Part I

Executive Summary

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EXECUTIVE SUMMARY

INTRODUCTION

Procurement is an activity undertaken by any government agency involving

acquisition of goods, consulting services, contracting for infrastructure projects
and lease of goods and real estate.

Government procurement is, at present, governed by Republic Act No. 9184,

“An Act Providing for the Modernization, Standardization and Regulation of
the Procurement Activities of the Government and for Other Purposes”, enacted
on December 18, 2002 and its Implementing Rules and Regulations. The
passage of this law highlighted the government’s efforts in pursuing
procurement reforms and upholding the following principles:

• Transparency in the procurement process and in the implementation of

procurement contracts;

• Competitiveness by extending equal opportunity to all eligible and qualified

private contracting parties to participate in public bidding;

• Streamlined procurement process applied uniformly to all government

procurement. The procurement process shall be simple and adaptable to
modern technology in order to ensure effective and efficient method;

• System of accountability where public officials directly or indirectly involved

in the procurement process and implementation of procurement contracts, and
private parties dealing with the government are, when warranted by
circumstances, investigated and held liable for their actions; and

• Public monitoring of the procurement process and implementation of awarded

contracts in ensuring that contracts are awarded pursuant to the provisions of
RA 9184 and its implementing rules and regulations and that performance
under these contracts are strictly in accordance with approved terms,
conditions and specifications.

Even before the passage of RA 9184, the government was already addressing
the issue on transparency in government procurement and inefficiency due to
manual and paper-driven procurement processes. Thus, in November 2000, the
internet-based Electronic Procurement System (EPS) was established. This is at
present required to be used by all government agencies.

Government procurement is highly decentralized. Each agency advertises its

procurement activities, pre-qualifies all interested entities and awards contract
following the procedures prescribed under appropriate implementing rules and
regulations.
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The central procurement system of the government for common-use supplies,

materials and equipment is, however, being handled by the Procurement Service
(PS), one of the offices under the Department of Budget and Management
(DBM).

The procurement activities and reforms are being supervised by the

Government Procurement Policy Board (GPPB) as the sole regulatory and
oversight entity for government procurement. The Board is headed by the
Secretary of the DBM as Chairman, with the Director-General of NEDA, as
Alternate Chairman. The members are composed of the Secretaries of the
Departments of Public Works and Highways, Finance, Trade and Industry,
Health, National Defense, Education, Interior and Local Government, Science
and Technology, Transportation and Communications, and Energy, or their duly
authorized representatives and representative from the private sector appointed
by the President upon the recommendation of the GPPB.

The audit of the procurement system of the Kapit-Bisig Laban sa Kahirapan

(KALAHI) - Comprehensive and Integrated Delivery of Social Services
(CIDSS): Kapangyarihan at Kaunlaran sa Barangay (KKB) of the Department
of Social Welfare and Development (DSWD) was undertaken as there is a felt
need to assess its effectiveness.

The CIDSS was launched in 1994 to alleviate poverty and empower

disadvantaged individuals, families and communities for an improved quality of
life. This is one of the ten flagship programs under the Social Reform and
Poverty Alleviation Act (RA 8425) intensified under Memorandum Circular
No. 33 issued on November 28, 2002. Procurement under the KALAHI-
CIDSS: KKB projects are governed by the World Bank (WB) Procurement
Guidelines, the National and Regional Procurement Sub-Manual, the
Community Based Procurement Manual and relevant provisions of RA 9184.

AUDIT OBJECTIVE

The audit was conducted to assess whether the procurement system of the
DSWD KALAHI-CIDSS Project was effectively undertaken to ensure quality
projects at reasonable costs through provision of adequate capability building
assistance to community beneficiaries.

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AUDIT SCOPE AND METHODOLOGY

The audit covered the procurement of goods by the community beneficiaries

during CYs 2004 and 2005 for the implementation of the KALAHI-CIDSS:
KKB Projects. The team assessed the adequacy of the capability building
assistance and technical support provided by the DSWD to community
beneficiaries to ensure quality projects.

To achieve the audit objective, the team adopted the following audit techniques,
among others:

• Reviewed existing policies, guidelines and procedures, records and reports

relative to the procurement of goods for the implementation of KALAHI-
CIDSS:KKB projects;
• Interviewed concerned officials and employees of DSWD and selected
community beneficiaries;
• Conducted inspection/validation of the procurement procedures adopted in
selected sub-projects implemented in Regions IV-A and VI.
• Administered questionnaires to gather data necessary in the evaluation.
• Analyzed data gathered.

The audit was conducted from August 15, 2005 to June 30, 2006, in compliance
with MS/TS Office Order No. 2005-034 and 034C dated July 1, 2005 and
January 10, 2006.

AUDIT CONCLUSION

The audit concluded that the procurement system for the KALAHI-CIDSS:
KKB Project was not effectively undertaken due to inadequate capability
building assistance and technical support provided by the DSWD to the
community beneficiaries.

This is clearly manifested in the following cases:

• The required review of the detailed estimates and Program of Works (POW)
in a number of projects was not adequately undertaken resulting in the excess
grant of funds, over procurement of goods and varied cost estimates for
similar projects. In several projects, unit costs of a number of items reflected
in the detailed estimates were higher by 15% to as high as 291% of the actual
costs. The excess grants/savings were then used to procure additional
materials not included in the detailed estimates and not needed to complete the
project as designed.

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A well reviewed detailed estimates and POW would facilitate the procurement
activities of the community. Apparently, the multiple assignments of the
Deputy Area Coordinator (DAC) limited his capability to provide adequate
assistance. The need for a thorough review of each plans and estimates is
crucial due to the absence of standard designs and estimates even for
commonly implemented infrastructure projects. The absence of standards
further resulted in significant variances in unit costs per square meter of
similar projects implemented within the same municipality.

• The project procurement plans were likewise not adequately reviewed and
compliance thereof not monitored. The procurement plans of two (2) projects
were not consistent with the POW and detailed estimates while some other
procurement plans were not strictly observed. Even materials not included
therein were procured and construction changes implemented without
approved change order. The necessity of changes undertaken was therefore
not evaluated.

• Likewise, the practice of communities of separately packaging the same or

similar items that can be procured from the same suppliers was not corrected.
Construction materials intended for a number of projects were divided into
seven (7) to 21 procurement packages which resulted in a more tedious
procurement process as each package needed to be documented separately.
These packages were canvassed from the same set of suppliers on the same
date. Under this practice, the community also lost the opportunity to avail
bulk discounts.

• Assistance to the community to ensure that materials procured and accepted

were of the right quantity and quality and that prescribed procurement
procedures were observed were inadequate. Materials not complying with the
required specifications would affect the quality of the project. Inadequate
assistance were apparent in the following conditions:

¾ The Monitoring and Inspection Teams (MITs) were not technically

capable to ensure that deliveries complied with the required volume
and quality.

¾ Failure of the MITs to subject materials of a number of infrastructure

projects to quality tests despite available funds for the purpose. In the
absence of tests, the quality of the materials used cannot be
determined. In one case, materials used in the project were later
found to be unsuitable/substandard largely contributing to the fast
deterioration of the road project.

¾ Non-compliance by the Procurement Team on a number of prescribed

procurement procedures such as indicating in the purchase
order/contract agreement the complete specifications, delivery period
and contract amount. This may cause misunderstanding in settlement
of accounts and in the acceptance of deliveries.

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As the KALAHI-CIDSS:KKB Project is an on-going concern, the team

recommended certain measures to address the deficiencies noted which are
discussed under Part IV of the report.

MANAGEMENT’S REACTION

The results of the audit were discussed with concerned DSWD KALAHI-
CIDSS officials in an exit conference conducted on November 7, 2006.
Overall, they acknowledged the existence of deficiencies with some
reservations and are taking measures to address the concerns raised in the
report. In particular, they claimed that the DACs continuously review plans and
cost estimates, LGUs’ participation is intensified, and that standards of other
government agencies for commonly implemented projects were adopted as the
standards. Their comments were incorporated in the report, where appropriate.

TEAM’S REJOINDER

As discussed in the report, a number of plans and estimates did not pass through
the required review, apparently due to multiple assignments of DACs.
Likewise, despite the alleged LGUs intensified participation, results of audit
would show that the reviews and assistance of DACs are still necessary.

It is also apparent that the DSWD’s policy of adopting the standards of other
government agencies for commonly implemented projects were not strictly
observed in Region IV-A. The audit disclosed that similar projects implemented
even within the same municipality were of different designs and costs.