MSU-IIT

AUDIT OBSERVATION MEMORANDUM

AOM Findings COA Recommendations MANAGEMENT REPLY

No.
Government funds or property Submit a written Gevelyn B. Itao paid in the amount of P8,880.00 with OR No. 053064 dated Sept. 2,
shall be spent or used solely for explanation/justification relative 2014 under DOST-PCIEERD Funds
public purposes to the audit observation together
with any document that will
serve as the approval of the
funding agency (DOST).
AOM.
Refrain from incurring
14-001
unnecessary expenditures and
limit expenses to those which
are essential and supportive to
the implementation of the
Institutes mandate.

The Internal Audit Service Unit
(IASU) of the Institute is not
conducting surprise cash
examination for the
accountability of the agencys
AOM accountable officers.
14-002
Internal Audit Services Unit
shall conduct their own cash
examination with element of
surprise frequently in
compliance with the sound
internal control over cash as
indicated in the Revised Cash
Examination Manual.
We agree with the auditors comment. We admit that the IASU is not yet trained to
conduct such activity. Last November 26-28, 2014, the IASU staff attended the
seminar on Cash Management and its Internal Control System which gave us
knowledge on conducting cash examination and evaluating the internal control
system over cash. In compliance with the observations of the auditor, we will include
this in our regular annual activities. We will conduct surprise cash examination
anytime first quarter of 2015 and furnish the COA with the report

Furnish the report of Internal

Audit Services Unit on their
cash examination to COA.
AOM Safety vault key combinations Replace all vaults currently The three (3) vaults currently in use by the Cashiering Division utilize multi-factor
14-003 were already non-functional for used by the Institute with new access controls in the form of a mechanical combination dial loch and a physical key
 several years and not replaced by
the Institute.
Check Disbursement Records
maintained by the Institute has
no certification at the end of
each month by the accountable
officer and does not indicated
the nature of payment and date
of release for each check issued.
AOM
14-004
ones
Comply with the Revised Cash
Examination Manual on the use
of safe combinations
Comply with standard internal
control over cash pertaining the
disclosure of the nature of
payment for all checks issued
and the certification of the
accountable office at the end of
each month.
Request from DBM for the
reinstitution of the dissolved
items of the Institution in the
Cashiering Division
lock.
Over the years, the combination dial lock mechanism has worn out to the point
wherein we run the risk of lock failure which can cause us to be locked out of our
own vault. Thus we have relied on the physical key lock as the sole access control for
the Institutes vaults.
We agree that this is indeed an internal control weakness and have taken the
following actions to address this:
One (1) unit vault has already been ordered and is currently in transit
Two (2) additional units for procurement in the 1st quarter of 2015
The cashiering division maintain two (2) record books for check disbursements. First
is the Cashbook for the Cash in Bank which is used to record deposits of collections
and withdrawals from the bank through the issuance of checks. Second is the Warrant
Register which is used to record checks released.
Cashbook entries do not reflect the nature of payment and date of release for each
check issued. These details are recorded in the Warrant Register. The date of release
is indicated when the receiver of the check signs the Warrant Register. Secondly, the
nature of payment is indicated by specifying the particular Invoice Number to which
the check payment applies but this is applicable only to select payees.
Moving forward, we shall comply with the recommendation and disclose the nature
of payment for all checks issued on subsequent entries in the Warrant Register.
Henceforth, we shall also accomplish the Accountable Officers Certification on the
Cashbook at the end of every month.
Regarding the lack of manpower, we have already communicated to upper
management the need for additional plantilla positions.
 Accountable offices and the
Accountant do not reconcile
their books of accounts at least
quarterly.
AOM
14-005
Collecting Officers do not
deposit intact their collections
with authorized government
depository bank (AGDB) daily
or not later than the next banking
day.
AOM
14-006
Provide valid reconciling items for
variances found on Fund 161 and
Fund 164 as soon as possible to
render accuracy and correctness on
cash account reports.
Deposit intact daily or not later than
the next banking day all collections
with an authorized government
depository bank
In a letter from the Accounting Division dated December 16, 2014, they deeply regret
that the timely reconciliation of the Cashbook with their Ledgers was not done. They
emphasized that the entries in their accounting books with regards to cash receipts
and check/cash disbursements are dependent on the Cashiers certified correct reports
of system. Furthermore, the accounting books are regularly reconciled with the
balances per bank statement. To comply with the governments provision to reconcile
accounting books with Cashiers Cashbooks which are manual records and in the
custody of the Cashier. They already informed the Cashiers Office about the
observation and the latter currently examining their books to reconcile the variance.
Collecting Officers of the Cashiering Division deposits intact all their collections
with AGDB daily or not later than the next banking day as reasonably practicable.
The delays cited in the AOM are attributable to the following:
Delays in deposit during periods of enrolment (April, May, June and November) are
due to the voluminous amount of cash turned over by the tellers and deputized
cashiers to the collecting officer who then confirms and validates before preparing
said collections for pick up by LBP.
Deposits during regular days are also contingent upon the availability of official
service vehicles as it would be risky and unsafe for the collecting officer to commute.
In some cases, clearing checks with cut-off time at 10:00AM will be delayed due to
late vehicle availability causing it to be deposited the following day.
In case where the bonded collecting officer is on approved leave of absence due to
vacation, sickness or emergency cases collections are turned over to the Acting Chief
Administrative Officer, the sole bonded officer left in the Division, for safekeeping
subject to verification and confirmation upon the return of the collecting officer. The
OIC is unable to attend to the depositing of collections due to her other duties as an
accountable officer of the Division.

Appraisal value of the
unserviceable property for
disposal was not computed to set
the government minimum selling
price as prescribed in DBM-
NBC No. 425 dated January 28,
1992.
AOM
14-007
Disallowed amount of CNA
Grant Incentives for CY 2009
and 2010 amounting to
14-008 P78,000.00 remained unsettled
for three (3) years in violation of
Section 10.4 of COA Circular
No. 2009-006
The Unified Accounts Code
Structure (UACS) is not yet
AOM adopted and implemented by the
14-009 Institute for the CY 2014 in
violation of COA-DBM-DOF
Joint Circular No. 2013-1 dated
Conduct an appraisal of the
properties for six (6)month prior
to disposal
Compute the appraisal value
based on the information
appearing in the Inventory and
Inspection Report and using the
formula provided in DBM-NBC
No. 425.
Cause the adoption of the UACS
immediately
The Cashiering Division assures and guarantees that all collections are deposited
intact, even though there may be some delays due to the above mentioned reasons.
Management will ensure compliance to COA recommendations on appraisal of
properties for disposal.
To facilitate compliance trainings of all responsible officers and staff on Disposal and
appraisal will be immediate and maximized early 2015.
Appraisal value of the unserviceable property for disposal last November 19, 2014
was based on the appraisal value dated June 30, 2014.
The summary of appraisal value and the covered Approved Inventory and Inspection
Reports and Waste Materials Reports were submitted to COA Region X, through the
Office of the Resident COA Auditor Zacharia B. Tabao on July 10, 2014 for
technical inspection and appraisal. These documents were subsequently returned to
us last October 1, 2014 being below the aggregate threshold amount to P500, 000.00
and above for disposal subject to the action of the Technical Services of the COA
Regional Office (please see attached photocopies of documents.)
As recommended, we will make appropriate adjustments to our books. We have also
notified the concerned Institute employees about this AOM and advised them to
coordinate with our office and the Cashiers for the immediate settlement of their
disallowances.
The related training/seminar was only offered by the COA beginning July 2014
and we were only able to reserve slots on the August sessions which the Chief
Accountant attended, together with one of our programmers from the ICTC. We, in
coordination with the IASU, then prepared the account mapping of our old codes to
the UACS framework, met with some ICTC staff and submitted them our output on
September 24, 2014. Since the Institute is using a computerized financial system, it
 August 6, 2013
Recognition of miscellaneous
income for power and water
consumption of contractors in
the relation to the expansion of
AOM
COE building funded by CHED-
14-011
DAP funds
All Obligation Requests
pertaining to Trust Fund of the
Institute are not certified by the
Head of the Budget Unit as to
availability of allotment and
obligation incurred
AOM
No. 14-
012
Make the necessary adjusting
entries to property address the
transaction
All Obligation Request shall be
certified by the Budget Management
Office of the Institute in compliance
with COA Cir No. 2006-003
was assessed that adopting the reform requires extensive modifications to our system
modules, thus, requiring quite some time to complete. Add to this was the recent
enhancements per provisions of COA-DBM-DOF Joint Circular No. 2014-1 issued
on November 7, 2014. Consequently, we are still using the old codes in our financial
processing. Nevertheless, we assure you and our dear Audit Team Leader that we
will be using the UACS framework as soon as our system is ready.
We assure you and our dear Audit Team Leader that we will make appropriate
adjustments to our books in compliance with the AOM. Accordingly, with
regards to the recommended adjustments, we hope to be enlightened by the
Audit Team Leader whether a debit to Cash-NT MDS-Regular for the amount
overpaid for electricity and water expenses attributable to the construction of
COE Building funded by CHED-DAP is allowable since this account is used only
to record the receipt of the Notice of Cash Allocation (NCA) from the DBM, the
corresponding withdrawals therefrom by issuance of MDS checks and the
subsequent closing of the account for the unused portion.
We agree that Obligation Requests should be certified by the Budget Unit as to the
availability of allotment and obligation incurred per provisions of the COA Circular
No. 2006-003. On the other hand, under the provisions of the NGAS, Sec. 34, it was
cited that, Disbursement Vouchers that shall be paid out of non-budgetary receipts
shall not pass the Budget Unit. No ALOBS [i.e. Obligation Request] is needed.
Additionally, trust receipts through inter-agency transferred funds are, technically,
budgetary allotments released to the Source Agency and accordingly, per guidelines
cited in section 5.0 of COA-MOB-MOF Joint Circular No. 9-81, the Source Agency
shall obligate the said allotment and transfer the funds to the Implementing Agency.
The latter shall take up the said transfer, and make disbursements directly therefrom
in accordance with the provisions/conditions of the transfer, and are eventually
liquidated and the return of any excess funds is affecteda process resembling the
grant and liquidation of cash advances. For reference, we have attached herewith a
sample DV of funds transferred by Source Agency to the Implementing Agency
which is already assigned an obligation request number (OBR No.) and a sample of
Liquidation Report of a trust receipt.

Grant honoraria to various
personnel involved in the
AOM supervision of the COE Bldg.
No. 14- Expansion Project funded by
013 CHED-DAP funds
Non-preparation of Bank
Reconciliation Statement (BRS)
for IGP Renting Unit bank
account and all Time Deposit
accounts of the Institute as a
proof of accuracy and
AOM correctness of Cash in the bank
No. 14- accounts.
014
Majority of the JEV prepared by
the Institute does not have a
AOM
brief explanation about the
14-015
transaction or event rendering
unclear documentation
Cite your legal basis in the
justification for the grant of
honoraria to Technical
Coordinating Panel
Cause the refund of the honoraria
payments to the CHED-DAP
Fund
Require the Accountant to render
a bank reconciliation on the
above-mentioned accounts to
establish the correct balance of
the Cash in Bank account
pursuant to Section 74 of PD No.
1445
Nevertheless, in order for us to properly establish control and proper monitoring of
trust funds of the Institute, disbursements out of these funds are obligated through our
FMIS application module (separate from the module used by the Budget Unit) under
CO obligationsa task currently assigned to the Accounting Division, thus, the
Accounting Head certifies the availability of allotment and obligation incurred.
Please refer to Management Reply dated January 19, 2015
Rest assured that the Accounting Office is regularly reconciling the IGP Renting
Account and all our special savings accounts. For the IGP Renting account,
reconciliation is, in fact, done monthly since we have to record the monthly rental
collections which were directly deposited to the account. To facilitate this, the
OVCAF regularly furnishes us with monthly Report of Collections together with a
photocopy of the passbook (since the passbooks are not in our custody) in order to
corroborate whether the collections were indeed deposited to the account, and to
ascertain the interest earned, if any. However, all the adjustments are directly
adjusted to the books and there is indeed no formal bank reconciliation statements
prepared. With regards to our special savings accounts, since this office does not
receive bank statements for these accounts, the Cashiers Office is instead regularly
furnishing us photocopies of the passbooks, which are in their custody, to facilitate
reconciliation. These copies are used in our preparation of Bank Reconciliation
Statements and become our supporting documents for our adjustments to the books.
Our JEV entries are auto-generated in our NGAS application module; we have
already coordinated with the Institutes ICTC programmers who are currently
modifying our systems for the UACS implementation to include a change to remedy
this deficiency.
 inconsistent with Section 47 of
GAAM Vol. III
The Expanded Modified Direct
Payment Scheme (ExMDPS)
was not fully implemented for
all accounts payable due to
creditors/payees of the Institute
contrary to Section 1 of DBM
Circular No. 2013-16.
AOM
14-016
Disbursement Acceleration
Program (DAP) funds received
from CHED-DAP funds for the
unliquidated and the excess
amount not yet reverted to the
funding agency as of December,
AOM
2014
14-017
Implement the Expanded Modified
Direct Payment Scheme in the
Institute for all account payable due
to creditors/payees of the Institute
Liquidate and revert any
unutilized portion of the DAP
funds to CHED immediately
Discontinue any use of the said
funds for this has been declared
unconstitutional already
Please be informed that, per query with the Cashiers Office, the Institute has
partially implemented the ExMDPS in 2014. A delay in the full implementation,
however, was inevitable due to certain factors. To implement the ExMDPS, we
needed to encourage our creditors/payees to open an account with our authorized
government servicing bank to facilitate the direct crediting of our payments to their
account, or resort to bank transfer with a bank charge which is borne by the
creditors/payees. Consequently, our creditors have certain reservations with their
cooperation. Moreover, some of our suppliers are outside our city so the response to
our issued Letter of Introduction to gather bank account information to be
subsequently validated by our authorized government servicing bank required some
time. Additionally, the application for the fidelity bond, required for all accountable
public officers, of the newly designated acting head of this office, Kristela Diana
May R. Dela Rama, was still in process at the time. Nevertheless, the full
implementation of ExMDPS this year is expected, as it is in line with the 2015
commitments of the OVCAF cluster.
Projects funded by the DAP funds through CHED were indeed not yet liquidated and
the excess not yet reverted. But rest assured that the Institute, as a recipient of these
funds, have implemented the projects. The DAP for Infrastructure and Facilities
Upgrading in the amount of P151,145,097.35 was utilized in the construction of the
College of Engineering Annex Building and the upgrading of the colleges
equipments. And per the provisions cited in CHED Memorandum Order No. 09,
series of 2012, the SUC is obligated to submit the liquidation report and other
required reports upon final completion of the project. As of this date, the fifth billing
from E.M. Cuerpo, the contractor for the construction, which was processed by this
office, placed the project at 94.75% completion. We are still awaiting the final
billing for processing. Nevertheless, we have issued a financial report, covering the
processed transactions, to COE in order to initiate the liquidation process. On the
recommendation to discontinue using the CHED DAP Funds, we are anticipating the
 managements directive since the Institute is already legally bound by the contract
with E.M. Cuerpo and the construction was already well underway before said funds
were declared unconstitutional.

With regards to the Grants-in-Aid for Research Development and Extension in the
amount of P16,000,000.00, this office has issued financial report per request of Ms
Juvy Cambaya, the projects chief technical staff, on October 8, 2014 for the purpose
of liquidating the fund. Notwithstanding, we have made her aware of this AOM and
also requested her to submit the liquidation report as soon as possible so that
reversion of the excess funds, if any, could be made.

Savings from MOEE under Fund Strictly comply with COA Cir The C.N.A. Incentive which is sourced from the allowable MOOE allotments per
101 declared as generated out of No. 2000-02 on the proper DBM Budget Circular No. 2000-02 dated December 2, 2014; actually had a cut-of
the improvement/streamlining of utilization of Fund 164 date on December 8, 2014 contrary to the date stated on the AOM therefore part of
systems and procedures and the charges were not reflected. Moreover, the actual balance of the obligations/
cost-cutting measures of the Completely exhaust appropriated charges made in Fund 101MOOE C.N.A. Accounts was P 46, 054, 339.07(Annex
Institute is doubtful as several amount in Fund 101 for MOOE A)in our book and not P 35, 102, 579.55(Annex B) since the basis on the
expenditures of the same item before using Fund 164 determination of savings is based on obligations and not disbursements shown in the
were charged to Fund 164. Trial Balance.

As to the charges made against Fund 164, it comprises cost centers that have
AOM exhausted their funds from 101 (GAA). They used their source from the above
14-018 mentioned fund to continue and support their operation necessary to their mandated
functions hence part of the reflected charges in Fund 164. Likewise, projects that
have been approved by the BOR/T that were requested by colleges are sourced from
Fund 164 until its completion and not from Fund 101. Moreover, a portion of the
charges was from self-liquidating units such as the College of Nursing, HRM
program, etc. therefore expenses essential to their respective operations use sources
from Fund 164 based on the Policies and Guidelines stated in CHED Memorandum
Order No. 20 Series of 2011. The memo order defined self-liquidating units as a
unit which offer auxiliary services, primarily to internal clients and, secondarily, to
external clients of the SUC. These are units operating by authority of the BOR/T.
These units are initially funded out of the Special Trust Fund (STF), however, they

All liquidated Damages
collected from savings
amounting to P202,549.44 were
utilized to pay part of the
honoraria of the Bids and
Awards Committee (BAC)
members contrary to Section 3
AOM
of DBM Cir No. 2007-3 as
14-019
amended and Section 44,
Chapter 5, Book VI of EO No.
292
The Institute failed to allocate at Ensure compliance with the 5%
least five percent (5%) of its
total budget appropriation for
AOM
GAD contrary to Section 2.3 of
14-020
PCW-NEDA-DBM Joint Cir No.
2012-01 depriving the intended
beneficiaries on the benefit of Coordinate with PCW in the
Direct the Accountant to stop the
practice of shifting part of the
liquidated damages to the Other
Payables-Bidders Fee account.
Prepare an adjusting entry to
revert the liquidated damages to
National Treasury
allocation for GAD budget and to
formulate comprehensive GAD
Plan designed to address gender
issues and concerns
generate revenue to sustain their operations. Any subsidy extended to it must have
the approval of the BOR/T. The listing of these specific activities shall also be
embodied in the collection report which is submitted to the BOR/T for approval. Self-
liquidating units are usually managed by the units whose functions are aligned with
the program under their supervision.
Rest assured that the Institute will continue to follow in the strict compliance of the
COA Circular No. 2000-02 on the proper utilization of Fund 164 and completely
exhaust appropriated amount in Fund 101 before using Fund 164 with respect to
CHED Memorandum Order No. 20 Series of 2011.
In view of the amendment to the Budget Circular No. 2004-5A and in compliance
with the Audit Team Leaders recommendations, rest assured that we will make
appropriate adjustments to our books and shall no longer remit the collected
Liquidated Damages to the BAC trust account 439-57 Other Payables-Bidders Fee
(igp40). On the other hand, on the observation that part of the Liquidated Damages
were used to pay BAC honoraria and overtime pay, per our calculations, however,
the bidders fee account has enough balance to cover the payments for BAC
honoraria and overtime pay without utilizing any of the liquidated damages remitted
into the account. The total collected bidders fee from January 1 to December 31,
2014 amounts to P944, 054.44 and deducting the liquidated damages mentioned in
the AOM and remitted to this account in the amount of P202, 549.44 yields a
difference of P741, 505.00. On top of this, the account already has sufficient balance
from the previous year to cover for the 2014 paid obligations amounting to P909,
649.17.
the program. preparation of the GAD Plan, the
mainstreaming of the GAD
Activities into the regular
activities of the School to ensure
that annual GAD plans and
budgets is incorporated in the
agency budget proposals and
GAD accomplishment report as
well

Direct the GAD focal person to

submit complete annual GAD
accomplishment report