REPUBLIC OF THE PHILIPPINES

Commission on Audit
CORDILLERA ADMINISTRATIVE REGION
Km 6, Barangay Betag, La Trinidad, Benguet

Office of The Auditor- Team CAR 01

AUDIT GROUP LGS F – MT. PROVINCE
Bontoc, Mountain Province
_____________________________________________________________________________
AOM No. : 23-011 (MP)
Date : February 22, 2023

AUDIT OBSERVATION MEMORANDUM (AOM)

For : Hon. BONIFACIO C. LACWASAN JR.

Provincial Governor
Provincial Government of Mountain Province

Attention: OSCAR T. PANILAS

Provincial Environment and Natural Resources Officer

THEODORE B. MARRERO
Provincial Accountant

We have validated the provincial government’s compliance on Solid Waste Management

and observed the following:

1. A donated brand new set of Plastic Recycling Equipment with brand new Plastic
Chair Molds remains uninstalled and unutilized contrary to the provisions of the
Memorandum of Agreement (MOA) putting the machine at risk of being withdrawn
by the Environmental Management Bureau-Cordillera Administrative Region
(EMB-CAR).

Section 2 of PD 1445 states that, “It is the declared policy of the State that all resources
of the government shall be managed, expended or utilized in accordance with law and
regulations, and safeguard against loss or wastage through illegal or improper disposition, with
a view to ensuring efficiency, economy and effectiveness in the operations of government. The
responsibility to take care that such policy is faithfully adhered to rests directly with the chief or
head of the government agency concerned.”

The Department of Environment and Natural Resources (DENR), on its mandate to

provide technical and other capability building assistance and support to the Local Government
Units in the development and implementation of local solid waste management plans and
programs, has selected the Provincial Government of Mountain Province as one of the recipients
of a Plastic Recycling Equipment with Plastic Molds.

The equipment was donated in order to enhance the provincial government’s capacity to
address issues concerning solid waste management within its jurisdiction.
 Inquiry from Provincial Environment and Natural Resources Office (PENRO) personnel
revealed that a brand new Plastic Recycling Equipment with Plastic Molds was delivered at one
of the building of provincial government at Sitio Sinigpit, Palitud, Paracelis, Mountain Province
on October 20, 2021. The machine was assembled for trial and testing, however, there was a leak
due to destroyed oil seal, causing the machine to malfunction. Repairs were done in order to
bring the machine into good running condition and on August 9-12, 2022 another trial was made
on the machine but unfortunately, same problems occurred. During the test runs, the machine
was only able to produce one complete arm chair.

The Provincial Environment and Natural Resources Officer informed that they have
requested from the EMB-CAR to require the supplier to repair the machine since management
intends to operate the said machine. Further, he informed that they are more obliged to operate
the machine since there was a previous commitment from the 10 municipalities of the province
to collect plastics and turn it over to the PENRO to be recycled with the donated machine.

Section 3 of the MOA relative to the donation of the equipment provide among others
that the EMB-CAR shall “Revoke the MOA and withdraw the Plastic Recycling Equipment with
Plastic Chair Molds from the PG/LGU if it fails to utilize them without valid reasons as to why it
remained non-operational after 3 months upon receipt of the said equipment.”

Further, Section 4 provides the following responsibilities of the provincial government:

a) Provide a suitable site for the installation of the said equipment with a minimum area
of 200 square meter, with a shed measuring at least 10 meters in length x 20 meters
in width x 4 meters in height and a single-phased power supply;

b) Assign permanent personnel to manage the operation of the equipment;

c) Apply for the necessary permits to operate the equipment;

d) Ensure that the equipment is continuously utilized on a daily basis;

e) Prepare proper documentation and submit monthly reports to the EMB-CAR

Regional Office on the results of the output of plastic chairs generated;

f) Ensure the sustainability of the project implementation through proper utilization

and maintenance of the equipment;

g) Guarantee proper and effective operation of the equipment; and

h) In case of equipment malfunction/breakdown, provide/allocate enough funds to cover

the expenses for repairs and other incidental costs to restore the immediate operation
of the equipment.

On the audit team’s inquiry on the provincial government’s compliance with the above
requirements, it was learned that management intends to put up a building for the installation of
the machine at Sitio Sinigpit, Palitud, Paracelis, Mountain Province. The personnel, necessary
permits and other requirements shall be resolved when the machine is already fully functional.

Considering that it has been more than a year from the delivery of the equipment,
management should have at least already allocated funds for a building wherein the donated
machine shall be installed. Regular testing of the machine and the related repairs should have
been prioritized to gain assurance that it is properly functioning.

The delay of the operations puts the plastic molding machine at risk of being withdrawn
by the EMB-CAR. Further deterioration on the machine and its parts are more likely to occur if it
is left unutilized. Moreover, the benefits to be derived from the operation of the plastic molding
machine remain to be realized.

We recommend that Management allocate funds for the requirements identified in

section 4 of the MOA in order to make the plastic molding machine operational and avoid
the machine being withdrawn by EMB-CAR.

2. The donated machine remain unrecorded in the books of the province due to
unavailability of records, thus, understating the Property, Plant and Equipment
account by the cost of the said machine.

International Public Sector Accounting Standards (IPSAS) 17, prescribes the standards
on the recognition, measurement at recognition, measurement after recognition, depreciation,
impairment, derecognition and disclosure requirements dealing with transactions and events
affecting the PPE of the Philippine public sector.

Paragraph 14 of IPSAS 17 provides that the cost of an item of PPE shall be recognized
as an asset if, and only if; it is probable that future economic benefits or service potential
associated with the item will flow to the entity; and the cost or fair value of the item can be
measured reliably.

Paragraph 22 of the same provides that Items of property, plant and equipment may be
required for safety or environmental reasons. The acquisition of such property, plant and
equipment, although not directly increasing the future economic benefits or service potential of
any particular existing item of property, plant and equipment, may be necessary for an entity to
obtain the future economic benefits or service potential from its other assets. Such items of
property, plant and equipment qualify for recognition as assets because they enable an entity to
derive future economic benefits or service potential from related assets in excess of what could
be derived had those items not been acquired…

Review of the schedule of Property, Plant and Equipment as of December 31, 2022
showed that the donated Plastic Molding Machine was not included in the PPE. However,
management disclosed in the Notes to the Financial Statements that “1 set of brand-new plastic
recycling equipment with brand new plastic chair molds from Department of Environment and
Natural Resources – Environemtal Management Bureau (EMB) received last October 20, 2021
 but was not booked for the cost was not indicated in the transfer documents turned-over to the
province. Such equipment is currently stored at the Paracelis Corn Feed Mill warehouse and
remains not in-operation. Inspection of the equipment by the (EMB) is set on March, 2023 for
assessment if it is still working and or to be returned to the donor, if no;”

The economic benefit to be derived from the operation of the plastic molding machine
may be minimal but the operation of it would greatly affect the provincial government’s effort in
managing plastic waste within the province.

With the above criteria, management should have recorded the equipment to include in its
PPE account.

The time lapsed from the delivery of the equipment up to this date was enough for
management to have requested from EMB-CAR for documents showing the cost of the donated
equipment.

We recommend that Management request from the EMB-CAR for documents

showing the cost of the plastic molding machine as a basis for the Provincial Accountant to
record the donated equipment.

May we have your comments on the foregoing audit observations within (15) calendar days
from receipt hereof.

MICHELLE K. ATI-TIW
Audit Team Leader

HELEN L. ROSETE
OIC-Supervising Auditor