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EXECUTIVE SUMMARY

A. INTRODUCTION Republic Act (RA) No. 9155, the “Governance of Basic Education Act of 2001” changed the name of the agency from Department of Education, Culture and Sports (DECS) to Department of Education (DepEd). The Department is organized into two major structural components: the Central Office and the Field Offices, which consists of 16 Regional Offices (ROs), 207 Division Offices (DOs) with 7,976 secondary schools and 38,684 elementary schools. Under the Office of the Secretary (OSEC) at the Central Office are five support services, namely: Administrative Service, Financial and Management Service, Human Resource Development Service, Planning Service, and Technical Service. The formulation of policies, standards and programs on curriculum and staff development is undertaken by the three staff bureaus, the Bureau of Elementary Education (BEE), Bureau of Secondary Education (BSE), and Bureau of Alternative Learning System (BALS). The centers/units attached to the Department similarly provide technical and administrative support towards the realization of its vision, namely; the Educational Development Projects Implementing Task Force (EDPITAF), National Educational Testing and Research Center (NETRC), Health and Nutrition Center (HNC), National Educators Academy of the Philippines (NEAP), National Science Teaching Instrumentation Center (NSTIC), Instructional Materials Council Secretariat (IMCS), and the National Council for Children’s Television (NCCT). Other attached and support agencies are the Philippine High School for the Arts (PHSA), Literacy and Coordinating Council (LCC), Baguio Teacher’s Camp (BCT), National Museum (NM), National Book Development Board (NBDB), and the Early Childhood Care Development Council (ECCDC).

The Secretary is assisted by four undersecretaries and four assistant secretaries. The directors and assistant directors of support services, staff bureaus, centers/units and attached agencies also assist the key officials of the Department. Total personnel complement as of December 31, 2014 is 637,558 teachers, 46,833 teaching related, 3,619 non teaching and 30,473 administrative staff. It has: 38,684 Public Elementary Schools, and 7,976 Public Secondary Schools. Total learners of 21,585,706 which comprises of 1,812,960 Kindergarten learners, 13,301,248 Elementary pupils, 5,928,042 Secondary students and 543,456 Alternative Learning System learners.

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B. OPERATIONAL HIGHLIGHTS

The DepEd reported the following major accomplishments per Major Final Output (MFO) and Performance Indicator for Calendar Year (CY) 20141:

Major Final Output /Performance Indicator Target Actual % of

Accomplish-ment

Operations MFO 1: Basic Education Policy Services No. of plans and policies formulated, reviewed, issued and disseminated % of policies updated over the last three years

2

25%

6

75%

200

300

MFO 2: Basic Education Services

Phase 1: Public Kindergarten and Elementary Education No. of learners ages 5-11 years old enrolled in kindergarten and elem. education % of learners who scored average or better in the National Achievement Test (NAT) % of learners who completed the school year

12,568,792

84% 79.56%

12,915,805

85.35% 78.60%

103

102 99

Phase 2: Public Secondary Education Number of learners ages 12-15 years old enrolled in secondary education % of learners who scored average or better in the NAT (Y4) % of learners who completed the school year

4,294,124

50% 75.02%

4,347,421

60.56% 75.35%

101

121 100

Phase 3: Alternative Learning System Number of learners above 15 years old served thru Alternative Learning System (ALS) Program % of ALS completers to total number of ALS learners

331,150

75%

409,013

50%

123

67

1DepEd Quarterly Physical Report of Operation for the Quarter Ending 31 December 2014

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Major Final Output /Performance Indicator Target Actual % of

Accomplish-ment

MFO 3: Regulatory & Devt’l Services

Number of GASTPE grantees % increase of grantees who scored average or better in the NAT (Y4) Ratio of completers to grantees

995,0002

2%

80%

855,449

2.19%

78.21%

86

109 98

This year’s highlights of DepEd Accomplishments as indicated in their 2014 Physical Report of Operations provides the following:

a. A total of 135,817 teaching items were created from the 145,827 teacher shortage in 2010. With the newly-created 33,194 teaching positions in 2014, 29,111 have already been filled up.

b. A total of 66,813 new classrooms were constructed by end of 2013 with the

21,992 newly constructed classrooms in 2014 from the 66,800 classroom shortage in 2010.

c. A total of 87,345 have been constructed from the 135,847 water and sanitation

facilities shortage in 2010. d. A total of 1.4 million school seats were procured and delivered in 2014 from

the initial target of 2.5 million. e. The number of GASTPE grantees increased from 809,212 students in 2013 to

855,449 in 2014.

C. FINANCIAL HIGHLIGHTS For CY 2014, DepEd has a total appropriations of P307,997,205,295.00 which includes the Regular Budget of P242,262,079,138.63, the Special Purpose Funds of P35,665,948,346.00 and the Automatic Appropriations of P22,462,291,591.00 as provided for in the General Appropriations Act (GAA) for Fiscal Year 2014 or the RA No. 10633 and Prior Year’s Continuing Appropriations of P7,606,886,219.00. During the year, the Department received a total allotment of P305,083,185,111.00, out of which,

2 Original target number of grantees per GAA was 1,044,899 but was revised to 855,449 due to increase in subsidy for schools outside National Capital Region (NCR) per DepEd Order No. 34, s. 2014 dated August 5, 2014.

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total obligations of P273,300,467,252.00 were incurred leaving an unexpended balance of P31,782,717,858.82 as at year-end, the details of which are presented below.

Source of Funds Appropriations Allotment Obligation Incurred Unobligated Balance

A. Current Year (CY) Appropriations 1. Agency Specific Budget

Personal Services (PS) P194,261,377,015.44 P194,219,701,811.44 P191,058,618,094.47 P3,161,083,716.97 Maintenance and Other Operating Expenses (MOOE)

34,609,705,574.69 34,609,705,574.69 25,393,738,442.69 9,215,967,132.00

Financial Expenses (FE) 876,703.50 876,703.50 122,069.50 754,634.00 Capital Outlay (CO) 13,390,119,845.00 10,517,774,865.00 2,399,726,941.35 8,118,047,923.65

Sub - Total 242,262,079,138.63 239,348,058,954.63 218,852,205,548.01 20,495,853,406.62

2. Special Purpose Funds 2.1. Miscellaneous

Personnel Benefits Fund

PS 31,588,029,420.84 31,588,029,420.84 29,809,285,418.79 1,778,744,002.05 MOOE 71,000.00 71,000.00 69,000.00 2,000.00

2.2. DepEd School Building Program

CO 40,000,730.00 40,000,730.00 40,000,730.00 - 2.3. Pension and Gratuity

Fund/Terminal Leave Benefits

PS 2,689,797,195.28 2,689,797,195.28 2,663,045,472.60 26,751,722.68 2.4. Rehabilitation and

Reconstruction Program Fund

CO 1,000,000,000.00 1,000,000,000.00 64,836,141.83 935,163,858.17 2.5. Quick Response Fund

– Supplemental Appropriation

CO 348,050,000.09 348,050,000.00 166,100,732.51 181,949,267.49 Sub - Total 35,665,948,346.21 35,665,948,346.12 32,743,337,495.73 2,922,610,850.39

3. Automatic Appropriations PS 22,307,247,756.85 22,307,247,756.85 19,725,392,117.04 2,581,855,639.81 MOOE 148,813,833.73 148,813,833.73 31,809,209.81 117,004,623.92 CO 6,230,000.00 6,230,000.00 149,990.40 6,080,009.60

Sub - Total 22,462,291,590.58 22,462,291,590.58 19,757,351,317.25 2,704,940,273.33 Total CY’s Appropriations 300,390,319,075.42 297,476,298,891.33 271,352,894,360.99 26,123,404,530.34

B. Prior Years (PY) Continuing Appropriations

CO 16,209,649.00 16,209,649.00 - 16,209,649.00 Sub - Total 16,209,649.00 16,209,649.00 - 16,209,649.00

Unobligated Allotments MOOE 3,318,416,881.58 3,318,416,881.58 416,548,945.33 2,901,867,936.25

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Source of Funds Appropriations Allotment Obligation Incurred Unobligated Balance

CO 4,272,259,688.93 4,272,259,688.93 1,531,023,945.70 2,741,235,743.23 Sub - Total 7,590,676,570.51 7,590,676,570.51 1,947,572,891.03 5,643,103,679.48

PY’s Continuing Appropriations

7,606,886,219.51 7,606,886,219.51 1,947,572,891.03 5,659,313,328.48

Grand Total P307,997,205,294.93 P305,083,185,110.84 P273,300,467,252.02 P31,782,717,858.82

Other fund sources during the year came from foreign donations of the Government of Australia for the implementation of School Building Project for Basic Education (SBP4BE), Philippine Response to Indigenous Peoples and Muslim Education (PRIME),Support to Philippine Basic Education Reforms (SPHERE), Education Performance Incentive Partnership (EPIP) and from the United Nation Children’s Education Fund (UNICEF) with the amount of P874,399,850,P684,400,P1,627,470,000, P598,133,924 and P4,864,400,respectively, and a transferred fund received from Philippine Amusement Gaming Corporation (PAGCOR) during the year of P2,000,000,000.

The Department’s assets, liabilities, equity and sources and application of funds for CY 2014 are as follows:

I. Financial Position

Particulars Amount Assets P 120,258,588,252.22 Liabilities 24,917,041,307.36 Equity P95,341,546,944.86

II. Sources and Application of Funds

Particulars Amount

Revenue P2,806,979,406.32 Less: Current Operating Expenses

PS 236,502,441,866.17 MOOE 17,950,439,109.62 FE 1,327,822.21 Non-Cash Expenses 2,389,591,366.03

Surplus (Deficit) from Current Operations

(254,036,820,757.71)

Financial Assistance/Subsidy from the National Government

273,080,713,288.77

Less: Financial Assistance/ Subsidy to National Government Agencies

9,917,821,164.90

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Particulars Amount Net Financial Assistance/ Subsidy 263,162,892,123.87 Other Non-Operating Income 47,484.00 Gains/(Losses) 9,063,373.90 Surplus (Deficit) for the Period P9,135,182,224.07

D. SCOPE OF AUDIT

The audit covered the accounts and operations of the DepEd for CY 2014 except for the DOs and National High Schools under the jurisdiction of the ARMM, to determine the fairness of presentation of the financial statements and propriety of the recorded and reported financial transactions in accordance with applicable laws, rules and regulations. The audit accordingly included such tests of accounting records, and review of internal controls and procedures as were considered essential for the performance of this audit. Review of DepEd’s budget utilization, school facilities program, DepEd Internet Connectivity Project, School Based Feeding Program, and payroll system were also undertaken to determine whether operations were conducted in an economical, efficient and effective manner.

E. AUDITOR’S REPORT ON THE FINANCIAL STATEMENTS The Auditor rendered a qualified opinion on the fairness of the presentation of the financial statements of the DepEd for CY 2014 in view of the deficiencies noted in the accounts and non-compliance with the existing laws, rules and regulations as stated in the Independent Auditor’s Report and discussed in detail in Part II of the report. F. AUDIT OBSERVATIONS AND RECOMMENDATIONS The following is a summary of significant observations and recommendations, among others, the details of which are discussed in Part II-Observations and Recommendations of the report:

VALUE FOR MONEY AUDIT

1. Of the P31.783 billion unutilized allotments of DepEd, the Central Office (CO) has 61 percent share of the unutilized portion totaling P19.357 billion, the Regional Offices with P11.772 billion or37 percent, and the remaining P654.420 million or two percent for the Bureaus. The CO’s unutilized allotment is attributable to some gaps noted in carrying out required processes/procedures for the effective implementation of programs and projects, such as: (a) unprocured science and mathematics equipment caused by failure in bidding due to complexity in the specifications, thus necessitating further refinement in the

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specifications of the equipment; (b) unprocured ALS Learning Materials for the Implementation of the Abot-Alam Program affected by the completion of the mapping of out-of-school-youth only in the last quarter of the year and the evaluation of titles/specific modules to be included in the programmed procurement; (c) temporary holding of sub-allotment of current funds under the School Effectiveness Program to enable schools to catch up with implementation and liquidation of funds from prior years; (d) decrease in sub-allotment of funds to various regions resulting from reduction in Kindergarten volunteer teachers under Kindergarten Education Program; (e) ineligible expenditures in LGU proposals for funding under the Bottom-Up Budgeting (BUB) with pending request for realignment of budget from MOOE to Capital Outlay; and (f) unreleased fund allocation for the implementation of Alternative Learning and Delivery Mode Programs due to unapproved policy guidelines and planned activities for the project. (Paragraphs 1-40)

We recommended that Management ensure the efficient utilization of funds received through timely releases of Sub-Allotment Release Order to operating units, and conduct of regular monitoring in the use of allotments to immediately address issues causing non-utilization thereof so that concerned officials can consider other options/strategies towards sustainability of the delivery of the programs/projects’ objectives.

2. Of the 9,304 classrooms with a total contract cost of P16.281 billion to be

constructed under the DepEd’s Public Private Partnership for School Infrastructure Program (PSIP) I to address the backlog and increasing classroom requirements in Regions I, III and IV-A, 8,533 classrooms were reported already completed, 656 classrooms were still undergoing construction and 115 classrooms were not yet started. The timely completion of the classrooms for construction was affected by: (a) re-bid in the procurement of Independent Consultant resulting to an extension in construction completion deadline; (b) delay in access, unavailability or non-readiness of the project sites and design modification/change in building type; and (c) unattended deficiencies/defects. (Paragraphs 41-86)

We recommended that Management require concerned Office to – exercise diligent monitoring and supervision of the implementation of

project to ensure that only those projects done in accordance with the requirements of the contract are accepted and paid;

ascertain compliance with PD No. 1096, the 1997 National Building Code of the Philippines (NBCP) and other relevant rules and regulations related to construction of school buildings;

make proper coordination among officials/personnel/contractors involved

in the implementation of projects to ensure that the Proponent comply

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with its obligation to repair or rectify, at its own cost, all defects and deficiencies observed by DepEd during the defects liability period in order to make the Project conform to the Minimum Performance Standard and Specifications (MPSS), or otherwise impose the necessary liquidated damages upon failure of the Proponent to comply therewith pursuant to Section 13.0.b of the BLT Agreement;

provide adequate guidelines for reporting school building infrastructures

needing repair, rehabilitation, or reconstruction works under the PSIP I; and

henceforth, evaluate project sites and conduct thorough assessment of

would-be recipient schools taking into consideration all factors that may affect the construction of proposed school buildings.

3. Projects not done/completed as planned/scheduled, non-observance of the rules

and procedures of RA No. 9184 and its revised Implementing Rules and Regulations (IRR) that delayed the procurement process and implementation of projects, and unattended deficiencies/defects, affected the implementation of repair and rehabilitation of classrooms costing at least P215,661,697.09 located in NCR, CAR, Regions II, VI, IX and XI. Moreover, delayed provision of classrooms in Regions VI (DO Aklan) and CAR (DO Baguio) with contract cost totaling P55,144,888.48 funded out of the CY 2012 Basic Educational Facilities Fund (BEFF) has been observed as only 28 classrooms were reported 100 percent completed, while 36 classrooms remained unfinished or were still under-going construction as of end of CY 2014 due to problems encountered in the procurement, site and release of funds in DO Aklan; while school buildings constructed in four schools under DO Baguio City were only completed in August to October 2014 also caused by delay in the procurement and release of funds. (Paragraphs 87-102)

We recommended that Management require concerned Offices to exercise diligent monitoring and supervision on the implementation of projects for construction and rehabilitation of classrooms to immediately address issues and lapses thereof, which certainly affects the delivery of DepEd’s physical targets, to address resource gap in school facilities and the provision of adequate, safe, comfortable and functional facilities conducive to learning and teaching.

4. In DepEd Regions VI and X, the prescribed joint inspection, monitoring and

required reporting under DBM, DepEd and DPWH Joint Circular No. 2013-1 dated February 18, 2013 and DepEd Order No. 1, s. 2010 dated January 11, 2010 were observed not substantially complied with for DPWH constructed school buildings with a total contract cost of at least P11,060,280.00. (Paragraphs 103-108)

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We recommended that Management require the regional offices to strictly observe the monitoring/coordination requirement starting from the pre-construction stage to booking up and recording of completed school buildings constructed by DPWH as provided under DBM, DepEd and DPWH Joint Circular No. 2013-1 and DepEd Order No. 1, s. 2010.

5. The equitable and adequate provision of school furniture in the schools located in Regions NCR, CAR, II, VI, X and XI to address the gaps in school facilities under BEFF was affected by: (a) deficiencies observed in the execution of procurement process that delayed the use of furniture with allocated budget of at least P66,091,791.55; (b) inclusion in delivery of defective or inferior quality armchairs attributable to leniency in adhering the required procedures on inspection of procured furniture worth P3,053,151.08; and (c) inadequate assessment/validation of school furniture allocation. (Paragraphs 109-126)

We recommended that Management require the concerned Offices to strengthen the monitoring of project implementation and to ensure that funds and school furniture reached the intended implementers and recipient schools early on before the start of school year, the Suppliers/Contractors faithfully perform their contractual obligations, and DepEd regional/division/school officials observe prudence in carrying out their duties to avoid delays in the provision of adequate school seats.

6. The objective of the DepEd Internet Connectivity Project to provide the students

with internet access was not fully achieved in Regions VI (DO Aklan) and VIII (DO Southern Leyte) due to lack of proper supervision and coordination of the project implementation. Likewise, delay in the receipt of sub-allotment for DepEd Internet Connectivity Project (DICP) in Regions I, III and X resulted to low utilization of funds released for the purpose which could affect the objective envisioned for the project. (Paragraphs 127-137)

We recommended that Management strengthen monitoring and coordination among the DepEd Offices (CO/DO/Schools) so that appropriate corrective measures can readily be provided to successfully carry out the DICP implementation for the benefit of students. Ensure that the Schools concerned strictly adhere to the guidelines on the DICP pursuant to DepEd Order Nos. 50, s. 2009 and 113, s. 2009.

7. The overall success of the School Based Feeding Program implementation cannot

be asserted and likewise validated due to reported unutilized fund amounting toP4,715,624.00 in NCR attributed to unrealistic basis of fund allocation and delayed release of funds to several recipient schools which deferred the start of the feeding and reduced the required 120 feeding days, and non-submission of liquidation and monitoring reports required under DepEd Order No. 37, s. 2014 in

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Regions I, III, VI, IX and X with allocated budget of P95,366,393.83. (Paragraphs 138-151)

We recommended that Management require the concerned implementing DepEd Offices/Schools to observe the implementing guidelines set forth under DepEd Order No. 37, s. 2014 and address the deficiencies noted in the succeeding school year implementation of the School-Based Feeding Program (SBFP) to fully improve school children’s nutritional status and school performance.

8. The DepEd Payroll System allowing the “Queuing” of loan deductions or the

“First In – First Served” system in the employees’ payroll slips impaired the prioritization of deductions provided under Section 46 of the General Provisions of RA No. 10633 (FY 2014 GAA) thereby causing the piling up of employees’ obligations due to the Government Service and Insurance System (GSIS), Home Development Mutual Fund (HDMF)/ Pag-IBIG and Private Lending Institutions (PLIs) which deprives the employees-borrowers of their benefits due upon retirement since the amount equivalent of the outstanding loan, inclusive of interest, penalties and surcharges would be later collected/ deducted from their benefits. (Paragraphs 152-164)

We recommended that Management strictly implement and incorporate in the payroll system the application of Section 46 of the General Provisions of FY 2014 GAA and the yearly GAA thereafter which provides the order of priority of authorized deductions from payroll such as the preference for contributions and loans due to BIR, PHILHEALTH, GSIS and HDMF to avoid incurrence of penalty and surcharges which greatly affect the benefits due to teachers/employees upon their retirement/separation from the service, and the required minimum monthly net take home pay of P3,000.00.

Likewise, we recommended that Management disregard the classification of loan deductions into two column deductions (left side and right side deductions) in the Payroll System and adopt only one column area of all mandatory and other authorized loan deductions in the Payroll System in consonance with the provision of the GAA.

9. Out of the allotted Quick Response Fund totaling P4,277,706,507 in CY 2014,

only P2,267,718,130 or 53 percent were downloaded during the year, of which P1,394,318,862 or 61 percent were only released in the last quarter of the year attributed to the procedural requirement of releasing the sub-allotment order only upon submission of a Resolution to Award by the operating units that could affect the immediate repair/rehabilitation of school buildings damaged by various typhoons, burned school buildings and other facilities affected by natural calamities. In Regions VIII and XI, delays in project accomplishments did not promptly address the repair/rehabilitation and construction of school

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buildings/classrooms and replacement of school furniture damaged by typhoons. (Paragraphs 165-173)

We recommended that concerned Management:

ensure the efficient utilization of funds received through timely releases of

Sub Allotment Release Orders to operating units and consider releasing sub-allotment order on the basis of cost allocation per damaged school to the recipient operating units as their authority to implement the repairs, rehabilitation or replacement of damaged school buildings and facilities affected by calamities to fast tract utilization and completion of projects to normalize as quickly as possible the situation of communities needing much of the availability of learning facilities;

implement the projects in the most reasonable time possible, without sacrificing however its compliance to the provisions of the revised IRR of RA No. 9184, and to enjoin the Division Physical Facilities Coordinator (PFC) and the DepEd Project Engineers to strengthen the monitoring of project implementation and inspection of school buildings and facilities and to ensure that the Suppliers/Contractors faithfully perform their contractual obligations to remedy the problem of acute classroom shortages in disaster-stricken regions; and

comply with the submission of copies of all government contracts and

their supporting documents to the Auditor as required under COA Circular No. 2009-001 and 2012-001 dated February 12, 2009 and June 14, 2012.

10. Deficiencies in procurement documents/reports and monitoring were noted on

Disbursement Acceleration Program (DAP) funded projects undertaken by DepEd Regional Office XI and the Divisions of Davao City and Davao del Norte with a total contract cost of P87,359,717.08 contrary to the provisions of the IRR of RA No. 9184, thereby affecting the efficient implementation of the projects. Moreover, liquidated damages in the aggregate amount of P170,433.20 were not imposed against the defaulting contractors for delays incurred in the completion of six school buildings. (Paragraphs 174-184)

We recommended that Management require the concerned DepEd Offices to strengthen the procurement process by strictly observing the existing rules and regulations prescribed in the revised IRR of RA No. 9184 and exercise diligent efforts in monitoring project implementation to ensure regularity and timeliness of procurement of all projects and to protect the interest of the government.

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FINANCIAL AND COMPLIANCE AUDIT

11. Non-adherence to the laws, rules and regulations regarding recording, handling and deposits of collections resulted not only to unaccounted and unrecorded of the same totaling P37,511,724.15 but likewise exposed government funds to misappropriation and losses. (Paragraphs 185-191) We recommended that Management require concerned officials to strictly adhere to existing laws, rules and regulations on the handling, recording, and utilization of collections, pursuant to Sections 63, 65 and 69 of PD No. 1445, Section 21 of the NGAS Manual, Volume I, and Sections 5 and 6 of the General Provisions of the GAA for FY 2014.

12. Maintenance of trust account in authorized government depository banks (AGDB) for various collections received which aggregated to P1,153,546,814.98 as of year-end is without legal authority and contrary to pertinent provisions of FY 2014 GAA, DBM and DepEd Joint Circular (JC) No. 2004-01 and COA Circular Letter (CL) No. 2004-004. Furthermore, lapsed Notice of Cash Allocations (NCAs) were transferred to the same trust account in violation of Section 3.1 of DBM CL No. 2011-15 dated December 26, 2011. These practices limit the utilization of scarce government resources and expose them to possible misappropriation. (Paragraphs 192-198)

We recommended that Management:

strictly adhere to the General Provisions of the 2014 GAA and deposit

with the National Treasury all receipts covered under Section 2 of COA Circular Letter No. 2004-004 dated October 5, 2004 following the procedures prescribed under COA-DBM-DOF JC No. 1-97 dated January 2, 1997and DepEd-DBM JC No. 2004-01;

determine the actual balances of collections from various sources and unutilized lapsed NCAs for Centrally Managed Projects (CMPs)/regular programs which were deposited in the Local Currency Current Account (LCCA) account and remit the same to the National Treasury;

ensure maximum utilization of issued monthly NCAs to avoid lapsing and refrain from depositing the unutilized balances to the trust account maintained with AGDB; and

provide Subsidiary Ledgers (SLs) for every account to show the details or breakdown of the balance of Cash in Bank, LCCA account.

13. The non-completion/preparation and delayed submission of the monthly Bank

Reconciliation Statement (BRS) pursuant to Section 74, PD No. 1445 and COA Circular No. 96-001 resulted to the difficulty of ascertaining the accuracy and

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reliability of the Cash in Bank – Local Currency amounting to P2,137,206,188.24 and Treasury/Agency Cash Accounts of P492,379,894.91 as of December 31, 2014. (Paragraphs 199-206)

We recommended that Management require respective Offices/Schools to: strictly comply with the provisions on record keeping and reconciliation

of accounts as required under Section 74 of PD No. 1445 and Section 12, Volume II of the NGAS Manual;

enroll in an online banking services (LBP has this service), where bank

statement information can readily obtain at any time and facilitate the timely preparation of the BRS;

cause the timely preparation of monthly BRS so that errors/omissions

and/or reconciling items would be immediately detected for correction and adjustment in the books of accounts, thus, ensuring the accuracy and reliability of the Cash in Bank-Local Currency and Treasury/Agency Cash Account balances in the agency’s financial statements.

14. Unutilized NCAs at the end of the quarter totaling P40,192,560.77 in RO I and

NCR were either withdrawn as cash advances in the name of the cashier for advance remittances for the ensuing month’s Regular Payroll and next quarter’s expenses or deposited to AGDB to avoid reversion to the National Treasury contrary to Paragraph 4.18.2 of DBM National Budget Circular (NBC) No. 551 dated January 2, 2014. Furthermore, lapsed quarterly NCAs for CY 2014 for MDS bank accounts in RO I totaling P11,368,503.75 was still reflected in the bank statement balance as of December 31, 2014 due to unmodified bank computer system. (Paragraphs 207-213)

We recommended that Management instruct concerned Office/School Heads to:

immediately require the cashier/accountable officer to liquidate the

outstanding cash advances and deposit the remaining balance of cash to the National Treasury;

stop approving the grant of cash advances of the quarterly unutilized amount of NCAs as well as the practice of transferring any unused balance of MDS Funds to any depository account to be used in payment of other obligations, and to strictly comply with pertinent provisions of DBM NBC No. 551; and

coordinate with the Philippine Veterans Bank in its full compliance with

quarterly and timely reversion of NCAs in pursuance of DBM NBC No.

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551; otherwise, there is a felt need to transfer DepEd Region I accounts to other authorized government depository bank.

15. The laws, rules and regulations in the granting, utilization and liquidation of cash

advances required under Section 89 of PD No. 1445 and COA Circular Nos. 97-002 and 2012-004 dated February 10, 1997 and November 28, 2012, respectively, were not strictly observed resulting in unliquidated cash advances granted to officers and employees totaling P1,454,167,385.22 in over one to more than three years in the financial statements in several regions as of December 31, 2014. (Paragraphs 214-220)

We recommended that Management:

demand from all officers and employees with outstanding balances to

liquidate/settle immediately their cash advances and/or refund all unexpended balances pursuant to COA Circular Nos. 97-002 and 2012-004, otherwise cause the suspension of salaries of erring accountable officers;

instruct their respective Accountants to draw journal entry voucher on

the misclassification of cash advances to reflect the correct balances of the affected accounts;

stop the practice of granting additional cash advances unless the previous

ones are settled; determine officials/employees who should be held responsible for

continuously violating the rules and regulations of Section 89 of PD No. 1449 on the granting of cash advances and enforce the imposition of applicable administrative and legal sanctions provided under PD No. 1445;

cause the recovery of unliquidated cash advances from those who have

transferred, retired and separated from government service, and to file request for write off for the unliquidated cash advances of deceased Accountable Officers; and

henceforth, all concerned officers and employees strictly comply with

Section 89 of PD No. 1445 and COA Circular Nos. 97-002 and 2012-004 on the granting, utilization and liquidation of cash advances.

16. Deficiencies noted in the previous years’ audit on the account Due from NGAs-Department of Budget and Management – Procurement Service (DBM-PS)in OSEC were not yet corrected which renders the account balance totaling P5,027,901,695.00 as of December 31, 2014 doubtful and unreliable because of

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the still unreconciled discrepancy of P3,164,408,623.50 between the PS-DBM book balance of P1,863,493,071.50 and accumulation of long outstanding balance of P3,627,239,852 or 70 percent aging over one to more than ten years. (Paragraphs 221-233) We recommended that Management require the:

Property Officer and the Accountant to exert efforts to reconcile the

advances made to DBM-PS and make necessary adjustments in the DepEd-OSEC’s book balances;

Property Officer to make representation with the DBM-PS on the status of the procured items with them; and

Property Officer to apply its current requirements from the outstanding balances with the DBM-PS and/or demand the refund of prepayments, and remit the same to the National Treasury.

17. The continuous practice of DepEd-OSEC on the non-monitoring of the submission of the Liquidation Reports/Report of Disbursements of the project accomplishments and utilization of transferred funds within the prescribed period as required by COA Circular No. 94-013 dated December 13, 1994 and COA Circular No. 2007-001 dated October 25, 2007, resulted in the accumulation of the unliquidated balances which aged over one year to over 10 years of the accounts Due from National Government Agencies/Local Government Units/Non-Governmental Organizations/Private Organizations (NGAs/LGUs/NGOs/POs) with an aggregate amount of P352,379,682.00. Further, erroneous accounting treatment of some of the fund transfers overstated the account Due from Regional Office and the Government Equity by P47,975,108.00. (Paragraphs 234-263) We recommended that Management: send demand letters and/or coordinate with the project implementers to

cause the submission of liquidation reports/report of disbursements on transferred funds for completed programs/projects for proper recording in the book of accounts;

trace which government agency absorbed the accountability of NADESCOM for proper monitoring of liquidation to DepEd;

require TESDA to submit Progress and Liquidation Reports starting from the school year of implementation of the Alternative Learning System Cum Madrasah Education for Muslim Out-of-School Youth (OSYS) program covering years 2009-2014;

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instruct the Employees Welfare Benefits Division (EWBD) to monitor the status of the fund and require Philippine Federation of Teachers and Employees Cooperatives(PFTEC) to submit its financial record and a liquidation report in order to assess the reliability of the fund and the loans granted;

prepare the necessary adjusting journal entries on submitted liquidation reports to correct the balance of the affected accounts;

request authority from COA to write-off the dormant accounts following

the guidelines provided under COA Circular No. 97-001. However, this can be done after management had shown that exhaustive efforts had been made to collect/settle the outstanding accounts;

reconcile and analyze the component of the receivable accounts with

Regional Offices (ROs)/Staff Bureaus (SBs) and prepare the appropriate adjusting entries; and

henceforth, monitor the liquidation and reporting requirements of funds

transferred to NGAs/LGUs/NGOs/POs/ROs pursuant to COA Circular Nos. 94-013 and 2007-001, and observe compliance on proper releasing of fund allocation to ROs/SBs as prescribed under GAFMIS Circular Letter No. 2003-004.

18. The reciprocal accounts Due from/to RO/OU in the CO Books and Due to/from CO in the RO Books showed unreconciled balances totaling P3,290,704,469.11while Due from/to OUs in the RO Books and Due to/from ROs in the OU Books also have unreconciled balances totaling P1,340,508,687.39, casting doubts on the reliability of the account balances in the financial statements. (Paragraphs 264-270)

We recommended that Management require DepEd Accountants to:

conduct a regular periodic quarterly reconciliation of reciprocal accounts to immediately correct any discrepancies noted;

draw necessary Journal Entry Voucher (JEV) to correct the balances of

accounts affected after reconciliation and provide their counterparts with copy of JEVs for proper recognition of the corresponding entries involving intra-agency receivables and payables; and

coordinate with all Regions/Division/School Accountants/Bookkeepers for

the immediate/regular reconciliation of reciprocal accounts to present accurate and reliable balances of accounts.

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19. The validity, accuracy, and existence of the reported balance of P3,761,645,456.68 of the account Inventories in the financial statements as of year end of CY 2014 cannot be fully relied upon due to: (a) absence/non-completion of physical inventory reports for Inventory accounts totaling P852,010,668.76, (b) unrecorded issuances of supplies/inventories resulting in overstatement of Inventory accounts and understatement of expense accounts for P30,135,960.30, (c) direct charging to expense account on the procurement of supplies and materials worth P85,850,321.81, (d) discrepancies between accounting and property/supply records amounting to P39,538,091.28, and (e) unrecorded textbooks and instructional materials costing P40,394,478.29. (Paragraphs 271-284)

We recommended that Management strictly require the:

Property/Supply Officer/Inventory Committee to prepare the Report on

the Physical Count of Inventories every six months to be submitted to the Accounting Unit for reconciliation of records of inventory accounts;

Property/Supply Officer to maintain updated Stock Cards to record receipt of deliveries, and issuances thereof as summarized in the Report of Supplies and Materials Issued (RSMI) to be submitted to the Accounting Unit for recording purposes;

Accountant and the Property/Supply Officer to monitor and reconcile

their records and make the necessary adjustments on the discrepancies noted to reflect correctly and reliable balances of the Inventory accounts in the financial statements; and

Division Accountant of Davao City to coordinate with DepEd Central Office Accounting Department to facilitate the issuance of JEV on the unrecorded textbooks and instructional materials.

20. The absence of Report on the Physical Count of Property, Plant and Equipment (RPCPPE), Property Cards (PC) and PPE Ledger Cards (PPELC) for PPEs totaling P32,766,308,010.52, misclassification of accounts in total amount of P1,252,544,975.62and erroneous recording resulting to net understatement of P914,275,578.37, and reporting difference between inventory report and the books of account of P5,764,838,090.36 rendered the accuracy and existence of the reported balance of PPE totaling P89,492,931,777.08 in the DepEd consolidated financial statements as of December 31, 2014 unreliable. Furthermore, there were three units of printing equipment costing ₱30,449,200.00 procured in 2009 that were found still unutilized from the date of their acquisition and are deemed unserviceable, thus, considered unnecessary expenditures and wastage of government funds. (Paragraphs 285-299)

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We recommended that Management of concerned Offices/Schools strictly require the:

Inventory Committee to prepare the RPCPPE every year to be submitted

to the Accounting Unit for reconciliation with the property/equipment subsidiary ledgers and PPE general ledger accounts;

Property Officer and the Accountant to maintain updated property cards and property/equipment subsidiary ledgers, respectively, regularly monitor and reconcile their records, and make the necessary adjustments thereon of the discrepancies noted;

Accountant to prepare necessary adjusting journal entries for

unrecorded, misclassified and erroneously recorded PPE as well as the yearly provision of depreciation to reflect a more reliable balance of PPE accounts in the financial statements; and

investigation of the persons/individuals who should be held

responsible/accountable for the procurement of the three printing equipment that remained unutilized.

21. The quarterly lease payments totaling P768,418,569.34 as of December 31, 2014 of school buildings under the Public-Private Partnership for School Infrastructure Project Phase(PSIP) 1, with total contract cost of P11,863,548,341.83 (net of finance charges), were recorded under the accounts Construction in Progress (CIP) and corresponding Accounts Payable (AP). The current practice of setting up under these accounts is not an acceptable accounting treatment in a service concession arrangement under the Philippines Public Sector Accounting Standards (PPSAS) 32 which provides the recognition of a Service Concession Asset (SCA) and a corresponding service concession liability in the records of the Agency equivalent to the asset’s fair value or at cost consistent with measurement of acquired assets under PPSAS 17 for Property, Plant and Equipment, as well as the required provision of depreciation and necessary disclosures. These deficiencies affected the fair presentation of the DepEd’s financial statements as at year-end. (Paragraphs 300-322)

We recommended that Management instruct the Accountant to:

adjust from balance of the CIP account the quarterly lease payments related

to the PSIP-1 and recognize a SCA and a Service Concession Arrangements Payable, net of financing cost to be amortized over the lease period, in accordance with PPSAS 32 and PPSAS 17;

reclassify the amount of consultancy services charged to expense in CY2014

to be included in the cost of the SCA;

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compute depreciation expense for the SCA and provide for Accumulated Depreciation-SCA, preferably starting from the date of completion of the last Sub-project/s for simplicity and to avoid proportionate computation; and

provide the applicable financial statement disclosures as regard service

concession arrangements related to the PSIP 1.

22. Despite the mandatory requirement to insure all government properties with the General Insurance Fund of the Government Service Insurance System (GSIS) pursuant to Administrative Order No. 33 dated August 25, 1987 and COA Circular No. 92-390 dated November 11, 1992, school buildings, and other school properties in six regions with total book value of P3,294,919,342.73 remained not insured with GSIS General Insurance Fund exposing these properties to unnecessary risk of not being indemnified for any damage or loss due to any fortuitous events such as fire, earthquake, typhoon and / or flood. (Paragraphs 323-329)

We recommended that Management: revisit Administrative Order No. 33 and COA Circular No. 92-390 and

submit inventory reports of all insurable properties to GSIS to ensure that all insurable assets and properties are adequately covered/insured with the General Insurance Fund of the GSIS to properly protect the government properties in the event of serious loss such as fire, earthquake, typhoon and / or flood; and

provide a budget for the insurance of all insurable properties pursuant to the provisions of RA No. 656, the Property Insurance Law, to protect the interest of the government and to be indemnified for any damage or loss that may arise.

23. Validity and reliability of the liability accounts cannot be ascertained due to:

(a)recognition of undocumented payables in Regions III, VII, VIII and XIII amounting to P457,158,520.96; (b) non-reversion of long outstanding payables without existing valid claims of P148,137,435.68 in OSEC, Regions II, III, V and VIII; (c) misclassification of liability accounts in net amount of P4,789,988.58 in OSEC, Regions I, III, V, XI and XIII, and (d) existence of abnormal negative balance of liability accounts in OSEC, CAR and XIII amounting to P16,065,799.39. (Paragraphs 330-341) We recommended that Management require concerned Offices to:

recognize liability at the actual time goods/ service/ projects are delivered/

rendered/ completed and accepted in accordance with the Manual on NGAS and DBM Circular Letter No. 2013-6 dated December 23, 2013;

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revert all outstanding balances of Payable account without valid claims and those which are more than two years without actual and valid claimants in accordance with Section 98 of Presidential Decree 1445;

conduct a thorough review on the transactions surrounding the incurrence of the negative balances of liability accounts so that appropriate adjustments can be made in the books; and

prepare the necessary adjusting journal entries to reflect the accurate balances of the accounts for fair presentation in the financial statements.

24. GSIS, Pag-Ibig and Philhealth contributions/premiums withheld from the salary,

step increment/salary differential of employees in Regions CAR, II, III, V, VI, VIII, IX and X amounting toP386,521,832.90 were not remitted on time making the concerned Offices/Schools liable to penalties and endangering suspension of privileges and benefits to be accorded to its members. (Paragraphs 342-349)

We recommended that Management require the concerned Officers of Regions CAR, II, III, V, VI, VIII, IX and X to regularly and timely remit the employer and employees’ monthly premium contributions to avoid incurring interest or penalties due to delayed remittances, and that the member-employees will fully enjoy the services offered by the GSIS, Pag-Ibig and Philhealth.

25. The use of current allotment to pay prior year’s unobligated expenditures; use of

PS allotment for MOOE expenses and MOOE fund for capital expenditures; and use of Regular MOOE for other specially funded program expenditures, resulted to improper use of appropriations totaling P2,786,938.47which violated pertinent provisions of the FY 2014 GAA. (Paragraphs 350-357)

We recommended that Management require concerned Offices to observe prudence in the utilization of funds by strictly adhering to the pertinent provisions in the use of appropriations provided in the annual GAA.

26. Various disbursements totaling P1,957,368,324.29included payments of salary,

terminal leave, honoraria, professional/personnel benefits monetization, loyalty award, overtime pay, subscription, traveling expense and procurement which were found either contravening existing government laws, rules and regulations or not supported with adequate documentation, thus casting doubts on the validity and propriety of expenditures. (Paragraphs 358-362)

We recommended that Management of concerned Offices:

comply with the prescribed guidelines relative to pertinent rules and

regulations on the payment of salaries and wages, other compensation,

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other personnel benefits, traveling, training, communication, repairs and procurement of goods and services;

submit documents that will support the validity and regularity of the

disbursements; and require the Accountant/Bookkeeper to comply with Section 100 of PD No.

1445 on the submission of monthly reports of the agency transactions not later than the 5th day of the following month to the Auditor concerned.

27. DepEd was not able to submit the prescribed Financial Accountability Report

(FAR) 2 and FAR 2-A as required under COA-DBM Joint Circular No. 2014-1 dated July 2, 2014 on the Guidelines Prescribing the Use of Modified Formats of the Budget and Financial Accountability Reports (BFARs). Likewise, there were reported delays in the submission of financial reports, records and other documents in accordance with the standards and requirements set forth under Section 41 of PD No. 1445, Section 6 of COA Circular Nos. 95-006 dated May 18, 1995 and 2009-006 dated September 15, 2009. (Paragraphs 363-372)

We recommended that Management:

require the concerned Budget Officer and Accountant the submission of

FAR No. 2 and FAR No. 2-A within the prescribed deadlines in strict compliance with the provisions of COA-DBM Joint Circular No. 2014-1 dated July 2, 2014;

instruct the responsible accounting personnel/disbursing officer/ bookkeepers to–

o immediately submit all due financial reports and documents to DBM

and COA;

o strictly comply with the provisions of Section 41 of PD No. 1445, Section 6 of COA Circular Nos. 95-006 dated May 18, 1995 and 2009-006 dated September 15, 2009; and

if warranted, consider the withholding/suspension of payment of salaries

of officials and employees concerned, until they shall have complied with the requirements pursuant to Section 122 (2) of PD No. 1445.

28. Several Regional/Division Offices and Schools failed to observe in their

procurement of supplies, materials, furniture and infrastructure certain provisions of RA No. 9184 and other related government laws, rules and regulations on procurement, thus resulting in injudicious and non-cost effective procurement which deprives the government of volume discounts and reasonable prices and

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also the non-observance of the national government policy that procurement shall be done in the most transparent and competitive manner. (Paragraphs 373-377)

We recommended that Management of concerned Offices/Schools observe faithful compliance with applicable rules and regulations of the revised IRR of RA No. 9184 and other related government issuances on procurement process.

GENDER AND DEVELOPMENT

29. Attainment of Gender and Development (GAD) objectives to address gender issues and concerns was not ensured as annual GAD Plans, or the corresponding GAD Accomplishment Reports for CY 2014 were not prepared by some DepEd Region/Division Offices/Schools for approval of the Philippine Commission on Women (PCW); other GAD programs/projects were not within five percent of their budgets; and incurrence of disbursements contrary to Section 33 of the General Provisions of the 2014 GAA and PD No. 1445. (Paragraphs 378-385)

We recommended that Management:

strictly comply with Section 33 of the GAA, FY 2014 or RA No. 10633.

Moreover, require the GAD focal person to closely monitor the implementation of the GAD Plans and implement more GAD Projects;

identify gender issues and concerns to be incorporated in the Work and

Financial Plan (WFP) and appropriate the corresponding amount as required under Section 33 of the GAA 2014 and submit the same for endorsement by the Philippine Commission for Women (PCW) in order to efficiently and effectively address such gender issues; and

ensure the proper implementation of the approved GAD Plan and Budget

(GPB) to address the identified gender issues and concerns, as well as, the GAD priority agenda of the DepEd.

SENIOR CITIZENS AND DIFFERENTLY-ABLED PERSONS

30. Failure of some Regional Offices and Division Offices to fully integrate in their regular activities at least one percent of their budget for plans/programs/projects that will address the concerns of senior citizens and differently-abled persons as required under Section 34 of the General Provisions of RA No. 10633 (GAA for FY 2014) which deprived the beneficiaries of the benefits due them. (Paragraphs 386-391)

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We recommended that Management require concerned Offices to:

allocate funds and integrate in its regular activities, programs that will address the concerns of senior citizens and provide structural designs and features in its facilities that will enhance the mobility, safety, and welfare of differently-abled persons;

formulate plans, programs and projects intended to address the concerns

of senior citizens and persons with disability, insofar as it relates to the agency’s mandated functions; and to integrate the same in its regular activities, as required by law to enhance the mobility, safety, and welfare of the senior citizens and persons with disability; and

continue providing education and training to senior citizens and persons

with disabilities to comply with the provisions of the GAA to address their respective concerns and to enhance their welfare and well-being.

COMPLIANCE WITH TAX LAWS

31. Taxes unremitted by DepEd CO, ROs and DOs totaled P443,075,480.36as of December 31, 2014. Audit examination also revealed non-withholding of taxes in three regions. (Paragraphs 392-396)

We recommended that Management of concerned Offices/Schools require their respective Accountants to: strictly implement the imposition of taxes on money payments due or

payable to all suppliers of goods and/or services being a withholding agent of the government and

immediately remit the balances of taxes withheld and ensure that taxes

withheld are remitted on or before the 10th day of the month following the month of withholding except for taxes withheld for the month of December, which shall be filed on or before the 15th day of the succeeding year, pursuant to pertinent Revenue Regulations.

STATUS OF SETTLEMENT OF AUDIT SUSPENSIONS AND DISALLOWANCES

32. Out of reported suspensions of P845,414,278.38 and disallowances of P850,002,841.45 issued in DepEd CO and Regions, only P188,095,972.78 were settled leaving a balance of P662,955,892.28 and P920,353,484.19, respectively, as of year-end. (Paragraphs 397-400)

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We recommended that Management of CO, ROs, DOs and Schools to require the concerned accountable officers to immediately settle their suspensions and disallowances in accordance with the revised Rules and Regulations on Settlement of Accounts (RRSA).

G. STATUS OF IMPLEMENTATION OF PRIOR YEAR’S AUDIT RECOMMENDATIONS

All the 32 prior years’ audit recommendations were partially implemented and these are presented in detail in Part III of this report. We enjoin Management to ensure full implementation of all partially implemented audit recommendations in prior years to improve the operational as well as financial efficiency of the agency.