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MANILA, Philippines — The Commission on Audit (COA) scolded the Philippine Coast Guard (PCG) over
its failure to demand the timely delivery of P2.69 billion worth of equipment, supplies and helicopters
procured through the Department of Budget and Management (DBM) and the Philippine International
Trading Corp. (PITC).

Based on the COA’s 2018 annual audit report, the PCG transferred P807.165 million to DBM’s
Procurement Service for the procurement of two multi-purpose twin engine helicopters amounting to
P777.6 million and common supplies and equipment worth P29.565 million.

The COA said that as of Dec. 31, 2018 none of the helicopters have been delivered to the PCG while
P6.543 milion worth of common supplies and equipment remain to be delivered.

As for the PITC, the COA said P1.906 billion was tranferred by the PCG to the state-owned trading firm in
2017 and early 2018 for 41 procurement projects in connection with the PCG’s operational equipment
needs.

The COA said that as of Dec. 31, 2018, the fund transfers remain unliquidated even if 19 of the 41
procurement projects should have been completed by end of 2017.

“Moreover, no delivery of outputs was made by PITC for fund transfers received by the agency in the
first half of 2018,” the COA said.

Among the items that the PCG procured through PITC were communications equipment, LED lanterns,
navigational buoys, pistols, machine guns, nine heavy cargo trucks, generator sets, K-9 dogs, high-speed
response boats, tactical boots, body-worn cameras, coastal surveillance cameras, air-conditioning units,
inflatable boats, radar equipment and repairs of several PCG stations.

The audit body said the PCG could have undertaken the procurements itself, noting that the agency has
four bids and awards committees, technical working groups (TWGs), procurement service office and an
infrastructure development service office.

In a reply incorporated in the audit report, the PCG said P814.075 million was returned to the agency as
of last February, including the P777.6 million intended for the procurement of the helicopters.

The PCG said the PITC completed two procurement projects totalling P228 million but did not provide
any detail about the projects.

The PCG said it has directed its TWGs to press the DBM and PITC to submit the lacking liquidation
documents and to conduct a regular monitoring of the outstanding procurement projects.
MANILA, Philippines – Auditors have flagged P3.6 billion worth of transactions in the Philippine Coast
Guard (PCG), adding to the list of financial irregularities that the agency has to answer for.

Rappler obtained two Audit Observation Memoranda (AOMs) showing that, on February 11 and
18, resident auditors found that:

 P1.75 billion worth of allotments were issued without final contracts or even bidding;

 P1.91 billion worth of programs remain unliquidated.

AOMs are issued internally. These memoranda will give concerned agencies time to respond and
address flagged issues with the Commission on Audit (COA). Flagged transactions like these are often
included in the COA annual audit report (AAR), which will be publicly released starting April.

The PCG should have responded within 5 days of receipt of the AOM to explain why it issued and
charged allotments even though there were still no contracts or even biddings, and, for the second
issue, why almost two billion worth of programs were not liquidated.

Millions worth of flagged transactions have hounded the PCG for years now, with the COA constantly
reminding it to fix its financial control mechanism. The COA has repeatedly found in PCG records millions
worth of fake receipts as well as transactions “disowned” by suppliers.

Past anomalies have subjected top level officials of PCG to graft charges; some of them were even
suspended by the Office of the Ombudsman last year. (READ: Duterte again promotes PH Coast Guard
officers facing graft raps)

The AOMs highlight the need to scrutinize more how the PCG has been spending public funds.

PCG spokesperson Captain Armand Balilo did not respond to our requests for comment.

A second source privy to the issue confirmed both the existence of the AOMs and the findings of the
resident auditors.

Unliquidated program

In the AOM dated February 18, 2019, auditors found that a total of P1.91 billion was fund transferred to
the Philippine International Trading Corporation (PITC). The programs under this remain unliquidated as
of December 31, 2018.

“Thus, the timely completion of the intended projects/programs were not assured,” said the AOM.

Funds were transferred to PITC for the “procurement activities for infrastructure, goods and services”
covered by a contract dated May 10, 2017.

According to the AOM, the P1.91-billion fund transfer covered supply and delivery for 41 unliquidated
projects. Purchases include guns, machinery, equipment, dogs, computers, body gears, body camera,
construction and repairs, and others.
Auditors said the funds are money which were not obligated by the end of 2017 and 2018 because of
failed biddings and failed awarding of contracts.

“Thus, the PCG resorted to outsourcing by commissioning PITC to conduct procurement activities in its
behalf for a fee, and accordingly transfer the funds to the latter,” said the AOM.

MANILA, Philippines – The Philippine Coast Guard (PCG) proudly announced that it acquired its largest
and most modern ship this week, but the agency has yet to fix its messy finances as state auditors again
flagged it for inaccuracies amounting to billions of pesos in its 2018 financial records.

Topping the the Commission on Audit (COA) 2018 report on the PCG are "aggregate misstatements"
worth P4.1 billion, or 31.6% of its total assets for 2018.

"Due to the significant impact of the misstatements including the deficiencies noted that affected the
reliability of the reported balances of the agency’s various accounts, the financial statements did not
fairly present the financial position, financial performance, and cash flows of the Agency," said COA in
the audit report.

In COA's breakdown, PCG failed to faithfully record billions worth of supply and equipment deliveries,
affecting the accuracy of its records and even the existence and completeness of the deliveries.

In general, COA noted "deficiencies in accounting and property controls."

Messy finances

For example, COA noted that P748.25 million worth of supplies and equipment was not "recorded by
the Accounting Service Office (ASO) since they were not provided copies of delivery receipts and
inspection and Acceptance Reports by the Supply Administration Office (SAO)."

State auditors found a discrepancy of P392.532 million in PCG's inventories due to "improper recording
of various receipts and issuances."

They also found that in PCG's P5.6 billion-purchase of 10 watercrafts, it failed to record the 10th
watercraft worth P454 million "thus, understating the Watercrafts account and Subsidy from Other
National Government Agencies, both by the same amount."

Auditors also found unrecorded equipment such as P26.67 million worth of motor vehicles, an P18-
million aluminum workboat, and 575 lighthouses.

COA said that when auditors tracked down the workboat, they found it to be "dilapidated, damaged,
and unrecognizable."

"And we were informed that this was never utilized," the auditors said.
COA also noted that although the PCG obligated 99.39% of its P17-billion budget for 2018, it only
disbursed P13 billion or 76.75%. (READ: Auditors flag P3.6B in Philippine Coast Guard transactions)

Obligated means the amount that the PCG committed for the projects, while disbursement refers to the
amount the agency actually spent.

COA said the lower level of disbursement was due to "delayed project accomplishments or delivery of
procured items and slow processing of payments" which affected "the timely and efficient delivery of
benefits that could be derived therefrom."

Problems with cash advances

In 2017, PCG was among only 5 agencies that were flagged for fake transactions. Such transactions
involve liquidation of cash advances which were disowned by suppliers or
contractors. (READ: Corruption Red Flags: Fake transactions, doubtful accounts government spending)

The 2017 fake receipts involved P818 million worth of cash advances for Rear Admiral Leopoldo Larroya.

COA said that Laroya had explained that he was "of the impression that all the liquidations documents
that reached his office have no irregularity as his complex role as District Commander limits him from
scrutinizing all the official receipts."

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COA, in its status of past years' recommendations, did not explicitly say how the issue of fake receipts
were solved but simply said it found the "explanation/justification validated and meritorous."

COA said the PCG has assigned additional personnel in reviewing supporting documents to avoid similar
problems.

Unlike in past years, PCG did not have problems of fake receipts in 2018, but COA still flagged it for
excessive and unliquidated cash advances that were deemed excessive and unliquidated.

Petty cash funds (PCF) ranging from P45,000 to P500,000 and which were given to officers assigned in
the headquarters and the National Capital Region (NCR) were "found to be excessive based on the
average monthly incurrence of operational and administrative petty expenses."

"The excessive grant of PCF per custodian/Accountable Officer (AO) could result in high risk of
probability of misuse/misappropriation of the unused cash in the hands of the AOs," said COA.

Cash advances worth P6.2 million were also not liquidated.

PCG had committed that "it is now strictly monitoring the liquidation of the cash advances and performs
verification of money accountability before the issuance/approval of clearances."

On top of that, P12.45 million worth of various expenditures were not properly documented.
"Review of the Disbursement Vouchers and Report of Disbursements on liquidations of cash advances
pertaining to various transactions during the year disclosed irregular expenses and other disbursements
which were not supported with complete documentation as a result of the Agency’s non-compliance
with relevant laws, rules and regulations," said COA.

Auditors have demanded an immediate refund.

PCG's messy finances have resulted in various suspensions and disallowances that by December 31,
2018, have reached more than P59 million. PCG is appealing most of the disallowances.

COA warned PCG: "We recommended that Management enforce the settlement of the amounts
disallowed from persons responsible/liable and submit the required documents for the suspended
transactions to prevent the same from maturing into disallowance."

Past anomalies have subjected top level officials of PCG to graft charges; some of them were even
suspended by the Office of the Ombudsman last year. (READ: Duterte again promotes PH Coast Guard
officers facing graft raps) – Rappler.com
Page 1 of AOM No. 2019-008(2018) of the Philippine Coast Guard involving P1.91 billion

More irregularities

Auditors also observed that the agreement between the PCG and PITC did not indicate a delivery period,
“resulting in an open-ended or indefinite period of delivery, which is detrimental to the achievement of
the projects of PCG which are supposed to be scheduled and completed within the year.”

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“The timely completion of the intended projects/programs was not assured. Further, the unspent
amount could have been used by the government for other public purpose,” said the AOM.

Payments were also transferred “despite incomplete required supporting documents.”

Auditors also said that because the procurement was “not highly technical in nature,” the PCG could
have internally handled the procurement. “As such there’s no reason to outsource by commissioning
PITC to handle the job for a fee,” said the AOM.

The AOM said the PCG could have saved P69.2 million if it handled the procurement itself rather than
tap PITC.

The PCG was given 5 days within receipt of the memorandum to reply. The auditors asked that the PCG
submit the lacking documents and status reports, as well as to “stop issuing additional fund transfers
unless the previous projects are completed and delivered.”

No contracts, no bidding

The AOM dated February 11, 2019, involved transactions worth P1.75 billion. These were withdrawn
and parked for transactions which either did not have contracts or did not have biddings.

Auditors flagged 5 obligation requests, or the reservation of money, for the supply and delivery of a twin
engine helicopter, weapons, weapon stations, body gears, and the construction of 7 lighthouses in
Mindanao.

For the equipment, the obligation requests either did not have bidding or no contract was awarded. For
the lighthouse construction, the contract has yet to be signed.

“It appears that the above-mentioned projects were only obligated at the end of CY 2018, just so to
avoid reversion/lapsing of the allotment/funds. Worse, some of the above projects were not yet bidded
out by PCG as of date,” the AOM said.

Auditors said that while heads of requesting offices claimed that the allotments were lawful, the
documents lacked the pertinent details, such as dates of issuances of the Obligation Request and Status
(ORS) and certifications of availability of allotments.
“This practice may constitute circumventing the mentioned law and regulation which may result to
nullity of the obligation and payments," the AOM said.

Auditors said that incurring obligations without valid claims violate several financial control rules such as
Presidential Decree No. 1177 and the Government Accounting Manual.

Resident auditors gave the PCG 5 days within receipt to comment on the memorandum. They
recommended the agency to “stop the practice of issuing obligations charged to allotments without the
benefit of the approved contract or valid claims documents.”