EXECUTIVE SUMMARY

A. Introduction

The Office of the Presidential Adviser on the Peace Process (OPAPP) was
created by virtue of Executive Order (EO) No. 125, signed on September 15, 1993
by former President Fidel V. Ramos. It is the lead agency charged with the task of
managing and supervising the comprehensive peace process in continuance of the
work initiated by the National Unification Commission (NUC).

On February 28, 2001 former President Gloria M. Arroyo issued EO No. 3,

defining the government’s policy framework for peace, including the systematic
approach and the administrative structure for carrying out the comprehensive peace
process.

In pursuit of the government agenda that calls for principled negotiated

settlement with all armed rebel groups under the rule of law and in accordance with
the constitutional process, the former President issued Administrative Order No.
172 on March 23, 2007, creating the National Committee on Social Integration
(NCSI) under the OPAPP to implement the Social Integration Program (SIP) for
rebel groups.

The OPAPP is presently headed by Honorable Teresita Quintos-Deles,

Presidential Adviser on the Peace Process, with the rank of Secretary assisted by
two Undersecretaries and two Assistant Secretaries. The personnel complement of
the OPAPP as of December 31, 2014 consists of 174 contractual (plantilla)
augmented by 231 employed under contracts of service and 40 consultants.

B. Financial Highlights

The financial position, financial performance and sources and utilization of

funds of the agency for Calendar Year (CY) 2014 are as follows:

Amount
Particulars
(P)
Financial Position
Assets 1,270,674,099.22
Liabilities 206,072,440.06
Net Assets/Equity 1,064,601,659.16
Financial Performance
Revenue/Subsidy 554,524,417.25
Expenses 462,347,604.55
Surplus/(Deficit) 92,176,812.70

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 Sources and Utilization of Funds
Appropriations 412,607,578.46
Continuing Appropriations 57,401,651.28
Allotments 470,009,229.74
Obligations 469,966,801.52
Disbursements 439,998,107.05
Unobligated Allotments 42,428.22

The Statement of Appropriations, Allotments, Obligations, Disbursements

and Balances for CY 2014 is shown in Annex A.

C. Operational Highlights

The following are the highlights of OPAPP reported accomplishments for

CY 2014 which were validated on a test basis by the audit team:

Physical Actual
Particulars Targets Accomplishments Variance
Quantity: Number of policy
recommendations 50 50 0
Quality: Percentage of policy
recommendations adopted 90% 100% 10%
Timeliness: Percentage of policy
recommendations submitted
within the prescribed period 100% 100% 0%
Quantity: Number of institutions
capacitated on Conflict-Sensitive
and Peace Promoting (CSPP) 64 64 0
approaches
Quality: Percentage of capacitated
institutions that rated the
approaches as good or better 90% 100% 10%
Timeliness: Percentage of
institutions capacitated on
Conflict-Sensitive and Peace
Promoting Processes (CSPP) as 100% 100% 0%
scheduled
Quantity: Number of interventions
conducted to support the
requirements of the agency’s
presidential priority
programs/projects 30 30 0
Quality: Percentage of
interventions conducted that are 90% 90% 0%
rated as good or better

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 Physical Actual
Particulars Targets Accomplishments Variance
Timeliness: Percentage of
interventions conducted/ provided 100% 100% 0%
as scheduled

D. Scope of Audit

The audit covered the accounts and operations of the OPAPP for CY 2014.
It was aimed to ascertain the propriety of the financial transactions and determine
the fairness of the presentation of the financial statements and to ascertain
compliance with laws, rules and regulations.

E. Status of Suspensions, Disallowances and Charges

No audit suspensions, disallowances and charges were issued in CY 2014

by the Audit Team to the agency.

The following is the summary of audit suspensions and disallowances

which pertain to prior years:

Balance Settlement Balance

Particulars 1/1/2014 CY 2014 12/31/2014
(P) (P) (P)
Notice of Suspension 8,555,567.55 6,331,165.00 2,224,402.55
Notice of Disallowance 4,737,628.05 - 4,737,628.05
Notice of Charge - - -
Total 13,293,195.60 6,331,165.00 6,962,030.60

F. Auditor’s Report on the Financial Statements

The Auditor rendered an adverse opinion on the fairness of presentation of

the OPAPP’s financial statements as of December 31, 2014 because of the
pervasiveness of the effects and possible effects of the following audit observations:

1. The erroneous presentation of some transactions and accounts in the

Financial Statements (FS) for all funds and the different fund clusters was
contrary to COA Circular No. 2015-002 dated March 9, 2015 and PPSAS
1 – Presentation of Financial Statements.

2. The balances of the Property, Plant and Equipment (PPE) accounts

presented in the Trial Balance as of December 31, 2014 totaling
₱108,711,536.63 were unreliable due to a discrepancy of ₱6,264,412.81
between the accounting and property records/reports and a missing vehicle
with acquisition cost of ₱1,159,553.00 still carried in the books.

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 3. The account Advances to Special Disbursing Officer (SDO) was
understated by ₱4,000,000.00 and Confidential Expenses and Accumulated
Surplus (Deficit) overstated by ₱1,000,000.00 and ₱3,000,000.00,
respectively, due to the dropping from the books of cash advances without
proper documentation and authority.

4. Total expenditures for rental of motor vehicles amounting to

P45,327,718.71 resulted in material realignment to Rent/Lease Expenses
from the different object of expenditures within the appropriation for
Maintenance and Other Operating Expenses without sufficient disclosures
in the NFS inconsistent with the PPSAS.

G. Observations and Recommendations

The following are the other audit observations and corresponding

recommendations, which were discussed with Management officials concerned,
details of which are further discussed in the report. Management views and
comments were also incorporated in the report, where appropriate.

1. Unutilized Fund Transfers sourced from the Disbursement Acceleration

Program (DAP) were not refunded/returned to the National Treasury
contrary to the Supreme Court decision that DAP was unconstitutional.
Further, the unliquidated balance of P662,492,805.81 as of December 31,
2014 was understated by the amount of funds transferred by Implementing
Agencies (IAs) to Implementing Partners (IPs) that were treated as
liquidations by OPAPP.

We recommended that Management require the:

a. Project Monitoring Teams to 1) coordinate with the Provincial

Government of Misamis Oriental to establish the correct status of the
P900,000.00 transferred fund, which it confirmed as not received; 2)
determine the amount of fund transfers that were not yet
utilized/obligated by IAs and require immediate refund to OPAPP for
remittance to the National Treasury; 3) for completed projects, demand
from IAs submission of the required documents for liquidation per
MOA for proper evaluation and recording in the books of account; and
4) require from IAs liquidation of subsequently transferred funds; and

b. Accounting Section to correct the entry made taking up subsequent fund

transfers by IAs to IPs as liquidation to reflect the correct balance of the
affected accounts.

2. The receipt of inter-agency fund transfers and foreign grants and donations
were not remitted to the National Treasury inconsistent with EO No. 338, s.

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 1996, Department of Finance-Department of Budget and Management-
Commission on Audit (DOF-DBM-COA) Joint Circular (JC) No. 4-2012
dated September 11, 2012 and the government’s drive of establishing a
unified structure of government bank accounts through a Treasury Single
Account (TSA).

We recommended that Management support the government’s drive for a

TSA by requiring the Finance and Administrative Services (FAS) Director
to remit the balances and succeeding receipts of the accounts to the National
Treasury. If extremely necessary to maintain the account, Management
should make proper representation with the PC to secure authority on the
maintenance of special accounts pursuant to DOF-DBM-COA JC No. 4-
2012.

We also recommended that Management require the Accountant to include

and present the OPAPP-World Bank Local Currency Current Account
(LCCA) in the FS as Cash in Bank - LCCA and not as Cash - MDS, Special
Account for fair presentation in the FS.

3. Rental of motor vehicles exceeding 15 days in the aggregate amount, net of

tax of P37,811,489.40 lacked authority from the DBM contrary to
Paragraphs 3.3 and 12 of NBC No. 446, Series of 1995.

We recommended that Management submit a confirmatory approval from

DBM for the lease of motor vehicles in 2014 and secure authority of car
rental for 2015.

4. Aside from the 56 motor vehicles owned and utilized by OPAPP for its day
to day operations, the agency rented 89 and 205 motor vehicles on a
monthly and per activity basis, respectively, totaling to 294 motor vehicles,
which, under COA Circular No. 2012-003 dated October 29, 2012, exceed
what is usual or proper.

We recommended that Management explain/justify the necessity of renting

said 294 vehicles by giving special attention to the noted observations that
affected the regularity and probity of the subject lease of motor vehicles.
We also recommended that the names of the end-users of motor vehicles
rented and owned by OPAPP be specified for control, monitoring and audit
purposes.

5. Several information on some of the rented motor vehicles by OPAPP as

indicated in the documents supporting the lease payments differed with the
information/data provided by Land Transportation Office (LTO).

We recommended that Management provide sufficient documents to

establish the correct information and existence of these rented vehicles.

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6. OPAPP entered into lease agreements with an employee of the agency,
firms that were not into the business of renting motor vehicles/not registered
with DTI and car lease firms that sub-contracted their services to private
individuals at the disadvantage of the government and in violation of PD
No. 1445 and Department of Trade and Industry (DTI) rules and
regulations.

We recommended that Management strictly observe the provision of

Section 108 of PD No. 1445 which prohibits engagement with persons
having pecuniary interest in government and refrain from entering into
contracts with rent-a-car business entities that are not legitimate and car
lease firms that sub-contract their services to private individuals.

7. Rental of three motor vehicles from January to December 2014 was covered
by two overlapping contracts with different rental rates and payments of
rental fees were made to a payee who was not a party to the contract.

We recommended that Management a) look into the overlapping contracts

with different rental rates and hold liable those persons responsible for the
overpayment of P280,000.00 to Green Valley Transport for the December
2013 and January 2014 car rentals; and b) stop the practice of paying rental
fees to a person who is not a party to the contract.

8. Taxes were not withheld from the rental payments of some motor vehicles
contrary to Bureau of Internal Revenue (BIR) Revenue Memorandum
Circular No. 56-2009 dated August 10, 2009.

We recommended that Management direct the personnel concerned to

consistently deduct from all transactions with private entities the required
taxes to be remitted to BIR.

9. An officer who was assigned a rented vehicle was paid Transportation

Allowance (TA) for November and December 2014.

We recommended that Management require the Director concerned to

refund the TA he collected for November and December 2014.

10. Most payments for motor vehicle rental lacked the supporting documents
necessary to validate the transaction contrary to Section 4(6) of PD No.
1445. Further, lease payments for motor vehicles rented from individuals
were supported with Acknowledgement Receipts (ARs) instead of BIR-
registered Official Receipts (ORs) in violation of BIR Revenue Regulation
No. 18-2012 and Revenue Memorandum Order No. 12-2013.

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 We recommended that Management direct the FAS Director to strengthen
the internal control in the disbursement of funds by strictly enforcing the
mandatory requirement of complete documentation as required. Further, the
lacking documents/data needed for review of the transactions in 2014
should be submitted to the Audit Team.

11. Contracts for the rental of motor vehicles were not procured through public
bidding in violation of the Revised Implementing Rules and Regulations
(RIRR) of RA No. 9184.

We recommended that Management require the Bids and Awards

Committee to conduct public bidding in succeeding years for the
procurement of motor vehicle lease contract covering entire year
requirement pursuant to the RIRR of RA No. 9184.

12. Management had not submitted copy of the lease contracts for motor
vehicles contrary to Section 3.1.1 of COA Circular No. 2009-001, thereby,
prohibiting its timely review.

We recommended that Management instruct the FAS Director to submit to

the Audit Team advance copy of perfected rental contracts pursuant to COA
Circular 2009-001.

13. No evaluation was made by Management on whether it is more economical

to lease than purchase motor vehicles.

We recommended that Management conduct a cost-benefit analysis

between rental and purchase of motor vehicles to arrive at a sound decision
that would be most advantageous to the government.

14. Unliquidated cash advances accumulated to P29,848,603.32 due to non-

liquidation within the reglementary period and granting of additional cash
advances despite non-settlement of previous cash advance, thus, exposing
the funds to possible misuse or misapplication. Further there were advances
to non-OPAPP personnel in violation of certain provisions of Treasury
Circular No. 02-2009 dated August 6, 2009 and COA Circular No. 97-002.

To avoid accumulation of unliquidated cash advances, we recommended

that Management instruct the FAS Director to:

a. demand from all accountable officers with outstanding cash advances to

immediately settle/liquidate their accountability, pursuant to Section 89
of PD No. 1445 and COA Circular 97-002;

b. initiate the filing of appropriate Administrative Proceedings for Gross

Neglect of Duty to those who failed to render account of their

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 accountabilities after demand or Simple Neglect of Duty to those who
failed to liquidate their cash advances in full within the prescribed
periods pursuant to Civil Service Commission (CSC) Memorandum
Circular No. 12, s. 2012;

c. design a system of providing the operational expenses of International

Monitoring Teams (IMTs) and non-OPAPP operational units involved
in Peace Process and stop the granting of cash advances to non-OPAPP
disbursing officers but only to permanently appointed officials of the
agency without violating the MOA; and

d. avoid granting additional cash advances unless the previous cash

advance given is first settled or a proper accounting thereof is made
pursuant to Section 89 of PD No. 1445.

15. Payment for food items/supplies and transfer of cash in the total amount of
P7,950,268.90 from the cash advances granted to the SDOs of the IMTs,
Government of the Philippines-Committee on the Cessation of Hostilities
(GPH-CCCH) were supported by Reimbursement Expense
Receipts/Acknowledgment Receipts (RERs/ARs) instead of ORs/Sales
Invoices in violation of COA Circular No. 97-002 dated February 10, 1997
and COA Circular No. 2004-006 dated September 2, 2004.

We recommended that Management a) require the IMT and GPH-CCCH to

purchase vegetables, condiments and non-meat food items from legitimate
supermarkets and grocery stores that issue ORs; and b) direct the
Accountant to ensure that payments/liquidation of expenses comply with
the provisions of COA Circular No. 2004-006 on the appropriate use of
ORs/RERs/ARs. To ensure that food purchases are halal, the Office of the
Chair, GPNP may coordinate with and seek assistance from the Islamic
Da’Wah Council of the Philippines, Inc., the National Commission on
Muslim Filipinos or other appropriate government agency.

We also recommended that Management direct the Secretariat Head of the

GPH-CCCH to submit proof of payment of expenses pertaining to the
transfer of cash to the CoS personnel as among the attachments to the
replenishment/liquidation vouchers.
.

16. The signatures of officers and staff appearing on the attendance sheets for
conferences and meetings and the Acknowledgment Receipts for various
claims attached to support expenses of the IMT and GPH-CCCH were
unreliable and doubtful due to disparity in signatures of same attendees on
different Attendance Sheets and apparent similarity/resemblance of
handwriting/strokes by different claimants in the Acknowledgement
Receipts.

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 We recommended that Management conduct investigation to determine
authenticity of the said signatures, file appropriate charges against errant
personnel and inform the Audit Team of the outcome of the investigation
and the corresponding action undertaken.

17. Liquidations/Replenishments of cash advances for petty operating expenses

in the amount of P470,450.20 were supported with ORs from restaurants
and mall shops that were issued beyond regular office hours and during
Saturdays, Sundays and Holidays, rendering doubt as to the agency’s
compliance with Section 4 Paragraph 2 of PD No. 1445.

We recommended that Management require the concerned accountable

officer to submit supporting documents that would prove that the expenses
supported by ORs issued beyond regular office hours and on non-working
days and holidays were official in nature, otherwise, refund the amount of
P470,450.20.
.
18. The Report on Physical Count of PPE (RPCPPE) and the balances of PPE
control accounts did not reconcile while the Property Cards (PCs) and PPE
Ledger Cards (PPELCs) were not updated by the Accounting and Property
Sections, respectively, contrary to the Manual on the New Government
Accounting System (MNGAS).

We recommended that Management require the Accounting and Property

and Supply Sections to: a) maintain complete and updated PPELCs and
PCs, respectively, pursuant to Section 43 of the MNGAS, Volume I; b)
reconcile the discrepancies between the RPCPPE and property and
accounting records; and c) effect necessary adjustments.

19. A missing motor vehicle with acquisition cost of ₱1,159,553.00 was still
carried in the books inconsistent with PPSAS 17 thereby affecting the fair
presentation of the PPE and equity accounts in the FS.

We recommended that Management instruct the Accountant to effect the

necessary adjustments for fair presentation of the affected accounts in the
FS.

20. Unserviceable motor vehicles amounting P6,987,570.80 were not disposed

contrary to Section 79 of PD No. 1445, exposing them to further
deterioration, which will diminish their salvage value.

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 We recommended that Management create a Disposal Committee to
undertake proper disposal of subject motor vehicles following the
guidelines set under the Manual on Disposal by the Commission on Audit.

We also recommended that Management establish accountability for the

motor vehicle rendered unserviceable due to accident and correspondingly
seek request for relief from property accountability/retribution before its
disposal, in accordance with Section 73 of PD No. 1445, COA
Memorandum No. 92-751 dated February 14, 1992 and pertinent sections
of COA Circular No. 2009-006 dated September 15, 2009 prescribing the
2009 Revised Rules of Procedures of the Commission on Audit on Relief
from Accountability.

21. Phone/Load allowances totaling P634,600.00 were granted to both organic

and non-organic personnel involved in the GPH-CCCH and Moro Islamic
Liberation Front (MILF)-CCCH, some of which were not supported by
proper receipts and beyond the allowable limits per internal policy.

We recommended that Management:

a. Institute a systematic method of monitoring individual monthly

cellphone charges so that expenses in excess of allowable limits could
be easily detected and avoided; and

b. Revisit and as necessary, revise the policies and procedures on the

provision of telephone/communication allowance ensuring that
communication expenses are incurred within established rules and
guidelines.

22. Certain officials of OPAPP were issued more than one unit of post-paid
cellphone/gadget, which was inconsistent with COA Circular No. 2012-003
and resulted in unnecessary expenses.

We recommended that Management require the concerned officials to

justify the necessity of having extra mobile phone, iPad mini or Notepad
and return those units that are not extremely necessary in their official
function.

23. The authorized rates for communication allowance/expenses were not

strictly followed which resulted in unlimited use of mobile postpaid
subscription lines.

We recommended that Management set a definite and reasonable limit on

the usage of post-paid plan so as to preclude over-incurrence of cellphone
charges.

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 24. Twenty-one attendees/participants in the International Humanitarian Law
(IHL) Lecture and Workshop Seminar had no Office/Travel Orders
inconsistent with the requirements of Section 3, EO No. 298 and COA
Circular Nos. 2012-0001 and 2012-003 dated June 14, 2012 and October
29, 2012, respectively.

We recommended that Management require the SDO to secure from the

concerned attendees/participants a written authority/order to attend the
seminar workshop issued by their respective offices and submit explanation
why RER was used for transportation expenses instead of used tickets,
otherwise, refund the amount corresponding to the hotel and transportation
expenses incurred by them.

25. Training Expenses were erroneously recorded as Representation and Rent

Expenses, contrary to the provisions of COA Circular No. 2013-002 dated
January 30, 2013 resulting in the understatement of Training Expenses by
₱98,815.00 and overstatement of Representation Expenses and Rent
Expenses by ₱93,915.00 and ₱4,900.00, respectively.

We recommended that Management require the Chief Accountant to make

the necessary adjusting entry to reflect the correct balances of the affected
accounts pursuant to the Revised Chart of Accounts for National
Government Agencies (NGAs) prescribed under COA Circular No. 2013-
002 dated January 30, 2013.

H. Implementation of Prior Year’s Audit Recommendations

Of the 10 audit recommendations contained in the prior year’s Annual Audit

Report, one was implemented, eight were partially implemented and one was not
implemented. The details are presented in Part III of this report.

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