FINANCIAL MANAGEMENT ASSESSMENT I. EXECUTIVE SUMMARY [PDF]

EXECUTIVE SUMMARY. 1. This report presents the ... results of rigorous impact evaluation and policy analysis supported i

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Idea Transcript


Additional Financing of Social Protection Support Project (RRP PHI 43407-014)

FINANCIAL MANAGEMENT ASSESSMENT I.

EXECUTIVE SUMMARY

1. This report presents the findings of a financial management assessment (FMA) of the Department of Social Welfare and Development (DSWD) in its role as executing agency (EA) of the proposed additional financing (AF) for the Social Protection Support Project (SPSP). 2. The FMA has been prepared in accordance with the guidance of the Asian Development Bank (ADB).1 The FMA was prepared intermittently during April-July 2015 based on interviews with stakeholders and review of documentation, including the FMA of the original loan.2 The FMA questionnaire is in Appendix 1. 3. Overall fiduciary risk, without mitigation, is substantial. The following weaknesses in financial management (FM) are identified: Implementing agency – The Commission on Audit (COA) noted weaknesses in DSWD’s internal control mechanisms. (ii) Personnel – The capacity of existing staff is under pressure due to increased coverage of the Pantawid Pamilyang Pilipino Program (Pantawid). Additional demands are placed on field-level staff following decentralization of responsibilities. (iii) Accounting policies and procedures – DSWD faces challenges with basic accounting and internal control functions that result in insufficient compliance with rules and regulations. (iv) Internal audit – Internal audit of programs and projects is relatively new and the capacity for undertaking the necessary tasks is somewhat limited. (v) Information systems – There is a need to computerize and integrate financial and program management information systems. (vi) External audit – The audit reports of COA on the SPSP do not include separate opinions on utilization of loan funds, compliance with financial covenants, or use of imprest accounts and SOE procedures. However, some observations and recommendations of COA on the SPSP are not relevant due to a lack of understanding of SPSP systems and procedures. (vii) Funds flow – There are unpaid and unclaimed grants (due to non-availability of beneficiaries during pay-out periods, transfer of residence, double-entry), and delays in refunding undisbursed grants using the over-the-counter (OTC) mode. (i)

4. Risk mitigation and management measures have been developed to address the identified FM weaknesses and related fiduciary risks. These measures are outlined in Table 3 of Chapter V (Risk Analysis). A recommended action plan to address weaknesses and related risks is presented in Table 4 of Chapter VI, which includes timelines and responsibilities. 5. With the ongoing and proposed risk mitigation measures, the FM risk at the program level is considered to be moderate.

1

2

ADB. 2005. Financial Management and Analysis of Projects. Manila. http://www.adb.org/sites/default/files/ institutional-document/31339/financial-governance-management.pdf. ADB. 2009. Financial Due Diligence A Methodology Note. Manila. http://www.adb.org/sites/default/files/ institutional-document/33540/files/financial-due-diligence.pdf The assessment builds on the FM and disbursement arrangement conducted for the previous ADB loan for SPSP.

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II.

PROJECT DESCRIPTION

6. The SPSP-AF will support the expanded scope of the Pantawid Pamilyang Pilipino Program (Pantawid), including the program enhancements that have been made based on the results of rigorous impact evaluation and policy analysis supported in part by ADB technical assistance. The impact, outcome, and outputs of the overall project will remain largely the same, but with adjusted targets and timeframes. The impact is reduced income poverty and non-income poverty by 2025. The outcome by 2019 is increased household consumption and increased utilization of education and health services by Pantawid families, especially women and children. The overall government program has a total estimated cost of $6.134 billion from 2016–2019.3 The proposed AF ($400 million) comprises 6.5% of the overall program and will support a share of the conditional health and education cash grants for all Pantawid households, eliminating the focus on particular sets. III.

COUNTRY LEVEL FINANCIAL MANAGEMENT ISSUES

7. The Risk Assessment and Risk Management Plan of ADB’s Country Operations Business Plan 2014-2016 for the Philippines identifies PFM-related risks including distortions in funds allocation, unpredictable availability of funds, low effectiveness of controls (both payrolls and non-salary expenditures), weak internal audit, inadequate quality and timeliness of in-year budget reports and annual financial statements, lack of scrutiny of audit reports, and lack of capacity of civil society organizations (CSOs) – which together adversely affect transparency and accountability.4 8. ADB’s 2015 Governance Risk Assessment for the Philippines notes improvements in PFM system, particularly in terms of comprehensiveness of information, fiscal risk oversight, annual budget process, and in-year reporting.5 Concrete actions have been taken. In Joint Circular 2013-1 (March 2013) and Joint Circular 2014-1 (July 2014), the DBM, COA, DOF and the BTr jointly developed the Unified Accounts Code Structure (UACS), a government-wide coding framework aiming to harmonize budgetary and accounting code classification to facilitate the generation of efficient and accurate financial reporting of actual revenue collection and expenditures starting in 2014. 9. To address the fragmentation concern, the Executive Branch’s capacity to consolidate and report fiscal statistics and data is being strengthened. The development of an IT solution that can collect and organize financial information in a central database to support budget management and execution is being pursued. The Budget and Treasury Management System (BTMS) will cover the DBM and BTr. 10. The Executive Branch is working with Congress on a Public Financial Management (PFM) bill which is intended to institutionalize good governance and public expenditure reforms. These include periodic reporting to Congress; tightening rules on savings, realignments, use of the Unprogrammed Fund; rationalization of lump-sum funds and earmarked revenues; and the proposed creation of an Office of the Comptroller General which will consolidate agencies’ financial accounts. In terms of fiscal transparency, an inter-agency TWG was created to assess

3 4

5

The financial appropriation for the Pantawid makes up a very significant share of DSWD’s total annual appropriation (approximately 43%, 45% and 59% for 2011, 2012 and 2013, respectively). ADB. 2013. Philippines 2014-2016, Country Operations Business Plan. Manila; Linked Document 5 – ‘Risk Assessment and Risk Management Plan’. The assessment did not include specific ratings for the identified risks. ADB. 2015. Country Governance Risk Assessment, Philippines (Revised draft as of April). Manila

3 existing system and recommend a single repository of official fiscal and financial statistics. Budget accountability Reports have been harmonized for submission to DBM and COA. However, a number of challenges remain, which include: (i) establishing a procedure to calculate the total annual budget and prepare comparative accounting data; (ii) revenue administration; (iii) capital budget execution; (iv) internal controls (both payroll and non-salary expenditures); (v) internal audit; (vi) accounting and reporting functions; and (iii) legislative scrutiny of external audit reports. 11.

12.

The overall status of the six high-level PFM dimensions is as follows:6 (i) Credibility of the budget is low because original appropriations cannot be compared with disbursements. Establishing the annual budget is difficult due to the appropriation structure, and in-year transfers from special purpose funds to departments result in obligations higher than original appropriations. However, revenue forecasts and out-turns are comparable. As part of the PFM reforms, DSWD is submitting quarterly Budget and Financial Accountability Reports (BFARs) which monitor appropriations, allotments, obligations, disbursements, and balances per program, activity, or project. This is prepared per object code or each fund cluster, and per allotment class for each program, activity, or project. (ii) Comprehensiveness and transparency is deemed very good overall. Information included in budget documentation is comprehensive, the extent of unreported government operations low, transparency of inter-governmental fiscal relations relatively high, fiscal risk oversight adequate, and there is full public access to key fiscal information. However, public access to budget information and opportunities to participate in the budget process can be further improved. (iii) Policy-based budgeting functions reasonably well in relation to the annual budget process, which follows a fixed calendar and is timely. However, although a multi-year perspective is part of the budgeting process, the usefulness of the medium-term expenditure framework is limited because it does not link with annual budget ceilings or investment budgets. (iv) Predictability and control in budget execution is acceptable for cash management, treasury functions and procurement. However, internal control of nonsalary expenditure is ineffective, rules for processing and recording transactions are often not complied with (evidenced by the Commission on Audit (COA) qualified audit opinions), payroll integrity is limited as departmental personnel databases are not linked to payroll database of the Department of Budget and Management (DBM), and the effectiveness of internal audit is low. (v) Accounting, recording, and reporting were previously the weakest dimension of the PFM system due to a lack of accounts reconciliations and poorly managed advances. The scope and timeliness of in-year reporting has over time improved somewhat, and accounting reforms were implemented effective January 2014. DSWD submits a complete set of financial statements to COA including pre- and

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The status is prepared based on: World Bank. 2010. Philippines, Public Expenditure and Financial Accountability. Washington; Australian Agency for International Development. 2012. Assessment of National Systems, Philippines: Analysis of Strengths, Weaknesses and Risks associated with using the Public Financial Management Systems of the Government of the Philippines. Manila; World Bank. 2014. Philippines – Update on Key PEFA Indicators and Implications for Future Reforms, Report to Department of Budget and Management. Manila; ADB. 2015. Country Governance Risk Assessment, Philippines (Revised Draft as of April). Manila.

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post-closing trial balances, statement of financial position, statement of financial performance, statement of changes in net equity, statement of cash flows, notes to financial statements, and the comparison of budget and actual expenditures. (vi) External scrutiny and audit is deemed satisfactory per scope and quality of audit performed by COA and there is evidence of follow-up on audit recommendations. However, legislative scrutiny of external audit reports is lacking and there is no standing committee in Congress charged with overseeing external audit and reviewing reports. 13. Since 2011, the government has implemented the PFM Reform Roadmap, which aims at strengthening systems and processes, including by harmonizing budget classification and accounts codes, setting up a treasury single account, adopting new accounting and auditing standards, involving CSOs in the national budget process, and carrying out citizen participatory audit. These developments have, together with initiatives to improve transparency, accountability and citizen engagement, provided a positive trajectory to PFM reform. However, the implementation of the Government Integrated Financial Management Information System (GIFMIS) encountered significant challenges, which means that accounting and reporting will remain manually based in most government entities for years to come. A number of development partners, including ADB, provide support to government departments and agencies in implementing PFM reform activities. Support to DSWD in strengthening internal control and internal audit was provided by Australia in 2011/12 and 2012/13. IV.

PROJECT FINANCIAL MANAGEMENT SYSTEM

14. This chapter presents the main strengths and weaknesses of the FM systems applied by DSWD, and thereafter reviews a number of key FM elements in terms of DSWD’s general performance, particularly the implementation of Pantawid. A.

Strengths and Weaknesses

15.

The following are strengths of DSWD’s FM arrangements: (i)

(ii)

Various aspects of managing donor funding and accounting for revenues are based on sound internal controls and compliance with relevant laws, rules and regulations.7 An information and Communications Technology Management Information System (ICTMIS) is in place to capture program-related information, e.g. grant payments.

16. Table 1 outlines the weaknesses in DSWD’s FM arrangements for Pantawid, including the proposed measures to address them. Table 1: Financial Management System Weaknesses and Resolutions Weaknesses 1. Unpaid and unclaimed grants due to non-availability of 7

Resolutions - Strengthening the beneficiary update system to register changes in beneficiary households’ circumstances.

World Bank. 2010. Financial Management Assessment, KALAHI‒CIDSS Additional Financing. Washington DC. The World Bank found that DSWD has sound internal controls and complies with relevant laws, rules and regulations in handling and reporting collections from donations, block grants, fees for use of DSWD facilities, payments for licenses, affiliation fees, and proceeds of fund raising campaigns, duty free entry fees and refunds of excess cash advances to employees.

5

Weaknesses beneficiaries during pay-out, transfer of residence, doubleentry; and delayed refund of undisbursed grants through OTC mode.

Resolutions - Use of alternative modes of electronic payment and identification of other payment conduits. - Procedural guidelines for monitoring reasons for non-compliance of beneficiaries will be put in place. - The GRS will be further strengthened. - An IFMIS will be set up for validation, payment, release of grants, reporting of disbursements to target beneficiaries, liquidation of funds, and establishing remaining balance in LBP accounts.

2. Inadequate validation of household data resulting in double entries and payment of grants to ineligible beneficiaries.

- Regular checking is conducted to validate and archive duplicate entries. - The proposed IFMIS will be linked to the existing ICTMIS for better data capture and reporting.

3. Unauthorized grants in undeclared areas of calamity based on DSWD-approved force majeure declaration.

- Clearer guidelines to be prepared and issued on the provision of grants to beneficiaries in calamity stricken areas.

4. Unliquidated payrolls for Pantawid beneficiaries under the LBP conduits and unaccounted disbursements of grants through OTC due to delayed submission of liquidation reports as well as inappropriate accounting.

- Coordination with LBP and its conduits in the preparation and liquidation of disbursements will be strengthened. - Strict monitoring of timelines to facilitate timely submission and preparation of disbursement and liquidation reports from the field will be conducted. - The IFMIS is expected to capture data faster, provide consolidated reports for approval and monitoring at national and sub-national levels, and improve the quality and timing of disbursements and financial reporting.

DSWD = Department of Social Welfare and Development, GRS = grievance redress system, ICTMIS = Information and Communications Technology Management Information System, IFMIS = Information Financial Management Information System, LBP = Land Bank of the Philippines, MCCT = modified conditional cash transfer, NHTS-PR = national household targeting system for poverty reduction, OTC = over-the-counter. Sources: Commission on Audit. 2011-2013 Consolidated Annual Audit Reports on DSWD. Manila; Asian Development Bank.

B.

Implementing Entity

17. The DSWD organizational structure consists of the central office and 17 regional field offices. The central office consists of five groups – Office of the Secretary (OSEC), Operations and Program, Policy and Plans, Institutional Development, and General Administration and Support Services – that consist of services/bureaus/offices of which many are further subdivided into divisions. 18. The responsibility for the Pantawid is organizationally placed with the Pantawid Pamilya Program Division under the Poverty Reduction Programs Bureau of the Operations and Programs Group. The Division consists of 10 units that together are responsible for the operation of systems and procedures. The Research, Monitoring and Evaluation Office serves as SPSP secretariat. The implementation structure consists of the National Program Management Office (NPMO) and 17 Regional Program Management Offices (RPMOs). 19. DSWD’s overall FM tasks are the responsibility of the Financial Management Service which is responsible for the preparation and implementation of financial plans, policies and guidelines; management of financial and related non-financial information systems; and, evaluation and analysis of operating performance of responsibility centers. It consists of three

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divisions: Budget, Accounting and Cash. The Accounting and Budget Divisions are charged with undertaking FM tasks related to the operational costs under the loan. 20. Detailed FM of the Pantawid is mainstreamed within DSWD finance units, and is overall the responsibility of the Unified Financial Management Unit (UFMU). It is responsible for preparation and execution of the annual budget, generation and processing of the payroll for cash grants, preparation and submission of statements of expenditures (SOEs), withdrawal applications (WAs), financial progress reports required by ADB, and monitoring of loan disbursements against obligations. At the regional level, the Finance and Administration Divisions manage the SPSP-related finances. 21. DSWD has over time built a reputation as a highly competent and well-governed agency (e.g. it is considered among the “cleanest” government agencies),8 and it has gained extensive experience in successfully managing large-scale foreign assistance programs.9 In addition, DSWD manages the Technical Assistance Facility funded by the Government of Australia. In 2013 DBM cited DSWD as the “most improved department” in terms of disbursement performance.10 22. However, the audit reports prepared annually by COA – at the levels of DSWD and Pantawid – include recurring findings on substantive FM issues. Key audit observations include double entries in the Pantawid database and Pantawid grant recipients not included in the Listahanan database. DSWD is taking concrete actions to address these issues. DSWD management responses to COA’s observations and recommendations suggest that some of the audit findings stem from COA’s lack of sufficient understanding of the agency and Pantawid systems and procedures. C.

Personnel

23. The NPMO currently has 333 approved positions, while the 17 RPMOs have about 12,900 approved positions (mainly local-level facilitators). Also, each LGU has at least one fulltime Pantawid staff member, while grantees are organized into parent groups and coordinated by about 120,000 volunteer parent leaders. 24. The significantly increased coverage of Pantawid in recent years generates substantial amount of financial data and transactions, which strain existing staff capacity at both the national and field levels. At the field level, additional pressures follow from the decentralization of the responsibility for verification of OTC payments. D.

Accounting Policies and Procedures

25. As part of the PFM reforms, DSWD uses the Philippine Public Sector Accounting Standards (PPSAS) which is based on the International Public Sector Accounting Standards (IPSAS). 8

Pulse Asia’s March 2011 Nationwide Survey on Corruption. http://www.pulseasia.ph/files/Download/3-282011%20MR3%20-%20UB2011-1%20MR%20on%20Corruption.pdf. 9 These include the SPSP (ADB assisted), Social Welfare and Development Reform Program (World Bank), and KALAHI-CIDSS Project (supported by World Bank, the Spanish Agency for International Development Cooperation (AECID) and the Millennium Challenge Corporation (MCC), and KALAHI-CIDSS National Community-Driven Development Program (supported by ADB and World Bank). 10 DBM cites DSWD as the “Most Improved Department.” http://www.dswd.gov.ph/2013/02/dbm-cites-dswd-as-themost-improved-department.

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26. Some earlier reviews of DSWD’s accounting function, e.g. the 2009 Integrity Development Report, observed that systems and procedures were well-developed and fully functional as regards control, utilization, monitoring and reporting. This was confirmed by a 2010 World Bank review, which found that the FM system was moderately satisfactory and complied with its requirements, although this only following implementation of mitigating action.11 27. COA’s Consolidated Annual Audit Reports (CAARs) on DSWD as well as audit reports on the SPSP show that DSWD has had problems with some basic accounting and internal control functions, and also that some issues appear to be systemic since they are repeated year after year. Examples of such audit observations include dormant bank accounts, deficiencies in preparing monthly bank reconciliation statements, unavailability of required documents for liquidation, disbursements despite non-liquidation of previous payments, cash advances to and receivables from staff not liquidated or settled as required, control lapses in accounting and management of inventories, obligations not recorded, risky handling of cash, and reports on inventories and property, plant and equipment not submitted. However, DSWD has taken numerous steps to respond to the observations and address the issues. For example: (i) (ii) (iii) (iv) (v)

as of November 2015, only 2 accounts remain of the 13 bank accounts found dormant as of December 2014. These 2 accounts were required by the Bureau of Customs for purposes of online payments and hence are not subject to closure. specific measures to ensure liquidation of funds include, as of June 2014, submitting consolidated liquidation reports to accounting on a weekly instead of monthly basis the findings regarding deficiencies in monthly bank reconciliation statements have been fully implemented to date management has consistently sent follow-up demand letters to entities with longoverdue accounts, and some have been endorsed to the Office of the Solicitor General for legal action reports of inventory and property, plant and equipment have been submitted, though with delay.

28. Overall, DSWD’s FM arrangements meet ADB requirements described under OM Section G2/BP, whereby the EA is required to adopt sound accounting policies, ensure adequate accounting records, ascertain proper internal control systems, undertake timely reporting to management, and provide for sound and timely auditing practices. As required by ADB’s Guidelines for the Financial Management and Analysis of Projects, appropriate international financial reporting standards will be applied for project reporting. E.

Internal Audit

29. DSWD’s Internal Audit Service (IAS) is part of the OSEC Group. It assists management in all matters relating to operations and management control through independent appraisal of the adequacy and effectiveness of internal controls, and the conduct of management and operations audits. The IAS has a particular focus on reviewing project management controls, which is in line with a 2014 COA recommendation that the IAS prioritizes evaluation of projects.12 Additionally the IAS is charged with investigating complaints and grievances.

11 12

World Bank. 2010. Financial Management Assessment, KALAHI‒CIDSS Additional Financing. Washington DC. COA. 2014. Consolidated Annual Audit Report on the DSWD for the Year Ended December 31, 2013. Manila.

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30. The IAS consists of a Management Audit Division, responsible for evaluating the effectiveness of the internal controls of management systems (e.g. HR management, FM, quality management, and risk management), and the Operations Audit Division, responsible for evaluating the effectiveness, efficiency and economy of operations, including appraisal of the operating systems and sub-systems. 31. In 2011-2013, the Government of Australia provided technical assistance (TA) to DSWD to strengthen its internal control and internal audit functions in line with DBM’s National Guidelines on Internal Control Systems (NGICS) and the Philippine Government Internal Audit Manual (PGIAM). This was in direct response to the rapid growth in DSWD’s appropriations for the government’s social protection programs, especially the Pantawid.13 The TA included a baseline assessment of DSWD’s existing arrangements, formulation of a three‐year strategic plan and annual plans for capacity development and systems enhancement, and developing a DSWD internal audit manual. Support was also provided to build the capability of the IAS to monitor and strengthen internal control systems as well as internal audit practices related to DSWD’s major programs and projects, but this remains a relatively weak area. 32.

DSWD will make reports prepared by the IAS available to ADB.

F.

Financial Reporting and Monitoring

33. DSWD prepares financial statements using a hybrid of cash (during the entire year) and accrual (for end of year reports) methods. 34. DSWD has systems and procedures in place to ensure that the preparation and submission of financial statements comply with recognized principles and standards. COA’s audit reports, both entity-level and project-level, have only few observations regarding financial reporting (one example being the 2012 SPSP audit report, which included an observation regarding delayed submission of mandatory reports), which would seem to indicate that DSWD’s financial reporting is reliable and efficient. Regarding linking the reporting system for grant disbursements to grant payment liquidation: the UFMU has a payroll processing team that which also monitors the actual payout made to beneficiaries. It also has a liquidation team that monitors cash grants transferred to conduits vis-à-vis the liquidation and unpaid and/or unclaimed portion. G.

Information Systems

35. DSWD’s Pantawid Pamilya Information System (PPIS) is managed by the newly established Information Management Bureau (formerly the Information and Communication Technology Management Service) and comprises systems anchored on the eight major steps in program implementation, namely (i) selection of provinces, cities and municipalities, (ii) supply side assessment, (iii) selection of households, (iv) registration and validation of households, (v) family registry, (vi) release of initial grants, (vii) compliance verification, and (viii) release of succeeding cash grants. The seven PPIS information systems that support the Pantawid Pamilya implementation steps are the Eligibility Check Routine (ECR), Supply Side Assessment System (SASS), Community Assembly Registration System (CARS), Beneficiary Update System (BUS), Compliance Verification System (CVS), Payroll System (PS) and Grievance Redress System (GRS).

13

AusAID. 2011. PFMP Annual Action Plan 2011-2012. Manila.

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H.

External Audit

36. COA performs regular transactions-based audits on DSWD. There is no backlog regarding the entity- and project-level audits. COA has offices in DSWD’s Central Office and in the Field Offices, and COA staff is assigned to the Field Offices to perform ex-post audit of prior month transactions. DSWD field offices have since 2003 used COA audit reports to assess performance in meeting required FM standards. 37. In COA’s 2011–2013 CAARs for DSWD, COA rendered a qualified opinion on the fairness of the presentation of the financial statements. The status of implementation by DSWD of COA’s audit recommendations for the three years is shown in the table below. Table 2: DSWD’s Implementation of Prior Year’s Audit Recommendations

2010 recommendations implemented by end-2011 2011 recommendations implemented by end-2012 2012 recommendations implemented by end-2013

Fully Implemented

Partially Implemented

Not Implemented

Total

12

18

1

31

39%

58%

3%

100%

5

16

19

40

18%

32%

50%

100%

16

27

8

51

31%

53%

16%

100%

Source: Commission on Audit. 2011–2013 Consolidated Annual Audit Reports on DSWD. Manila

38. Table 2 shows two developments: (i) the number of COA audit recommendations has increased significantly during the past three years; and (ii) the level of implementation by DSWD has been quite uneven and recommendations have generally not been fully implemented. COA’s CAARs do not include information on the status of implementation of audit recommendations after the first year, i.e. the total stock of recommendations that are partially implemented and not implemented is not clear. However, internal documentation shows that follow-up and resolution of audit observations is pursued by DSWD and discussed with COA. 39. COA’s 2011–2013 CAARs on DSWD were published 8 to 10 months after the end of the fiscal year.14 This delay risks rendering the audit process less effective and making it difficult for DSWD to initiate timely and adequate actions to address the issues identified. 40. In its audit reports on the SPSP for 2011-2013, COA rendered a qualified opinion on the fairness of the presentation of the financial statements. Unlike for the CAARs, COA does not provide a fully systematic overview regarding the status of DSWD’s implementation of audit recommendations. However, from the information available it appears that while DSWD by end2012 had still not addressed the majority of COA’s recommendations to the 2011 audit report, DSWD’s compliance improved significantly for the 2012 audit report in that most recommendation had been fully addressed by end-2013. DSWD management responses on 14

According to Section 41 of the Government Auditing Code of the Philippines (Presidential Decree No. 1445), government agencies are required to submit to COA the year-end financial statements (year-end trial balances) and other supporting or subsidiary statements by 14 February, i.e. six weeks after year-end.

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COA’s observations indicate that some audit findings could be a result of COA lacking full understanding of project systems and procedures. For example, one recommendation was to reduce verification of compliance with conditions to once a year, from bi-monthly. This is would not be in keeping with the fundamental premise underlying a conditional cash transfer. 41. COA’s audits of the SPSP do not reflect ADB’s reporting requirements as regards the utilization of loan proceeds, compliance with financial covenants, and use of imprest accounts and SOE procedures. 42. Under the SPSP AF, DSWD will cause the entity financial statements to be audited annually by the Commission on Audit (COA) in accordance with international standards for auditing or the national equivalent acceptable to ADB. As part of each audit, COA will prepare a report (which includes the auditors’ opinion on the entity financial statements and a value for money audit of Pantawid) and a management letter. DSWD will additionally engage an independent auditor acceptable to ADB to provide a separate audit opinion on the use of Pantawid funds for the intended purpose (and by implication on the use of loan proceeds) This will be financed with TA funds. DSWD will furnish the audited financial statements, the audit report and management letter, and the additional audit opinion on the use of loan proceeds to ADB no later than 9 months after the end of each fiscal year, all in the English language. ADB will disclose (i) the audit opinion on DSWD’s entity financial statements (ii) the information in the notes to the accounts pertaining to the Pantawid program and (iii) the additional audit opinion on the use of loan proceeds by posting them on ADB’s website. DSWD shall enable ADB, upon ADB's request, to discuss the financial statements and DSWD’s financial affairs where they relate to Pantawid with the auditors appointed. I.

Procurement

43. ADB funds will finance cash grants to communities and the AF will not involve procurement of goods or consulting services. V.

FUND FLOW MECHANISM AND DISBURSEMENT ARRANGEMENTS

ADB loan proceeds will be disbursed in accordance with ADB’s Loan Disbursement Handbook (2015, as amended from time to time),15 and detailed arrangements agreed upon between the government and ADB. Pursuant to ADB's Safeguard Policy Statement (SPS 2009),16 ADB funds may not be applied to activities included in the ADB Prohibited Investment Activities List as set forth in Appendix 5 of the SPS. 44.

Figure 1 presents the overall funds flow arrangement. The reimbursement method will be used for all disbursement. The Government will not open an imprest account. The loan proceeds will flow from ADB to the Bureau of Treasury account at the BSP. GOP funds shall be disbursed in accordance with the Philippine budgetary system and the New Government Accounting System (NGAS). All GOP disbursements shall be covered by allotments and Notice of Cash Allocation (NCA) issued by the Department of Budget and Management, and shall be always subject to existing budgetary, accounting and auditing rules and regulations. 45.

15

ADB. 2015. Loan Disbursement Handbook. Manila. document/33606/adb-loan-disbursement-handbook.pdf 16 ADB. 2009. Safeguard Policy Statement. Manila. document/32056/safeguard-policy-statement-june2009.pdf

http://www.adb.org/sites/default/files/institutionalhttp://www.adb.org/sites/default/files/institutional-

11 46. The statement of expenditures (SOE) procedure will be used for reimbursement, using the agreed special SOE form. SOE records should be maintained and made readily available for review by ADB's disbursement and review mission or upon ADB's request for submission of supporting documents on a sampling basis, and for independent audit. The DSWD Central Office shall prepare SOEs based on the payroll for cash grants summarized by region and number of households. The DSWD Central Office also certifies that all beneficiaries of the cash grants have complied with the conditions set forth in the Loan Agreement and submits this along with the SOE to the Department of Finance (DOF) to prepare the Withdrawal Application. ADB receives the withdrawal application (WA) and deposits the equivalent amount from loan proceeds to the designated account maintained by the DOF. Each withdrawal application for each year should not exceed $100 million per the Loan Agreement (unless a reallocation is requested and processed). The SOE attached to the WA should show an expenditure of at least $500 million for cash grants. 47. DSWD will be responsible for ensuring supporting documentation is held on file for review and audit purposes.

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Figure 1: Funds Flow Arrangement

BSP [Central Bank]

ADB

DBM: Issuance of NCA

Bureau of Treasury

DSWD: LBP MDS Account General Fund

Withdrawal Application and Consolidated SOE

Payment of Operating Costs for Central Office Creditors (CMF)

SubAllotment to Field Offices (CMF)

Credit to Individual Accounts of Beneficiaries (cash card)

Payment for Field Offices’ Creditors

DOF

DSWD LBP PhP Account for various conduits

Over-the-counter cash payouts to beneficiaries

Consolidated SOE

ADB = Asian Development Bank, BSP = Bangko Sentral ng Pilipinas, CMF = Centrally-Managed Fund, DSWD = Department of Social Welfare and Development, DOF = Department of Finance, LBP = Land Bank of the Philippines, NCA = notice of cash allocation, MDS = modified disbursement system, DBM = Department of Budget and Management, DOF = Department of Finance, SOE = statement of expenditures. Legend: = funds flow = documents flow Source: Asian Development Bank.

48. Government funds will be disbursed in accordance with the government budgetary system as well as accounting and auditing rules and regulations. 49. Pantawid has in recent years experienced unpaid and unclaimed grants due to nonavailability of beneficiaries during pay-out periods, transfer of residence, double-entry, and delayed refund of undisbursed grants through OTC mode. DSWD is exploring how electronic payment systems can be maximized to facilitate improved grant payments.

13 VI.

RISK ANALYSIS

50. While many parts of the FM systems are well-functioning, some weaknesses and challenges have also been identified. The resulting fiduciary risks are summarized and presented in the table below together with ongoing and proposed mitigation measures. The table shows the program-level implementation risk at pre-mitigation as substantial. This follows from both the country risk and the program risk being substantial. However, with the ongoing and proposed risk mitigation measures taken into account, the overall fiduciary risk is considered to be moderate. Table 3: Summary of Inherent Risks and Mitigation Measures Risk Inherent Risk

Risk Assessment a (w/o mitigation)

Risk Mitigation Measures

b

Country-level risks – Overall weak PFM system, especially with regard to budgeting (difficulty in establishing precise entity annual budgets), accounting (compliance with rules and regulations) and external audit (limited legislative scrutiny of COA audit reports).

Substantial

Policy dialogue with the government to encourage the continuation of PFM reforms, especially those focusing on budgeting (improve recording of resource allocation) accounting (strengthen implementation of internal control and internal audit frameworks), and external audit (improve the functioning of the Joint Congressional Oversight Committee on Public Expenditures).

Entity-specific risks – Unclear roles among the organizational entities involved in implementing the Pantawid Pamilya program.

Moderate

Joint memorandum circular between DSWD, other NGAs and LGUs to define better reporting and feedback mechanisms between entities. Regular meetings of the National Advisory Committee and Regional Advisory Committees to address coordination issues.

Project-specific risks – Shift from projectto program-based financing has not yet been subject to a review of systems requirements.

Substantial

Review Pantawid processes so as to identify those where streamlining and improvement is needed so as to minimize FM-related risks.

Overall Inherent Risk

Substantial

-

Implementing entity – DSWD has not yet implemented all necessary risk mitigation and management measures, and thus continues to have some systemic weaknesses in project implementation.

Substantial

DSWD to review the risk management approach applied for Pantawid implementation so as to identify areas for strengthening based on which rectifying actions can be defined and employed.

Personnel – The capacity of existing staff resources is under pressure due to the increased Pantawid coverage. Specific additional demands are placed on fieldlevel staff following decentralization of responsibilities.

Moderate

DSWD will hire additional staff to perform finance functions at the field level, including municipal roving bookkeepers. Needs assessments will be carried out to identify the need for existing field personnel to undergo additional training to ensure better response to implementation concerns. Also, all new field staff will receive induction training.

Program Risk

c

14

Risk

Risk Assessment a (w/o mitigation)

Risk Mitigation Measures

Accounting policies and procedures – DSWD faces challenges with some basic accounting as well as internal control functions that in some cases appear to be systemic, which results in insufficient compliance with rules and regulations.

Substantial

DSWD to carry out an internal review of its accounting and internal control functions, focusing on basic operations and systemic issues, based on which an improvement plan is formulated and implemented.

Internal audit – Internal audit of programs and projects is relatively new, and the capacity for doing so is limited.

Substantial

Additional internal audit staff will be recruited and assigned regional oversight responsibility. DSWD will review and address internal audit findings, in particular those on fiduciary risk.

Information systems – Need to computerize and integrate financial and project management information systems.

External audit – COA auditors’ understanding of the SPSP is not in all cases fully adequate, which can result in less relevant audit observations. COA’s audit reports on the SPSP do not include a separate opinion on the utilization of loan proceeds, compliance with financial covenants, and use of imprest accounts and SOE procedures. Funds flow – Pantawid experiences unpaid and unclaimed grants (due to nonavailability of beneficiaries during pay-out periods, transfer of residence, doubleentry), and the refund of undisbursed grants through OTC mode is often delayed.

Moderate

Substantial

Moderate

Overall Project Risk

Substantial

Overall Risk

Substantial

DSWD to develop IFMIS for Pantawid (similar to that for NCDDP), which will facilitate timely capture of financial commitments and disbursements, provide a full audit trail, and be based on robust systems security to ensure only authorized approval for withdrawals. DSWD will seek to provide more detailed and comprehensive information about the work and functioning of Pantawid systems and procedures to COA’s auditors. ADB and DSWD will engage with COA in order to ensure that the SPSP audit reports in future reflect fully all ADB audit requirements. Some of the requirements no longer apply to the SPSP AF. DSWD to strengthen beneficiary update system and to explore options for using other electronic payment systems for remote areas.

ADB = Asian Development Bank, COA = Commission on Audit, DSWD = Department of Social Welfare and Development, FM = Financial management, IFMIS = Integrated Financial Management Information System, LBP = Land Bank of the Philippines, LGU = local government units, NGA = National Government Agencies, PFM = Public financial management, OTC = Over-the-counter, SOE = Statement of expenditure, SPSP = Social Protection Support Project. a Low, moderate, substantial, high. b Inherent Risk is the susceptibility of the program FM system to factors arising from the environment in which it operates, such as country or sector-level rules and regulations as well as the agency’s working environment (assuming absence of any counter-checks or internal controls). c Program Risk is the risk that the programs accounting and internal control framework are inadequate to ensure program funds are used economically and efficiently and for the purpose intended, and that the use of funds is properly reported. Source: Asian Development Bank.

15 VII.

FINANCIAL MANAGEMENT ACTION PLAN

51. Based on the identified FM weaknesses and related fiduciary risks, a number of actions are recommended. These are outlined in the table below. The recommendations will be discussed with DSWD. Table 4: Financial Management Recommendations Risk Description

Risk

Action Item

Period

Responsibility

1

Implementing entity – DSWD has not yet implemented all necessary risk mitigation and management measures and thus continues to have some systemic weaknesses in project implementation.

Substantial

Review Pantawid implementation risk management approach, identify areas for strengthening, develop and implement rectifying actions.

20162017

Poverty Reduction Programs Bureau; NPMO; RPMOs

2

Personnel – The capacity of existing staff resources under pressure due to the increased Pantawid coverage. Specific additional demands are placed on field-level staff following decentralization of responsibilities and the increased use of non emoney payments in remote areas.

Moderate

Hire and train additional finance staff at field level, including LGUs. Carry out training needs assessments and undertake training as required for existing as well as new staff.

20162017

HRD Bureau; NPMO; RPMOs; LGUs.

2016

NPMO; Capacity Building Bureau

3

Accounting policies and procedures – DSWD faces challenges with some basic accounting as well as internal control functions that in some cases appear to be systemic, which results in insufficient compliance with rules and regulations.

Substantial

Review accounting and internal control functions, develop improvement plan, implement plan.

20162017

UFMU; Financial Management Service

4

Internal audit – Internal audit of programs and projects is relatively new, and the capacity for doing so is limited.

Substantial

Recruit additional staff, assign regional oversight responsibility. Review internal audit findings on fiduciary risk, formulate and implement rectifying actions.

20162018

IAS

6

Information systems – Need to computerize and integrate financial and program management information systems.

Moderate

Develop IFMIS for Pantawid based on experience with NCDDP system. Monitor and address concerns pertaining to the payment of grants.

20162018

Information Systems Development Division; NPMO; ADB

2016

Grants Integrity Unit

16

7

8

Risk Description

Risk

Action Item

Period

Responsibility

External audit – COA auditors’ understanding of the SPSP is not in all cases fully adequate, which can result in incorporeal audit observations. COA’s audit reports on the SPSP do not include a separate opinion on the utilization of loan funds, compliance with financial covenants, and use of imprest accounts and SOE procedures.

Substantial

Prepare information plan and training plan for COA auditors and implement.

20162018

UFMU; Financial Management Service

Consult with COA on ADB audit requirements and obtain agreement for full approach to be implemented for 2015 SPSP audit onwards.

20152016

ADB; UFMU; Financial Management Service; Legal Assistance Division

Funds flow – Pantawid experiences unpaid and unclaimed grants (due to nonavailability of beneficiaries during pay-out periods, transfer of residence, double-entry), and delayed refund of undisbursed grants through OTC mode.

Moderate

Improve beneficiary update system and explore options for using other electronic payment systems and procedures in remote areas.

20162018

NPMO; UFMU; Financial Management Service

ADB = Asian Development Bank, COA = Commission on Audit, DSWD = Department of Social Welfare and Development, HRD = Human Resource Development, IAS = Internal Audit service, IFMIS = Integrated Financial Management Information System, LBP = Land Bank of the Philippines, LGU = local government units, NCDDP = National Community-Driven Development Program, NPMO = National Program Management Office, OTC = Overthe-counter, RPMO = Regional Program Management Office, SPSP = Social Protection Support Project, SOE = Statement of expenditure, UFMU = Unified Financial Management Unit. Source: Asian Development Bank.

VIII.

CONDITIONS

52. The draft Loan Agreement includes the development of a management action plan to address major recurring COA findings as a disbursement condition. IX.

FINANCIAL COVENANTS

53. The following financial covenants are included in the draft Loan Agreement. The government shall: (i)

maintain separate accounts and records for the Pantawid;

(ii)

prepare annual financial statements for the Pantawid in accordance with accounting principles acceptable to ADB;

(iii)

have such financial statements audited annually by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB, in accordance with international standards for auditing or the national equivalent acceptable to ADB;

(iv)

have the auditors prepare a report (which includes the auditors’ opinion on the financial statements, use of the Loan proceeds and compliance with the financial covenants) and a management letter (which sets out the deficiencies in the internal control of the Pantawid that were identified in the course of the audit, if any); and

17 (v) X.

furnish to ADB, no later than 9 months after the end of each related fiscal year, copies of such audited financial statements, audit report and management letter.

SUPERVISION PLAN

54. ADB will field FM missions at least annually where the implementation of project FM arrangements and management controls at national and regional levels will be assessed for adequacy. Observations and recommendations will be formally communicated to and discussed with DSWD, and the management action plan will be updated on that basis. ADB will review the functioning of the FM system and the implementation status of the management action plan during regular review missions. ADB controllers may from time to time review disbursement documentation held on file by DSWD.

18

Appendix

FINANCIAL MANAGEMENT ASSESSMENT QUESTIONNAIRE

Project: SPSP AF This Financial Management Assessment Questionnaire has been completed for the proposed SPSP AF in accordance with the publications Financial Management and Analysis of Projects (ADB, 2005)1 and Financial Due Diligence, A Methodology Note (ADB, 2009).2 Topic

Response

Remarks

1. Executing Agency

DSWD

1.1 What is the entity’s legal status/ registration?

The Social Welfare Administration was created by virtue of Executive Order No. 396 dated 13 January 1951. It was renamed DSWD by virtue of Republic Act No. 5416 ( ‘Social Welfare Act) dated 15 June 1968. Subsequent issuances strengthened the mandate of DSWD and defined its relations with LGUs.

-

1.2 Has the entity implemented an externally-financed project in the past (if so, please provide details)?

Yes, DSWD has implemented several externally funded projects, the most recent of which are the WB-ADB funded CCT-SPSP, 2010, the Early Childhood Development Project and the KCNCDDP. DSWD also manages the Technical Assistance Facility funded by the Government of Australia through the KC-NCDDP.

-

1.3 What are the statutory reporting requirements for the entity?

DSWD is a cabinet-level agency and reports to the President of the Republic of the Philippines.

-

1.4 Is the governing body for the project independent?

A PSC will oversee the investment program implementation, and monitor progress, approve reports for subsequent projects and provide guidance to the DSWD.

The governing body for the project is not independent.

1.5 Is the organizational structure appropriate for the needs of the project?

Yes.

Additional staff and decentralization of authorities are being undertaken by DSWD.

2.1 Describe (proposed) project funds flow arrangements, including a chart and explanation of the flow of funds from ADB, government and other financiers.

Description in the main body of the FMA, with the chart.

-

2.2 Are the (proposed) arrangements to transfer the proceeds of the loan (from the government / Finance Ministry) to the entity satisfactory?

Yes.

-

2.3 What have been the major problems in the past in receipt of funds by the entity?

None identified.

-

2.4

Not applicable as there will be no Imprest

-

2. Funds Flow Arrangements

1

2

In which bank will the Imprest

ADB. 2005. Financial Management and Analysis of Projects. Manila. p. 15 of the Addendum to the Knowledge Management part. http://www.adb.org/sites/default/files/institutional-document/31339/financial-governancemanagement.pdf. ADB. 2009. Financial Due Diligence A Methodology Note. p. 3. http://www.adb.org/sites/default/files/institutionaldocument/33540/files/financial-due-diligence.pdf

Appendix

Topic

Response

19

Remarks

Account be opened?

Account.

2.5 Does the (proposed) PIU have experience in the management of disbursements from ADB?

Yes. It is managing the ongoing SPSP and KCNCDDP.

-

2.7 Does the entity have/need a capacity to manage foreign exchange risks?

No. Management of foreign exchange risks will be undertaken by DOF, as is the case for all foreign denominated loans.

-

2.8 How are the counterpart funds accessed?

Counterpart contributions will come from the national government.

-

2.9 How are payments made from the counterpart funds?

Regular disbursement procedures under the rules of the DBM and the COA will be followed.

-

3.1 What is the (proposed) organizational structure of the accounting department? Attach an organization chart.

DSWD Undersecretary for Finance exercises oversight over financial management. The Undersecretary oversees the Finance Service with two divisions (accounting and budget), all fully staffed with competent personnel. The Unified Financial Management Unit (UFMU) shall provide support in the disbursement of the component involving cash grants while the Accounting Division shall be responsible for disbursements involving incremental operating costs charged to the AF.

-

3.2 Identify the (proposed) accounts staff, including job title, responsibilities, educational background and professional experience. Attach job descriptions and CVs of key accounting staff.

See above

CVs to be requested from the EA.

3.3 Is the project finance and accounting function staffed adequately?

Yes, additional staff will be hired and properly trained.

-

3.4 Is the finance and accounts staff adequately qualified and experienced?

Yes.

-

3.5 Is the project accounts and finance staff trained in ADB procedures?

Yes.

DSWD is currently implementing the $400 million loan on SPSP and the same units and staff will manage the FM of the proposed project.

3.6 What is the duration of the contract with the finance and accounts staff?

Annual contracts for the program-hired consultants and accountants. Open-ended, permanent staff members manage the Financial Management Service of DSWD.

-

3.7 Indicate key positions not contracted yet, and the estimated date of appointment.

DSWD Central Office and Regional Office personnel shall provide support.

-

3.10 Does the project have written position descriptions that clearly define duties, responsibilities, lines of supervision, and limits of authority for all of the officers, managers, and staff?

Yes, under specific TORs for program-hired staff and under the regular Position Description Sheet (PDS) of the HR Department of DSWD.

-

3. Staffing

20

Appendix

Topic

Response

Remarks

3.11 At what frequency are personnel transferred?

No readily available information.

-

3.12 What is training policy for the finance and accounting staff?

Regular training provided by the Human Resource Department. Specialized training on project financial management and procurement provided by the KC-NCDDP at least annually to all new staff, with refresher or coaching as the need arises.

-

4.1 Does the entity have an accounting system that allows for the proper recording of project financial transactions, including the allocation of expenditures in accordance with the respective components, disbursement categories, and sources of funds? Will the project use the entity accounting system?

Yes.

-

4.2 Are controls in place concerning the preparation and approval of transactions, ensuring that all transactions are correctly made and adequately explained?

Yes.

-

4.3 Is the chart of accounts adequate to properly account for and report on project activities and disbursement categories?

Yes.

-

4.4 Are cost allocations to the various funding sources made accurately and in accordance with established agreements?

Yes.

-

4.5 Are the General Ledger and subsidiary ledgers reconciled and in balance?

Yes.

-

4.6 Are all accounting and supporting documents retained on a permanent basis in a defined system that allows authorized users easy access?

Yes. Maintained for at last 5 years from date of transaction as per COA regulations.

-

4.7 Are the following functional responsibilities performed by different units or persons: (i) authorization to execute a transaction; (ii) recording of the transaction; and (iii) custody of assets involved in the transaction?

Yes.

-

4.8 Are the functions of ordering, receiving, accounting for, and paying for goods and services appropriately segregated?

Yes.

-

4.9 Are bank reconciliations prepared by someone other than those who make or approve payments?

Yes.

-

4. Accounting Policies and Procedures

Segregation of Duties

Budgeting System

Appendix

Topic

Response

Remarks

4.10 Do budgets include physical and financial targets?

Yes.

-

4.11 Are budgets prepared for all significant activities in sufficient detail to provide a meaningful tool with which to monitor subsequent performance?

Yes

-

4.12 Are actual expenditures compared to the budget with reasonable frequency, and explanations required for significant variations from the budget?

Yes.

-

4.13 Are approvals for variations from the budget required in advance or after the fact?

Required in advance.

-

4.14 Who is responsible for preparation and approval of budgets?

Preparation is done by the project financial specialists, reviewed by the Director for Finance and the Project Manager and approved by the Project Director and the Undersecretary for Finance.

-

4.15 Are procedures in place to plan project activities, collect information from the units in charge of the different components, and prepare the budgets?

Yes.

-

4.16 Are the project plans and budgets of project activities realistic, based on valid assumptions, and developed by knowledgeable individuals?

Yes.

-

4.17 Do invoice-processing procedures provide for (i) copies of purchase orders and receiving reports to be obtained directly from issuing departments? (ii) comparison of invoice quantities, prices and terms, with those indicated on the purchase order and with records of goods actually received? (iii) comparison of invoice quantities with those indicated on the receiving reports? (iv) checking the accuracy of calculations?

Yes.

-

4.18 Are all invoices stamped PAID, dated, reviewed and approved, and clearly marked for account code assignment?

Yes.

-

4.19 Do controls exist for the preparation of the payroll and are changes to the payroll properly authorized?

Yes.

-

4.20 What is the basis of accounting (e.g., cash, accrual)?

Cash.

-

4.21 What accounting standards are followed?

Internationally accepted accounting procedures are followed, contained in the government’s

-

Payments

Policies And Procedures

21

22

Appendix

Topic

Response

Remarks

accounting rules issued by DBM and approved by COA. 4.22 Does the project have an adequate policies and procedures manual to guide activities and ensure staff accountability?

Yes.

-

4.23 Is the accounting policy and procedure manual updated for the project activities?

Yes.

-

4.24 Do procedures exist to ensure that only authorized persons can alter or establish a new accounting principle, policy or procedure to be used by the entity?

Yes.

-

4.25 Are there written policies and procedures covering all routine financial management and related administrative activities?

Yes. Finance manuals are prepared to guide the project.

-

4.26 Do policies and procedures clearly define conflict of interest and related party transactions (real and apparent) and provide safeguards to protect the organization from them?

Yes, as contained in the Code of Ethical Standards for Pubic Officials and Civil Service Guidelines.

-

4.27 Are manuals distributed to appropriate personnel?

Yes.

-

4.28 Indicate names and positions of authorized signatories in the bank accounts.

Two signatories are required from amongst the Secretary, Undersecretary, Assistant Secretary and Finance Director. The levels of authorities as to amounts are defined by surety bonds submitted by the public officials to answer for any misallocation, as well as defined in memorandum circulars of the agency. For regional accounts, the circulars will be reviewed and revised to authorize Regional Directors and Assistant Directors and increase surety bond requirements, if necessary.

-

4.29 Does the organization maintain an adequate, up-to-date cashbook, recording receipts and payments?

Yes.

-

4.30 Do controls exist for the collection, timely deposit and recording of receipts at each collection location?

Yes.

Needs improvement.

4.31 Are bank and cash reconciled on a monthly basis?

Yes.

-

4.32 Are all unusual items on the bank reconciliation reviewed and approved by a responsible official?

Yes.

-

4.33 Are all receipts deposited on a timely basis?

Standard cash and bank controls are followed.

-

Yes.

-

Cash and Bank

Safeguard over Assets 4.34 Is there a system of adequate safeguards to protect assets from fraud, waste and abuse?

Appendix

Topic

Response

Remarks

4.35 Are subsidiary records of fixed assets and stocks kept up to date and reconciled with control accounts?

Standard asset control procedures are followed.

-

4.36 Are there periodic physical inventories of fixed assets and stocks?

Standard asset control procedures are followed.

-

4.37 Are assets sufficiently covered by insurance policies?

Not all. The Government Service Insurance System provides to most assets.

-

Other Offices and Implementing Entities

23

-

4.38 Are there any other regional offices or executing entities participating in implementation?

Yes.

-

4.39 Has the project established controls and procedures for flow of funds, financial information, accountability, and audits in relation to the other offices or entities?

Yes.

Refinements to existing guidelines are ongoing, in view of the decentralization of grant funds for subprojects.

4.40 Does information among the different offices/implementing agencies flow in an accurate and timely fashion?

Yes.

-

4.41 Are periodic reconciliations performed among the different offices/implementing agencies?

Yes.

-

Yes.

-

5.1 Is there an internal audit department in the entity?

Yes.

-

5.2 What are the qualifications and experience of audit department staff?

Management, accounting, and social welfare and development degrees, at minimum.

-

5.3 To whom does the internal auditor report?

To the Secretary / head of agency

-

5.4 Will the internal audit department include the project in its work program?

Yes.

Staffing and budget needs being assessed further.

5.5 Are actions taken on the internal audit findings?

Yes.

-

6.1 Is the program/project financial statement audited regularly by an independent auditor? Who is the auditor?

The constitutionally independent supreme audit institution, COA, performs the external audit regularly.

-

6.2 Are there any delays in audit of the entity? When are the audit reports issued?

Audits are conducted on time. Release of reports is sometimes delayed.

-

6.3 Is the audit of the entity conducted according to the International Standards on Auditing?

Yes.

-

Other 4.42 Has the project advised employees, beneficiaries and other recipients to whom to report if they suspect fraud, waste or misuse of project resources or property? 5. Internal Audit

6. External Audit

24

Appendix

Topic

Response

Remarks

6.4 Were there any major accountability issues brought out in the audit report of the past three years?

Liquidation.

-

6.5 Are there any recommendations made by the auditors in prior audit reports or management letters that have not yet been implemented?

Please refer to appropriate section of the main report, Some recommendations are still on-going implementation, particularly the liquidation of advances that require voluminous documentation

-

6.6 Is the project subject to any kind of audit from an independent governmental entity (e.g., the supreme audit institution) in addition to the external audit?

No.

-

6.7 Has the project prepared acceptable terms of reference for an annual project audit?

No, the COA regular audit will be used.

Discussions are being held with COA to expand the coverage of the audit.

7.1 Are financial statements prepared for the entity? In accordance with which accounting standards?

Annual financial statements are prepared in accordance with standards issued by the DBM and internationally recognized standards.

-

7.2 Are financial statements prepared for the program/project?

Yes.

-

7.3 What is the frequency of preparation of financial statements? Are the reports prepared in a timely fashion so as to useful to management for decision making?

Monthly financial information is presented to Project Management. Quarterly reports are to be submitted to ADB. Annual reports to be submitted to DBM, COA and ADB as well.

-

7.4 Does the reporting system need to be adapted to report on the project components?

No.

-

7.5 Does the reporting system have the capacity to link the financial information with the project's physical progress? If separate systems are used to gather and compile physical data, what controls are in place to reduce the risk that the physical data may not synchronize with the financial data?

Yes.

-

7.6 Does the project have established financial management reporting responsibilities that specify what reports are to be prepared, what they are to contain, and how they are to be used?

Yes.

-

7.7 Are financial management reports used by management?

Yes.

-

7.8 Do the financial reports compare actual expenditures with budgeted and programmed allocations?

Yes.

-

7.9 Are financial reports prepared directly by the automated accounting system or are they prepared by spreadsheets or some other means?

Mixed. DSWD is currently automating all transactions. As a back-up, it maintains spreadsheets.

-

7. Reporting and Monitoring

8. Information Systems

Appendix

Topic

Response

25

Remarks

8.1 Is the financial management system computerized?

Yes.

Refinements are needed.

8.2 Can the system produce the necessary project financial reports?

Yes.

Some areas still use manual processes.

8.3 Is the staff adequately trained to maintain the system?

Yes.

System upgrades and maintenance and training of staff are to be undertaken under the program.

8.4 Does the management organization and processing system safeguard the confidentiality, integrity and availability of the data?

Yes.

-

ADB = Asian Development Bank, AF = Additional Financing, CCT = Conditional cash transfer, COA = Commission on Audit, CV = Curriculum Vitae, DBM = Department of Budget and Management, DOF = Department of Finance, DSWD = Department of Social Welfare and Development, EA = executing agency, FM = financial management, FMA = financial management assessment, IA = implementing agency, KC-NCDDP = KALAHI–CIDSS National CommunityDriven Development Project, LGU = Local Government Units, PAM = Project Administration Manual, PIU = project implementation unit, PSC = Program Steering Committee, SPSP = Social Protection Support Project, TOR = terms of reference, WB = World Bank. Source: Asian Development Bank.

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