EXECUTIVE SUMMARY

A. Introduction

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

It is committed to work towards the rationalization of LTO services and facilities,

and to implement effectively the various transportation laws, rules and regulations in
coordination and collaboration with other government agencies, business sector, civil
society and other stakeholders.

The LTO envisions a model government agency showcasing excellent and quality
public service for a progressive land transport sector and its mandated functions are:

a) Inspection and Registration of Motor Vehicles;

b) Issuance of Licenses and Permits;
c) Enforcement of Land Transportation Rules and Regulations;
d) Adjudication of Traffic Cases; and
e) Collection of Revenues for the Government.

Towards the attainment of the agency Mission the LTO Management is

determined to register roadworthy and emission – free motor vehicles, license quality
drivers, and put order on the roads, thru strict enforcement of inspection of motor
vehicles, improved driver training and testing, and continuous promotion of road safety.

The LTO is under the leadership of Assistant Secretary Alfonso V. Tan, Jr. and
assisted by OIC Executive Director Emiliano T. Bantog, Jr. It has two services, the Law
Enforcement Service and the Traffic Adjudication Service; eight divisions; and a network
of 13 regional offices. Under these regional offices are 141 regular District Offices, 69
Extension Offices, 25 Licensing Centers, two Mobile Units, 30 Driver’s License Renewal
Centers (DLRC), one One-Stop-Shop and five Motor Vehicle Inspection Centers
(MVIC), which includes the MVIS of Regions III, IV-A, VII and two of the National
Capital Region (NCR).

As of December 31, 2013, the LTO-Sectoral Head Office (SHO) including its
Regional Offices has a total personnel complement of 3,764 composed of 1,997 regular
employees, 28 presidential appointees, 67 casual employees, 1,669 Job Order/contractual
personnel and three temporarily appointed personnel. The 2,095 regular/presidential/
temporary employees and officials represented 73.30 percent of the 2,858 plantilla
positions, leaving 763 vacant positions.

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B. Financial Highlights

The following comparative data show the financial condition, results of

operations and sources and applications of Fund 101 (General Fund) of the LTO for the
years 2013 and 2012:

2013 2012 Increase/

Particulars In Thousand Pesos (Decrease)
Financial Condition
Assets 4,371,921 5,322,300 (950,379)
Liabilities 3,668,501 4,664,945 (996,444)
Government Equity 703,420 657,354 46,066
Results of Operations
Income 2,036,927 1,920,703 116,224
Expenses 1,999,557 1,872,916 126,641
Excess of Income over Expenses 37,370 47,787 (10,417)
Sources and Application of Funds
Allotments 3,313,990 2,765,287 548,703
Obligations 2,294,521 2,116,899 177,622
Unobligated Balances 1,019,469 648,388 371,081

C. Operational Highlights

As reported by management, the following is a comparative analysis of the

accomplishments for CY 2013 viz-a-viz its targets:

% of
Particulars Targets Accomplishments Accomplishment
Motor Vehicle/Motorcycle
(MV/MC) Registered 7,687,290 7,690,038 100.04
MV Registered Transaction 12,212,150 12,096,316 99.05
Handled
License and Permits Issued 4,621,570 4,825,584 104.41
License and Permits Cases 6,555,330 6,808,158 103.86
Handled
Revenue Collections (in pesos) 15,026,308,000.00 17,156,424,544.00 114.18
No. of Apprehensions Handled 1,006,390 940,077 93.41
Plates Manufactured:
• MV plates (in pairs) 400,820 232,652 58.04
• MC/Trailer plates (in pieces) 1,108,020 926,571 83.62

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D. Scope of Audit

The audit covered the financial transactions and operations of LTO-SHO and its
Regional Offices for the year ended December 31, 2013. 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) determine the extent of compliance with applicable laws,
rules and regulations; (c) recommend agency improvement opportunities; and
(d) determine the extent of implementation of prior year’s audit recommendations.

E. Independent Auditor’s Report

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

financial statements of the LTO due to accounting errors and deficiencies, as enumerated
below and summarized in the Matrix on the analysis of the effects of the misstatements
on the Financial Statements marked as Annex A:

1. The accuracy of the reported balance of the Cash-Collecting Officers

account amounting to P7,144,025.47 as of December 31, 2013 could not be
relied upon due to the unreconciled difference of P3,549,084.93 between the
balances per General Ledgers (GLs) and Subsidiary Ledgers (SLs) of
P3,976,578.82 and P427,493.89, respectively, in LTO Regions VI and VII.
(Observation No. 7)

We recommended and the Management of LTO Regions VI and VII agreed

that their respective Accountants review their previous years’ SLs, GLs and
other records to determine the causes of the discrepancies for appropriate
corrections/ adjustments.

2. The balance of the Cash in Bank – LCCA account of P3,306,563,081.04 as

of December 31, 2013 was incorrect due to the (a) unaccounted difference
of P2,213,616.13 between the balances per books and per bank;
(b) unrecorded/unadjusted book and bank reconciling items of
P16,122,547.19 and P1,452,887.33 respectively; and (c) unreported bank
account with a balance of P377,571.61. (Observation No. 8)

We recommended and the LTO-SHO Management agreed that in order to

make the necessary adjustments in the books the:

a) Head Office Accountant coordinate with (i) the ROs’ Accounting

personnel to facilitate the determination of the details of the still
unaccounted difference of P2,213,616.13 between the book and bank
balances; and (ii) the LBP for the identified bank reconciling items; and

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 b) concerned Regional Accountants be directed to immediately forward to
the Head Office Accountant the needed JEVs and make representation
with the LBP for the furnishing of the Credit and Debit Memo.

We also recommended and Management of LTO Region V agreed that its

Accountant immediately make the necessary adjusting entries in the books
to take up properly the misclassified collections and to remit the same to the
BTr.

3. The year-end balance of Due from NGAs account of P916,236.27 was

understated by P1,701,116.96 due to the non-recording by the LTO-NCR of
the advance payments made to the Procurement Service-Department of
Budget and Management (PS-DBM). (Observation No. 9)

We recommended and the LTO-NCR Management agreed that the

Accountant make the necessary adjusting entries to record the balance of the
advance payments to the PS-DBM as at year-end and henceforth all
advances to the PS-DBM are taken up in the books under Due from NGAs
account.

4. The year-end inventory account balance of P244,614,792.64 was inaccurate

due to: (a) net overstatement of P55,660,334.95 resulting from errors/lapses
in recording of transactions; (b) misclassification of inventory accounts
amounting to P800,675.52; (c) unreconciled amount of P74,502,343.75
between the balances of the GL and Report on the Physical Count of
Inventories (RPCI); (d) non-maintenance/incomplete and un-updated
Supplies Ledger Cards (SLCs); and (e) un-updated Stock Cards (SCs).
(Observation No. 10)

We recommended that Management:

a) require the Accountants of LTO-SHO, NCR, Regions III, VI and VII to

make the necessary adjustments in their books to correct the
misclassifications and over/understatements in the Inventory accounts
balances and also require the Property Officers of NCR and Regions III
and VI to regularly prepare and submit the Report of Supplies and
Materials Issued (RSMI) to the Accountant as basis in recording
inventories already issued and utilized;

b) instruct the LTO-SHO Accountant to take up in the books the returned

obsolete accountable forms prior to disposal;

c) direct the concerned Accounting and Property personnel of LTO-SHO,

NCR and Region VI to regularly reconcile their Inventory records to
determine differences, and make immediate adjustments;

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 d) create an Inventory Committee in Regions IV and VII to undertake the
physical stock-taking and instruct the Inventory Committee of NCR to
include all accountable forms in the different district and extension
offices of the region in the physical count;

e) require the concerned Accountants of Regions VI and VIII to maintain

complete and updated SLCs; and

f) direct the Supply Officers of Regions IV, VI and VIII to maintain

complete and updated SCs.

5. The Property Plant and Equipment (PPE) account balance of

P999,255,694.27 as of December 31, 2013 was unreliable due to the
overstatement of P30,111,094.12 as a result of errors/non-recording of PPE
transactions and other deficiencies in property management such as
incorrect provision of depreciation, non-conduct of physical count, non-
maintenance/update of Property Cards (PCs) and Property Plant and
Equipment Ledger Cards (PPELCs). (Observation No. 11)

We recommended that Management direct the:

a) LTO Accountant of:

• SHO, NCR and Region X to reclassify the unserviceable properties

to Other Assets account and to cause the immediate appraisal and
disposal of the same; and

• Region VII to make necessary adjustments in the books to take up

the correct amount of depreciation and henceforth compute and
record depreciation on a monthly basis supported with complete
records/documents of the property.

b) LTO Property Officer of:

• SHO to request from COA for relief from property accountability for
the burned building to drop the same from the books;

• Region VII to conduct physical count of the unserviceable properties

and prepare the Inventory and Inspection Report of Unserviceable
Property (IIRUP) to support the JEVs for the transferred fully
depreciated properties to the Other Assets account, otherwise, restore
the said assets to their respective PPE accounts;

• SHO, NCR and Region II to prepare complete Report on the

Physical Count of Property, Plant and Equipment (RPCPPE) on the

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 result of physical count and reconcile the balance with the
accounting records; and

• SHO, Regions II, IV and VI to maintain updated PCs for all items of
PPE and prepare the RPCPPE using the prescribed format under
Section 66 and Appendix 63 of the NGAS Manual Volume II.

c) LTO-NCR concerned officials and employees responsible for the

unaccounted properties to locate the same for turn-over to the Property
Officer otherwise hold them responsible for the payment of the
corresponding amount of the properties;

d) LTO-Regions I and VI concerned personnel to exert effort to obtain the

documents needed in the titling and to coordinate with the Register of
Deeds for the transfer in the name of the LTO the donated lots to
facilitate the recording of the same in the books of accounts; and

e) LTO-SHO and Region VII concerned personnel to immediately submit

the Certificate of Acceptance of the completed projects to reclassify
these assets from the Construction-in-Progress accounts to the
appropriate PPE account.

6. The balance of Accounts Payable account as of year-end of

P304,341,211.91 was inaccurate due to: (a) misclassification of claims of
agency officers and employees amounting to P3,083,958.52 and
(b) understatement of P28,574.92 due to erroneous recording. (Observation
No. 12)

We recommended and the LTO Region IV Accountant agreed to strictly

observe COA Circular No. 2004-008 in recording Accounts Payable and to
accurately record obligations to present the accurate account balances in the
Financial Statements.

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 issuance of 3,852,388 pieces of Certificate of Emission Compliance

(CEC) forms costing to P6,472,011.84 to authorized Private Emission
Testing Center (PETC) Operators by the Regional Offices (ROs) free of
charge tantamounts to a government subsidy. This is contrary to the
fundamental principle on financial transactions and operations under Section
4(2) of PD No. 1445 which mandates that government funds or property
shall be spent or used solely for public purposes. (Observation No. 1)

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 We recommended that Management consider collecting from PETCs the
cost for the printing and freight of the CEC forms to avoid government
expenses for private business.

2. The Management of LTO-SHO and NCR have not acted on the

revocation/cancellation of the unclaimed confiscated motor vehicle (MV)
license plates of 12,780 pairs and motorcycle (MC) plates of 2,838 pieces
and the decommissioning of 60 pieces of driver’s licenses (DLs) with an
estimated uncollected fines of P2,351,700.00 in pursuance of Section C.12
of LTO Memorandum Circular No. 515-2004 dated May 25, 2004.
Moreover, the non-upload of 20 apprehensions in the Motor Vehicle
Registration System (MVRS), allowed the renewal of the registration
thereof despite non-settlement of the violations. (Observation No. 2)

In order to prevent the issuance of new DLs and duplicate plates for
apprehended drivers and vehicles with still unsettled violations, we
recommended that Management of LTO-SHO and NCR:

a) cause the cancellation/revocation of the MV/MC plates and DLs which

are unclaimed beyond the required 15-day period to settle from date of
apprehension;

b) require their responsible officials/employees to immediately encode all

apprehensions within 24 hours upon receipt of the Temporary Operator’s
Permit;

c) enhance the alarm system of the LETAS on unclaimed confiscated DLs

and MV/MC plates and reject the renewal thereof until such time that
the driver/operator pays the corresponding fines and penalties for
violations committed; and

d) initiate proactive campaign for the collection of the corresponding

fines/penalties of the unclaimed confiscated licenses and plates to
generate additional income for the government.

We further recommended that an investigation be made on the 20 renewed

registrations with still unsettled violations and to implement sanctions as
necessary.

3. The release of Optional Motor Vehicle Special Plates (OMVSP) and Vanity
License Plates (VLPs) to vehicle owners took 16 to 301 days and 20 to 244
days, respectively, due to the delay in the production/procurement of the
plates. This is contrary to the standard seven and 15 days processing period,
respectively, within which to serve the requested plates from payment date.
This affected LTO’s efficiency in the implementation of its mandate as it
resulted to cancellation of orders and discourage car owners to avail the

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 same privilege. This will also result in lesser opportunity to generate
additional income to the government. (Observation No. 3)

We recommended that Management:

a) revisit the procedures/processes in the procurement and issuance of

OMVSP and VLP to come up with q working timelines that would
shorten the delivery period; and

b) consider setting a standard number of OMVSP/VLP required for a single

production order and fix the number of days in preparing/processing and
approving production orders and serving of the same to the supplier.

4. Motor vehicle (MV) and motorcycle (MC) plates totaling 24,148 pieces
costing P882,728.95 remained on stock despite of the backlog on the
issuance of license plates. These plates, if not issued could become obsolete
and result to fund wastage upon the implementation of the Motor Vehicle
Plate Standardization Program. (Observation No. 4)

We recommended that Management immediately issue MV/MC plates to

registered vehicle owners to reduce the number of newly registered cars
without license plates.

5. Some vehicle registrations in LTO Region IX, Basilan District Office, were
done manually, thus, the information were not uploaded in the Motor
Vehicle Registration System (MVRS), contrary to LTO Memorandum
Circular No. RTL-MC-03442 dated April 9 2003, hence, the objective of
improving the efficiency in processing and analyzing of data, along with
maintaining a complete database were not attained. (Observation No. 5)

We recommended and LTO-RO IX Management agreed to require all

manually processed registrations be uploaded in the system for inclusion in
the database.

6. The 394 impounded motor vehicles in LTO RO No. X and its District
Offices remained undisposed in disregard of PD 1729. These are exposed to
deterioration that could affect their appraised value and could result in the
non-recovery of the full amount of fines due from the erring vehicle owners.
(Observation No. 6)

We recommended that LTO Region X Management:

a) create a Disposal Committee that would conduct the inspection of the

impounded vehicles and determine those with complete documents as
well as those no longer usable and to subject the same to immediate
disposal; and

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 b) coordinate with concerned LTO Officials of the Head Office as to the
registration of impounded vehicles sold thru public bidding for possible
issuance of LTO guidelines to address this problem and to encourage
prospective bidders to participate in succeeding public auction.

7. Outstanding payables of P1,231,524.57 in Region VII aged more than two

years and above not reverted to the unappropriated surplus of the General
Fund contrary to Section 98 of PD No. 1445. Similarly, Contractors’/
Creditors’ retention monies totaling P1,220,021.72 in LTO-SHO not claimed
for a period of more than two years up to 13 years since the projects were
accepted by Management and for which the defect liability have lapsed
remained recorded under Guaranty Deposits Payable account and not reverted
to the unappropriated surplus. (Observation No. 13)

We recommended that Management:

a) require the Region VII Accountant to revert to the unappropriated surplus

of the general fund all outstanding payables aged two years and above,
without supporting documents/valid claimant or against which no actual
claim, administrative or judicial, has been filed or which is not covered by
perfected contracts on record;

b) instruct the Accountant and the Chief, General Services Section of LTO-
SHO to notify the concerned contractors/suppliers of their outstanding
receivables from the agency and if no response is received cause the
forfeiture or reversion of their retention money pursuant to Section 98 of
PD No. 1445; and

c) henceforth, revert to the unappropriated surplus of the General Fund

retention money if unclaimed within two years or more from the time it
became due in accordance with the provision of RA No. 9184 and PD No.
1445 to do away with dormant/inactive balances in the books of accounts.

8. Various payables in the books of LTO Region VII amounting to

P8,379,738.37 have been dormant for over two years and not supported with
SLs and other pertinent documents contrary to Section 12 of the NGAS
Manual, Volume II, rendering the account balance not substantiated.
(Observation No. 14)

We recommended and the Management of LTO Region VII require the

Accountant to:

a) maintain SLs and prepare Schedules of SL balances to substantiate the

reported payable accounts; and

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 b) determine the causes of the dormant and negative balances of the liability
accounts for appropriate correction/adjustment or remittance of the
payables to the respective government agencies, as the case may be.

9. Unauthorized honoraria in the total amount of P513,850.00 were paid to the

Chairs and members/helpers of the various committees of LTO Region V such
as the Prequalification, Bids and Awards Committee and Technical Working
Group; International Standard Organization, Regional Internal Quality Audit,
Regional Quality Management Team; Property Disposal; and GAD, in
violation to pertinent provisions of Department of Budget and Management
(DBM) rules and regulations and the General Provisions of the General
Appropriations Act (GAA) of FY 2013. (Observation No. 15)

We recommended and the LTO-Region V Management agreed to refrain from

granting honoraria to committee chairmen and members, created for various
activities by the agency, which are not in accordance to the pertinent provision
of the Appropriations Act and DBM Memorandum Circulars. Moreover,
require all recipients to refund the disallowed honoraria.

10. The monetization of accumulated leave credits of personnel in LTO Regions

VII and VIII amounting to P408,920.22 and P215,615.10, respectively, or a
total of P624,535.32 were not in accordance with Sections 22 and 23 of Rule
XVI of the Civil Service Omnibus Rules Implementing Book V of Executive
Order No. 292 and Section 234 of the GAAM, Volume I, resulting in
unauthorized payments.(Observation No. 16)

We recommended and the Management of LTO Regions VII and VIII agreed
to discontinue the monetization of leave credits that are not in accordance with
the provisions of the Civil Service Law and Rules to avoid disallowance in
audit.

11. Collections from the sale of bid documents, security/performance bond and
sale of obsolete MV plates in LTO Regions V and VII of P377,571.61 and
P210,500.00, respectively, were not remitted to the BTr contrary to Section 8
of the General Provisions of the GAA for FY 2013 and Item 6.2 of Budget
Circular No. 2004-5A dated October 7, 2005. (Observation No. 17)

We recommended and the Management of LTO Regions V and VII agreed to

immediately remit the collections to the BTr and to strictly follow the
provisions of the foregoing law and regulation on the deposit of the same type
of collections in the future.

12. The conditions and qualifications the designation of traffic law enforcers set
under LTO Guidelines on the Appointment of Deputized Agents dated May
11, 2009 and the provisions of LTO Memorandum Circular No. 515-2004
dated May 25, 2004 were not strictly complied with, thus, resulting in the

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 deputation of unqualified traffic enforcers and weak controls in the monitoring
of Temporary Operator Permits (TOPs) and Impounding Receipt of Motor
Vehicle (IRMV). (Observation No. 18)

We recommended that Management instruct the concerned officials of:

a) LTO-SHO, NCR, Regions I, V, VI and IX to strictly comply with the

LTO Guidelines in the Appointment of Deputized Agents and
Memorandum Circular No. 515-2004 to strengthen its control/monitoring
of the TOP/IRMV and to provide complete and accurate reports on
apprehension, impounding and release of impounded motor vehicles; and

b) LTO-SHO, NCR and Region VI to direct their law enforcers to ensure the
submission of DARs for appropriate verification/accounting of the
unaccounted TOPs/accountable forms.

13. The contracts for the 13 projects in LTO-NCR and one in LTO-Region II
were submitted to COA nine to 156 days delayed. Moreover, eight of the
contracts were not fully supported with the necessary documents resulting to
further delay in the evaluation of the projects. On the other hand, delays in the
requests for inspections of deliveries of supplies and equipment as well as
repairs of vehicles and facilities ranges from five to 142 days. These are
contrary to COA Circular No. 2009-001 dated February 2, 2009.
(Observation No. 19)

We recommended and the Management of LTO-NCR and LTO-Region II

agreed to direct their Bids and Awards Committee and/or concerned
officials/employees to submit copies of concluded contracts and purchase
orders and all pertinent supporting documents to the contract and notify the
Auditor of the delivery of items procured within the prescribed period
pursuant to COA Circular No. 2009-001.

14. Out of the total taxes amounting to P118,758,249.96 withheld in CY 2013,

93.30 percent or P110,794,014.01 was remitted to the Bureau of Internal
Revenue (BIR) regularly during the year. There were however, unremitted
taxes totaling P3,233,410.96 from the wages of Job Order (JO) employees,
Collective Negotiation Agreement (CNA) Incentives and Performance Based
Bonus (PBB)/Performance Enhancement Incentives (PEI) in violation to
applicable BIR rules and regulations. (Observation No. 20)

We commend Management for adhering to the provisions of tax laws on the

withholding of taxes from the salaries of LTO officials and regular employees
and from various contractors/suppliers and for remitting the same with in the
period prescribed by the BIR however, we recommended that the LTO-RO I
refrain from remitting taxes withheld from contractors/suppliers prior to

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 payment of the obligation where the tax was deducted to avoid over
remittance to the BIR.

We also recommended and the concerned LTO Management agreed to

instruct their Accountants to:

a) strictly adhere to BIR Revenue Memorandum Circular Nos. 8-2003 and

23-2012 in the withholding of the two percent expanded withholding tax
and three percent percentage tax from the wages of personnel hired as Job
Orders; and

b) compute the actual tax deficiency of all officials/employees pertaining to

their CNA incentives, PBB and PEI and remit the same to the BIR to
avoid responsible officials from being held liable for non-compliance
pursuant to BIR Revenue Memorandum Circular No. 23-2012.
Henceforth, ensure the withholding of the corresponding tax in subsequent
payments of incentives.

15. The LTO was compliant with the deductions and regular remittances of GSIS
premiums, loan amortizations deducted from the salaries of its officials and
employees and the corresponding government share pursuant to Republic Act
(RA) No. 8291. (Observation No. 21)

16. The funds allotted for the formulation and implementation of GAD programs/
activities/projects of the LTO offices were below the required five percent of
the agency’s appropriation per Section 28 of the General Provisions of the
GAA for CY 2013, thus deprived the LTO and its intended recipients of more
activities/projects under such program. (Observation No. 22)

We recommended and Management agreed to allocate at least five percent of

the agency’s total budget for GAD activities and maximize the utilization
thereof, in order to address/implement more programs and activities for
poverty alleviation, economic empowerment especially of marginalized
women, protection, promotion and fulfilment of women’s human rights, and
practice of gender-responsive governance.

17. There were no specific plans prepared for the implementation of programs/
activities/projects intended to address the concerns of senior citizens and
differently-abled persons contrary to Section 29 of the General Provisions of
the FY 2013 GAA. As such, there is no basis to monitor and evaluate the
agency’s performance on this mandated program of the government.
(Observation No. 23)

We recommended and Management agreed to prepare separate agency

plans/programs of activities for senior citizens and differently-abled personnel
and clients of the agency as its guide in implementing the program.

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 18. As of year-end, the unsettled suspensions, disallowances and charges
aggregated to P3,794,273.39, P759,928,693.01 and P2,795,584.25,
respectively, due to Management’s failure to enforce settlement from the
persons held liable contrary to pertinent provisions of COA Circular No.
2009-006 which prescribed the 2009 Rules and Regulations on Settlement of
Accounts (RRSA). (Observation No. 24)

We reiterate our previous year’s recommendation for Management to exert

more efforts to enforce the immediate settlement of suspensions and the
refund of the disallowances/charges which are already final and executory and
not appealed in order to recover the amounts due to the government.

The above observations and recommendations were discussed with management

officials concerned in an exit conference conducted on July 8, 2014 and their comments
were incorporated in this report, where appropriate.

G. Implementation of Prior Year’s Audit Recommendations

Out of the 26 audit recommendations presented in the CY 2012 Consolidated

Annual Audit Report of the LTO, six were fully implemented, 13 were partially acted
upon, and seven were not implemented, the details of which are discussed in Part III of
this Report. The partially implemented and unimplemented audit recommendations are
also reiterated under Part II of this Report for LTO management’s consideration.

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