EXECUTIVE SUMMARY

A. Introduction

1. The Province of Agusan del Sur was created on June 17, 1967 by virtue of
Republic Act No. 4979 which provided for the division of the former Agusan
into what is now Agusan del Norte and Agusan del Sur. It formally came into
existence as an independent political entity in January 1970 when the first set
of provincial officials assumed office after the provincial election in November
1969. The same law provided that the capital of Agusan del Sur shall be the
Municipality of Prosperidad and the Government Center was then set up in
Barangay Patin-ay. Through the efforts and efficient management of the
Provincial Government, it is now classified as a first-class province comprising
of thirteen (13) municipalities, one component city and 318 barangays.

2. The audit was conducted in accordance with applicable legal and regulatory
requirements, and the Philippine Public Sector Standards on Auditing. Those
standards require that we plan and perform the audit to obtain a reasonable basis
for our conclusions.

3. The audit covered the accounts and operations of the provincial government for
the year 2018 and was aimed at ascertaining the propriety of financial
transactions, management’s compliance to prescribed rules and regulations and
the fairness of the presentation of the financial statements. Value for money
audit was also conducted on the selection and implementation of projects funded
out of the 20% development fund and other programs and projects to determine
whether the objectives of the projects were attained in the most efficient,
effective and economical manner.

B. Financial Highlights

a) Comparative Financial Position and Results of Operations

Financial Position
(In Billions of Pesos)
2018 2017

9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
Assets Liabilities Government Equity
 The chart shows the comparison of the agency’s financial position for the
periods 2017 and 2018, clustered by elements - assets, liabilities and equity. It
can be observed in the graph above that in 2018, the assets, liabilities and
government equity increased by 22% from that of CY 2017.

In the chart below, we can also observe that in CY 2018 the revenue and
expenses is higher by 6% and17%, respectively, while the net income decreased
by 8% as compared to CY 2017.

Financial Performance
(In Billions of Pesos)
2018 2017

2.50

2.00

1.50

1.00

0.50

0.00
Income Expenses Net Income

Particulars 2018 2017 Increase (Decrease)

Assets 8,050,158,635.21 6,597,522,950.10 1,452,635,685.11
Liabilities 2,023,977,628.51 1,656,161,317.22 367,816,311.29
Government Equity 6,026,181,006.70 4,941,361,632.88 1,084,819,373.82
Revenue 2,115,319,228.73 1,989,288,087.78 126,031,140.95
Expenses 1,344,606,715.59 1,149,379,961.06 195,226,754.53
Net Income 770,712,513.14 839,908,126.72 (69,195,613.58)

b) Comparative Sources and Applications of Funds

Particulars 2018 2017 Increase(Decrease)

Appropriations 2,379,582,258.27 2,089,565,306.91 290,016,951.36
Allotment 2,254,457,389.49 1,933,424,485.45 321,032,904.04
Obligations 1,402,887,707.07 1,345,100,655.20 57,787,051.87
C. Audit Opinion

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

financial statements of the Provincial Government of Agusan del Sur for CY
2018 because of the following reasons:

i. The accuracy of the Cash in Bank – Local Currency, Current Account

(LCCA) and Cash in Bank - Local Currency, Savings Account (LCSA) in
the total amount of Php2,747,631,575.88 could not be ascertained due to
existence of a variance with a net amount of Php1,363,926.55 between the
records of the accounting unit and the treasury, thereby affecting the fairness
of the presentation of the Financial Statements.

ii. The reasonableness of reported valuation of the property, plant and

equipment account recorded in the books at Php4,396,343,238.24 cannot be
ascertained due to the unreconciled records between the accounting unit and
the General Services Office and Inventory Committee.

iii. Fund transfers to Local Government Units (LGUs) amounting to

Php94,067,166.20 for the implementation of various projects remained
unliquidated at year-end contrary to COA Circular No. 94-013, casting
doubts on the propriety of the reported balance as shown in the Statement
of Financial Position.

D. Summary of Significant Observations and Recommendations

5. For the above-mentioned audit observations which have caused the issuance of
a qualified opinion, we recommend the following:

i. The Accounting Office to continue the reconciliation of records between the

accounting and treasury offices. Also, prepare a reconciliation statement of
accountability between the ledger and cashbook, with the reconciled balance to
be used in the preparation of bank reconciliation statements for a fair
presentation of financial reports.

ii. The Management to reconcile the PPE accounts with the records of the
Inventory Committee during the annual physical count. Moreover, the Public
Infrastructure accounts included in the Inventory records should also be booked
up in the book of accounts of the accounting office. Also, coordinate with the
accounting unit on the reconciliation of records between the report of result of
physical inventory, as against the Property, Plant and Equipment Ledger Cards
of the accounting office.

iii. The Management to follow the rules and regulations in granting fund transfers
to LGUs with unliquidated balances and send follow-up demand letters to
remind them of their obligation to liquidate.
6. The other audit observations and recommendations are as follows:

i. The account loans payable – domestic recorded in the books at

Php26,670,770.07, as of December 31, 2018 cannot be ascertained because the
amount of Php15,548,345.06 remained dormant for more than ten years.

We recommended that the Provincial Accountant prepare a detailed analysis/

reconciliation of this account and prepare the necessary adjusting entries
whenever appropriate for a fair presentation of the financial statements.

ii. Two infrastructure projects funded under the Conditional Matching Grant to
Provinces (CMGP) for Road Repair, Rehabilitation and Improvement in the
total amount of Php81,319,698.18 and one under the Philippine Rural
Development Project (PRDP) incurred negative slippages of 8% to 9.2%.

We recommended to require the contractors to submit a catch-up plan to ensure

completion of projects on time. Also, advice the Project Engineer to closely
monitor the project implementation and submit monthly physical progress
report for evaluation with recommended courses of actions to be undertaken, in
case there are any noted deficiencies.

iii. Bank service charges in the total amount of Php5,200.00 were incurred due to
depository accounts with balances below the required minimum maintaining
balance causing unnecessary expenditures that resulted to loss and wastage of
government funds.

We recommended that the Provincial Treasury Office adopt internal control

measures to monitor balances of the cash in bank accounts to preclude
incurrence of unnecessary expenditures and to ensure that cash in bank balances
should not fall below its maintaining balance.

iv. Procurement duration of two sub-projects under Investments in Rural

Enterprise and Agriculture and Fisheries Productivity (I-REAP) reached 299
calendar days far different from the suggested procurement timeline of 55
calendar days, per PRDP Operations Manual.

We recommended that the Management enjoin the Bids and Awards Committee
to expedite the procurement process so as to achieve the timely acquisition of
goods, works and services in support to the program implementation.

v. Some Contract Agreements and Purchase Orders were entered into by both of
the contracting parties beyond the maximum calendar days allowed for contract
preparation and signing activity.

The procurement activity, from advertisement to issuance of Notice to Proceed,

reached 144 to 168 calendar days contrary to the maximum period of 136 days
allowed in the Annex “C” of the Revised IRR of RA 9184.
 We recommended adherence to the provisions of RA 9184 and its Revised
Implementing Rules and Regulations specifically the observance of the
recommended timetable relative to the prescribed period of action on
procurement activities to enable timely delivery of goods and services as well
as the benefits by which the intended beneficiaries can derive therefrom.

vi. The BAC did not send a notification to observers during the Post-Qualification
stage of the procurement process of the Lowest Calculated Bid as mandated
under Section 13.1 of the Implementing Rules and Regulations (IRR) of
Republic Act (RA) No. 9184.

We recommended that the BAC Secretariat follow the provisions of Section 13

of the IRR of RA 9184, furnish the Auditor’s office a copy of the invitation to
observers at least five calendar days before the post-qualification process of the
LCB so that the office can observe and assess the process undertaken by BAC
and TWG.

vii. Some bid security/performance security issued by the contractors in form of

surety bond lack certifications from the insurance commission that insurance
company is authorized to issue bonds callable on demand.

We recommended that BAC and TWG properly evaluate the surety bond issued
by an insurance company as either performance security or bid security and
ensure that a certification from the Insurance Commission is attached before the
recommendation of Award to the Head of the Procuring Entity, in compliance
to Item c of sections 27.2 & 39.2 of RA 9184.

viii. Bona fide suppliers cannot be properly ascertained considering that a registered
general merchandise and / or trading establishments were awarded with the PO
to supply all kinds of goods from a very simple supply to a high – end quality
merchandise.

We recommended to advice the BAC to properly screen the eligibility

requirements in the selection of suppliers in all modes of procurement
undertaken by PGAS in order to verify, ascertain and validate the eligibility
requirements. Also ascertain that favored suppliers do not exist in all types of
PGAS procurement. Moreover, ocular inspection may also be made by TWG to
ascertain their responsiveness.

ix. Unutilized appropriation for Local Disaster Risk Reduction Management Fund
(LDRRMF) in the total amount of Php3,154,765.51 aged five years and above
were not reverted to unappropriated surplus of the General Fund as mandated
under item 5.1.13 of COA Circular 2012 – 002 dated September 12, 2012.

We recommended and Management agreed that the Provincial Budget Officer

make the necessary adjustment in the SAAOB to reflect the changes in the
unutilized LDRRMF for both current and continuing appropriations, so that the
Provincial Accountant could revert the amount to unappropriated surplus of the
general fund which may be made available for use to other social services when
authorized.
 x. Some Contract agreements/purchase orders and its supporting documents were
not submitted within the prescribed period of five (5) days after its perfection
as mandated under COA Circular No. 2009 – 001 dated February 12, 2009.

We recommended to submit the perfected contracts/purchase orders and its

supporting documents to the office of the auditor within five working days after
its perfection pursuant to COA Circular 2009 – 001 dated Feb. 12, 2009 to give
the audit team enough time for its review and evaluation in compliance with
laws, rules and regulations on the procurement process as well as the
determination of the reasonableness of the contract cost.

xi. Some Acceptance and Inspection Reports were not submitted to the office of
the Auditor neither the office notified within 24 hours from acceptance of the
deliveries from suppliers of the goods delivered as mandated under COA
Circular No. 96 – 010 dated August 15, 1996.

We recommended that the Provincial General Services Office notify the office
of the Auditor within twenty four (24) hours from acceptance, the time, date and
place of delivery to give the audit team ample time in the conduct of inspection.

xii. The existing practice in the conduct of inspection by the head of the
requisitioning office casts doubts in the authenticity and propriety of goods
delivered by the suppliers.

We recommended that the inspectorate team inspect deliveries of goods at the

place of deliveries so that actual inspection will be conducted to insure that
goods delivered met the specifications stipulated in the purchase orders. Also,
refrain from allowing the liaison officers of the suppliers to hand carry
documents and secure signatures of inspectors from office to office.

xiii. Representation Allowance in the amount of Php67,500.00 was paid to the

Officer In – Charge to the position of Assistant Provincial Government
Department Head (APGDH), which was deemed abolished pursuant to
Ordinance No. 36 series of 2009, contrary to item 9.1.1 of the Local Budget
Circular No. 103 dated May 15, 2013.

We recommended that the Management follow the rules and regulations on the
payment of RATA to the position that is not authorized in an LGU staffing
pattern pursuant to item 9.1.1 of the LBC No. 103 dated May 15, 2013.

xiv. The Provincial Government paid Transportation Allowances in the total amount
of Php411,050.00 to personnel despite being assigned with government vehicles
contrary to Section 8.2 of Local Budget Circular No. 103 dated May 15 2013.

We recommended that the Management follow the rules and regulations in

paying TA to officials and employees who are assigned or using government
motor vehicles as mandated under DBM Local Budget Circular No. 103 dated
May 15, 2013.
 xv. The Provincial Government paid Representation and Transportation Allowances
(RATA) amounting to Php206,125.00 to designated in-charge of office whose
positions were filled-up with incumbents, receiving the same allowances
contrary to Article 8 Section 317(f) of the Government Accounting and
Auditing Manual Volume I.

We recommended that the Management follow the rules and regulations in

paying RA and/or TA to ICO of the position, when incumbents are still
receiving the same as mandated under Article 8 Section 317(f) of the
Government Accounting and Auditing Manual Volume I.

E. Value for Money Audit

xvi. A deficiency in the total amount of Php6,686,024.30 for six contracts entered
into by/ and between PGAS and different contractors was noted in the technical
review and contract cost evaluation.

We recommended that the Planning Officer be extra careful in the preparation

of the Program of Works and Detailed Estimates specifically in the
determination of unit cost and application rates of VAT in the determination
of Approved Budget for the Contract to avoid excessive contract cost that may
eventually result to losses of government fund.

xvii. The physical accomplishment percentage of 32.07% during the year is far below
the expected utilization of the 20%PDF and physical accomplishments target,
thus depriving the intended beneficiaries of the timely benefits derived from the
project.

We recommended that the Provincial Development Council, formulate a plan

that is more realistic and implementable. Additional appropriations for
programs that are not yet implemented should not be released to avoid
accumulation of idle funds.

Further evaluation should be undertaken because Municipal and Barangay

governments may not be interested in implementing the 20% PDF for piecemeal
projects, considering that they also have their own 20% development fund to
attend to.

xviii. Optimal utilization of the Special Education Fund (SEF) was not fully achieved
as some of the Programs, Projects and Activities budgeted for the year with total
appropriation of Php56,279,979.18 were not fully implemented.

We therefore recommended to fast track the implementation of the above

mentioned projects so that these can be used by the intended beneficiaries. The
Provincial Local School Board should exercise their mandated functions as
provided in Sections 98 & 99 of the Local Government Code 1991.

xix. The issuances of check in the total amount of Php7.693million to different

suppliers as payment for the purchases of goods and properties were
acknowledged by a collection receipts instead of sales invoices as the principal
 evidence required under Revenue Regulations No. 18 – 2012 dated October 22,
2012 and Revenue Memorandum Circular No. 2 -2014 dated January 13, 2014.

We recommended to advice the Disbursing Officer thru the Provincial Treasurer

to release check for payment of goods, properties and/ or services only when
acknowledged with a principal receipt by the supplier.

xx. The Gender and Development (GAD) Database/Sex-Disaggregated Data

maintained by the GAD Focal Point System lacks significant amount of data
and was not updated up to the Calendar Year 2018, defeating the purpose of the
Philippine Plan for Gender-Responsive Development 1995-2025. Hence,
casting doubts on the reliability of the Gender-responsiveness of the
Programs/Projects and Activities of the Provincial Government.

We recommended that the Management strengthen the GAD Focal Point

System. Exhaust the resources needed to gather the data to be filled in the
database, and coordinate with other national government agencies for sources.
Make sure that the accompanying data for CY 2019 and subsequent years are
regularly incorporated and updated every now and then.

F. Summary of Total Suspensions, Disallowances, and Charges

7. Audit suspensions amounting to Php20,039,161.06 remained unsettled as of

December 31, 2018 contrary to Sections 5.4 and 7.1.1 of COA Circular No.
2009-006 dated September 15, 2009.

Audit Action Beg. Balance Issued Settled Ending Balance

January 1, 2018 December 31, 2018
Suspensions 20,149,121.99 1,908,595.31 2,018,556.24 20,039,161.06
Disallowances 185,028.57 - 185,028.57 -
Charges - - -
Total 20,334,150.56 1,908,595.31 2,203,584.81 20,039,161.06

G. Statement on the quantity/number of recommendations implemented,

partially implemented and not implemented for the current year.

8. Out of the 22 audit recommendations in CY 2017 AAR, seven (7) were fully
implemented and 15 were partially implemented. Three (3) of the partially
implemented recommendations are reiterated in Part II of this report.