EXECUTIVE SUMMARY

A. Introduction
By virtue of Republic Act (RA) 6975, known as “An Act Establishing the
Philippine National Police under a reorganized Department of the Interior and
Local Government and Other Purposes,” a highly effective and competent police
force that is national in scope and civilian in character was established in 1991.
Also, as amended under RA 8551, otherwise known as the Philippine National
Police Reform and Reorganization Act of 1998, the PNP was envisioned to be a
community and service oriented agency responsible for the maintenance of peace
and order and public safety.

The PNP Organizational Set-up is composed of the Central Office or the

National Headquarters (NHQ), which housed the offices of the PNP Chief, two
Deputy PNP Chiefs – one for Administration and one for Operations, the Chief
Directorial Staff, who acts as the chief operating officer and who coordinates,
supervises and directs the ten Directorial Staffs, with the support of ten
Administrative and ten Operational Units, and the seventeen Police Regional
Offices (PROs) nationwide corresponding to the regional subdivisions of the
country to include the NCRPO, PROs 1, 2, 3, 4A (CALABARZON), 4B
(MIMAROPA), 5, 6, 7, 8, 9, 10, 11, 12, 13 (CARAGA), CAR and ARMM.

The PNP Chief is also assisted by the Internal Affairs Service (IAS) to
ensure the operational readiness of the police and investigate infractions of the
regulations committed by members of the PNP, and the Program Management
Office (PMO) which serves as management facility and idea center for the PNP
Integrated Transformation Program. For police training, human resource
development and continuing education, the Philippine Public Safety College
together with the Police National Training Institute (PNTI) is the premier
educational institution of all PNP personnel. Also, PNTI has direct supervision and
administrative control of the Philippine National Police Academy (PNPA).

During the year 2007, PNP upgraded the Women and Children Concerns
Division and transformed it into Women and Children Protection Center (WCPC)
to serve as “one-stop shop” for the investigation and treatment of victims of child
sexual abuse, violence against women and other similar crimes, through a multi-
disciplinary approach, and the activation of the PNP Human Rights Affairs Office
(PNP-HRAO) to serve as management facility to oversee the implementation of
PNP guidelines and policies on human rights laws in conformity with the directive
of HEPGMA for the government’s human rights campaign strategy.

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 The total manpower of PNP is 124,988 or less by 6,784 of the 131,772 as
authorized for CY-2007, with details as follows:

Police Commissioned Officers (PCOs),

from Director General to Police Inspector - 10,115
Police Non-Commissioned Officers (PNCOs),
from Senior Police Officer IV to Police Officer I - 109,799
Non-Uniformed Personnel (NUP), Civilian - 5,074
Total 124,988

B. Financial Highlights
The PNP’s financial condition and results of operations for calendar year
2007, compared with that of the preceding year are as follows:

CY-2007 CY-2006
Total Assets P 17,364,541,364.50 P 18,976,194,533.56
Total Liabilities 2,866,064,438.41 2,924,468,861.01
Government Equity P 14,498,476,926.09 P 16,051,725,672.55

Sources and applications of fund for the years 2007 and 2006 are as follows:

Total Allotment:
Current Appropriation
Continuing Appropriation
Total Obligations Incurred
Unexpended Balance
CY-2007 CY-2006
P58,182,548,148.00 P51,162,203,066.00
1,371,594,558.72 3,786,474,938.34
59,554,142,706.72 54,948,678,004.34
58,889,149,855.38 53,569,933,875.70
P 664,992,851.34 P 1,378,744,128.64

Out of the total allotment of P59,554,142,706.72 for CY-2007, 99% or

P58,889,149,855.38 was obligated/incurred for the following expenditures: a) 79%
or P47,088,541,181.09 for Personal Services (PS); b) 19%% or
P11,103,187,685.36 for Maintenance and Other Operating Expenses (MOOE); and,
c) 1% or P697,420,989.93 for Capital Outlay (CO), thereby leaving an
unexpended balance of P 664,992,851.34 or 1%, as illustrated below:

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 CO Unexpended
1% 1%
MOOE
19%

PS
79%

The Statement of Allotments, Obligations and Balances are presented in

detail in Annex 1.

C. SCOPE OF AUDIT

The audit covered the operations of the PNP for calendar year 2007. The
audit was conducted to ascertain the propriety of financial transactions and
compliance of the agency to prescribed rules and regulations. It was also aimed to
ascertain the accuracy of financial records and reports, as well as, the fairness of
presentation of the financial statements.

D. AUDITOR’S REPORT

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

the financial statements of the Philippine National Police due to unliquidated cash
advances for payroll, operating expenses and travel; inaccurate balance of Cash in
Bank - Local Currency, Current Accounts due to undocumented and unbooked
reconciling items; dormant/idle Cash in Bank balances; unreliable balance of Due
from NGAs (PS-DBM) account; inaccurate and unreliable balances of Inventory
accounts; unreconciled book and bank balances of Deposits on Letters of Credit
(DLC); inaccurate balances of PPE account; and inaccurate balances of the liability
accounts.

E. OBSERVATIONS AND RECOMMENDATIONS

We have noted significant observations, for which corresponding

recommendations were likewise offered as follows:

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Financial/Compliance Audit

1. Cash advances for payroll fund of P41,578,597.86 and advances to officers and
employees of P13,676,229.90, or a total of P55,254,827.76, remained
unliquidated, and considering the length of time that has elapsed, these amounts
should have been expended, however, due to failure of some accountable
officers to submit liquidation reports, the corresponding expenditures could not
be taken up which tend to overstate the cash and receivable accounts and
understate the expense accounts.

We recommend that management:

ƒ Require all concerned accountable officers to immediately settle their

accounts and henceforth comply with the provisions of Section 89,
P.D. 1445 and Section 5, COA Circular 97-002.

ƒ Withhold the salaries of those who continue to neglect their duty.

ƒ Require the accounting office to complete the requirements necessary

to support the dormant accounts requested for authority to write-off in
accordance with COA Circular 97-001.

2. The balance of the Cash in Bank, Local Currency Current Account of

P1,237,682,057.76 is inaccurate as the Bank Reconciliation Statement
includes invalid reconciling items for the Continuous Form Check (CFC)
accounts in the amount of P191,814,549.63; unsubstantiated outstanding
checks of P1,951,564,241.81; and unrecorded disbursements/withdrawals
and/or deductions of P76,392,104.66 from the PNP Provident Fund.

We recommend that management require the:

ƒ Finance Service Office (FSO) to submit the Report of Checks Issued

(RCI) to the Accounting Unit, together with the disbursement vouchers
and supporting documents to record the disbursements/bank charges in
the books of accounts.

ƒ FSO to make representation with the bank for the listing of

encashed/paid checks as basis for reconciliation.

ƒ Accounting Unit to prepare regularly individual Bank Reconciliation

Statements of the four CFC accounts as well as the other accounts and
to document all reconciling items per books and per bank.

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 ƒ Accounting Unit to maintain a separate set of books of accounts for the
PNP Provident Fund, Inc. which should likewise be subject to
accounting and auditing rules and regulations, and refrain from making
disbursements out of the fund without complete documentation
.
3. Out of the balance of P1,237,682,057.76 of the Cash in Bank Local Currency
Current Account, the amount of P46,607,353.03 deposited under several trust
receipts and CFC accounts with the Land Bank of the Philippines remained
dormant/idle for two or more years without transactions except entries for
bank interests and service charges, contrary to the provisions of Section 3.1 of
COA-DBM-DOF Joint Circular 1-97 and Sections of 4.9 of COA Circular,
which requires all agencies to remit existing cash balances to the National
Treasury and/or return the same to the Source Agencies after the projects for
which the fund is granted have been completed.

We recommend that management:

ƒ Require the remittance to the National Treasury or return to the Source

Agencies all excess cash balances in accordance with COA-DBM-
DOF Circular 1-97; and/or

ƒ Make representation with the concerned Source Agencies for authority

to utilize the fund balances for police operations in order to augment
the meager resources of the PNP pursuant to COA Circular 94-013.

4. The balance of Due from NGAs account of P271,005,609.35, includes

receivables from PS-DBM of P103,100,185.78 which are already more than
one year to six years; unreconciled balances of PNP records with the PS-
DBM records by P31,158,891.55; and undocumented deliveries, thus, casting
doubts on the reliability of the balances, contrary to Sections 111 of PD 1445
and 53 of GAAM.

We recommend that management require the regular reconciliation of the

accounting records with that of the PS-DBM records and effect adjustments
noted, if any, and require the Logistics Support Service /end users to
document all items already delivered and forward the delivery documents to
the accounting office for recording.

5. Advances to the National Computer Center (NCC) amounting to

P140,275,000.00 for the National Crime Information System (NCIS) Project
pursuant to a Memorandum of Agreement remained unimplemented since CY
2000 despite efforts to confirm from their end the utilization of the funds,
hence, it deprived the PNP of the benefits to be derived therefrom for police
operations contrary to COA Circular 94-013.

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 We recommend that management:

ƒ Request the Implementing Agency to comply with the regulations

under COA Circular 94-013,

ƒ Require the PNP Project Directors/Managers to look for amenable

solutions for the implementation of the project, and

ƒ Take action by communicating with NCC on the status.

6. Unpaid rentals of Concessionaires and Kiangan Billeting Center, as well as,

their unsettled light and water consumption even of the PNP personnel living
at the quarters totaling P10,595,535.04 were not taken up in the books due to
failure of the operating division Headquarters Support Service (HSS) to
provide the updated billings/statement of accounts to the accounting division,
thus, resulted in the understatement of other receivables and income accounts
contrary to Section 63 of GAAM and Sections 21(1) of the Manual on NGAS.

We recommend that management:

ƒ Require the HSS to update the billings/statement of accounts and

provide the Accounting Division with a copy for proper recording in the
books of accounts and enforce the collection thereof.

ƒ Coordinate with the Finance Office for the deductions from the monthly
pensions of the retired PCOs/PNCOs, and for the deceased
PCOs/PNCOs exert effort to collect from their survivors but if collection
is futile, comply with and submit the necessary documents required for
the write-off of the non-moving accounts.

ƒ Require the PNP Housing Board to formulate policies to enforce the

collection from delinquent PNP personnel living at the quarters through
salary deductions and contracts should be renewed annually with
provisions of interest for the delay and penalty for non-payment.

7. The balance of inventories valued at P860,340,794.33 is inaccurate due to

unrecorded issuances resulting from the delay in the submission of the Report
of Supplies and Materials Issued (RSMI) and the direct charging of
procurements to expense instead of inventory. The reliability of the account
balance could not be ascertained as well due to failure of management to
conduct physical count on inventories and the non-maintenance of stock
cards. Moreover, the absence of an Annual Procurement Plan (APP) for
common-use supplies resulted to overstocking of supplies due to excessive
procurements, contrary to the Manual on NGAS and Rule II, Sub-section 7.1
of RA 9184.

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 We recommend that management:

ƒ Create an inventory committee per office/unit to conduct physical

count of inventories every semester and reconcile the RPCI with the
accounting records;

ƒ Require the SAOs to maintain stock cards for each item of inventory
and to submit regularly the RSMI to the accounting unit;

ƒ Comply with the provisions of Section 7, Rule II – IRR of RA 9184

pertaining to the preparation of the APP for common-use supplies;

ƒ Request authority to write-off those inventory balances that remained

dormant for years and whose accountability could no longer be traced
in accordance with COA Circular 97-001; and,

ƒ Stop the practice of treating directly the purchases of food supplies and
GOL products as expenses instead of inventories.

8. The balance of P215,201,374.78 of the account Deposits on Letters of Credit

(DLC), which pertained to the procurement of imported police equipment do
not reconcile with bank records, contrary to Section 73(a) of the Manual on
NGAS.

We recommend that management:

ƒ Locate the supporting documents like making representation with the

concerned banks for the possibility of securing available
documents/proof of deliveries of the imported police supplies and
equipment and submit the same to the Accounting Office in order to
clear the DLC account in the books. If efforts proved futile, take steps
to seek authority for write off pursuant to COA Circular 97-002;

ƒ Refrain from utilizing the refund of DLC for other purposes without
authority from the DBM.

9. The balance of the Property, Plant and Equipment of P19,473,213,014.09 is

inaccurate due to the non-reconciliation of the difference of
P1,067,741,818.32 between the accounting and property reports; non-
provision of allowance for depreciation of depreciable assets valued at
P936,547,741.94; non-recording of transferred/donated properties from the
NHQ/LGUs; and failure to reclassify the unserviceable/beyond economic
repair properties of P41,163,346.00 to Other Assets.

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 We recommend that management:

ƒ Require the conduct of a PNP-wide physical count on all PPE and

submit the RPCPPE to the Accounting Office to serve as basis in the
reconciliation of the accounts. Further, require the Property Officers to
maintain an updated property cards. Likewise, the PPE without
valuation, an appraisal committee should be created to determine the
assigned value/cost thereof for recording in the books.

ƒ Exert effort in obtaining the appropriate documents of the land and

work out for the titling of the same.

ƒ Send confirmation to Police Regional Offices on the PPE transferred

to them if these were already taken up in their books, so that the
records will be updated.

ƒ Require the Chief Accountant to take up the necessary adjustments in

the books of accounts pertaining to the unrecorded PPE found in
station and those unserviceable PPE already turned-over to the PNP-
NHQ, in which case, the same should be dropped from the books of
the PRO concerned.

ƒ Adhere to the provision of the Manual on NGAS and COA Circular

Letter 2004-003 specifically in the computation of allowance for
depreciation.

ƒ Require the Regional Accountants to prepare the necessary adjusting

entries pertaining to the reclassification of the obsolete PPE in order to
correct the balance of the affected accounts and create an
appraisal/disposal committee in PROs concerned to dispose the
unserviceable and obsolete properties, so the same could be dropped
from the books

10. The balance of the liability accounts totaling P2,866,064,438.41 is inaccurate

as it includes Accounts Payable amounting to P70,440,757.36 which have
remained outstanding for two or more years, and undocumented obligations or
with no known creditors contrary to Section 72 of the Manual on NGAS and
COA-DBM Joint Circular 99-6.

We recommend that management:

ƒ Require the strict adherence to the provisions of the Manual on NGAS

and COA-DBM Joint Circular 99-6, requiring the reversion of dormant
and undocumented payables;

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 ƒ Require the Chief Accountant to regularly review the payables to ensure
that only those rightful obligations are recorded in the books of accounts
and presented in the financial statements, and to submit a report thereon
for audit.

11. Repairs and maintenance of IT and Software Equipment at the NHQ in the
amount of P33,610,008.99 for the period January to December, 2007 had
exceeded the 30% limitation of the prevailing market value of the equipment,
hence, the same were considered beyond economical repair, while in NCRPO,
repairs and maintenance of Office and IT Equipment in the amount of
P10,368,315.00 was more than the recorded cost of the properties of
P8,105,574.34 and was excessive contrary to the provisions of COA Circular
85-55A.

We recommend that management should strictly observe the provisions of

COA Circular 85-55A.

12. The amount of P20,338,763.10 Scholarship Funds remitted to various

recipient agencies was less than the approved 25% or an equivalent of
P39,097,984.42 of the net proceeds from firearms license fees of
P156,391,937.66, thereby depriving the intended beneficiaries of the much
needed funds of P18,759,221.32 .

We recommend that management remit the balance of the 25% allocation from
the net proceeds of firearms license fees to the recipient agencies in
accordance with Section V-A of PNP SOP No. 24 series of 2006, as amended.

13. Disbursements on loans, withdrawals and other deductions of PNP Provident

Fund Inc. (PPFI) totaling P74,024,000.16 were paid without the necessary
vouchers and supporting documents to warrant such payments contrary to
Section 4(6) of the Manual on NGAS, thus casting doubts on the validity and
propriety of the said disbursements.

We recommend that management:

ƒ Require the Finance Service Office (FSO) and Accounting Office to

account, collect and document all loans extended to the members.
Likewise, hold in abeyance all similar transactions until such time that
the DBM will issue the implementing rules and regulations regarding
the provident fund in accordance with EO No. 641 dated July 25, 2007.

ƒ Stop the operations of PPFI and deposit the existing balance of the
provident fund to the National Treasury or return the same to the PNP
Service Fees Fund, and to including all succeeding collections thereof.

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 14. Retired/terminated/separated PNP personnel totaling 1,739 were not deleted
from the payroll immediately. Before their deletion, they have been
continuously included in the payroll for 15 days to as long as 9 years. If the
corresponding checks with total amount of P76,802,988.50 were not cancelled
and then presented to the bank for encashment, it could mean losses to the
government.

We recommend that management:

ƒ Require the FS and the Accounting Office to ensure and look into the
cancellation of the printed CFCs or require for the refund of the
retirement gratuity/monthly pensions if the same were encashed by the
retirees.

ƒ Require the DPRM, FS, and PNP CS to establish or activate linkages or

on-line services with the Regional Offices, as well as, within the
National Headquarters for the purpose of regularly updating the status of
PNP personnel and for the immediate deletion/blocking in the master
payroll of all those terminated/separated from the service.

ƒ Amend/modify PNP SOP 21 to include that the claims for the last
payment before retirement date should be through disbursement voucher
in order to account for the exact amount of pay especially if there is a
fraction thereof. Also, include the liability/accountability of PNP action
officers for nonfeasance, misfeasance and malfeasance that may result to
loss of the government.

Value for Money Audit

15. Construction of Police Stations/COMPACT amounting to P895,029,439.07

were partially/not implemented in some Police Regional Offices due to lack of
funds; unreleased Local Government Unit counterparts; non submission by
some PROs of approved plans and specifications and other documents for
bidding; and no available lots for the construction of the project, thus,
delaying the accomplishment of the objectives of the program.

We recommend that management:

ƒ Make representation with the Local Government Units (LGUs) for the
release of their counterpart funds and to see the availability of lots for
the construction of the police stations/centers..

ƒ Follow up the early release of funds from the National Headquarters for
the projects and complete all the requirements necessary for bidding
process.

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 16. The agency could have generated savings from the 10% storage fee or
equivalent to P5,309,145.60 worth of fuel had it fully implemented the Fleet
Card System introduced by Petron in 2006 pursuant to PNP-SOP No. 2007-
01 dated January 16, 2007. Moreover, additional liters of gasoline, oil and
lubricants could have been acquired had management availed of the P0.40
discount in the procurement of GOL as stipulated under Art. V of the
Memorandum of Agreement (MOA) entered into by and between PNP-NHQ
and Petron Corporation.

We recommend that management:

ƒ Consider implementing in full the Fleet Card System not only in the
National Headquarters but PNP Wide for a more efficient, economical
and effective fuel management system.

ƒ Request Petron to account the unrecorded P0.40/liter discount of fuel

and forward the supporting documents/credit notes to the accounting
unit to take-up the discounts in the form of additional fuel as debit to
Inventory and credit to Government Equity

Other equally significant audit observations and recommendations were

also noted and discussed in detail under Part II of this report.

The above findings and recommendations contained in the report were

discussed with the concerned officials of the agency. Management views and
reactions were considered in the report, where appropriate.

F. IMPLEMENTATION OF PRIOR YEAR’S AUDIT RECOMMENDATIONS

Of the audit recommendations contained in the CY 2006 Annual Audit

Report, 5 were fully implemented, 12 were partially implemented and 3 on-going
implementation, while 6 were not implemented at all, hence, reiterated in this
report.

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