EXECUTIVE SUMMARY

Introduction

The Province of Palawan is an archipelagic province in the MIMAROPA-Region IV-

B located in the western part of the Philippines approximately 240 kilometers southwest of
Manila. The Province was officially named Palawan in 1903 pursuant to Act No. 1363 of the
Philippine Commission. Popularly known as “The Last Frontier”, it is endowed with
beautiful scenic areas best for tourism.

The Province of Palawan is a first class province. It is the largest province in the
country in terms of total area of jurisdiction. Its capital is the city of Puerto Princesa, a highly
urbanized city governed independently from the province. The Province is composed of 23
municipalities and 367 barangays with a total population of 849,469 based on calendar year
(CY) 2015 census.

The administration and supervision over the affairs and operation of Provincial
Government of Palawan (PGP) for CY 2019 was under the leadership of Governor Jose
Chaves Alvarez with the assistance of the Vice-Governor Victoriano Dennis Socrates and
Members of the Sangguniang Panlalawigan and the Department Heads.

As of December 31, 2019, the PGP has a total personnel complement of 6,483,
consisting of 860 permanent employees, 16 elective officials, 113 co-terminus, 5,110
contract of service and 384 job order personnel.

Financial Highlights

The amount of fund appropriations, allotment releases and obligations of the PGP
for CY 2019 as compared with CY 2018 are as follows:

Particulars 2019 2018 Increase/(Decrease)

Appropriations ₱3,882,975,422.65 ₱4,460,842,667 ₱(577,867,244.35)
Allotments 3,583,144,298.11 4,401,223,905 (818,079,606.89)
Obligations 3,266,708,020.91 3,548,154,897 (281,446,876.09)

Sources of Funds

The PGP generated a total consolidated income of ₱3,109,535,413.99 for the year
2019 sourced from the following:

Increase/
Sources of Income CY 2019 CY 2018
(Decrease)
Tax Revenue ₱ 229,643,361.33 ₱ 433,510,726.42 ₱(203,867,365.09)

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 Increase/
Sources of Income CY 2019 CY 2018
(Decrease)
Share from Internal Revenue 2,609,898,826.00 2,372,894,251.00 237,004,575.00
Other Share from National 11,285,136.50 10,641,000.63 644,135.87
Taxes
Service and Business Income 258,293,065.70 209,663,927.08 48,629,138.62
Shares, Grants and Donations 414,801.46 659,183.52 (244,382.06)
Other Income 223.00 3,475,640.25 (3,475,417.25)

Total ₱3,109,535,413.99 ₱3,030,844,728.90 ₱78,690,685.09

The total assets, liabilities, equity, income and expenses for CY 2019 compared
with that of the preceding year are presented below.

Increase/
Particulars CY 2019 CY 2018
(Decrease)
Total Assets ₱13,036,142,132.28 ₱ 11,277,134,447.77 ₱1,759,007,684.51
Total Liabilities 5,865,541,747.33 5,155,501,627.84 710,040,119.49
Total Equity 7,170,600,384.95 6,121,632,819.93 1,048,967,565.02
Total Income 3,109,535,413.99 3,030,844,728.90 78,690,685.09
Total Expenses 2,629,385,404.02 2,293,737,908.97 335,647,495.05

Scope of Audit

The Audit Team conducted financial and compliance audits on the accounts,
transactions and operations of the PGP for CY 2019. The audit consisted of review of
operating procedures, inspection and evaluation of the PGP’s programs and projects,
interview with concerned provincial government officials, verification, confirmation,
reconciliation and analysis of accounts on a test basis and such other procedures considered
necessary under the circumstances.

The audit was conducted to (a) determine whether Management presented fairly the
financial statements in adherence to the Philippine Public Sector Accounting Standards;
(b) ascertain the level of assurance that may be placed on management’s assertions in the
financial statements; (c) evaluate the extent of compliance with laws and regulations as
well as the propriety and validity of transactions; (d) recommend agency improvement
opportunities; and (e) determine the extent of implementation of prior years’ audit
recommendations.

Audit Opinion on the Financial Statements

The Auditor rendered a qualified opinion on the fairness of presentation of the

financial statements of the PGP for CY 2019 due to the following:

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 a. non-recognition of receivables from PhilHealth, Department of Health and
patients totaling ₱220,788,577.20 as of December 31, 2019 which understated the
year-end balances of Accounts Receivable and total Hospital Fees Income
accounts by the same amount as of year-end;

b. erroneous recording of collections from Health Care Institutions (HCIs) of the

PGP for CYs 2006 to 2019 totaling ₱576,439,478.22 to Other Payables - Others
account in the Trust Fund instead of Hospital Fees account as income in the special
accounts of the General Fund (GF) thereby understating assets and expenses by
₱249,485,121.47 and ₱326,659,193.99, respectively, in that fund as of year-end;
and

c. non-capitalization of borrowing cost of ₱44,772,367.34 from loans from CYs

2016 to 2019 to the appropriate qualifying asset which overstated Interest
Expenses and understated the related infrastructure assets by the same amount as
of CY 2019.

Significant Observations and Recommendations

For the exceptions cited above, we recommended that the (a) OIC-Provincial
Accountant (i) recognize the receivables in the books, together with the corresponding
adjustments on Equity account for the unrecorded revenues; (ii) strictly adhere to IPSAS
1, paragraph 7 on accrual basis of accounting for transactions; (iii) determine the actual
capitalizable borrowing costs per year by computing the prorated actual interest expense at
the project completion year and draw the adjusting journal entries to account or capitalize
the borrowing costs to the related qualifying asset account in compliance with the pertinent
provisions of IPSAS 5; (iv) fully disclose the details or information regarding the
capitalizable borrowing costs in the Notes to Financial Statements in accordance with
Paragraph 40 of IPSAS 5; (v) recognize collections from HCIs as Hospital Fees in the
special account of the GF while the corresponding asset or expense accounts be debited
upon disbursements thereof; and (vi) henceforth, stop the practice of recording hospital
income under Other Payables account in the TF; (b) concerned HCIs personnel coordinate
with the OIC-Provincial Accountant by regularly providing information and details of
receivables to facilitate their recognition in the books; and (c) Provincial Planning and
Development Officer (PPDO) and the OIC- Provincial Engineer provide (i) the necessary
information to the Provincial Accounting Office to determine the actual status of the
qualifying assets funded by the loan proceeds as basis in the computation of the actual
capitalizable borrowing cost; and (ii) separate quarterly status/accomplishment report for
the projects funded by loan proceeds and submit to the Provincial Accounting Office for
information/reference.

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 The other significant observations and recommendations for CY 2019 are as
follows:

1. Cash advances totaling ₱85,946,505.11 remained unliquidated at year-end,

contrary to Section 5 of COA Circular No. 97-002 dated February 10, 1997 and
Section 89 of Presidential Decree (P.D.) No. 1445, thus related assets and/or
expenses were not recorded in the year these were incurred.

We recommended that the:

a. OIC-Provincial Accountant (i) require the concerned accountable officers

to immediately settle or refund the cash advances which are already due for
liquidation; (ii) continue the implementation of adequate control in the grant
and liquidation of cash advances; and (iii) henceforth, fully comply with the
provisions of COA Circular No. 97-002 on the granting, utilization and
liquidation of cash advances; and

b. Provincial Legal Officer initiate the filing of appropriate charges against the
erring accountable officers who still failed to settle their accounts after
demand;

2. Lease Agreements for rental of the PGP heavy equipment units to various
municipalities in the Province of Palawan do not contain provisions on the amount
of monthly lease payment and duration of the lease period as required by COA
Circular Nos. 2009-001 and 2012-001 dated February 12, 2009 and June 14, 2012,
respectively, causing difficulties in their enforcement and resulted in accumulation
of uncollected operating lease receivables amounting to ₱216,670,751.12 as of
December 31, 2019, thus deprived the PGP of additional resources therefrom.
Further, the technical description of the equipment was not also stated in the
Memorandum of Agreements (MOAs) as basis of the amount of monthly rentals
and for proper identification.

We reiterated our recommendation that the Provincial Governor, in collaboration

with the concerned Municipal Mayors, fast track the amendment of the respective
MOAs to include monthly lease payment, duration of the lease period and
specificity on the technical description of the equipment, and thereafter, undertake
necessary measures for the immediate settlement of the amount due from the latter.

3. The balances of reciprocal accounts Due from/to Other Funds, Due from/to Special
Accounts and Due from/to Local Economic Enterprises (LEEs) accounts have
discrepancies amounting to ₱422,302,005.25, (₱410,856,837.52) and
(₱420,851.23), respectively, due to the failure of the Accounting Department to
analyze and conduct periodic reconciliation of the accounts thereby affecting the
reliability of balances as of year-end.

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 We recommended that the OIC–Provincial Accountant (a) continue the effort in
identifying the source/s of unreconciled difference between the reciprocal accounts;
(b) immediately effect the adjustments upon identification thereof; and (c) ensure
that the reciprocal accounts are reconciled at all times.

4. Priority development projects under the 20% Development Fund (DF) totaling
₱93,460,377.12 awarded in CYs 2014 to 2018 consist of 14 on-going projects, five
suspended and seven which were not yet even started as of December 31, 2019
manifesting lack of urgency in the implementation and monitoring of contracted
projects. Also, despite utilization rate of 78.8% or ₱596,790,177.90 out of the total
₱757,346,891.97 budget for CY 2019, the PGP reported only infrastructure projects
costing ₱194,491,260.93 or 32.6% in the Full Disclosure Policy (FDP) Form No. 7
- 20% Component of the Internal Revenue Allotment (IRA) Utilization, thus
misinforming the public on the actual status of implementation of projects and
utilization of the Fund.

We recommended that the:

a. Provincial Governor ensure the full or optimum utilization of the 20% DF by

spearheading the effective and efficient implementation of the prioritized
projects to maximize the developmental benefits of the intended beneficiaries
pursuant to Section 5 of DILG and DBM JMC No. 2017-1 dated February 22,
2017;

b. OIC-Provincial Engineer (i) require the concerned project engineers, officers

and employees to be prudent in overseeing the timely implementation of
PPAs under their responsibility; (ii) maintain close coordination with the
PPDO for proper monitoring of project implementation to ensure the
correctness and completeness of information being reported in the Status
Report of Government PPAs and in the FDP Form No. 7 on the 20%
component of the IRA utilization in order to comply with the Full Disclosure
Policy of the DILG and transparent information to the public; and (iii) provide
satisfactory explanation as to why the projects were not yet completed or
implemented despite the lapse of considerable time; and

c. Provincial Planning and Development Coordinator (i) ensure that the

information provided in the Status Report of Government PPAs are complete
before its submission to the Audit Team, other PGP Offices and Government
Agencies; (ii) coordinate with the Provincial Engineering Office and the
Provincial Accounting Office in order to obtain the necessary information for
the Status Report of Government PPAs; (iii) continue efforts in identifying
projects that are doable and most beneficial to the constituents; and (iv)
consider projects related to environmental management.

5. Post-qualification of bids was not properly conducted which resulted in the award
of 41 contracts totalling ₱168,016,683.00 despite (a) misrepresentation in the

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 statements of the contractors on their on-going contracts; (b) contractors’ having
negative slippage of more than 15% on on-going contracts; and (c) absence of
documentary basis and/or inaccurate computation of Net Financial Contracting
Capacity (NFCC) of contractors in violation of Section 34.3 of the Revised IRR of
RA No. 9184 thereby casting doubt on the validity of the awards made as well as
the legality of the contracts entered into between the PGP and the contractors.

We recommended that the:

a. Bids and Awards Committee (BAC) and the Technical Working Group
(TWG) render satisfactory explanation on their failure to (i) validate the
misrepresentation of the contractors in their statements of on-going contacts;
and (ii) for declaring the lowest calculated responsive bid and recommending
award of contract to contractors with negative slippage of more than 15% on
on-going contracts and baseless and/or inaccurate NFCC;

b. BAC, more particularly the TWG; henceforth (i) conduct a comprehensive

evaluation of the bidder’s eligibility documents to ensure the completeness
and veracity of the information stated/contained in the contractor’s technical
and financial documents and rule out any misrepresentation to establish the
bidder’s eligibility and qualification for the award of contract;

c. OIC-Provincial Engineer (i) provide the BAC with monthly status reports on
all infrastructure projects per individual contractor for information and
reference in evaluating the technical eligibility of contractors with the lowest
calculated bid prior to the post-qualification process;

d. BAC disqualify all subsequent bids of contractors with negative slippage of

at least 15% on any on-going contract pursuant to Rule X, Section 34.3 b of
the Revised IRR of RA No. 9184; and

e. Provincial Legal Officer consider filing a case against the concerned

contractors for misrepresentation of information pursuant to Section 65.3 of
the Revised IRR of RA No. 9184.

6. Inspection conducted by the COA Technical Audit Specialist (TAS) from COA
Region IV-B disclosed several deficiencies in the actual works performed on the
Concreting of Latungay - Sta. Teresita Road Phase 2, Dumaran, Palawan and
Concreting of Highway Junction - Tumarbong Road, Roxas, Palawan with contract
amount of ₱38,889,231.12 and ₱29,923,726.45, respectively, resulting in a total
cost deficiency of ₱1,179,185.97 and ₱615,385.08, respectively. Moreover, project
implementation was delayed by 156 calendar days for the first project and 136
calendar days for the second project at the date of inspection.

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 We recommended that the:

a. OIC-Provincial Engineer (i) monitor and institute corrective measures on

the results of inspection noted by the COA-TAS; (ii) submit a revised
PERT/CPM and/or Bar Chart/S-Curve showing the projected and actual
physical accomplishment as of March 23, 2019 for Latungay - Sta. Teresita
Road project and April 20, 2019 for Tumarbong Road Project; and provide
the necessary documents, reports and information to the Provincial
Accounting Office for the computation of the liquidated damages (LD); and

b. OIC-Provincial Accountant compute for the LD due from the contractor

upon submission by the Provincial Engineer of the necessary documents,
reports and information; and (ii) deduct the computed LD from any
amount/money due to the contractor such as from the retention money or
other securities posted by the contractor whichever is convenient to the
procuring entity or enforce the necessary actions/procedures to collect the
LD.

7. The allocation/budgeting, utilization and reporting of Special Education Fund

(SEF) were not compliant with Sections 272 and 100 of the Local Government
Code of 1991, Department of Education (DepEd)-DBM-DILG Joint Circular No.
01, s. 2017, dated January 19, 2017 and Section 7(b) of RA No. 10410, otherwise
known as the “Early Years Act of 2013”, resulting in inappropriate and under-
utilization of SEF and inaccurate reporting thereof. Moreover, development fund
loan in the amount of ₱54,402,340.17 was obtained despite adequate cash balance
resulting in incurrence of unnecessary interest expenses of ₱15,981,225.41.

We recommended that the:

a. Provincial Local School Board (LSB) (i) judiciously plan and formulate a
SEF Budget in line with strategic prioritization policies in the allocation to
schools taking into consideration equitable sharing, priority needs and other
factors pursuant to Section 272 of RA No. 7160 and Section 4 of DepEd,
DILG and DBM Joint Circular No. 1, s. 2017 dated January 19, 2017; (ii)
realign the ₱75,815,261.86 unexpended CY 2019 non-SEF related budget
in consonance with the aforementioned guidelines; (iii) maximize
utilization of SEF fund in accordance with the approved budget and fast
track implementation of priority programs; and (iv) refrain from obtaining
loans and use available fund instead;

b. Accounting and Budget concerned personnel conduct periodic

reconciliation of records to generate accurate and relevant reports; and

c. Accounting Office personnel (i) observe strict compliance with the rules
regarding the grant and liquidation of cash advances; (ii) enforce
settlement/liquidation of advances granted to the municipalities; (iii)

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 observe proper recognition of expenses paid out of cash advances; and (iv)
submit to the Audit Team the required documents in support to the
₱9,759,125.53 payables taken-up at year-end for scrutiny of the validity and
completeness of the transactions; (v) draw Journal Entry Voucher (JEV) to
correct entries made on JEV-2019-12-000520 dated December 27, 2019 and
submit copy of such to the Audit Team for validation; (vi) coordinate with
DepEd Division Office to facilitate the liquidation/settlement of the cash
advance balances from DepEd employees; and (vii) stop the grant of cash
advances to non-PGP personnel.

8. Deficiencies were noted in the appropriation, procurement, record keeping, and

inventory control of Drugs and Medicines (D&M) and Medical, Dental and
Laboratory Supplies (MD&LS) from CYs 2016 to 2019 totaling ₱200,683,460.58
in violation of Sections 4 and 84 of PD No. 1445, Sections 7.1 and 7.2 of RA No.
9184, Sections 11 and 44 of the IPSAS 12 and Section 114 of the Manual on NGAS,
Volume I, respectively, resulting in unlawful utilization of fund, unreliable
financial records and risk of possible inventory loss or misuse.

We recommended that the:

a. Provincial Treasurer and the OIC-Provincial Accountant transfer the

PhilHealth collections/reimbursement from Trust Fund to the General Fund
for appropriate budgetary legislation and ascertain that proper accounting
principles on inventory and revenue recognition are applied;

b. BAC, Budget Officer and End-User observe the laws on procurement

budgeting in pursuance to Sections 7.1 and 7.2 of RA No. 9184;

c. Head of Hospital Operations and Chief of Hospitals maintain and submit

the following:

i. Stocks Inventory Report showing the quantity of medicines received

from the Province, as well as the transfer from one hospital to
another, the complete description of medicines received, the
quantity of medicines utilized for a month and balance of medicines
in quantity per item at the end of the month;

ii. Requisition Issue Slip duly supported with Supplies Availability

Inquiry before preparing Purchase Request (PR);

iii. Utilization Report which shows the complete name of patient, date
of visit, complete address, age, gender, health complaints of patient,
diagnosis, complete description and quantity of dispensed
medicines;

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 iv. Monthly Summary of Medicines utilized which shows the quantity
of medicines dispensed to patients taken from utilization report and
complete description of medicines;

v. annual inventory report showing the quantity of medicines

remaining in stock as of year-end and complete description per items
of medicines;

vi. prescribed format of stock card (SC); and

vii. Semestral Financial Report.

d. OIC-General Services Officer (i) institute controls over the drugs and
medicines and other medical supplies by maintaining relevant
records/documents in coordination with the hospital Supply
Officer/personnel in the requisition and issuance of inventory items; (ii)
maintain SCs and reconcile his records with those of the accounting; (iii)
conduct inventory of drugs/medicines and medical supplies at least semi-
annually or whichever is practical and applicable; and iv) verify and adjust
accordingly any differences or reconciling items noted;

e. GSO, BAC-TWG and TWG of PhilHealth Funds (i) ensure that the
drugs/medicines to be requisitioned are only those drug products which
conform with Philippine National Drug Formulary (PNDF), Volume I,
current edition, pursuant to EO No. 49. In case of drugs not listed in the
PNDF, Vol. I, a written request with corresponding justification be
submitted by the supplier to the Head of the National Drug Policy Office
for approval; and (ii) use the Philippine Drug Price Reference Index as a
guide in preparing the Project Procurement Management Plan and PR
before conducting bidding to ensure conformity with DOH and DILG
guidelines and to avoid procurement of expensive pharmaceutical products;
and

f. HCIs’ pharmacists and chief of hospitals and the OIC-General Services

Officer consider adopting and implementing the supply of D&M and
MD&LS on consignment basis for convenience in inventory stocks
monitoring, to lessen procurement activities and ensure availability of
hospital supplies without need for disbursement of government funds.

9. Expenditures incurred for meals and snacks served to visitors and those consumed
during meetings, conferences, and regular sessions totaling ₱24,419,513.50 for CY
2019 alone were considered non-essential and could be dispensed with pursuant to
Section 343 of RA No. 7160 resulting in incurring unnecessary and irregular
expenses contrary to COA Circular No. 2012-003 dated October 29, 2012.

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 We recommended that the (a) Local Chief Executive, Vice-Governor, SP members,
department heads and other offices and committees (i) observe the prohibition
against expenses for reception and entertainment; and (ii) utilize the discretionary
fund for this purpose instead; and (b) Accountant and the Budget Officer (i) ensure
that meals and snacks served during ordinary staff meetings or monthly
conferences, regular sessions and for the entertainment of guests and visitors are
not charged against local funds since these are chargeable against the personal
representation allowances of the LGU officials concerned; (ii) make sure that all
expenditures are within the approved budget; and (iii) stop direct budget
augmentation without proper legislative authorization.

10. Deficiencies were noted in the disbursement for prisoners’ subsistence allowance
such as (a) food supplies totaling ₱22,250,121.73 were not procured thru
competitive bidding in violation of Section 10 of the 2016 Revised Implementing
Rules and Regulations (IRR) of RA No. 9184; (b) exceeded the appropriations
therefor by ₱13,536,653.00 due to direct augmentation; (c) excessive rice
consumption by ₱3,104,783.89; and (d) total subsistence exceeded the ₱60.00 daily
budget per inmate prescribed by Sanggunian Panlalawigan (SP) Resolution No.
14258-19 dated February 26, 2019 resulting in irregular and excessive
disbursements amounting to ₱2,951,181.73.

We recommended that the (a) BAC exert effort to comply with R.A. No. 9184 and
its IRR in the procurement of food supplies for detainees’ and prisoners’
subsistence; (b) OIC - Budget Officer stop direct budget augmentation without
proper legislative authorization and avoid certifying availability of appropriations
should there be none; (c) OIC - Provincial Accountant and the Internal Audit
Services Officer implement sound internal control to ensure proper and prudent
management of government’s resources for the PSA; and (d) OIC - Provincial
Warden (i) require the SDOs to provide satisfactory explanation regarding
excessive rice consumption and excessive/irregular expenditures; and (ii) ensure
that the SDOs under his supervision disburse fund for detainees’ and prisoners’
subsistence within the authorized limit of ₱60.00 per person a day as provided by
the PGP SP Resolution No. 14258-19.

11. The PGP was not able to fully implement its environmental Programs, Projects and
Activities (PPAs) embodied in the Annual Investment Plan for CY 2019 and in its
Provincial Ecological Solid Waste Management Plan for CYs 2019 to 2028, which
was not in consonance with the provisions of RA No. 9003 or the Ecological Solid
Waste Management Act of 2000 thus, effective Solid Waste Management
beneficial to the constituents of the Province was not achieved.

We recommended that the Local Chief Executive, through the Provincial

Environment and Natural Resources Officer, (i) appropriate adequate funding and
prioritize the implementation of various programs identified in the AIP and in the
ten-year PESWMP; (ii) provide a proof that the ten-year PESWMP was submitted
and approved by the National Solid Waste Management Council; and (iii) prioritize
the implementation of infrastructure projects related to Solid Waste Management.

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 12. The Provincial Disaster Risk Reduction and Management Office (PDRRMO) failed
to submit to the Audit Team the Local Disaster Risk Reduction Management Fund
Investment Plan (LDRRMFIP) for the disaster mitigation, prevention and
preparedness as required under Sections 5.1.2 and 5.1.3 of COA Circular No. 2012-
002 dated September 12, 2012 and Sections 12 (c) (7) of RA No. 10121, otherwise
known as the Philippine Disaster Risk Reduction Management Act of 2010, thus
disbursements amounting to ₱29,324,205.26 under the PDRRMF could not be
validated.

We recommended that the PDRRM Officer (a) cause the immediate submission of
LDRRMFIP for CY 2019 to the Audit Team as required under Sections 5.1.2, and
5.1.3 of COA Circular No. 2012-002 and Section 12(c)(7) of RA No. 10121 for
validation of the reported disbursements totaling ₱29,324,205.26; and (b) ensure
timely preparation of LDRRMFIP for the succeeding years and furnish a copy
thereof to the Audit Team for reference in audit.

These, together with the other observations and recommendations are discussed in
detail in Part II of the report.

Summary of Audit Suspensions, Disallowances and Charges

As of year-end, the balances of suspensions, disallowances and charges were as

follows:

Amount
Particulars Beg. Balance Issued Settled Ending Balance
Suspensions ₱ 300,000.00 ₱ 0.00 ₱ 0.00 ₱ 300,000.00
Disallowances 83,634,401.00 0.00 0.00 83,634,401.00
Charges 669,269.75 0.00 0.00 669,269.75
Total ₱84,603,670.75 ₱ 0.00 ₱ 0.00 ₱84,603,670.75

The audit observations and recommendations contained in the Report were

discussed with the PGP officials and staff concerned on May 28, 2020. Management’s
views and comments were incorporated in the Report, where appropriate.

Status of Implementation of Prior Year’s Audit Recommendations

Of the 12 audit recommendations embodied in the 2018 Annual Audit Report

(AAR), three were fully implemented, eight were partially implemented and one was not
implemented.

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