Republic of the Philippines COMMISSION ON AUDIT Department of Environment and Natural Resources Visayas Avenue, Diliman, Quezon City Special Audit on the Utilization of Funds Under the National Greening Program ‘and Enhanced National Greening Program C¥s 2011-2017 AUDIT OBSEVATION MEMORANDUM ‘AOM No. 2018-010 September 26, 2018 FOR +: Sceretary ROY A. CIMATU Department of Environment and Natural Resources: Quezon City Attention: Atty. ERNESTO D. ADOBO, JR., CESO I Undersecretary for Administration, Finance, Human Resources, Information Systems, Legal, Legislative Affairs and Anti-Corruption Ms. BLESILDA M. GERVACIO OIC-Asst. Secretary Financial Management and Information Systems Mr. RICARDO CALDERON Asst, Secretary, Staff Bureaus Mr. NONITO B. TAMAYO Director, Forest Management Bureau and NGP Coordinator Mr. WILFREDO J. OBIEN OIC-Director Financial and Management Service FROM: MARIA LOURDES C.CENTENO CATHERINE he Secon: «ar. Audit Team Leader Audit Team Leader sede r. GaaNG Team SupervisorThe FMB paid P11,447,163.33 in engaging the services of a Filipino~Canadian consultant from July 2013 to June 2017 which is grossly disadvantageous to the agency due to the following: (a) procurement was done through alternative mode of procurement; (b) exorbitant monthly consultancy fee paid to the consultant ranging from 100,000.00 to 385,000.00 for CYs 2013 to 2017; (c) payment of consultancy fee was on a monthly basis despite non-submission of certain deliverable within the contract period; (d) consultancy contracts lacked certain provisions protecting the interest of the agency; and (e) there were lapses in implementing the terms of contracts, thereby casting doubt on the economical use of NGP funds in the payment of consultancy services towards effective implementation of the program. 1. The Department of Environment and Natural Resources (DENR) Executive Committee headed by the Secretary is responsible for the overall management and supervision of the implementation of the NGP while the Forest Management Bureau (FMB) is responsible for providing overall technical support to program implementation. 2. In pursuit of such task, the FMB represented by then Director Ricardo L. Calderon entered into a contract of services with Mr. Vicente T. Battad, a Filipino-Canadian residing in Canada for the setting up of five mechanized forest nurseries and eleven (11) nurseries nationwide in support of the National Greening Program (NGP) of the DENR-FMB and NGP related functions . Awarding of the contracts through alternative mode of procurement 3. Section 10 of RA 9184 and its revised IRR provides that, as a general rule, the Procuring Entities shall adopt public bidding as the gencral mode of procurement. Alternative methods shall be resorted to only in the highly exceptional cases provided for in the same IRR. 4, Contracts with the consultant were awarded using the alternative mode of procurement. There was no record on file on the basis of awarding the contract in 2013 but it was stated in the contract attached to the Disbursement Voucher covering the payment of consultancy services for the month of July 2013 that the procurement of consulting services was through Direct Contracting. ‘There was no specified mode of procurement on the contract for the period November 13-December 31, 2013. 5. Direct contracting mode of procurement was used in awarding the contract to the same consultant for the period January to March 2014, 6. Direct Contracting is not applicable in both cases as it applies only to procurement of goods and not for consulting services. Section 50 of RA 9184 provides that “Direct contracting mode of procurement is a method of procurement of goods that does not require elaborate Bidding Documents. "xxx (Emphasis ours)7. For the two contracts covering the period May-June 2014 and July-December 2014, the mode ‘of procurement as stated in the contracts is the negotiated mode of procurement, 8. The mode of procurement of consulting services of Mr. Battad was not stated in the contracts for CYs 2015, 2016 and 2017. However, the members of the Bid and Awards Committee, under BAC Resolution Nos. 2015-122 and 2016-18, recommended to the FMB Director to adopt the negotiated mode of procurement under the category of highly technical Consultant in awarding the contracts to Mr. Battad for the years 2015 and 2016, respectively. However, 10 proof altesting to the qualifications of Mr. Battad for him to be considered as a highly technical Consultant were attached to the BAC Resolution in the procurement of his services. 9, The awarding of the contract in 2017 was based on an undated memorandum by FMB. Assistant Director Mayumi Quintos-Natividad to the Mechanized and Modem Forest ‘Nursery (MMEN) Focal Person stating that the renewal of contract of highly technical consultant does not require BAC approval 10, By resorting to alternative mode of procurement, the requirements of public bidding were not met and procurement was not supported with the following documents/records © basis for procurement The bases for procurement were not submitted showing therein that procurement request, the ABC and other documents were prepared/issued. The documents to support the same are as follows: i. Request to Hire Consultant ii, Copy of the detailed breakdown of the Approved Budget for the Contract (ABC) indicating the following, among others: a, Schedule of basic rates certified by the consultant with a swom statement b. Detailed breakdown of reimbursable costs based on actual costs, widest dissemination was made regarding the procurement of consultants ‘There was no proof that the procurement for consultancy service was widely disseminated for transparency and to reach more prospective bidders through the issuance/preparation of the following documents: 4. Invitation to Bid indicating the relevant information required ; 4, Proof of postings of the Invitation to Bid or the Request for Expression of Interest in the PhilGEPS bulletin board; iti, Certification by the Head of BAC Secretariat as to posting of advertisement at conspicuous places; and iv, Print out copy of advertisement posted in the agency website.© selection of consultants The cligibility requirements to determine the compliance with legal and financial requirements for consultants were not submitted, thus, qualifications and other requirements under RA 9184 were not evaluated and sclection/eligibility check of prospective consultants/award of contract as a result thereof was not done = Legal Documents a) Registration certificate from SEC, Department of Trade and Industry (DTI) for sole proprietorship, or CDA for cooperatives, or any proof of such registration as stated in the Bidding Documents b) Mayor's permit issued by the city or municipality where the principal place of business of the prospective bidder is located; = Technical Documents ©) Statement of the prospective bidder of all its ongoing and complete government and private contracts, including contracts awarded but not yet started, if any, whether similar or not similar in nature and complexity to the contract to be bid, within the relevant period as provided in the Bidding Documents. The statement shall include all information required in the PBDs prescribed by the GPPB. 4) Statement of the consultant specifying his nationality and confirming that those who will actually perform the service are registered professionals authorized by the appropriate regulatory body to practice those professions and allied professions, including their respective curriculum vitae. ©) List of pre-selected prospective consultants which shall be those appearing in the Certified List of accredited member consultants of the Government Procurement Policy Board (GPPB) recognized Umbrella Organization of Filipino Consultants with required expertise, ) Curriculum Vitae of the consultanv/s wancial Document 8) The consultant's audited financial statements, showing, among others, the consultant's total and current assets and liabilities, stamped “received” by the BIR or its duly accredited and authorized institutions, for the preceding calendar year which should not be earlier than two (2) years from the date of bid submission. 1. The policy of government that procurement of goods and services shall be competitive and transparent was not observed by FMB, thus denying equal opportunity to other eligible and qualified contracting parties and deprived the agency of not being able to sclect and evaluateconsultants that can satisfactorily undertake the project with the most efficient and economic offer/proposal that is most advantageous to the agency. (b) exorbitant monthly consultancy fee 12, Based on the records made available to the audit team, Mr. Battad was hired as a consultant beginning July 2013. His services was continually renewed until CY 2017. There were two contracts entered into by and between FMB and Mr. Battad in 2013 at a monthly rate of P100,000.00, three contracts in CY 2014 at a monthly rate of 150,000.00 and one contract each for CYs 2015, 2016 and 2017 all at a monthly rate of P385,000.00, as shown in Table L ‘Table 1 — Consultancy Fee of Mr. Vicente T. Battad Conaraat Wifey Da a Contract Fee Rate of Tacrease | |__Feriod Covered | _(per month). ar) No daiaia the contmct | Smo. pete months 100,000.00 Pernatarzation date | notindeated inthe June 24,2013 contact) ea Dain not lear NoudeDec. 1203 5.0007 “apa 20 Tanai Mar 2014 150000100 a8 May 192014 [May to June 2014 Tuly 1, 2014 [July to December 2074 — 7 February 1.2013 | Febnuary- December 2015 157% February 13,2016 [January 7=December 2016 Tanuary 2017 ——[January2 =Dee 2017] Bees 13, As can be gleaned from Table I, there was an increase of 25 percent on the consultancy fee of Mr. Battad upon renewal of his contract on November 13, 2013, with the same rate of increase on its second renewal in April 2014, On the fifth renewal in 2015, the contract provided for a monthly consultancy fee of P 385,000.00, a staggering increase of 157 percent ‘over the previous rate, which is considered exorbitant and grossly disadvantageous to the government (c) Payment of consultancy fee on a monthly basis despite non-submission of expected deliverable within the contract period 14, Funds for the payment of consultancy services of Mr. Battad were downloaded by DENR Central Office to FMB and sourced out from NGP funds, amounting to P11,447,163.33. from July 2013 to June 2017, with details shown in Annex A. 15.In addition, the Consultant was reimbursed the amount of 379,556.89 for his travel to various DENR regional offices and cost of his three round trip plane fares (Canada-Manila- Canada) in CY 2014 (Annex B), in accordance with the provision in the contract that, “In cases where services of the Consultant is nceded during the Bidding process for the procurement of the seeder machines, irrigation booms and the likes, the most economical round trip air fare from Canada where the consultant is residing, shall be shouldered by FMB.”16, Clearly, the agency adopted the time-based payment terms in the consultancy contracts with Mr. Battad. As stated in the GPPB’s Manual on Procurement of Consulting Services, “time- xed payment contract is appropriate when it is difficult to define the scope and the length of the services, either because the services are related to activities by others for which the completion period may vary, or because the input of the consultants required attaining the objectives of the assignment is difficult to assess. Payments are based on agreed hourly, daily, weekly or monthly rates and on reimbursable items using actual expenses and/or agreed unit prices. Time-based contracts need to be closely monitored and administered by the client to ensure that the assignment is progressing satisfactorily and that payments claimed by the consultants are appropriate. 17, However, it was noted that the completion of the Manual on Container Tree Nursery as part of the deliverables of the consultant in the 2015 consultancy contract can be defined, hence, should not be covered under the time-based payment term of the contract. 18, Moreover, the Manual on Container Tree Nursery was also included in the contracts for CYs 2016 and 2017 as one of the deliverables while the activity on the collection of data for the development of a scedling production guidebook. which was also included in the 2015 contract was also included in the CY 2016 contract, which is an indication that said outputs were not completed in 2015 and in succeeding contract period. Further, there was no proof of submission of said outputs in the absence of an Acceptance Report, and yet the consultant was still paid the monthly fee of 385,000.00. (@) Lack of provisions in the contract protecting the interest of the agency 4. No specific deliverables/timeline on the submission of outputs in the contract 19. There was no provision regarding submission of deliverables by the consultant on the contracts in 2013 and January-March 2014, Likewise, for succeeding contracts requiring submission of specified deliverables/outputs, no timeline was indicated therein on the delivery/submission of said outputs. Consequently, claims were not supported by an Acceptance Report which indicates that the requisite deliverables are submitted within the prescribed period as accepted/validated by the agency. b. No provision for transfer of technology and knowledge to the procuring entity 20, Section 4.4 of Annex B of the IRR provides that the transfer of technology and knowledge to the procuring entity, where applicable, should be required for Consultants. Had the provision been incorporated in the initial contract, the agency could have availed of the knowledge and expertise of the Consultant without need for the continuous renewal of his contract for a considerable period, thus the agency could have saved on the cost of consulting services. © No provision for liquidated damages 21. Section 68, Rule XXII of the Revised IRR provides that all contracts executed shall contain 4 provision on liquidated damages which shall be payable by the contractor in case of breachthereof. Such provision was not included in all contracts entered into by the FMB with Mr. Battad, Lapses in the implementation of the terms of contract 22, Several lapses were also observed in contracting consultancy service: a. Payment of Consultancy fees prior to perfection of contract 23. As stated in the contract, effectivity date shall take upon approval and signing of the contract of both parties. However. this was not followed in two instances wherein Mr. Battad was still paid the total amount of B 835,000.00 for consultancy services allegedly rendered on periods indicated in the contracts, but prior to perfection of the contracts on April 2, 2014 and February 15, 2016, as shown in Table If. Table Ht — Consultancy Kees Paid Prior to Perfection of Contract Date] Check Purpose Date of | Period Covered | Amount Pald No. Effeetivit June 02, | 776723 | Consultaney services for the | April 22014 | January wo March | P-450,000.00 2018 planning. & construction of 2018 nursery Facilities for NGP March 22, [101-162 | Consultancy —serviees for] February 1S. ] January 2016] 38S 00.07 2016 MMEN under NGP for Jan.| 2016 | 2016 (oat see eeoee sone 24, It was also noted that Mr. Battad was paid the full amount of 300,000.00 for the period May to June 2014, notwithstanding that the contract took effect only on May 19, 2014. 25. The undertakings of the consultancy services were already done even without the approved contract, thus payment were considered irregular. b. Service Gaps 26, Mr. Battad was required to render full time service as provided in the contracts for CYs 2014 and yet he chose to report only on sclocted months as per record of his payments and certification from the Accounting Unit. This only shows the lack of urgency in the completion of the expected deliverables, which could have affected the timely completion of activities under the program. ©. Accomplishment Reports not jotly reviewed and approved by FMB and ERDB 27. The contract provides that Accomplishment Report submitted by the consultant shall be jointly reviewed and approved by FMB and Ecosystems Rescarch and Development Bureau (ERDB). However, all Accomplishment Reports attached to the claims for payment has no information showing that it was jointly reviewed and approved by FMB and ERDB, contrary to the above provision of the contract.28. Also, one of the responsibilities of the NGP Consultant was to ensure the massive production and delivery of the needed quality planting materials of forest trees and other species. He was also expected to conduct and accomplish the following in 2016, among others: 4) Assist MMEN in the production of 2016 MMEN seedlings requirement; Operationalize the additional six MMEN sites; and ») Finalize the Manual on Container Tree Nursery and collect data for the development of a seedling production Guide 29. The Accomplishment reports submitted did not show the reported production and delivery of the above items in CY 2016. d, Consultancy service obligated in 2015 but rendered in CY 2016 30 Consultancy service covering the five-month period from March to July 2016 at a rate of 385,000 per month was obligated in CY 2015 under ObR. No. 15-07-1368 dated July 30, 2015 in the amount of P1,925,000.00, contrary to Item3.0 of COA Circular No. 99-004 which states that "3,3 Obligations for Maintenance and Other Operating Expenses (MOOE) and Capital Outlays (CO) for which goods and services were not delivered or rendered or were only partially delivered/accomplishment at year-end shall be accordingly adjusted. The portion of obligation pertaining to undelivered goods and unaccomplished services shall be de-obligated and reclassified to continuing appropriation.” 31, We recommend that the Office of the DENR Secretary conduct investigation on the manner and circumstances surrounding the procurement and questionable payments of consultancy services and other perks given to Mr. Vicente T. Battad and file appropriate charges against the FMB officials/personnel concerned, if warranted. We also recommend that the FMB officials/personnel concerned submit explanations on alternative mode of procurement was resorted to in the procurement of consultancy services of Mr. Battad; bases for the staggering increase in the consultancy fee of Mr. Battad; the need to continuously engage for four years the services of Mr. Battad at an exorbitant cost despite inability to submit the expected deliverables and/or absence of proof of submission of required outputs; iv. absence of provision in the contracts that would protect the interest of the agency such as: (i) transfer of technology and knowledge to the procuring entity; and (ii) liquidated damages in case of delay or failure to submit the deliverables/outputs; and consultancy fees paid to Mr. Battad despite the deficiencies noted should not be disallowed in audit.33, We also recommend that henceforth, the FMB management should: strictly adhere to the provisions of RA 9184 and Manual of Procedures for the Procurement of Consulting Services to obtain the most advantageous price for the agency; be more circumspect in the use of NGP funds and ensure that the same is used for its intended purpose; and iii, immediately stop the practice of obligating services which are not yet rendered; and sate and reclassify to continuing appropriation the portion of obligation pertaining to unaccomplished services. May we have your comments on the aforementioned audit observation within two (2) calendar days from receipt hereof.Junder NG Annes A Forest Management Bureau Consultancy Fees - Mr. Vicente T. CYS 2013-2017 Purpose Date of Eifecivity | Contract Duration [Contract Price /mo.[ Amount Paid Leomraccar Neniccas NGM Conant ae per] Jone 28,2013 | July to September 207s [F __To0,00000) F 300,000 00 IConirct. Accomplishment Report and Letter [Dated July 19,2013, [Contract of Service as NOP Consultant i] November 1 Decemibor 735,500.00) TH7.300109 IDevcloping Nursery Hucilities - Nov to Dee 312013 loors [Sub-total 7500.00) Consultancy Sen Tor the planning &| — Apa 2, 2014 [January wo March 2014 730,000 00] “350;000.00 Jeonsiruction of nursery Ini for NGW IConsultaney Services as the National] — May 19. 2014 Way to Jone 2015 730,00000) 300,000.00} [Conwultant” for the Mechanized Forestry] INursery Payment Tor the Consalianey services] July 1, 2014 | July w December 2014 30,0080) 007500.) covering the period af 3rd & Ath Quarter CY 018 Sab-t0t 1.350,00.00) [Conaracr Tor Conalinay serve Tor the) Tebrary 01,2015 | Pebruarye Deventer 2075 7.0070 369,665.35 [Mechanized & nderized Foret Nurser] lander NGP [Contract for Consaltancy service Tor the] Pobrumry 15, 2016 [January 7- December 2016 FRR HORLON] F235 000.00 Mechanized & modernized Forest Nursery] lundce NGP [Contract for” Connalancy Service for the) January 08,2007 | January 2 Devener 2017 5 0007 Fas p0000 Mochanized & modernize Forest Nunery [rota 11,447,163.)Annex Forest Management Buren Keimbusement Expenses of Mr, Vicente. atad Cs 2014-2017 rec Dv ne ater of Payment Ameant pate ee aor ; iabaeneat TEV Ea yiez0r7 | ror fioranaone [Rembuner 328400 eaor? | ior [loranosns |Reimburenen Tae canoi7 | ora [roracasir [Remmanonen TEV ox RA Zam Cs May B38] 2sec0 ; itcinhaemen TE exp RS ea Cy & we ne rT 0/2017 t01-05-1798 Tag 2017. 117 Sebo 10,736.00 Te Tanove | Taras | wr01-0172|Reimbarcmant TEV ap RC. an 1-1, 2006 Tana 37152016 | _1or-130 [11-02-0542 [Reimbunement TEV exp KAA. 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