EXECUTIVE SUMMARY

A. Introduction

The Land Transportation Office (LTO) was created under the umbrella
organization of the Department of Transportation and Communications (DOTC) by virtue
of Executive Order Nos. 125 dated January 30, 1987 and 125-A dated April 13, 1987 as
amended by Executive Order No. 226 dated July 25, 1987.

LTO is guided by the policy of promoting and maintaining safe, efficient,

comfortable and economical land transportation services throughout the country by
providing a rationalized system of motor vehicle registration, driver’s licenses and
permits issuance, law enforcement and adjudication of traffic violation cases. All LTO
activities are directed towards the support of the economic, industrial and social
development of the country.

LTO’s vision is to be a model government agency showcasing excellent and

quality public service for a progressive land transport sector.

The Land Transportation Office functions under the Department of

Transportation and Communication. The Assistant Secretary heads the office and assisted
by an Executive Director. LTO has two (2) services, the Law Enforcement Service and
the Traffic Adjudication Service. It has eight (8) divisions and with a network of sixteen
(16) regional offices. Under these regional offices are 141 regular District Offices, 72
Extension Offices, 28 Licensing Centers, 1 mobile Unit, 25 Driver’s License Renewal
Centers (DLRC), and 1 One-Stop-Shop.

As of December 31, 2010, the LTO including its regional offices has a total
personnel complement of 2,285 as follows: 2,205 regular employees, 31 presidential
appointees, 47 casuals and 2 temporary personnel. The 2,236 officials and employees
represented 78.98% of the 2,831 plantilla positions, leaving 595 vacant positions.

B. Financial Highlights

The following comparative data show the financial condition, results of

operations and sources and applications of funds for Fund 101 of the LTO for the years
2010 and 2009:

Increase/
Particulars 2010 2009 (Decrease)
Financial Condition
Assets P1,292,214,903 P 940,042,079 P 352,172,824
Liabilities 681,280,185 344,966,762 336,313,423
Government Equity 610,934,718 595,075,317 15,859,401

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 Increase/
Particulars 2010 2009 (Decrease)
Results of Operations
Income P1,833,089,671 P1,781,510,748 P51,578,923
Expenses 1,760,105,383 1,695,128,699 64,976,684
Excess of Income over Expenses
before gains/loss on sale of assets 72,984,288 86,382,049 ( 13,397,761)
Excess of Income over Expenses
after gains/loss on sale of assets 72,644,082 86,143,269 ( 13,499,187)

Sources and application of Funds

Allotments P1,856,971,264 P1,908,793,959 P( 51,822,695)
Obligations 1,814,011,211 1,854,984,884 ( 40,973,673)
Balances 42,885,929 53,809,075 ( 40,973,673)

C. Operational Highlights

a) During the year, the LTO generated revenue collections in the total amount of
P13,010,116,104 which was 1.53% above its target of P12,813,574,000 or an
increase of P1,005,297,444 or 8.37% over last year’s collection of P12,004,818,660.
The virtual escalation of income was due to the following:

 Continuous and enhanced campaign against violators of RA 8749 (Clean Air Act)
and RA 8750 (Seatbelt Act of 1999), “colorum” operation, unregistered motor
vehicles/motorcycles and other violators of the land transportation rules and
regulations;
 Continuous outreach mobile registration and licensing services especially in far-
flung areas;
 Adoption of a methodical and effective flow of transactions to guarantee an
expeditious and accurate provision of frontline services to the public;
 Firm adherence to the imposition of approved dues, fees and penalties on motor
vehicle/motorcycle registration, licensing of drivers and conductors and
apprehension cases; and
 Issuance of Optional Motor Vehicle Special Plates (OMVSP).

b) Implementation of the LTO-IT Project

Out of 303 sites which include the Regional Offices, Regular District Offices,
Licensing Centers, DLRCs, One Stop Shop and E-Patrol, 284 sites are automated as
of December 31, 2010.

c) Motor Vehicle Registration

Registered of 6,634,855 units of motor vehicles, showing an increase of 414,422 or

6.66% compared with 6,220,433 units registered in the preceding year.

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d) Licensing of Drivers and Conductors

Issued 4,266,227 pieces of driver’s licenses and permits, with an increase of 9.75%
or 378,895 over last year’s data of 3,887,332 pieces.

e) Enforcement of Traffic Laws, Rules and Regulations

The enforcement of traffic rules and regulations by LTO Enforcers and the deputized
agents of the LTO resulted to the apprehension of 791,555 violators for CY 2010.

f) Other LTO Projects and Activities for CY 2010 were:

 Expanded Motor Vehicle Inspection System (MVIS) Project

The Motor Vehicle Inspection System (MVIS) of LTO was launched to

provide a systematic, reliable and effective testing of motor vehicles
nationwide in compliance with Republic Act (RA) No. 4136 known as the
Land Transportation and Traffic Code of the Philippines and Republic Act
8749 or the Philippine Clean Air Act of 1999. To date, out of the 11 units
MVIC equipment, four (4) were installed of which only one was operational,
while the 7 units remained uninstalled.

 E-Patrol Project

The project involves mobile licensing, motor vehicle registration and

settlement of apprehensions to bring LTO services to remote districts.

 Quality Management Program

Installation of the Total Quality Management (TQM) entails the setting up of

an integrated infrastructure that shall enhance existing internal and external
operations of the office and the delivery of public service.

 Air Quality Project

PETC Authorization and monitoring activities

PETC Database Development
PETC NEC TWG

 Road Safety Projects

The Road Safety Projects have several activities such as (a) Driver’s Training
Seminars; (b) Traffic Safety Seminars for apprehended drivers; (c) PARA Sa
Tsuper Projects; (d) Outreach Training Seminars on Traffic Safety
Management; (e) LTO Road Traffic Safety Center; and (f) Drivers Test Track.

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  Road Safety Advocacies

LTO has lined up several activities for its Road Safety Program, which is at
utmost concern of the government and of the public transport industry. The
objectives of this project are to : (a) formulate and implement a road safety
management framework; (b) widen the base of road safety advocacy, initially
in key cities nationwide; and (c) produce and disseminate training modules,
aids and publicity/information materials on road safety education. Some of the
projects being pursued under this program are: Youth for the Environment and
Safety Movement (YES Move); Traffic Safety Education and Publicity
Campaign; Integrity Partnership and Coordination; Regional Road Safety
Planning Workshops and Assessment Meeting; Traffic Discipline Zone (TDZ)
project; and Drafting of the Administrative Order on the Rules and Regulations
for the Operation and Use of Motorcycles on Highways.

The following is a comparative analysis of the LTO accomplishments for CY

2010 viz-a-viz its targets:

% of
Particulars Targets Accomplishments Accomplishments
MV/MC registered 6,469,250 6,634,855 102.56
MV Registered Transaction Handled 10,836,380 11,036,592 101.85
License and Permits Issued 3,965,080 4,266,227 107.59
License and Permits Cases handled 5,627,840 5,945,629 105.65
Plate Manufactured
 MV plates (in pairs) 257,907 316,050 122.54
 MC/Trailer plates (in pieces) 915,938 1,172,132 127.97
No. of Apprehended Drivers 761,310 791,555 1033.97
No. of Impounded Vehicles 19,441
No of Apprehension (RA 8750) 130,742
Revenue Collections P12,813,574,000 P13,010,116.04 101.53

D. Scope of Audit

The audit covered the financial transactions and operations of LTO for the year
ended 31 December 2010. The objectives of the audit were to (a) verify the level of
reliance that may be placed on management’s assertions on the financial statements; (b)
recommend agency improvement opportunities; and (c) determine the extent of
implementation of prior year’s audit recommendations.

E. Auditor’s Report

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

financial statements due to errors affecting the fair presentation of some account balances

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in the financial statements which are discussed in detail in Part II of this report and are
briefly summarized as follows:

Over (Under) % of Error % of Account

Obs. Accounts statement to Account Balance to
No. Nature of Error Affected ( in millions) Balance Total Assets
9(a) Unserviceable and undisposed Various PPE 39.092
Property, Plant and Equipment not accounts
reclassified or dropped from the PPE
accounts by LTO-SHO, NCR, IV, Other Assets (39.092)
and V
Non-dropping from the books of Various PPE 0.872
account of LTO Region VII the cost accounts
of unserviceable equipment already
disposed
9 (b) Unbooked donated Lots by LTO Land (2.070)
Regions I and VII
9 (c) Missing Equipment by LTO-SHO Military and .416
Police
Equipment

Motor Vehicle
9 (d) Equipment dropped from the books Office (2.885)
of accounts of LTO Region III Building
without supporting documents
Other
Structures
10 (a) Unrecorded inventory issuances in Office 2.351
Region VIII due to delayed Supplies
submission and non-preparation of Inventory
the monthly Report of Supplies and
Materials Issued (RSMI) Accountable
Forms
Inventory
10 (b) Obsolete/unusable inventory items Accountable 4.023
still in the books of accounts of LTO- Forms
SHO, NCR, I, IV, V, VIII and XII Inventory

Other Supplies
Inventory

Other Assets (4.023)

10 (c) Unrecorded issuances of inventory Accountable .018
due to the non-preparation and Forms
submission of Monthly Report of Inventory
Accountability for Accountable
Forms (RAAF) of LTO Regions V,
VII and XII
14 Expended but unliquidated cash Advances to 0.286
advances Officers and
Employees
Net Financial Impact (1.012) million
Total Assets P1,292.21 billion
% of Error to Total Assets (0.078%)

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 Other noted deficiencies are summarized below:
Amount of
Obs. Inventory/PPE Inventory/PPE
No. Deficiencies Accounts Affected Balance Affected (in
millions)
9 (e) Unreconciled discrepancy Various PPE accounts P 436.10
between property and accounting
records; absence of physical
inventory; incomplete/un-
updated Property, Plant and
Equipment Ledger Cards and
Property Cards; and erroneous
adjustments
10(a) Delayed submission of the
monthly Report of Supplies and
Materials of LTO Regions:

NCR Other Supplies Inventory P 38.746

VI Office Supplies Inventory 0.596

Accountable Forms Inventory 3.337
Other Supplies Inventory 3.603
Gasoline, Oil and Lubricants 0.100

X Office Supplies Inventory 2.396

Accountable Forms Inventory 0.872
Other Supplies Inventory 7.300
Gasoline, Oil and Lubricants 0.041

XII Accountable Forms Inventory 3.809

Other Supplies Inventory 11.467

10(d)  Overstocking of inventories of Raw Materials Inventory P 40.148

LTO-SHO- P40,220,859

 Non-submission of a copy of Accountable Forms Inventory 7.478

acknowledgment receipt of
forms received from LTO-
SHO to the Regional Property
Officer of LTO-NCR

 Unreconciled difference of
P12,250,231.46 between the
books of accounts and the
Report of Physical Count of
Inventories of LTO Regions:

II Office Supplies Inventory 0.816

Accountable Forms Inventory 2.092
Other Supplies Inventory 4.874

VIII Office Supplies Inventory 0.638

Accountable Forms Inventory 6.320

 Missing Accountable Forms

of LTO Region VII Accountable Forms Inventory 0.953

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 Amount of
Obs. Inventory/PPE Inventory/PPE
No. Deficiencies Accounts Affected Balance Affected (in
millions)

 Issuance of accountable forms

not in numerical sequence Accountable Forms Inventory 0.953
10(f) Non-preparation/not updated P
Supplies Ledger Cards and Stock
Cards of LTO Regions:
VII Office Supplies Inventory 0.403

VIII Accountable Forms Inventory 6.320

XII Accountable Forms Inventory 3.809

Other Supplies Inventory 11.467
10(g) No Physical Inventory conducted P
by LTO:

NCR Accountable Forms Inventory 7.478

Other Supplies Inventory 38.746

I Accountable Forms Inventory 1.042

Other Supplies Inventory 4.579

IV-A Accountable Forms Inventory 2.591

Other Supplies Inventory 5.436

VI Accountable Forms Inventory 3.337

Other Supplies Inventory 3.603

For the above errors and deficiencies, we recommended that management: (a)
reconcile the accounting and property/supply records of all inventory and property
accounts balances and adjust various accounting errors in all affected accounts; (b)
conduct a regular physical inventory of property, plant and equipment including
inventory items to verify their existence; (c) facilitate reclassification/ disposal of
unserviceable property, equipment and their subsequent dropping from the books of
accounts; and (d) strictly enforce the maintenance and updating of Subsidiary Ledger
Cards/Property, Plant and Equipment Ledger Card and Stock Cards/Property Cards to
facilitate reconciliation.

F. Other Significant Observations and Recommendations

Hereunder are the other significant audit observations noted during the year and
the corresponding recommendations that are discussed in detail in Part II of this report.

1. The national government, thru the LTO, failed to realize additional income
of P1.248 billion from IT fee collections for Miscellaneous Motor Vehicle
Registration Transactions and Miscellaneous License and Permit
Transactions from November 2005 to December 2010 due to long inaction

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 by DOTC on the long proposed supplemental agreement on revenue sharing
with Stradcom Corporation (STRADCOM) by the DOTC.
(Observation No. 1)

We recommended that LTO study the propriety of instituting appropriate

administrative charges against DOTC officials who failed to protect the
interest of the government by not acting on the proposed supplemental
agreement that will provide the basis for the government to share in the IT
fees on account of the use of LTO database.

2. The LTO allowed STRADCOM as its IT Provider, the use of the agency’s
database for the latter’s interconnectivity projects it contracted with
government agencies and private entities which are not part of the BOO
Agreement and without the benefit of a contract thus, precluding the
government to benefit from the interconnectivity fees, estimated to be at least
P2.015 billion, collected by STRADCOM since 2006. (Observation No. 2)

We recommended that management:

(a) review and evaluate the Memorandum of Agreement (MOA) executed

between STRADCOM and other parties like the MMDA, LTFRB,
PETCs and insurance companies relative to the interconnectivity fees
since LTO’s consent was not obtained prior to its execution and it was
not included as a party to the said agreement although is has beneficial
interest over the database used;

(b) institute appropriate legal actions in the proper forum to determine the
propriety of the MOAs on interconnectivity and to establish the legal
basis for the imposition of interconnectivity fees since both were not
included in the provisions of the original BOO contract and in the
Amendment Agreement; and

(c) institute appropriate legal actions against DOTC/LTO officials who

allowed the use of LTO database without its consent and without
compensation, to the prejudice of the government resulting in huge loss
of income to the government.

3. The LTO IT Provider collected computer service fees totaling

P340,719,574.24 from 2003 up to 2007 from license applicants and vehicle
registrants which were not actually and directly rendered since said
transaction were processed. Of said amount, which should have been
remitted to the Bureau of Treasury, P266,093,753.63 was already paid to
STRADCOM while the balance of P74,625,820.61 remained deposited in the
Escrow Account. (Observation No. 3)

We recommended that management cause the remittance to the Bureau of

Treasury of the aforesaid remainder of P74,625,820.61 in the Escrow
Account and seek legal assistance from the Solicitor General for the recovery
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 from STRADCOM the amount of P266,093,753.63 it had collected earlier.
Considering that under the present circumstances, LTO and STRADCOM are
creditors and debtors to each other, legal compensation could be availed of
pursuant to Article 1278 of the Civil Code.

4. The agency does not have adequate monitoring system for its vehicle plate
production, nor does it have clear cut policies/guidelines in the disposal of
plates spoiled in the process thus, posing an auxiliary risk that the
unaccounted and/or spoiled plates may have been used for illegitimate
purpose/s. (Observation No. 4)

We recommended that management establish policies/guidelines on the

monitoring and validation of plate production reports to ensure that all the
plates produced and spoilage are all accounted for thus, preventing the use of
the same for illegal purpose.

5. Management did not have a system that addresses the issue on unclaimed
vehicle plates and driver’s licenses which were confiscated for various
violations. As a result, the agency failed to realize the possible revenues
from fines and penalties for unclaimed confiscated vehicle plates and driver’s
licenses totaling 12,267 and 19,038, respectively, as of year-end, and also
overlooked the possibility that some of these vehicles and/or drivers are still
plying the roads posing threat to public safety. (Observation No. 5)

We recommended that management:

(a) strictly enforce the suspension and revocation of driver’s license and
registration of motor vehicle for non-settlement of cases within 15 days
from the date of apprehension pursuant to Section 29 of RA 4136 and
Section B-24 and Section E-61 of Department Order No. 2010-39;

(b) exhaust all possible means to determine from the agency data base
whether the erring drivers and/or motor vehicle owners were allowed to
renew their licenses or have continued to use the subject vehicles, and
impose appropriate sanctions and in the event that the above data could
not be obtained, dispose/destroy unclaimed motor vehicles/motorcycle
plates apprehended in 2006 and below to prevent unscrupulous
individuals the opportunity to use them illegally; and

(c) direct the prompt uploading (within 24 hours) in the system all
apprehensions to ensure that the same are settled before the licenses are
renewed or the vehicles are registered, in compliance with Section B.9
of Memorandum Circular No. 515-2004.

6. The failure of the LTO-NCR, Regions I, IV, V, VI and XII to issue written
notices to owners of 676 impounded vehicles which have remained
unclaimed for over six months to ten years, had precluded the agency from
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 disposing of them in accordance with Section 1 of Presidential Decree No.
1729, and free office premises from congestion and provide adequate
storage space. (Observation No. 6)

We recommend that management:

(a) conduct full inventory and inspection of the impounded motor vehicles
and maintain a database with all the necessary information to facilitate
their early disposal;

(b) issue final written notice to owners of the impounded motor vehicles
already due for disposal informing them of the planned sale as
mandated under Section 1 of PD 1729;

(c) cause the disposal of the vehicles through auction sale in accordance
with Section 1 of PD 1729, if owners show no interest in redeeming the
same, to prevent their further deterioration and loss of economic value
and to be able to benefit from the sale and collect additional revenue for
the government; and

(d) instruct the official concerned of LTO General Santos District Office to
submit a full report of the bidding/sales conducted to the Regional
Office for proper accounting thereof.

7. The standard procedures embodied in LTO Memorandum Circular No. 515-

2004 for the accounting, monitoring and encoding of Temporary Operator’s
Permit (TOP), Motor Vehicle Impounding Receipt (IRMV), law
enforcement operations and adjudication of apprehension cases were not
complied with by LTO Regions I, IV, V and X resulting in unaccounted
TOPs. (Observation No. 7)

We recommend that management:

a) require the concerned officials to strictly implement the provisions of

LTO Memorandum Circular No. 515-2004;

b) instruct the concerned accountable officers to render an accounting of all

the accountable forms issued to them specifically the TOPs and IRMVs;

c) refrain from issuing additional TOP booklets unless the previous TOPs
issued have been fully consumed/accounted for;

d) require all law enforcers/deputized agents to issue TOPs in numerical

sequence to facilitate accounting of the used and unused forms; and

e) submit to COA the Monthly RAAFs for proper verification and audit.

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 8. In LTO Region I, resolutions are still being automatically generated by the
LETAS facility for apprehensions admitted by violators who willingly paid
the fines and penalties thereby, prolonging the processing time and
increasing the cost of supplies expenses. (Observation No. 8)

We recommended that management:

(a) consider the merits of eliminating the process of issuing resolutions for
admitted/uncontested cases to shorten the processing time and reduce
the cost of supplies expenses; and

(b) cause the issuance of summons both for the apprehending/law

enforcement officer and respondent which should be recorded in a
logbook for monitoring purposes.

The above observations and recommendations were discussed with management

officials concerned in an exit conference held on August 26, 2011. Their comments are
incorporated in this report where appropriate.

G. Implementation of Prior Year’s Audit Recommendations

Out of the forty nine (49) audit recommendations presented in the CY 2009
Consolidated Annual Audit Report of the Land Transportation Office, eleven (11) were
implemented, twenty nine (29) were partially implemented, nine were not implemented
the details of which are discussed in Part II. The partially implemented and
unimplemented audit recommendations are reiterated under Part II of this Report for LTO
Management’s consideration.

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