EXECUTIVE SUMMARY

INTRODUCTION

The Department of Health (DOH) is one of the oldest government institutions in

the country. It was first established as the Board of Health (BOH) in September 1898.
The BOH was abolished and its functions and activities were taken over by the Bureau of
Health.

On January 1, 1941, the Department of Health and Public Welfare was

established. In 1947, when government offices were reorganized with the transfer of the
Department of Public Welfare to the Office of the President, it was renamed Department
of Health (DOH).

With the implementation of the Local Government Code in 1991, certain

functions of the DOH were devolved to the local government units (LGUs). Executive
Order (EO) No. 102 was issued on May 24, 1999 and as a result of the devolution of
basic service delivery to the local government, the DOH was re-directed from a sole
provider of health services to a provider of specific health services and technical
assistance provider of health. As such, the DOH is mandated to provide assistance to
local government units (LGUs), non-governmental organizations (NGOs), other national
government agencies (NGAs), people’s organizations (POs) and other members of the
health sector in effectively implementing programs, projects and services for the
provision of health care services to every Filipino. EO No. 102 also established DOH as
the national policy and regulatory institution for health, making it responsible in setting
standards within the country for performance and health systems that affect the ideals of
quality, equity and sustainability in health care.

The DOH is composed of the Central Office, 16 Centers for Health Development
(CHDs), two attached bureaus and 65 retained hospitals, composed of eight special
hospitals, 24 medical centers, 18 regional hospitals, six district hospitals, seven sanitaria
and two research centers. It has four attached agencies/corporations, namely: Population
Commission (POPCOM) and National Nutrition Council (NNC), Philippine Health
Insurance Corporation (PHIC), Philippine Institute of Traditional and Alternative Health
Care (PITAHC) and four specialty hospitals, namely: Lung Center of the Philippines,
National Kidney and Transplant Institute, Philippine Children’s Medical Center and the
Philippine Heart Center.

The CHDs are responsible for field operations of the Department in each
respective region and for providing catchments area with efficient and effective medical
services. They are likewise tasked to coordinate with regional offices of the other
Departments, offices and agencies, as well as with the local government units. The DOH
hospitals provide hospital-based medical care, specialized or general services, some
conduct research on clinical priorities and some are training hospitals for medical
specialization. The PHIC, as an attached agency, is implementing the National Health
Insurance Law and administers the medical care program for both public and private
sectors.

The DOH is headed by Secretary Francisco T. Duque III, assisted by three

undersecretaries and four assistant secretaries. The names of the undersecretaries,
assistant secretaries as well as the Chiefs of the DOH retained hospitals and attached
agencies in NCR are presented in Annex A.

OPERATIONAL HIGHLIGHTS

The DOH, being the lead agency in the health sector, has steadfastly pursued its
mandate to effectively lead in providing technical assistance to LGUs, NGAs, NGOs/POs
and other members of the health sector in effectively implementing programs, projects
and services for the provision of health care services to every Filipino.

Consistent with the DOH Health Sector Reform Agenda and FOURmula One, the
following were the major accomplishments for CY 2009:

 Maximum Drug Retail Price (MDRP) - Twenty-one (21) molecules were

submitted to the Office of the President for the imposition of a maximum drug
retail price, which include antihypertensives, anti-thrombotic, anti-diabetic,
antibacterial, antineoplastics/anti-cancer drugs. Of these 21, the prices of 16
molecules were voluntarily reduced by 50% through a resolution by the Advisory
Council for Regulation. The remaining five molecules were placed under
mandatory price reduction through an Executive Order.

 Botika ng Barangay (BnB) - The Universally Accessible Cheaper and Quality

Medicines Act of 2008 (RA No. 9502) institutionalized the establishment of
Botica ng Barangay (BnBs), which can offer up to 40 essential drugs and
medicines and are allowed to sell eight prescription preparations.
 Tuberculosis Prevention and Control Program - There is an increasing trend in
the number of all TB cases indentified from 134,000 to 150,000 per year for the
past five years. Almost half million smear positive TB cases were started on
treatment and almost 90% have been successfully treated for the past five years.
The Philippines has reached the targets for Treatment Success and Case Detection
Rates (CDR) since CY 2004 and has sustained the achievements for the past four
years. The latest rate for Case Detection was 72% and 89% for Treatment
Success.

 Emerging & Re-Emerging Infectious Diseases - Twenty-three (23) Guidelines on

Influenza A H1N1 were developed and disseminated. The Philippine Pandemic
Influenza Preparedness Plan and the Deployment for Plan for H1N1 Vaccines
were likewise formulated. The DOH through the support of the World Health
Organization (WHO) is currently developing the Mitigation Response Plan
(Pandemic H1N1) of 17 CHDs.

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  Maternal, Neonatal and Child Health and Nutrition (MNCHN) Strategy - Various
policy instruments were developed and approved, including the 1) Manual of
Operations for Implementing Health Reforms to Rapidly Reduce Maternal and
Neonatal Mortality; 2) Guidelines Governing the Payment of Training Fees
relative to the Attendance of Health Workers to Basic Emergency Obstetric and
Neonatal Care (BEmONC) Skills Training Course at Duly Designated Training
Centers (Department Order 2009-0084); and 3) Essential Newborn Care Protocol
(Administrative Order 2009-0025).
 Upgrading of Health Facilities - Government Hospital Upgrading Project under
the Health Facilities Enhancement Program of the Department is continually
being pursued in support of one of the DOH’s strategic approaches to improve the
delivery of basic, essential as well as specialized health services through the
rationalization and critical upgrading of health facilities nationwide. It aims to
upgrade priority BHS and RHUs, nearest to the communities, to provide Basic
Emergency Obstetrical & Neonatal Care (BEmONC) services to reduce maternal
mortality ratio (MMR) which is one of the Philippine commitment to attain MDG
5.
 Strengthening BFAD - The Food and Drug Administration Act was signed in
August 18, 2009 amending Republic Act No. 3720, the Foods, Drugs, Devices
and Cosmetics Act.

FINANCIAL HIGHLIGHTS

The Department of Health’s assets, liabilities, government equity and sources and
application of funds for CY 2009 are presented below.

Particulars CY 2009
Assets P 24,230,846
Liabilities 6,367,059
Government Equity 17,863,787
Sources of Funds 14,967,988
Application of Funds 13,605,691

The above figures do not include those from:

Agency/Hospital CHD No. of Hospitals

CAR 4
Cagayan Valley 4
CALABARZON 1 1
MIMAROPA 1 2
Bicol Region 2
Western Visayas 2
Central Visayas 1 3

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 Agency/Hospital CHD No. of Hospitals
Eastern Visayas 1 2
Zamboanga Peninsula 1
Northern Mindanao 2
Davao Region 1 2
SOCCKSARGEN 1
Caraga 1

SCOPE OF AUDIT

Our audit covered the operations of the DOH-CO, 16 CHDs, 65 Hospitals and
three attached agencies of DOH for CY 2009. It was conducted to: (a) verify the level of
assurance that may be placed on management’s assertions on the financial statements; (b)
recommend agency improvement opportunities; and (c) determine the extent of
implementation of prior year’s audit recommendations.

The report did not include the audit observations and recommendations of four
CHDs, namely: CALABARZON; MIMAROPA; Eastern Visayas; and Davao Region
since their reports were submitted after cut-off date.

STATE AUDITOR’S REPORT

The Auditor rendered a qualified opinion on the fairness of presentation of the

financial statements of the DOH-CO, 11 CHDs, 55 Hospitals and three attached agencies
for CY 2009 due to the various significant accounting errors and deficiencies noted in the
audit which are summarized below, the details of which are discussed in Part II of the
report.

A. Accounting Errors

Effect to
Total Assets
(in
Reference Errors Accounts Affected millions)
Under/
(Over)
statement
a) Understatement of receivables Due from LGUs, P107.13
68 due to unrecorded and Accounts and Notes
erroneous recording of Receivable, Due from
receivables and liquidations. Officers and Employees
and Other Receivables

169 b) Understatement due to non- Accounts Receivables 34.52

recording of receivables from Notes Receivables
patients & PHilhealth

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 Effect to
Total Assets
(in
Reference Errors Accounts Affected millions)
Under/
(Over)
statement
32 c) Understatement due to non- Cash-National Treasury, 28.51
restoration of cash equivalent MDS
to the unreleased checks at the
end of the year.
238- d) Understatement due to non- Cash in Bank – Local 14.90
239 inclusion of Foreign Grant Currency, CA
Fund and Other Trust Funds in Cash - Disbursing Officers
the Financial Statements - Due from Officers and
NCR Employees
Due from NGAs
Receivables–
Disallowances/ Charges
Office Supplies Inventory
Office Equipment
Furniture and Fixtures
IT Equipment

164 e) Overstatement due to Other Prepaid Expenses (1.40)

erroneous recording of
payables that also affected
asset accounts
39 f) Understatement of cash Cash in Bank – Local 1.28
accounts due to lapses in the Currency, CA
recording of transactions and
observance of correct
accounting procedures, and
non-preparation of bank
reconciliation
Understatement P184.94
Total Assets 24,230.85
Percent to Total Assets .76%
169 a) Overstatement due to error in Other Deferred Credits P(40.32)
recording income as payable

32 b) Understatement due to non- Accounts Payable 28.51

recognition of appropriate
payable/liability account on
unreleased checks

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 Effect to
Total Assets
(in
Reference Errors Accounts Affected millions)
Under/
(Over)
statement
241 c) Understatement due to non- Accounts Payable 2.55
inclusion of Foreign Grant Fund Due to various agencies
and Other Trust Funds in the Due to Other NGAs
Financial Statements - NCR Performance/Bidders/Bail
Bonds Payable
40 d) Understatement due to errors Due to National Treasury 1.10
and non-recording of cash Due to Central Office
transactions Due to Pag-ibig

Net Overstatement P ( 8.16)

Total Liabilities 6,367.06
Percent to Total Liabilities .13%
68, 169 a) Understatement of receivables P 76.79
due to unrecorded and
erroneous recording of
receivables and liquidations.

169 b) Understatement due to non- Service Income 74.84

recording of receivables as
well as error in recording
income as payable

241 c) Understatement due to non- Government Equity 12.35

inclusion of Foreign Grant
Fund and Other Trust Funds in
the Financial Statements –
NCR

164 d) Overstatement due to due to Subsidy from Central (1.43)

erroneous recording of Office
payables that affected income Service Income
accounts

39 e) Overstatement due to errors Prior Year Adjustments (2.38)

and non-recording of cash
transactions
Understatement P 147.82
Total Government Equity 17,863.79
Percent to Government Equity .83%

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 B. Other Deficiencies

Amount
Reference Deficiencies Accounts Affected
(in millions)
125- Non-Conduct of Annual Physical PPE accounts P 4,230.43
126 Inventory for Property, Plant and
Equipment Accounts and disparities in
balances
40 Unreconciled difference between the Cash in bank, LCCA 495.85
book and bank balances
69 Unliquidated balances of advances to Due from LGUs 302.74
LGUs/NGOs/POs after completion Due from NGOs/POs
and termination of purpose
90 Absence of periodic reconciliation of Inventory accounts 277.29
accounting records against property, for-
pharmacy and physical inventory Drugs and
reports on inventory accounts Medicines Medical,
Dental, and
Laboratory Supplies
Merchandise Office
Supplies &
Other Supplies
105- Non-conduct of the physical count of Inventories and 168.45
106 inventories, delayed submission of related expense
issuance reports and non-maintenance accounts
of subsidiary records
73 Inaccurate balance of due from NGAs Due from NGAs 148.96
representing advance payments to PS-
DBM due to non-recording of
deliveries, non-maintenance of
subsidiary records and lack of regular
reconciliation with PS-DBM.
83 Dormant /Uncollected various Accounts Receivable 28.43
receivables from officers and Due from Officers
employees and clients and Employees
Other Receivables
Dormant/unrecorded and erroneously Due from 6.51
recorded NGOs/POs
Due from Other
Funds
165 Doubtful validity payable accounts Accounts Payable 26.33
balances due to the absence of Other Payables
subsidiary records and schedules to

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 Amount
Reference Deficiencies Accounts Affected
(in millions)
support said balances
215 Inaccurate balance of expense Longevity Pay 25.07
accounts due to the incurrence of Other Bonuses and
unauthorized and excessive expenses Allowances
Traveling Expenses
– Local
106 Non-Reclassification of Unserviceable PPE accounts 55.12
Property to Other Assets Other Assets
Total P 5,765.18

SUMMARY OF SIGNIFICANT AUDIT OBSERVATIONS AND

RECOMMENDATIONS

Below is the summary of the audit observations and recommendations, together

with management responses/actions which were discussed in detail in Part II of the
report.

Value for Money Issues

1. Non-utilization of Hospital Equipment and Other Facilities

Hospital equipment, buildings, and other facilities of nine DOH retained hospitals
amounting to P121.86 million were found to be either defective, unutilized, or left
unfinished due to lack of funds for installation of water and electrical, workstations, lack
of a trained hospital personnel and hospital facility thereby resulting in foregone
revenues, wastage of government funds and deprived the hospital in the delivery of
quality health care services. (paragraphs 1-7)

We recommended that concerned Chiefs of Hospitals undertake corrective

measures to maximize the use of equipment and other facilities to avoid wastage of
funds: (a) ensure availability of equipment accessories and spare parts in the local
market and of adequately trained equipment operators before making any
purchase; (b) adopt a preventive maintenance program for equipment, buildings
and other facilities to ensure that these are properly maintained at all times to avoid
expensive repair costs; and (c) regularly evaluate and assess the actual condition of
all unutilized equipment and identify which of these could still be repaired
economically and those that are already beyond repair.

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2. Non-disposal of Unserviceable Equipment

Delay in the disposal of unserviceable equipment valued at P59.10 million that

were already beyond economic repair at two CHDs and ten hospitals resulted in their
accumulation and diminished value due to prolonged exposure to natural elements thus,
depriving the eight hospitals and two CHDs from earning additional income from sale
therefrom and preventing them from use of the space occupied by these properties.
(paragraphs 8-14)

We recommended that the concerned CHDs and hospitals immediately

dispose all equipment found to be beyond economical repair not only to avoid
further their deterioration but also to generate additional funds for the purchase of
new equipment and to make use of the storage spaces occupied by these equipment.

3. Excessive Water Expenses

The expenses for water consumption of the National Center for Mental at an
average of P1.6 million per month or a total of P19.2 million for CY 2009 which
represents sixteen percent of the total Maintenance and Other Operating Expenses budget
for the year was considered excessive which contributed to the tight financial position of
the Center and adversely affected the delivery of hospital services and deferment of the
needed repair/rehabilitation of several dilapidated buildings. (paragraphs 15-20)

We recommended and the Chief of NCMH agreed to give outmost priority to

the repair of the 22 deepwells to make them fully operational to reduce substantially
the water expenditure to give way to rendition of vital and critical hospital services.
The needed funds could be sourced either from DOH Central Office or from savings
from other expense items.

Financial and Compliance Issues

4. Weaknesses and Lapses in the Controls over Collections

Weaknesses and lapses in the existing controls on cash collections were not in
conformity with the provisions of PD No. 1445 and Manual on the NGAS, Volume I
resulting in unreliable data of cash records at Las Piñas General Hospital and Satellite
Trauma Center, loss and misappropriation of collections totaling P.80 million at Food and
Drug Administration. (paragraphs 27-31)

We recommended that (a) the acting Director of FDA demand from the AO
the full and immediate restitution of the unaccounted collections of P.27 million; (b)
institute immediately appropriate legal action against the AO for malversation thru
falsification of public documents; (c) the Accountant/Cashier follow strictly the
procedures in the receipt and recording of dishonored checks as provided under
Section 26 of the of the Manual on the New NGAS, Volume I; and (d) the Cashier of
LPGSTC stop the practice of delayed deposit of collections.

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5. Non-Restoration of Cash Equivalent of Unreleased and Cancelled Checks

The balance of accounts Cash-National Treasury, MDS and Accounts Payable as

of CY 2009 of two CHDs and one hospital were both understated by P28.51 million due
to non- restoration of the cash equivalent of the unreleased checks at the end of the year
and non-recognition of appropriate payable/liability account as prescribed by GAFMIS
Circular Letter No. 2002-001 dated December 16, 2002. (paragraphs 32-38)

We recommended that the Accountants/Cashiers of the concerned

CHDs/Hospital (a) prepare the necessary adjustment to restore the amount of
recorded check disbursements which were subsequently cancelled; (b) and comply
with the requirements of the said GAFMIS Circular Letter.

6. Lapses in Recording and Non-Reconciliation of Cash Account Balances

Lapses in the recording of transactions and accounting procedures as well as the

non-preparation of bank reconciliation statements of DOH-CO, a CHD, two DOH
attached agencies and six hospitals resulted in net overstatement of the Cash in Bank –
Local Currency, Current Account by P1.28 million, unreconciled dormant cash account
balance of P13.29 million , unaccounted difference between the General and Subsidiary
Ledgers of P1.19 million, and discrepancies between the accounting and bank records in
net amount of P3.98 million as of CY 2009 thus, rendering the year-end cash balances of
these offices and hospitals unreliable. (paragraphs 39-53)

We recommended that the Accountants of concerned CHD, two DOH

attached agencies and six hospitals (a) promptly record all transactions affecting the
cash accounts; (b) make representations with the depository banks for the timely
submission of bank statements; (c) prepare and submit the monthly BRS for all
bank accounts within 15 days after the end of each month; (d) take up the necessary
adjustments for reconciling items and provide the banks with copies of
reconciliation statements to enable them to make the necessary corrections in the
records; and (e) the Accountant of DOH-CO determine whether the accounts can
already be closed so that the necessary approval from COA for the
closure/adjustment thereof; and comply with the provision with COA Circular No.
97-001.

7. Dormant Cash Balances

The idle cash of CHDs, two hospitals and a DOH attached agency as of year-end
totaled P5.90 million of which P4.39 million was due for remittance to the National
Treasury as required under Executive Order No. 338 and DOH, DBM and DOF Joint
Circular No. 2003-01, while the P1.51 million financial assistance from PCSO remained
unutilized, which exposed the fund to risk of unauthorized and/or improper use and
deprived the hospital of effective use thereof as intended, respectively. (paragraphs 54-
63)

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 We recommended that the (a) Accountants of the two CHDs, two hospitals
and DOH attached agencies prepare the disbursement voucher for the deposit to the
National Treasury all cash balances pursuant to EO No. 338, s. of 1996; henceforth,
observe the guidelines on the proper procedures for the deposit of trust receipts to
the Bureau of the Treasury and the authorized withdrawals therefrom as provided
under COA-DBM-DOF Joint Circular No. 1-97 dated January 2, 1997; and (b) the
Accountant of QMMC verify the composition of the account balance and facilitate
the reactivation of bank account no. 0582-1016-20 to fully utilize the remaining
balance of the fund.

8. Inaccurate Balances and Non-Settlement of Receivable Accounts

The balances of Receivable accounts consisting of funds transferred to various

NGAs, LGUS, GOCCs, NGOs/POs, Accounts/Notes Receivables and Other Receivable
of DOH- CO, a CHD and five hospitals totaling P1.66 billion include account balances
which were either overstated by net amount of P107.13 million or the reported balances
were unreliable by P171.33 million due to unrecorded and erroneous recording of
receivables and liquidations. Further, the advance payments to World Health Organization
totaling P256.99 million from CYs 1992 to 2002 for the purchase of drugs and medicines
recorded under Due from NGOs/POs account of DOH-CO as well as the P45.76 million
funds transferred to LGUs by CHD for Caraga Region granted from CYs 1997 to 2008
remained unliquidated as of year-end despite the completion/termination of the purposes
thereof. (paragraphs 64-72)

We recommended that the Accountant of DOH-CO, a CHD and five hospitals

conduct regular monitoring, analysis and reconciliation of the receivable account
with concerned LGUs, especially those with dormant/old balances to ensure that
the balances are correct, taken up in the books of both agencies, used only for the
intended purpose and the utilization of the funds are properly accounted and
reported.

9. Inaccurate Balance of Due from NGAs Account – Procurement Service

The non-maintenance of subsidiary ledgers as well as the absence of regular

reconciliation of the DOH-CO and EAMC of the advances made to the Procurement
Service of the Department of Budget and Management resulted in unreliable/inaccurate
balances of account Due from National Government Agencies - PS in the amount of
P148.96 million as of CY 2009. (paragraphs 73-81)

We recommended that (a) the Materials and Management Division of DOH

CO/ in coordination with Accounting Division conduct immediate reconciliation
with the PS – DBM on the advance payments made to the latter to reflect accurate
book balances and to follow-up for the delivery of the ordered supplies; (b) the
EAMC Director create a team to conduct an immediate reconciliation of these
accounts.

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10. Uncollected and Dormant Receivables

Receivables from patients, NGAs, GOCCs, NGOs/POs, Other Funds, officials and
employees and other receivables totaling P34.95 million of five hospitals and two CHDs
remained uncollected and dormant in the books from one to over ten years casting doubt
on the validity, accuracy and existence of total receivables of P117.90 million as of
December 31, 2009. (paragraphs 82-89)

We recommended that the concerned CHDs and Hospitals (a) intensify

collections of receivables; (b) maintain subsidiary ledgers and update the pertinent
subsidiary ledgers and supporting schedules; (c) make regular reconciliation of
accounts Due from NGAS; (d) require all concerned officials and employees to
liquidate immediately their cash advances after the purpose for which these were
granted; and (e) consider the filing of requests for write-off of the accounts that had
been dormant pursuant to COA Circular No. 97-001 dated February 5, 1997.

11. Disparity in the Balances of Inventories

The absence of a periodic reconciliation of accounting records against property,

pharmacy and physical inventory reports on various inventory accounts of DOH-CO,
three CHDs, five hospitals and a DOH attached agency as required under Section 43 of
the Manual on the NGAS, Volume I as well as errors and omissions in recording and
reporting of transactions resulted in total discrepancies of P180.82 million in the reported
balances of these inventories thus, casting doubt on the existence as well as the validity
and correctness of the reported year-end balances. (paragraphs 90-104)

We recommended that the concerned accounting, property and pharmacy

personnel of DOH-CO, CHDs, hospitals and attached agencies extra efforts to
reconcile and effect the necessary adjustments in their respective records to ensure
accuracy of reported account balances in the financial statement.

12. Lapses in Issuances and Record-keeping on Inventory Accounts

The delayed submission of reports on issuances of inventories, the failure to

conduct physical inventory- taking and prepare/submit reports thereon of five hospitals, a
CHD and a DOH attached agency as well as the non-maintenance of supplies ledger
cards and stock cards as required by the Government Accounting and Auditing Manual
and the Manual on the NGAS, Volume II resulted in the difficulty of ascertaining the
accuracy and existence of the year-end balance of the Inventory accounts totaling
P168.46 million and the related expense accounts. (paragraphs 105-110)

We recommended that the (a) Supply Officers of concerned Hospitals

immediately conduct the physical inventory of supplies and materials and all other
inventories and prepare the corresponding reports thereon to ascertain that the
values of the inventory items as appearing in the books are correct; (b) Accounting
and Supply Units of concerned Hospitals and CHD to (i) maintain SLCs and Stock
Cards for each inventory stock; and (ii) reconcile the balances in quantity per stock
cards with the ledger cards of the Accounting unit.

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13. Procurement of Inventories not in Accordance with R.A. No. 9184

The current/existing practices in the procurement of drugs and medicines, medical

supplies, and office supplies totaling P26.01 million of a CHD and four hospitals were
not in consonance with the provisions of RA No. 9184, the Government Procurement
Reform Act, and its Implementing Rules and Regulations (IRR) and DOH
Administrative Order No. 2006-039 dated December 8, 2006 which defeated the purpose
of the law on transparency, competitiveness and accountability and deprived these
agencies from availing of volume discounts and reasonable prices. (paragraphs 111-116)

We recommended that the concerned CHD and Hospitals (a) adhere strictly
with the provisions of RA No. 9184 and its IRR on procurement through public
bidding and the limitations and conditions for adoption of alternative modes of
procurement; and (b) strictly observe and comply with the specific guidelines and
procedures in the procurement of consigned drugs and medicines prescribed by the
said DOH Administrative Order.

14. Overstocking, Slow/Non-moving and Expired Stocks

Improper procurement planning, handling and monitoring as well as

uncoordinated donations of drugs and medicines at Rizal Medical Center resulted in
wastage of government resources and possible loss of sales income totaling P4.06
million. (paragraphs 117-124)

We recommended that the Property and Pharmacy Sections (a) observe the
prescribed three-month volume requirement in the procurement of drugs and
medicines and medical supplies; (b) consider the necessity, shelf life, and
prescription acceptability of drugs and medicines to be procured/received; (c) do not
accept deliveries and donations of drugs and medicines with less than 18 months of
shelf-life; and (d) monitor the stock level and expiry dates of drugs and medicines
inventories and coordinate to other hospitals for the transfer of excess and
unnecessary stocks.

15. Absence of Physical Inventory Reports and Discrepancies in the Balances of

Property, Plant and Equipment Accounts

The absence of physical inventory reports in 12 offices/hospitals to substantiate

the reported balance of P2.98 billion of PPE accounts required under Section 490.a of
the Government Accounting and Auditing Manual, Volume I, and the existence of
P220.15 million discrepancies in the balance of these accounts in seven offices/hospitals
due to non-reconciliation of the accounting and property/inventory records/reports
rendered the existence and accuracy of the reported P4.23 billion account balances for
PPE accounts as of year-end unreliable. (paragraphs 125-133)

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 We recommended that the (a) Accountants and Property Officers of the said
Offices/Hospitals exert effort for the reconciliation of their respective records and
effect any adjustments to reflect the correct balance; (b) investigate, clear and
reconcile immediately the discrepancies between the balances of inventories
reflected in the physical reports and book of accounts; (c) the Accountants maintain
PPE Ledger Cards; and (d) the Supply Officers keep Property Cards to facilitate
reconciliation of records.

16. Inadequate Controls and Lapses in Property Management

Inadequate controls and lapses in property management as well as erroneous and

incomplete recording of transactions of DOH CO, four CHDs and 15 hospitals resulted in
either the overstatement or understatement of the Property, Plant and Equipment accounts
totaling to at least P132.06 million which rendered the reported balances unreliable as of
year-end. (paragraphs 134-139)

We recommended that responsible officials of the DOH offices and hospitals

(a) review the existing property management policies to conform with all the
existing government regulations governing the same; (b) conduct reconciliation
between the accounting and property records; and (c) adopt adequate controls and
procedures in property management to ensure the accuracy of the year-end balances
of PPE accounts.

17. Doubtful Balance of Construction in Progress – Agency Assets

The e-NGAS recorded balance of the account Construction in Progress – Agency

Assets of P160,70 million of DOH-CO as of year-end remained outstanding or dormant
for five years in the books of accounts due to the absence of subsidiary records to support
the details of the account thus, rendering the reported amount doubtful. (paragraphs 150-
155)

We recommended that the Accountant coordinate with the General Services

Division for possible documentation of the account and to determine the status of
the projects and after all the possible measures were undertaken to ascertain the
details of the account and proven them to be futile, recommend to the agency head
for request for write-off and/or adjustment of the account balance from COA.

18. Unreliable Balance of Items in Transit Account

The balance of Items in Transit account of P 6.22 million of Rizal Medical Center
remained inactive/dormant balance for more than five years as the nature and
composition thereof could not be determined thus, casting doubt on the accuracy of the
balance as of year-end. (paragraphs 156-161)

We recommended that the Accountant comply strictly with the prescribed

procedures of COA Circular No. 97-001 on the proper disposition of the dormant
accounts.

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19. Erroneous Recording of Payables Transactions

The erroneous recording of payables transactions of three hospitals resulted in the

net overstatement of an asset account, four liability accounts, and two equity accounts by
P1.40 million, P.031 million and P1.43 million, respectively as at year-end. Moreover,
the correctness of liability accounts of BRRTH aggregating P 26.33 million could not be
ascertained due to absence of subsidiary records/breakdown as prescribed in Section 12
of the NGAS Manual, Volume II to support the reported amount. (paragraphs 162-168)

We recommended that the concerned Accountants of the hospitals and CHDs

(a) maintain and update subsidiary ledgers for each payable account; and (b)
prepare journal entries to adjust errors in recording the funds transferred to reflect
the correct balances of affected accounts.

20. Unrecorded/Erroneous Recording of Income

The reported income of five hospitals were understated by P 74.84 million due to
non-recording of Accounts and Notes Receivable of P 34.52 million and the erroneous
classification of receivables from PHIC as liability instead of income totaling P 40.32
million, which was not in accordance with COA Circular No.2002-002. (paragraphs
169-178)

We recommended that (a) the Chief Accountant of QMMC and ARMMC (i)
prepare adjusting entries to correct the errors noted in recognition of income from
various fees collected and (ii) adopt/use the accrual method of accounting for PHIC
reimbursements; (b) the Medical Service Section of VMC prepare and submit the
Status Report of Patients with Outstanding Balance to the Billing Section; (c) the
Billing Section of the Tondo Medical Center submit immediately the Summary of
Accounts Receivables to the Accounting Section for proper recording; (d) the
Management of Western Visayas Medical Center devise a scheme to expedite the
preparation and submission of the Summary of Bills Rendered.

21. Lapses/Deficiencies in the Revenue Sharing Scheme with Himex Corporation,

Inc.

The provisions of the revenue-sharing agreements of Jose R. Reyes Memorial

Medical Center and Amang Rodriguez Memorial Medical Center with Himex
Corporation, Inc. for the supply, delivery and installation of medical equipment proved to
be disadvantageous to the former. Further, the implementation of the agreement
disclosed a number of lapses that deprived the two Hospitals from collecting the expected
earnings therefrom. (paragraphs 192-208)

We recommended that (a) the Chiefs of JRRMMC and ARMMC include a

penalty clause for non/delay remittance of the share of the Centers; and (b) the
Chief of ARMMC (i) re-evaluate the viability and benefits of the joint venture to
ensure that the interest of the government is safeguarded/protected; and (ii) require
the submission of monthly report of collections.

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22. Incurrence of Excessive and Unauthorized Expenses and Lapses in the
Charging/Payment of Expenditures

The payment of benefits/expenses of three CHDs and six Hospitals was not in
accordance with existing government laws and regulations resulting in the incurrence of
unauthorized and excessive expenses as well as the understatement/overstatement of
affected expense accounts totaling P 25.07 million rendering the validity and accuracy of
the affected accounts unreliable. Further, improper use of appropriations/allotments,
non/erroneous recording and inadequate controls over expenses amounting to P58.02
million were also noted at DOH- CO, a CHD and three hospitals. (paragraphs 215-221)

We recommended that concerned agencies (i) adhere strictly with the existing
laws, rules and regulations on disbursements of funds and the guidelines on their
proper accounting; and (ii) refund the subject unauthorized expenditures.

23. Excessive Hazard Pay

The hazard pay of the officials and employees with Salary Grades 20 and above
of DOH- CO, four CHDs, 16 Hospitals and two DOH attached agencies was pegged at
P4,989.75 per month, without further increase, as authorized by DOH Administrative
Order No. 2006-0011 was not in accordance with the provisions of Section 21 of R.A.
No. 7305 and Section 7.1.5a of its Implementing Rules and Regulations which was
affirmed by Supreme Court Resolution dated November 27, 2008 thus, resulting in
overpayment of P33.80 million for such pay. (paragraphs 222-226)

We recommended that the Management of DOH-CO and other concerned

CHDs/Hospitals/DOH offices (a) stop immediately the payment of the hazard pay of
the officials and employees with Salary Grades 20 and above based on the pegged
amount of P4,989.75; and (b) require the refund of the excess amounts paid to them.
Henceforth, payment thereof be based on 5% of their basic monthly salary.

24. Non-closure of Accounts of Fully Completed/Terminated Projects

Non-closure of account balances of fully completed/terminated projects of the

DOH- CO as required under COA Circular No. 97-001 resulted in the accumulation of
dormant accounts in the amount of P1.55 billion as of year-end. (paragraphs 227-235)

We recommended that the Accountant (a) prioritize the conduct of analysis

and reconciliation of fully completed and dormant foreign-assisted projects and
prepare the necessary adjusting entries; and (b) comply strictly with the guidelines
embodied in COA Circular No. 97-001 on the proper disposition/closure of dormant
funds and/or accounts of national government agencies.

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25. Non-remittance of Trust Receipts, Interest Income and Affiliation Fees to the
National Treasury and Use of Income for Payment of Personnel Benefits

Trust Receipts received from DOH-CO, collections from affiliation fees and
interest income earned totaling P6.25 million of a DOH attached agency, two CHDs and a
hospital were not remitted to the BTr as required by Executive Order No. 338 and COA-
DBM-DOF Joint Circular No. 1-97 dated January 2, 1997. Further, hospital revenue of
P.47 million was used to pay the Medical and Dental Allowance of the employees of
Bicol Sanitarium which was not in accordance with DOH-DOF-DBM Joint Circular No.
2003-1. (paragraphs 244-248)

We recommended that the (a) concerned CHD/Hospitals/Office remit the

trust receipts/affiliation fees/interest earned on bank accounts to the Bureau of
Treasury as directed by the aforementioned regulations; and (b) the management of
Bicol Sanitarium discontinue the use of hospital income for payment of salaries and
benefits of its personnel.

IMPLEMENTATION OF PRIOR YEARS’ AUDIT RECOMMENDATIONS

The status of implementation of prior years’ audit recommendations embodied in

the CY 2008 Consolidated Annual Audit Report (CAAR) for the 85 DOH offices and
hospitals is shown below.

Status Number Percentage

Fully implemented 25 19
Partially implemented 62 46
On-going 5 4
Not implemented 9 7
No status report
submitted 33 24
Total 134 100%

The details of Status of Implementation of Prior Years’ Audit Recommendations are

presented in Part III of the report.

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