Discretionary, Extraordinary and Miscellaneous Expenses

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					                   Management Services
                   Report No. 2007-05M
            Government-wide Performance Audit




Discretionary, Extraordinary
            and
  Miscellaneous Expenses


 Provincial Government of
        Ilocos Norte
                               Republic of the Philippines
                               Commission on Audit
                            MANAGEMENT SERVICES
                     Commonwealth Avenue, Quezon City, Philippines
                         Telephone Nos.: 931-9235, 931-74-55




                                                June 16, 2008

HON. MICHAEL M. KEON
Governor
Provincial Government of Ilocos Norte
Provincial Capitol
Laoag City

Sir:

        We are pleased to transmit the report on the government-wide
performance audit on the allocation and utilization of discretionary,
extraordinary and miscellaneous funds by the Provincial Government of Ilocos
Norte. The government-wide performance audit covering six government-
owned and controlled corporations and twelve local government units was
conducted in compliance with MS/TS Office Order No. 2007-011 dated March
22, 2007. The results of the audit were forwarded to that Office on March 26,
2008 for comments, of which were incorporated in the report, where
appropriate.

        The audit covered the review and evaluation of appropriations and
reported expenses charged against discretionary, extraordinary and
miscellaneous expenses account from CYs 2004 to 2006. It also covered
detailed analysis of selected CY 2006 expenditures charged against these funds
and similar expenses charged against other accounts.

       We look forward to the proper implementation of the recommendations
and we would appreciate being informed on the actions taken thereon within
one month upon receipt thereof.

        We acknowledge the cooperation and assistance extended to the team
by the officials and staff of that Office.

                                            Very truly yours,

                                            By Authority of the Chairman:



                                            SUSAN P. GARCIA
                                               Director IV
Contents                                                          Page



Part I     Executive Summary                                      1

                  Introduction 2
                  Audit Objective 2
                  Evaluation Criteria 2
                  Audit Scope and Methodology       3
                  Audit Conclusion 4
                  Management’s Comments 5
                  Audit Recommendations 5

Part II    The Allocation and Utilization Guidelines              7

                  Introduction 8
                  Governing Laws, Rules and Regulations      10

Part III   The Provincial Government of Ilocos Norte              13

                  Background 14
                  Organizational Structure 14
                  Personnel Complement 15
                  Appropriations and Expenditures       16

Part IV    Audit Observation and Recommendations                  17

                  Introduction 18
                  Observation 18
                  Management’s Comments and
                      Team’s Rejoinder 22
                  Recommendations      23
     Part I

Executive Summary




                    1
EXECUTIVE SUMMARY




  INTRODUCTION


The allocation and utilization of funds intended for extraordinary and
miscellaneous expenses by government agencies are generally governed by COA
Circular No. 85-55A, and Section 25 of the General Provisions of the General
Appropriations Act (GAA) for national government agencies (NGAs), COA
Circular No. 2006-001 for government-owned and controlled corporations
(GOCCs), and Section 325 (h) of R.A. 7160 for local government units (LGUs).

Extraordinary and miscellaneous expenses as prescribed under these rules and
regulations, shall include, but shall not be limited to expenses incurred for:

      •   Meetings, seminars and conferences
      •   Official entertainments
      •   Public relations
      •   Educational, athletic and cultural activities
      •   Subscriptions to professional technical journals and informative
          magazines, library books and materials
      •   Contributions to civic and charitable institutions
      •   Membership in government associations, national professional
          organizations duly accredited by the Professional Regulations
          Commission, and in the Integrated Bar of the Philippines
      •   Other similar expenses not supported by the regular budget
          allocation.



  AUDIT OBJECTIVE


The audit was conducted to assess whether the existing systems on the allocation
and utilization of discretionary, extraordinary and miscellaneous funds were
effective in ensuring that the limitations prescribed under existing rules and
regulations were observed and that funds were used for the purposes intended.


  EVALUATION CRITERIA


To achieve the audit objective, the team considered the following evaluation
criteria for assessing the agencies’ effectiveness in controlling the allocation and


                                                                                   2
                                                              EXECUTIVE SUMMARY



utilization of discretionary, extraordinary and miscellaneous funds:


             • Conformity with the following prescribed limitations:

                 o LGUs- 2% of Real Property Tax collection in the next
                   preceding year
                 o GOCCs- amounts prescribed in their respective
                   charters or, in its absence, rates provided in the GAA

             • Judicious spending of funds focusing on:

                 o Spending funds for the purposes intended
                 o Proper documentation of expenses




 AUDIT SCOPE AND METHODOLOGY


The audit covered the review and evaluation of appropriations and reported
discretionary, extraordinary and miscellaneous expenses incurred from CYs
2004 to 2006 by selected GOCCs and LGUs in the National Capital Region,
Regions I including the Provincial Government of Ilocos Norte, III, VII and X.
The audit also covered detailed analysis of selected CY 2006 expenditures
charged against these funds and similar expenses charged against other accounts.

During the audit, the team employed the following audit techniques, among
others:



         •    Reviewed and evaluated extent of compliance with existing rules
              and regulations on the allocation and utilization of funds
              intended for discretionary, extraordinary and miscellaneous
              expenses and analyzed nature of expenses charged thereon;
         •    Interviewed concerned GOCC and LGU officials and employees
              involved in the allocation and utilization of these funds; and
         •    Assessed the control/monitoring mechanism for the allocation
              and utilization of these funds.




                                                                                3
                                                                          EXECUTIVE SUMMARY




 AUDIT CONCLUSION



The audit concluded that the Province’s existing systems on the allocation and
utilization of funds intended for extraordinary and miscellaneous expenses may
not be considered effective to ensure that the limitations prescribed under
existing rules and regulations were observed and that funds were used for the
purposes intended.

The allocation of P217,487.70 for extraordinary expenses in CY 2005 exceeded
the limitation prescribed under Section 325(h), R.A. 7160 computed to be
P162,146.39 by P55,341.31. The account Extraordinary Expenses was used for
purposes of appropriation and related expenses were recorded under
Miscellaneous Expenses account. Moreover, recorded expenses of P63.209
million for the three-year period exceeded the Sanggunian-approved and
allowable appropriation by P62.611 million and P62.667 million, respectively,
as presented below:

            Sanggunian                                                       Excess
             Approved        Allowable                       Expenses Over Appropriations
             Approp-         Approp-           Actual        Sanggunian-                        Approp-
              riation         riation         Expenses        Approved       Allowable           riation
   CY
                (a)              (b)            (c)            (d=c-a)        (e=c-b)           (f=a-b)
  2004     P 88,785.25      P 188,785.25   P17,625,151.40 P17,436,366.15 P    17,433,825.15 P     00.00
  2005       217,487.70       162,146.39    14,726,142.21 14,508,654.51       14,563,995.82   55,341.31
  2006       191,326.25       191,326.25    30,857,925.65 30,666,599.40       30,669,140.40       00.00
 Total     P 597,599.20     P 542,257.89   P63,209,219.26 P62,611,620.06 P    62,666,961.37 P 55,341.31


The Provincial Accountant claimed that the reported over expenditure under
Miscellaneous Expenses account was due to inadvertent journalization of Other
Maintenance and Operating Expenses (OMOE) amounting to P63.005 million.
He claimed that of the total amount, only P203,785.24 should be accounted for
under Extraordinary Expenses as computed below:

                                                                      CY
           Particulars                     2004              2005              2006               Total
 Miscellaneous Expenses               P17,625,151.40     P14,726,142.21    P30,857,925.65     P63,209,219.26
 Less: Chargeable to extraordinary
       expenses                            188,785.24         15,000.00               00.00       203,785.24
 Total amount misclassified to
 miscellaneous expenses              P 17,436,366.16     P14,711,142.21    P30,857,925.65     P63,005,434.02




                                                                                                      4
                                                       EXECUTIVE SUMMARY



This would mean then that the total expenditures under Miscellaneous Expenses
account in CY 2004 and 2005 would be within the prescribed limitations while
there were no miscellaneous expenses incurred in CY 2006 as tabulated below:

                                            Actual Expenses
                           Sanggunian      (accounted under
                 CY
                            Approved         Miscellaneous
                          Appropriation        Expenses)
                 2004      P 188,785.25     P  188,785.24
                2005         217,487.70         15,000.00
                2006         191,326.25             00.00
               Total       P597,599.20       P 203,785.24


The recorded expenses of P30.858 million in CY 2006 claimed to be chargeable
against OMOE, however, included meal expenses served during weekly
meetings and to various visitors, and donations to civic organizations which are
considered properly chargeable against Miscellaneous Expenses account.
Expenses of this nature in CY 2006 already amounted to P460,048 which
exceeded the prescribed limitation of P191,326.25 for that year.

In addition to the appropriation for Extraordinary Expenses, other extraordinary
and miscellaneous expenses were charged to other accounts such as Donations
and Membership Dues and Contributions to Organizations. This is evident in the
evaluation of CY 2006 selected transactions.



 MANAGEMENT’S COMMENTS


The results of the audit were forwarded to the incumbent and former Governors
of Ilocos Norte. The former Governor submitted justifications/explanations on
the deficiencies noted which were reiterated by the incumbent Governor. The
incumbent Governor though considered the audit observations as guide in future
transactions of the Provincial Government. The comments submitted were
incorporated in the report, where appropriate.



 AUDIT RECOMMENDATIONS


Considering that extraordinary and miscellaneous expenses are recurring
expenses, the team recommended measures under Part V of the report to address
these deficiencies. In general, the team recommended that the City should


                                                                               5
                                                      EXECUTIVE SUMMARY



observe the limitations prescribed under Section 325(h) of RA 7160 and refrain
from charging miscellaneous expenses against other accounts.

The Resident Auditor was likewise advised to take appropriate actions on
appropriations and expenditures in excess of the limitation and charging of
extraordinary expenses to other accounts.




                                                                             6
                 Part II

The Allocation and Utilization Guidelines




                                            7
THE ALLOCATION AND UTILIZATION GUIDELINES




 INTRODUCTION


On September 8, 1985, COA issued COA Circular No. 85-55A to prescribe the
amended rules and regulations on the prevention of irregular, unnecessary,
excessive or extravagant expenditures or uses of funds and property. These rules
and regulations included the use of funds for extraordinary and miscellaneous
expenses formerly known as discretionary fund.

In 1986, COA issued the State Audit Manual to consolidate current laws,
regulations and modern concepts in state auditing and prescribe new objectives
and procedures consistent with the goals of efficient and effective audit of
government expenditures. It also defines the different expenditure accounts
including the following expense accounts:

    •   Discretionary Expenses (3-18-000) includes the cost of services which
        are confidential in nature, rendered by persons who are temporarily
        employed by authorized administrative or executive officers to carry on
        successfully administrative activities; compensation of informers
        employed to detect the whereabouts of criminals or the existence of
        prohibited games, which compensation shall not exceed ten percent of
        the fines imposed upon the convicts; and expressly authorized
        confidential expenses for which appropriations have been approved
        specifically for the purpose.

    •   Extraordinary Expenses (3-20-000) includes but not limited to,
        expenses incurred for or during meetings, seminars and conferences,
        official entertainment, public relation, educational, athletic and cultural
        activities, contributions to civic or charitable institutions, membership
        fees in government associations, subscriptions to professional
        magazines, library books and materials, office equipment and supplies
        and other similar expenses that are not supported by the regular budget
        allocations.

    •   Contingency/Emergency Expenses (3-20-000) includes unforeseen
        expenditures arising from the occurrence of natural calamities or
        financial dislocations on account thereof which are chargeable against
        the appropriation reserve. It shall also include losses incurred in
        converting foreign currencies to Philippine peso.

On December 19, 1991, COA Circular No. 91-368 was issued to institute a
Government Accounting and Auditing Manual (GAAM) and prescribe its use.
The account Discretionary Expenses (3-18-000) was changed thereon to
Confidential and Intelligence Expenses (3-19-000) while account
Extraordinary/Contingency/Emergency Expenses (3-20-000) was split into


                                                                                      8
                                 THE ALLOCATION AND UTILIZATION GUIDELINES



Extraordinary and Miscellaneous Expenses (3-18-000) and Anti-
insurgency/Contingency/Emergency Expenses (3-20-000). Extraordinary and
Miscellaneous Expenses now includes not only those expenses enumerated
under 3-20-000 of the State Audit Manual but also expenses for the official
entertainment of the Official’s authorized representative. It also provides a
condition that no portion of the amounts authorized thereon shall be used for the
creation of positions, for salaries, wages, allowances, intelligence or confidential
expenses.

Under the New Government Accounting System (NGAS), the accounts
Extraordinary and Miscellaneous Expenses (3-18-000) and Confidential and
Intelligence Expenses (3-19-000) were broken down into the following expense
accounts:

                        Account
                    Title                Number                       Description

                                                         Cost of services which are
       Confidential Expenses                881
                                                         confidential in nature
                                                         Amount of expenses for highly
       Intelligence Expenses                882
                                                         sensitive activities
                                                         Amount of expenses of government
       Extraordinary Expenses               883          officials for authorized public
                                                         relations activities
                                                         Amount of expenses other than those
                                                         classified under specific confidential,
       Miscellaneous Expenses               884
                                                         intelligence and extraordinary
                                                         expense accounts


The foregoing definitions are applicable to all national government agencies
(NGAs), local government units (LGUs), and government-owned and controlled
corporations (GOCCs).

As reported by the Government Accounting and Financial Management
Information System (GAFMIS) of the Commission on Audit, the consolidated
extraordinary and miscellaneous expenses of NGAs, LGUs and GOCCs for
CYs 2004 to 2006 amounted to P29.054 billion as tabulated below:

                                                 In Thousand Pesos
      Sector           CY 2006               CY 2005         CY 2004                        Total
     NGAs          P   861,432.88         P 691,664.09            P 739,620.60           P 2,292,717.57
     LGUs            1,131,643.02            892,727.00              900,740.30            2,925,110.32
     GOCCs           7,089,916.37*         7,461,054.70*           9,285,535.70           23,836,506.77
     Total         P 9,082,992.27         P9,045,445.79          P10,925,896.60          P29,054,334.66
     * Includes confidential and intelligence expenses




                                                                                                      9
                           THE ALLOCATION AND UTILIZATION GUIDELINES




 GOVERNING LAWS, RULES AND REGULATIONS


The allocation and utilization of funds intended for discretionary, extraordinary
and miscellaneous expenses in GOCCs and LGUs are governed by the following
laws, rules and regulations:

   Laws, Rules and
     Regulations                                    Provisions
 GOCCs
 COA Circular No. 2006-001 dated January 3, 2006

      Para. I- Scope     It shall cover extraordinary and miscellaneous expenses and
      and Coverage       other similar expenses, such as discretionary, business
                         development expenses, representation expenses and the like,
                         provided that the nature or purpose of said expenditures
                         pertain to any of the following:

                             •    meetings, seminars and conferences;
                             •    official entertainment;
                             •    public relations;
                             •    educational, athletic and cultural activities;
                             •    contribution to civic and charitable institutions;
                             •    membership in government associations;
                             •    membership in national professional organizations duly
                                  accredited by the Professional Regulation Commission;
                             •    membership in the Integrated Bar of the Philippines;
                             •    subscription to professional technical journals and
                                  informative magazines, library books and materials; and
                             •    other similar expenses not supported by regular budget
                                  allocation.


      Para. III- Audit   The amount of extraordinary and miscellaneous expenses, as
      Guidelines         authorized in the corporate charters of GOCCs/GFIs, shall be
                         the ceiling in the disbursement of these funds. Where no such
                         authority is granted in the corporate charter and the authority
                         to grant extraordinary and miscellaneous expenses is derived
                         from the General Appropriations Act (GAA), the amounts
                         fixed thereunder shall be the ceiling in the disbursements.
                         Under Section 25 of the GAA, appropriation for this purpose
                         for officials and those of equivalent rank as may be authorized
                         by the DBM shall not exceed:

                             (a) P180,000 for each Department Secretary;
                             (b) P65,000 for each Department Undersecretary
                             (c) P35,000 for each Department Assistant Secretary;



                                                                                            10
                       THE ALLOCATION AND UTILIZATION GUIDELINES



 Laws, Rules and
   Regulations                                  Provisions
                         (d) P30,000 for each head of bureau or organization of equal
                             rank to a bureau and for each Department Regional
                             Director;
                         (e) P18,000 for each Bureau Regional Director; and
                         (f) P13,000 for each Municipal Trial Court Judge, Municipal
                             Circuit Trial Court Judge, and Shari’a Circuit Court Judge.

                        In addition to the prescribed rate, miscellaneous expenses
                        not exceeding Fifty Thousand Pesos (P50,000) for each of
                        the offices under the above named officials are also
                        authorized under the said Section.

                     Payment of these expenditures shall be strictly on a non-
                     commutable or reimbursable basis;

                     The claim for reimbursement of such expenses shall be
                     supported by receipts and/or other documents evidencing
                     disbursements; and

                     No portion of the amounts appropriated shall be used for
                     salaries, wages, allowances, intelligence and confidential
                     expenses which are covered by separate appropriations.

LGUs
R.A. 7160

    Section 325-     The annual appropriations for discretionary purposes of the
    General          local chief executive shall not exceed two percent (2%) of the
    Limitations      actual receipts derived from the basic real property tax in the
                     next preceding calendar year. Discretionary funds shall be
                     disbursed only for public purposes to be supported by
                     appropriate vouchers and subject to such guidelines as may be
                     prescribed by law. No amount shall be appropriated for the
                     same purpose except as authorized under this Section.

GOCCs and LGUs
COA Circular No. 85-55A dated September 8, 1985

    Item 4.7-        For National Government Sector
    Extraordinary
    and              Extraordinary and miscellaneous expenses shall include, but
    Miscellaneous    not limited to expenses incurred for or during meetings,
    Expense          seminars and conferences, official entertainment of the
    (formerly        official or through his authorized representative, public
    Discretionary    relations, educational, athletic and cultural activities,
    Fund)            contributions to civic or charitable institutions, membership
                     fees in government associations, informative magazines,


                                                                                       11
                    THE ALLOCATION AND UTILIZATION GUIDELINES



Laws, Rules and
  Regulations                              Provisions
                  library books and materials, office equipment and supplies
                  and other similar expenses that are not supported by the
                  regular budget allocations, Provided, that no portion of the
                  amounts authorized thereon shall be used for the creation of
                  positions, nor for salaries, wages and allowances, intelligence
                  or confidential expenses.

                  For Local Government and Corporate Sectors

                  The above provision contained in 4.7.1 shall also apply to the
                  local government and corporate sectors.




                                                                               12
         Part III

The Provincial Government
     of Ilocos Norte




                            13
THE PROVINCE OF ILOCOS NORTE



  BACKGROUND



The Province of Ilocos Norte is located along the northwestern tip of the Island
of Luzon, bordering Cagayan and Apayao to the East, and Abra and Ilocos Sur
to the south. It is classified as a first class province with Laoag City as its capital.
Ilocos Norte is divided into two (2) congressional districts and composed of two
(2) cities, twenty-three (23) municipalities, and five hundred fifty seven (557)
barangays.

The Province has a total land area of 3,622.91 square kilometer and a population
of 559,885 (2006 projection). It specializes in agriculture, fishery, livestock,
cottage industries, manufacturing and food processing.

By reason of its strategic location, Ilocos Norte is shifting its economy from
being largely agricultural into an agro-industrial center for Northern Luzon.
Several economic zones are currently being developed to facilitate the entry of
investments. These projects include the Laoag Special Economic Zone and the
Currimao Agri-Industrial Zone.


  OBJECTIVE



As an LGU, the Province is mandated under the Local Government Code of
1991 to provide basic services to its constituents, accelerate its economic
development, upgrade the quality of life of the people and be an effective partner
in the attainment of national goals. It was also given the necessary power
essential to efficiently and effectively govern promotion of the general welfare
of the people. As such, it shall ensure and promote health and safety, enhance the
right of the people to a balanced ecology, enhance economic prosperity,
promote full employment, maintain peace and order and preserve the comfort
and convenience of the inhabitants.



  ORGANIZATIONAL STRUCTURE



The operation of the Province is being managed by a Governor who is assisted
by a Vice Governor. It is composed of 24 line departments/offices, each of
which is headed by a Department Head:


                                                                                     14
                                               THE PROVINCE OF ILOCOS NORTE



            •      Office of the Governor
            •      Office of the Vice Governor
            •      Sangguniang Panlalawigan
            •      Administrator’s Office
            •      Provincial Jail
            •      Provincial Planning and Development Office
            •      General Services Office
            •      Provincial Budget Office
            •      Provincial Accounting Office
            •      Provincial Treasurer’s Office
            •      Provincial Assessor’s Office
            •      Provincial Library
            •      Provincial Legal Office
            •      Provincial Health Office
            •      Rizal Amusement Parks/Other Parks/Plaza
            •      Provincial Social Welfare and Development Office
            •      Provincial Population Office
            •      Provincial Agriculture’s Office
            •      Provincial Veterinary Office
            •      Provincial Environment and Natural Resources Office
            •      Provincial Engineer’s Office
            •      Radio Communication Office
            •      Provincial Cooperative Office
            •      Provincial Architect’s Office



 PERSONNEL COMPLEMENT


During the period covered in the audit, the Province was manned by officials and
employees of different employment status as presented below:


                   Employment Status        2004    2005    2006
                Elected                        15      15      15
                Permanent                     787     799     785
                Temporary                       2       5       3
                Contractual/Job Order         215      87     256
                Casuals                       215     299     216
                Co-terminus                     4       4       4
                Saguip Maestra                 64      64       0
                Consultants                     0       0       7
                Total                       1,302   1,273   1,286




                                                                              15
                                                    THE PROVINCE OF ILOCOS NORTE



As of December 31, 2006, the Sangguniang Panlalawigan was composed of
twelve (12) members including the Vice Governor as Presiding Officer.


 APPROPRIATIONS AND EXPENDITURES



For the three-year period, the appropriations and expenditures of the Province
under the General Fund for extraordinary and miscellaneous expenses in relation
to the total appropriations and expenditures follow:

                       Appropriation                               Expenditures
                            Extraordinary                              Extraordinary
                                   &                                         &
                            Miscellaneous                               Miscellaneous
 CY           Total            Expenses      %            Total           Expenses        %
 2004     P 470,439,293.19     P188,785.25   .040   P 394,559,674.20    P 17,625,151.40   4.47
 2005       440,102,186.26      217,487.69   .049      432,383,041.29     14,726,142.21   3.41
 2006       527,255,851.03      191,326.25   .036      519,881,104.73     30,857,925.65   5.94
 Total   P1,437,797,330.48     P597,599.20   .042   P1,346,823,820.22   P63,209,219.26    4.69




                                                                                                 16
               Part IV

Audit Observation and Recommendations




                                    17
CONFORMITY WITH PRESCRIBED LIMITATIONS




 INTRODUCTION


Limitations on certain government expenditures are prescribed under existing
rules and regulations to eliminate unnecessary expenses and prevent possible
abuse of power by those exercising authority. Thus, while the State recognized
that government officials are incurring extraordinary and miscellaneous
expenses in the performance of their duties, the amount intended for this purpose
is limited. In the case of LGUs, the limitations were prescribed under Section
325 (h) of R.A. 7160.

The audit, however, disclosed that the Province did not observe the limitations
prescribed therein in CY 2005.         Moreover, reported expenditures for
Miscellaneous Expenses exceeded the Sanggunian approved appropriation by
P62,611,620.06 and the prescribed limitation by P62,666,961.37. The Provincial
Accountant though claimed that the excess expenditures were due to inadvertent
misclassification of expenses supposedly chargeable against Other Maintenance
and Operating Expenses (OMOE).

In addition to appropriations for Extraordinary Expenses, the Province is also
charging other extraordinary and miscellaneous expenses to other accounts such
as Donations and Membership Dues and Contributions to Organizations. This is
evident in the evaluation of sample transactions in CY 2006.


 OBSERVATION



The allocation for extraordinary expenses in CY 2005 exceeded the limitation
prescribed under Section 325 (h), R.A. 7160 by P55,341.31. Moreover,
expenditures charged therein from CYs 2004 to 2006 exceeded the allowable
limitation and the Sanggunian approved appropriation by P62.667 million
and P62.612 million, respectively. Excessive charging against the account was
claimed to be due to erroneous journalization of OMOE. Some of the expenses
in CY 2006 were, however, properly chargeable against Miscellaneous
Expenses account. In addition, other extraordinary and miscellaneous
expenses were being charged to other accounts.




                                                                               18
                               CONFORMITY WITH PRESCRIBED LIMITATIONS



Under Section 325(h) of R.A. 7160, the annual appropriations for discretionary
purposes of the local chief executive shall not exceed two percent (2%) of the
actual receipts derived from the basic real property tax in the next preceding
calendar year. It further provided that no amount shall be appropriated for the
same purpose except as authorized therein.

This prohibition was reiterated under DBM Legal Opinion No. L-B-2001-10
which clarified that there is no specific provision in the Local Government Code
which authorizes appropriation for extraordinary and miscellaneous expenses,
separate and distinct from the Discretionary Fund as both have the same purpose.
Hence, it cannot be treated as separate and provided with separate
appropriations.

To ensure that the annual budgets of LGUs as approved by their respective
Sanggunian comply with the requirements set forth in the Local Government
Code, their budgets are subject to the review of the Department of Budget and
Management (DBM), through its Regional Offices.

Records show that for CYs 2002 to 2004, the Provincial Government of Ilocos
Norte reported total Real Property Tax collections of P27,112,894.55. Taking
into consideration the prescribed limitation of 2%, the total amount that could be
appropriated for discretionary fund during CYs 2004 to 2006 should not exceed
P542,257.89, as computed below:

                           Real Property Tax              Discretionary
                               Collected                      Fund
               CY        CY         Amount                 Limitation
              2006      2004          P 9,566,312.58      P 191,326.25
              2005      2003             8,107,319.35       162,146.39
              2004      2002             9,439,262.62       188,785.25
              Total                   P 27,112,894.55     P 542,257.89


Review of the Province’s budgets for CYs 2004 to 2006, however, revealed that
the Province did not take into consideration the 2% limitation prescribed under
Section 325(h) of R.A. 7160 in CY 2005. Its allocation for these expenses in that
year exceeded the prescribed limitation by P55, 341.31 as computed below:

                                        Actual Allocation
                      Discretionary
                                              For               Excess
            CY            Fund
                                         Extraordinary         Allocation
                       Limitation
                                           Expenses
           2006       P 191,326.25         P 191,326.25        P    00.00
           2005        162,146.39           217,487.70          55,341.31
           2004        188,785.25           188,785.25              00.00
           Total      P542,257.89          P 597,599.20       P 55,341.31



                                                                               19
                                      CONFORMITY WITH PRESCRIBED LIMITATIONS



As may be noted, the Province allocated the entire allowable 2% limitation for
extraordinary expenses.       There were no appropriations provided for
miscellaneous expenses during this period. Records, however, show that while
extraordinary expenses account was used for purposes of appropriation, charges
thereon were accounted under miscellaneous expenses account. Considering that
the combined allocation for these two accounts should not exceed the 2%
limitation, the team considered the two accounts as one.

Review of expenses accounted for under Miscellaneous Expenses account
revealed that the same exceeded the appropriation for Extraordinary Expenses by
P62,611,620.06 and the allowable limitation by P62,666,961.37 as computed
below:

              Sanggunian                                                        Excess
               Approved          Allowable                            Expenses Over Appropriation
     CY       Appropria-         Appropria-          Actual           Sanggunian-
                 tion               tion            Expenses           Approved        Allowable
                  (a)                (b)              (c)               (d=c-a)         (e=c-b)
    2004       P188,785.25      P 188,785.25    P 17,625,151.40      P 17,436,366.15 P 17,433,825.15
    2005        217,487.70        162,146.39      14,726,142.21        14,508,654.51   14,563,995.82
    2006        191,326.25        191,326.25      30,857,925.65        30,666,599.40   30,669,140.40
   Total      P 597,599.20      P 542,257.89     P63,209,219.26      P62,611,620.06 P 62,666,961.37


Upon inquiry, the team was informed by the Provincial Accountant that the
excess amount charged against Miscellaneous Expenses was due to inadvertent
journalization of OMOE (969) amounting to P63,005,434.02 as Miscellaneous
Expenses (884). Team’s verification of the Province’s budget indeed disclosed
an appropriation for this account in the amount sufficient to accommodate these
expenses.

The amount claimed to have been erroneously journalized is computed below:

                                                                  CY
          Particulars                  2004             2005                2006               Total
 Miscellaneous Expenses           P 17,625,151.40   P14,726,142.21     P30,857,925.65      P63,209,219.26
 Less: Chargeable to
       extraordinary expenses          188,785.24        15,000.00                 00.00       203,785.24
 Total amount misclassified
 to miscellaneous expenses         P17,436,366.16   P14,711,142.21     P30,857,925.65      P63,005,434.02


He claimed that the total extraordinary expenses chargeable against
Miscellaneous Expenses account would only be P203,785.24. This amount
would then be within the appropriation approved by the Sangguniang
Panlalawigan for Extraordinary Expenses as shown in the next page:




                                                                                                       20
                                       CONFORMITY WITH PRESCRIBED LIMITATIONS



                                                               Actual Expenses
                                     Appropriation            (accounted under
                        CY
                                     Approved by                Miscellaneous
                                      Sanggunian                  Expenses)
                       2004            P 188,785.25             P 188,785.24
                       2005              217,487.70                  15,000.00
                       2006             191,326.25                        00.00
                      Total            P597,599.20              P 203,785.24


As may be noted, it would appear that there were no extraordinary and
miscellaneous expenses incurred in CY 2006. Evaluation of expenditures
claimed to have been chargeable against OMOE, however, included among
others, expenses which were properly chargeable against extraordinary and
miscellaneous expenses:

                                         Expenses                                               Amount
   Meals served to various visitors during various occasions                                  P323,808.00
      Packed lunch for use of the PIO re: weekly Governor’s     43,875.00
      press briefing
      Food & snacks served during meetings with various         67,870.00
      sectors/committees
      Lunch & snacks served during Lakbay Aral of Buhay         22,000.00
      sa Kabukiran Foundation Inc., Q. C. and Brgy. Council
      Lunch and snacks served to various visitors             190,063.00
   Lenten message of the Governor and radio spots for various
   advertisements of the Province                                                                 6,000.00
   Hotel accommodations of Mt. Everest Team for                                                   4,500.00
   2 days including meals
   Blow-up pictures of the Governor for distribution to various                                 24,490.00
   Provincial Offices
   Donation to Youth Orchestra of the Philippines                                              101,250.00
              Total                                                                           P460,048.00

Further review of CY 2006 transactions revealed that other extraordinary and
miscellaneous expenses amounting to P1,084,447.80 were charged to other
accounts such as Donations and Membership Dues and Contributions to
Organizations as tabulated below:

              Check                                                Expense
        No.           Date                               Particulars                            Amount
     Donations- contributions to civic and charitable institutions
        76851           19-Jan    Financial assistance to Bagnos and Sarabo Training Center   P 100,000.00
       568664          22-Feb     Financial assistance to Provincial Museum, CY 2006            300,000.00
       587363          19-Apr     Rental of campsite during summer youth camp                     3,000.00
       587364          19-Apr     Food for summer youth camp                                     30,600.00
       587453          19-Apr     Rental of 2 buses 4/17-23/06                                  123,380.00
       587508          30-Apr     Financial assistance to Philippine National Red Cross, IN       5,000.00
       587231         30-May      Food/lodging 2nd regional quarterly meeting                    35,000.00
       601655          24-Aug     Financial assistance- Search for Most Outstanding Police       60,000.00
                                  Station, Police Commissioned & Non-Commissioned
                                  Officer & Brgy Peace and Order Council



                                                                                                             21
                                      CONFORMITY WITH PRESCRIBED LIMITATIONS



              Check                                               Expense
        No.           Date                              Particulars                          Amount
        601322          4-Aug    Financial assistance to SWAT                              P 159,367.80
        601467         16-Aug    Financial aid to Cape Bojeador Light House Dev’t., Inc.      90,000.00
         88253         22-Aug    Payment of grass cutter for Paoay Mango Growers              17,500.00
                                 Association
        601796          4-Sep    Financial aid to ABS-CBN                                       5,600.00
         88319          5-Oct    Payment of one unit china diesel water pump for Paoay         25,000.00
                                 Mango Growers
                                 Laoag City Samahang Kababaihan sa Barangay financial
         88391        5-Dec      assistance                                                   100,000.00
     Sub-total                                                                             P1,054,447.80
     Membership dues and contributions to organizations
                               Union of Local Authorities of the Philippines annual
     568513     15-Feb         membership fee                                                  30,000.00
     Sub-total                                                                             P 30,000.00
     Total                                                                                 P1,084,447.80




        Management’s Comments                                               Team’s Rejoinder
Response provided by former Governor Ferdinand R. Marcos, Jr.

On CY 2005 allocation for extraordinary and miscellaneous expenses exceeding the
limitation prescribed under Section 325(h) of R.A. 7160

“The Finance Committee based the                            Section 325(h) of RA 7160 explicitly
computation on the actual real property tax                 provides that the annual appropriations
for Calendar Year 2003 as per attached                      for discretionary purposes of the local
document which included the discount                        chief executive shall not exceed two
provided for early payments of realty                       percent of the actual receipts derived
taxes.”                                                     from the basic real property tax in the
                                                            next preceding calendar year. Therefore,
                                                            discounts, which are reductions of the
                                                            amount collected, should not be
                                                            considered in the computation.

On miscellaneous expenses exceeding the allowable appropriations for extraordinary
and miscellaneous expenses due to misclassification of accounts

“The Accounting Office humbly admits the                    The team appreciates the action taken by
misclassification of the accounts. As of this               management to correct the deficiency.
date account titles used in the budget is                   The Budget Office and the Accounting
strictly followed in the Accounting Entries.”               Office should have close coordination as
                                                            to the accounts to be used in the
                                                            preparation of the budget and in
                                                            accounting for expenses. However, as
                                                            disclosed in the report, some of the
                                                            expenses claimed to be chargeable
                                                            against OMOE actually falls under
                                                            miscellaneous expenses accounts. Thus,
                                                            in effect, the Provincial Government’s



                                                                                                           22
                                CONFORMITY WITH PRESCRIBED LIMITATIONS



         Management’s Comments                              Team’s Rejoinder
                                                 expenses     indeed     exceeded       the
                                                 prescribed limitations.

 Charging extraordinary and miscellaneous expenses to other accounts.

 “It is wise to state that the amount allotted   As disclosed in the report, the sample
 for Extraordinary Expenses is not enough to     transactions being questioned by the
 cover expenses to promote tourism               team refer to financial assistance to civic
 activities and enhance economic growth in       and      charitable    institutions    and
 the province especially in attracting           membership dues and contributions to
 investors. As a matter of fact, Chinese         organizations which in a way are not
 Ambassador Li Jin-Jun, Governor of              related to tourism activities.
 Hawaii Linda Lingle, and other Foreign
 Dignitaries visited Ilocos Norte.”


 Response provided by incumbent Governor Michael Marcos Keon

 “As the incumbent Governor of Ilocos            The team appreciates the Governor’s
 Norte, I would like to reiterate the            recognition of the audit observations
 justifications made by Congressman              and the intention to use these
 Marcos and at the same time request, most       observations as guide of the Province’s
 earnestly, for the lifting of said audit        future transaction. However, the
 observations with full assurance of our         observations could not be lifted as the
 continuing efforts in striving for effective    prescribed limitations for extraordinary
 and sound governance in the interest of         expenses has to be observed by the
 public welfare. We appreciate all the           Provincial Government.
 comments, which are well taken and shall
 serve as our guide in future transactions of
 the Provincial Government.”



 RECOMMENDATIONS



In order to address the noted deficiencies, the team recommends the following
measures:

        •    Continue observing the limitation on the allocation of funds for
             extraordinary and miscellaneous expenses prescribed under
             Section 325(h) of R.A. 7160;

        •     Strengthen control on the disbursement of funds. Limit
             incurrence of extraordinary and miscellaneous expenses to



                                                                                         23
                           CONFORMITY WITH PRESCRIBED LIMITATIONS



           allowable appropriations. Classify expenses to their proper
           accounts; and

       •   Refrain from charging extraordinary and miscellaneous expenses
           to other accounts.

The team likewise advised the Resident Auditor to take appropriate action on
miscellaneous expenditures charged against other accounts.




                                                                            24
Submitted in compliance with MS/TS Office Order No. 2007-011 dated March
22, 2007.




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