Republic of the Philippines

COMMISSION ON AUDIT
Office of the Auditor
Team R1-02-Audit Group B/D
Cluster 5-Agricultural and Natural Resources
National Tobacco Administration
Bauang, La Union

AOM No.: 2018-001

Date : January 12, 2018

AUDIT OBSERVATION MEMORANDUM

For : GIOVANNI B. PALABAY, Ph. D

Branch Manager
National Tobacco Administration
La Union Branch Office
Bauang, La Union

Attention: EMMA BETH B. FANTASTICO

Chief Agriculturist

MARCELO T. PASCUAL
Supervising TPRO

We have audited the disbursements for the Renewable Fuelwood Energy Development
Project and Restoration of Ecological Integrity (RFEDFREI) Program of National Tobacco
Administration-La Union Provincial Branch Office, for the period January 1 to December
31, 2017 and observed the following deficiencies/errors:

Payments of production assistance for the Tree Seedling Production and

Distribution for the Synchronized Tree Planting and Kahuyang Pangkabuhayan at
Pangkalikasan (KPP) were not properly documented and validated thus exposing
the scarce resources of the government to possible misappropriations and losses.

The Renewable Fuelwood Energy Development Project and Restoration of Ecological

Integrity (RFEDFREI) is a project of National Tobacco Administration designed as a
comprehensive, self-generating industry intervention, generally aimed to improve the
living conditions and betterment of quality of life of the population in the tobacco-growing
regions.

More specifically, the project aims to:

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1. Restore the ecological integrity of the tobacco growing regions and contribute in the
government’s mitigation efforts against flash flooding, soil erosion and other
calamities;

2. Supply/augment the energy-fuelwood requirement of flue-curing Virginia leaf

tobacco;

3. Provide watershed factor to replenish fresh water used by household and for
irrigation; and

4. Promote the creation/development livelihood enterprises (fuelwood, organic fertilizer,

pesticide, etc.) for the tobacco growing communities.

The project commenced in the year 2013 and has two component strategies: the Tree
Seedling Production and Distribution for the Synchronized Tree Planting, and the Seedling
Production and Fuelwood Farm under the Kahuyang Pangkabuhayan at Pangkalikasan
(KPP), which is to provide assistance to farmers to cover expenses from seedling
production mostly of ipil-ipil and bamboo plant to grow-out into trees.

Accounting record disclosed that as of December 31, 2017 the total amount of
P4,381,204.20 was the fund transferred to La Union branch representing production
assistance and maintenance mostly of ipil-ipil and bamboo seedling and other trees
production and distribution to qualified tobacco farmers. The amount of P4,269,814.00
was utilized as loan production assistance.

The Audit Team was precluded to verify the correctness of the total amount of fund for the
project transferred to the La Union Branch due to non-availability of document from NTA –
Central Office. Interview with the accountant disclosed that no documents were attached
or issued for the fund transfer. Only verbal conversation was effected during the process.
This is also true with other fund transfers. This was already the practice of the
management a long time ago, commented by the accountant.

Review of the documentary requirements for the program loan availment submitted to this
office revealed several deficiencies as follows:

A) Granting of Production Assistance

Procedure numbers 4, 5 and 6 in the implementing guidelines states that:

4) The Farmer-Cooperator (FC) shall accomplish/submit with the assistance of NTA

TPRO / Agriculturist, the following forms to the Branch Office (BO):

a. Farm Plan and Budget (FPB) (RFEDPREI Form No. 1a)

b. Application for Production Assistance by Individual FC (RFEDPREI Form No. 2)
c. Promissory Note and Schedule of Payment (RFEDPREI Form No. 3)

5) The assisting NTA TPRO/Agriculturist shall review and validate the correctness of the
entries in RFEDPREI Forms No 1-3, before he/she submits to the Chief
Agriculturist/Branch Project Officer

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6) The Chief Agriculturist/Project Officer shall review/verify all entries in the forms to
assure that there is no fictitious or multiple enlistment of FCs within a cluster, prepare
the Summary of Farm Plan and Budget of the Branch (RFEDPREI Form No. 4)
indicating therein the name of the identified Cluster Leader (CL)/ Farmer Leader (FL)
and initials the documents then forward them to the Branch Manager.

We noted that these three forms were attached to the disbursement voucher for
production assistance. However, some forms are not properly accomplished and lacking
important data such as complete address, sitio or house number is not included in the
barangay stated, variety of seedling to produce, cluster number, number of seedling to
produce and the like are not indicated in the forms. Several personnel/staff was assigned
to review and validate the entries in the form but still not duly accomplished or corrected.

The implementing guidelines also states that “the production assistance to be provided
one-time by the NTA shall be subject to an administrative charge of 6% per annum, to be
paid from the proceeds of the sale of produce, and a one-time service fee of 1% to be
deducted upon release of the production assistance.”

Examination on the Promissory Note and Schedule of Payment (RFEDPREI Form No. 3)
reveals that some of the farmer-availees were not deducted with a one-time service fee of
1% upon the release of the production assistance. Contrary to what have been stipulated,
the service fee and the administrative charge per annum were added to the loan
production assistance. Some forms cannot be validated by the audit team because
schedule of payment were not accomplished.

The improperly accomplished Promissory Note and Schedule of Payments could not
support the certainty of payment since the date and schedule of payment is not stated,
thus exposing the agency from the risk that the funds released may not be collected or
enforceable, hence, the interest of government is not protected.

B) Release of Production Assistance

No. 4 and 5 of Item B of the Implementing Guidelines on RFEDFREIalso states that:

(4) the availees proceed to purchase the required inputs from the Input
Supplier of his/their choice, and submit a duplicate/certified true copy
of the Official Receipt corresponding to his purchase to the Assisting
TPRO/Agriculturist, for internal control purposes.

(5) the assisting TPRO/Agriculturist shall submit all ORs, and CIVs to the
Branch Cashier, not later than two weeks after purchase by FCs of
inputs from the IS, for summary and consolidation.

Inquiry with the management revealed that farmer-availees were not submitting a
duplicate copy/certified true copy of the Official Receipt or any proof of purchase
corresponding to his purchase of farm inputs for the seed production and growth to the
assisting TPRO/Agriculturist.

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The non-submission of official receipt or proof of purchase by the farmer restraints the
monitoring that the production assistance was used exclusively for that purpose which
may lead to blacklisting of farmer-availees if it was used otherwise.

Also, item Number 3 further states that under “Kahuyang Pangkabuhayan at

Pangkalikasan (KPP), the availee shall at least have a backyard energy farm minimum of
one (1) hectare up to 5 hectares.”

Scrutiny of the consolidated list of farmer-cooperator (FC) and consolidation of farm plan
and budget submitted to this office, we noted that some FC was given production
assistance without meeting the minimum requirements of land area for the production of
seedlings. Some have only one-fourth (1/4) and others have one-half (1/2) average farm
area for seedling production.

Under Tree Seedling Production and Distribution of the Synchronized Tree Planting(STP)
strategy, “the FC will be given a budgetary support of P1.56 per seedling, which will be
released on needs-basis. In the case of branch-supervised nurseries, seedlings produced,
shall be bought at P2.70 per seedling upon maturity, which shall be grown for a period of
3 to 4 months. Budgetary support /production assistance however will be deducted from
the proceeds of sales by the FC. The Branch Offices shall conduct a survey of prospective
participants, among local government units (LGUs), national/regional government
agencies, schools, church groups, POs/NGOs and civil society groups and farmers
organization, for the Synchronized Tree Planting Day in July to coincide with NTA
anniversary. The survey/registration of participants shall include, per participating group,
the greening areas or sites to be planted, the area (hectares) and the number of
participants per area/site.”

Upon verification, the NTA La Union Branch had issued total number of seedlings of
334,576 for the year 2017, mostly to schools and barangay residents. We noted that no
acknowledgement receipt or certification was issued to the branch as a proof that the
recipient was issued such number or seedlings. An attendance sheet signed by the TPRO
or the extension worker was the only attachment for the STP. No validation or notation of
the school principal/teacher or barangay chairman was included in the attendance sheet
submitted to this office. Further, no Memorandum of Agreement (MOA) or any agreement
form was prepared between the NTA and recipient as part of the monitoring process of
the project and to ensure that planted seedlings will be taken care of until it will become
full grown trees, as part of the project objective.

Failure of the management to properly document and validate the production assistance
given to farmers and recipients of free seedlings may expose the limited resources of the
government to possible misappropriations and losses.

In view of the foregoing, we recommend Management to:

a. Necessitate the farmer-availees to properly accomplish all documentary loan

forms for easy reference and validation;

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b. Require the farmer-availees to submit official receipts or any proof of purchase
of farm inputs to their respective assisting TPROs to be submitted to the
branch for monitoring purposes;

c. Deduct the 1% service fee upon release of the production assistance;

d. Prepare a Memorandum of Agreement or Agreement Form between the NTA

and the recipient of free seedlings to assure the optimal growth of seedlings to
become trees; and

e. Strictly observed the implementing guidelines on RFEDFREI to avoid

disallowance in audit.

May we have your comments on the foregoing audit observation/s within five calendar
days from the receipt hereof.

Likewise submit to this office the following documents to enable the audit team to make
proper decision:

1. Monitoring Report prepared by the Assisting Extension Workers of NTA.

2. Photo documentation of seedling production.
3. Subsidiary ledger of individual farmer cooperator from CY 2013-2017.

GLADYS C. BATHAN
OIC-Audit Team Leader

DOLLY CRISTITA P. LINGBAOAN

Regional Supervising Auditor

Proof of Receipt of AOM:

Name Designation Signature Date

Giovanni B. Palabay, Ph. D Branch Manager

Chief Agriculturist
Emmabeth B. Fantastico
Supervising TPRO
Marcelo T. Pascual

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