EXECUTIVE SUMMARY

A. INTRODUCTION

The advent of the Philippine Veterans Administration, pursuant to Republic Act No.
2664 dated June 18, 1960, marked the consolidation of the Philippine Veterans Board,
Veterans Claims Commission and the Veterans Back Pay Commission into one compact
agency, which administered all benefits due to veterans. Consequently, Presidential Decree
No. 1 dated September 24, 1972, through Letter of Implementation No. 19 dated
December 24, 1972 phased out the Philippine Veterans Administration and created the Philippine
Veterans Affairs Office (PVAO) under the helm of Department of National Defense (DND). As
the primary government office that caters to the needs of the veterans, PVAO administers old
age, disability, and death pension payments to veterans and beneficiaries under Republic Act
Nos.6048 and 7696 and other Philippine laws. PVAO also administers burial claims,
educational and hospitalization benefits to veterans and surviving spouses and
dependents.

With the approval of the PVAO Rationalization Plan on June 29, 2010 pursuant to
Executive Order 366 dated 4 October 2004, the Agency has made a shift from a “benefit
based” structure to an “activity/process-oriented” or function-based organization.

The agency’s functions include the following:

a. Formulate policies concerning ex-servicemen’s affairs, including their placement

and training, as well as assistance to widows, dependents and retired personnel;
b. Adjudicate and administer their benefits, pensions and other privileges granted to
veterans, their heirs and beneficiaries
c. Provide medical care and treatment to veterans pursuant to existing laws.

The agency is currently under the leadership of the PVAO Administrator, Hon. Ernesto
G. Carolina and assisted by Deputy Administrator Romeo S. Lazo. As of December 31, 2011,
the agency has a personnel complement of 416 consisting of 348 permanent employees, and
68 contractual employees.

B. FINANCIAL HIGHLIGHTS

The agency’s comparative assets, liabilities, government equity, income, expenses and
excess of expenses over income are as follows:

Increase
Accounts CY 2011 CY 2010
(Decrease)
Assets P 5,183,223,206.96 P 4,978,533,249.95 204,689,957.01
Liabilities 2,802,762,109.45 2,272,671,589.68 530,090,519.77
Government Equity 2,380,461,097.51 2,705,861,660.27 (325,400,562.76)

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 Increase
Accounts CY 2011 CY 2010
(Decrease)
Total Income 13,062,020,575.78 13,016,997,651.02 45,022,924.76
Total Expenses 13,202,175,040.50 13,458,632,239.11 (256,457,198.61)
Excess of Expenses
over Income (P 140,154,464.72) (P441,634,588.09) P301,480,123.37

The Sources and Application of Funds are as follows:

Increase
Allotments/Obligations CY 2011 CY 2010
(Decrease)
Allotment Released P13,060,320,118.00 P 13,023,931,025.29 P 36,389,092.71
Obligations Incurred 13,059,372,097.68 13,022,250,086.27 37,122,011.41
Unexpended Balance P 948,020.32 P 1,680,939.02 P (732,918.70)

Details are presented in Annex 1.

C. SCOPE OF AUDIT

The audit covered the transactions and operations of the PVAO for CY 2011.

D. AUDITOR’S REPORT

The auditor rendered an adverse opinion on the fairness of presentation of the financial
statements of the PVAO considering the materiality of the accounting errors and deficiencies
as shown on the Analysis of the Effects on the Misstatements in the FS marked as Annex 2
and presented below including the recommendations:

1. The Cash in Bank-Local Currency, Current Account (LCCA) balance per books of
P3,245,891,804.48 for Fund 101 was overstated by P 3,066,102,660.11 or 94 percent
when compared with the adjusted bank balance of P179,789,144.37 due to the failure of
the Accounting Section to record the various book reconciling items such as unrecorded
bank debits and credits due to the lack or absence of debit and credit advices and
certificate of remittances and accounting errors. This resulted also in the understatement of
the accounts Other Income and Finance Charges and overstatement of the accounts Other
Payables and Pension Benefits-Military/Uniformed. Furthermore, the Accounting Section
failed to secure regularly the bank statements and supporting documents; hence, the Bank
Reconciliation Statements were not prepared and submitted within the prescribed period.
(Observation No. 1)

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 Recommendation:

We recommended and management agreed to reconcile the balance shown in the reports
of the bank and the balance found in the books of the agency by requiring the Accounting
Section to regularly secure from the banks the Bank Statements together with the
supporting documents, immediately prepare the Bank Reconciliation Statements and
thereafter record the book reconciling items; adjust to the proper active bank accounts of
DBP, PVB, LBP and UCPB the amounts corresponding to recovery of pension and
cancellation of RTS CFC of various pensioners; and exert efforts to identify the bank
account labeled as “unreconciled” SL.

2. The fund transferred to Non-Government Organizations (NGOs) and Peoples

Organizations (POs) amounting to P2,655,179.46 were recorded under Other MOE
account instead of Due from NGOs/POs resulting in the overstatement of account Other
MOE and non-recognition of Due from NGOs/POs by the same amount. (Observation No.
5)

Recommendation:

We recommended that management adjust fund transfer to account Due from NGOs
amounting to P2,655,179.46

3. The non-submission of the certification on actual remittances of pensions to individual

pensioners’ account by the various savings and loan associations and some PVAO
servicing banks totaling P1,383,902,951.74 due to the failure of PVAO to include in the
MOA the provision on the submission of such report, resulted in the overstatement of the
accounts Other Receivables and Other Payables by the same amount. (Observation No.8)

Recommendation:

We recommended and management agreed that the PVAO Administrator make

representation with the heads of the savings and loan associations and servicing banks to
compel them to submit regularly the monthly certifications on actual remittances of these
associations to pensioners’ account so that same can be reflected in the financial
statements as of a given period. If same is not feasible, an alternative report or document
should be agreed upon by both parties.

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4. The reliability of the Property, Plant and Equipment (PPE) account balance of
P174,179,609.86 was doubtful due to the difference of P111,575,707.54 between the
balance per books and the Report on the Physical Count of Property, Plant and Equipment
(RPCPPE) which was attributable to the (a) unreconciled Subsidiary Ledger balance of
P87,249,726.96; and (b) unrecorded acquisition of P500,000.00 and unrecorded disposals
costing P2,132,381.12 with the corresponding Accumulated Depreciation of
P1,902,600.00 or a net book balance of P229,781.12; thus, resulting in a net
understatement of PPE accounts by P270,218.88 and understatement of Government
Equity by the same amount. (Observation No. 10)

Recommendation:

We reiterated our recommendation that management require the Accounting Section and
GSS to analyze and reconcile the unreconciled SL balances, and effect the necessary
adjustments in both the accounting and property records per type of PPE; book up all
unrecorded assets and drop from the books those assets that were already disposed of; and
Officials/employees accountable for the lost PPE to request for relief from accountability
from the COA.

E. OTHER OBSERVATIONS AND RECOMMENDATIONS

Other significant observations and recommendations are as follows:

1. The maintenance of local currency bank accounts was not covered by special
provision in the GAA and their outstanding balances totaling P179,789,144.37,
which remained unutilized were not remitted to the Bureau of the Treasury as
required under Executive Order No. 338, dated May 17, 1996. (Observation No. 2)

We reiterated previous year recommendation and management agreed to

coordinate with the DBM for the inclusion of a special provision in the GAA for
the maintenance of said bank accounts to exempt them from the remittance of the
bank balances to BTR pursuant to EO No. 338.

2. The Advances to Officers and Employees account includes prior years’ balances of
accountable officers who are no longer connected with PVAO totaling
P5,566,125.37 and already deceased totaling P16,845,570.09; prior years’ balances
of P5,103,915.73 with no identified accountable officer and supporting documents;
and long outstanding balances of active accountable officers totaling
P1,558,015.62 which cast doubts on the reliability of the account balance of
P29,073,626.81. (Observation No. 3)

We recommended and management agreed to require the Accounting Section to

intensify its efforts to locate the documents pertaining to the unaccounted prior
years’ cash advances and to effect adjustments, if warranted. If the analysis/review
of the accounts is not possible due to absence of records and documents, the
agency head concerned should request for write-off and/or adjustment of account

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 balances from the COA; require the concerned accountable officers to liquidate
cash advances within the prescribed period; continue to communicate and demand
from concerned SDOs the immediate settlement of their accountabilities pending
the approval of the request for write-off of unliquidated cash advances; and
intensify efforts to collect past due accounts of SDOs/AOs.

3. The inclusion of unaccounted and undocumented prior years’ fund transfers

amounting to P3,640,983.56 or 19 percent of the Due from NGAs account balance
cast doubts on its reliability. Likewise, the non-submission of liquidating
documents within the prescribed period and the non-utilization of fund transfer by
the various implementing agencies resulted in the accumulation of long
outstanding balance of P18,695,822.25 in the account Due from NGAs.
(Observation No. 4)

We recommended and management agreed to intensify its efforts to locate the

documents pertaining to the unaccounted prior years’ fund transfers to establish the
correctness of the account Due from NGAs; continue in helping the VMMC
explore all possible means to maximize the utilization of its funds and in finalizing
the draft plans and policies to cover the various illnesses to be subsidized by the
government; require the Accounting Section to furnish the VMMC a schedule of
fund transfer and liquidation thereof which will serve as basis for their
reconciliation with the PVAO records; and require the Baguio General Hospital
Medical Center and Vicente Sotto Memorial Medical Center to immediately
submit the prior years’ liquidation reports and to henceforth prepare the Report of
Checks Issued or Report of Disbursements and to submit it together with the
supporting documents, within five days after the end of each month, pursuant
to COA Circular No. 94-013.

4. The conditions and provisions of COA Circular No. 2007-001 dated October 25,
2007 on fund transfers to NGOs/POs totaling P2,655,179.46 by PVAO
particularly on the type of projects to be funded, was not complied with because
the projects implemented are not in accordance with the PVAO’s mandate while
some projects are already being implemented by PVAO. These projects were not
properly identified in the PVAO’s Work and Financial Plan as required under the
said Circular. (Observation No.5)

We recommended that management (a) submit MOA for PMAFI and FILVETS;
(b) submit list of scholars to be supported by PVAO as provided in the MOA with
PEFTI and list of recipients of tuition fees and stipends as provided in the MOA
between PVAO and AFFEI; (c) strictly adhere to the requirements particularly
Sections 4.4 and 4.5.1 set forth in COA Circular No. 2007-001; (d) stop the
practice of granting financial assistance to NGOs which run contrary to the
mandate of PVAO; and (e) refrain from transferring funds to any NGOs which are
already part of the activities of the PVAO.

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5. Advance payments to Procurement Service (PS) for the purchase of various
equipment amounting to P6,200,215.54 were charged against the
appropriation/allotment for Maintenance and Other Operating Expenses (MOOE).
Moreover, there is an unreconciled balance of P6,111,795.71 between the PVAO
and PS-DBM books. (Observation No. 6)

We recommended and management agreed to refrain from utilizing the MOOE

fund to purchase equipment; and reconcile balances with the Procurement Service.

6. The non-maintenance by the Accounting Section of subsidiary ledgers for each

official/employee determined to be liable for the amount disallowed/charged
caused the non-action by management to require the concerned payees, officials,
and employees to settle their accountabilities; thus, the account Receivables –
Disallowances/Charges amounting to P8,293,574.98 remained unsettled and
outstanding for more than five years. (Observation No. 7)

We reiterated our previous year’s recommendations that management require the

Accounting Section to exert more efforts to locate their files and other documents
and maintain subsidiary ledgers for the payees/officials/employees liable for the
disallowances; and make appropriate actions on the deficiencies noted in the
previously issued Notices of Disallowance/Charge and enforce the concerned
payees/officials/employees to settle their disallowances.

7. The Inventory account balance of P73,782,710.76 was unreliable due to the

(a) existence of “unreconciled” and negative SL balances of P43,795,037.11 and
P5,854,385.44, respectively; and (b) unreconciled Inventory Schedule (IS) and
Report on the Physical Count of Inventories (RPCI) for Office Supplies Inventory.
(Observation No. 9)

We reiterated our previous year’s recommendations that management require the

Accounting Section to analyze and reconcile the negative and unreconciled SL
balances and make necessary adjustments; Accounting Section and the General
Services Section (GSS) to immediately reconcile the items and quantity per RPCI
and IS; Inventory Committee to conduct the physical count of inventories and
thereafter prepare and submit the duly certified and approved RPCI to the Audit
Team not later than July 31 and January 31 of each year for the first and second
semesters, respectively; and GSS, to prepare ICS upon issuance of small tangible
items to end users based on the approved RIS and cause the immediate disposal of
the CFC.

8. The liquidating documents pertaining to the fund transfer from the Department of
National Defense (DND), amounting to P1,000,000.00, was not submitted to DND
despite the recording thereof in the PVAO books, contrary to COA Circular No.
94-013, hence, it remained outstanding for more than one year in the books of the
DND. (Observation No. 11)

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 We recommended and management agreed to require the Accountant to submit the
original copy of the RCI/RD to the Source Agency Accountant which will serve as
basis in recording the said disbursements in the books of accounts of the DND.

9. Payment of previous years’ unpaid pensions amounting to P264,614,065.72 were

charged against the current year’s allotment and recorded as current year’s
expenses contrary to Section 1 of the 2011 General Appropriations Act, Republic
Act No. 10147. (Observation No. 12)

We recommended that the management refrain from using the current year’s
allotment to pay prior years’ unbooked obligations unless with prior authorization
from the DBM and continue sending notices to AFP retirees who turns 65 years
of age to make sure that they are properly informed of their eligibility to PVAO
pension.

10. Payment of tuition fees to various PVAO scholars pertaining to prior years,
amounting to P3,993,876.85, were charged against the current year’s allotment and
recorded as current year’s expenses contrary to Section 1 of the 2011 General
Appropriations Act (GAA), Republic Act No. 10147 and Sections 4.a and 4.s, Vol.
1 of the Manual on the New Government Accounting System (NGAS).
(Observation No. 13)

We recommended that the management request from the DBM the release of funds
to cover payment of previous years’ tuition fees of various PVAO scholars.
Current year’s allotment shall not be used to pay prior years unbooked obligations
unless with prior authorization from DBM; and require the Claims Division to
furnish the Accounting Unit copy of the school bills so that the expenses and
liabilities can be recognized in the year these were incurred.

11. Several officials of PVAO who are receiving monthly transportation allowance
were also granted gasoline fleet cards contrary to COA Circular No. 96-004 dated
April 19, 1996 particularly paragraph 3.1.1.8 thereof. (Observation No. 14)

We recommended that management require the division chiefs receiving

transportation allowance and section/unit heads who were issued fleet cards to
refund the cost equivalent of fleet cards issued to them; and stop the practice of
granting fleet cards to division chiefs receiving transportation allowance and to
section/unit heads who shall instead be paid reimbursement of the equivalent cost
of the customary mode of transportation, or who may avail of the vehicle with
General Services Section, which is also allocated fleet cards for general use.

12. Payments to Petron Corporation for reloading of fleet cards for the agency’s fuel
requirements for the period January 1 to December 31, 2011 totaling
P2,574,045.00 were not covered with Official Receipts. Likewise, the said
payments were erroneously recorded under Gasoline, Oil and Lubricants Expenses
account instead of the account Other Prepaid Expenses. Moreover, the expenses

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 were not covered by Report of Supplies and Materials Issued (RSMI) and
Requisition and Issue Slip (RIS). (Observation No. 15)

We recommended that management require the Accounting Section to submit

immediately the Official Receipts (ORs) to avoid suspension of the subject
transactions in audit and to record the payments for reloading of fleet cards using
the account Other Prepaid Expenses and same be charged to expense only, using
the account Gasoline, Oil and Lubricants Expenses, upon actual reloading thereof
through the accomplishment of Requisition and Issue Slips (RIS) to be
summarized under the Report of Supplies and Materials Issued (RSMI); and
submit the RSMI and RIS pertaining to recorded Gasoline, Oil and Lubricants
Expenses in the total amount of P2,574,045.00 to avoid suspension of the subject
transactions in audit.

13. Financial statements, together with the Notes to Financial Statements were not
prepared and submitted quarterly, as provided under Section 81, Volume I of the
Manual on New Government Accounting System (NGAS). (Observation No. 17)

We reiterated our previous year’s recommendations that management require the

Accounting Section to prepare the accounting reports and submit the same within
the prescribed period.

The above findings and recommendations contained in the report were discussed with
the concerned officials of the agency. Management’s views and reactions were considered in
the report, where appropriate.

F. STATUS OF IMPLEMENTATION OF PRIOR YEARS’ AUDIT

RECOMMENDATIONS

Of the 14 audit recommendations contained in CY 2010 Annual Audit Report, 1 was

fully implemented, 11 were partially implemented while 2 were not implemented. The details
are presented in Part III of the report.

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