hospital allowance 7,900.00 Cash advance for the purchase of equipment 40,609.39 3) Mr. Viceroy Sanggalang Cash advance for traveling allowance 8,450.00 4) Mrs. Anicia D. Hontomin Cash advance for traveling allowance 770.00 5) Mrs. Norberta B. Hontomin Cash advance for traveling allowance 310.00 TOTAL P 68,874.18 ========== Liquidation papers are still incomplete, hence, could not be processed. 2. Cash - Inter-Agency Transferred Funds (Account 8-70-684 - P3,000.00) This represents the initial release of infrastructure funds for the Construction and Improvement of the Ancillary Building of the Batanes General Hospital transferred to the implementing agency (DPWH). 3. Trust Liabilities - National Government Agency (Account 8-84-l20 - P64,857.31) This consisted of taxes withheld from officials/employees which have not been remitted to the Bureau of Internal Revenue (BIR) as of the December 31, 2000, however, same was remitted on January 3l, 200l. 4. Prior Years Credit (Account 7-92-418 - Pl2,992.98) This pertains to refunds of prior year disallowances. PART III- FAVORABLE OBSERVATIONS, FINDINGS AND RECOMMENDATIONS A. Favorable Observations During the calendar year ended December 31, 2000, the Batanes General Hospital showed a very remarkable performance in two (20 major programs, surpassing even its accomplishments during the previous year. Based on the reported accomplishments under its program on Hospital Care, the hospital was able to serve l7,960 out of l3,785 targeted number of in-patients/out-patients, equivalent to an efficiency rating of 130%. Likewise, under the National Voluntary Blood Service program, the agency exceeded its target with its accomplishment of l70 blood donors recruited, representing 212% of its target of 80. Other significant accomplishments are shown on Annex "A". B. Findings and Recommendations Finding No. 1 Failure of management to follow strictly the rules and regulations as provided in the Memorandum of Agreement resulted to uneconomical and wasteful use of government resources. The Batanes General Hospital, represented by the then Chief of Hospital, Dr. Felipe A. Cablay, entered into a Memorandum of Agreement (MOA) with the Philippine Charity Sweepstakes Office (PCSO), Quezon City for the grant of four Million (P4,000,000.00) Pesos as PCSO's financial assistance for the purchase of medical equipment listed thereon. Section 4 of the said MOA provided that the medical equipment shall undergo acceptance testing from the Department of Health. Our audit revealed that the Batanes General Hospital received only Three Million (P3,000,000.00) Pesos out of the four million as stipulated in the MOA. This amount was received in three (3) releases of one million pesos each for the acquisition of these listed medical equipment. Verification of the disbursement vouchers covering payments of acquired medical equipment disclosed that the provision cited under Section 4 of the above-mentioned MOA was not complied with. Scrutiny of the Memorandum Receipts (MR) and actual confirmation/inspection of the purchased equipment disclosed the following deficiencies: 1) One (1) unit Anesthesia Machine with a cost of P591,500.00 paid and acknowledged under official receipt No. 351 dated May 31, 1999 and installed in the Operating Room was found defective because of a leaking vaporizer. According to the Nurse-Anesthesiologist of the hospital, this purchased equipment was never used because it is dangerous to one?s health due to the leaking part of the machine that supplies the anesthesia. He further explained that the hospital is presently using the Anesthesia Machine donated by the DOH-Women's Health and Safe-Motherhood Project (WHSMP). 2) One (1) Refracting Unit with hydraulic chair costing P160,000.00, paid and acknowledged under official receipt No. 369 dated December 23, 1999 was found at the Out-Patient Department (OPD) and was not being used as the hospital does not have an Ophthalmologist. Moreover, according to the medical employees of the hospital, the unit does not function due to lack of accessories as this was delivered already assembled in a crate. 3) Two (2) Units Autoclave Sterilizer, electric-gas combination, with a total cost of P521,228.00, paid and acknowledged under official receipt No. 389 dated December 23, 1999 were purchased in spite of existing two (2) autoclave sterilizers still serviceable and in stock at one room of the hospital. One of the newly-acquired autoclave sterilizer is now being used while the other is still in the crate and stored outside of the stockroom. 4) One (1) Unit Development Tank, stainless, with a unit cost of P17,000.00, paid and acknowledged under official receipt No. 389 dated December 23, 1999 was found not in accordance with the specification as stated in the MOA and as ordered per Purchase Order (PO) No. 99-12-04 dated December 14, 1999. Actual inspection of the item purchased and being used by the end-user disclosed that the delivered Developing Tank is made of plastic material instead of stainless as specified in the MOA and all the supporting documents covering the payment. Yet, it was accepted, inspected as to quality, quantity and specification by the then Chief of Hospital, Dr. Felipe A. Cablay and the Administrative Officer III, Mrs. Adoracion de Sagon who signed as the Property Inspector Designate. 5) One (1) Unit UV Light with timer and wheels costing P37,500.00 paid and acknowledged under official receipt No. 376 was also found with defect. One of the lights does not function rendering the equipment ineffective. We also noted that the above-mentioned items and several other medical equipment purchased out of the PCSO's financial assistance were delivered without the corresponding Manual of Operations that usually comes with every purchase of a brand new unit. Had the provisions of the Memorandum of Agreement been strictly followed that all medical equipment acquired out of this financial assistance should undergo acceptance testing from the Department of Health, the Batanes General Hospital could have avoided such wasteful use of government funds and resources. Recommendation: Comply with the provisions of the Memorandum of Agreement to avoid the uneconomical and wasteful use of government resources. Coordinate with the Department of Health regarding inspection of the medical equipment and with the Dealer/Supplier on the possible repair/rehabilitation of those that were found defective and without accessories in order to maximize their use. Management Reaction: The Chief of Hospital explained that the purchase of the medical equipment is necessary as it was intended to upgrade the facilities of the hospital. He cannot, however, comment on our finding since the purchase happened before his time. Auditor's Rejoinder: Management should have requested for an audit and/or immediate inspection of the medical equipment prior to the retirement of the official involved in these transactions. Finding No. 2 Disbursements covering various purchases and travelling allowances totalling P7,159,042.72 were found irregular and/or unnecessary due to supporting documents of doubtful validity. Section 3.1 of COA Circular No. 85-55A, dated September 8, 1985 pertaining to the Rules and Regulations for the Prevention of Irregular, Unnecessary, Excessive or Extravagant (IUEE) Expenditures or Uses of Government Funds and Property states that "irregular expenditure signifies an expenditure incurred without adhering to established rules, regulations, procedural guidelines, policies, principles or practices that have gained recognition in law. x xx A transaction conducted in a manner that deviates or departs from or which does not comply with standards set is deemed irregular. An anomalous transaction which fails to follow or violates appropriate rules of procedures is likewise irregular. x xx ." Post-audit of disbursement vouchers covering various purchases were found irregular and/or unnecessary because the supporting documents were of doubtful validity. See list of disbursement vouchers attached as Annex "C". The following deficiencies were noted: A. On Approval of Disbursements 2.1 Disbursement vouchers covering purchases and traveling allowances of BGH personnel were approved by the Administrative Officer III without proper authority from the DOH Regional Field Office or NCR. Regional Order No. 11, s. 2000, dated January 21, 2000, provides the authority for Mrs. Adoracion de Sagon, Administrative Officer III, to approve only vouchers and countersign checks for salaries, benefits and allowances of regular plantilla personnel and other mandatory expenses pending assignment of full-time OIC. This order further states that "she is also authorized to sign DTRs, leave application (not to exceed five (5) days and excluding terminal leave and applications of leave for foreign travel) and to act on routine operations/ communications/papers of hospital except for those that need major decisions from the OIC, Chief of Hospital and Regional Director of the NCR for Health". We noted that various disbursement vouchers were approved by the Administrative Officer III in violation of the above-cited order (see Annex "D"). B. On Procurement 2.2 Requisitions for a single commodity exceeding P1,000.00 in value was not accompanied by stock position sheet in violation of COA Circular No. 78-84, dated August 1, 1978. Pursuant to COA Circular No. 78-84, dated August 1, 1978, the stock position sheet should be attached to all requisitions for any single commodity that exceeds P1,000.00 in value. This will serve as the basis for determining the reasonableness of the quantity of the articles being requisitioned. Verification of disbursement vouchers disclosed that this regulation was not complied with. Procurement of drugs and medicines were made in ample quantities but there was no stock position sheet attached to the requisition. 2.3 Inspection of some deliveries were done by the Administrative Officer III who certified that the expense was necessary, lawful and incurred under her direct supervision, and concurred in/noted by the Chief of Hospital who approves the transaction, contrary to established rules and regulations and sound internal control system. Sound internal control system over procurement dictates that functions relating to the purchase, inspection/receipt, and the payment should be performed by different individuals in order to ascertain proper check and balance. In our post-audit of disbursements on the acquisition of various medical equipment under the PCSO-assisted project of the hospital, we noted that inspections of some deliveries were done by the same person who certified that the expense was necessary, lawful and incurred under her direct supervision, and concurred in/noted by the person who approves the transaction. In most of the documents supporting the purchase, such as: the Purchase Request, the Purchase Order, the Certificate of Award, the Report of Inspection, the disbursement voucher, and in some cases, even the Certificate of Acceptance, the signatures of these two officials appeared. Sometimes, inspection was conducted by the responsible official duly designated, but said official is related to the Property Officer who is the receiving official. These acts although performed with utmost care, may still cast doubts on the accuracy and reliability of a particular transaction. 2.4 Drugs and medicines were canvassed and acquired from suppliers without the Certificate of Accreditation issued by the DOH and License to Operate as drug distributor from the Bureau of Food and Drugs (BFAD), hence suspended in audit. Under our existing laws, drugs and medicines can only be procured from suppliers with DOH Certificate of Accreditation and who are duly licensed to operate as drug distributor by the BFAD. Our audit revealed that some drugs and medicines were acquired from suppliers who do not belong to the list of accredited suppliers issued by the DOH and are not BFAD licensed. It was also noted that the purchase of medicines was not properly recommended by the Therapeutic Committee that was tasked to oversee the necessity and reasonableness of the requisition for drugs and medicines. Had the agency been strict in the pre-qualification of bidders, the regularity of the transaction could have been assured, and quality drugs and medicines could have been procured. 2.5 Canvass papers of some disbursement vouchers for the purchase of drugs and medicines appeared simulated. Letters of Proposal or Canvass Papers should be prepared by the Supply Officer and served to at least three (3) bonafide dealers for them to quote their prices individually in order to obtain prices most advantageous to the government. Scrutiny of Letters of Proposal or Canvass Papers for the purchase of drugs and medicines revealed that these were apparently given to and accomplished by only one person although allegedly appearing to be in the name of different dealers (see Annex "E"). In our interview with concerned officials, it was confirmed that the agency did not actually conduct personal canvass of prices, instead, the canvass papers were given to the dealer who comes to the office. This procedure obviously resulted in the manipulation of prices as there would be only one dealer who will automatically win the bid no matter how many items/articles were the subject of canvass. Yet, this procedure was accepted by the Committee on Awards. 2.6 Procurement of drugs and medicines were apparently made from favored suppliers. Favored suppliers could easily be identified because of their perennial winning in every canvass conducted. Hence, the veracity of the canvass is questionable. 2.7 Laboratory equipment were purchased from an alleged sole distributor who also holds another certificate of sole distributorship of same laboratory equipment under a different trade name. It was noted that laboratory equipment were purchased from an alleged sole distributor. In the course of the audit, however, we found out that the dealer who was issued the alleged certificate of sole distributorship for the sale of laboratory equipment of one company was the same person who held another certificate of sole distributorship of same laboratory equipment under a different company name (see Annex "F"). 2.8 Rules and regulations prescribing the proper preparation and issuance of the Purchase Order (PO) were not strictly followed thereby rendering the document defective. Section 46, PD 1177 and LOI 968, dated December 17, 1979 states that "all contracts requiring payments chargeable to agency operating or capital expenditure funds, shall be signed by the agency heads or other duly authorized official only when there are available funds. The Chief Accountant of the contracting agency shall sign as witness, and contracts without such witness shall be considered void. It shall be the responsibility of the Chief Accountant to verify the availability of funds. x x x His signature shall be considered as construing a certification to that effect". Section B, COA Circular No. 96-0l0, dated August 15, 1996, requires that the PO should bear such basic data as: the name and address of the supplier; the PO No. and date; the office to which delivery shall be made; complete descriptions and specifications, quantity and unit price of the supplies to be purchased; visions for penalty in case of late or non-delivery; period of delivery; shipping terms and condition; and the date of acceptance of the PO by the supplier. Scrutiny of the POs disclosed that the agency did not comply with the above said regulations. Contracts of purchases were found defective and/or not valid since they lack the required basic data that is supposed to appear on the PO, including the signature of the Accountant certifying to the availability of funds or as witness to the execution of the contract. C. On Traveling Allowances 2.9 Official travels for more than seven (7) days were approved by the agency head contrary to Section 5 of Executive Order No. 248. Pursuant to Section 5 of Executive Order No. 248, travels in excess of seven (7) days require the approval of the Department Secretary or his equivalent. In the review of disbursement vouchers for travelling allowances, it was noted that official travels exceeding seven (7) days were approved by the agency head contrary to above-cited regulation. In some instances, unnecessary travels or those granted to different personnel with the same purpose at almost the same time, were allowed. Unauthorized extension of travel duration was also noted. There were employees whose purpose in travelling was just to submit reports, yet, were granted seven (7) days on official business (OB) in addition to a hospital policy granting them the privilege of another seven (7) days on official time (OT). Such uneconomical practices do not only redound to waste of government money but also waste of time in terms of man-hours lost. Recommendation: Stop immediately, the practice of purchasing medicines and medical supplies on the basis of documents erroneously and irregularly accomplished. Conduct investigation on all noted irregular purchases which were found to have simulated canvass and those with supporting documents of doubtful validity. Impose legal sanctions to concerned officials/employees behind these transactions. Comply strictly with the provisions of COA Circular No. 85-55A, dated September 8, 1985. Likewise, limit the granting of official travels to those really necessary and limit the number of days of official travels in order to avoid waste of government funds and time. Comply strictly with the provisions of Executive Order No. 248 to avoid suspensions and/or disallowances in audit. Management Reaction: The Administrative Officer III, on the approval of disbursements without proper authority, justified that she considered as routine the approval of purchases and travelling allowances, and claims that she acted on those transaction in order not to hinder operations of the hospital. Management admitted having lapses in the implementation of the rules and regulations on procurement citing geographical location as the reason for such practice. According to the agency head, Batanes is an exceptional case because their distance from the mainland makes them so dependent on the availability of sea vessel. Moreover, serving the canvass to the dealer who comes over to Batanes would help cut on their expenses in travelling to the mainland to conduct personal canvass of prices. With respect to the preparation and serving of the PO which was not made in accordance with existing rules and regulations, the Accountant claimed that she did not affix her signature on the PO because she believes that the signature on the Request for Obligation of Allotment (ROA) as to the availability of funds would suffice. Likewise, the date of receipt of the PO by the supplier was not indicated allegedly because the period of delivery is dependent on the availability of sea vessel, hence, penalty for late or non-delivery could not be imposed. Auditor's Rejoinder: The foregoing deficiencies are clear indication of a poor internal control system. The Accountant as Pre-Auditor, should affix her signature on the voucher only after all the required supporting documents are duly accomplished and attached to the voucher. Furthermore, considering the number of hospital employees making official travels and the frequency and duration of their trips to the mainland there would have been no need for suppliers of medicines, who are apparently favored, to come to Batanes and offer their medicines and medical supplies at exorbitant costs. Had management adhered strictly to prescribed procedures, irregular and/or unnecessary expenditures could have been avoided. Finding No. 3 Disregard for the principles of internal control and the seeming laxity of concerned officials in the processing of claims resulted to audit suspensions and disallowances totalling P7,385,988.01 and P120,288.60, respectively. Sound internal control procedures is so designed that no one should have complete control of a transaction. For instance, in the acquisition of supplies materials and equipment, procedures should provide assurance that the procurement, inspection/acceptance, and payment should be performed by different individuals in order to attain check and balance. In the review of the financial transactions of the agency, we noted that several disbursement vouchers were not duly supported with complete and valid documents. Others were found with defective supporting documents, such as: travel orders not signed by the proper authorities, requisitions not properly supported with stock position sheet and not recommended by the proper officials, purchase orders that lack the basic data required under regulations, and altered dates on supporting documents. In some instances, supporting documents were of doubtful validity as in some canvass papers for the purchase of drugs and medicines which appeared simulated. Moreover, in the purchase of drugs and medical equipment under the PCSO-funded project of the hospital, it was noted that the signatures of the same two officials appeared on each of the supporting documents starting from authorization of the transaction, that is, from the purchase request (PR), to the certificate of awards, purchase order (PO), inspection report, certificate of acceptance, and up to the payment. While these documents tend to show blatant disregard for the principles of internal control, the same were, nonetheless, allowed by the Accounting Unit. Recommendation: Cause the immediate settlement of the audit suspensions and disallowances. Direct the Accountant to take extra caution in the processing of claims to avoid suspensions and disallowances in audit Management Reaction: The Accountant contended that she allowed those irregular transactions because she was pressured to sign by the then Chief of Hospital, Dr. Felipe A. Cablay. However, she assured us that she will implement our recommendations. Auditor's Rejoinder: The Accountant, before signing documents, which she believes are irregular/illegal, should notify her superior in writing of the irregularity/illegality of the transaction citing laws, rules and regulations that might have been violated or the procedures/policies not adhered to, so she would not be held liable in case the same will be suspended/disallowed in audit. Finding No. 4 Inventory Report of equipment was not prepared and submitted due to failure of management to conduct the required physical count, hence, the existence, condition and whereabouts could not be ascertained. Section 490 of the Government Accounting and Auditing Manual (Volume I) states "Chiefs of agencies are required to take a physical inventory of all equipment and supplies belonging to their respective offices at least once a year, unless otherwise determined by the COA Chairman in specific cases. Such inventory shall be made as of December 31 on General Form 41(A), and submitted to the Auditor not later than January 31 of each year, unless extended by the Chairman, Commission on Audit, upon prior request of the chief of agency concerned. When the exigencies of the service permit, the taking of inventory should be in the charge of a committee of two or more employees designated by the chief of agency, including the property officer or custodian, depending on the extent of property accountability in a particular agency, to be witnessed by a representative of the Agency Auditor". In view of the re-nationalization of the BatanesProvincialHospital, a Memorandum of Agreement (MOA) was executed between the DOH and the Provincial Government of Batanes, wherein the parties agreed, among others, that the ownership of the building, land and other assets of the subject hospital shall be reverted to the DOH by the Provincial Government. "Guidelines for the re-nationalization of personnel, assets and appropriations of Batanes Provincial Hospital" was attached to the MOA which formed part and parcel of the MOA. Among the pertinent provisions in the guidelines are as follows: "1) The Local Government Unit (LGU) and the hospital concerned shall: (i) Require the inventory of all supplies, equipment and other tangible assets that pertain to the re-nationalized service delivery functions, duly witness by the auditor of the DOH or their authorized representatives to be receipted by the supply officer of the hospital concerned. Unserviceable properties shall be identified and segregated for disposal by the LGU. Inventory reports shall be prepared in five (5) copies to be distributed as follows: Original - Accountancy DOH One copy each to - Auditor of re-nationalized center - Auditor of LGU - Accountant of NGA - Regional Director - Head of Agency (ii) Require the reconciliation of the physical inventory reports against the property and journal voucher drawn to effect the transfer .x xx". Recommendation: Prepare and submit inventory report of equipment supplies and materials, and conduct physical count of the same to ascertain their existence, whereabouts and actual physical condition. A physical inventory would disclose the existence of properties which were issued under memorandum receipts and would determine if they are still serviceable. Properties which are found to be unserviceable could be reported for disposition. This will also ascertain the correctness of the property records and determine any possible losses. Management Reaction: The Supply Officer reasoned out that the Inventory Report has not been prepared because the properties to be transferred to the Batanes GeneralHospital and those to be retained by the Provincial Government (Batanes Provincial Health Office) have not been properly segregated. Besides, Property section is said to be undermanned. It is also alleged that the rightful owner of the motor vehicles has not been determined and are still the subject of a pending query. Auditor's Rejoinder: The Chief of Hospital should create a committee of two or more employees to take charge of the physical inventory-taking, including the Supply Officer to be witnessed by the Auditor. Also, an Appraisal Committee should be created to determine the fair market value of donated properties so that proper accounting thereof could be made. Finding No. 5 Failure of the accountant to book-up equipment and other assets transferred from the Provincial Government after the re-nationalization of the hospital, resulted to understatement of the fixed asset account. The guidelines attached to the MOA particularly Section 1) of the Auditing and Accounting Rules and Regulations provides, "1) Balances of transferred assets, liabilities and surplus shall be recorded in the books of accounts of the DOH". Verification of the financial statements disclosed that only those properties acquired after its re-nationalization were booked-up. Upon inquiry from the Accounting Unit, we were informed that they could not book-up the properties transferred because there was no inventory report submitted by the Supply Officer as basis for the recording in the books of accounts. These resulted to the understatement of the fixed asset account and the unreliability of the financial statements. Recommendation: Require the Accountant to book-up all properties of the agency whether acquired through purchase or donation, in order to reflect the correct figures in the financial statements. Management Reaction: Management assured us that they will implement our recommendation. C. Compliance with tax laws The agency had practically complied with existing tax laws except for some purchases paid thru cash advances from which the agency failed to deduct the withholding tax accordingly. However, in as much as the payments were covered by official receipts, there is that assurance that applicable taxes thereon will be collected. PART IV - STATUS OF IMPLEMENTATION BY THE AUDITEE OF PRIOR YEAR'S AUDIT RECOMMENDATIONS This Report is the first Annual Audit Report prepared for the Batanes General Hospital, hence, no prior year's recommendations. PART V - ANNEXES ANNEX "A" - - - - - Accomplishments vis-à-vis Targets ANNEX "B" - - - - - Comparative Allotment, Expenditures and Balances for 1999 and 2000 ANNEX "C" - - - - - List of Disbursements Found Irregular and/or Unnecessary ANNEX "D" - - - - - List of Disbursements Approved Beyond the Signing Authority of Mrs. Adoracion M. de Sagon, Administrative Office III ANNEX "E" - - - - - Samples of Canvass Appearing Simulated ANNEX "F" - - - - - Certificate of Sole Distributorship of two (2) Different Companies in the Name of One and the Same Person |
| Republic of the Philippines COMMISSION ON AUDIT Regional Office No. 2 OFFICE OF THE AUDITOR BATANES GENERAL HOSPITAL Basco, Batanes |