PART II - OBSERVATIONS AND RECOMMENDATIONS

Negative balances and unidentified reconciling items

1. Subsidiary ledger records of the Inter-Agency Payables accounts, namely Due to

BIR, Due to GSIS, Due to PAG-IBIG and Due to PHILHEALTH with a total
balance of P8,096,317.84 include negative balances of P454,070.76 and amounts
with no details totaling P603,599.99; thus, affecting the correctness of the general
ledger balances of the accounts contrary to Sec. 12 of the Manual on the New
Government Accounting System, Volume II.

1.1 Sec. 12 of the Manual on the New Government Accounting System, Volume II
provides that Subsidiary Ledger (SL) is a book of the final entry containing the
details or breakdown of the balances of the controlling account appearing in the
General Ledger (GL).

1.2 As of December 31, 2011, GL balances of the inter-agency payable accounts

amounting to P8,096,317.84 are broken down as follows:

Account Balance
Due to BIR 7,365,330.47
Due to GSIS 546,758.47
Due to PAG-IBIG 32,051.71
Due to PHILHEALTH 152,177.19
Total 8,096,317.84

1.3 In the verification of the supporting schedule of the subsidiary ledger records of the
above mentioned accounts, we noted the existence of negative accounts and the
inclusion of amounts that have no details as follows:

Account Balance Positive Negative No Details-PY’s

Due to BIR 7,365,330.47 7,338,946.73 -133,589.88 159,973.62
Due to GSIS 546,758.47 562,283.33 -311,728.32 296,203.46
Due to PAG-IBIG 32,051.71 22,045.76 -3,865.06 13,871.01
Due to
PHILHEALTH 152,177.19 23,512.79 -4,887.50 133,551.90

Total 8,096,317.84 7,946,788.61 -454,070.76 603,599.99

26
1.4 It was noted in the course of random verification of the subsidiary ledgers that there
were remittances posted in the SL without corresponding deductions resulting in
negative balances.

1.5 The existence of negative balances in the subsidiary ledgers is a manifestation that
these records are not being monitored. Abnormal balances are required to be
investigated or analyzed so that necessary correction/s could be made. There is also
laxity in the preparation of list of remittances that resulted in remittances without
corresponding deductions. The Chief Accountant who certified the correctness of the
remittances has not also checked the deficiencies noted. As a result, said deficiency
affected the correctness of the account balance.

1.6 Moreover, there is an unreconciled amount of P603,599.99 of which details are still
to be identified by the Accounting Division. The amount had been existing in prior
years, hence affecting the correctness of the ending balance of the accounts.

1.7 We recommended that management require:

a. the Accounting Division to strictly monitor the Due to BIR, Due to GSIS, Due to
PAG-IBIG and Due to PHILHEALTH accounts so that negative balances will be
analyzed and correspondingly corrected/adjusted;
b. the personnel in charge of preparing the List of Remittances to always see to it
that only those officials and employees who have deductions are included in the
list; and
c. the Chief Accountant to exert effort to determine the details of the amounts that
are still subject for reconciliation to ensure that balances of said accounts
appearing in the general ledger are correct.

Doubtful validity of Tax Refunds Payable

2. Of the P718,902.83 balance of the Tax Refunds Payable account, the amount of
P429,707.07 or 59.77 per cent were stale checks and unpaid tax refunds since the
payees were already separated from service or could no longer be contacted; thus,
had been outstanding for two years or more but were not reverted to the retained
operating surplus as required in COA-DBM Joint Circular No. 99-6.

2.1 In the course of our verification and analysis of the Schedule of the Tax Refunds
Payable as of December 31, 2011, we noted that it included payables to former

27
 employees of the Court that have been outstanding for two years or more. Aging of
the tax refunds payable is shown below:

No. of years/days outstanding Amount

3 years and above P341,141.96
Over 2 years 88,565,11
Sub-total due for reversion 429,707.07
Over1 year 43,120.92
Less than 1 year 246,074.84
Total P718,902.83

2.2 COA-DBM Joint Circular No. 99-6 dated November 13, 1999 prescribed the
guidelines on the reversion of accounts payable to the cumulative result of operation
of the national government which have been outstanding for two years or more
pursuant to Executive Order No. 109. The guidelines were issued due to proliferation
of dormant and outstanding accounts payable in the books of accounts of agencies
that hamper the national government efforts to establish a more realistic cash
program.

2.3 Our verification showed that some of the checks for tax refunds issued to the former
CA employees were not received by them and became stale, hence accumulated as
outstanding tax refunds payable. Other recorded tax refunds payable remained
outstanding since payees are no longer connected with the Court due to retirement,
resignation, transfer to other offices and termination of appointment. Details are as
follows:

Particulars Period Amount

Unpaid tax refunds May 2007 and PY 34,040.87
Unpaid tax refunds June 2007 to December 2009 246,113.12
Stale Checks June 2007 to December 2009 149,553.08
Total 429,707.07

2.4 The amount of P429,707.07 which is 59.77 per cent of the balance of the Tax
Refunds Payable account was not reverted to the retained operating surplus as
required in the abovementioned COA-DBM Joint Circular.

2.5 We recommended that management require the Chief Accountant to revert all tax
refund payables that have been outstanding for two years or more.

2.6 In response to our audit recommendation, the Chief Accountant will undertake the
reversion of all tax refunds payable particularly for years 2009 and below while tax

28
 refunds payable set up in 2010 will be further verified and payees will be notified in
writing of their unclaimed tax refunds

Delayed completion of construction of transformer vault

3. Delayed completion of the project on the construction of transformer vault room

due to lack of coordination between the agency’s Project Coordinator and the
contractor resulted in the non-realization of the intended benefits from the project.

3.1 The construction of the transformer vault room was recommended by the
Maintenance and Utility Section due to electrical problems being experienced by the
Court. The transformer vault room will provide electrical supply for the Annex I
Building which at present is connected to the Main Electrical Room which supplies
power in all the buildings except for the Centennial Building which has its own
transformer.

3.2 The Court entered into a contract on October 23, 2008 for the said project in the
amount of P2,404,572.80 with a Notice to Proceed received by the contractor on
December 18, 2008 for 45 calendar day completion of the project.

3.3 The contractor submitted its accomplishment report as of February 28, 2009 which
was equivalent to 89.34 per cent and requested for 1st Partial Payment in the amount
of P2,148,245.34. Officials from the General Services Division issued a certification
of verification and inspection and payment was approved by the agency head.

3.4 On June 1, 2009, the Project Coordinator reported delays in the completion of the
project due to requirements of the Electrical Division of the Manila City Hall on
signed copies of electrical load of the Annex I Building, requirements and approval of
MERALCO, and coordination work with Maynilad for adjustment of existing water
meter that affects the Steel Louver Door of the Transformer Vault Room.

3.5 Inquiry from the Project Coordinator revealed that the requirements and approval of
MERALCO was only complied with in early 2012. We noted however, that
contractor still have remaining works to be done which is equivalent to 10.66 per cent
to complete the project for a remaining project cost of P256,327.46 enumerated as
follows:

Particulars Percentage to be Completed

General Requirements A & E, 0.82
Plans, Permits/Bonds
Wires and Cables 6.82
Mechanical Works 2.17

29
 Cleaning, Testing & Turnover 0.85
Total 10.66

3.6 Also, as provided under Article XVIII, Section 18.1 of the Agreement, the contractor
is required to submit to the Court the following upon completion of the project:

a) Three (3) sets of print "As Built" Plans;

b) One (1) set of reproducible "As Built" Plans;
c) All Submittals and OWNER's information documentation, as required in
the specification;
d) A sworn affidavit stating that all wages and salaries of its staff and
employees and all indebtedness connected with the PROJECT (including
but not limited to claims of or credits to suppliers, SUB-CONTRACTORs
and other creditors of the CONTRACTOR) have been fully settled;
Provided, however, that in case of any unpaid claim or credit, the quit-
claim or release and duly executed by the concerned supplier, SUB-
CONTRACTORs or creditors shall be executed in favor of the OWNER;
e) The guarantee bond required under Article VIII; and
f) Certificate of Inspection and Certificate of Operation from local governing
agencies on all installations requiring such certifications.

3.7 According to the Project Coordinator the completion of the project was delayed by
more than two (2) years due to the inability of the contractor to coordinate with him
despite of several notices for the compliance of the requirements of City Engineer’s
Office of Manila on the contractor’s license, electrical permits including signatories
to the revised electrical plans. Thus, benefits that can be obtained from the project
of avoiding the risk of overloading has not been achieved.

3.8 We recommended that management coordinate with the contractor for the
completion of the project so that the intended purpose of the project can benefit the
Court. Otherwise, apply the provisions of the Agreement particularly Article X on
contract time, completion date, extension and liquidated damages and Article IX on
Owner's option to take over.

3.9 In reply to our audit observation, the Technical Working Group (TWG) commented
that the delays on the execution of the project were attributed to changes of the
requirements of the City Engineer's Office of Manila from contractor's licenses
(PCAB), electrical permits including signatories to the revised electrical plans. The
inability of the contractor to coordinate with the Project Coordinator, although several
notices were served for him, was contributory to the delay in the early compliance
with the said requirements and became a setback in the project where a revised

30
 schedule would have been done to cope with its completion. The project coordinator
is now in close coordination with the contractor and pressing them for the immediate
completion of the project. The TWG will also ask assistance from the Management
Audit and Accounting Divisions for the computation of penalties, if any, that should
be imposed on the contractor for the delay in the completion of the project.

4. Implementation of Gender and Development (GAD) for CY 2011

4.1 Section 31 of the General Appropriations Act of 2011 provides that the GAD plan
shall be integrated in the regular activities of the agencies, which shall be at least five
percent of their respective budgets. The Court's appropriation for the year was
P902,303,000.00, thus five percent or P45,115,150.00 should be budgeted to GAD
projects.

4.2 For calendar year 2011, the agency allocated P5,000,000.00 for the following planned
projects/activities which is more than last year’s budget but less than the five percent
requirement:

a. Celebrate Women's month and create awareness on the significance of

the role of women in nation building and nurturing of society through
provision of T-Shirts to CA employees, display of tarpaulin, medical
mission, livelihood training programs and film showing;
b. Conduct six orientation and six Gender Awareness and Sensitivity
seminars;
c. Conduct two advance trainings/studies for the GAD Focal Point for
planning and budgeting;
d. Conduct four Gender Awareness and Sensitivity seminars in CA-Cebu
City and CA-Cagayan de Oro City;
e. Conduct two seminars to Gender Awareness and Sensitivity under the
Philippine Judicial Academy to be accredited as part of the MCLE of
Lawyers

4.3 Meanwhile, the agency implemented several projects and spent P2,014,125.49 as
follows:

a. Provided CA-GAD T-Shirt for official use of CA P390,086.60

employees, provided tarpaulin and film showing of
“Eat Pray Love” in celebration of International
Women's month
b. Conducted two livelihood trainings on Basic 56,400.00
Automotive Principle of Operation and
Maintenance held at the Technological University

31
 of the Philippines
c. Annual Program/Budget Planning Conference of 144,598.01
CA-GAD Focal Point
d. Conducted second Breast Cancer Awareness 11,118.70
Lecture and free Clinic Breast Examination
e. Printed 70 copies of Book on Laws, Rules, 17,500.00
Issuance for cases involving family, domestic
relations, women and children
f. Conducted on the Spot Essay Writing Contest with 26,021.00
the theme “Celebrating Nation's Quest for
Development Towards the New Millennium”
g. Conducted four seminars on CEDAW and Gender 1,184,977.93
Sensitivity for CA-Manila, CA- Cebu and CA
Cagayan de Oro City
h. Intensive Training Workshop for CA-GAD Focal 169,772.55
Point
i. Conducted seminar on First Aid with CPR and free 13,650.70
hand, facial spa and eye refraction check-up
Total P2,014,125.49

4.4 The Audit Team noted that not all proposed projects were accomplished by the GAD
Focal Point during the year. Of the 16 Gender Awareness and Gender Sensitivity
Seminars planned, only four were conducted while only one intensive training
workshop was held for CA-GAD Focal Point instead of two.

4.5 According to CA-GAD Focal Point, the planned activities were not fully
accomplished due to resignation of the Chairperson and co-chairperson in June 2011.
The new Chairperson took over only in November 2011, hence the insufficient time
within the year to fulfill all the proposed plans.

4.6 Moreover, the agency did not deemed it practical to appropriate the full amount
required for the GAD Focal Point as the Court has other priority programs and plans
in accordance with its mandate. It, however, increased the allocation for the year to
implement more GAD projects in compliance to the previous audit recommendation
of the Audit Team.

4.7 We recommended that management see to it that planned activities of CA-GAD

Focal Point are implemented and adhere to the requirement of Sec. 31 of the General
Appropriations Act of CY 2011 in allocating funds for GAD activities.

32
5. Implementation of Programs/Projects for Senior Citizens and the Differently-Abled
for CY 2011

5.1 Sec. 32 of the General Appropriations Act provides that the plans, programs and
projects intended to address the concerns of senior citizens and differently-abled
persons shall be integrated in the regular activities of the agencies, which shall be at
least one percent (1%) of their respective budgets.

5.2 With a total appropriation of P902,303,000.00, the amount of P9,023,030.00 should

have been allocated for this purpose. The Court, however, has no concrete plans,
programs or activities for the year. They promised to start in the ensuing year to
comply with the provision of the GAA.

5.3 Nevertheless, the Audit Team observed that the agency has constructed in previous
years’ access paths for disabled persons to facilitate mobility to different buildings of
the Court. As part of medical services, all employees including senior citizens and
personnel with disability were given vaccines for flu and pneumonia. The Court is
also strengthening its medical and dental services benefiting all personnel thru
acquisition of medical equipment, medicines, and dental supplies to cater the health
and welfare of its employees.

6. Compliance with Tax Laws

6.1 For the year 2011, the adjusted withheld taxes from various suppliers, contractors,
salaries and other compensation of their officials and employees amounted to
P79,175,965.96 of which P71,810,635.49 was remitted to the Bureau of Internal
Revenue (BIR) leaving a balance of P7,365,330.47 as of year end. Of the balance,
P6,598,169.81 was remitted on January 16, 2012 while the amount of P767,160.66 is
subject to further verification before remittance to BIR.

7. Status of Audit Disallowances and Suspensions

7.1 The balance of notice of suspensions in the total amount of P287,360.00 were settled
during the year, leaving no unsettled balance as December 31, 2011. Details are as
follows:

Beginning This period January 1 to Ending

Balance as of December 31, 2011 Balance as of
January 1, December 31,
2011 2011
NS/ND/NC NSSDC
Notice of
Suspension P287,360.00 P287,360.00 0

33
Notice of 0 0 0 0
Disallowance
Notice of Charge 0 0 0 0
Total P287,360.00 0 P287,360.00 0

34