REGIONAL OFFICE NO.

I
NGS CLUSTER 9- SUCs and Other NGS SAAs
PROVINCIAL SATELLITE AUDITING OFFICE
Govantes Dike, Bantay, Ilocos Sur

Office of the Auditor- Team R1-03

University of Northern Philippines, Ilocos Sur Polytechnic State College

AOM No.: 23-10

Date : August 14, 2023

AUDIT OBSERVATION MEMORANDUM (AOM)

For: Dr. DANILO B. BOSE

Officer-in-Charge
Office of the President
Ilocos Sur Polytechnic State College – Main Campus
Candon City, Ilocos Sur

Attention: KRIZANNE I. LANUZA, CPA

Accountant III

Dr. RODOLFO C. MORENO

BAC Chairman

We have audited the payment of the project “Provision of Dining Table (Food Court),
and observed the following:

The project “Provision of Dining Table (Food Court)” amounting to ₱104,095.99 was
misclassified as civil works instead of goods, thus derivation of the Approved Budget for
the Contract (ABC) was not in accordance with Section 2 of Government Procurement
Manual (GPM) Volume II and DPWH Department Order (DO) No. 197, series of 2016,
casting doubt on the reliability and accuracy of the computed ABC. Likewise, the
reckoning date in the computation of the liquidated damages (LD) was 11 days later due to
the issuance of Notice to Proceed (NTP) which was not a requirement under the alternative
method of procurement Negotiated Procurement – Small Value Procurement (NP-SVP),
understating the LD by ₱1,307.99. Moreover, necessary supporting documents that should
have formed part of the said contract and other pertinent documentary requirements were
not attached in the DV, contrary to Appendix A, Annex “H” of the Updated 2016 Revised
IRR of RA No. 9184, Section 4 (6) of PD No. 1445 and Item 9.2 of COA Circular No. 2012-
001, casting doubt on the regularity of the transaction.

The pertinent provisions of the law, rules and regulations violated by the above-cited
audit issue include the following among others:

GPM Volume II covers the manual of procedures for the procurement of goods and
services, of which, Section 2 identifies the factors that should be considered in determining the
ABC, among others:

1. The cost or market price of the product or service itself;

2. Incidental expenses like freight, insurance, taxes, installation costs, training
costs, if necessary, and cost of inspection;
3. xxx
Xxx

AOM No. 23-10

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 Moreover, Item B.7 of DPWH DO No. 197, series of 2016 enumerates the non-civil
works items that shall not be subjected to OCM mark-up, which includes:

B.7.2 Furnishing of Furniture, Laboratory Equipment, Survey Equipment and

Consumables

Further, procedure for SVP under the alternative method of procurement – Negotiated
Procurement as discussed in Annex “H” of the Updated 2016 Revised IRR of RA No. 9184
provides:

8. Small Value Procurement (SVP)

a) Definition. Xxx
b) Procedure
Xxx
vi. The BAC shall recommend to the HOPE the award of contract in favor
of the supplier or contractor with the Single or Lowest Calculated and
Responsive Quotation (for goods or infrastructure projects), or consultant
with the Single or Highest Rated and Responsive Proposal (for consulting
services). In case of approval, the HOPE shall immediately enter into
contract with the said supplier, contractor or consultant.

In the same Act, Item L (1), Annex “H” prescribes:

Except in Shopping, and Negotiated Procurement through Emergency Cases,

Agency-to-Agency and Small Value Procurement, and Direct Retail Purchase of
Petroleum, Fuel, Oil and Lubricant, Airline Tickets, and Online Subscriptions,
the following procedures shall apply in the issuance of the Notice of Award
(NOA), Contract/Purchase Order (PO) and Notice to Proceed (NTP) for the
Alternative Methods of Procurement identified in this Guidelines, thus:

a. xxx
b. xxx
c. The HOPE or his duly authorized representative shall issue the NTP, if
necessary, and a copy of the approved contract to the Supplier, Contractor or
Consultant within three (3) calendar days from the date of approval of the
contract by the appropriate government approving authority.

Likewise, Appendix A, Annex “H” of the same Act prescribes the documents that BAC
shall require from suppliers for procurement of goods for Alternative Methods of Procurement
particularly under NP-SVP, to wit:

1. Mayor’s/ Business Permit;

2. PhilGEPS Registration Number;
3. Income/ Business Tax Return (for ABCs above ₱500,000.00); and
4. Omnibus Sworn Statement (for ABCs above ₱50,000.00).

Section 4 (6) of PD No. 1445 also provides that “Claims against government funds shall
be supported with complete documentation.”

Furthermore, Item 9.2 of COA Circular No. 2012-001 dated June 14, 2012 specifies the
basic requirements common to all purchases under alternative mode, among others:

 Approved Procurement Plan;

 Request for purchase of supplies, materials and equipment duly approved
by proper authorities;
 Original copy of delivery invoice showing the quantity, description of the
articles, xxx

AOM No. 23-10

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  Inspection and Acceptance Report xxx;

Twelve (12) units of dining tables were procured by the College under the project
“Provision of Dining Table (Food Court)” amounting to ₱104,095.99 which was paid under
Fund 06 (Income Generating Projects). The project was subjected under the alternative method
of procurement NP-SVP since the ABC was below the set amount of ₱1 Million required for
SVP.

Audit and analyses of said transaction revealed the following deficiencies as discussed
below:

a. The procurement was classified as “Civil Works” and categorized as Furniture, though in
the definition of terms provided under the Updated 2016 Revised IRR of RA No. 9184,
the term “Civil Works” shall have the same meaning as, and shall be used
interchangeably with “Infrastructure Projects”. While, “Goods” refer to all items,
supplies, materials and general support services, except Consulting Services and
infrastructure projects, which may be needed in the transaction of public businesses or in
the pursuit of any government undertaking, project or activity, whether in nature of
equipment, furniture, stationery, materials for construction, or personal property of any
kind.

Based on the foregoing definition, said procurement should have been appropriately
classified under “Goods” instead of “Civil Works”.

b. The ABC amounting to ₱119,653.68 was derived through the following computation:

Estimated Direct Cost 12 units ₱ 91,164.59

Indirect Costs:
Overhead, Contingencies, Miscellaneous (OCM) 15% 13,674.72
Contractor’s Profit (CP) 10% 9,116.52
Value-Added Tax (VAT) 5% 5,697.85
Total ABC ₱119,653.68

In the determination of the factors that should be considered in computing the ABC for
the procurement of goods, the OCM and CP is not among the different cost components
of which as provided in Section 2 of GPM Volume II.

However, due to the misclassification of said procurement, the ABC was formulated
following the computation for infrastructure projects instead of the prescribed guidelines
in the preparation of ABC for goods, thus reliability and accuracy of the computed ABC
could not be ascertained.

c. The computation of the LD was based on the number of days delayed after the 15
calendar day delivery period from the issuance of NTP which was on November 14,
2022, instead of the date of contract which was on November 3, 2022, or 11 days later.
The delay was due to the issuance of NTP which should have been forgone as it is not a
requirement under the alternative method of procurement NP-SVP, causing additional
processing time and defeating the purpose of economy and efficiency in resorting to said
mode of procurement, contrary to the guidelines provided under Annex “H” of the
Updated 2016 Revised IRR of RA No. 9184, thereby understating the computed LD by
₱1,307.99 as shown below.

Per Audit Per Records Difference

Issuance of NTP Nov. 14, 2022
Date of Contract Nov. 3, 2022
Target Date of Delivery Nov. 17, 2022 Nov. 28, 2022
Actual Date of Delivery Feb. 7, 2023 Feb. 7, 2023
No. of Calendar Days Delayed 82 CD 71 CD 11 CD
Computation of LD:
AOM No. 23-10
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 ₱118,908.60 x 1/10 x .1% x ₱118.9086 x ₱118.9086 x ₱118.9086
₱ 9,750.50 ₱ 8,442.51 ₱ 1,307.99

d. The following documents were not attached to the contract as noted in the audit of the
disbursement voucher of the subject transaction, to wit:

1. Certificate of PhilGEPS Registration;

2. Updated Mayor’s Permit;
3. BIR Certificate of Registration; and
4. Quarterly Income Tax Return

In addition, due to the improper classification of said procurement, forms used for
purposes of documentation were for infrastructure projects such as Certificate of
Inspection, Certificate of Completion, Statement of Work Accomplishment and
Statement of Time Elapsed and Percentage of Work Accomplished which were relatively
unnecessary and inapplicable.

Consequently, prescribed forms for procurement of goods which should have been
attached in the DV, instead of the forms enumerated in the foregoing, were not submitted,
as follows:

1. Purchase Request;
2. Project Procurement Management Plan (PPMP);
3. Annual Procurement Plan (APP);
4. Original Copy of Delivery Invoice; and
5. Inspection and Acceptance Report

These deficiencies precluded the audit team from proper evaluation of the documents
supporting the said payment which is not in conformity with Appendix A, Annex “H” of
the Updated 2016 Revised IRR of RA No. 9184, Section 4 (6) of PD No. 1445 and Item
9.2 of COA Circular No. 2012-001 dated June 14, 2012, casting doubt on the regularity
of the subject transaction.

We recommend that Management:

a. Direct the BAC to: i) conduct judiciously the preparation of the procurement
process of the College to ensure proper classification of procurement projects in
order to prevent the inclusion of inapplicable cost components of the ABC to
conform with the prescribed guidelines in the preparation of ABC as provided
under Section 2 of GPM Volume II and DPWH DO No. 197, series of 2016; ii)
strictly adhere to the guidelines for the alternative methods of procurement,
particularly NP-SVP, provided under Annex “H” of the Updated 2016 Revised
IRR of RA No. 9184 for procurements not exceeding the threshold of ₱1 Million
to promote economy and efficiency with the end in view of delivering the
requirements of the end-users at an earliest possible time or within their
expected delivery period; and iii) stop the practice of issuing NOA and NTP for
all NP-SVP, instead, the HoPE shall immediately enter into contract once he
approves the BAC’s recommendation to award the contract in favor od the
supplier or contractor with the LCRQ; and

b. Instruct the Accountant to: i) set-up Accounts Receivable in the book of

accounts under the account of supplier in the amount of ₱1,307.99 for the
understated LD; ii) thoroughly check the computation of LD when processing
claims by referring to the contract date as the reckoning date of the
commencement of the delivery period for purposes of identifying the number of
calendar days delayed, instead of the date of NTP for NP-SVP alternative
method of procurement; iii) submit the necessary supporting documents as
enumerated under deficiency (d) in conformity with Section 4 (6) of PD No. 1445

AOM No. 23-10

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 and Item 9.2 of COA Circular No. 2012-001; and iv) ensure completeness and
propriety of pertinent documentary requirements for all contracts and
disbursement vouchers submitted to the audit team for proper evaluation of
government transactions.
May we have your comments on the foregoing audit observations within fifteen (15)
calendar days from receipt hereof.

JANETTE G. YAGO
Audit Team Leader

BERMELY C. RAMOS
Supervising Auditor

Proof of Receipt of AOM No. 23-10:

Dr. DANILO B. BOSE

Date: ______________________

KRIZANNE I. LANUZA, CPA

Date: ______________________

Dr. RODOLFO C. MORENO

Date: ______________________

AOM No. 23-10

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