EXECUTIVE SUMMARY

A. Introduction

In 1987, then President Corazon C. Aquino penned Executive Order (EO) No.
118 creating the Presidential Commission on Culture and Arts. Five years later, in
1992, this presidential directive was enacted into law– Republic Act (RA) No. 7356,
creating the National Commission for Culture and the Arts (NCCA). The NCCA is
the overall policy making body, coordinating, and grants-giving agency for the
preservation, development and promotion of Philippine arts and culture; an executing
agency for the policies it formulates; and task to administering the National
Endowment Fund for Culture and the Arts (NEFCA) — fund exclusively for the
implementation of culture and arts programs and projects.

The government’s support for cultural development is particularly highlighted

by the passage of RA No. 7356 that created the NCCA. The coordination among the
cultural agencies was strengthened by the virtue of EO No. 80, which placed the
Cultural Center of the Philippines, the National Historical Commission of the
Philippines, the National Museum, the National Library of the Philippines and the
National Archives of the Philippines under the NCCA umbrella. Further, through RA
No. 9155, administratively included was the Commission on the Filipino Language.

The NCCA was created to serve as the presidential inter-agency commission to

coordinate cultural policies and programs.

The NCCA operates through a 15-member Board of Commissioners headed

by a Chairman who is elected from among its members. The Chairman, Arsenio J.
Lizaso, is assisted by an Executive Director who handles the daily operations of the
agency. As of December 31, 2020, NCCA had a total manpower of 218 consisting of
32 permanent, 16 contractual, eight casual, 46 contract of service, nine job order and
107 project-hired personnel.

B. Operational Highlights

The reported Agency’s operational highlights and reported accomplishments

for CY 2020:

Organizational Outcomes (OOs) / Performance Physical Accomplishments

Indicators (PIs) Targets Actual Percentage
(Actual/
Targets)
National Culture and Arts Coordination Program
Outcome Indicators
1 Number and percentage increase of 1 and 1 and 100
institutionalized culture and arts programs among 5% 5%
affiliated cultural agencies

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 Organizational Outcomes (OOs) / Performance Physical Accomplishments
Indicators (PIs) Targets Actual Percentage
(Actual/
Targets)
2 Percentage of stakeholders who rated the 85% 100% 117.65
implementation of policies on coordination as
good or better
Output Indicators
1 Number of policies on coordination developed 3 4 133.33
with affiliated cultural agencies for the
enhancement of culture and arts management
National Culture and Arts Development Program
Outcome Indicators
1 Percentage increase in the number of audience 5% -27.15% -543
for NCCA programs, events and activities
2 Percentage increase in the number of participants 5% 2.32% 46.4
who expressed deeper appreciation of Philippine
culture and arts
3 Percentage increase in average value of assets 1.95% 2.36% or 121.03
under administration or 48.26 58.43
Million Million
Output Indicators
1 Number of projects implemented on advancing 564 188 33.33
"pagkamalikhain" value of creative excellence,
strengthening culture-sensitive public
governance and development, valuing our
diverse culture and inculcating Filipino values
for the common good
2 Number of evaluation reviews of the NCCA 4 6 150
investment

C. Financial Highlights

The financial position, financial performance and sources and utilization of

funds of NCCA for Calendar Year (CY) 2020 with corresponding figures for CY
2019 are as follows:

Particulars Amount (₱)

2020 2019
Financial Position
Assets 4,837,945,969.32 4,856,125,946.41
Liabilities 89,335,234.75 66,252,518.44

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 Particulars Amount (₱)
2020 2019
Net Assets/Equity 4,748,610,734.57 4,789,873,427.97
Financial Performance
Revenue 251,162,732.03 904,774,378.27
Current Operating Expenses 259,219,188.45 378,882,354.94
Net Financial Assistance/Subsidy (33,954,077.14) (86,114,157.59)
Miscellaneous Income 1,640.38 400,185.78
Surplus/(Deficit) (42,008,893.18) 440,178,051.52
Sources and Utilization of Funds
Appropriations 151,626,229.25 352,627,000.00
Allotments 151,626,229.25 339,627,000.00
Continuing Appropriations 125,552,113.25 6,000,000.00
Obligations Incurred 127,777,089.64 206,862,696.77
Disbursements 50,938,783.58 101,365,715.35
Unobligated Allotments 23,849,139.61 132,764,303.23

In addition to the total appropriations of ₱151,626,229.25, the agency received

additional fund of ₱698,892,000.00 sourced from the contribution of PAGCOR and
share from travel tax collection constituted into NEFCA.

The Statement of Appropriations, Allotments, Obligations, Disbursements and

Balances for Funds 101 and 151 are shown in Annex A.

D. Scope of Audit

The audit covered the accounts and operations of the NCCA for CY 2020. The
audit was conducted to: a) ascertain the level of assurance that may be placed on the
Management’s assertion on the financial statements; b) determine the propriety of
transactions as well as extent of compliance on the applicable laws, rules and
regulations; c) recommend agency’s improvement opportunities; and d) determine
the extent of implementation of prior year’s audit recommendations. Moreover, the
audit was conducted in accordance with International Standards of Supreme Audit
Institutions (ISSAIs).

E. Independent Auditor’s Report on the Financial Statements

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

the Financial Statements (FSs) of NCCA as at December 31, 2020 due to the
observations:

1. Funds held in trust by the BTr are recorded in NCCA books of accounts at fair
market value (FMV) of ₱1,969,663,013.08 instead of at amortized cost
of ₱1,883,456,125.56, thereby overstating its receivable Due from NGAs (BTr)
and erroneously recognizing a gain Unrealized Gain (Loss) both

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 by ₱86,206,887.52, in non-conformity with Sections 7 and 8, Chapter 7, Volume
I of the GAM. (Paragraph No. 2)

2. Abnormal/negative balances of Inter-Agency Receivables amounting to

₱16,136,156.25. (Paragraph No. 3)

3. Advance payment for the rental of exhibition space of Philippine Pavilion in

Venice, Italy amounting to ₱10,528,843.70 was erroneously recorded as expense
under Subsidies-Others account instead of Prepaid Rent, as prescribed in the
Revised Chart of Accounts (RCA) (Updated 2019), Volume III of the GAM,
resulting in the overstatement of expenses and understatement of prepayments by
the same amount. (Paragraph No. 5)

F. Significant Observations and Recommendations

The following are the other significant audit observations and corresponding
recommendations, which were discussed with Management officials concerned
during the exit conference on April 22, 2021, the details of which are further
discussed in Part II of this report. Management views and comments were
incorporated in the report, where appropriate.

1. The absence of regular and periodic monitoring and reconciliation with BTr of
the agency’s Cash-Treasury/Agency Deposit, Special Account of
₱766,912,239.65, coupled with BTr’s lack of confirmatory reply, casted doubt on
the completeness and accuracy of the recorded transactions; hence, could not be
relied upon.

We reiterated our recommendation and Management agreed to require the Chief

Accountant to coordinate with the BTr for the expedition of the reconciliation of
the Cash- Treasury/Agency, Special Account to establish its correct balance.

2. Unliquidated fund transfers to various government agencies totaling

₱12,929,702.42 that has been (a) dormant for more than ten years, and (b)
negative balances of ₱16,136,532.49 formed part of the Receivables with a
balance of ₱3,300,201,622.05 as at December 21, 2020, rendering the account
unreliable. Moreover, the (c) variance of ₱33,767,609.04 between the accounting
records and confirmation replies aggravated the account’s unreliability, in
addition to the (d) delayed submission to the Office of the Auditor of
contracts/MOAs covering the fund transfers during the year, precluding their
timely review and evaluation.

We recommended and Management agreed to instruct the Chief Accountant to:

a) send follow-up demand letters to concerned IAs and NGOs/POs with

unliquidated fund transfers;

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 b) exhaust all the possible measures to enforce the settlement of the
outstanding accounts;

c) if all measures are futile, request authority from the Commission on Audit to
write-off dormant unliquidated fund transfers in strict compliance with the
provisions of COA Circular No. 2016-005;

d) conduct an in-depth analysis on the negative and the “For Reconciliation”

amounts, and effect the necessary adjusting entries in the books of accounts;

e) collaborate closely with the concerned IAs to resolve the discrepancy

between their records and NCCA records, and adjust the affected accounts
accordingly; and

f) ensure the submission of contracts/agreement and similar document to the

Auditor within the reglementary period to enable a timely review and
evaluation.

3. Various deficiencies, contrary to the provisions of COA Circular No. 97-002,

were committed, such as (a) non-liquidation of CAs at the end of the year and the
grant of additional CAs to Special Disbursing Officers (SDOs) with still
unliquidated CAs, resulting in its accumulation to ₱1,639,929.21 at year-end; (b)
delay in the liquidation of CAs from 20 to 325 days; and (c) delay of refund of
unutilized CAs aggregating ₱326,728.17; thus, making the CA susceptible to loss
or misuse or theft, and the possibility of misplaced or lost supporting documents
due to prolonged settlement. Moreover, (d) the expenses and assets for CY 2020
were understated and overstated by undetermined amount due to the non-
submission of liquidation documents by the end of the year, affecting the fair
presentation of the financial statements; and (e) the non-renewal/insufficiency of
Fidelity Bond of SDOs. which deprives the agency of indemnification in case of
loss of funds.

We recommended and Management agreed to:

a. instruct the SDOs to liquidate their CAs within the prescribed period, and at
year-end to ensure proper recording of all expenses when they are incurred;

b. direct the Accountant and all concerned officials to strictly enforce the
provisions of COA Circular No. 97-002 and the PD No. 1445 pertaining to
the grant, utilization and liquidation of cash advances; and

c. direct all accountable officers to strictly comply with the provisions of BTr
Circular No. 02-2009 on the Fidelity Bond.

4. The non-compliance with the conditions cited under Section 4.5.3 of COA
Circular No. 2007-001 - on the incorporation of necessary Terms of Reference
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 (TORs) in the MOA and Section 4.5.4 - on the requirement for NGOs/POs to
sustain equity equivalent to 20 percent of total project cost, manifested an
inadequacy on the part of NCCA to properly administer the funds intended to
assist NGOs/POs and to monitor the projects’ implementation, which eventually
could lead to loss of government funds. Likewise, the perfection of a MOA
during or after a project implementation may likely result in the inclusion, as part
of project cost, of expenditures and activities, which are not covered by the
contract.

We recommended and Management agreed to:

a. advise the Accreditation and Grants Processing Section to strictly comply

with Sections 4.5.3 and 4.5.4 of COA Circular No. 2007-001; and

b. advise the MANCOM to ensure that project duration and implementation

embodied in the MOA are dated after the contracts are perfected.

5. CAs for the payment of cash assistance to individuals under the “Arts Program
for Cultural Workers and Artists under the State of Calamity” in the total amount
of ₱49,548,752.74 were (a) granted to 16 designated SDOs but disbursed by six
personnel who were under Contract of Service (COS). Likewise, cash assistance
was (b) paid to 67 beneficiaries who already either received the same benefit
from another government agency or from the NCCA.

We recommended that Management instruct:

a. the Chief Accountant to apply the corresponding fidelity bond to all

accountable officers and stop the practice of transferring funds from one
accountable officer to another.

b. the Administrative Division to send demand letters to the concerned

individuals for the refund of the cash assistance given to them.

c. the Chief Accountant to provide complete and proper documents to support

the claims/liquidation before recording in the books.

G. Status of Audit Suspensions, Disallowances and Charges

The Statement of Audit Suspensions, Disallowances and Charges (SASDC) as

of December 31, 2020, showed a balance of ₱45,000.00. This amount pertained to
prior year’s balance which were settled on January 27, 2021 and February 02, 2021,
amounting to ₱25,000.00 and ₱20,000.00, respectively.

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H. Implementation of Prior Year’s Audit Recommendations

Of the 25 audit recommendations contained in the Annual Audit Report

(AAR) for CY 2019, 16 were implemented and nine were not implemented. The
details are presented in Part III of this report.

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