ANNUAL AUDIT REPORT on the

Republic of the Philippines COMMISSION ON AUDIT Commonwealth Ave., Quezon City

ANNUAL AUDIT REPORT

on the

VETERANS FEDERATION OF THE

PHILIPPINES

For the Year Ended December 31, 2014

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Veterans Federation of the Philippines Annual Audit Report For Calendar Year 2014

EXECUTIVE SUMMARY Introduction

The Veterans Federation of the Philippines was created under Republic Act (RA) No. 2640 on June 18, 1960, as amended by Batas Pambansa Bilang 35, pursuant to Article XVI, Section 7 of the 1987 Constitution of the Republic of the Philippines. The Federation is registered with the Securities and Exchange Commission (SEC) under Registration Number 14966. Its original Articles of Incorporation was registered on February 9, 1959.

The VFP’s mission is generally constructive involvement in veterans’ affairs, both in the national and international levels. The programs which VFP carries out to fulfil a wide range of activities and responsibilities include:

a. Management and Unification of Organization b. Information and Communication c. Medical and Welfare Services d. Lobby for Relevant Legislation e. Claims Assistance f. International Affairs

Organizational and Functional Structure The personnel complement of VFP as of December 31, 2014 consisted of the following: Category/Position Status No. of Personnel

President Elected 1 Executive Vice President Elected 1 Executive Board Elected 16 VFP Officers Co-terminus 10 Employees/staff Regular 23 Contractual/Probationary 6 Total 57

The Federation is under the control and supervision of the Secretary of the National Defense (DND). Under the current VFP Constitution and By-laws which was approved by the Secretary of DND on June 25, 2013, the VFP is composed of the following organizations:

a. Charter Organizations – Organizations named in Section 1 of Republic Act No. 2640

b. Affiliate Organizations – Organizations integrated by veterans as defined in the

succeeding section, under the following categories:

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1) Fraternal Organizations – Integrated by veterans bound together by the common experiences such as services in the same military organization or participation in the same military campaign or practice of the same profession or possession of the same classification or category; and

2) Regional Veterans Organizations – Integrated by veterans residing or found

in the same geographical area in accordance with the countries existing political subdivisions such as in provinces or congressional districts.

Scope of Audit

The audit covered the accounts and operations of the VFP for Calendar Year (CY) 2014. It aimed to ascertain the fairness of the presentation of the financial statements. Our audit was also made to assess the propriety of the financial transactions of VFP in accordance with laws, rules and regulations.

Financial Highlights (In Philippine Pesos)

Particulars 2014 2013

Total Assets 10,467,064,453 346,277,930

Total Liabilities 30,872,590 25,674,865

Equity 10,436,191,864 320,603,066

Gross Income 181,787,029 120,731,984

Expenses 66,164,159 49,429,777

Independent Auditor’s Report on the Financial Statements We rendered a modified opinion on the fairness of presentation of the financial statements of VFP for the year ended December 31, 2014. Summary of Audit Observations and Recommendations Below is a summary of significant audit findings and recommendations with details discussed in Part II of this Report:

1. The reliability and accuracy of the Cash in Bank and Retirement Fund account balances of P269.232 million and P10.741 million, respectively, could not be ascertained due to incomplete documentation, deficiencies in the preparation of bank reconciliation statements and recording of fund transfer, inclusion of closed bank accounts and non VFP bank accounts and discrepancy of confirmed bank balances which affected the fair presentation of the financial statements of VFP.

1.1 Incomplete documentation/unsubstantiated transactions.

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We recommended that Management: a. submit the necessary records and documents to facilitate verification of

accounts; and b. ensure complete documentation on bank transactions and furnish COA a

copy for reference in audit.

1.2 Deficiencies in the preparation of bank reconciliation statements.

We recommended that Management: a. prepare accurate bank reconciliation statement and submit it to the Audit

Team for verification; b. rectify the errors and post the unrecorded transactions to come up with the

correct balance of cash in bank; c. monitor outstanding checks as it affects not only the cash in bank account but

also the payable account; and

d. identify properly the reconciling items to facilitate adjustments thereof.

1.3 Closed bank accounts amounting to P1.328 million remain in the books of VFP

We recommended that Management:

a. prepare a journal entry voucher to exclude the amount of P 1.328 million

from the Cash in Bank balance of P269.232 million; and

b. maintain a single account for each type of fund to facilitate monitoring.

1.4 Bank accounts amounting to P105,623 are still recorded in VFP’s accounting records though not in the name of VFP.

We recommended that Management exert efforts to submit updated signatories to the concerned banks or seek legal advice if necessary on the said MDC accounts.

1.5 Results of the bank confirmation of VFP’s nine (9) bank accounts

maintained with various banks disclosed a discrepancy of P1.698 million.

We recommended that Management reconcile the above and furnish the Audit Team with the necessary records and documents to validate the adjustments, if any.

2. VFP land covering an area of 513,919.90 square meters was recorded in the books as Property, Plant and Equipment (PPE) instead of Investment Property (IP) based on a total zonal value of P10.157 billion instead of Fair Market Value

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(FMV) contrary to Philippine Public Sector Accounting Standards (PPSAS) No. 16. Most of these parcels of land were leased out to various tenants at seemingly minimal rates when compared with other lots of VFP, while others remained idle and do not generate any income to the disadvantage of the VFP.


a. re-visit the contracts of lease and re-study the terms and conditions particularly on the rental rates to make it conform with the present value of the property;

b. employ stringent measures and/or strategies that will maximize the use of these idle properties to be done by the Asset Management Group in order to generate more revenues for the VFP;

c. submit all lease contracts and updated report of all properties inspected and

monitored by the Real Estate Inventory Officer so as to provide information on their real/actual status and condition;

d. exert effort in determining the FMV of all the lots in the name of the VFP and

provide appropriate adjustments in the VFP books as provided under PPSAS No. 16; and

e. record in the books the 50-hectare property as Investment Property instead of

Property Plant and Equipment.

3. The Federation incurred expenses totalling P65.15 million in CY 2014 wherein some of its expenditure items exceeded the amount budgeted, a greater portion utilized for personal services and a minimal amount for direct benefits and/or assistance to veterans members, thereby creating doubts on whether or not the purpose for which it was created has been achieved.


a. see to it that in the preparation of the Budget, the programs/projects for the benefits of the veterans would be more defined and prioritized, and the required provisions and costs for the activities are well planned and determined to avoid such significant variances;

b. require the Accounting and Budget Divisions to closely monitor the utilization of

funds, prepare periodic reports thereon, and assess whether the funds were spent as budgeted;

c. assess the incurrence of expenditures in excess of the budget, as well as the

budgeted funds which were not utilized and consider the causes/problems in the preparation of the corporate plans and budget; and

d. submit the VFP Annual Corporate Operating Budget (COB) to the DBM in

compliance with Corporate Budget Circular No. 20 dated April 27, 2005. The DBM website provides for the information and issuances on the format and deadline of submission of the COB.

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4. Various financial assistance amounting to P 6.873 million were granted to several veterans and/or veterans’ organizations without adequate and proper documentation as required under Section 4, Item 5 of Presidential Decree (PD) 1445. Likewise, no liquidations were submitted after the fulfillment of the purpose for which the cash advances were granted despite the lapse of considerable time contrary to COA Circular No. 97-002 dated February 10, 1997.


a. establish a clear cut policy and procedural guidelines in the disbursement of funds for financial assistance in accordance with laws, rules and regulations specifically on the liquidation of cash advances;

b. require the immediate liquidation of the cash advances granted to VFP-SDAI,

Regional Organizations and Typhoon Yolanda recipients; c. evaluate the request for assistance to determine legality, reasonableness of cost

and conformity to prescribed laws, rules and regulations; and

d. ensure that no additional funds will be released unless the previous grant was properly accounted for.

Summary of total Suspensions, Disallowances and Charges as of December 31, 2014

Audit Action Beginning Balance,

January 1, 2014 Issued

Settled

Ending Balance, December 31,

2014

Suspension P 17,321,016.51 P 552,195.90 P 552,195.90 P 17,321,016.51

Disallowances 2,091,718.90 123,687.18 1,968,031.72

Charges - -

Total P 19,412,735.41 P 552,195.90 P 675,883.08 P 19,289,048.23

Status of Implementation of Prior Years’ Audit Observations and Recommendations Of the 185 audit recommendations embodied in the previous years’ Annual Audit Report, 55 were fully implemented, 99 were partially implemented and 31 were not implemented.

INDEPENDENT AUDITOR’S REPORT THE SUPREME COUNCIL Veterans Federation of the Philippines Gatpuno Villegas St., Manila

We have audited the accompanying financial statements of the Veterans Federation of the Philippines (VFP), which comprise the Balance Sheet as of December 31, 2014, and the Statement of Income and Expense for the year then ended, and a Summary of Significant Accounting Policies and Other Explanatory Information. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Philippine Public Sector Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit qualified opinion. Basis for Qualified Opinion As discussed in Audit Observation No. 4, Part II of this Report, the 50 hectares lot which was developed into an Industrial Center and the prime contributor of VFP revenue was recorded in

Republic of the Philippines COMMISSION ON AUDIT Commonwealth Avenue, Quezon City

the book as Property, Plant and Equipment (PPE) instead of Investment Property (IP) based on a total zonal value of P10.157 billion instead of Fair Market Value contrary to Philippine Accounting Standards (PAS) No. 40. Also, in Audit Observation No. 1, the reliability and accuracy of Cash in Bank and Retirement Fund balances of P269.232 million and P10.741 million, respectively, could not be ascertained due to incomplete documentation, unsubstantiated transactions, deficiencies in the preparation of bank reconciliation statements, inclusion of closed bank accounts and non VFP bank accounts and discrepancy of confirmed bank balances in addition to other deficiencies noted in the prior years’ financial audit which remained unimplemented. Qualified Opinion In our opinion, except for the effects and the possible effects of the matter described in the Basis for Qualified Opinion paragraphs, the financial statements present fairly, in all material respects the financial position of the VFP as of December 31, 2014 and its financial performance and its cash flows for the year ended in accordance with the Philippine Financial Reporting Standards. Report on Supplementary Information Required under BIR Revenue Regulation 15-2010 Our audit was conducted for the purpose of forming an opinion on the basic financial statement taken as a whole. The supplementary information on taxes, duties, and license fees paid or accrued during the taxable year described in Note 1.16 is presented for purpose of filing with the Bureau of Internal Revenue and is not a required part of the basic financial statements. Such supplementary information is the responsibility of the management. The information has been subjected to the auditing procedures applied in our audit of the basic financial statements. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.

COMMISSION ON AUDIT

OIC Supervising Auditor, Audit Group D, Cluster VI Corporate Government Sector

May 29, 2015

Note 2014 2013

Current Assets

Cash 7 269,231,605 145,526,044

Accounts Receivable 12,966,450 15,869,398

Advances to Officers and Employees 8 1,837,414 2,381,572

Supplies and Materials 9 997,381 668,222

Short Term Investments 10 566,307 566,307

Prepayments 419,176 419,174

Total Current Assets 286,018,333 165,430,717

Non-Current Assets

Long Term Investment 11 10,740,962 10,715,268

Property Plant and Equipment 12 10,168,483,074 168,309,862

Other Assets 13 1,822,084 1,822,084

Total Non-Current Assets 10,181,046,120 180,847,214

TOTAL ASSETS 10,467,064,453 346,277,931

Current Liabilities

Accounts and Other Payables 14 15,158,433 16,944,412

Other Current Liabilities 15 15,714,158 8,730,452

Total Current Liabilities 30,872,591 25,674,864

Total Liabilities 30,872,591 25,674,864

NET EQUITY 16 10,436,191,862 320,603,066

TOTAL LIABILITIES AND NET EQUITY 10,467,064,453 346,277,931

(See Accompanying Notes to Financial Statements)

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LIABILITIES AND NET EQUITY

ASSETS

VETERANS FEDERATION OF THE PHILIPPINES

BALANCE SHEET

December 31, 2014

(With Corresponding Figures for 2013)

(In Philippine Peso)

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VETERANS FEDERATION OF THE PHILIPPINES Notes to Financial Statements (All amounts in Philippine Peso unless otherwise stated)

1. Summary of Significant Accounting Policies

1.1 Basis of Measurement

The accompanying Financial Statements have been prepared on a historical cost basis.

1.2 Statement of Compliance

The Financial Statement has been prepared in accordance with the Philippine Financial Reporting Standard for Small and Medium-Sized Entities issued by the Philippine Financial Reporting Standard Council.

1.3 Functional and Presentation Currency

The Financial Statement is presented in Philippine Peso, the company’s functional currency.

1.4 Use of Accounting Judgment and Estimates

The preparation of the Financial Statements in the Philippine Financial Reporting Standards for SMEs requires the management of the company to make estimates and assumptions that affect the amount reported in the Financial Statements and accompanying notes. Future events may occur which will cause the assumption used in arriving at estimates to change. The effects of changes in estimates will be reflected in the Financial Statements as they become reasonably determinable. The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Estimated useful life of property, plant and equipment – The Company estimated the useful lives of property, plant and equipment based on the period over which the property, plant and equipment are expected to be available for use and on the collective assessment of industry practice, internal technical evaluation and experience with similar assets. The estimated useful lives of property, plant and equipment are reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits in the use of the property, plant and equipment and investment properties. However, it is possible that future result of operations could be materially affected by changes in estimates brought by changes in the factor mentioned above. The amount and timing of recording the depreciation for any period would be affected by the changes in these factors and circumstances.

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A reduction in the estimated useful lives of the property, plant and equipment would increase the recorded depreciation and decrease the non-current assets.

1.5 Cash and Cash Equivalents

Cash comprised cash on hand and demand deposits. Cash equivalents are short term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value.

1.6 Trade and Other Receivables

In accordance with the New Government Accounting System, allowance for doubtful accounts shall be set up to allow fair value of receivables. For year 2014, VFP was not able to provide the allowance due to inadequate previous year’s records. However, appropriate doubtful accounts will be provided immediately after the retrieval of necessary accounting records.

1.7 Prepayments

Prepayments include items of goods or services purchased by the company for

use in its operations but not fully consumed at the end of the accounting period.

1.8 Property, Plant and Equipment

Property, Plant and Equipment are stated at cost, excluding the cost of day to day servicing less accumulated depreciation, amortization and impairment in value. The initial cost of property, plant and equipment except land consist of its purchase price and other costs directly attributable in bringing the assets to its working condition and location for intended use. Expenditures incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance are normally charged to income in the year in which the costs are incurred. In situations where it can be clearly demonstrated that expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as additional cost of property, plant and equipment. By virtue of Presidential Proclamation No. 192 dated April 4, 1967, VFP recognized the value of 50 hectares land in the Veterans Center, Taguig using zonal value reference to the measurement by Bureau of Internal Revenue per square meter of land. Due to this measurement, the Fund Balance account for 2014 compared to the 2013 balance showed a very substantial increase in amount. Depreciation and amortization are calculated on a straight-line basis over the estimated useful lives of the assets. See illustration below.

Asset Type Number of years ______________________________________ Office Equipment 5Years

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The useful lives, depreciation and amortization method are reviewed periodically to ensure that the periods and methods of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property, plant and equipment. If there is an indication that there has been a significant change in useful life or residual value of an asset, the depreciation of that asset is revised prospectively to reflect the new expectations.

1.9 Intangible Assets

Intangible Assets shall be carried at cost less any accumulated amortization and any accumulated impairment loss.

1.10 Impairment of Non-Financial Assets

The company assesses at each reporting date whether a non-financial asset may be impaired. If any such indications exist, or when annual impairment testing is required, the company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less cost to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets. When carrying amount of asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset. The calculations are corroborated by valuation multiple or other available fair value indicators. Impairment losses of assets are recognized in the statement of income in those expense categories consistent with the function of the impaired asset. An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the company's statement of income.

1.11 Trade and Other Payables Economic obligations arising from purchase of goods and services and those

incurred for the necessary operations of the business are classified under trade and other payable.

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1.12 Revenue Recognition

Revenue is recognized to the extent that economic benefits associated with the transaction will flow to the company and the amount of revenue can be measured reliably.

1.13 Employee Benefit Costs

Short term employee benefits include items such as: (a) Social security, Philippine Health Insurance and PAGIBIG benefits; (b) non-

monetary benefits (medical care, housing, skill upgrade, rice/meal, transportation and others) for current employees.

1.14 Contingencies

Contingent Liabilities are not recognized in the Financial Statements but disclosed

unless the possibility of an outflow of resources embodying economic benefits is probable.

A Contingent Asset is not recognized in the Financial Statements but disclosed

when an inflow of economic benefits is probable.

1.15 Subsequent Events

Subsequent Events that provide evidence of conditions that existed at balance sheet date are reflected in the parent company financial statements. Subsequent events are indicative of conditions that arose after balance sheet date is disclosed in the financial statements when material.

1.16 Income Taxes

Current tax assets or liabilities comprise those claims from, or obligations to, fiscal authorities relating to the current or prior reporting period, that are uncollected or unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognized as a component of tax expense in the income statement. Deferred tax is provided, using the balance sheet liability method on temporary differences at the balance sheet date between the tax base of assets and liabilities and their carrying amounts for financial reporting purposes. Under the balance sheet liability method with certain exceptions, deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized for all deductible temporary differences and the carry forward of unused tax losses and unused tax credits to the extent that is probable that taxable profit will be available against which the deferred income tax asset can be utilized. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized.

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PARTICULAR 2014 2013

Rental Income from VFP Industrial Complex 177,894,449 118,022,047

4 Other Income


Condo Rentals/VFP Stalls Income 246,747 242,256

Road Users Fee/Stickers /IDs/Membership Share 2,820,774 1,324,375

Interest Income 488,940 796,461

Miscellaneous Income 336,119 346,845

Total Other Income 3,892,580 2,709,937

5 General and Administrative Expenses


Advertising and Publicity 9,458 6,516

Allow ance of Officers 7,948,646 5,811,745

Allow ance - Casual 26,250 -

Bonuses of Officers and Employees 5,114,403 4,171,183

Burial Assistance 1,030,000 907,000

Clothing Allow ance 452,595 444,708

Communication and Postage 602,514 493,609

Consultation and Meetings 3,085,789 3,696,358

Honoraria 2,191,745 -

Leave Adjustments - (2,003)

Leave Commutation 147,513 436,815

Legal Fees / Litigation 626,730 305,000

3 Rental Income

Deferred tax assets and liabilities are measured at the tax rates that are expected to be applied to the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. Most changes in deferred tax assets or liabilities are recognized as a component of tax expense in the income statement. Only changes in deferred tax assets or liabilities that relate to a change in value of assets or liabilities that is charged directly to equity are charged or credited directly to equity.

2. Transition to PFRS for SMEs

The PFRS for SMEs were adopted on 13 October 2009 by the Philippine Financial Reporting Standards Council from the International Financial Reporting Standards (IFRS) for Small and Medium Entities (SMEs) issued by the International Accounting Standards Board. In the PFRS for SMEs, many of the principles in Full Philippine Financial Reporting Standards (PFRS) for recognizing and measuring assets, liabilities and income and expenses have been simplified, topics that are not relevant to SMEs have been omitted, and the required disclosures have been significantly reduced. As the PFRS for SMEs is a stand-alone standard, it includes sections on the concept and pervasive principles that underline the Financial Statements of SMEs. These concepts address various issues including the objective of financial statements SMEs, the qualitative characteristics of information contained in those financial statements and general recognition and measurement principles.

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Light and Water 2,626,603 2,168,370

Longevity Pay - 25,000

Veterans' Events 4,671,559 2,255,165

Medicines 7,510,020 1,630,906

Membership Dues-International 32,107 209,697

Other Expenses 230,675 193,016

Overtime Pay 948,083 948,751

Penalties and Other Charges (106) 48,795

Per Diem / RATA 767,000 995,256

PERA/Adcom 507,000 -

Professional Fees 52,193 57,500

Repairs and Maintenance 846,456 788,892

Rice Subsidy 675,856 561,017

Retirement Pay / Separation Pay - 3,263,967

Representation Expense 204,256 766,619

Salaries and Wages 7,369,240 6,040,389

Security Services 4,958,084 4,767,353

SSS/PHIC/HDMF Contribution 476,830 441,039

Subscription Expense 28,992 11,667

Supplies and Materials 2,095,374 1,739,647

Transporation and Travel 3,602,322 2,987,950

Travel Insurance - 22,174

VFP-Regional Assistance 900,000 300,000

VFP-SDAI Financial Assistance 1,294,940 1,900,000

VFP-Calamity Financial Assistance 4,048,000 -

Witholding Tax Expense 69,833 58,910

Total General and Administrative Expenses 65,150,960 48,453,011

6 Other Expenses


Depreciation 1,013,202 976,766

Contingencies - -

Total Other Expenses 1,013,202 976,766

7 Cash and Other Cash Equivalents


Operating Cash:

Cash on Hand - (24,782)

Cash in Bank - PVB (211-3) 235,691,607 108,462,884

Cash in Bank - PVB (306-9) - 38,031

Cash in Bank - PVB (076-5) 6,011 6,011

Cash in Bank - PVB (090-1) 140,400 140,400

Cash in Bank - PNB (035-3) 1,407,368 1,407,368

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Cash in Bank - PNB (116-3) - 129

Cash in Bank - LBP (307-7) 33,826 33,826

Cash in Bank - BPI (268-3) 65,786 65,786

Cash in Bank - PVB (222-8) 23,283,313 4,123,151

Cash in Bank - PVB (870-7) 2,524,903 4,029,221

Cash in Bank - PVB (711-3) 93,853 4,000,000

Cash in Bank - PVB (388-6) 5,984,538 3,849,359

Total Operating Cash 269,231,605 126,131,384

Time Deposit Appropriated for Membership Dues Payable:

Cash in Bank - PVB (498-6) - 7,052,213

Cash in Bank - PVB (526-9) - 12,342,447

Total Time Deposit Appropriated for Membership Dues - 19,394,660

Total Cash and Other Cash Equivalents 269,231,605 145,526,044

8 Advances to Officers and Employees


Advances - Officers & Emp 1,788,368 2,245,526

Advances - OE MJCalub (1,554) (1,554)

Advances - OE NLCapili - 32,000

Advances - OE MCDelaCruz 1,000 1,000

Advances - OE ALPajarillo - 1,000

Advances - OE MTPasag 44,500 68,500

Advances - OE JGRebalde (0.05) (0.05)

Due from SSS 5,100 35,100

Total Avances to Officers and Employees 1,837,414 2,381,572

9 Supplies and Materials


Office Supplies 575,895 249,345

Medicine Supplies 421,486 418,877

Total Supplies and Materials 997,381 668,222

10 Short Term Investment


PEFTOK 28,220 28,220

AFPSLAI 538,087 538,087

Total Short Term Investment 566,307 566,307

11 Long Term Investment


Retirement Fund 1 (PVB 0036204135110) 9,482,066 9,456,372

Retirement Fund 2 (PVB 1005-00012-1) 1,144,484 1,144,484

Retirement Fund 3 114,412 114,412

Total Long Term Investment 10,740,962 10,715,268

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12 Property, Plant and Equipment


Land 10,157,231,670 157,231,670

Building - Star Performance - -

Building - Veterans Canteen 904,856 904,856

Condominium Units 11,901,432 11,901,432

Off ice Equipments 2,549,942 2,203,573

Furniture and Fixtures 61,244 -

Transportation Equipment 2,756,739 2,121,918

Carport 104,231 104,231

Improvements 468,699 324,720

Total Property Plant and Equipment 10,175,978,813 174,792,400

Less: Accumulated Depreciation (7,495,739) (6,482,538)

PPE - Net Book Value 10,168,483,074 168,309,862

13 Other Assets


PLDT 9,700 9,700

PILTEL (Taguig) 1,500 1,500

MERALCO 5,760 5,760

Injunction Bond 825,000 825,000

Commemorative Stamps 284,475 284,475

Other Assets 695,649 695,649

Total Other Assets 1,822,084 1,822,084

14 Accounts and Other Payables


Outstanding Accounts Payable 431,733 431,732

Membership Dues - July 2009 3,264,612 3,326,762

Membership Dues - January, 2010 1,542,025 1,559,775

Membership Dues - July, 2010 1,222,988 1,240,363

Membership Dues - January, 2011 1,562,025 1,590,275


Membership Dues - January 2012 1,564,808 1,604,183


Membership Dues - January 2013 2,567,405 2,845,718

Membership Dues - July, 2013 665,228 1,177,565

Membership Dues - January 2014 (104,900) -

Membership Dues - July, 2014 (638,530) -

Medicine Payable - Medcare Asia (86,799) (86,799)

Medicine Payable - Syntex Pharma - -

Total Accounts and Other Payable 15,158,433 16,944,412

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15 Other Current Liabilities


Withholding Tax and VAT Payable 4,250,100 3,335,041

SSS/PHIC/HDMF Premium Payable 49,694 31,065

HDMF/SSS Salary Loan Payable 40,876 35,651

Rental/Advance Deposit 11,373,488 5,328,696

Total Other Current Liabilities 15,714,158 8,730,453

16 Net Equity


Equity Beginning 320,603,067 249,531,675

Asset Recognition 10,000,000,000 -

Prior Period Adjustments (34,072) (230,815)

Total Beginning Balance of Equity 10,320,568,995 249,300,860

Net Income 115,622,867 71,302,207

Equity Ending Balance 10,436,191,862 320,603,067

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AUDIT OBSERVATIONS AND RECOMMENDATIONS

A. FINANCIAL AUDIT

1. Reliability and accuracy of the Cash in Bank and Retirement Fund account balances could not be ascertained The reliability and accuracy of the Cash in Bank and Retirement Fund account balances of P269.232 million and P10.741 million, respectively, could not be ascertained due to incomplete documentation, deficiencies in the preparation of bank reconciliation statements and recording of fund transfer, inclusion of closed bank accounts and non VFP bank accounts and discrepancy of confirmed bank balances which affected the fair presentation of the financial statements of VFP.

1.1 Incomplete documentation/unsubstantiated transactions.

a. For the year 2014, the bank statements submitted for audit for PVB Alta Vista

branch account number CA01401-000222-8 was for the period January to September 2014 only while for PNB Taft branch account number CA 2518-30035-3, there were no bank statement submitted for the period January to December 2014.

b. Furthermore, we failed to validate the fund transfers, credit/debit memos and other

bank entries in the bank statements due to non-submission of the corresponding documents to support the transaction.

c. This resulted to the non-completeness of the verification and validation of the

transactions of the cash in bank and retirement fund accounts.

d. We recommended that Management:

d.1 submit the necessary records and documents to facilitate verification

of accounts; and

d.2 ensure complete documentation on bank transactions and furnish COA a copy for reference in audit.

1.2 Deficiencies in the preparation of bank reconciliation statements.

a. Section 74 of Presidential Decree (PD) 1445 states that the head of the agency

shall see to it that reconciliation is made between the balance shown in the reports and the balance found in the books of the agency.

b. Of the 17 bank accounts maintained by VFP, six (6) accounts are active, five (5)

are dormant, and six (6) were already closed as early as CY 2008. Bank Reconciliation Statements (BRS) were prepared for the six active accounts and two accounts which were closed during the year. Review of the BRS revealed deficiencies as shown on the next page.

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uncorrected prior year errors;

erroneous recording of outstanding checks;

non-recording of interest income and other bank charges;

unrecorded fund transfer/disbursements;

reconciling items were not properly identified;

prior years unaccounted discrepancy; and

debit/credit memos and fund transfers were not submitted.

c. Failure to prepare accurate bank reconciliation statements cast doubts on the reliability of the cash balance.

d. We recommended that Management:

d.1 prepare accurate bank reconciliation statements and submit it to the

Audit Team for verification;

d.2 rectify the errors and post the unrecorded transactions to come up with the correct balance of cash in bank;

d.3 monitor outstanding checks as it affects not only the cash in bank

account but also the payable account; and d.4 identify properly the reconciling items to facilitate adjustments thereof.

1.3 Closed bank accounts amounting to P1.328 million remain in the books of VFP

a. Verification showed that the following closed bank accounts remain in the books of VFP as of December 31, 2014, thereby overstating the Cash in Bank account by P1.328 million, viz:

Type of Fund Account Number Recorded balance

Balance transferred to Bank Account Number

Date Transferred/

Closed

Retirement PVB Marikina (012-8) P 1,144,483.88 PVB Marikina (520-8) June 22, 2009

Membership Dues

PVB Marikina (090-1) 140,400.00

PVB Alta Vista (222-8)

April 28, 2009

General Fund PNB Taft (116-3) 128.56 PNB Taft (353-3) Oct. 6, 2008

Membership Dues

PVB Alta Vista (306-9) 38,031.07

PVB Taguig (211-3)

Feb. 4, 2010

Membership Dues

PVB Taguig (526-9) 5,000.00

PVB Alta Vista (222-8)

June 27, 2014

Total P 1,328,043.51

b. We further noted that upon receipt of the membership dues from Philippine

Veterans Administration Office (PVAO), a new account is opened, thus, eight (8) membership accounts are being maintained by VFP which entails difficulty in the monitoring and management of said accounts due to series of fund transfers from one account to another. Furthermore, errors sometimes occurred in the issuance of checks and reconciliation is difficult as funds are mingled, hence, the number of bank accounts was lessened. A single bank account was then maintained for the

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old membership dues accounts wherein the remaining balances were transferred to PVB Alta Vista 01401-000222-8. Meantime that the previous membership dues accounts were not yet reconciled, another bank account was opened for new releases from PVAO to facilitate monitoring.

c. We recommended that Management:

c.1 prepare a journal entry voucher to exclude the amount of P1.328

million from the Cash in Bank balance of P269.232 million; and

c.2 maintain a single account for each type of fund to facilitate monitoring.

1.4 Bank accounts amounting to P105,623 are still recorded in VFP’s accounting

records though not in the name of VFP.

a. This is a reiteration of the previous years’ audit observation which had not yet been addressed by Management. These bank account balances are recorded in the books and are part of the Cash in Bank account. The depository banks refused to confirm the said accounts for the reason that the signatory to the following confirmation letter is not a signatory to the accounts being confirmed.

MDC Bank Accounts Account Number Balance

PVB - Taguig 03601-000076-5 P 6,011.19

LBP - Intramuros 001210307-7 33,826.16

BPI-Taguig 8231-0039-76 65,785.77 Recorded MDC accounts 105,623.12

Total MDC accounts P 105,623.12

b. We recommended that Management exert efforts to submit updated

signatories to the concerned banks or seek legal advice if necessary on the said MDC accounts.

1.5 Results of the bank confirmation of VFP’s nine (9) bank accounts maintained

with various banks disclosed a discrepancy of P1.698 million.

a. Out of the 17 recorded bank accounts which were sent confirmation request on the VFP bank balances, only nine bank accounts were confirmed by the banks with a net discrepancy of P1.698 million as shown below:

Account No.

Balance per Book as of 12.31.14

Balance Confirmed by

Bank as of 12.31.14

Discrepancy

Remarks

PVB Taguig 03601-000211-3 P235,695,067.86 P236,914,061.33 P1,218,993.47

PVB Taguig 03602-000388-6 5,984,538.18 5,242,234.10 (742,304.08)

PVB Taguig 03601-000711-3 93,852.92 119,238.79 25,385.87

PVB Taguig 3615-080511-0 9,482,066.10 9,479,370.81 (2,695.29)

PVB Port Area 04201-111870-7 6,680,940.88 6,112,924.38 (568,016.50

PVB Alta Vista 01401-000222-8 23,283,313.13 22,465,848.32 (817,464.81)

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Account No. Balance per Book

as of 12.31.14

Balance Confirmed by

Bank as of 12.31.14

Discrepancy Remarks

PNB Taft 2518-30035-3 1,407,367.67 3,250,967.10 1,843,599.43 Dormant account

PVB Marikina 1001000520-8 114,412.17 853,227.06 738,814.89 Dormant account

LBP Intramuros 001210307-7* 33,826.16 35,726.77 1,900.61 Dormant account

Total P282,775,385.07 P284,473,598.66 P1,698,213.59

*MDC Accounts

b. Further, the following banks did not reply, viz:

Account No. Balance per Book

as of 12.31.14 Remarks

PVB Marikina 01005-00090-1 140,400.00 Account closed on April 28, 2009 PVB Taguig 3615-080526-9 5,000.00 Account closed on June 27, 2014

PVB Marikina 1005000012-8 1,144,483.88 Account closed on June 22, 2009

PVB Alta Vista 1401-00306-9 38,031.07 Account closed on Feb. 10, 2010

PNB Taft 2518-30116-3 128.56 Account closed on Oct. 6, 2008

PVB Taguig 03601-000076-5* 6,011.19 Dormant account

BPI Taguig 8231-0039-76* 65,785.77 Dormant account

Total P 1,399,840.47 *MDC Accounts

c. We recommended that Management reconcile the above and furnish the

Audit Team with the necessary records and documents to validate the adjustments, if any.

Management Comment:

1.6 In its letter dated May 6, 2015, Management informed the Audit Team that they are

continuously exerting effort to reconcile and adjust the bank accounts to its correct balance. Accordingly, the Accounting Department is trying their best to improve the bank reconciliation to rectify the errors, post the unrecorded transactions and monitor the outstanding checks. Likewise, several steps were also made by Management with the depository banks to promote consistent compliance by the concerned banks on the timely and complete submission of bank documents.

Auditor’s Rejoinder:

1.7 Management was advised to give appropriate and preferential action to all audit

recommendations relative to the deficiencies noted concerning Cash in Bank account. Such deficiencies have been noted for a long period of time as embodied in the prior years’ Annual Audit Reports. With the hiring of additional accounting personnel, it is expected that all audit recommendations will be addressed.

1.8 We noted that there were adjustments made to the Cash in Bank account amounting

to P4.156 million but these were not duly supported so the Team advised

Management to substantiate the said adjustments.

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2. Deficiencies in the accounting and reporting of accountable forms

VFP failed to comply with the requirements on the proper accounting and reporting of accountable forms contrary to Volume 1, of the Government Accounting and Auditing Manual (GAAM). 2.1 We have noted that VFP did not conform with the guidelines on the proper issuance,

monitoring and reporting of accountable forms such as Official Receipts, Checks, Road User’s Fee stubs and other forms with money value.

2.2 It was observed that VFP did not have a permanent logbook nor did it maintain a

record of the report of accountability of accountable forms to properly monitor and control these forms. Thus, these forms are highly exposed to unauthorized/unreported use.

2.3 The Monthly Report of Accountability for Accountable Forms shows the flow of

documents starting from the beginning balance, the receipts and issuances for the month and the ending balance. The ending balance is used as basis for inventory as of a given period. Hence, failure to submit the report hinders reconciliation of accountability in the course of inventory of accountable forms. Management is not aware of the significance of the report and this may be the reason why submission of said report has not been complied.

2.4 The inability on the part of the officials concerned to submit the documents and

reports mentioned herein shall automatically cause the suspension of payment of their salaries until they shall have complied with the requirements of the Commission.

2.5 We recommended that Management:

a. maintain a permanent logbook, and prepare religiously the Monthly Report of Accountability for Accountable Forms, and in cases of obsolete, spoiled, cancelled and lost accountable forms, refer to the provisions of Section 99 of GAAM;

b. submit the report to the Audit Team as provided under Section 98, Volume I of the GAAM; and

c. impose disciplinary action on accountable officers who refuse to submit the required reports.

Management Comment:

2.6 The Audit Team was informed that a logbook was maintained and used in the

recording of issuances of accountable forms such as receipts and checks. The only

difference between the required and the one maintained is the format of the report.

The Accounting Department started to prepare the report using the prescribed form

effective January 2015.

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2.7 We informed the Management that said logbook is not considered an appropriate

record that reflects the accountability of the Cashier since it does not bear the details

of the accountable forms received and issued showing the series of serial numbers.

Likewise, the beginning balances of unused accountable forms and the serial

numbers were not indicated in the logbook unlike with the prescribed form that

reflects the details of serial numbers and the accountability of the accountable officer

at the end of the month.

2.8 However, the Monthly Report of Accountability for Accountable Forms (checks and

official receipts) were submitted for the period January to April 2015 only, in which the

beginning balances were not supported with detailed breakdown of serial numbers.

Such report was submitted last June 15, 2015.

3. Variance between the general and subsidiary ledgers of Accounts Receivable -Trade

The accuracy and reliability of the Accounts Receivable - Trade account balance is doubtful in view of the unreconciled variance of P5.137 million between the general and subsidiary ledgers. 3.1 Our audit revealed that prior to CY 2012, VFP adopted the cash basis of accounting

wherein the revenue was recognized only upon collection and accounts receivable due from various tenants were not booked up at the end of the year. However, in compliance to the Audit Team’s recommendation to use the “accrual” basis of accounting, VFP adopted said accounting system of recording wherein all rentals earned in a particular period whether collected or not are recorded as revenue and a receivable account was recognized representing the portion of the rentals earned but not yet collected.

3.2 As of December 31, 2014, the balance of Accounts Receivable - Trade account was

P12.883 million. Compared with the total balance of the various tenants’ subsidiary ledger (SL) of P7.746 million, there existed a variance of P5.137 million.

3.3 We noted that the SLs being maintained by the VFP did not reflect the complete data

pertaining to the history of the account of the individual tenants/lessees. The Audit Team is uncertain as to the validity and/or accuracy of the beginning balance since VFP did not recognize receivable in the previous years, thus in the absence of adequate documents and reports, the beginning balances could not be validated.

3.4 In lieu of the subsidiary ledgers, the Accounting Department through the VFP-Industrial Complex (VFP-IC) Administration, furnished the Audit Team with a summary/list of all tenants reflecting therein the following data:

Amount of arrearages (Beginning Balance as of January 1, 2014)

Monthly billings

Monthly payments

Ending balance as of December 31, 2014

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3.5 Such summary/list reflected the balances of the tenants’ accounts as of December

31, 2014. Although this report provided the individual balances, the amount indicated could not be verified because said report was different from the SLs. The SLs included information such as but not limited to: Official Receipt No., Date of Payment, Mode of Payment, Statement of Account (SOA) No. or Bill No., Amount Billed, and others.

3.6 Section 29 of P.D. 1445 provides that:

“the controlling accounts in the general ledger shall be supported by details in the subsidiary ledgers. SLs provide the detailed individual balances making up the general ledger total. SLs support the general ledger and also provide further breakdowns of financial statements totals where desired.”

3.7 We also observed that in some instances, the monthly billings of the tenants prepared

by the VFP-IC varied and the reason and composition of the billings were not disclosed. This created difficulty in the reconciliation of record with the Accounting Department (AD). A regular reconciliation is therefore necessary so that any discrepancy noted is immediately adjusted to ensure that the amount reported as receivable is accurate.


a. analyze and reconcile the variance between the Accounts Receivable –

Trade and its SLs and effect the necessary adjustments in the books; and b. maintain the SLs with complete and significant information relative to the

details of the debits and credits of the individual account.

Management Comment:

3.9 We were informed that the Accounting Department and VFP-IC are fast tracking the

reconciliation on the variance found in the audit. The Audit Observation was duly

noted by the Management who signified that they would give the best effort to avoid

the recurrence of said deficiency.


3.10 We advised Management to consider also all variances and/or deficiencies noted in the prior years’ audit with regard to the correctness of the amount billed to some tenants.

4. Land recorded under Property, Plant and Equipment instead of Investment Property VFP land covering an area of 513,919.90 square meters was recorded in the books as Property, Plant and Equipment (PPE) instead of Investment Property (IP) based on a total zonal value of P10.157 billion instead of Fair Market Value (FMV) contrary to Philippine Public Sector Accounting Standards (PPSAS) No. 16. Most of these

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parcels of land were leased out to various tenants at seemingly minimal rates when compared with other lots of VFP, while others remained idle and do not generate any income to the disadvantage of the VFP.

4.1 Table below shows the composition of VFP lots with a total zonal value of P10.157

billion as of December 31, 2014.

Location of the (lot) Property

Area of Property in

square meter

Zonal Value per square

meter

Zonal Value

Remarks

1. VFP Industrial Center 500,000 P20,000.00 P10,000,000,000.00 on lease

2. Dagupan City, Pangasinan 593 49,000.00 29,057,000.00 on lease

3. Legaspi City 1,186 875.00 1,037,750.00 on lease

4. San Fernando, La Union 652 750.00 489,000.00

5. Naga City 756 4,000.00 3,024,000.00

6. San Pablo City 1,092 355.00 387,660.00

7.Batangas 1,000 8,000.00 8,000,000.00 on lease

8.Cabanatuan City, Nueva Ecija 1,145 243.00 278,235.00

9.San Jose, Nueva Ecija 567 165.00 93,555.00

10.Tarlac, Tarlac 480 750.00 360,000.00

11.Bonifacio Drive, Port Area, Mla. 3,668.9 27,300.00 100,160,970.00 on lease

12.San Fernando Pampanga 1,001 1,000.00 1,001,000.00

13.Davao City 1,779 P7,500.00 P13,342,500.00 on lease

Total Properties on Lease 508,226.90 P10,151,598,220.00

TOTAL 513,919.90 P10,157,231,670.00

4.2 These lots were not recorded at its fair market value (FMV) as required under

Paragraphs 20, 41 and 43 of the Philippine Public Sector Accounting Standards (PPSAS) No. 16 which provide:

“Recognition:

20. Investment property shall be recognized as an asset when and only when:

a) It is probable that the future economic benefits or service

potential that are associated with the investment property will flow to the entity; and

b) the cost or fair value of the investment property can be

determined.

41. This Standard requires all entities to determine the fair value of investment property, for the purpose of either measurement (if the entity uses the fair value model) or disclosure (if it uses the cost model).

43. When a property interest held by a lessee under an operating lease

is classified as an investment property under paragraph 8, paragraph 39 is not elective; the fair market model shall be applied.”

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4.3 Under these circumstances, as an alternative to the FMV, we determine the degree and/or percentage of revenue that these properties contribute to the VFP by relating or matching the same to the zonal value per lot as indicated in the preceding table. However, we believe that had these parcels of land been recorded at its FMV, the valuation of the lots should have gone even higher that would result on a higher percentage of revenue when compared with its zonal value.

4.4 Table below shows the percentage of revenue to the zonal value of the following

lots/properties:

Location of the (lot) Property

Area of Property in

square meter

Zonal Value per

square meter

Zonal Value

Annual Income

Revenue % to

Zonal Value

VFP Industrial Center-Taguig 421,233.26* P20,000.00 P8,424,665,200.00 P173,944,622.86 2.06

Dagupan City, Pangasinan 593 49,000.00 29,057,000.00 1,026,067.90 3.53

Legaspi City 1,186 875.00 1,037,750.00 111,466.55 10.74

San Fernando , La Union 652 750.00 489,000.00 Idle

Naga City 756 4,000.00 3,024,000.00 Idle

San Pablo City 1,092 355.00 387,660.00 Idle

Batangas 1,000 8,000.00 8,000,000.00 655,158.09 8.19

Cabanatuan City, NuevEcija 1,145 243.00 278,235.00 Idle

San Jose , Nueva Ecija 567 165.00 93,555.00 Idle

Tarlac, Tarlac 480 750.00 360,000.00 Idle

Bonifacio Drive, Port Area, Mla. 3,668.9 27,300.00 100,160,970.00 734,500.00 0.73

San Fernando Pampanga 1,001 1,000.00 1,001,000.00 Idle

Monteverde, Davao 1,779 7,500.00 13,324,500.00 690,464.81 5.17

TOTAL ZONAL VALUE of the LAND 435,153.16

P8,581,878,870.00

*Total area leased to tenants per vicinity map

4.5 As reflected in the above table, seven (7) lots with an aggregate area of 5,693 square meters and a zonal value of P5.633 million were idle, thus require proper disposition by the Management so as to make these lots an income generating asset.

4.6 VFP-IC being the prime property that generates revenues for VFP posted total

revenues for 2014 amounting to P173.94 million which is only 2.06 per cent when compared with the total zonal value of P 8.42 billion. However, out of the 50 hectares or 500,000 square meters lot donated by the government to VFP per vicinity map of VFP-IC, 421,233.26 square meters [443,530.26 sqm - 22,297 sqm] were actually leased out, excluding the portion used by the Out Patient Center with an area of 22,297 square meters.

4.7 On the other hand, we have also noted that the rental of the lot located at Bonifacio

Drive, Port Area, Manila, and with zonal value of P100.161 million generated an annual rental of P 0.735 million at P200.20 per square meter only amounting to P61,208.33 monthly. This amount is lesser compared with the rental of the lot located in Dagupan with an area of 593 square meters and a total zonal value of P29.057 million and also with other properties located in Batangas, Legaspi and Davao. The total annual rental of the lot in Dagupan City, Pangasinan was at P1.026 million or 3.53 per cent of its total zonal value as compared with the lot located at the Port Area, Manila which is only 0.73 per cent. In summary, the rental rates, aside from being

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seemingly minimal, is also inconsistent considering that the property in Bonifacio Drive, Port Area is located in Manila compared with the one located in Dagupan and other areas in the provinces.

4.8 Our inspection conducted in December 2014 on the lot located at Bonifacio Drive, Port

Area, Manila showed an old abandoned building allegedly owned by the Philippine Veterans Bank (PVB). The building is no longer used, however, the lot is being continuously rented by the PVB with a monthly rental of P61,208.33 or a very low rate of P16.683 per square meter only.

4.9 Considering that VFP is not benefitted by the minimal rental income, a thorough study

had to be undertaken in order to maximize the use of the said lot so as to generate optimum revenue for the benefits of the veterans.

4.10 Moreover, all lease contracts of the aforementioned lots have not been submitted to

the Audit Team for reference in audit including some contracts for the lease of the lots at VFP-IC. The Audit Team was informed that most of these contracts were executed many years back and are due for renewal.

4.11 Based on the foregoing, and considering the present value or fair market value of

these lots, the rental rates need to be re-visited, re-studied and re-assessed with the end view of ensuring that reasonable rental rates are derived for the benefit of the VFP.

4.12 Furthermore, records disclosed that VFP appointed a Real Estate Inventory Officer

who was assigned to facilitate the monitoring and documentation of all VFP lots and other properties located in various regions. The inventory officer had visited various areas as reflected in his travel orders. However, no official report on the progress of his travel had been submitted to the Audit Team neither was there a disclosure in the notes to financial statements regarding the status or conditions of these lots.


a. re-visit the contract of lease and re-study the terms and conditions

particularly on the rental rates to make it conform with the present value of the property;

b. employ stringent measures and/or strategies that will maximize the use of

these idle properties to be done by the Asset Management Group in order to generate more revenues for the VFP;

c. submit all lease contracts and updated report of all properties inspected and

monitored by the Real Estate Inventory Officer so as to provide information on their real/actual status and condition;

d. exert effort in determining the FMV of all the lots in the name of the VFP and provide appropriate adjustments in the VFP books as provided under PPSAS No. 16; and

e. record in the books the 50-hectare property as Investment Property instead

of Property Plant and Equipment.

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4.14 Management commented the following: a. They would refer all lease contracts to VFP AD-HOC Committee to determine and

re-study the matter. b. VFP stands no further action to institute measures until the lots with pending

cases are resolved. No measures can be instituted since other lots or properties involved were already reverted back to the owner for not complying certain terms and conditions by the VFP.

c. As regards the letter of recommendation, they signified that they will comply with

the requirements through the VFP AD-HOC Committee. d. The Audit Team was also informed by the VFP Real Estate Inventory Officer that

one of the reasons why seven (7) lots remained idle was the occupation of illegal settlers while others are under litigation in court.

e. As to the reclassification of VFP-IC lots to Investment Property, the Management

requested reconsideration as they asserted that based on Presidential Decree No. 192, the “Veterans Center serves as center of the different activities for Filipino war veterans, rehabilitation, medicare and training center and headquarters for various veterans organizations and other allied activities”. Foregoing considered, VFP-IC should be used for administration and operation of veterans activities and therefore should be defined and recorded under PPE.


4.15 Management was advised to comply with the above-mentioned audit

recommendations as this is partly a reiteration of our previous year’s observations which remained unimplemented. As regards to the recording of the VFP-IC lot as PPE, we maintain our stand that such lots should be reclassified as Investment Property and stated at their Fair Market Value since VFP did not use the lots as it was intended but instead, leased out to various tenants which fall under the criteria of Investment Property.

5. Deficiencies of lease contracts entered into with various tenants/lessees Various lease contracts that expired and were renewed in CYs 2013 and 2014 were not submitted for audit in violation of Section 39 of PD 1445. Other deficiencies and/or variances were noted in the accounting of the area leased out to the tenants/lessees, thus casting doubt on the validity of the total revenue collected. 5.1. Section 39 of PD 1445 provides that:

“1.The Commission shall have the power, for purposes of inspection, to

require the submission of the original of any order, deed, contract, or other document under which any collection of, or payment from, government funds may be made, together with any certificate, receipt, or other evidence in connection therewith. If an authenticated copy is needed for record purposes, the copy shall upon demand be furnished.

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3. It shall be the duty of the officials or employees concerned including those in non-government entities under audit, or affected in the audit of government and non-government entities, to comply promptly with these requirements. Failure or refusal to do so without justifiable cause shall constitute a ground for administrative disciplinary action as well as for disallowing permanently a claim under examination, assessing additional levy or government share, or withholding or withdrawing government funding or donation through the government.”

5.2 In an Audit Observation Memorandum (AOM) issued in prior years, the Audit Team

recommended that Management re-study the rental rates of all contracts it entered with various tenants/lessees so as to maximize income based on the prevailing market rental rates within the area where the VFP-IC is located. It was advised that those contracts that would expire or terminated be renewed only after a thorough study, review, and evaluation of the terms and conditions.

5.3 In compliance with our letter request dated November 13, 2014, Management

submitted the following contracts that have expired and were renewed in CYs 2013 and 2014:

Location

No. Area in

Sqm Duration of the Contract Monthly rental

No. of Years

35 500 Jan. 1, 1989-Dec. 31, 2013 P 20,886.25 20

449 Jan. 1, 2011-Dec. 31,2013 20,258.88 1

45 3,010 April 21, 1989-April 20, 2013 114,143.65 25

42 2,357 July 15, 1991-July 15, 2013 95,933.15 22

14 17,751 Sept. 1, 1988-Aug. 31, 2013 121,594.35 25

43 16,220 Sept. 1, 1998-Aug. 31, 2013 97,157.80 25

60 29,614 Oct. 26, 1988-Oct. 26, 2013 547,877.51 25

58 10,010 Feb. 16, 1989-Feb. 15, 2014 85,085.00 15

52 5,000 Feb. 28, 1989 – Feb. 27, 2014 147,745.99 25

15 14,941 March 1, 1994-Feb. 28, 2014 203,772.49 20

16 33,608 May 4, 1989 – May 3, 2014 957,524.26 25

44 11,416 June 1, 2004 – May 31, 2014 211,065.05 10

25 200 Aug. 1, 2009-July 31, 2014 29,947.50 5

17 1,325 Oct. 6, 2004-Oct. 5, 2014 73,656.38 10

5.4 The updated list of tenants submitted by the Administrative Officer of the VFP-IC as of

December 31, 2014 was compared with the old rentals of the tenants.

5.5 Review of the list/contracts revealed the following deficiencies and or variances:

a. The List of VFP Industrial Complex (VFP-IC) tenants/lessees as of December 31, 2014 disclosed that there were only 382,226.62 square meters of lot rented plus 22,297 square meters occupied by the hospital’s out-patient center or a total of 404,523.62 square meters. The vicinity map prepared by VFP-IC, however, showed 443,530.26 square meters of occupied areas or a variance of 39,006.64 square meters. Such variance has to be properly accounted and reconciled with the area appearing in the vicinity map. In addition, full disclosures as to the status or nature of the area/s not occupied are necessary.

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b. The area rented by Panorama was 29,614 square meters with a monthly rental of P 0.548 million as per list of contracts submitted on April 2013. However, as per updated list of contracts as of December 31, 2014, the said contract with Panorama bears an area of 44,848 square meters at P2.571 million monthly rental for the period August 8, 2014 to August 7, 2019.

c. Blossom Estate, Inc. used to rent 16,220 square meters at P97,157 per month for the period covered September 1, 1998 to August 31, 2013. However, per updated list as of December 31, 2014, the area rented was 13,863 square meters or a difference of 2,357 square meters for the period September 1, 2013 to August 30, 2023 at P388,164.

d. The contract with Almeda Equipment occupying an area of 5,000 square meters

at P147,745.99 monthly rentals expired last February 27, 2014. However, based on the list of tenants as of December 31, 2014, such tenant was no longer included. No disclosure was provided as to where the new contract was awarded.

e. Contract with Vynex Signs Philippines with monthly rentals of P20,258.88 which

expired on December 31, 2013 was not renewed as per the list of tenants. As of December 31, 2014, the same were not disclosed as to the status of the area whether the area vacated was leased out to other tenants or not.

f. No updated contracts and information were submitted with regard to the VFP-

MDC Building 1 and 2 with an area of 2,090 and 1,450 square meters respectively, thus the status, duration, and other salient terms and conditions of the contract could not be determined.


a. ensure that contracts which have expired and renewed were thoroughly re-

studied considering, among others, the following:

value of the building and/or improvements;

intent of the tenants to sub-lease, as the case maybe; and

prevailing rental rates in the neighboring area/s before arriving at the present adjusted rental rates.

b. provide explanations and clarifications with regard to the above mentioned

six (6) deficiencies and variances noted; and c. explain and reconcile records between the total area of 382,226.62 square

meters appearing in the List of Tenants as of December 31, 2014 as compared to the area of 404,523.62 actually occupied per vicinity map.

Management Comment:

5.7 Management replied that VFP will be enlisting the services of an appraiser to address

the valuation and rental rates of the area. The same has already been recommended to the Executive Board. The results of the work of the appraiser will be the basis for VFP to revise the rates to all tenants and sub-lessees to make it comparable to the rates of the nearby areas.

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5.8 As to audit recommendation c, Management submitted the updated list of VFP-IC

tenants as of March 15, 2015 and corrected Area Map of the complex indicating the location of each and every tenant with the corresponding total area leased. Areas not occupied are major concrete roads, sidewalks, drainage, and grassy planted areas.

5.9 Furthermore, with regard to the contract with Panorama, the Audit Team was

informed that the area of 29,614 square meters and 15,234 square meters being rented by Panorama Development Corporation previously had separate contracts. Upon renewal, the same was combined in one contract with a total area of 44,848 square meters. The term of the lease is five (5) years effective August 8, 2014 to August 7, 2019.

5.10 As to the contract with Blossom Estate Inc., Management informed the Audit Team that such tenant is renting an area of 16,220 square meters. However, in July 1991, portion of the leased area equivalent to 2,357 square meters was assigned to Glamour Garments Inc. and thereafter paid directly to VFP. Blossom Estate however, continued to pay for the lease of the entire 16,220 square meters giving rise to double payment for the 2,357 area. Such double payment was corrected only on September 1, 2013 where the area assessed and paid for by Blossom Estate was reduced to 13,863 square meters.

5.11 Management also explained that the lease contract with Almeda Construction and Equipment Rentals (ACER) for an area of 5,000 square meters expired last February 27, 2013. Since then, the renewal of the contract is still under negotiation with ACER because it vehemently refused the terms and conditions of VFP. The matter was already referred to the Office of the Government Corporate Counsel (OGCC) for appropriate legal action. However, ACER continues to pay the escalated rentals under the old contract.

5.12 With regard to the contract with Vynex Signs, the Audit Team was informed that this

tenant vacated already the area and on October 8, 2013, the area was leased by Philippine Fibertech Industries Inc. and expanded their area to 800 square meters with an initial monthly rental of P28,000.

5.13 The lease contracts for VFP MDC building 1 and 2 for an area of 2,090 square meters

and 1,450 square meters were submitted and the rental area was equally divided by Panorama Development Corporation and J.Y. and Sons Realty Co. Inc. being the developers of the area.

6. Undistributed membership dues to various VFP’s Post, District and Regional

Organization Membership dues to various VFP’s Post, District and Regional Organization which remained undistributed ranging from 11 months to five years as of December 31, 2014 amounted to P15.557 million that affected its operations and thereby depriving the members the benefits that they were entitled to.

6.1 Membership dues represent amount deducted by the Philippine Veterans Affairs Office (PVAO) from the pension of veterans who are members of the VFP at P500

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annually. This amount is collected every January and July of each year at P250/ member. The amount collected by PVAO is then remitted to VFP and is distributed to various organizations as follows:

Post Organization - 50% District Organization - 25% Regional Organization - 15% National Organization - 10% TOTAL - 100%

6.2 As of December 31, 2014, the Financial Statements showed that there were still outstanding Membership Dues Payable to the above mentioned organizations aggregating P15.557 million which were due for distribution for CYs 2009 to 2014 as of December 31, 2014 shown below:

Membership Dues For the period:

Outstanding Membership Dues for Distribution

Aging of the Accounts as of 12.31.14

July 2009 3,264,612 5 yrs., 5 mos.

January 2010 1,542,025 3 yrs., 11 mos.

July 2010 1,222,988 4 yrs., 4 mos.

January 2011 1,562,025 3 yrs., 11 mos.

July 2011 1,756,100 3 yrs., 5 mos.

January 2012 1,564,808 2 yrs., 11 mos.

July 2012 1,411,738 2 yrs., 5 mos.

January 2013 2,567,405 1 yr., 11 mos.

July 2013 665,228 1 yr., 5 mos.

TOTAL P15,556,929

6.3 A negative balance of Membership Dues Payable was also noted in the year 2014 as

follows: January 2014 (P104,900) July 2014 (P638,530)

6.4 No disclosure was made as to the reasons attributable to the above-noted negative

balances and no detailed list or ledger per post/district/region was submitted to substantiate the aforementioned outstanding membership dues payable.

6.5 Considering the amount of undistributed membership dues to VFP’s member

organizations and the fact that their shares in the membership dues is the main source of fund to defray for their operations, VFP had deprived them on the effective use of the fund had this been remitted to them efficiently.


a. justify and/or explain the reasons for such significant membership dues payable to various organizations that remained outstanding for a long period of time; and

b. expedite the distribution of membership dues to various VFP’s

organizations to ensure that funds are available for their operations.

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Management Comment:

6.7 Management justified that the late distribution of membership dues to various post/districts/regions and other veterans organizations was due to the incomplete or non submission of the following requirements as set forth in the policy of the VFP for the release of fund such as:

Bank Book (under the name of the Region/District/Post Organization)

Election Report of VFP Organizations

Financial Report of VFP Organizations

6.8 VFP further asserted that they are not depriving VFP organizations on the use of funds but they only want to ensure that the funds to be released are properly used for what is intended. In any case, VFP commented, that the funds are safe and deposited intact in the bank which are always ready for release any time that VFP organizations comply with the requirements. They also signified that they are also very much committed in helping them in the completion of the documents.

6.9 VFP signified also that the Audit Team’s recommendations were duly noted and they

will give the best of their effort to avoid the recurrence of such deficiency. 6.10 The Audit Team was informed during the exit conference that a total of P1.316

million arrearages for CYs 2013 and 2014 in membership dues were distributed during the Supreme Council held last May 23, 2015.


6.11 The Audit Team want to emphasize that although the funds are deposited in the

bank as asserted by Management which has a balance of P28.57 million as of December 31, 2014 as against the balance of membership dues payable of P15.557 million, still we are uncertain of the accuracy of the outstanding balance payable in the absence of subsidiary records and summary reports that will substantiate the validity of the balances reported.

7. Hiring of a private lawyer without conformity by the OSG or OGCC and the COA

VFP engaged the services of a private lawyer without the written conformity and acquiescence of the Office of the Solicitor General (OSG) or Office of the Government Corporate Counsel (OGCC) and concurrence from the Commission on Audit contrary to the provisions of Paragraph 5, COA Circular No. 95-011 dated December 4, 1995 and paragraph 9.7, COA Circular 2012-013.

7.1. Paragraph 5 of COA Circular No. 95-011 dated December 4, 1995 states that:

“Accordingly and pursuant to this Commission’s exclusive authority to promulgate accounting and auditing rules and regulations, including for the prevention and disallowance of irregular, unnecessary, excessive, extravagant and/or unconscionable expenditures or uses of public funds and property (Section 2-2, Article IX-Constitution) public funds shall not be utilized for payment of the services of a private legal counsel or law firm to represent the government agencies in court or to render legal

33

services for them. In the event that such legal services cannot be avoided or is justified under extraordinary or exceptional circumstances, the written conformity and acquiescence of the Solicitor General or the Government Corporate Counsel, as the case may be, and the written concurrence of the Commission on Audit shall first be secured before the hiring or employment of a private lawyer or law firm.”

7.2 Moreover, Paragraph 9.7, COA Circular 2012-013 dated October 29, 2012 provides that:

“The Supreme Court upheld the decision of COA to disallow in audit the hiring of private lawyers by the Government Owned and/or Controlled Corporation’s to handle their cases and legal matters without prior written conformity and acquiescence of the Solicitor General or the Government Corporate Counsel, as the case may be, and the written concurrence of the COA.”

7.3 On June 5, 2014 an Engagement Proposal (EP) was submitted to VFP for the services of a lawyer as a Legal Retainer and conformed by the VFP Executive Vice President. Such proposal bore, among others, the Retainer’s Fee at P50,000 per month and P10,000 reimbursable expenses, exclusive of VAT.

7.4 In addition to the EP, a Retainer’s Agreement dated July 30, 2014 was signed by both

parties, the VFP through its President and the Legal Retainer. However, Retainer’s Agreement was not completely accomplished such that the monthly rate and appearance fee were not stated. Furthermore, the same was not notarized and no Board Resolution was attached to show that such hiring of a Legal Retainer was authorized by the VFP’s Board.

7.5 Inquiry revealed that the Retainer’s Agreement was an attachment to the letter of the

OGCC to serve as Pro-Forma agreement. The OGCC in its letter dated July 30, 2014 reminded that the payment of fees out of public funds to a private law practitioner is subject to the prior written conformity and acquiescence of that Office and the concurrence of the Commission on Audit pursuant to COA Circular No. 95-011 dated December 4, 1995. Furthermore, it was stated in that letter of the OGCC and we quote:

“The hiring of retainer to be justified under the circumstances. Please submit to us a copy of his resume, Supreme Court Number, Mandatory Continuing Legal Education/Certificate of Compliance IV and a copy of the Board Resolution approving the hiring of said retainer, so we can proceed to give our final approval.”(emphasis supplied)

7.6 In addition to the above requirement, the Retainer was also required by the OGCC to

submit a status report of cases and other legal matters he would be handling pursuant to Section 5 of the agreement and to coordinate with Assistant Government Corporate Counsel.

7.7 As of this writing, no document was submitted showing the final approval of the

OGCC nor was there a concurrence of the COA to the Contract. The only attachment

34

to the disbursement voucher on his first salary was a billing statement signed by the retainer himself.

7.8 Despite such deficiency, VFP continuously paid retainer’s fee starting June 16, 2014

at the rate of P50,000 and a reimbursement of his transportation expenses at P10,000 per month or a total of P60,000 per month and other expenses incurred such as seminar and other incidental expenses.

7.9 Aside from the monthly retainer, VFP also paid acceptance and appearance fees to

various private lawyers who represented them in court for cases filed against/by VFP.

7.10 For CY 2014, VFP paid a total of P409,904 for the services of a legal retainer from July 7 to December 31, 2014 and P342,700 legal expenses for acceptance and appearance fees to various private lawyers or a total of P0.753 million.

7.11 If VFP availed and paid the services of the Legal Retainer in addition to VFP’s

lawyer, then why should VFP still hire and pay the services of other private lawyers. 7.12 In some cases, a legal retainer may be allowed by the Commission on Audit,

however, the rate of retainer’s fee and other related fees, as well as the need in hiring Retainers are subject to concurrence by the Commission on Audit.

7.13 The monthly rate of P50,000 plus P10,000 reimbursable expenses were not

reasonable as we compared the rate given to Legal Retainers of other GOCCs. Likewise, all disbursement vouchers were not supported with accomplishment reports, thus casting doubt on the extent of output of the Legal Retainer.

7.14 It is worthy to mention that VFP being a government corporation could be primarily

supervised, assisted and counseled by the OGCC insofar as legal matters and/or legal issues are concerned. Although with prior written conformity and acquiescence of the OGCC and the concurrence of the Commission on Audit, such hiring of Legal Retainer may be allowed.


a. submit the following documents as required by the OGCC in its letter dated July 30, 2014 and for concurrence of COA: a.1 Board Resolution approving the hiring of such lawyer a.2 Current Mandatory Continuing Legal Education/Certificate of

Compliance a.3 Written conformity and acquiescence by the OGCC a.4 Certificate of Availability of Funds a.5 Accomplishment Reports of the Legal Retainer

b. refund the amount claimed for the reimbursement of seminar expenses

amounting to P16,000. c. stop the payment of legal services to a private lawyer unless compliance of

the requirements provided under COA Circular No. 95-011 is secured first.

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d. for purposes of COA’s concurrence, payments paid to private lawyers should be supported with accomplishment reports and certificate of availability of funds.

Management Comment:

7.16 Management averred that the hiring of the Legal Retainer has always been in

coordination with the Office of the Government Corporate Counsel and Management made mention that as stated in the AOM itself, as early as July 30, 2014, the OGCC had already attested that the hiring of the private lawyer is justified under the circumstance but, nowhere in the AOM that the Audit Team stated this.

7.17 Furthermore, Management asserted that the duties, responsibilities and

accomplishments of the Legal Retainer are those stated in the Retainer Agreement and the contract starting the month of July.

7.18 During the exit conference, the Audit Team was informed that the Office of the

Government Corporate Counsel has already issued the written conformity and acquiescence, however, such document has yet to be submitted to the Audit Team.


7.19 On the assertion that the duties, responsibilities and accomplishment of the said Legal

Retainer are those stated in the retainers agreement, such tenor of reasoning does not answer the requirement because what was stated in the Retainer’s Agreement were the duties and responsibilities that should be done and not what have been done. The accomplishment report should be signed by said Legal Retainer and noted by the concerned official of VFP.

8. Non-remittance of dividends to the Bureau of Treasury

VFP was unable to remit dividends equivalent to fifty per cent (50%) of its net income for the years 2011 to 2013 amounting to P62.368 million contrary to RA 7656.

8.1 Below is the breakdown of VFP Net Income for calendar years 2011 to 2013 and the

corresponding dividends payable to the National Government:

Calendar Year Net Income 50% Dividends

2011 P 6,029,828 P 3,014,914

2012 47,404,910 23,702,455

2013 71,302,207 35,651,104

TOTAL P124,736,945 P62,368,473

8.2 Section 3 of R.A. 7656 requires the remittance of 50 per cent of a Government Owned and Controlled Corporations’ (GOCC’s) net earnings to wit:

“Sec.3. Dividends – All government-owned or-controlled corporations shall declare and remit at least fifty percent of their annual net earnings as cash, stock or property dividends to the National Government. This section shall also apply to those government-owned or -controlled corporations whose profit distribution is

36

provided by their respective charters or by special law, but shall exclude those enumerated in Section 4 hereof: Provided, That such dividends accruing to the National Government shall be received by the National Treasury and recorded as income of the General Fund.”

8.3 Since VFP was declared as a GOCC through the Supreme Court Decision En Banc

dated February 28, 2006, such a requirement of remittance equivalent to 50 per cent of the GOCC’s net income shall be complied. Thus, the amount of P62.368 million, together with the 50 per cent of the CY 2014 Net Income shall be remitted to the National Treasury.


a. strictly comply with the Provisions of RA No. 7656 and remit to the National Government the dividends for CY 2011 to CY 2014; and

b. submit copy of the bank deposit/official receipt on the remittance made.

Management Comment:

8.5 Management commented that while VFP is a “public corporation” and affirmed as

such by the Supreme Court in the case of Reyes vs. VFP, VFP may not be a GOCC within the purview of R.A.7656.

8.6 Furthermore, Management quoted Section 6 of R.A. 2640 which states:

“Sec.6. Federation shall have no power to issue certificates of stock or to declare or pay dividends, and all funds in excess of operating expenses being reserved for disbursement, as the Supreme Council may authorize for the purposes stated in Section 2 of this Act.”

8.7 It is clear that under R.A 2640, it is “ultra vires” for VFP to issue dividends even to the

national government. All funds of the VFP may be disbursed only pursuant to Section 2 of the RA 2640.


8.8 It is the Team’s opinion that VFP should seek exemption from the Department of Finance (DOF) citing their above comments.

9. Utilization of the VFP’s Corporate Operating Budget

The Federation incurred expenses totaling P65.15 million in CY 2014 wherein some of its expenditure items exceeded the amount budgeted, a greater portion utilized for personal services and a minimal amount for direct benefits and/or assistance to veteran members, thereby creating doubts on whether or not the purpose for which it was created has been achieved.

9.1 The VFP Budget for CY 2014 was geared towards the fulfillment of the enumerated in

the next page:

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a. Support priority projects such as free medicines, medical care, assistance to

indigent veterans and other indispensable needed welfare programs for

veterans.

b. To motivate veterans of the country to be actively involved in government

programs envisioning to promote the well-being of the people and the enjoyment of

a good life.

c. Strengthen the present organizational structure of the VFP.

d. To pursue passage of the Equity Bill xxx.

e. To search for wartime heroes, write, compile, and publish wartime personal and

unit exploits of historical significance and memorialization.

f. Serve as an effective vehicle in projecting a favorable image of the Philippines

abroad through the VFP’s active participation in international councils of veterans

xxx.

g. To work for the approval by Congress of Legislation for the benefit of veterans

such as health care programs.

h. To work for the improvement of pensions and medical needs and undertake

benevolent and charitable programs for veterans.

i. To help in the preservation of peace and order in cooperation with the government

and the private sector.(emphasis supplied)

9.2 Under R.A. 2640, the primary purpose of VFP is to provide benefits to Filipino

Veterans, thus the legislative intent is clear that the purpose for which the VFP was created was deeply imbued and impressed for the interest of the veterans. Section 4 thereof, is one of the relevant provisions of the Act, is quoted as follows:

“Sec.4. The purposes of the Federation shall be to uphold and defend the democratic way of life as envisioned in the Constitution of the Republic of the Philippines; to represent and to defend the interests of the Filipino veterans; to coordinate the efforts of all different veterans of the Philippines xxxx; to undertake acts of charity and relief work; to preserve peace and order xxxx. In general, the Federation shall exist solely for purposes of a benevolent character, and not for pecuniary profit of its members.”

9.3 The Audit Team reviewed the actual utilization of VFP’s fund for the year 2014 with

the end in view of determining whether the funds were utilized for the intended purpose/s and within the limits of the budget

9.4 During the year 2014, VFP incurred total expenditures of P65.15 million excluding depreciation expense as against the budget of P114.313 million or a variance of P49.163 million.

9.5 Comparison between each budget item against itemized expenditures revealed the following negative variances which mean that the expenses exceeded the budget. The breakdown of budget vs. expenditure by item is shown on the next page:

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Program I – ADMINISTRATION & PERSONAL SERVICES

A. Personal Services

Personal Services: Per Budget Actual Utilization Variance

Salaries and Wages(Perm.& Casual) P 6,038,586.72 P 7,395,489.76 P (1,356,903.04)

Salaries(Allowance) of VFP Officers 6,510,686.04 6,848,061.02 (337,374.98)

PERA/Additional Compensation 0.00 507,000.00 (507,000.00) 13

th Month Pay, Christmas, Anniversary,

Mid Year & other bonuses of Employees & Officers

4,232,908.21

5,114,402.78

(881,494.57)

Clothing Allowance 223,608.00 452,595.00 (228,987.00)

Leave Commutations 1,150,000.00 147,512.96 1,002,487.04

Overtime Pay 1,742,000.00 948,082.60 793,917.40

Retirement Pay/Separation Pay 2,500,000.00 0.00 2,500,000.00

SSS/PHIC/HDMF Contributions 452,340.00 476,829.70 (24,489.70)

Rice Subsidy 574,992.00 675,855.50 (100,863.50)

Total Personal Services P23,425,120.97 P 22,565,829.32 P 859,291.65

B. Maintenance & Other Operating Expenses

Per Budget Actual Utilization Variance

Communication & Postage P 1,100,000.00 P 631,506.03 P 468,493.97

Repairs & Maintenance 3,080,000.00 850,495.18 2,229,504.82

Supplies & Materials 2,420,000.00 2,089,824.26 330,175.74

Light and Water 2,750,000.00 2,626,602.79 123,397.21

Security Services 4,620,000.00 4,958,084.38 (338,084.38)

Advertising and Publicity 0.00 9,458.00 (9,458.00)

Janitorial Services 770,000.00 0.00 770,000.00

Penalties & Other Charges 0.00 (106.47) 106.47

Withholding Tax Expense 0.00 64,832.88 (64,832.88)

Miscellaneous Expenses 0.00 236,225.03 (236,225.03)

Total M.O.O.E. P14,740,000.00 P11,466,922.08 P 3,273,077.92

TOTAL FOR PROGRAM I P38,165,120.97 P34,032,751.40 P 4,132,369.57

PROGRAM II – POLICY MAKING AND DIRECTION


Transport Expense of Council Members, Executive Boards, & Officers attending local & foreign travels, conventions, etc

P 4,400,000.00

P 3,603,822.19

P 796,177.81

Supreme Council, EB & Committee Meeting expense for Food & Refreshments, etc.

3,300,000.00

7,757,348.32

(4,457,348.32)

RATA of Executive Board Members and per diems of SC, EB & Committee Members

4,400,000.00

4,059,329.55

340,670.45

Anniversary & Christmas Bonus of Executive Board

440,000.00 0.00

440,000.00

Travel Insurance of EB & SC Members 110,000.00 0.00 110,000.00

Clothing Allowance of EB Members 132,000.00 0.00 132,000.00

TOTAL FOR PROGRAM II P 12,782,000.00 P 15,420,500.06 P (2,638,500.06)

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PROGRAM IIII – SPECIAL PROGRAMS & SUPPORT SERVICES


Medicines for Veterans P 25,000,000.00 P 7,510,019.64 P 17,489,980.36

VFP - Financial Assistance 0.00 4,048,000.00 (4,048,000.00)

Provision for Regional Meetings 1,089,000.00 900.000.00 189,000.00

Membership dues in international veterans organization

242,000.00

32,107.06

209,892.94

Provision for VFP Sons and Daughters 1,210,000.00 1,294,940.00 (84,940.00)

Legal fee/litigation expenses 500,000.00 626,730.00 (126,730.00)

Veterans Week/WWI Anniversaries 6,655,000.00 0.00 6,655,000.00

Special Projects 9,500,000.00 0.00 9,500,000.00

General Assemblies 5,000,000.00 0.00 5,000,000.00

Burial Assistance to all Members of the Federation

5,000,000.00

1,029,000.00

3,971,000.00

Professional Fee 0.00 52,192.86 (52,192.86)

TOTAL FOR PROGRAM III P 54,196,000.00 P 15,492,989.56 P 38,703,010.44

PROGRAM IV–CAPITAL OUTLAY 5,200,000.00 0.00 5,200,000.00

PROGRAM V- Reserved for Representation

3,970,000.00

204,255.82

3,765,744.18

TOTAL 2014 (A & B)

P114,313,120.97

P 65,150,496.84

P 49,162,624.13

9.6 Based on the tables above, we have noted the following variances and/or deficiencies:

a. Total expenditures for the special program and support services specifically for medicine and burial assistance which are primarily for the assistance and/or benefit of the veterans and their beneficiaries posted a minimal amount of P7.51 million and P1.029 million respectively, as compared with other costs of administration showing that both budgets were underutilized by 69.96 per cent and 79.42 per cent respectively. Table below shows the breakdown of these expenses:

Budget Item

Budget

Actual

Variance

Percent

Utilized/ Budget

Percent to Total

Expenditures

Medicines 25,000,000.00 7,510,000.00 17,490,000.00 30.04% 11.53

Burial Assistance

5,000,000.00

1,029,000.00

3,971,000.00

20.58%

1.58

b. The total expenditures for Personal Services exceeded the budget in significant

amounts as follows:

Budget Item Budgeted Expenditures Variance Percentage

Over

Salaries & Wages (Permanent & Casuals) 6,038,586.72 7,395,489.76 (1,356,903.04) 22.47

Salaries (Allowances) of Officers 6,510,686.04 6,848,061.02 (337,374.98) 5.18

Bonuses of Officers & Employees 4,232,908.21 5,114,402.78 (881,494.57) 20.82

Clothing Allowances (Employees) 223,608.00 452,595.00 (228,987.00) 102.41

Rice Subsidy 574,992.00 675,855.50 (100,863.50) 17.54

40

Budget Item Budgeted Expenditures Variance Percentage

Over

PERA/Additional Compensation 0.00 507,000.00 (507,000.00) 100

TOTAL 17,580,780.97 20,993,404.06 (3,412,623.09)

c. As gleaned from the above tables, total expenditures for Personal Services that exceeded the budget amounted to P3.412 million or 19.41 per cent. The variance can be associated with the hiring of new employees without the required approval of the Department of National Defense and increase in salaries effective June 2014. Likewise, no budget was provided for PERA/Additional Compensation but still VFP granted such allowances. Such overspending in Personal Services and incurrence of obligations in excess of what was budgeted due to the hiring of new employees is the primary accountability of the concerned VFP Officers.

d. The following Budget Items appeared in the 2014 Budget of VFP:

Budget Item Amount

Supreme Council, Executive Board & Committee Meeting expense for food & refreshments

P 3,300,000

Veterans Week/World War I Anniversaries 6,655,000

Provision for Regional Meetings 1,089,000

TOTAL P 11,044,000

e. When compared or matched with the actual expenditures, the above mentioned items did not appear. However, there were some actual expense items such as:

Actual Expense Item Amount

Major Events – Food & Refreshments, Supreme Councils and

Executive Board Meetings

P 4,671,558.87

Consultations Meetings 3,085,789.45

VFP Regional Assistance 900,000.00

TOTAL P 8,657,348.32

f The above mentioned budget items totaled P11.044 million and actual expenses

of P8.657 million has two different captions. In addition, a budget was provided for General Assemblies of P5 million but no expenses were reported bearing the said

caption. However, the Audit Team is not certain if the same is of similar nature because the Accounting Department used or assigned another account or caption in the accounting records. Such difference in accounts used by the Accounting Department is a deviation from the principle of consistency which is strictly prohibited under the existing accounting standards. Likewise, this will mislead not only the Auditors but also other users of the Financial Statements.

g. We have also noted that there were significant amounts budgeted in CY 2014 but

no expenditures were reported which would mean that the targeted activities

and/or projects were not accomplished and the project was not undertaken. These

unimplemented budget are as shown on the next page:

41

Budget Item Budget Amount

Special Projects P 54,196,000

Capital Outlay 5,200,000

TOTAL

P59,396,000

h. To view the overall utilization of the VFP Fund in CY 2014, we provided hereunder

a graph showing the major categories of expenditures and their corresponding amounts, viz:

22,565,829.32

11,466,922.087,757,348.32

7,510,019.64

4,048,000.00

3,603,822.19

2,958,745.00

1,294,940.00

1,100,584.651,029,000.00

0

0

0 0 0

2014 Expenditures

Personal Services

MOOE

Major Events/Meetings Food& Refreshments

Medicines for Veterans

VFP-Financial Assistance

Transport Expense of SC, EBand Officers

i. As shown in the preceding graph, the highest percentage of the budget was notably spent for Personal Services amounting to P22.566 million or 34.64 per cent of the total major expenditures, followed by expenditures for MOOE which accounts for P11.467 million or 17.60 per cent of the total CY 2014 expenses and the third was expenses incurred for Major Events/Meetings - foods and refreshments of P7.757 million or 11.91 per cent. Details of the expenditures are shown below:

Expenditure Items Total 2014 Expenses

Percentage

1. Personal Services 22,565,829.32 34.64

2.MOOE 11,466,922.08 17.60

3.Major Events/Meetings Food & Refreshments 7,757,348.32 11.91

4.Medicines for Veterans 7,510,019.64 11.53

5. VFP-Financial Assistance 4,048,000.00 6.21

6.Transport Expense of SC, EB and Officers 3,603,822.19 5.53

7.RATA/Honorarium of EB , SC, EB & Comm. 2,958,745.00 4.54

8.VFP SDAI Assistance 1,294,940.00 1.99

9.Allowance - EB 1,100,584.65 1.69

10.Burial Assistance 1,029,000.00 1.58

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j. Based on the above data, we are concerned more with the attainment of the Agency’s programs and projects such as the assistance to indigent veterans, medical care, and other indispensable welfare programs that will cater more to the benefit of the veterans. The top three (3) major expenses of VFP were infused to Personal Services, Maintenance and Other Operating Expenses, Major events related expenses as well as for the allowances and honorariums of Officers and RVPs.

k. Records disclosed that the burial assistance granted for every deceased veteran

member was only P1,000 considering the cost and efforts involved in the filing of claims plus the documentary requirements needed in processing claims for financial assistance. Such amount is seemingly not reasonable.

9.7 Poor monitoring of the budget resulted in the incurrence of expenses more than the

amount budgeted.

9.8 Although the VFP has no Budget Officer yet as of this writing, such a situation will not

exempt VFP from exercising prudence and appropriate control in the utilization of its programmed fund or budget. It shows that since VFP incurred enormous expenses which exceeded the budget while other budgeted items remained unimplemented, VFP failed to monitor and control the utilization thereof. Such condition may not be reported and without the knowledge of the top management but it is still the responsibility of the concerned officials to know the status of the budget and exercise proper disposition thereof so as to attain the programs and objectives of the Agency for the benefit of its members.

9.9 Non-submission of the Corporate Operating Budget (COB) to DBM and Non-approval

of the DND Secretary.

9.10 The VFP Budget for CY 2014 was prepared by the finance committee chairman and

members and approved through Board Resolution No. SC 08-32. However, such COB bears no approval of the DND Secretary and was not submitted to the Department of Budget and Management for approval as required in Sections 2.0 and 3.0 of Corporate Budget Circular No. 20 dated April 27, 2005 which provides:

“This circular shall apply to all GOCCs and GFIs with or without budgetary support

from the National Government. 2.0 General Guidelines and Policies:

2.1 GOCCs/GFIs shall prepare and submit their COBs to the

Department of Budget and management (DBM) prior to the beginning of the ensuing year. The COB shall consist of estimates of financing sources and expenditures for current operating and capital outlays.

2.2 The COB should reflect estimates of receipts from all sources to

support the level of proposed expenditures clearly supported by assumptions, programs or projects.

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3.0 Transitory Provision

3.4 In both cases, the COB of each GOCCs/GFIs for the ensuing year shall be approved before the end of the current year.”

9.11 The functions of the DBM as the lead agency in the budgeting process are not limited

to national agencies. It also coordinates with all three levels of government agencies, national government, government owned and controlled corporations (GOCCs) and local government units (LGUs) in the preparation, execution and control of expenditures of their corresponding component entities. Henceforth, VFP’s compliance with Section 2.0 and 3.0 of the Corporate Budget Circular No. 20 dated April 27, 2005 is imperative.


a. see to it that in the preparation of the Budget, the programs/projects for the

benefits of the veterans would be more defined and prioritized, and the required provisions and cost for the activities are well planned and determined to avoid such significant variances;

b. require the Accounting and Budget Divisions to closely monitor the

utilization of funds, prepare periodic reports thereon, and assess whether the funds were spent as budgeted;

c. assess the incurrence of expenditures in excess of the budget, as well as

the budgeted funds which were not utilized and consider the causes/problems in the preparation of the corporate plans and budget; and

d. submit the VFP Annual Corporate Operating Budget (COB) to the DBM in

compliance with Corporate Budget Circular No. 20 dated April 27, 2005. The DBM website provides for the information and issuances on the format and deadline of submission of the COB.

9.13 Management submitted the following comments and/or assertions:

All expenditures in excess of the budget were pursuant to a corresponding Executive Board Resolution ratified by the Supreme Council. Please note that no officer individually or collectively can authorize expenditure without the corresponding Executive Order and/or Supreme Council Resolution.

During the early quarters of the year 2014, VFP has no Budget Officer to oversee the budget expenditures.

The Budget Officer was designated only during the last quarter of the year.

The expenditures for personal services which is the item that exceeded the most significant amount per budget allocation is due to the alignment of salaries and wages of VFP personnel as called for in the Salary Standardization Law (SSL). This issue has already been raised already before the GCG.

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To subsidize the cost of the SSL, the VFP Executive Board passed a resolution (Resolution No. EB 2014-39 dated June 18, 2014) approving a Supplemental Budget.

COA did not take into consideration the amount in the Supplemental Budget in addition to CY 2014 VFP Approved Budget. Necessarily there will be a finding of over spending amounting to P3.41 million for personal services. However, there is no actual overspending considering that the same were still within the supplemental budget and thus resulted in the finding that the VFP has overage/variance amounting to P3.41 million for personal services.

With the designation of the Budget Officer, any and all inconsistencies found in the recording of budget and actual expenses will be corrected and monitored respectively by the Accounting Department and the newly appointed Budget Officer.

More projects, programs, and activities will be budgeted for the benefit of the veterans and for the fulfillment of the VFP mission and main thrust.

Accordingly, VFP is seeking clarification from the OGCC and the GCG as with regard to the applicability of the DBM regulations on the Corporate Budget. VFP’s Fund does not come from DBM. No funds of the VFP came from the Annual General Appropriation Act.


9.14 We informed Management that while there is a Supplemental Budget, the increase in

salaries of the VFP officers and employees were still considered unauthorized or wanting of legal basis since the Compensation and Position Classification Standard (CPCS) of the VFP has to be approved by the GCG and the President.

9.15 As to Management’s assertion that all expenditures in excess of the budget were pursuant to a corresponding Executive Board Resolution ratified by the Supreme Council, we are emphasizing that the Board or Supreme Council’s approval is not absolute and will not exempt VFP to comply with the existing government rules and regulations.

9.16 The Audit Team maintain its stand that VFP should closely monitor the utilization of

their budget and give priority in the delivery of direct services, benefits and assistance to the veterans member.

9.17 Since VFP was declared as a GOCC through the Supreme Court Decision En Banc

dated February 6, 2006, all funds generated by the VFP are government funds thus, the corporate operating budget should be approved not only by the DND but also in compliance with Sections 2.0 and 3.0 of Corporate Budget Circular No. 20 dated April 27, 2005 by the DBM.

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10. Deficiencies in financial assistance

Various financial assistance amounting to P6.873 million were granted to several veterans and/or veterans’ organizations without adequate and proper documentation as required under Section 4, Item 5 of Presidential Decree (PD) 1445. Likewise, no liquidations were submitted after the fulfillment of the purpose for which the cash advances were granted despite the lapse of considerable time contrary to COA Circular No. 97-002 dated February 10, 1997.

10.1 Section 4, Item 5 of P.D. 1445 states that:

“Claims against government funds shall be supported with complete documentation”.

10.2 For the year 2014, VFP granted a total of P6.183 million financial assistance to

various beneficiaries as shown below:

Beneficiary Purpose Amount

Veterans Regional Org. For regional assembly expenses P 980,000

VFP Sons & Daughters Association Inc. (VFP-SDAI)

For various expenses of the organization

1,294,940

Typhoon Yolanda Victims

Aid to members of the organization affected by the typhoon

3,908,000

Total Cash Advances for CY 2014 6,182,940

Add: 2013 Cash Advance not yet liquidated as of December 31, 2014 690,000

TOTAL P6,872,940

10.3 Financial Assistance granted to Regional Assemblies amounting to P0.98 million.

a. To strengthen the organization, regional assemblies are held by the different regional organizations wherein members of the veteran’s district and post organizations under their jurisdictions were invited to the event. Thus, to defray the expenses incurred for the holding of such event, the National Headquarter grants financial assistance. For CY 2014, each regional organization was granted P60,000 or a total of P0.98 million. This amount included an additional P30,000 each to Regions V and VIII and P20,000 for the 4th Manila District organization.

b. Attached to the disbursement voucher were the invitation for the Regional

Assembly and the request for the release of the financial assistance. There was no budget or breakdown of expenses corresponding to the financial assistance requested. Moreover, there was no report or accounting duly supported with receipts or documents relative to the previous financial assistance granted to establish that the amount was really spent for regional assemblies.

c. When inquired about the breakdown of expenses for which the financial

assistance was utilized, Management explained that the regional organizations were not required to submit liquidation for the assistance granted to them, thus, the expenses thereof were not monitored by the VFP Headquarters.

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10.4 Financial Assistance to the Sons and Daughters Association, Inc. (VFP-SDAI) amounting to P1.295 million

a. To support the organization whose members are sons and daughters of

veterans, VFP granted regular financial assistance to SDAI. Thus, on March 4, 2014, check no. 227506 amounting to P0.508 million was issued to the VFPS-DAI and acknowledged by the employee of the organization. Such amount was intended for their operations for the first quarter of 2014. This was recorded in the disbursement voucher as cash advance; however, it appears that such amount was recorded as an outright expense in the financial statements that is why no such cash advance of this nature appeared in the Schedule of Cash Advances as of December 31, 2014.

b. On July 8, 2014, the VFP Executive Vice President approved the payment of P0.787 million for the July 8, 2014 SDAI Assembly of NCR, Bulacan, Cavite, and Rizal which was paid under check no. 228393. Such check was not acknowledged but was presented to the bank for payment on July 9, 2014 as reflected in the bank statement. Attached to the disbursement voucher is the request of VFPS-DAI Secretary General for the release of financial assistance and the quarterly budget of the organization. Such financial assistance was recorded in the book as outright expense despite the fact that this is subject for liquidation.

c. As of this writing, the total amount of P1.295 million granted to VFP-SDAI was

not yet liquidated in addition to the cash advance amounting to P0.69 million which was granted on December 6, 2013. The non-liquidation of the P0.69 million financial assistance was already discussed with the Management during the exit conference and demand letter dated January 23, 2014 was already issued. However, no liquidation was made despite our recommendation that no subsequent cash advance shall be granted unless the previous cash advance is liquidated, instead, VFP granted again financial assistance to VFP-SDAI for calendar year 2014.

d. We hereby reiterate the relevant provisions of Section 89 P.D. 1445 regarding liquidation of cash advances for strict compliance:

“Section 89 – Limitation on cash advance. No cash advances shall be given unless for a legally authorized specific purpose. A Cash advance shall be reported on and liquidated as soon as the purpose for which it was given has been served. No additional cash advance shall be allowed to any official or employee unless the previous cash advance given him is first settled or a proper accounting thereof is made.”

Likewise, COA Circular No. 97-02 dated February 10, 1997 also states that:

“4.1.1 No Cash advance shall be given unless for a legally specific purpose.

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4.1.2 No additional cash advance shall be allowed to any official or employee unless the previous cash advance given him is first settled or a proper accounting thereof is made 4.1.3 A cash advance shall be reported on as soon as the purpose for which it was given has been served.”

10.5 Financial Assistance to various Veterans Posts for individual members affected by Typhoon Yolanda amounting to P3.908 million.

a. A total of P3.908 million was released to various veterans’ posts in areas

affected by Typhoon Yolanda to help the member victims in their rehabilitation. In the absence of documents showing liquidations of the above mentioned disbursement, the Audit Team noted that individual checks were issued in the name of various posts reportedly affected by the typhoon. However, to date, the Accounting Department informed us that all posts who were recipients of such fund have not completely submitted their acknowledgement, thus pending the submission of acknowledgment receipts, such financial assistance remained unliquidated in the books.

b. As of this writing, the Audit Team is unable to establish whether the funds were released/distributed to the intended beneficiaries (veteran members) as no proof of distribution/receipt by beneficiaries was submitted.


a. establish a clear-cut policy and procedural guidelines in the disbursement

of funds for financial assistance in accordance with laws, rules and regulations specifically on the liquidation of cash advances;

b. require the immediate liquidation of the cash advances granted to VFP-SDAI, Regional Organizations and Typhoon Yolanda recipients;

c. evaluate the request for assistance to determine legality, reasonableness

of cost and conformity to prescribed laws, rules and regulations; and

d. ensure that no additional funds will be released unless the previous grant was properly accounted for.

10.7 Below are Management’s comments and/or explanations:

Any and all financial assistance granted by VFP is pursuant to an Executive Board Resolution and/or Supreme Council Resolution. No Officer individually or collectively has the power to grant financial assistance without the corresponding directive from at least the Executive Board and then later on ratified by the Supreme Council.

By practice, the VFP grants financial assistance to all its regional organizations to defray expenses for the holding of general assembly within their respective regions. This has been the practice for many years. Considering that VFP was only placed under COA audit in recent years and that this is the first time VFP’s

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attention has been called upon this issue, the liquidation requirement may have been overlooked. At any rate, the supporting documentation in this regard will come from the concerned regional organizations as they are the ones who are actually disbursing the fund. In this regard, may we request some guidelines from COA on how this requirement maybe effectively enforced.

If liquidation is required by COA, the Management would explain the matter to the Regional Vice Presidents (RVPs). COA can also directly communicate with the RVPs in this regard.

The Accounting Department recorded the grant of financial assistance as an outright expense in the financial statements because cash advance were only drawn for regular officers and employees. The VFP-SDAI is a separate auxiliary organization. It is neither an officer nor an employee of the VFP. Accordingly any grant in their favor was labeled as financial assistance and not as cash advance.

Even if the grant of money to VFP-SDAI is recorded as financial assistance and not cash advance, VFP Management does not exempt the SDAI from liquidating the amount given to it.

VFP informed the Audit Team that as of this date, VFP no longer allowed the grant of financial assistance to SDAI pending their compliance with the liquidation requirements of previous financial assistance.

As regard to the financial assistance due to typhoon Yolanda, some of the veteran’s posts which were recipients of the financial aid have not yet submitted their acknowledgement receipt. The Management is constantly following this up with them and the same will be submitted to COA as soon as it is available. At any rate, VFP can submit the partial acknowledgement receipts already in its possession as of this date.


10.8 We maintain our stand that all disbursements shall be duly supported with

documents to ensure that the amount was spent according to its purpose. This was already raised in the previous Annual Audit Report (AAR) and AOM already issued in CYs 2011 to 2013 and yet VFP-SDAI was granted another financial assistance in 2014 again.

11. Unnecessary expenses incurred by VFP

VFP incurred total utility expenses amounting to P2.895 million in CY 2014 and other expenses which are considered unjustifiable considering the size of the organization and the nature of operations, thus, contrary to COA Circular No. 2012-003 and Department of Energy (DOE) Administrative Order (AO) No. 110.

11.1 Verification of the CY 2014 disbursements for utility expenses revealed that VFP incurred a total of P2.895 million for light and water as compared to P2.168 million in CY 2013 or an increase of P0.727 million. These expenses are shown below:

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Month

LIGHT WATER

TOTAL NHQ IC SDAI NHQ IC

Jan 45,092.45 145,204.94 35,903.40 18,704.01 6,301.08 251,205.88

Feb 55,210.01 74,601.40 76,242.47 26,424.64 9,224.07 241,702.59

March 44,708.57 69,243.76 29,855.64 23,603.76 9,524.07 176,935.80

April 73,108.02 76,821.41 47,957.32 30,045.86 10,442.00 238,374.61

May 60,849.50 87,135.51 44,136.29 27,533.62 11,842.60 231,497.52

June 79,812.98 85,227.02 69,196.39 34,117.83 21,377.61 289,731.83

July 65,510.21 78,284.54 64,002.62 42,611.21 27,209.17 277,617.75

Aug 59,106.67 79,222.35 61,402.32 49,547.79 8,127.95 257,407.08

Sept 62,550.65 70,345.33 62,899.21 56,175.75 6,849.14 258,820.08

Oct 57,088.29 65,023.69 56,685.48 56,732.85 8,676.01 244,206.32

Nov 54,869.07 69,483.56 56,171.07 56,402.74 4,482.77 241,409.21

Dec 51,819.43 21,807.90 53,212.17 55,189.95 3,877.09 185,906.54

TOTAL 709,725.85 922,401.41 657,664.38 477,090.01 127,933.56 2,894,815.21

11.2 As shown above, the VFP-Sons and Daughters Association Inc. has incurred P0.658

million expenses for electricity which is a little less than the electricity consumption of the National Headquarter Office. Compared to the total electric consumption paid by VFP for the year, VFP-SDAI consumed 28.72 per cent which is material enough considering the fact that they rely on VFP for their operations. It poses doubt how SDAI consumed such magnitude of electricity consumption granting that the office is not a regular office of VFP unlike the VFP Headquarter which is the center of all VFP transactions and administration and the VFP-IC which is the center of operations.

11.3 DOE Administrative Order No. 110 directs the institutionalization of a Government

Energy Management Program (GEMP) on all government offices and we quote:

“Section 1.1 GEMP Goal. The government shall aim to reduce its monthly consumption of electricity (in kilowatt-hours) and petroleum products (in liters) by at least ten percent (10%) through the implementation of the GEMP for a minimum of three (3) years starting January 2005.”

11.4 The building annexed to the VFP Headquarter is the lodging house of the Regional

Vice Presidents (RVPs) and other VFP guests during Executive Board (EB) meetings which is held once a month. The same building houses the VFP-SDAI Office. Assuming that the electric connection of SDAI office is connected to the RVP lodging house, still, the electricity consumption amounting to P0.658 million a year with an average of P54,805 per month is questionable considering that the rooms are used by the RVPs during EB meetings and special events only.

11.5 As to the water consumption of VFP-SDAI, we were constrained to verify the actual

consumption of the Office since they have no separate water meter. Similarly questionable is the monthly water consumption of VFP which soared up from P18,704.01 in January to P55,189.95 or 195.07 per cent more in December which is very alarming. The average monthly water consumption of the NHQ & VFP-SDAI amounting P39,757.50 is very much higher than the average monthly water consumption of the VFP-IC of P10,661.13 considering that VFP–IC is the center of operations.

11.6 Likewise, analysis of the consultation and meetings account revealed that in several

instances, meals/luncheon of VFP officers and employeees were paid to highend

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hotels and restaurants in addition to the Representation and Transportation Allowance (RATA) granted for the official entertainment and programmed activity while in the actual performance of the officer’s functions or duties and responsibilities pertaining to their positions.

Details of these expenses are as follows:

Date Check No.

Particulars No.of Guest

Amount Cost Per Person

Feb. 11, 2014 227347 Luncheon meeting of VFP Officers 11 P 6,402.61 P 582.06

Feb. 17, 2014 227439 Luncheon meeting with PVB 7 4,968.01 709.72

April 2, 2014 227649 Luncheon meeting with OGCC 8 12,293.78 1,536.72

May 16, 2014 227949 Luncheon meeting with PVB 14 10,741.45 767.25

June 13, 2014 228176 Staff meeting 11 8,713.18 792.11

June 16, 2014 228181 VFP Officer’s meeting 8 5,081.21 635.15

June 17, 2014 228211 VFP Officer’s meeting 12 8,635.14 719.60

July 3, 2014 228371 Luncheon meeting with Manila Times representatives

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16,098.50

1,006.16

Aug. 1, 2014 228524 Luncheon meeting with private lawyers

7

4,590.53

655.79

Sept. 4, 2014 228728 VFP Officer’s meeting 8 4,176.42 522.05

Sep. 25, 2014 228884 Staff meeting 17 9,054.24 532.60

Oct. 2, 2014 229821 Meeting with TUCP representatives 17 21,135.14 1,243.24

Nov. 11, 2014 229192 Luncheon meeting with private lawyer 8 11,004.75 1,375.59

Nov. 18, 2014 229252 VFP Officer’s meeting 5 8,372.10 1,674.42

Nov. 20, 2014 229267 Staff meeting

Not stated

25,584.60

Total P156,851.66

11.7 Also noted were additional expenses for meals of VFP Officers which were incurred

several times. It appears that the frequency of incurring such expenses are not reasonable. The Audit Team found no valid reason why meals of officers were shouldered by the VFP when they were already provided with representation allowance.


a. observe prudence in the disbursement of government funds and abide by government rules and regulations on economy, efficiency and effectiveness;

b. stop the practice of holding meetings and other official functions in some

venues that are expensive; and c. follow the cost saving measures promulgated by the DOE and investigate

the high utility consumptions and submit explanations/justifications. Management Comment:

11.9 Management claimed that they exercise prudence in spending for operations with the

end view of protecting the meager resources and funds of the VFP. Likewise, VFP reasoned out that they are not in a position to determine if the expenses incurred for utilities are extraordinarily high compared to other GOCCs. The only way to

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determine this is for VFP to make a comparative study of the expenses of other similarly sized GOCCs which VFP has not undertaken as of date. At any rate, VFP will monitor these expenses and promulgate the necessary measures to keep at a minimum.

11.10 As regards to the meetings held at expensive venues, VFP justified that it considers

the personalities, the subject matter of the topic and the choice of venue of the invited guests in deciding where to hold the said meetings. At any rate, VFP will monitor these expenses and promulgate the necessary measures to keep them at a minimum.


11.11 We maintain our stand that Management should observe the rules and regulations

prohibiting inappropriate expenditures as contained in COA Circular No. 85-55A as amended under COA Circular 2012-003 dated October 29, 2012.

12. Non-insurance of vehicles with the Government Service Insurance System (GSIS)

VFP’s four (4) service vehicles were not insured with the GSIS General Insurance

Fund, thus exposing the same to unnecessary losses and being indemnified in the event of damage to, or loss of such properties. Likewise, such vehicles were not marked “FOR OFFICIAL USE ONLY” and not in government “red plate” for proper identification contrary to Section 489 of GAAM, Volume I and COA Circular No. 92-390 and Section b, Paragraph 2, of the Specific Rules and Regulations of the Manual on Audit for Fuel Consumption under COA Circular No. 77-61. 12.1 Listed below are the four (4) vehicles of VFP as of December 31, 2014:

Description Make Date Acquired Amount Office Assigned

1. Hi-Ace Grandia Toyota 22 June 2009 P 1,328,918.00 VFP-IC

2. Innova 2.0J Toyota 22 June 2009 793,000.00 VFP-NHQ

3. L-300 Exceed 2.5 Mitsubishi 28 August 2014 634,821.43 VFP-NHQ

4. Fire Truck Isuzu 27 June 2005 P 4,198,800.00 VFP-IC

12.2 The head of government offices are required to secure from the General Insurance

Fund or from GSIS, all insurance or bond covering properties and other insurable risks of their respective offices. Vehicles as well as other properties specially those with significant value and insurable risk are to be insured with the GSIS as required under Section 489 of GAAM, Volume I and COA Circular No. 92-390.

12.3 Likewise, COA Circular No. 92-390 dated November 17, 1992 was issued to assist

the General Insurance Fund and the Property Replacement Fund of the GSIS in determining the physical assets of the national and local government including those government owned and controlled corporations and their subsidiaries and affiliates and ensuring that all insurable assets and properties of the government are adequately covered/insured with the General Insurance Fund of the GSIS.

12.4 With these regulations, it is therefor essential that these subject vehicles of VFP and

other VFP’s insurable properties are to be properly subjected to the above mentioned government insurance policy so as to ensure that VFP will be indemnified in the event of damage to, or loss of, such assets and properties.

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12.5 In addition to the insurance requirement, the vehicles were not marked “FOR

OFFICIAL USE ONLY” and not in government “red plate” for proper identification.

12.6 Stated below are relevant provisions governing the requirement of marking all government vehicles “FOR OFFICIAL USE ONLY” and bearing the corresponding “red plate”:

Section b, paragraph 2 of the Specific Rules and Regulations of the Manual on Audit

for Fuel Consumption under COA Circular No. 77-61 states that: “All vehicles owned by the government should be plainly marked “FOR

OFFICIAL USE ONLY”, under which should be written the corresponding name of the office operation or using the same. The mark should appear on each side of the motor vehicle. When there is no sufficient space on each side, the same should appear at the back and on the front just below the windshield of the motor vehicle. All government motor vehicles shall bear government plates only except security vehicles exempt from using government plates. All motor vehicles are required, when not in use, to be kept in the garage provided therefor for the office to which they belong except when in use for strictly official outside office hours”.

12.7 We have noted that the aforementioned vehicles were not in “red plate” and not

properly labeled or marked as “FOR OFFICIAL USE ONLY”, although these vehicles bear the name of the Veterans Federation of the Philippines. However, just the same, the requirement of converting the plate to “red plate” with the corresponding label of “FOR OFFICIAL USE ONLY” is still necessary.


a. insure all insurable properties with the GSIS; and

b. strictly follow the provision of Section b, Paragraph 2 of COA Circular No. 77-61 by converting and/or using “red plate” and mark “FOR OFFICIAL USE ONLY” on the VFP vehicles.

12.9 VFP informed the Audit Team that they will initiate the registration of the vehicles in

question to “red plate” and will be marked “FOR OFFICIAL USE ONLY”. Likewise, they will initiate insuring the aforesaid vehicles with the General Insurance Fund as per government regulations.

13. Unauthorized salary increases

VFP granted salary increases to its officers and employees effective June 1, 2014 without a Compensation and Position Classification System as determined by the Governance Commission for GOCCs (GCG) and approval from the Office of the President contrary to Sections 8 and 9 of R.A. 10149, thus, rendering the salary increase unauthorized.

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Chapter III, Sections 8 and 9, R.A. 10149 stress the Compensation and Position Classification System for GOCCs which is quoted in next page:

“Sec.8. Coverage of the Compensation and Position Classification System. The GCG, after conducting a compensation study, shall develop a Compensation and Position Classification System which shall apply to all officers and employees of the GOCCs whether under the Salary Standardization Law or exempt there from and shall consist of classes of positions grouped into such categories as the GCG may determine, subject to the approval of the President.

Sec.9. Position Titles and Salary Grades. All positions in the Position Classification System, as determined by the GCG and as approved by the President, shall be allocated to their proper position titles and salary grades in accordance with an Index of Occupational Services, Position Titles and Salary Grades of the Compensational and Position Classification System, which shall be prepared by the GCG and approved by the President.”

The following principles shall govern the Compensation and Position Classification System:

a) All GOCC personnel shall be paid just and equitable wages in

accordance with the principle of equal pay for work of equal value. Differences in pay shall be based on verifiable Compensation and Position Classification factors in due regard to the financial capability of the GOCC;

b) Basic compensation for all personnel in the GOCC shall generally be comparable with those in the private sector doing comparable work, and must be in accordance with prevailing laws on minimum wages. The total compensation provided for GOCC personnel shall be maintained at a reasonable level with due regard to the provisions of existing compensation and position classification laws including Joint Resolution No. 4, Series of 2009, and the GOCCs operating budget; and

c) A review of the GOCC compensation rates, taking into account the

performance of the GOCC, its overall contribution to the national economy and the possible erosion in purchasing power due to inflation and other factors, shall be conducted periodically.

Any law to the contrary notwithstanding, no GOCC shall be exempt from the coverage of the Compensation and Position Classification System developed by the GCG under this Act. (underscoring ours)

13.1 Records disclosed that on June 1, 2014, VFP adjusted the salaries of its officers and

employees asserting that such adjusted rate was in accordance with Joint Resolution No. 4 otherwise known as the Salary Standardization Law. Thus, the VFP Human Resource Officer came up with a Functional Organization Structure, Plantilla of Officers and Employees, Compensation and Position Classification, Job Functions, and others.

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13.2 Despite such documents prepared by the VFP Management, the increases on

salaries were wanting of legal basis as the same were not yet approved by the President. The positions and corresponding salaries assigned by the VFP Human Resource Officer has yet to be reviewed and evaluated by proper authorities such as the GCG, considering among others the financial capability, the size of the organization and such other factors as pointed out under Sections 8 and 9 of R.A. 10149. Likewise, the same must be in conformity with other relevant regulations and/or requirements imposed by the Civil Service Commission and DND.

13.3 Based on the foregoing, the salary increase granted to VFP Officers and Employees

effective June 1, 2014 without a Compensation and Position Classification System as determined by the Governance Commission for GOCCs (GCG) and approved by the President was unauthorized and thus, shall be refunded accordingly.


a. strictly comply with the provisions under Sections 8 and 9 of R. A. 10149;

b. require the VFP Human Resource Officer to revert back the salaries of VFP Officers and Employees to the former salary rate before the June 2014 salary increase; and

c. make the necessary refund for the salary increase granted effective June 1,

2014. Management Comment:

13.5 The Audit Team was informed that the VFP representatives had a conference with the

Governance Commission for GOCCs (GCG) technical staff on January 20, 2015. Issues on the said memorandum particularly the Compensation and Position Classification System were discussed during the conference. GCG will prepare a memo to help address/clarify such issues and the Audit Team shall be informed accordingly.


13.6 We reiterate our recommendation on the determination and approval of the CPCS by the GCG and the President.

14. Hiring of New VFP employees in CY 2014

Sixteen (16) employees were hired in CY 2014 without complying with the Department of National Defense Department Order No. 5, the Omnibus Rules Implementing Book V of Executive Order No. 292 on the issuance of appointment and other pertinent Civil Service Laws.

14.1 Records disclosed that VFP continually hired sixteen (16) new employees in CY

2014 without authority or approval of the Secretary of the National Defense as mandated under DND Department Order No. 5 and is quoted in next page:

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“Officials who are vested with authority under this circular shall submit to the SND, not later than the fifth working day of each month, report of personnel actions, within his/her authority done in the immediately preceding month, except in instances when the action official determines that the SND must so advised immediately after the exercise of the delegated authority.”

14.2 This department order is anchored to the EN BANC Decision of the Supreme Court

which states:

“Nevertheless, funds in the hands of the VFP from whatever source are public funds and can be used only for public purposes. This is mandated by the following provisions of Republic Act No. 2640:

Sec. 2. Any action or decision of the Federation or of the Supreme Council shall be subject to the approval of the Secretary of National Defense. Hence, all activities of the VFP to which the Supreme Council can apply its fund are subject to the approval of the Secretary of the National Defense”

14.3 The Audit Team was informed that VFP was already in the process of complying with

all the requirements of the GCG, and it’s Compensation and Position Classification System is now underway for approval of the President. We appreciate this development but still, we consider it imperative on the part of VFP to comply such requirement of the aforesaid DND Order No. 5, the Omnibus Rules Implementing Book V of Executive Order No. 292 and pertinent Civil Service Laws specifically on the issuance of appointment and thus, we hereby quote:

“Sec.4. The Civil Service Commission shall adopt a qualification standard for service wide positions in the first and second levels and shall review and update whenever necessary, those already established. Each department or agency shall establish qualification standards for positions unique to the department or agency concerned and shall submit the same to the Commission for the approval by the Commission. These qualification standards shall be effective 30 days from approval by the commission. All employees of the department or agency shall be properly notified of this approval, notices of which shall be posted on the bulletin board of the department or agency concerned.”

14.4 Some of the newly hired employees in CY 2014 were not even civil service eligible,

thus casting doubt if such newly hired employees met the qualification standard required of their position. Nevertheless, it is advised that all pertinent documents and requirements shall be coordinated and submitted to the CSC for their evaluation and appropriate action notwithstanding the action and requirements of the GCG.

14.5 Based on the foregoing, the hiring of the sixteen (16) new VFP employees without

complying with the above mentioned DND and CSC regulations, in addition to the ongoing action of the GCG, was found wanting of legal basis.

56


a. strictly comply with the provisions of DND Order No. 5 and other relevant provisions of the Omnibus Rules Implementing Book V of Executive Order No. 292 and Section 4, Civil Service Commission on the issuance of appointments; and

b. stop hiring of new officers and employees pending upon the compliance

with the above mentioned rules and regulations.

Management Comment:

14.7 Management justified that VFP was compelled to hire the aforementioned sixteen (16) employees [six on probationary status; four temporary; three permanent; two job order; and one retainer] in order to address the needs of the Federation. The task and duties of the newly hired employees were different from the existing employees. Such employees were selected according to Rule III Section 2 of the Revised Omnibus Rules on Appointment and other Personnel Actions or based on the qualification standards set by the Civil Service Commission.

14.8 The Audit Team was informed that the VFP had been sending correspondence to the Office of the Secretary of National Defense and the GCG regarding the appointment papers of the employees, proposed plantilla and functional organizational structure, and the Compensation and Position Classification System of VFP employees since CY 2014. However, despite the repeated requests and effort of VFP, the Office of the Secretary of National Defense, the Appointment Papers and other pertinent documents could not be submitted by VFP to Civil Service Commission. Photocopies of the letters sent and received by GCG and DND were submitted to the Audit Team.

57

B. STATUS OF IMPLEMENTATION OF PRIOR YEARS’ AUDIT RECOMMENDATIONS Of the 185 audit recommendations embodied in the previous years’ Annual Audit Report, 55 were fully implemented, 99 were partially implemented and 31 were not implemented. The summary is shown below.

Reference (AOM No.)

Observations Recommendations Status of

Implementation

2008-001 1. The Veterans Federation of the Philippines (VFP) did not maintain the standard books of accounts, complete procedures of accounting for financial transactions and prepare the standard bank reconciliation statements.

a) Revisit the financial transactions with noted discrepancy in the 2007 audited balance and account for the should be balance of the affected accounts; and

b) Prepare the re-stated

financial statements.

Not Implemented

Not Implemented

2008-002 2. Fund balance as of December 31, 2008 cannot be relied upon due to inconsistencies in accounting reports and records.

Reconcile and account for the correct balance of prior period adjustments during the period and submit the necessary supporting documents.

Not Implemented

2008-003 3. The opening book balances as of January 1, 2008 were unreliable due to various unrecorded, erroneous and unsubstantiated transactions as a result of inadequate financial records, reports and supporting documents, erroneous bank reconciliations as well as inadequate disclosure.

58

Reference (AOM No.)


Implementation

3.1 Cash in Bank

3.1.1 Unrecorded transactions representing remittances from (PVAO) and allocations thereof to the VFP districts, regions and posts.

Prepare every month the bank reconciliation statements for the bank accounts maintained for the membership dues or special fund.

Partially Implemented

3.1.2 Inadequate records and documents to support the membership dues or special fund transactions.

Submit the passbooks and other documents for audit.


3.1.3 Bank Reconciliation Statements were found erroneous as balances per books and per bank could not be substantiated from submitted documents resulting in unreliable cash in bank account balances maintained with PVB.

Submit the necessary records and documents for audit.


3.1.4 Bank accounts maintained with the Bank of the Philippine

Make the necessary courses of action to transfer the bank accounts in the name of VFP.


59

Reference (AOM No.)


Implementation

Islands were not in the name of the VFP but in the name of VFP Management Development Corporation.

3.2 Advances to Officers and Employees

The validity of the 2007 balance amounting to P543,931.00 could not be ascertained due to discrepancies in the balance of cash advance totaling P1.972M and non- presentation/submission of the journal vouchers and documents supporting the adjustments of P669,743.23 in year 2007.

a) Re-visit the financial records and supporting documents and account for the valid transactions/unrecorded outstanding cash advances granted as of December 31, 2007;

b) Submit the journal

vouchers and supporting documents of the adjustments made in February 2007; and

c) Prepare the necessary

adjusting journal entries to correct the advances to officers and employees account.

Not Implemented

Not Implemented

Not Implemented

3.3 Short-term Investments

3.3.1 Management

failed to present the appropriate documents to support the ending balance of investment account amounting to P488,555.08.

a) Gather the necessary

information and documents on the investments with PEFTOK, PLDT, PILTEL and MERALCO and determine the value of investments as at Dec. 31, 2007;

b) Prepare adjusting entries

to correct the value of Investments account.


Not Implemented

60

Reference (AOM No.)


Implementation

3.3.2 The short and long term investments were erroneously classified in the opening balances.

Reclassify investment in AFPSLAI from short-term investment to cash and cash equivalents.

Fully Implemented

3.4 Property and Equipment

3.4.1 Management

failed to present the appropriate records, ledgers and documents to support the balance of property and equipment account amounting to P54.93 million.

Record the property and equipment transactions including depreciation expense and accumulated depreciation for each month and prepare the necessary adjusting journal entries.

Fully Implemented

3.4.2 Management failed to present the appropriate records and documents to support the carrying value of the buildings and condominium units amounting to P33.9 million.

Re-visit the records and documents pertinent to the buildings and condominium units, events and financial transactions; and prepare the necessary adjusting journal entries.


3.4.3 Management failed to recognize the cost of land and office building

a) Review the records and documents relative to VFP-Management Development Corporation and submit the proof of office space ownership;


61

Reference (AOM No.)


Implementation

improvements in the VFP-Industrial Complex.

b) Identify the structures, land

and office improvement constructed by the VFP-MDC and prepare a list or schedule;

c) Determine the value, estimated useful life and carrying value of the improvements based on the records and documents, and prepare the necessary adjusting journal entries.

Partially

Implemented .


3.4.4 Management failed to account for and disclose relevant information relative to PPE - Land account.

a) Re-visit the VFP policy on property and equipment in consonance with PAS 16 and relevance of PAS 20 to the parcels of land in Taguig City and Davao City;

b) Account for the parcels of

land mentioned in the letter of the former VFP President and gather the necessary information, records and documents on the said property and VFP status of ownership;

c) Submit the list of property

comprising the Land account of P19.6 million, copy of Deed of Absolute Sale of the property in Lucena City and the result of the action taken in b); and

d) Re-visit the disclosures on

the PPE- Land account in the notes to the 2007 audited financial statements and consider the appropriate information that should be disclosed in

Fully Implemented




62

Reference (AOM No.)


Implementation

accordance with PAS 16 and 20.

3.5 Accounts Payable and Other Payables There was discrepancy in the reported balance in VAT and Withholding Tax Payable of approximately P150,000.

Prepare the necessary adjusting journal entries to correct the balance as of December 31, 2007.

Not Implemented

2008-006 4. Various discrepancies, unaccounted balances, unrecorded transactions and accounting errors in the Cash on Hand and in Banks account cast doubt on the reliability of reported balance amounting to P6.48 million.

4.1 Unrecorded Cash in Bank transactions amounting to P115,874.41 understated the account balance by the same amount.

Account for the discrepancy amounting to P115,874.41 and present the relevant reports and documents.

Not Implemented

4.2 Unaccounted credits, cash deposits and balances of cash on hand and cash in bank accounts totaling P4.589 million due to

a) Account for the discrepancy of P4,588,554.77 and submit relevant records and documents; and

b) Comply with Sec. 74 and

112 of PD 1445 and

Not Implemented


63

Reference (AOM No.)


Implementation

non preparation of monthly bank reconciliation statements, non maintenance of required set books of accounts and non documentation of the accounts’ transactions resulted in uncertainty of the account balance.

Section 4 of NGAS Manual Volume I through the preparation and maintenance of the required set books of accounts and reports, such as the cash receipt journal, report of collections and deposits and Bank Reconciliation Statements.

4.3 Unreconciled discrepancies of PVB balance amounting to P4.440 M between balance sheet of P5.423 M and bank statement of P6.508 M as at year end. The records and documents submitted for audit showed a balance of only P0.982 million.

Account for the discrepancy and submit relevant records and documents.

Not Implemented

2008-010 5. The fund transfers to and from the Special Fund representing the membership dues received from the PVAO were not restricted to the allocation/distribution to its intended recipients.

a) Monitor the fund’s investment in term placements and its transfer to the PVB-Alta Vista bank account in preparation for its allocation; and

b) Prepare the bank

reconciliation statements every month.



2008-011 6. Remittance from PVAO and deposit thereof under

a) Account for the discrepancy in the Special Fund transactions

Not Implemented

64

Reference (AOM No.)


Implementation

Special Fund showed discrepancy of P10.271 million which remained unaccounted.

amounting P10,271,250.00;

b) Maintain only one cash in

bank account for the Special/Trust Fund where all deposits and disbursements pertaining thereto be made; and

c) Prepare the Bank

Reconciliation Statement every month.

Partially

Implemented


2008-013 7. The validity of the reported year-end balance of Medicines Expense aggregating P13,168,724 was doubtful due to various deficiencies in the supporting documents, financial records and reports.

7.1 There was an

unaccounted difference of P600,000 between the balance of Medicines Expense account per Disbursement Book and per Financial Statements.

Account for the difference of P600,000 in the Medicines Expense account per Trial Balance and Disbursements Book as of December 31, 2008.

Not Implemented

7.2 Purchase Orders were issued only after medicines were received from suppliers and with one

Submit written explanation for failure to execute the Purchase Order as the legal basis of the financial transaction prior to delivery and payment.


65

Reference (AOM No.)


Implementation

reference number issued to two different suppliers.

7.3 The disbursement vouchers were not supported by pertinent documents to determine validity of payments to suppliers of medicines.

Submit the following:

1. Detailed record/report, accounting for the medicines delivered and distributed to its intended beneficiaries and proof of distribution to/receipt by beneficiaries; and

2. Authenticated copy of business registration and permit of the suppliers.


Not Implemented

7.4 Discrepancies in the quantity and specifications of medicines per Purchase Order and actual medicines delivered by the supplier and accepted by the VFP, rendering the financial transaction doubtful.

a) Explain in writing the discrepancies in specifications and quantity of the medicines ordered and delivered; and

b) Submit justification and approval of acceptance of delivery despite the discrepancies in quantity and specifications.

Not Implemented

Not Implemented

7.5 Medicines procured were immediately recognized as outright expense upon receipt, resulting in an unquantified overstatement of Medicine Expense account during

a) Modify the accounting treatment of procured medicines for distribution to intended beneficiaries by recognizing its cost initially as an asset and as an expense only upon use or distribution; and

b) Maintain a subsidiary record for the medicines’ proper accounting of receipt and distribution and

Fully Implemented

Fully Implemented

66

Reference (AOM No.)


Implementation

the period.

its correct recognition in the financial statements.

2008-015 8. The donations and financial assistance granted to various veterans and/or veterans’ beneficiary organizations were supported by inadequate and improper documents and the accounts were misclassified as Other Expense instead of Donation Expense.

Provide clear-cut policies and procedural guidelines in the disbursement of funds for donations and financial assistance to veterans organizations and VFPSDAI, in consonance with Section 4 of PD 1445 and COA Circular No. 2007-001 dated October 25, 2007, to include, among others, the following:

a. Approval of the disbursement by the VFP President or designated officer; b. Certification as to the availability of funds by the Chief Accountant; c. Checks drawn in the name of the requesting organization or entity; d. Checks marked with “payee’s account only” so as to preclude unauthorized persons from encashing checks; e. Adequate and proper documentation attached to the disbursement vouchers; and f. Liquidation of funds by the recipient by requiring relevant and proper documents


2008-016 9. Negative variance amounting P287,058.36 in the collection and

a) Prepare journal entries and discontinue the practice of reflecting adjustments and other


67

Reference (AOM No.)


Implementation

receipts per Statement of Fund Received and Expenses Disbursed and Per Cash Receipt Book/Monthly Collection Reports, resulting in doubtful reliance on the reported amount of P62.940 million.

transactions directly in the financial statements;

b) Account for the negative

variance amounting P287,058.36.

Not Implemented

2008-017 10. Incomplete recording and inadequacy of controls in recording and documentation of collection from rentals resulting in doubtful reliability of the recognized amount of P54.082 million, net of value added tax.

a) Maintain subsidiary ledgers for each transaction; and

b) Prepare the lease rental

monitoring data/or report every month based on the individual subsidiary ledgers which could readily show the overdue rental, classified as current and past due, as a basis for the preparation of the monthly billing statements, and legal action as necessary.



2008-018 11. Net negative difference amounting to P5,584 for Transportation/traveling Expenses between book balances and source documents, resulting in the uncertainty of the transportation expense account.

Account for the variance noted.

Not Implemented

2008-019 12. There were under billings amounting to approximately

a) Establish proper accountability, accounting guidelines and


68

Reference (AOM No.)


Implementation

P1,254,770.56 and payment deficiencies of approximately P554,338.74 on selected tenants transactions due to inadequate accounting and monitoring of tenants’ accounts and compliance with lease agreement vis-a-vis payment records.

procedures in the recording and monitoring of collection and outstanding accounts from tenants; and

b) Account for the existing

contracts with tenants, re-visit the terms and conditions and evaluate the same for monitoring of compliance and guide in future decision on the disposition of contracts.


2008-020

A.2 Compliance Audit 13. The policies and

practices of the VFP pertaining to organization structure/staffing pattern, position classification and grant of compensation, salaries and allowances were not in accordance with the rules and regulations issued by the Department of Budget and Management (DBM).

Comply with the provisions of RA No. 6758 and coordinate with the DBM and/or GCG on the realignment of position classification and salary rates of VFP personnel under the Position Classification and Compensation System.


2008-021

14. The existing practices on personnel recruitment were not in accordance with Executive Order No. 292, otherwise known as the Administrative

a) Comply with the provisions of EO No. 292 and be guided by the rules and regulations issued by the Civil Service Commission;

b) Establish written policies

on personnel administration and development, to serve



69

Reference (AOM No.)


Implementation

Code of 1987.

among others, as guidelines in personnel recruitment; and

c) Conduct an evaluation of the merit and fitness of the VFP employees vis-à-vis their current occupied position and recommend for appropriate courses of action.


2008-022

15. The policies and practices on traveling expenses and allowances for local and foreign travel were not in accordance with existing laws, rules and regulations resulting in the doubtful validity and accuracy of the recorded Transportation Expenses aggregating P4,144,642.05.

Various reimbursement and/or liquidation of cash advances granted for travel were not supported by necessary documents required under existing rules and regulations.

Comply strictly with the provisions of COA Circular No. 96-004, as amended by COA Circular No. 2009-002 dated May 18, 2009, in particular the traveling expenses and other expenses incurred from the cash advances which are allowed under the rules and regulations and disseminate the same to the VFP officials and personnel.

Require the reimbursement of travel expenses during the VECONAC conference in Singapore incurred by the non-VFP personnel who was not authorized to travel with the delegates.

Fully Implemented


2008-024

16. The existing management policies on cash advances were not in accordance with the provisions of PD 1445, COA Circular Nos. 2004-

70

Reference (AOM No.)


Implementation

006 and 97-002 dated September 9, 2004 and February 10, 1997, respectively.

16.1 Cash

advances granted to VFP officers in 2008 amounting to P303,524.50 remained unliquidated as of the year end, contrary to COA Circular No. 97-002 dated February 10, 1997.

Refund of P3,524.50 for the difference of the amount of cash advance and documents presented in the liquidation.

Fully Implemented

16.2 The liquidation of cash advances was made beyond the period required under COA Circular No. 97-002 dated February 10, 1997.

.

a) Require All accountable officers to comply and liquidate the cash advance granted to them as soon as the purpose for which it was granted had been served; and

b) Submit valid documents to

support the liquidation, in compliance with Section 4 of PD 1445 and COA Circular No. 2004-006 dated September 9, 2004.



2008-026

17. The officers and employees of the VFP, whose duties permit or require the possession, custody or control of funds or property for which they are accountable, were not bonded contrary to the

Evaluate the minimum and maximum fund and property accountability of the concerned accountable officers and employees and apply for the appropriate bond for each of them with the Bureau of the Treasury.


71

Reference (AOM No.)


Implementation

provisions under Section 101 of Presidential Decree (PD) No. 1445 and Bureau of the Treasury (BTr) regulations.

2008-028

18. The VFP Proposed Budget or Corporate Operating Budget for the year 2008 was not submitted to the DBM for approval per Section 19, Chapter III, Book VI of Executive Order No. 292, Administrative Code of 1987.

Comply with the provision of Section 19, Chapter III, Book VI of Executive Order No. 292, the Administrative Code of 1987, and henceforth, submit the VFP Annual Corporate Operating Budget for review and approval of the DBM.


2008-029

19. Reimbursement of travel expenses were not supported with valid documents.

a) Discontinue the practice of hiring vans and taxis and use the customary mode of transportation; and

b) Require valid documents

to support traveling expenses.

Fully Implemented

Fully Implemented

2008-030 20. The purchase of various supplies and materials were not supported with documents to establish the validity of the claims.

The amount of P509,237.31 were paid for the purchase of supplies and materials despite

Comply with Section 4 of PD 1445 and attached the necessary documents to disbursement vouchers and liquidation reports.

Fully Implemented

72

Reference (AOM No.)


Implementation

lack of supporting documents. Also, the vouchers and liquidations reports for cash advances pertaining to purchase of supplies and materials amounting P116,821.75 were not supported with documents.

2008-031 21. The procurement policies, methods and procedures and supporting documents were not in accordance with Republic Act No. (RA) 9184 and transactions were not supported by complete and proper documents required under Section 4, PD 1445 and COA Circular No. 2004-006 dated September 9, 2004.

21.1 Procurement

of goods and services without canvass from accredited suppliers.

Comply with the provisions of RA 9184 and its IRR in the procurement of goods and services, Section 4 of PD 1445 and COA Circular No. 2004-006 dated September 9, 2004, and attach complete and proper documents in the disbursement voucher.

Fully Implemented

21.2 Procurement of goods and disposal of property were not supported with required documents.

Strictly comply with the provisions of RA 9184 and its IRR in the procurement of goods and services and Section 4 of PD 1445, the attachment of complete and proper documents to the

Fully Implemented

73

Reference (AOM No.)


Implementation

disbursement voucher.

21.3 Procurement of goods and services in the aggregate amount of P20,948,541.99 did not undergo public bidding in accordance with the provisions of Republic Act 9184, otherwise known as the “Government Procurement Reform Act”.

a) Comply strictly with the provisions of RA 9184 and its IRR, as amended, to attain transparency, accountability, equity, efficiency and economy in VFP’s procurement process; and

b) Discontinue immediately

the current VFP practices and policies in procurement of goods and establish the new procurement process flow, guidelines and procedures.

Fully Implemented

Fully Implemented

2008-032 22. Donations to VFPSDAI and financial assistance granted to Philippine Veterans War Foundation (FILVETS) and Regional Veterans Organizations were not in accordance with the requirements provided under COA Circular No. 2007-001.

a) Suspend the grant of any donations and financial assistance to the VFPSDAI to give preferential attention to the review of the nature of donations and financial assistance the VFP has granted in the past years; and

b) Establish policies on

granting utilization, and accounting of funds released in consonance with provision of COA Circular No. 2007-001.



A.3 Evaluation of the Existing Internal Control

2008-034 23. The absence of a sound internal control system

Discontinue assignment of incompatible duties responsibilities for (1)

Fully Implemented

74

Reference (AOM No.)


Implementation

violated Section 123 and 124 of Presidential Decree (PD) No. 1445, resulting in doubtful reliability of VFP’s financial transactions, account balances, records and reports.

There were no policies and accounting procedures established for the receipt, issuance, accounting and monitoring of accountable forms.

initiation and/or approval of transactions; (2) custody of assets; and (3) accounting for transactions be separated and assigned to different personnel or departments.

2008-035 24. There was improper accounting treatment and inadequate controls in the custody and recordkeeping of property and equipment, supplies and materials.

Assign property number and maintain subsidiary ledger for property and equipment.

Fully Implemented

2008-036 25. The absence of necessary controls in the procurement process resulted in excess and shortage of items delivered by the suppliers amounting to P252,829.00 and 806,602.99, respectively.

Demand from the supplier to refund the cost of undelivered items.


75

Reference (AOM No.)


Implementation

2008-037 26. There was conflict of interest in the maintenance of depository accounts with the PVB because of the significant position held by the VFP President and its Officers with the bank.

Secure the services of other government depository banks in accordance with DOF Department Order 27-05 dated Dec. 9, 2005 and applicable provisions of RA 6713.

Not Implemented

2009/2010 Audit

Report

2009/2010- 001

27. Understatement by P8.691 million of three time deposit accounts maintained with PVB-Taguig having a total of P22.861 M per books and P31.552 M balance per bank, and unreconciled variance of P0.373 M on PVB account no. 211-3 with a balance of P5.964 M per books and bank balance of P6.338 M as of September 30, 2010.

Require the immediate reconciliation of bank and book records and adjust the books accordingly.


2009/2010- 001

28. Unrecorded four bank accounts with balances per banks totaling P3.573 Million as of September 30, 2010.

VFP Accountant should cause immediate verification of the cash in bank accounts confirmed by the bank but not recorded in the books, and accordingly take appropriate and immediate action thereof.


76

Reference (AOM No.)


Implementation

2009/2010- 004

29. No documentation on the sale of building in VFP IC with proceeds of P5.5 million.

a) Submit documentation on the sale of the VFP building at VFP-IC; and

b) Conduct verification on the

closure of the receivable account and require submission of necessary documents.

Fully Implemented

Fully Implemented

2009/2010- - 005

30. Collections and deposits of the collecting officer amounting to P315,700.00 not recorded in the book.

a) Require the Accounting Department to record in the VFP’s book of accounts the abovementioned collection and deposits; and

b) Require the Collecting

Officer to account for the shortage in the deposits.

Not Implemented

Not Implemented

2009/2010- 016

31. Excessive granting of per diem, utilizing cash advance for personal expenses, disbursement not properly and completely documented, long outstanding unliquidated cash advance and purchase of equipment not located during inspection.

a) Enforce appropriate action on the unliquidated cash advance;

b) Comply with the required documentation of the liquidation of cash advances; and

c) Immediately require the refund of the amount pertaining to the personal expenses of the accountant.



Fully Implemented

2009/2010- - 012

32. Procurement of medicines at an aggregate of P55.738 million in 2009 and 2010 was made without the appropriate mode of procurement prescribed in R.A.

a) Put in place the proper procurement process for medicines. Since the distribution of the medicines is a form of benefits for the VFP members and done regularly, the requirements for the year can be


77

Reference (AOM No.)


Implementation

9184.

included in the APP. Based on the number of members and the planned schedule of distributions, the quantity requirements and costs can be estimated/determined for purposes of planning, budgeting, and the conduct of public bidding; and

b) Formulate guidelines and procedures in the distribution of medicines that include among others the approved allocation to beneficiaries, the proper documentation of the description and quantity of the medicines, and the acknowledgement of the authorized recipients.


2009/2010- 014

33. Purchases of office supplies and materials were awarded through shopping instead of public bidding or from the Procurement Services of the DBM.

Ensure that “commonly used goods” are made from the Procurement Services of the DBM as provided under Section 53 (e) of the IRR of R.A. 9184.

Fully Implemented

2009/2010

- 009

34. Fund utilization of

P77.52 million for FY 2009 was not consistent with the budgeted expenditures for the attainment of the VFP’s main thrusts as envisioned in the Budget such as:

a) Ensure that in the

preparation of the Corporate Operating Budget, the welfare programs/projects for the veterans would be more defined, and the required provisions and costs for the activities are well determined, so that the funds will be allocated to the priority programs/projects/activitie

Partially

Implemented

78

Reference (AOM No.)


Implementation

Big chunks of the FY 2009 budget were spent for medicines and meetings

Certain expense items exceeded the budget

Budget for special projects and for general assemblies were not utilized

Certain expenses of the VFP industrial Complex were not itemized

s of the VFP.

b) Require the Accounting and Budget Divisions to closely monitor the utilization of funds, prepare periodic reports thereon, and assess whether the funds were spent as budgeted; and

c) Assess the incurrence of

expenditures in excess of the budget, as well as the budgeted funds which were not utilized, and consider the causes/problems in future preparation of the corporate plans and budget.



2009/2010- 018

35. Checks for remittance to the BIR for Value Added Tax of P1,837,017.00 and penalty charges on tax assessment amounting P25,000.00 were issued in the name of the VFP Accountant. Our confirmation however, with the BIR through the Revenue District Officer No. 33, Intramuros, Manila disclosed that said VAT payments did not appear in their Taxpayer Ledger Inquiry print out.

a) Require the VFP Accountant to immediately submit the BIR ORs or evidence of deposits to BIR accounts for payments of P1.837 million;

b) Submit to COA all documents showing the proof of payments (payment slip validated by the bank and/or Official Receipt), duly accomplished VAT Return forms and other pertinent documents;

c) In case of his failure, immediately conduct verification whether the Accountant had remitted the amount to the BIR and had complied with all the BIR requirements regarding the remittance of VAT output tax; and

Not Implemented

Not Implemented


79

Reference (AOM No.)


Implementation

d) Institute appropriate action

and/or investigation on the aforementioned VAT payments which were not acknowledged by the BIR.

Partially

Implemented

2011 Audit Report

2011-001 36. VFP procured medicines totaling P22.35 million in 2011 without public bidding as required under Republic Act 9184 (RA 9184), thus, the reasonableness of prices of medicines cannot be assured. Likewise, receipts, distributions and balances of medicines were not properly accounted for due to insufficient records maintained by the Supply Officer; hence, the accountability for the stocks of medicines cannot be ascertained.

a) Comply with the requirements of RA 9184 to ensure the reasonableness of prices of medicines and transparency in the procurement process;

b) Establish the procurement

process for medicines starting with the preparation of the APP by considering the number of members, schedule of distributions, quantity requirements and costs; and

c) Reporting and

documentation of the distribution and acknowledgement by the recipients of medicines be continuously improved:

i. Require the District

Commanders and other concerned Officers to submit the acknowledgement receipts of the recipients of medicine and consolidate the reports/list by post/district/regions.

ii Match the above

consolidated reports to the issuances of

Fully Implemented



Fully Implemented

80

Reference (AOM No.)


Implementation

medicine per post/district/regions to determine the balance.

2011-002 37. VFP procured catering services amounting to P3.110 million in CY 2011 without the benefit of public bidding and other alternative mode of procurement required under RA 9184. Likewise, five advance payments with amounts ranging from P485,000 to P1,200,000 were made for catering services including entertainment in violation of Sec. 88 of PD 1445.

Adhere and/or follow strictly the provisions of RA 9184 regarding the conduct of public bidding.

Fully Implemented

2011-004 38. Commonly-used office supplies and equipment amounting P1.805 million were procured through shopping instead of availing the DBM Procurement Service (DBM-PS) as required in Executive Order No. 40 dated October 8, 2001 and Administrative Order No. 17 dated July 28, 2011. Likewise, all purchases of supplies and materials including stock items were

Require the Procurement Section to procure the commonly -used supplies and materials, and office equipment from the DBM Procurement Service.

Fully Implemented

81

Reference (AOM No.)


Implementation

treated in the books as outright expense, and no inventory taking was conducted to account for the remaining balance in the custody of Supply Officer.

2011-005 39. Variances/adjust-ments were noted between the amount billed to the tenants of the VFP Industrial Center and agreed rental rates without any provided explanations. Likewise, as of audit date, there were occupants whose rental contracts already expired and were not renewed.

a) Look into the noted variances between the amount billed and the contract amount, and submit the supporting computations for audit;

b) Take the necessary action

on the case of the tenant (ACER) and other tenants with an accumulated outstanding balance of rentals;

c) Verify the nature of

adjustment of the amount billed to special Contractors Inc. amounting to P548,000.00, and check whether this was supported with approved contract; and

d) Restudy the contract rates

to make it more relevant and fair based on current market rental rates.

Not Implemented


Not Implemented


2011-007 40. Grant of donations to VFP Sons and Daughters Association, Inc. amounting to P2.42 million did not comply with the requirements of COA Circular No. 2007-001 dated October 25, 2007

a) Suspend the grant of donations to VFPSDAI until the requirements of COA Circular No. 2007-001 are complied with;

b) Require the VFPSDAI to

submit to the VFP the requisites for entitlement for VFP financial assistance/donation; and


Partially

Implemented

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Reference (AOM No.)


Implementation

on the grant of government funds to Non-Government Organizations / People’s Organizations (NGOs/POs).

c) See to it that procedures

for the availment, accounting and financial reporting are complied with.

Partially

Implemented

2011-008 41. The grant of financial assistance for the conduct of regional assemblies amounting to P270,000.00 were not properly authorized by the Executive Board and VFP officials, and were not supported with complete documents.

Checks should be marked “payee’s account only” so as to avoid unauthorized encashment thereof.


2011-009 42. Payment of overtime totaling P1.617 million in 2011 was not in accordance with the guidelines set forth under Department of Budget and Management (DBM) Circular No. 3, s. 2001 and DBM Circular No.10 dated March 29, 1996.

a) Require the submission of the authority and accomplishment reports on all overtime payments in 2011;

b) Enjoin compliance with the

requirements of DBM Circular No. 3, s. 2001 in the grant of authority and payment of overtime services; and

c) See to it that overtime

services are properly supervised, and accomplishments are monitored and reported to substantiate the payment of overtime pay.

Fully Implemented

Fully Implemented

Fully Implemented

2011-011 43. Total cash advances

a) Require the immediate submission of liquidation


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amounting to P411,650.00 remained unliquidated in violation of COA Circular 97-002 dated February 10, 1997. Moreover, the liquidation reports of the accountable officers showed that payments were not supported with proper and complete documents, while there were expenses that were considered unnecessary and extravagant.

vouchers and supporting documents on the unliquidated cash advance amounting P411,650.00; and an immediate refund of P82,200.00 representing prior year unliquidated cash advance of the Accountant which were already disallowed in audit per ND. No. 12-002-101-09 and 10 dated April 26, 2012.

b) Formulate guidelines on

the reimbursements of jeepney and other vehicle rentals guided by the LTO fare matrix; and

c) Strictly observe the

provision of COA Circular No. 85-55-A dated September 8, 1985 on the Irregular, Unnecessary, Excessive or Extravagant Expenditures or Uses of Funds and Property.


Partially

Implemented

2011-013 44. Various Disbursement Vouchers (DVs) and reports on the distribution of Membership Dues were not submitted for audit, thus, casting doubt on the regularity and validity of the 2011 transactions.

a) Submit immediately all DVs for regular expenses, as well as those for the distribution of membership dues including the Distribution Reports for 2011 to substantiate the propriety and validity of the transactions; and

b) Take cognizance of Sec.

122 of P.D. 1445 on the submission of required reports for audit.



2011-014 45. The following audit observations and recommendations in 2009-2010 audit remained unacted upon/were not

84

Reference (AOM No.)


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addressed by Management in CY 2011. 1. Salaries and

wages – The compensation and position classification of VFP did not conform to the Salary Standardization Law, while allowances and benefits did not comply with the applicable rules and regulations that affected the propriety of the expenses on personnel services account.

2. Other compensation, allowances and benefits of VFP Officers and Employees - The allowances, compensations and other benefits received by VFP Officers and employees were not in accord with applicable rules and regulations, while others were not supported with statutory basis.

3. Retired Officer

a) Coordinate with the GCG

and the DBM on the realignment of position classification and salary rates of VFP personnel with the Position Classification and Compensation System under the Salary Standardization Law and or as may be determined by the said Offices;

b) Ensure that the grant of benefits and incentives comply with applicable laws, rules and regulations;

c) Comply with the provision

Fully Implemented


Partially

85

Reference (AOM No.)


Implementation

and employees from the government service employed by the VFP were receiving both pension and salaries and allowances.

4. One VFP

employee received his retirement benefits at an aggregate amount of P1.098 million in May and June 2011, contrary to the COA Legal Opinion dated May 17, 2011.

5. VFP granted

RATA at P10,000.00 per month, a bonus equivalent to one month RATA and Uniform Allowance of P5,000.00 a year, to the member of the Executive Board, which were not in accordance with DBM Circular No. 2002-02 dated January 2, 2002 and Executive Order No. 24 dated February 10, 2011.

of P.D. No. 1177;

d) Be guided by the above- mentioned COA legal opinion.

e) Stop the payment of RATA, and other allowances to members of the Executive Board except those specifically provided under Executive Order No. 24, dated February 10, 2011; and

Implemented


Fully Implemented

86

Reference (AOM No.)


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6. Other Personnel Matters - The existing practices on personnel recruitment were not in accordance with Executive Order No. 292, otherwise known as the “Administrative Code of 1987”.

f) Establish written policies on personnel recruitment guided by the provisions of Executive Order 292 on the qualification standards and appointment of personnel. We also recommended the evaluation of the qualifications of existing personnel complement of VFP, and take appropriate action to enable them meet the qualification standards.


2012 Audit Report

2012-001 46. The correctness and reliability of the Cash balance amounting to P75.10 million cannot be ensured in view of deficiencies affecting the same.

46.1 Our audit of

the Cash account disclosed several deficiencies which affect the correctness and reliability of the balance of P75.10 million.

Results of bank confirmation regarding the balances of the Cash in Bank

a) Analyze transactions on the reported cash accounts which were recorded in the book but not confirmed by the bank as well as those which reflected different balances as of December 31, 2012;

b) Verify the nature of the

dormant accounts as well as the history of these accounts and come up with a course of action to clear and ensure the existence of this account;

c) Complete the bank

reconciliation for all Cash in Bank Accounts; and


Partially

Implemented

Partially

Implemented

87

Reference (AOM No.)


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accounts of VFP as of December 31, 2012 revealed variances amounting to 2.30 Million thus casting doubt on the reliability of the cash in bank balances aggregating P86.27 million as of December 31, 2012.

d) Effect adjustments on reconciling items after a thorough review of the bank reconciliation statements had been done.


46.2 Eleven (11) Cash in Bank Accounts of VFP were not supported with BRS, thus casting doubts on the validity of the balances.

Prepare the required BRS and take immediate action on the reported bank accounts not confirmed by the bank as at year end.


46.3 Adjusted book and bank balance of Cash in Bank Account No. 211-3 (General Fund) had a discrepancy of P1.82 million due to inclusion of non-reconciling items in the Bank Reconciliation Statements (BRS), thus

Prepare the necessary adjusting entries to correct the balance of Cash in Bank Account No. 211-3 (General Fund).


88

Reference (AOM No.)


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overstating the Cash in Bank account by the same amount.

46.4 Unrecorded disbursements for payment of VFP transactions amounting to P16.23 million resulted in the understatement of expense account and overstatement of cash in bank account of the same amount.

Record immediately disbursements totaling P16.23 million in the book of accounts in accordance with PD 1445.

Not Implemented

46.5 Outstanding checks as of December 31, 2012 included stale checks in the total amount of P493,410.25 and understated the balances of cash in bank and payable accounts. Their inclusion

Prepare an accounting entry to revert the equivalent amount of stale checks to cash in bank account and recognize the appropriate liability accounts in accordance with IAS No. 1 and pursuant to Article 4 Section 87-c of the GAAM.

Not Implemented

89

Reference (AOM No.)


Implementation

affected the fair presentation of the financial statements and was not in conformity with International Accounting Standards No. 1.

2012-002 47. The balance of the Property, Plant and Equipment (PPE) account amounting to P174.4 million with a net book value of P168.90 million as of December 31, 2012 is of doubtful validity due to the absence of subsidiary ledgers, property cards, and sufficient documents to support the value of the building and condominium. In addition, deficiencies and variances were also noted between the accounting records as against the result of the physical inventory as of December 31, 2012.

47.1 The land improvement amounting to P342,759.35

a) Determine the FMV of the

land based on the result of the survey and independent appraisal;


90

Reference (AOM No.)


Implementation

do not include the land improvement turned over by then VFP-Management Development Corporation to VFP such as pavement, fences, and water system constructed at the VFP-IC. This was pointed out in Audit Observation No. 2008-07 dated February 17, 2008. This condition resulted to understatement of the VFP’s asset account.

and

b) Submit report to COA on the nature and present status of seven (7) lots which were reportedly with pending cases and justification why the lot located in Guimaras which was donated to VFP was not covered with TCT and remained unrecorded in the books of VFP.


47.2 The Veterans building valued at P.904 million and the fifteen (15) condominium units with an aggregate amount P11.90 Million as recorded in the books were not supported with complete documents to show how the carrying value was

a) Gather all necessary documents relative to the determination of the initial acquisition cost or value of the condominium and veterans building; and

b) Properly account for the

carrying values of these properties.


Partially

Implemented

91

Reference (AOM No.)


Implementation

determined since the actual acquisition cost of the building was not disclosed. This was pointed out in the previous audit observation in the 2008 audit of VFP. Inquiry revealed that this figure was carried over from the prior years.

47.3 A building named “Star Performance” with a carrying value of P24.29 Million and located within the VFP-Industrial Complex was sold in 2011. In view of the sale, this amount was dropped from the books. The dropping was not substantiated to establish the validity and regularity of the sale.

Submit to COA all pertinent documents to support the dropping of the Building – Star Performance account.

Fully Implemented

47.4 The transportation equipment

Conduct a reconciliation of the discrepancies for transportation equipment

Fully Implemented

92

Reference (AOM No.)


Implementation

found during the inventory taking was composed of three vehicles with a composite value of P6.32 million per record of the Property Officer as evidenced by the Sales Invoices. However, as per accounting records the carrying value of the transportation equipment was pegged only at P2.12 Million as of December 31, 2012 or a variance of P4.2 million.

account and account for the missing items.

2012-003 48. VFP received from PVAO membership dues amounting to P4, 000.00 for 16 members who were already reported as deceased thus casting doubt on the regularity of the transaction. VFP still receives the membership dues amounting P1, 250.00 of five of the sixteen deceased veterans who were still included in January 2013 allocations.

a) Cause the refund of the amount representing the annual membership dues of the aforementioned sixteen (16) deceased members and return the same to PVAO;

b) Require the Post/District

Commander to submit to VFP a copy of the death certificates relative the aforementioned deceased members; and

c) Refund to PVAO P1,

250.00 representing the membership dues of the aforementioned deceased members.

Fully Implemented

Fully Implemented

Fully Implemented

93

Reference (AOM No.)


Implementation

2012-004 49. Salaries and allowances of VFP officers and employees amounting to P5.75 million were not in accordance with the RA No. 6758, otherwise known as the “Compensation and Position Classification Act of 1989” and Compensation System of the DBM.

49.1 The

compensation and position of VFP employees were not yet aligned with the standardized position classification and salary rates as prescribed under RA 6758 otherwise known as the “Compensation and Position Classification Act of 1989” or the “Salary Standardization Law”.

Comply immediately with the prescribed standard rates and stop granting salary increase until such time that their rate is in accordance with the Salary Standardization Law.

Fully Implemented

49.2 Other benefits granted to Officers and Employees were beyond

Stop the grant of other benefits and any increase in allowances without the authority from DBM or Office of the President.

Fully Implemented

94

Reference (AOM No.)


Implementation

the authorized rates.

2012-005 50. The dates of the Official Receipts presented in the reimbursements of the transportation expenses were incongruent with the dates of the occasion when the pertinent Executive Board (EB) meeting were held. In addition, there were some reimbursements that were excessive and inconsistent with Section 340.b of the GAAM, Volume No. 1.

Stop granting reimbursements of travel expenses where economical mode of transportation was not used unless justified by the circumstances and at reasonable rate.


2012-006 51. There were significant lapses in the granting and settlement of cash advances. 51.1 Excessive

Cash Advances amounting to P 4.682 million were granted resulting in a significant amount of unutilized cash advances of P 1.806 million.

a) Require the AOs to submit a realistic budget proposal (with details and breakdown of expenses) to avoid excessive cash advances and prevent the risk of carrying out a huge amount of money in the hand of the accountable officer; and

b) Require the AOs to

liquidate their cash advance as soon as the purpose for which the cash advance was granted is already served.

Fully Implemented

Fully Implemented

95

Reference (AOM No.)


Implementation

51.2 Subsequent cash advances were granted even when the previous cash advance/s was not liquidated contrary to the provisions of COA Circular 97-002 dated February 10, 1997 and COA Circular 2009-002 dated May 18, 2009.

Management should desist from granting additional cash advances prior to the settlement of previous advances. The Accountant should monitor the cash advances granted and liquidations by the accountable officers and issue a certification on the face of the Cash Advance Disbursement Voucher certifying that the previous cash advance of the accountable officer was already liquidated.


51.3 Unliquidated Cash Advance of three AOs remained unsettled as of December 31, 2012 despite demand letter issued on July 31 2012. Management has not yet acted on the settlement of the advances.

Institute proper action that will cause immediate liquidation of these long outstanding cash advances including the withholding of salaries of the concerned AOs. It may also file malversation charge in compliance with Section 9 of COA Circular No. 2012-004 dated November 28, 2012.

Fully Implemented

51.4 Bonding of Accountable Officer which was earlier pointed out in our previous audit observation remained not implemented.

Cause the immediate bonding of all AOs and grant cash advances to those qualified personnel only.


96

Reference (AOM No.)


Implementation

Likewise, all the accountable officers who were granted cash advances in 2012 were not duly designated disbursing officer with explicit authority by the Head of the Agency in violation to COA Circular No. 97-002 dated February 10, 1997.

2012-007 52. Inadequate control over disbursements and failure of Management to withhold taxes due from the suppliers of medicine resulted in overpayment of P1.80 million.

Demand the immediate and full refund by the suppliers of the remaining amount due to the VFP.


2012-009 53. Several deficiencies and/or lapses were noted in the documentation of VFP transactions which is inconsistent with the fundamental principles embodied under P.D. 1445 and COA Circular No. 2012-001 dated June 14,

97

Reference (AOM No.)


Implementation

2012 which enumerated the basic requirements for every type of disbursement. In our audit of the 2012 disbursements and liquidations, the following deficiencies were noted insofar as documentations is concerned:

A. FINANCIAL

CONTRIBUTION

The total financial contributions for 2012 amounting P2,419,999.92 to VFP Sons and Daughters Inc. (VFPSDAI) was supported only by an Acknowledgement Receipt and no other documents whatsoever was presented, thus casting doubt on the legality of the transactions.

B. HIRING OF PERSONNEL

The salaries of the newly hired Accountant and senior bookkeeper

Stop payment of said financial contributions to VFPSDAI unless the requirements under COA Circular 2007-01 are complied with.

Provide justification on the hiring of the above-mentioned employees without following the applicable rules and

Not Implemented

Fully Implemented

98

Reference (AOM No.)


Implementation

were not yet based on the appropriate rate based on the Salary Standardization Law. Likewise, the procedure in hiring and the relevant rules and procedures of the Civil Service Commission (CSC) insofar as the hiring and recruitment of government employees are concern were not observed.

C. OVERTIME PAY

Overtime Pay aggregating P.78 million in 2012 was granted with incomplete documentation. Likewise an overpayment of overtime pay to the VFP Administrative Officer and other employees amounting to P47,591.37 was also noted in violation of Department of Budget and Management (DBM) Circular No. 3, s. 2001

procedures of the CSC.

a) Ensure that the

subsequent grant of overtime pay is in accordance with the guidelines set forth under CSC and DBM Joint Circular No. 2, s. 2004 dated October 4, 2004 and Administrative Order No. 103; and

b) Ensure the complete

documentations on the grant of overtime.

Fully Implemented

Fully Implemented

99

Reference (AOM No.)


Implementation

and DBM Circular No. 10 dated March 29, 1996.

2012-010 54. Various procurements which were recurring throughout the calendar year 2012 aggregating P10.27 Million did not undergo public bidding as required under R.A. 9184, otherwise known as the “Government Procurement Reform Act”.

Comply with the requirements on Public Bidding in the procurement of catering, medicines, security and janitorial services.

Fully Implemented

2012-010 55. Catering services amounting to P1.94 million were awarded to VFP Employees Consumer without public bidding in violation of Article IV Sec. 10 of Republic Act 9184 and Section 88 of P.D. 1445. In addition, VFP made advance payment of P1.80 million in violation to Sec. 88 of P.D. 1445.

Comply with the requirement on public bidding in the procurement of catering services and stop such method of Direct Contracting and granting of advance payment for services not yet rendered.

Fully Implemented

2013 Audit Report

2013-001 56. The accuracy and reliability of the Cash in Bank account balance of P145,550,826.72 and retirement fund

a) Take immediate steps to reconcile the balances of the accounts and make the necessary adjustments in the books;


100

Reference (AOM No.)


Implementation

of P10,715.62 are doubtful due to the discrepancy amounting to P4,424,147.22 and (P1,259,737.62) respectively, or P 3,164,409.37 with the balance as confirmed by depository banks; late/non submission of bank reconciliation statements for some accounts; inadequate documentation of fund transfers; inclusion of accounts which were already closed and not in the name of VFP and deficiencies noted in the preparation of bank reconciliation statements.

b) Submit the necessary records and documents on time to facilitate verification of accounts;

c) Consider reducing the number of bank accounts maintained by VFP to facilitate monitoring thereof;

d) Prepare properly the monthly BRS for all bank accounts maintained by the VFP;

e) Observe the standards in the preparation of BRS and see to it that ending balances of both bank and books are adjusted to the correct figure;

f) Delete from the books the bank old accounts with PNB Taft 2518-30116-3 and PVB-Alta Vista Account No. 1401-0000306-9 to obtain the accurate amount of cash in bank account; and

g) Take immediate action to have the accounts transferred to the name of VFP.




Partially

Implemented

Partially

Implemented

Partially

Implemented

2013-002 57. The inability of Management to enforce the liquidation of the outstanding cash advances, granting of additional advances to accountable officer (AO) with unsettled advances and

a) Strictly comply with the rules and regulations on the grant, utilization and liquidation of cash advance;

b) Require the refund of excess cash advance granted to VFP-SDAI as well as the settlement of all cash advances at year end


Not Implemented

101

Reference (AOM No.)


Implementation

extension of excessive cash advance resulted to the accumulation of unliquidated balances amounting to P3.156 million as of December 31, 2013. Moreover, advances of P755,000.00 was also granted to a non VFP personnel/association. Finally, the officers given cash advances were not bonded.

so that expenses incurred pertaining thereto will be recognized or recorded in the books for the particular period;

c) Monitor the grant and liquidation of cash advance and impose strictly the recovery of the amount based on demand letters issued to the AOs;

d) Grant cash advances only to properly bonded accountable officers;

e) Impose sanctions for those outstanding advances when warranted, such as withholding/suspension of salaries as provided under COA Circular 97-002 Item 5.1.3;

f) Require the AO to refund

the excess cash advances and have it properly acknowledged with the issuance of an Official Receipt by the collecting officer/cashier;

g) Prepare a realistic budget

so that the cash advance to be granted will approximate the budget; and

h) Ensure adherence to

prescribed policies on handling of cash advance particularly the liquidations thereof.

Partially

Implemented

Partially

Implemented

Partially

Implemented

Fully Implemented

Fully Implemented


2013-003 58. Collections of RUF in the amount of P690,982.50 for the period November

a) Require the former VFP-IC Manager to refund the amount of P690,982.50 that was not reported

Not Implemented

102

Reference (AOM No.)


Implementation

2012 to May 2013, were not reported nor deposited to the Account of the VFP. Of the said amount, P277,982.00 was deposited to the personal account of the former VFP-IC Manager at the Philippine Veterans Bank (PVB) – Taguig Branch in violation of Sections 69 of PD 1445 and Section 134 of the Government Accounting and Auditing Manual, (GAAM) Volume 1. Moreover, VFP was deprived of the benefits/income earned had the said amount collected been remitted to the VFP.

nor remitted/deposited to the VFP account;

b) Institute and/or exhaust

all possible means such as withholding his salary or whatever benefits due him to recover the said amount from the former VFP-IC Manager;

c) File appropriate legal

action and impose the corresponding penalty against the former VFP-IC Manager; and

d) Ensure adequate

controls in the receipt, issuances and monitoring of RUF tickets and collections thereof.

Partially

Implemented

Not Implemented


2013-004 59. On two occasions, catering services amounting to P687,200.00 and P789,500.00 were awarded to two suppliers through shopping instead of public bidding contrary to the requirements of Article IV, Section 10 and Sec. 52.1 of the Revised Implementing Rules and Regulations (IRR)

a) Strictly follow the requirement of public bidding in the procurement of catering services;

b) Submit the necessary

attendance sheets to support the validity of the amount billed to VFP; and

c) Justify and/or explain the

difference between the amount billed as compared to the number of participants to the Supreme Council Meeting.

Fully Implemented


Partially

Implemented

103

Reference (AOM No.)


Implementation

of Republic Act no. 9184. Likewise, the validity of payments made were doubtful due to incomplete documentation.

2013-005 60. Payments for security services totaling P1.712 million were continuously made to the individual security guards for the period June to September 2013 without valid contracts

a) Constitute a Bids And Awards Committee (BAC) to undertake the procurement of security services and award the contract to the winning bidder/contractor; and

b) Justify the long period of

VFP’s inability to constitute the BAC in order that all its procurement needs will be undertaken by the latter.

Fully Implemented

Fully Implemented

2013-006 61. Despite the declaration by the Supreme Court on February 28, 2006 that VFP is a Government Corporation, no new appointments were issued to 17 regular employees in conformity with the requirements of the GCG, Civil Service Commission and the Secretary of the National Defense. Likewise, appointments of new officers and promotion of incumbents were approved only by the President, VFP. The practices

Comply with all the necessary requirements set by the GCG, DND and CSC in compliance to R.A. 10149, Department Circular No. 5, series of 2000 and the Omnibus Rules Implementing Book V of Executive Order No. 292.


104

Reference (AOM No.)


Implementation

contradicted the requirements mandated under the following rules and regulations: Department of National Defense Circular No. 5, series of 2000, R.A. 10149, and the Omnibus Rules Implementing Book V of Executive Order No. 292 and other pertinent Civil Service Laws. As such, their salaries and allowances were found wanting of legal basis.

2013-007 62. The VFP paid retirement benefits amounting to P3.078 million to its Administrative Officer for services rendered from April 1, 1982 to November 29, 2013 contrary to COA Legal Opinion dated September 30, 2011.

Suspend the payment of retirement benefits pending the result of the motion for reconsideration filed in COA.

Fully Implemented

2013-008 63. The Regional Vice Presidents (RVPs) and other officers serving as policy making body of the VFP were granted allowances such as representation allowance of P5,000.00 per

a) Strictly comply with the relevant provisions of GCG Memorandum Circular No. 2012-02 dated May 2, 2012; and

b) Stop granting incentives

and/or bonuses that are not specifically provided under the said GCG

Fully Implemented

Fully Implemented

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Reference (AOM No.)


Implementation

monthly Executive Board (EB) meeting attended, clothing/uniform allowance of P5,000.00, bonus and incentives of P16,655.00 per year or a total of P2.82 million which were not in conformity with the prescribed rate under GCG Memorandum Circular No. 2012-02 dated May 2, 2012 and Executive Order No. 24.

memorandum Circular and Executive Order No, 24.

2013-009 64. Performance-Based Bonus (PBB) for 2012 were granted to VFP employees at P30,000.00 each or a total of P750,000.00 without complying with the eligibility requirements as provided under Paragraph 1.2, GCG Memorandum Circular No. 2012-003 dated November 12, 2012.

Comply with the requirements as provided under paragraph 1.2 of Memorandum Circular No. 2012-003.


2013-010 65. Procurements for the repair and maintenance works at the VFPIC amounting to P569,300.00 were not done through competitive bidding in accordance with R.A. 9184, otherwise known

a) Comply with the provisions of Sec. 10 of RA 9184 on the procurement of goods and services and Sec. 4.5 and 4.8 of PD 1445 with regard to the disbursement of funds; and

b) Require the contractor to

submit a Certificate of Completion of the project duly acknowledged by the

Fully Implemented

Not implemented

106

Reference (AOM No.)


Implementation

as the Procurement Reform Act. Likewise, payments for these transactions were not supported by proper and complete documents.

VFP management and submit the same to COA for further evaluation of our Technical Service Office.

2013-011 66. Advance payments representing fifty percent (50%) of the contract price for the maintenance of roads at the VFPIC were inconsistent with the provisions of Sections 4.1 and 4.2 of the IRR of RA 9184.

Stop the payment of 50% advance payment to suppliers/contractors and comply with the provisions of Sec. 4.1 and 4.2 of the Revised IRR, Annex “E” of RA 9184 in the grant of the 15% advance payment.

Fully Implemented

2013-012 67. Monthly Report of Accountability for Accountable Forms was not submitted in violation of Section 122 of PD 1445

Require the submission of the required report to facilitate monitoring of accountable forms.


2013-013 68. Various real properties with a zonal value of P5.63 Million remained idle and unproductive thus depriving the Federation of the benefits therefrom and ran inconsistently to the primary intent of R.A. 2640. Likewise, the 50- hectare lot which

a) Institute stringent measures and/or strategies that will maximize the benefit and return of these aforementioned idle properties of VFP; and

b) Determine the FMV of all

the lots and record the same in the books of VFP



107

Reference (AOM No.)


Implementation

was developed into an Industrial Center and became the prime contributor of VFP revenue is not yet recorded in the book thereby understating the Property, Plant and Equipment account contrary to International Accounting Standard No. 16.

TABLE OF CONTENTS

PART I – AUDITED FINANCIAL STATEMENTS

Independent Auditor’s Report 1-2 Statement of Management Responsibility for the Financial Statements 3 Balance Sheet 4 Statement of Income and Expenses 5

Statement of Changes in Equity 6 Cash Flow Statement 7

Notes to Financial Statements 8-16

PART II – AUDIT OBSERVATIONS AND RECOMMENDATIONS 17-56

PART III- STATUS OF IMPLEMENTATION OF PRIOR YEARS’ AUDIT

RECOMMENDATIONS 57-107

Documents

ANNUAL AUDIT REPORT on the