EXECUTIVE SUMMARY

Introduction

The Province of Samar is classified as a second class province composed of

twenty four (24) municipalities and two cities, Catbalogan and Calbayog. Catbalogan is
the capital of the Province and is the seat of the Provincial Government. It has a total
population of 695,149 based on the 2007 census spread all over its 952 barangays.

Highlights of Financial Operations

The Annual Budget of the Province of Samar amounted to P1,024,632,590.31

which approved through Sangguniang Panlalawigan Ordinance No.2012-13-006 dated
February 16, 2012. Two other SP Ordinances, No. 2012-13-014 and 2012-13-013,
dated December 2012, approved the realignment of the unappropriated surplus for CY
2010 and CY 2011 amounting to P7,000,000.00 and P17,173,317.82, respectively. This
brought the total budget of the Province in the General Fund to P1,048,805,908.13 for
CY 2012. There was an increase of 40.36% as compared with the budget in CY 2011
which was P747,225,794.70. The budget for the Special Education Fund (SEF) as
approved by the Local School Board amounted to P7,085,937.06.

Of the total appropriations in the General Fund, P970,114,843.61 were obligated

leaving a balance of P78,691,064.52. The total obligations increased by 39% as
compared with CY 2011 which was P696,556,218.02 only.

For calendar year 2012, the Province of Samar realized an income of

P832,886,954.79 which is lower by 4.48% or P39,034,413.01 than the income of
P871,921,367.80 in CY 2011. Below is a comparison of the various income received for
calendar years 2012 and 2011:

Increase(Decrease)
Sources of Income CY 2012 CY 2011 Amount %
Local Income 3,222,389.94 2,880,863.21 341,526.73 11.86%
Internal Revenue Allotment 826,334,421.00 866,574,490.00 (40,240,069.00) (4.64%)
Permit and Licenses 8,000.00 1,000.00 7,000.00 700.00%
Service Income 779,398.50 561,196.15 218,202.35 38.88%
Business Income 1,847,520.94 1,350,015.47 497,505.47 36.85%
Other Income 695,224.41 553,802.97 141,421.44 25.54%
Total 832,886,954.79 871,921,367.80 (39,034,413.01) (4.48%)

Total expenditures out of current appropriations amounted to P973,138,137.36

which was 39.97% higher than that of the previous year of P711,188,337.
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 The breakdown of expenditures are as follows:

Increase(Decrease)
Expense Class CY 2012 CY 2011 Amount %
Personal Services 363,012,850.22 309,252,076.86 53,760,773.36 17.38%
Maintenance and
Other Operating 610,125,287.14 386,014,221.33 224,111,065.81 58.06%
Expenses
Capital Outlay - 15,922,039.00 (15,922,039.00) (100.00%)
Total 973,138,137.36 711,188,337.19 277,871,839.17 39.97%

Scope of Audit

A financial and compliance audit was conducted on the accounts and operations
of the Province of Samar for the calendar year ended December 31, 2012. Our audit
includes examining on a test basis, evidence supporting the amounts and disclosures in
the financial statements, verification and analysis of accounts, and such other procedures
considered necessary under the circumstances. The audit was aimed to ascertain the
propriety and validity of disbursements and receipts as well as the reliability of the
accounts as presented in the financial statements. This year’s financial and compliance
audit were primarily focused on the selected thrust areas for the local government sector
and on such other accounts that was deemed necessary during the course of actual audit.

State Auditor’s Report on the Financial Statements

The Auditor rendered an adverse opinion on the fairness of the presentation of the
financial statements of the Provincial Government of Samar in view of the effects of the
matters discussed in the State Auditor’s Report on the Financial Statements on the
agency’s accounts and of the other deficiencies discussed in Part II of the report, and the
partially implemented and unimplemented recommendations found in Part III, also of the
report.

Summary of Significant Findings and Recommendations

1. Collections were not immediately remitted by Collectors within the prescribed

period and deposits of the Cashier were not intact, contrary to Section 69(1) of
Presidential Decree 1445, thus, large amount of cash were oftentimes retained in
the hands of Collectors which exposed the funds to possible loss or misuse and
resulted to understatement of the year-end balance of the Cash in Vault account
by P949,194.00.
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 We recommend that the Provincial Governor direct the Provincial
Treasurer, Cashier and all Collectors to strictly observe Section 69 (1) of
Presidential Decree (PD) 1445 and the pertinent provisions of the Manual
on New Government Accounting System (NGAS) for LGUs.

2. The total balance of the Cash In Bank account of P216M as of December 31,
2012 could not be relied upon due to recurring errors and uncorrected
omissions in reporting and recording check disbursements and non-
reconciliation of book and bank balances contrary to COA Circular No. 96-011
dated October 2, 1996 resulting in net amount for adjustment of P17.2M.

We recommend that the Provincial Governor direct the Provincial

Treasurer and the Provincial Accountant to strictly observe COA
Circular No. 96-011 particularly on the preparation of Bank
Reconciliation Statements. We also recommended that both officials
review thoroughly the work of their Office personnel in order to minimize
and avoid the errors in reporting and recording.

3. Unliquidated cash advances increased by 28% from P21M as of December 31,

2011 to P26.9M in December 31, 2012 due to continued non-adherence to
applicable rules and regulations in the grant and liquidation of cash advances
specifically Section 89 of PD 1445 and COA Circular No. 97-002 and due to
non-issuance of notice to all accountable officers to demand settlement of their
unliquidated cash advances pursuant to COA Circular No. 2012-004.

We recommend that the outstanding cash advances of P26M be liquidated

immediately pursuant to Sec. 89 of P.D. 1445, COA Circ. No. 97-002 and
COA Circular No. 2012-004 and impose the sanctions prescribed thereon
if unheeded.

4. The year end balances of the Property, Plant and Equipment accounts totaling
P462M were unreliable due to: a) absence of detailed list and description of the
specific property which comprise each PPE classification at the Provincial
Accountant’s Office and General Services Office; b) non- reconciliation of
property and accounting records; c) incomplete physical inventory-taking in
CY 2012 and prior years; d) non-preparation of a complete and reliable Report
on the Physical Count of Property Plant and Equipment for several years; e)
inclusion of administrative overhead estimates as Construction In-Progress,
and f) inclusion of cost of demolished structures.

We recommend that the Provincial Governor require the Inventory

Committee, the Provincial Accountant and the Chief of General Services
to strictly comply with Section 102 of PD 1445 and COA Circular No. 80-

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 124 in the keeping of accounting and property records which are
reconciled as well as in the conduct of complete physical inventory-taking
and the preparation of the annual Report on the Physical Count of
Property Plant and Equipment. We also recommended that the
Provincial Engineer’s Office strictly follow the guidelines on disposal of
properties.

5. The estimated amount earmarked for engineering and administrative overhead

in the Program of Work of every project and the savings from the budget for
the contract were obligated and recorded in the Construction In-Progress (CIP)
account and Other Deferred Credits account even without valid claims,
contrary to Section 336 of Republic Act 7160 and Section 111 of PD 1445
resulting in unsupported obligations, void liabilities and overstated CIP
account balance by P14.2M for CYs 2011 and 2012.

We recommend that the Provincial Governor require the Provincial

Budget Officer to certify in the Obligation Requests the appropriated
amount equivalent to the project contract amount only. We also
recommend that the designated Provincial Accountant: a) record in the
CIP account the contract amount of the projects only; b) record in the
books valid transactions only which are supported with proper
documents; c) use the appropriate account codes to avoid
misrepresentation of the transactions in the books, and; d) review
previous accounting entries in the CIP account and prepare the necessary
adjustments in the affected accounts.

6. Remittances of taxes withheld from compensation of employees and from

payments to contractors/suppliers were not reconciled with the actual withheld
amounts resulting in net unremitted taxes of P4.6M as of December 31, 2012,
contrary to Republic Act 8424 and BIR Revenue Regulation No. 2-98 dated
May 7, 1998. Also, taxes were not withheld from professional fees paid to
medical consultants totaling P1.7M and from overtime claims of employees
amounting to P7.6M as required in the same regulations.

We recommend that the Provincial Governor require the Provincial

Accountant to comply strictly with Republic Act 8424 and BIR Revenue
Regulation No. 2-98 dated May 7, 1998. We also recommend that the
Provincial Treasurer facilitates the immediate remittance to the BIR of
any unremitted taxes to reduce if not avoid the penalties that may be
imposed by the said agency.

7. The Provincial Government complied with the requirements to appropriate

P41.9M for the Local Disaster Risk Reduction Management Fund (LDRRMF).

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 However, the funds were not utilized during the year as planned and the
unutilized amount was not transferred to the Trust Fund at the end of the year
contrary to the provisions of Republic Act No. 101211 and COA Circular No.
2012-002.

We recommend that the Governor and the members of the Provincial

Disaster Risk Reduction Management Council implement strictly the
provisions of Republic Act No. 101211 dated May 17, 2012 and COA
Circular No. 2012-002 dated September 12, 2012, particularly on the
utilization of the LDRRMF and the transfer of unexpended balances to
the Trust Fund. We also recommend that the activities to be contained
in the LDRRMIP be aligned with those prescribed in DILG Memorandum
Circular 2012 dated April 17, 2012.

8. The Provincial Government satisfactorily complied with the requirement to

appropriate 20% of its Internal Revenue Allotment (IRA) in CY 2012 for
development projects as required in Section 287 of Republic Act 7160 or the
Local Government Code. However, 50% of the cash received for the purpose
were utilized for payment of operating expenses such as the Productivity
Enhancement Incentive benefits of employees and other expenditures which
are contrary to DILG-DBM Joint Memorandum Circular No. 2011-1 dated
April 13, 2011.

We recommend that the Provincial Governor implement strictly the

provisions of DILG-DBM Joint Memorandum Circular No. 2011-1 dated
April 13, 2011 on the utilization of the 20% Internal Revenue Allotment
for development projects. We also recommend to deposit back the
amount used to pay for regular operating expenses to the account
maintained for the 20% Development Fund.

9. The Special Education Fund (SEF) was not fully utilized in accordance with the
purpose for which it was intended as provided for in Section 272, Chapter 8 of
Republic Act No. 7160 and DECS, DBM and DILG Joint Circular No. 01-B
dated June 25, 2001, thus improvements of public school facilities were not
undertaken and the expected benefits therefrom were not availed by the
targeted recipients.

We recommend that the Local School Board, through the Governor as the
Chairman, include in the budget and utilize the same for activities which
are in accordance with Section 272, Chapter 8 of RA 7160, specifically
those geared towards the improvement of educational facilities within the
province.

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10. The validity and necessity of disbursements for overtime work in the aggregate
amount of P7.6M is doubtful due to the absence of authority from the Local
Chief Executive and other supporting documents as basis of the claims,
contrary to COA Circular No. 2012-001 dated June 14, 2012. Moreover,
claims for overtime expenses were excessive by P2.5M, due to complete
disregard of the maximum amount prescribed in DBM Budget Circular No. 10
dated March 29, 1996 and due to double payments, resulting in overpayment
of the same amount.

We recommend that the Provincial Governor implement strictly the

provisions of DBM Budget Circular No. 10 and COA Circular No. 2012-
001 on the grant and payments of overtime services. Require also the
Provincial Accountant to update subsidiary ledgers to ensure that all
expenses are recorded in the correct expense accounts and avoid double
payments. We recommend that the concerned employees be required to
pay back amounts received by them in excess of the authorized amount.

11. Honoraria received by members of the Bids and Awards Committee (BAC)
and the Technical Working Group (TWG) were not in accordance with the
rates provided for in DBM Budget Circular No. 2004-5A which resulted to
excess payment of P1,657,000.00 and improper use of funds from other Trust
Liabilities amounting to P1,288,500.00.

We recommend that the Provincial Governor require all concerned to

abide strictly with all the provisions of DBM Budget Circular No. 2004-5A
dated October 7, 2005. We also recommend that the Provincial Governor
directs the BAC and TWG members to refund immediately the excess
amount of honoraria claimed in CY 2012 and to record in the Trust Fund
all collections and deposits pertaining to sale of bid documents.

12. Regular Disbursing Officers obtained cash
documents/payrolls as basis of the amount
indicating the actual purposes, contrary to
February 17, 1997, thereby resulting in
unrestricted discretion to pay for expenses
amounting to P3.8M.
advances without any supporting
requested and oftentimes without
COA Circular No. 97-002 dated
excess cash which gave them
without authority and legal basis

We recommend that the Provincial Governor approve cash advances of

every Disbursing Officer only if supported with complete
documents/payroll as basis of the amount being requested. We also
recommend that all Disbursing Officers should indicate in the face of the
DV of each cash advance the specific purpose, period covered and the
Offices included therein. We recommend that the concerned employees

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 be required to pay back amounts received by them without authority and
legal basis.

13. The validity and necessity of disbursements on wages for Job Order (JO)
workers amounting to P104M cannot be determined since the payments were
not supported with accomplishment reports duly verified by officials with
direct supervision over their work and paid all days of the year without rest
day. Also, the appointments did not stipulate the job description, the expected
output and the actual area/office/program/project to which a JO is assigned
contrary to Section 4(6) of PD 1445 and COA Circular No. 2012-001 dated
June 14, 2012.

We recommend that disbursements for payment of JO wages be

supported with Accomplishment Reports and certified correct by the
official who has primary knowledge of the work performed in order to
confirm actual services rendered pursuant to Section 4(6) of PD 1445 and
COA Circular No. 2012-001 dated June 14, 2012. We also recommend
that the Provincial Governor adopts the Contract of Service in order to
include the basic and vital data required in any contract agreement
including the project/program or office which needs the services of a Job
Order.

14. Expenses on wages of Job Order personnel amounting to P14M were

erroneously recorded in various expense accounts instead of MOOE-General
Services, contrary to the provisions of COA Circular 2004-008 dated
September 20, 2004, thereby resulting in misleading financial reports and
understatement of the actual expenses on wages by the same amount.

We recommend that the Provincial Governor direct the Provincial

Accountant to record all transactions accurately using the correct expense
codes prescribed in the NGAS manual and to avoid repetitive and
indiscriminate use of wrong expense codes.

15. The grant of financial assistance above P25,000.00 per individual/family

recipient and educational assistance exceeding P4,000.00 per student were not
based on clear-cut pre-set guidelines to establish the criteria in the selection of
eligible recipients and the amount to be granted may result in partiality and
unrestricted selection of recipients and use of government funds other than for
public purposes, contrary to Section 4(2) of PD 1445 and Section 304 of
Republic Act 7160.

We recommend that the Provincial Governor require the program

coordinators to improve the existing guidelines on the grant of financial

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 and educational assistance to provide stringent standards or criteria in the
selection of program recipients so as to preclude suspicion of favoritism,
bias and irregularities in the process. We also recommend that the
program coordinators devise a monitoring scheme on the payments made
to each scholar and the progress of their education to ensure that the
funds are spent for the intended purpose.

16. Transfer of funds to theNational Irrigation Administration (NIA) amounting to

P3,419,487.00 as LGU counterpart for the rehabilitation of Communal
Irrigation System (CIS) in four (4) barangays of Samar was not supported with
the Program of Work and Cost Estimates to support the cost of the projects.
Also, the Memorandum of Agreement between the Provincial Government,
NIA and the Irrigators Associations did not stipulate the period of
implementation of the projects and neither did it require the submission of
Liquidation Reports to the Province thus project implementation and fund
utilization was not monitored.

We recommend that management strictly adhere to the provisions of COA

Circular No. 2012-001 dated June 14, 2012 particularly on fund transfers.

17. Payments received from prospective bidders for the sale of bidding documents
for similar procurement activities were not uniform, contrary to GPPB
Resolution No. 04-2012 dated February 24, 2012, thus the integrity of the
procurement process is impaired.

We recommend that the BAC strictly comply with GPPB Resolution No.
04-2012 and abide with the principles of Republic Act 9184.

Gender and Development Program

For CY 2012, the planned activities and programs to implement Gender and
Development Program in the Province of Samar were substantially accomplished. The
programs focused on issues on malnutrition, low school attendance, low availment of
medical services, Maternal and Child Care, Large Family Size, Low Family Income and
others. The activities, which were conducted in coordination with Barangay Health
Workers, NGOs, POPCOM, DOH and other LGUs included year-round conduct of
Responsible Parenthood sessions, provision of supplemental feeding to malnourished
children, province-wide enrollment to Philhealth, educational and livelihood assistance.

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Compliance with Tax Laws

Although taxes were withheld monthly from payments to suppliers, contractors

and employees’ salaries, none were withheld from payments of professional fees to
medical consultants and overtime services of employees. Also, remittances to BIR were
not verified to the amount of taxes withheld as discussed in Part II of this report.

Status of Settlement of Audit Suspensions, Disallowances and Charges

The total audit suspensions, disallowances and charges as of December 31,

2012 based on the Statement of Audit Suspensions, Disallowances and Charges (SASDC)
remained at P4,051,570.00 and P110,022,602.00 respectively, due to non-settlement by
persons responsible/liable. The Notice of Disallowances and Notice of Suspensions
resulting from the audit findings discussed in this report were not yet issued as of the end
of CY 2012. The balances are as follows:

Balances as Issued from Settled in Balances as of

Particulars of Dec. 31, January 1 to January 1 to December 31,
2011 Dec.31, 2012 Dec. 31, 2012 2011
Notice of Suspension 4,051,570 0.00 0.00 4,051,570
Notice of Disallowance 110,022,602 0.00 0.00 110,022,602
Notice of Charge 0 .00 0.00 0.00 0.00
Totals 114,074,172 0.00 0.00 114,074,172

These exclude disallowances issued prior to the effectivity of the Revised Rules
on Settlement of Accounts ( RRSA ).

Status of Implementation of Prior Years’ Audit Recommendations

Of the thirteen (13) recommendations contained in the prior years’ Annual Audit
Reports, three (3) were fully implemented, four (4) were partially implemented and six (6)
were not acted upon by management.

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