EXECUTIVE SUMMARY

A. Introduction

The Department of Budget and Management (DBM), created under Executive

Order No. 25 dated April 25, 1936, is mandated, under this Order and by
subsequent issuances, to promote the sound, efficient, and effective management
and utilization of government resources (i.e., technological, manpower, physical,
and financial) as instrument in the achievement of national socioeconomic and
political development goals.

By 2022, the DBM envisions to be: a champion of results-oriented budget and

management policies and practices that enable the government to steer the country
towards meaningful development that empowers the poor and the marginalized; an
implementer of world-class budget and management systems that enhance
transparency, accountability and public participation in governance; and an
institution composed of highly competent and motivated public servants who
observe the highest standards of professionalism and integrity.

It shall lead public expenditures management to ensure the equitable, prudent,

transparent, and accountable allocation and use of public funds to improve the
quality of life of each and every Filipino.

Among others, the following are the general functions of the Department:

 Formulate the overall resource application strategy to match the government’s

macro-economic policy;

 Prepare the medium-term expenditure plan, indicating the programming,

prioritization, and financing of capital investment and current operating
expenditure requirements of medium-term sectoral development plans;

 Undertake the formulation of the annual national budget in a way that ensures
the appropriate prioritization and allocation of funds to support the annual
program of government;

 Develop and administer a national accounting system essential to fiscal

management and control; and

 Conduct a continuing study of the bureaucracy and assess as well as make

policy recommendation on its role, size, composition, structure and functions
to establish a government bureaucracy imbued with a spirit of public service.

The DBM is headed by a Secretary and assisted by six Undersecretaries and four
Assistant Secretaries. It has 698 personnel complement in the Central Office (CO)
and 405 in the Regional Offices (ROs).

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B. Financial Highlights

The financial position, financial performance, and the sources and utilization of
funds for Fund Clusters 01 – Regular Agency Fund, 04 – Special Account-Foreign
Assisted/Grants and 07 – Trust Fund for Calendar Year (CY) 2019 with
corresponding figures for CY 2018, are summarized as follows:

2018 Increase/
Particulars 2019
(Amounts in Million) (Decrease)
Financial Position
Total Assets P1,594.0211 P1,616.703 (P22.682)
Total Liabilities 157.7922 142.041 15.751
Net Assets/ Equity 1,436.2299 1,474.662 (38.433)

Financial Performance
Revenue P 63.6899 P 5.687 P 58.002
Net Financial Subsidy 3,252.0096 2,867.191 384.818
Total Revenue and Subsidy 3,315.6985 2,872.878 442.820
Total Expenses 3,274.3788 2,904.038 370.340
Non-Operating Gains/(Losses) (13.132) (0.001) (13.131)
Surplus/ (Deficit) 28.1888 (31.161) 59.349

The following summarizes the sources and application of funds for CY 2019 with
corresponding figures for CY 2018:

2019 2018 Increase/ (Decrease)

Particulars
(Amounts in Million)
Appropriation P5,363.525 P3,318.254 P2,045.271
Allotments 5,345.432 3,304.078 2,041.354
Obligations 4,696.571 3,037.364 1,659.207
Disbursements 4,352.020 2,573.261 1,778.759
Balances 648.861 266.714 382.147

C. Scope and Objectives of Audit

The audit covered the financial audit of the accounts and operations for CY 2019 of
the DBM-CO and its ROs. The audit was conducted to: (a) verify the level of
assurance that may be placed on Management’s assertions on the financial
statements; (b) recommend agency’s improvement opportunities; (c) determine the
propriety of transactions as well as the extent of compliance with pertinent laws,
rules and regulations; and (d) determine the extent of implementation of prior year’s
audit recommendations.

D. Audit Methodology

We adopted a risk-based audit approach in the audit of the financial statements of

DBM and in the review of compliance with laws, rules and regulations. The Audit

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 Team which carried out the audit, among others, (i) examined financial and
accounting procedures adopted by the DBM and other relevant documentation; (ii)
assessed internal controls regulating financial operations and carried out
compliance testing for determining the extent of control in operation; (iii)
conducted substantive testing of a representative sample of selected transactions;
(iv) carried out review, on test check basis, of a number of contracts and
transactions related to movements in balances of assets, liabilities, revenues and
expenses; and (v) conducted interviews and held discussions with the concerned
officials and staff in the Central Office.
The results of the audit were communicated to the Head of the Agency and the
concerned officials through the issuance of Audit Observation Memoranda
(AOMs).

E. Independent Auditor’s Report on the Financial Statements

A qualified opinion on the fairness of presentation of the consolidated financial

statements of DBM-All Funds was rendered due to the material accounting errors
and deficiencies noted in the audit, as discussed in the Independent Auditor’s
Report and in detail under Part II of this report.

F. Summary of Significant Audit Observations and Recommendations

Among the audit observations and corresponding recommendations discussed in

Part II, the significant observations are summarized as follows:

1. Payments totaling P8.440 million were made to various creditors/payees

through the issuance of Modified Direct Payment Scheme (MDPS) checks,
instead of using the List of Due and Demandable Accounts Payables – Advice
to Debit Account (LDDAP-ADA) under the MDPS as prescribed in DBM
Circular Letter No. 2018-14, thus hindering the attainment of a more
transparent and efficient payment scheme.

We recommended that Management ensure the full implementation of the

MDPS on the settlement of accounts to all internal and external creditors
and payees.

2. The non-reversion of dormant payables totaling P0.837 million to the General

Fund is contrary to Sections 1 and 2 of Executive Order No. 87, s. 2019.

We recommended that the Functional Head of the Local Government and

Regional Operations Group require the Accountants in:

a) RO VIII to revert all dormant and undocumented Accounts Payable to

the General Fund; and

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 b) RO XII to revert all balances of Due to LGUs to the General Fund since
the function of releasing shares to LGUs was already transferred to the
Bureau of the Treasury per DOF-DBM Joint Circular No. 2016-1.

3. Approximately 34 per cent or 687 of 2,035 requests received by RO IV-A for

funding from the Miscellaneous Personnel Benefits Fund (MPBF) and Pension
Gratuity Fund (PGF) in CY 2019 was processed beyond the prescribed period,
contrary to the provisions of DBM Department Order No. 2016-23 and the
Citizen’s Charter, which delayed the release of funds to beneficiaries.

We recommended that the Functional Head of the Local Government and

Regional Operations Group require the RO IV-A Director to:

a) consider evaluating RO IV-A’s existing process flow to identify areas

which may be improved to avoid incurring delays in the processing of
requests; and

b) increase the number of its personnel by filling the vacant positions for
Budget and Management Specialist/Analyst.

4. Various accounting registries, records, forms, and reports were not prepared or
maintained contrary to Volume II of the Government Accounting Manual
(GAM) for National Government Agencies (NGAs), thus affecting the
reliability of reported budget and accounting data and timeliness in the
preparation of financial reports.

We recommended that Management and the Functional Head of the Local

Government and Regional Operations Group require the:

a) Accountant in CO and Property/Supply Officers in CO, NCR, ROs IV-

A, V, XII, and XIII to prepare and/or maintain the inventory/PPE
records and reports, as prescribed under the pertinent provisions of
the GAM for NGAs;

b) Budget Officer and Accountant in RO XIII to maintain the required

budget and accounting registries, and use these in the preparation of
Statement of Comparison of Budget and Actual Amounts and
Financial Accountability Reports; and

c) Cashier/Accountable Officer in RO VII to prepare and/or maintain the

required cash records and reports.

5. Lapses were noted in the conduct of some procurement activities of the DBM,
which are not in accordance with the provisions of the 2016 Revised

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 Implementing Rules and Regulations (IRR) of RA No. 9184, thus affecting the
achievement of transparency and competitiveness in its procurement process.

We recommended and CO Management agreed to: (i) consider revising the

policies and procedures being followed by the Procurement Management
Division (PMD) that cause the incurrence of delays in posting; and, (ii)
relieve the PMD of the task of witnessing the delivery and acceptance of
goods procured and assign it instead to the Property and/or Supply Unit.

We also recommended that the Functional Head of the Local Government

and Regional Operations Group instruct the concerned personnel in:

a) RO III to: (i) provide an explanation/justification for the lapses in the

conduct of canvass; (ii) require the immediate submission of proof of
posting of Requests for Quotations in the PhilGEPS; and, (iii) improve
the controls in place to ensure that future procurement activities are in
compliance with the provisions of the procurement law; and

b) RO V to: (i) require the end-user units to ensure that future Project
Procurement Management Plans (PPMPs) to be prepared contain all
the required information, such as the estimated budget amounts and
methods of procurement, which shall be submitted to the BAC for
consolidation into Annual Procurement Plan (APP); and, (ii) ensure
that the consolidated APP and the respective PPMPs are revised and
adjusted every semester or as often as may be required by the Head of
the Procuring Entity to match with the final budget per GAA.

A Summary of Audit Observations and Recommendations, which included

management comments and auditor’s rejoinder, was sent to Management on August
14, 2020 for their further comment. These comments were incorporated in the
report, where appropriate.

G. Status of Audit Suspensions, Disallowances and Charges

The balances of Notice of Suspensions (NS), Disallowances (ND) and Charges

(NC) as of year-end are summarized below:

Beginning Balance January 01 to December 31, 2019 Ending Balance

Particulars December 31, 2018 December 31, 2019
Issued Settled
(Amounts in Million)
NS P0.192 P1.529 P0.829 P0.892
ND 4.888 0.007 0.015 4.880
Total P5.080 P1.536 P0.844 P5.772

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H. Status of Implementation of Prior Year’s Audit Recommendations

Out of the 97 prior years’ audit recommendations embodied in the CY 2018

Consolidated Annual Audit Report, 63 were implemented and 34 were not
implemented. The details are discussed in Part III of this report.

We enjoin Management to ensure full implementation of all audit

recommendations to improve the financial and operational efficiency of the
agency.

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