Procurement Service

Management Services
Report No. 2007- 02

Agency-Based Performance Audit
Central Procurement System

PROCUREMENT SERVICE
Republic of the Philippines

Commission on Audit
MANAGEMENT SERVICES
Commonwealth Avenue, Quezon City, Philippines
Telephone Nos.: 931-9235 , 931-74-55
May 22, 2008
Mr. ESTANISLAO C. GRANADOS, JR

Executive Director
Procurement Service
Paco, Manila
S i r:
We are pleased to transmit the report on the results of the performance
audit of the Central Procurement System of the Procurement Service (PS). The
audit was conducted pursuant to COA MS/TS Office Order No. 2007-013 dated
March 22, 2007. The results of the audit were forwarded to PS on February 15,
2008 for comments and discussed with the concerned officials in an exit
conference conducted on March 24, 2008. Their comments were incorporated in
the report, where appropriate.
The audit was conducted to assess the effectiveness of PS in procuring,
warehousing and supplying supplies and materials to government agencies in the
most economical and efficient manner. The audit covered the operations of PSMain and selected depots using CYs 2005 and 2006 data.
We look forward to the implementation of the audit recommendations
contained in the report and we would appreciate being informed of the actions
taken thereon within one month from receipt thereof.
We acknowledge the cooperation and assistance extended to the team
during the audit.
Very truly yours,

By Authority of the Chairman:
SUSAN P. GARCIA
Director IV
Contents
Part I
Page
Executive Summary
Introduction 2
Audit Objective 2
Audit Scope & Methodology 3
Audit Conclusion 4
Audit Recommendations 6
Part II
Introduction 9
Personnel Complement 10
Objectives/Goals 10
Major Activities 12
Program Stakeholders 13
Governing Laws, Rules and Regulations 13
Funding 14
Process Flow/Activities 15
Inventory Management 17
Sales and Inventories 20
Part III
Audit Observations
21
Chapter 1
22
Economical Procurement of Goods

and Services
Introduction 23
Observation 23
Chapter 2
Responsive Services to Clients
34
Introduction 35
Observations 35
Contents
Page
Chapter 3
Sound Warehousing and Stock

Controls
51
Introduction 52
Observations 52
Chapter 4
Effective Utilization of the

E-Procurement System
79
Introduction 80
Observation 80
Chapter 5
Appropriate Utilization of Funds
86
Introduction 87
Observation 87
Part IV
Recommendations
91
ii
Part I
Executive Summary
EXECUTIVE SUMMARY
INTRODUCTION
The Procurement Service (PS) was created on October 18, 1978 by virtue of
Letter of Instructions (LOI) No. 755 which directed the establishment of an
integrated procurement system for the national government and its
instrumentalities. It was created for the purpose of procuring supplies and
materials most commonly used by government agencies in the most economical
and efficient manner by purchasing directly from reliable sources in economic
lot sizes, observing optimum specifications and making prompt payment
thereof.
The operation of PS was initially expanded under Executive Order (EO) No.
285 dated July 28, 1987 transferring the procurement and price monitoring
functions of the Supply Coordination Office to PS. It was further expanded
under Executive Order 359 dated June 2, 1989 prescribing the systematic
expansion of PS through a network of regional depots under a governing
Procurement Policy Board. This was followed by launching the governmentwide electronic procurement system (EPS) to be managed by PS pursuant to EO
40 dated October 8, 2001.
In January 2003, RA 9184 was enacted setting forth the rules and regulations in
government procurement under the principles of transparency, competitiveness,
streamlined procurement processes, and public monitoring. The law required all
government requirements for goods, consulting services and civil works to be
centrally posted through the Government Electronic Procurement System
(GEPS), formerly EPS.
On April 10, 2006, under EO 524, PS was authorized further to sell commonuse and basic commodity items to employees cooperatives/associations for
resale to government employees.
AUDIT OBJECTIVE
The audit was conducted to assess the effectiveness of PS in procuring,

warehousing and supplying supplies and materials to government agencies in
the most economical and efficient manner.
EXECUTIVE SUMMARY
AUDIT SCOPE AND METHODOLOGY
The audit assessed the operations of the PS-Main Office and selected depots
using selected CYs 2005 and 2006 data and the following audit criteria:
CRITERIA
GENERAL DESCRIPTION
Economical
procurement of goods
Acquiring resources at the most reasonable

price and at the right time, quality, quantity
and source.
Responsive services
to clients
Timely supplying to clients of the required

goods at the desired quantity and quality and
at the most advantageous price.
Sound warehousing
and stock controls
Maintenance of warehouse sufficient to

accommodate and protect all stocks on hand
and presence of accurate and updated
inventory records clearly indicating slow
moving, obsolete, expired and damaged
items and reconciled with physical counts.
Effective utilization
of the E-Procurement
System
Maximizing the benefits of the system

through utilization of the systems
components by all government agencies and
registered suppliers.
Appropriate fund
utilization
Compliance with existing government laws,

rules and regulations in the disposition of
funds.
To meet the audit objective, the Team applied the following audit techniques,
among others:
Reviewed, documented and analyzed existing policies and procedures and

selected transactions relative to the procurement, warehousing and selling of
common and non-common use supplies and materials to client government
agencies;
EXECUTIVE SUMMARY
Validated PS data thru confirmation and survey letters sent to selected client
government agencies;
Inspected PS-Main and selected Regional Depots warehouses to verify

existing condition of warehouses and assess stock controls adopted;
Interviewed concerned PS main and selected regional office personnel.
The audit was conducted from March 28, 2007 to October 19, 2007 pursuant to
MS/TS Office Order No. 2007-013 dated March 22, 2007.
AUDIT CONCLUSION
The audit disclosed that to a certain extent, PS may not be considered effective
in procuring and supplying in the most economical and efficient manner,
supplies and materials to client agencies. The warehousing methods and
practices may also not be considered efficient.
The deficiencies in the procurement and supply of common and non-common
use items were due to the following:
Inadequate stocks of common-use supplies and non-submission by the

requesting agency of the specifications of non common-use items for
procurement. Among the factors that contributed to stock outages of commonuse items was delayed procurement process resulting from unreliable
electronic inventory management system. Thus, as of December 31, 2006,
accumulated advances of client agencies covering 1,924 accounts amounted to
P1.857 billion. Of these accounts, 71 accounts with an aggregate balance of
P1.749 billion have balances over P1 million, 62% of which have been
remitted to PS from 1993 to 2005.
Failure of PS to obtain the most advantageous price for some items. This is
evident from the results of monitoring of current prices in the market by PS
itself and comparison by the Team of consummated purchase orders issued by
PS and other government agencies. PS prices on some items were higher by as
much as 32.80% than the prevailing market prices and/or acquisition prices of
other government agencies. Considering that PS will still impose 4% mark-up,
the prices that would be offered to government agencies would be even higher.
The most advantageous price was not obtained due to its failure to advertise in
newspapers of general circulation about procurement exceeding P2 million,
failure to consider the results of price monitoring on the determination of
approved budget for the contract (ABC) and inordinate frequent use of repeat
orders without price verification. Repeat orders were resorted to even for
quantity requirements equivalent to 133% to 300% of the original quantity
procured, far exceeding the 25% limitation.
4
EXECUTIVE SUMMARY
On the other hand, the deficient warehousing methods and practices were
evident on the following conditions:
PS was not fully prepared for its expanded services. The existing warehouses
were not sufficient to safeguard and store large inventories. Thus, items that
could not be accommodated inside the warehouses were not protected.
Protection and emergency response paraphernalia were also inadequate further
exposing the stored items to possible losses, damages and premature spoilage
or deterioration.
The inventory at the end of the year was recorded using the actual inventory
count as basis without first reconciling the same with the stock ledger cards
generated from the stock inventory management system which was designed to
track inventory movements. Thus, all inventory losses at present were
absorbed by the Cost of Sales account and any misappropriation or thefts were
not detected. Inaccuracies on recorded inventories were evident on account of
significant variances between stock ledger balances and inventory counts, and
unaccounted commissary items in an approximate amount of P7.638 million as
of December 31, 2006. As actual inventories were not reconciled with records,
the discrepancies were not detected and accounted for.
Out of the total purchased commissary items of P46.423 million as of June 30,
2007, P1.065 million were reported to have expired or been damaged and
about P.675 million worth of other items were expiring in three months time.
This is despite selling of non-moving/unsaleable and soon-to-expire
commissary items at discounted rates. This may have been due to inadequate
program evaluation.
As reflected in the reply to the Teams query, there were no feasibility studies
conducted to determine the volume of commissary items to be initially
procured. A survey on the products mostly preferred by employees was,
however, claimed to have been made within PS. In a survey conducted by the
Team, a number of government employees claimed that they were not
patronizing this program at present on account of stringent requirements,
higher prices of some items compared to market prices, and inaccessibility of
PS Commissary Stores.
The benefits from the electronic procurement system which already costs
P187.74 million as of December 31, 2006 could not also be maximized as
some government agencies were not registered and posting their procurement
requirements in the system. As this project was not funded through regular
appropriation, PS was using interest income generated from investing advances
by client agencies to finance this project. Out of the total interest income of
P226.511 million generated by PS as of December 31, 2006, P178.773 million
were used for this purpose. This income was supposed to be remitted to the
National Treasury. While operation of PhilGEPS was allowed under existing
regulation, outright use of income in effect bypassed the normal budgeting
process.
5
EXECUTIVE SUMMARY
AUDIT RECOMMENDATIONS
In order to address the deficiencies discussed above, the Team recommended
certain measures under Part IV of the report. In summary, the Team
recommended that the existing computerized system should be enhanced or
totally replaced.
PS may also consider entering into an ordering agreement good for one (1) year
to cover common-use supplies with the lowest calculated and responsive bidder
considering that the needs of the client agencies could not be accurately
determined. This would enable PS to meet the needs of the clients on time and
minimize existing warehousing problems as there would be no need to store and
stock bulky items in large quantities. Orders in large quantities and bulky items
could be arranged to be delivered directly to the client agencies. This would
also minimize losses due to pilferages, damages and expiration.
It was also recommended that PS should consider the results of its price
monitoring in the determination of the ABC and should refrain from procuring
slow moving items and items it could not provide to the client agencies at lower
prices.
To avoid accumulation of long outstanding advances by client agencies, it is
recommended that:
For non-common supplies, procurement process should be

facilitated by establishing timelines for submission by client
agencies of specifications and results of evaluation of
specifications submitted by interested bidders.
Advances
pertaining to any request that could not be served within two (2)
years should be remitted to the National Treasury.
For common-use supplies, the payments to be advanced by the

agencies should cover only the cost of available stocks, as
practiced in the Regional Depots.
Meantime, PS should determine the status of all unserved requests and remit to
the National Treasury amounts corresponding to items that have been dormant
for about two (2) years and could not be served within three (3) months time.
EXECUTIVE SUMMARY
MANAGEMENTS REACTION TO AUDIT OBSERVATIONS
The results of the audit were transmitted to PS on February 15, 2008 for
comments and discussed in an exit conference held on March 24, 2008. In
reply, the PS Executive Director informed the Team that they appreciate the
Teams observations as these have given them clearer view on their
performance of the government procurement process and other related
activities. He likewise assured the team that such observations will be included
in the improvements they are about to implement in further promoting
efficiency and effectiveness in the delivery of service to their clients and
stakeholders.
The Team was likewise informed that PS is currently upgrading its electronic
inventory management system and has taken initial steps to comply with the
rules and regulations on funding the operations of PhilGEPS. Their comments
were incorporated in the report where appropriate.
TEAMS REJOINDER
The Team appreciates the PS positive outlook on the issues discussed in the
report and the actions currently being undertaken to improve their performance.
Part II
CENTRAL PROCUREMENT SYSTEM
INTRODUCTION
The Philippine government, in its desire to adhere to its policy of procuring
supplies, materials and equipment in the most economical and efficient manner
by purchasing directly from reliable sources in economic lot sizes, observing
optimum specifications and making prompt payments, adopted a central
procurement system and created the Procurement Service. PS is governed by the
Government Procurement Policy Board (GPPB), which is headed by the DBM
Secretary, and is at present operating under the organizational structure
presented below:
PERSONNEL COMPLEMENT
Under the provision of LOI No. 755, PS shall be staffed by persons on detail
from the agencies of the council members and/or by hiring contractual
personnel. During CYs 2005 and 2006, PS Main and Regional Depots were
manned by 231 and 275 personnel, respectively under job order and/or
contractual status as tabulated below:
LOCATION
Main
Proper
GPPB-TSO
G-EPS
Depot
NCR-UP
CAR
RI-La Union
RII-Tuguegarao City
RIII-Pampanga
RV-Legaspi City
RVI-Negros Occidental
RVII-Cebu
RVIII-Tacloban
RX-Cagayan de Oro
RXI-Davao City
RXII-Koronadal
RXIII-Butuan
Total Personnel
JOB ORDER
2005
2006
69
2
7
4
2
2
5
3
3
4
4
105
CONTRACTUAL
2005
2006
TOTAL PERSONNEL
2005
2006
94
2
13
94
16
12
90
15
9
163
18
19
184
17
22
4
4
2
4
6
5
3
3
2
4
3
3
4
156
4
4
0
2
2
5
3
3
0
4
4
0
0
231
8
4
2
4
6
6
3
3
2
4
3
3
4
275
126
119
In addition, there were 63 DBM Regional Offices personnel assigned to manage

PS Regional Depots:
PS POSITION
Supervisor
Assistant Supervisor
Cashier
Accountant/Bookkeeper
Supply Officer
Financial Administrative Officer
Marketing Officer
Storekeeper
Total Personnel
TOTAL NUMBER OF
PERSONNEL
10
11
11
12
9
7
1
2
63
OBJECTIVES/GOALS
The main objective of the central procurement system is to assist government
agencies and employees in ensuring that their needed supplies, materials and
equipment are procured in the most economical and efficient manner.
10
The central procurement systems overall goal and components objectives are
graphically presented below:
11
MAJOR ACTIVITIES
The central procurement system is composed of the following major activities:
Procurement
PS aims to make readily available to government agencies and

employees, common-use supplies, materials and equipment
with optimum specifications at lowest prices. Thus,
maintenance of adequate inventory is of paramount importance.
This is ensured by conducting procurement planning as
government agencies do not submit their Annual Procurement
Plan to PS despite requirements under Procurement Policy
Board Circular No. 1 dated January 1, 1990. PS based its
procurement of common-use supplies and equipment on
historical data.
PS maintains 6 warehouses at the Main Office and 13

depots nationwide. There are also warehouses for PX
Commissary at the Main Office and in 11 regional depots.
The warehouses are located at the following areas:
DATE ESTABLISHED
Warehousing
DEPOTS
LOCATION
NCR
CAR
Region 1
Region 2
Region 3
Region 5
Region 6
Region 7
Region 8
Region 10
Region 11
Region 12
Region 13
UP, Quezon City

Baguio
La Union
Tuguegarao City
Pampanga
Legaspi City
Negros Occ.
Cebu
Tacloban
Cagayan de Oro
Davao
Koronadal
Butuan
DEPOT
July 2005
July 2004
Nov. 2005
Feb. 2005
Feb. 2005
1998
March 2004
June 2005
Dec. 2005
Sept. 2004
April 2004
March 2006
Sept. 2006
PX COMMISSARY
Aug. 25, 2006
Aug. 24, 2006
Nov. 27, 2006
June 21, 2006
May 19, 2006
Sept. 13, 2006
Oct 11, 2006
Aug. 18, 2006
Sept. 15, 2006
Sept. 14, 2006
Oct. 6, 2006
PS is using the First-In-First-Out method in issuing stocks.

At the Main Office, the inbound and outbound are tracked
by computerized system known as Electronic Warehousing
Management System (e-WMS).
On the other hand,
Regions I, III, VIII, X, and XI are using the Regional Depot
Database System (ReDDS), while Region XII is using MS
Excel.
Selling
PS is allowed under RA 359 to sell to government agencies at

4% mark-up. Items for sale, with their corresponding prices, are
posted in the PS website. Price list may also be provided to
government agencies upon request. Sales of items are
supported by Agency Purchase Request (APR) and delivery
receipt (DR).
12
Price
Monitoring
Management
of PhilGEPS
As mandated under Executive Order 285 dated July 25, 1987,

PS monitors prices of common-use supplies, materials and
equipment to ensure that PS selling prices are comparable with
prevailing market prices.
To establish an open, transparent, efficient and competitive

market place for government procurement, an internet
infrastructure serving as a single portal on government
procurements information was established. The system was
initially rented from Merck System from CYs 2000 to 2004, but
currently being developed by Ayala System Technology, Inc.
at an estimated cost of P438.80 million. The system has five
components with the first three already operational:
Electronic bulletin board

Supplier/subscriber registry
Electronic catalogue
Virtual store/ Electronic payment
Electronic bid submission
PROGRAM STAKEHOLDERS
With the passage of RA 9184, all government instrumentalities, national,

government owned and controlled corporations, state universities and colleges,
and the local government units are required to buy their requirements for
common-use supplies, materials and equipment from PS.
GOVERNING LAWS, RULES, AND REGULATONS
LOI 755 dated

Oct. 18, 1978
Establishment of an integrated procurement system for the

national government and its instrumentalities for the purpose of
procuring supplies and materials in the most economical and
efficient manner by purchasing directly from reliable sources in
economic lot sizes, by observing optimum specifications and
making prompt payment thereof.
EO 285 dated
July 28, 1987
Reiteration of the mandate of PS under LOI 755 by

abolishing the General Services Administration and
transferring the procurement and price monitoring
functions of the Supply Coordination Office to PS.
13
EO 359 dated
June 2, 1989
Establishment of Procurement Policy Board that shall

promulgate rules and regulations as basis for the
procurement operation of PS and other government
agencies.
Establishment of PS Regional Depots to serve the needs
of government agencies within their respective
jurisdiction.
RA 9184 dated
Jan. 10, 2003
EO 524 dated
April 10, 2006
Otherwise known as the Government Procurement

Reform Act, set forth rules and regulations for
government transactions under the principles of
transparency, competitiveness, streamlined procurement
processes, and public monitoring. The law required all
government needs from goods, consulting services to
civil works to be centrally posted through the internet
infrastructure which will be called the Government
Electronic Procurement System (GEPS), formerly the
EPS.
Enlisting government employees cooperatives and/or

associations to act as retailers/commissaries of PS in
selling common-use and basic commodity items
exclusively to government employees.
FUNDING
PS financed its operations from the 4% mark-up authorized to be imposed to

procuring government agencies. For CYs 2005 and 2006, PS posted net income
from operations of P101.388 million and P119.914 million, respectively. The
operation of PhilGEPS is financed from the interest income earned by PS from
advances made by various government agencies for the procurement of their
needs. During CYs 2005 and 2006, PS generated total interest income
amounting to P111.559 million of which P 67.442 million were used for
PhilGEPS operations.
14
PROCESS FLOW/ACTIVITIES
The PS procurement and selling processes are graphically presented below:
15
PROCESS FLOW FOR SALE OF COMMON-USE, PX COMMISSARY,

AND SUPPLEMENTARY/NON-COMMON-USE ITEMS
16
INVENTORY MANAGEMENT
PS is using the following electronic systems in managing its stocks:
SYSTEM
FEATURES
This system is being used by PS Main Office for recording its
transactions since 1997. The system is fully implemented before the
new inventory management system, the eWMS, was installed. After
the new system was installed in April 2006, the utilization of the
FACT System was limited to some extent as illustrated below:
FUNCTIONS
F
A
C
T
S
Y
S
T
E
M
1. Planning and Technical Service Support Division
inputs the details of the winning bidder

(Abstract) and selling prices;
maintains the back-up database

2. Agency Servicing Division
encodes details of APR for common-use

and non-common-use items;
encodes details of APR for non-commonuse items only;
prepares Delivery Receipts (DRs) for

common and non-common-use items;
prepares DRs for non-common-use items

only;
modifies quantity if necessary;
views the status of APR versus PS DRs

for common-use and non-common-use
items if necessary;
views the status of APR versus PS DRs

for non-common-use items only, if
necessary;
prepares Stock Transfers;
generates from the system the Report of

Inventory Balances as of a certain time
and date
3. Purchasing Division
prepares and generates Purchase Orders

(POs)from the system
4. Warehousing and Delivery Division
encodes details on Request for Inspection

(RFI);
generates sales summary per item;
views the Purchase Invoice Register (PIR)

quantity entered by Inspection Division
5. Inspection Division
encodes the quantity of inspected and

accepted items, and other details of
purchases;
generates Inspection Certificate and

Acceptance Report (ICAR) and PIR, a
summary of all ICARs for the day
APPLICATION PERIOD
BEFORE
4/06
4/06
ONWARDS
until 12/06
17
SYSTEM
F
A
C
T
S
Y
S
T
E
M
e
W
M
S
FEATURES
6. Cashier Section
encodes Official Receipts (OR) number

and date, check number, bank name and
date, agency code, and classification,
APR number, and amount;
generates Summary of Collections

7. Accounting Division
encodes payments in the corresponding

supplier/party ledger based on the ICARs
and PIR;
verifies goods in and out per item with

negative balances;
verifies ICAR versus DR upon payment to

supplier for direct deliveries and
reclassifies them if needed;
views the supplier party ledger;
views the customer party ledger;
encodes DR number for sales in the sales

invoice features of the system;
encodes details of DR for sale

of
common-use and PX-commissary items in
the sales invoice features of the system.
encodes DR number for non-commonuse, and directly delivered common-use

items;
generates the following:

Sales Invoice Register per day for :
common
non-common items
Statement
of
Account
per
customer;
Report of Profitability per Item;
Report of Non-Common Items
directly delivered to agencies
without DRs issued;
Supplier Ledger Card; and
Customer Ledger Card; and
Ending Inventory Balances per
item with average costs
8.Depot Coordination Office
prepares Stock Transfer
direct delivery
only
As of 01/
07 onwards
This system was contracted on November 2005 to Mannasoft

Technology Corporation and installed and implemented on April 25,
2006. The system is utilized for the following:
FUNCTIONS
Planning and Technical Service Support Division
inputs the acquisition cost, and selling

price;
modifies selling prices, if necessary;
maintains the daily back-up database;
generates reports, if needed
GENERATED REPORTS
Product Price List;

Report of Inventory
Balances per item
Summary Report of All
Issued DR
18
SYSTEM
FEATURES
FUNCTIONS
e
W
M
S
Agency Servicing Division
views the status of inventory for

common-use items, if necessary;
prepares the DRs for common-use, and

PX commissary items;
Warehousing and Delivery Division
views the inventory balances per item;
scans bar code or inputs quantity of the

items to be delivered
Inspection Division
encodes
quantity
inspected
and
accepted
common-use
and
PX
commissary items
Accounting Division
views DRs and sales returns

Depot Coordination Office
inputs items for transfer to depot by

preparing Dummy Stock Transfer
GENERATED REPORTS
DRs
Report of Inventory
Balances per Item
dummy Stock
Transfer
The ReDDS was installed and implemented since 2006 in some

regional depots with the following functions:
FUNCTIONS
Re
D
D
S
GENERATED REPORTS
1. input the items name, description, acquisition

cost, and selling price;
Price Quotation with
2. modify selling prices, if necessary;

3. check the availability of stocks during
confirmation and assign Agency Purchase
Request (APR) number;
DR
DR with
4. prepare DR;
5. view existing DR and quoted APR;

6. input the quantity of items received
7. input adjustments in quantity due to errors,

expiration, damaged, and losses using DR or
Stock Transfer/Item Received menus;
APR number
8. generate reports
corresponding
Counter Receipt for
adjustment
Report of Stocks
Issued
Stock Position
Index of Stocks
Issued
Out of Stocks Items
Stock Issued by
agency
Summary List of
Requested Items
Stocks Ledger Cards
9. maintains the daily back-up database
19
SALES AND INVENTORIES
During CYs 2005 and 2006, PS reported total sales of P2.406 billion and P3.002
billion and ending inventories of P328.69 million and P349.12 million,
respectively:
SALES
LOCATION
PS MAIN
DEPOTS
NCR-UP, Q.C
CAR
RI-La Union
RII-Tuguegarao
RIII-Pampanga
RV-Legaspi
RVI-Bacolod
RVII-Cebu
RVIII-Tacloban
RX-Cagayan de Oro
RXI-Davao
RXII-Koronadal
RXIII-Butuan
Sub-Total
DBM-PC ng Bayan
RVI-Iloilo
RIX-Zamboanga
Sub-Total
GRAND TOTAL
CY 2005
CY 2006
ENDING INVENTORIES
As of Dec. 31,
As of Dec. 31,
2005
2006
2,018,775,262.55
2,497,816,850.34
205,496,830.47
219,788,240.22
82,354,246.20
48,838,862.45
2,984,600.91
21,813,984.87
29,829,588.15
44,523,711.80
32,855,497.20
8,887,566.56
9,219,763.55
35,366,313.32
50,019,283.05
5,344,597.20
5,556,000.00
377,594,015.26
118,125,808.45
42,647,162.57
29,457,476.30
29,906,777.17
58,093,731.36
42,060,345.57
40,292,071.63
29,751,008.86
25,544,814.70
30,979,088.15
41,926,352.43
10,268,174.37
3,106,214.78
502,159,026.34
18,347,247.17
12,843,858.69
13,510,344.10
8,969,729.01
8,241,673.57
1,977,409.90
4,119,726.25
12,590,507.29
3,672,207.32
12,844,735.66
19,341,724.85
2,556,426.00
1,996,307.00
121,011,896.81
14,835,374.37
9,486,222.17
11,767,814.26
7,269,165.65
11,867,902.72
2,005,854.15
9,457,470.38
13,174,959.51
10,079,690.48
13,010,396.86
15,339,884.82
8,569,843.97
2,449,221.50
129,313,800.84
3,817,400.00
6,193,104.00
10,010,504.00
2,406,379,781.81
66,800.00
2,217,571.20
2,284,371.20
3,002,260,247.88
140,623.00
2.043,992.31
2,184,615.31
328,693,342.59
16.500.00
16,500.00
349,118,541.06
20
Part III
Audit Observations
21
Chapter 1
Economical Procurement of Goods and

Services
22
ECONOMICAL PROCUREMENT OF GOODS AND SERVICES
INTRODUCTION
Procurement may be considered economical if the items procured were acquired

at the right cost or at the most reasonable price, and at the right time, quality,
quantity and source. Considering the scarce resources of the government and the
requirement that common-use goods of the entire bureaucracy must be acquired
from PS, compliance by PS with this criterion is of paramount importance.
To ensure procurement at the right cost, it is required under RA 9184 that all
procurement shall be done through competitive public bidding except when the
conditions for alternative methods of procurement are present. Competitive
public bidding is considered as the primary mode of procurement and is
prescribed to ensure that the most reasonable costs are obtained.
The audit, however, revealed that not all elements for the conduct of public
bidding were observed by PS. The prescribed advertisement in newspapers of
general circulation intended to ensure wide ranged competition for procurement
in excess of P2 million was not strictly adhered to. Likewise, alternative mode
of procurement was resorted to without meeting the required conditions. As such,
PS prices for some items were higher than the prevailing market prices and
prices obtained by other government agencies.
OBSERVATION
Procurement of goods involving P4 million to as much as P23 million were not

published in newspapers of general circulation when this is required for
procurement in excess of P2 million. PS also resorted to inordinate frequent
use of repeat orders without price verification. As such, in certain cases, PS
was not able to obtain the most reasonable prices. This is manifested in the
results of price monitoring regularly conducted by PS and comparison of
Purchase Orders of PS and other government agencies reflecting a number of
items procured by PS to be higher than the prevailing market prices and/or
acquisition prices of selected agencies.
As required under RA 9184, all procurement shall be done through competitive
bidding to provide equal opportunity to all qualified bidders. Among the
requirements under competitive bidding is advertisement of the invitation to
apply for eligibility and to bid in various manners, one of which is at least twice,
within a maximum period of 14 calendar days, within a minimum period of 6
23
calendar days in between publications, in a newspaper of general nationwide

circulation which has been regularly published for at least 2 years before the date
of issue of the advertisement. The posting of invitation in newspapers of general
circulation was, however, not required for contracts to be bidded costing P2
million and below as postings in the website, G-EPS and conspicuous places
during the same period were considered sufficient.
Evaluation of the purchase orders issued by PS from April 2005 to December
2006, however, revealed that posting of invitation in newspapers of general
circulation for procurement exceeding P2 million was not strictly adhered to.
Records show that even the following procurements, which already amounted to
more than P4 million to as much as P23 million, were undertaken by mere
advertising in alternative methods other than publication in newspapers of
general circulation:
Payee
Integrated Computer System Inc.
IBM Philippines Inc.
Optimal Systems Distribution Inc.
Caliber Trading
Integrated Computer Systems,
Inc.
Triton Communications Corp.

Inregna Sash & Furniture Coop.

Integrated Computer Systems Inc.
HK Tactical Defense Systems, Inc
Triton Communications
Integrated Computer Systems
Phil. Aerospace Dev. Corp.

Isuzu Commonwealth
Mannasoft Tech. Corp.
The Bookmark Inc.
Integrated Computer System , Inc.
HK Tactical Defense Systems, Inc
Eurocopter Philippines, Inc.
Inegra Sash And Furniture Coop.
Eurocopter Philippines, Inc.
PO No.
Purchase Bids
PO Date
52435
52580
61268
51252
60943
61838
61967
61856
61702
61722
61268
52438
60817
61752
51440
52359
61497
61741
61722
11/30/05
12/23/05
7/14/06
6/30/05
5/29/06
10/25/06
11/23/06
10/27/06
9/25/06
9/27/06
7/14/06
11/30/05
5/11/06
10/9/06
7/26/05
11/22/05
8/22/06
10/3/06
9/27/06
51022
60837
51440
51345
61856
52029
52517
51795
52225
51628
61722
61404
52619
51436
61744
61744
51237
51452
61797
51238
52437
6/1/05
5/15/06
7/26/05
7/11/05
10/27/06
10/7/05
12/12/05
9/9/05
11/7/05
8/15/05
9/27/06
8/4/06
12/29/05
7/26/05
10/4/06
10/4/06
6/30/05
7/27/05
10/17/06
6/30/05
11/30/05
Item
Ink Cartridge, HP51645, black

Websphere Application Development
Ink Cartridge, Lexmark PN# 27, colored
Sub-machine Gun, Caliber 9mm x 19
Toner Cartridge, HP C4096A, black
Ink cartridge, Canon C1823A, tri- colour
Ink Cartridge, HPC6615A, original, black
Ink Cartridge, HP C6615A, original, black
Ink Cartridge
Smartnet Central Controller
Ink Cartridge, Lexmark PN# 17, black
Ink Cartridge, HPC6578A/d, colored
Ink Cartridge, HPC6615D, original, black
Ink cartridge, HP51645
Toner Cartridge, HPC4092AA
Elem. Desk, for Region IV-A (Lot No. 7)
Ink Cartridge, HPC8727A, black
Paraclete Modular Body Armor
Centracom Elite Console Interface
Electronics for two positions
Ink Cartridge, HP C6657A, orig., colored
Ink Cartridge, HP C6578A, orig., colored
Toner Cartridge, HPC7115A
Rehabilitation of Aircraft, BNI 2A21
Toner Cartridge, HPC7115A, original
Pick-Up 4x2, Isuzu D-Max brand
Windows XP Professional English UPG
Ibong Adarna ISBN:971-569-274-5;
Office Pro 2003 Win32 English Dish Kit
Quantar Repeaters
Toner Cartridge, HPC4092A, orig., black
Office Standard win32 listed Languages
Ink Cartridge, HP6578D, colored
Pistol
Compact Pistol
Rehabilitation of Aircraft
Ink Cartridge, Lexmark pn#77,black
Secondary armchair for DepEd R-V
Ink Cartridge, HPC6615A, black
Amount
P4,062,500.00
4,170,000.00
4,240,000.00
4,250,000.00
4,280,000.00
4,375,000.00
4,440,000.00
4,440,000.00
4,440,000.00
4,454,760.25
4,690,000.00
4,693,000.00
4,695,000.00
4,725,000.00
4,736,000.00
4,751,800.00
4,800,000.00
4,812,500.00
4,922,722.72
4,980,000.00
5,152,000.00
5,261,500.00
5,700,000.00
5,877,000.00
5,880,000.00
5,914,623.00
6,006,000.00
6,090,000.00
6,116,478.00
6,177,770.92
6,190,000.00
6,256,608.00
6,720,000.00
7,500,000.00
7,500,000.00
7,800,000.00
8,500,000.00
8,755,530.00
8,900,000.00
9,670,500.00
24
Payee
PO No.
Purchase Bids
PO Date

Astech Pengson Distributors Inc.
Sandz Solution Phils. Inc.
51452
61246
61722
52363
7/27/05
7/12/06
9/27/06
11/22/05
Isuzu Inteco
Integrated Computer System , Inc.
Mannasoft Technology Corp.
Facilities Protection, Inc.
Mantrade Dev. Corp.
51863
52107
51435
52517
51766
61800
61727
61154
9/16/05
10/17/05
7/26/05
12/12/05
9/5/05
10/17/06
10/2/06
6/29/06
Item
Ink Cartridge, Lexmark pn#27,colored

Printer, impact dot matrix, Epson LQ-2180
CEB For Central Controller & Elite Console
Web-Enabled Visa Extension Change of
Status System Package
TON Troop Carrier, Isuzu NHR
Office Standard, 1034 Licenses
Ink Cartridge, HP6615D, black
Software, Office Pro 2003 Win32 English
Software, Office Pro 2003 Win32 English
Xray baggage scanner, Astrophysics
Motorola Trunked Radio
Nissan Patrol 2006 MD3 3.0
Amount
9,900,000.00
9,951,000.00
10,697,423.00
11,000,000.00
11,081,770.00
11,547,923.77
12,155,000.00
16,799,712.00
20,388,260.00
21,969,152.00
22,285,440.00
23,153,840.00
Records further revealed that PS also resorted to inordinate frequent repeat

orders even when the required conditions were not present. Under Section 51 of
the IRR of RA 9184, this method of procurement involves direct procurement of
goods from the previous winning bidder, whenever there is a need to replenish
goods procured under a contract previously awarded through competitive
bidding.
Repeat order from previous winning bidder may be resorted to by
procuring entities only in cases where the procured item is clearly superior to the
other bids not only in terms of the price quoted but also in terms of equipment
reliability, availability of spare parts, after-sales service and delivery period,
among others. Repeat orders shall likewise be subject to the following
conditions:
Contract prices of a repeat order must be the same and/or lower

than those in the original contract, provided that such prices are
still the most advantageous to the Government after price
verification;
The repeat order does not result in splitting of contracts,

requisitions or purchase orders as provided for in Section 54.1 of
the IRR;
Except in cases duly approved by the GPPB, the repeat order shall
be availed of only within six (6) months from the date of the
Notice to Proceed arising from the original contract; and,
The repeat order shall not exceed twenty-five percent (25%) of the
quantity of each item of the original contract.
Analysis of purchase orders issued under repeat order mode of procurement,

however, revealed that repeat orders were being resorted to even without price
verification, and for quantities equivalent to 133% to 300% of the original
quantity procured far exceeding the 25% quantity limitation under the original
contract illustrated as follows:
25
Item
No.
Original PO
Date
Qty.
No.
Ribbon, Epson RN 7754
51355
7/13/05
1,200
Pencil, lead, w/ eraser,

medium, Tommie #2 brand
50857
5/10/05
25,200
Primer on RA 9184 & its IRR
51976
9/30/05
5,000
Mophead, twisted, 400 grams
51232
6/29/05
7,000
Ballpoint pen, black, wonder

brand
51432
7/22/05
380,000
Ballpoint pen, blue, wonder

brand
51432
7/22/05
170,000
Ballpoint pen, red, wonder

brand
51432
7/22/05
105,000
Marker, fluorescent, 3 colors,

Faber Castell Brand
51434
7/22/05
15,000
Puncher, heavy duty
51944
9/28/05
3,800
Tape dispenser
51361
7/20/05
1,000
Audio cassette tape
50746
4/21/05
24,500
Scouring pad, economy size
52068
12/28/05
2,400
Cabinet, steel, 4 drawers
52161
10/21/05
30
Fluorescent lighting fixture, 1

x 20W
52504
12/09/05
1,300
Ink cartridge, HP# C8728A,

colored
52439
1/30/05
1,000
Blade, for heavy duty cutter
50744
4/1/05
2,500
Alcohol,
rubbing,
70%
isopropyl, 500ml, Dr. J brand
52607
12/28/05
58,800
Mophead, rayon
60793
5/10/06
6,000
Signpen, black, pentel
51370
7/15/05
42,200
Signpen, blue, pentel
15,900
Repeat Orders
Date
51483
51556
Total
51413
51571
Total
52043
52215
52183
Total
51570
52621
Total
52539
51985
Total
52539
51985
Total
52539
51985
Total
51972
52533
Total
52104
52196
52357
Total
52012
52255
Total
51620
51647
Total
60879
61090
Total
52499
Total
60892
61053
Total
60838
60870
Total
51486
51977
Total
60740
61089
Total
61085
61383
Total
51479
51982
52291
Total
51479
7/28/06
8/5/06
7/21/05
8/9/05
10/10/05
11/0/05
10/20/05
8/9/05
12/29/05
12/14/05
9/30/05
12/14/05
9/30/05
12/14/05
930/05
9/30/05
12/14/05
10/14/05
10/26/05
11/21/05
10/5/05
11/9/05
8/12/05
8/16/05
5/18/06
6/22/06
11/09/05
12/09/05
5/19/06
6/19/06
5/15/06
5/18/06
7/28/05
9/30/05
4/27/06
6/22/06
6/21/06
8/2/06
7/28/05
9/30/05
11/14/05
7/28/05
Qty.
1,200
1,000
2,200
25,200
25,200
50,400
5,000
5,000
5,000
15,000
4,500
6,000
10,500
350,000
388,000
738,000
200,000
232,000
432,000
105,000
35,000
140,000
15,000
12,500
27,500
3,800
1,200
3,000
8,000
1,000
700
1,700
24,500
9,100
33,600
2,400
1,400
3,800
30
30
60
1,300
1,300
2,600
1,000
100
83
183
100
100
200
100
100
100
300
64
86
150
92
102
194
118
136
254
100
33
133
100
83
183
100
32
79
211
100
70
170
100
37
137
100
58
158
100
100
200
100
100
200
100
1,000
2,000
2,500
2,200
4,700
58,800
38,200
97,000
6,000
6,000
12,000
42,200
44,000
39,500
125,700
15,900
100
200
100
88
188
100
65
165
100
100
200
100
104
94
298
100
26
Item
No.
Original PO
Date
Qty.
Signpen, red, pentel
4,400
Stapler, standard type
50743
4/27/05
6,200
Clip, backfold, 50mm
50904
5/18/05
2,600
Paste, sold, Prince brand
50739
4/21/05
16,000
Fluorescent lighting fixture,

20W
50811
4/28/05
800
Calculator, Canon LS-120V,

12 digits
52164
10/21/05
500
Calculator, Canon P-23PTS,

12 digits
52164
10/21/05
100
Paper, mimeo (8-1/2 x 13)
51233
6/29/05
20,000
UPS
51904
9/22/05
300
Broom, soft, tambo
51544
8/4/05
12,000
Mophandle, screw type
52124
10/19/05
3,200
File organizer, expanding
50743
4/21/05
2,000
No.
Repeat Orders
Date
51982
52291
Total
51479
51982
52291
Total
51984
51670
Total
51482
52261
Total
51412
51475
Total
51469
51590
Total
52186
52249
Total
52186
52568
Total
52296
51855
52510
Total
52173
52339
52569
Total
51723
52534
Total
52535
52240
Total
52151
51668
Total
9/30/05
11/14/05
7/28/05
9/30/05
11/14/05
9/30/05
8/17/05
7/28/05
11/09/05
7/21/05
7/28/05
7/28/05
8/11/05
10/26/05
11/09/05
10/26/05
12/19/05
11/15/05
9/15/05
12/09/0
10/24/05
11/18/05
1/19/05
8/26/05
12/14/05
12/14/05
11/08/05
10/20/05
8/17/05
Qty.
15,000
19,000
49,900
4,400
3,500
4,000
11,900
5,600
4,600
10,200
2,500
2,100
4,600
16,000
9,000
25,000
800
800
1,600
500
500
1,000
100
100
200
20,000
18,700
7,500
46,200
300
300
300
900
11,700
12,000
23,700
3,200
3,200
6,400
1,900
1,300
3,200
%
94
119
313
100
80
91
271
90
74
164
100
81
181
100
56
156
100
100
200
100
100
200
100
100
200
100
94
38
232
100
100
100
300
98
100
198
100
100
200
95
65
160
Upon inquiry, PS claimed that the 25% limitation on repeat order is applicable
only to regular government agencies and not to them as PS is only an agent of
the government agencies and not the end-user of the items it buys. It further
claimed that government agencies can procure from PS through negotiated
procurement and not by way of repeat order, thus, no limitation is imposed. It
also contends that if the limitation will be applied to them, PS will not be able to
maintain sufficient stock.
The Team agrees that one of the alternative mode of procurement is thru
negotiated procurement. However, this is not the one resorted to by PS under
these cases. PS resorted to Repeat Order mode which is covered by certain
limitations. Moreover, PS is not specifically exempted from the provisions of
RA 9184, thus, still subject to the limitations required therein.
27
In the absence of public bidding and any price verification, there is no assurance
that the prices of these items were still reasonable or the most advantageous
price at the time of issuance of repeat orders. It is informed that any deficiency
in prices would affect not only PS, but the entire bureaucracy as well. These
may have been some of the reasons why in a number of instances, PS failed to
avail of the most advantageous prices as reflected in the results of price
monitoring being regularly undertaken by PS and the price comparison of
purchase orders (POs) of PS and other government agencies.
In its published results of price monitoring covering the period December 2006,
prices of the following items sold by PS were higher than the prevailing market
prices:
Prices Data
Item
Common Computer Supplies

Ink Cartridge, HP 51649A, Original, colored
Ink Cartridge, HP 51649A, Original, black
Ink Cartridge, HP 51645A, Original, black
Ink Cartridge, HPC6615A, original black
Ink Cartridge, HP C1823A, original, tri-chamber colour
Ink Cartridge, HPC6578A/D, colored
Ink Cartridge, HP C51641, original, tri-chamber colour
Ink Cartridge, HP 51626A, original, black
Ink Cartridge, HP C8728A, original, colored
Ink Cartridge, HP C6657, original, colored
Ink Cartridge, Epson T014, original, colored
Ink Cartridge, Epson T050190
Ink Cartridge, Epson T018, original, colored
Ink Cartridge, Canon BCI-21, original, colored
Ink Cartridge, Canon BC-02, original, black
Toner Cartridge, HPC4092, original, black
Toner Cartridge, HPC7115A, original
Toner Cartridge, HPC4127X, original, black
Toner Cartridge, HP Q2613X, original
Common Office Supplies
Ballpoint pen, fine point, black Beifa brand
Clip, Bulldog, 76 mm (3") Prince
Clip, backfold, 25 mm, 12 pcs. Per box, Prince brand
Columnar Pad, 14 cols, 55 gsm. Veco brand
Columnar Pad, 16 cols. 55 gsm, Veco brand
Columnar Notebook, 12 Columns 55 gsm.
PX Commissary Items
Milo Refill, 150 g.
Coffeemate Creamer, Box 200 g.
Coffeemate Creamer, Refill 80 g.
Nescafe Classic Refill 25 g.
Nescafe Classic Refill 50 g.
Nescafe Classic Coffee 3 in 1, 14 g.
PS
Market
Difference
P1,825.20
1,778.40
1,638.00
1,539.20
1,820.00
1,814.80
1,840.80
1,695.20
1,788.80
1,820.00
1,892.80
998.40
1,175.20
1,133.60
1,856.40
851.40
816.40
962.00
765.45
1,196.00
3,400.80
3,458.00
7,014.80
4,966.00
P1,720.00
1,680.00
1,530.00
1,450.00
1,700.00
1,700.00
1,720.00
1,600.00
1,680.00
1,750.00
1,700.00
920.00
1,100.00
1,020.00
1,680.00
850.00
800.00
874.00
760.00
1,180.00
3,200.00
3,400.00
6,800.00
3,920.00
P105.20
98.40
108.00
89.20
120.00
114.80
120.80
95.20
108.80
70.00
192.80
78.40
75.20
113.60
176.40
1.40
16.40
88.00
5.45
16.00
200.80
58.00
214.00
1,046.00
6.12
5.86
7.06
6.15
7.06
6.75
7.02
5.95
6.48
4.00
11.34
8.52
6.84
11.14
10.50
0.16
2.05
10.07
0.72
1.36
6.28
1.71
3.16
26.68
2.90
6.00
9.05
33.20
32.25
19.20
2.20
5.42
8.25
25.00
25.00
18.50
.70
.58
.80
8.20
7.25
.70
31.82
10.70
9.70
32.80
29.00
3.78
1,499.84
2,371.20
848.85
1,001.81
1,976.34
1,745.08
1,485.00
2,325.00
840.00
990.00
1,935.00
1,713.00
14.84
46.20
8.85
11.81
41.34
32.08
1.00
1.99
1.05
1.19
2.14
1.87
28

Prices Data
Item
PS
Nestea Iced Tea, Lemon 500 g.

Powdered Milk, Bearbrand with Zinc 150 g.
Powdered Milk, Anchor Full Cream 180 g.
Coke Regular in can 330 ml.
Sprite Regular 1.5 L
Century Tuna, Afritada, 155 g.
Century Tuna, Caldereta, 155 g.
Century Tuna, Flakes in Oil, 155 g.
Century Tuna, Hot and Spicy, 155 g.
Century Tuna, Flakes in Oil, H&S, 180 g.
Cooking Oil, Minola, 1L
Instant Pancit Canton, Calamansi/Hot Chili/Chilimansi,
Liver Spread, Reno, 85 g.
Sardines, Ligo, Green, 155 g.
Sardines, Ligo, Red, 155 g.
Toothpaste, Close-up 50 ml. Icylicious Blue
Toothpaste, Close-up 50 ml. Red Hot
Sanitary Napkin, Modess Maxi w/o wings
1,513.28
2,394.18
1,306.21
381.68
381.68
862.62
862.62
985.34
985.34
1,190.25
751.74
406.60
618.80
1,016.08
1,016.08
2,952.07
2,952.07
1,102.71
Market
Difference
1,500.00
2,354.40
1,303.20
372.00
360.00
822.00
822.00
945.00
945.00
1,176.00
732.00
345.00
600.00
995.00
995.00
2,918.40
2,918.40
984.00
13.28
39.78
3.01
9.68
21.68
40.62
40.62
40.34
40.34
14.25
19.74
61.60
18.8
21.08
21.08
33.67
33.67
118.71
0.89
1.69
0.23
2.60
6.02
4.94
4.94
4.27
4.27
1.21
2.70
17.86
3.13
2.12
2.12
1.15
1.15
12.06
Comparison of consummated POs of PS awarded through repeat order and other

government agencies showed that PS purchased prices were also higher than the
prices obtained by some government agencies as shown below:
Other Agency
Item
Furniture Cleaner, aerosol type
Paper, ruled pad
Ink, HP C6656A, black
Name of Agency
Valenzuela
COA
CHR
COA
Ink, HP 51645A, black

Ink Cartridge, TO38, black
COA
Ink, HP C6614D, black

Ink, HP C6615D, black
Ink Cartridge, HP C6625A, colored
COA
Ink Cartridge, C4844A, black
CHR
CHR
COA
Ink Cartridge, HP C8727A, black
CHR
COA
Ink Cartridge, HP C6578D, colored
CHR
COA
Toner Cartridge, HP C7115A
PO Date
Unit
Cost
8/10/06
6/30/06
10/31/06
6/30/06
6/20/06
P 120.00
17.50
979.00
940.00
1,037.00
4/21/06
1,030.00
4/21/06
12/29/06
6/30/06
7/26/06
6/30/06
12/29/06
1,485.00
450.00
450.00
1,600.00
1,330.00
1,490.00
5/10/06
1,644.50
3/28/06
6/30/06
12/29/06
8/11/06
6/29/06
6/30/06
6/30/06
6/30/06
6/29/06
11/17/06
1,520.00
1,660.00
900.00
900.00
930.00
1,050.00
1,620.00
1,650.00
1,650.00
2,940.00
Procurement Service
Unit
PO Date
Cost
8/29/06
6/2/06
10/27/06
6/16/06
6/23/06
3/29/06
5/18/06
3/30/06
12/5/06
7/14/06
7/27/06
6/7/06
12/13/06
6/7/06
5/11/06
3/30/06
6/16/06
11/28/06
8/22/06
6/16/06
6/23/06
P132.00
21.44
1,050.00
1,090.00
1,090.00
1,090.00
1,090.00
1,655.00
457.00
457.00
1,630.00
1,565.00
1,615.00
1,705.00
1,705.00
1,665.00
1,785.00
960.00
960.00
1,005.00
1,175.00
6/29/06
1,840.00
10/27/06
3,265.00
Difference
P12.00
3.94
71.00
150.00
53.00
60.00
60.00
170.00
7.00
7.00
30.00
235.00
125.00
60.50
60.50
145.00
125.00
60.00
60.00
75.00
125.00
220.00
190.00
190.00
325.00
10.00
22.51
7.25
15.96
5.11
5.83
5.83
11.45
1.56
1.56
1.88
17.67
8.39
3.68
3.68
9.54
7.53
6.67
6.67
8.06
11.90
13.58
11.52
11.52
11.05
29
Considering that PS acquisition prices would still be subjected to 4% mark-up, the

unit costs to be passed on to the clients would even be higher.
Managements Comments
Teams Rejoinder
Non-advertisement in newspapers for

purchases more than P2M:
Section 21.2.4, Rule XV1 of the
Implementing Rules and Regulations
(IRR) of RA 9184 provides that for
contracts to be bid with ABC of two
million (P2,000,000.00) and below for the
procurement of goods shall be posted at
least in the website of the procuring entity
concerned if available, the website of the
procuring entitys provider, if any, as
provided in Section 8 of theis IRR-A, the
GEPS.
From the aforementioned provision of RA
No. 9184, it is clear that when the ABC of
the procurement is above P2 million, an
advertisement in the newspaper is
necessary. Said rule, however, is not
without exception. Section 21.2.4 of the
same IRR provides that for alternative
methods of procurement as provided
under Rule XVI of this IRR-A,
advertisement in the newspaper may be
dispensed with. Provided, however, that
posting shall be made in the website of
the procuring entity, if available, the
GEPS. Rule XVI of IRR-A provides for
at least five alternative methods of
procurement, namely limited source
bidding, direct contracting, repeat order,
shopping and negotiated procurement. Per
Procurement Service perusal of the
specific Purchase Orders (POs) identified
by the Audit Committee, it found out that
the subject POs were not procured
through competitive public biddings but
through either one of the alternative
modes of procurement, as provided
above. Thus, no advertisement in the
newspaper is not required.
PS claimed that the transactions being

questioned by the Team were not
procured through public bidding but
acquired through any of the alternative
methods of procurement. The specific
method of procurement used was,
however, not disclosed in their
comments.
Under Rule XVI of the IRR-A of RA
9184, there are five alternative methods
of procurement, which the agency may
resort to whenever justified by the
conditions provided in the Act.
Analysis, however, revealed that the
questioned transactions did not meet the
conditions prescribed therein and
therefore could not be procured through
other means other than public bidding as
discussed below:
Alternative
Methods
Limited
Source
Bidding
Teams Analysis
The items procured

were not highly
specialized types of
goods
such
as
sophisticated
defense equipment,
complex
air
navigator system or
the like.
30
Teams Rejoinder
Alternative
Methods
Direct
Contracting
Teams Analysis
These were likewise

not items of proprietary nature or critical
plant component from
a specific manufacturer or sold by an
exclusive dealer. It
maybe mentioned that
at one time or
another, these items
were being publicly
bidded by PS.
Repeat Order These items were

likewise not procured
through this mode as
indicated in the Pos.
Shopping
As tabulated in the
report, the amounts
procured exceeded the
limitation of P250
thousand
allowed
under this mode.
Moreover, as indicated in the questioned

POs, the mode of procurement used by PS
was public bidding. Thus, advertisement
in newspaper of general circulation should
have been strictly observed.
Purchase cost more than the prevailing

market prices:
For supplementary items:
For every request received by PS to
procure items that are not included in the
pricelist (supplementary items), the
IABAC and PS, therefore, do not conduct
any
price
monitoring
activity.
Nonetheless, if the items requested had
The items discussed in the report which

were not subjected to price verification
are not supplementary items but common
use items. As has been observed from
the results of bidding conducted by PS,
prices during CYs 2005 to 2007 were
31
Teams Rejoinder
been previously bought by the IABAC,

the PS informs the end-user of its last
buying price during pre-procurement
conference. Normally, the last buying
price is set as the ABC of the items to be
procured.
fluctuating. Thus, the last buying price

could not at all times be considered as the
ABC as in these cases:
Item
Folder, fancy, legal size
Time recorder, digital clock ribbon
Ink Cartridge, HP 51645A
Ink Cartridge, HP C1823D
Ink Cartridge, HP C 6615D
Ink Cartridge colored, BCI-3, Canon
Fluorescent Lighting Fixt., 1x 20w
Mophandle
Eraser, rubber
CD rewritable
Paper, multi-copy,A4 size
Previous Bidding
Date
Price
Current Bidding Subsequent Bidding

Date
Price
Date
Price
2/15/05 P 190.50 12/6/05

7/18/05 8,550.00 10/27/05
11/24/05 1,625.00 2/7/06
11/24/05 1,805.00 2/7/06
11/24/05 1,535.00 2/7/06
2/24/05
389.00 10/20/05
3/29/05
170.00 12/6/05
6/9/05
40.00 10/4/05
4/28/05
4.50 2/14/06
11/8/05
25.00 3/7/06
10/4/05
137.65 11/8/05
P 199.49
8,800.00
1,665.00
1,840.00
1,565.00
440.00
185.00
45.00
5.60
35.00
136.00
7/27/07
7/18/06
7/11/06
7/20/06
7/11/06
7/11/06
7/27/06
5/24/06
7/27/06
2/15/07
5/4/06
P 186.88
8,550.00
1,575.00
1,750.00
1,480.00
405.00
184.90
44.25
4.78
24.47
132.50
For Common-Use Items:

The Purchasing Division does not
conduct price monitoring activities of the
items being procured. Said function is
lodged with the Planning and Technical
Support Services Division. The previous
buying prices, however, are considered in
setting the ABC. Further, 9184 is very
categorical on the matter as to ABC and
award of contract of contract prices. As
long as the price offer received is within
the ABC and the bid complied with all
other requirements, the IABAC has no
other option but to award the project.
The team recognized that in the

organization charts of PS, the Purchasing
Division is not monitoring prices.
However, since another Division of PS is
undertaking
such
function,
the
Purchasing Division should at least
consider the results of price monitoring
conducted by the Planning and Technical
Support Service Division in setting ABC.
The setting of ABC is critical considering
that all bids within the ABC are
considered compliant.
However, when there is a great disparity

among the prices received, the IABAC
instructs the TWG group to review the
price offer. Awards may or may not be
made depending on the recommendation
and findings of the TWG.
32
Teams Rejoinder
It should be noted, however, that the

IABAC does not declare failure of bids
just because there are lower prices of the
same item in the market. The IABAC
takes into consideration various cost that
bidders incur in joining a public bidding,
i.e. bid bond premiums, cash deposit,
certificate/credit line premiums.
The team is not questioning the IABAC

decisions or actions on biddings conducted
by PS. It was just emphasizing that the
very purpose of setting ABC is to ensure
that the prices to be approved by IABAC is
the most reasonable and advantageous
price for the government.
Thus, a
particular bid is rated/declared failed or
non-compliant if the submitted total bid
price exceeds the ABC. Setting of a rather
high ABC would, thus, defeat this purpose.
33
Chapter 2
Responsive Services to Clients
34
RESPONSIVE SERVICES TO CLIENTS
INTRODUCTION
Services are considered responsive when the services provided matched the
clients needs and expectations. In the case of PS, its services may be
considered responsive when the goods needed by the clients are provided at the
time most needed, at the required quantity and desired quality, and at the most
advantageous prices. In the event that the needed goods could not be provided,
it requires that the clients be fully informed on such limitations in time for the
clients to take alternative courses of actions without adversely affecting their
operations.
The audit, however, disclosed that PS was not able to fully meet the government
agencies requirements for both common-use and non-common use supplies.
This was due to its failure to maintain adequate stock of common-use supplies
both at the PS Central Office and its Regional Depots and failure of the client
agencies to submit specifications for non-common items requested to be
purchased. The client agencies then were deprived to use the requested items on
time.
OBSERVATIONS
1. The needs of client agencies for common-use items were not fully served
by PS due to its failure to maintain safety stock level both at the PS
Central Office and Regional Depots. Unserved purchase request in six
regional depots alone ranged from P.116 million to P2 million as of July
2007. Stock outages were attributed to delayed procurement process due to
deficiency in monitoring stock level and suppliers performance, and
unreliable electronic inventory management system on account of
unrecorded transactions.
Under Section 8 of LOI 755, government agencies are required to purchase

from PS all items that are within the PS coverage. These items include
paper and office supplies and all commonly used items of government usage.
To meet this need, PS is mandated under Section 3 thereof to:
Identify supplies, materials, and such other items, including

equipment and construction materials, which can be economically
purchased through central procurement; and
35
Purchase, warehouse and distribute items for resale to agencies of

government, including government owned and controlled
corporations.
In conjunction with the creation of PS was the establishment of Procurement

Policy Board (PPB) composed of representatives from seven (7) national
government agencies to act as policy-making body of PS. In pursuance of
its mandate, the PPB issued Circular No. 1 on January 1, 1990 requiring
government agencies to submit to PS their annual procurement plan (APP)
showing quarterly requirements, three months prior to the start of the
incoming calendar year. This will serve as basis for procurement of PS of
common-use items for sale. Such requirement was, however, not strictly
observed by client agencies. It was reported that out of 44,909 government
agencies, only 13 were submitting their APPs to PS.
Since items and quantities for procurement were not established due to the
absence of APP, coupled with unpredictable purchases of new and come and
go government agencies, PS was constrained to set stock level requirements
of three months, except for ink/cartridges which is maintained at two
months, and three months buffer stock using historical data with due
consideration on current trends on purchases/withdrawals of its clients. PS
monitors its safety stock level using the following formula:
Stock on hand + in-transit
.
Average monthly withdrawals (AMW)
Where:
AMW = Previous years total withdrawal + 20%
12
A contingency of 20% is added to cover new clients and bigger withdrawals
of current clients.
PS conducts public bidding on a quarterly basis for the procurement of

common-use items with the quantity for bidding
determined after
considering the following variables:
Current stock position

Stocks in transit
Average monthly withdrawals
Additional quantity conveyed in advance by clients
Once the stock position reaches the three (3) months buffer stock, a re-order
is made within the quarter in such quantity that will restore the safety stock
level using certain formula [(AMW x 6 months) stocks-on-hand & intransit].
36
The Team, however, noted that while the safety stock level was properly
established, the needed stocks were not procured on time. This is manifested
in the following instances where the needs of clients were either not fully
served or served only after several days due to unavailability of stocks.
Office/
Depot
Main
Baguio
La Union
Pampanga
Bacolod
Tacloban
Davao
Cagayan de Oro
Koronadal
No. of items not served

2005
2006
Items Clients Items Clients
68
12
58
63
117
Items served only after

several days
2005 2006
2007
12
48 106-337 38-370
98
22-486
1-79
Unserved as of July 2007

but already paid
Items Clients
Amount
8-159
1-164
1-254
1-197
61
48
33
13
9
52
38
136
27
54
243
P 165,040.20
116,654.45
2,030,205.34
803,567.50
86,946.20
552,406.17
36
249,678.85
13
The Team noted that the following factors contributed to stock outages:
Stock levels were not properly monitored. In the following instances,

replenishment of stocks thru purchase or stock transfer were made only
when the stock levels were below the three months buffer requirements:
Location
Main
Office
Item
Bathroom soap
Battery, AA
Battery, AAA
Battery, D
Broom stick
CD recordable
CD Rewritable
Stock level at the

time of request (in
months)
2005
2006 2007
9/6/05
pc
7/5/05 packet
10/12/05
7/18/06
8/22/06
7/22/05 Packet
9/6/05
2/23/06
10/25/06
8/1/05 Packet
9/6/05
10/24/05
11/11/05
4/24/06
7/22/05
pc
9/23/05
2/23/06
6/23/06
10/12/05 pc
7/5/05
pc
7/15/05
9/6/05
2.64
1.39
.51
.28
10/12/05
12/8/05
3/17/06
7/5/05
7/15/05
9/6/05
1.56
2.08
2.2
1.6
0
2.60
pc
1.00
2.10
.33
Required buffer
(3 months
requirements)
2005
2006
24,600
34,950
51,000
6,900
9,000
4,200
9,000
2010
6,000
27,000
9,900
24,000
30,000
0.00
3,000
2.76
2.94
2.12
2.26
1.98
2.71
2.88
1.96
2.73
1.23
2.33
1.77
1.6
0
2.6
Data not picked-up
Blade, for heavy duty

cutter
Purchase/
Stock
Transfer
request
Date
Unit
37
Location
Item
Correction fluid
Cutter, HD
Data File box
Detergent, bar
Detergent, powder
EDP binder
File organizer, legal
Ink cartridge, HP
C8727A, black
Baguio
Depot
Air freshener
10/12/05
12/8/05
3/17/06
11/2/05
bot
9/23/05
pc
12/8/05
3/17/06
5/31/06
10/11/05
pc
10/24/05
2/23/06
5/31/06
7/22/05
bar
9/06/05
11/2/05
2/7/06
9/23/05 pouch
11/2/05
pc
2/23/06
11/6/05
pc
5/19/06
7/15/05
pc
10/12/05
11/16/05
3/10/06
6/8/06
7/12/06
8/9/05
pc
10/12/05
3/17/06
9/12/06
9//28/05
pc
11/9/05
11/11/05
1/10/06
2/7/06
1/4/07
can
Stock level at the

time of request (in
months)
2005
2006 2007
2.20
1.37
2.72
1.57
0
2.29
69,000
6,000
15,300
24,000
12,000
43,500
68,100
1,650
93,000
1,200
4,350
6,000
6,600
15,000
1,200
2,700
45
6,000
1.59
2.63
.96
1.67
2.6
.81
1.89
1.48
1.12
1.20
1.95
1.83
2.01
1.66
2.03
2.56
2.50
2.71
1.24
1.39
2.92
0
0
0
0
0
0
0
0
0
0
0
Detergent powder
Folder, pressboard
Ink cartridge, BCI-24,
black
Ink cartridge, BCI-24
Ink cartridge, Eps,
TO38
1/4/07
3/23/07
2/14/07
Pouch
Pc
Pc
2/23/07
1/4/07
Pc
Pc
6/19/07
Pc
6/19/07
Pc
1/4/07
1/4/07
Pc
Ream
0
0
1/4/07
Ream
0
0
0
0
0
Data not established
Pad
Pc
Pc
Pc
1/15/07
3/23/07
4/17/07
3/23/07
1/4/07
Data not picked-up
0
0
0
Data not picked-up
3/23/07 Packet
1/29/07
Pc
1/4/07
Pc
Ink
cartridge,
HP
C6578A
Magazine file
Paper, mimeo, GW,
legal
Paper, onionskin, legal
60,900
2,700
2.00
1.48
Battery, AA
Broom, soft
Bulb,incandescent,100
w
Columnar pad, 30 col.
Chair, monobloc
CD rewritable
Data folder
Detergent bar
Bar
Required buffer
(3 months
requirements)
2005
2006
1.56
2.08
Data not picked-up
Envelope, expanding,
plastic
Eraser, rubber, soft
Purchase/
Stock
Transfer
request
Date
Unit
38
Location
La Union
Depot
1/4/07
1/4/07
1/4/07
2/28/07
1/17/07
3/13/07
1/25/07
2/28/07
Pc
Pc
Bot
Packet
Pc
Bot
Pouch
Bot
5/7/07
4/16/07
Pc
Pc
4/16/07
6/13/07
6/13/07
2/20/07
3/23/07
3/23/07
2/5/07
2/20/07
6/12/07
6/25/07
5/7/07
4/23/07
6/12/07
5/7/07
6/12/07
Ream
Pc
Pack
Packet
Pc
Bot
Pc
Bar
Pc
can
Bot
can
Pc
Pc
ream
3/6/07
3/6/07
6/12/07
Pc
pc
roll
Marking pen, WB, black

Paper, PPC, A4
Paper, PPC, Legal
Staple Wire, # 35
Paper, mimeo, GW,
legal
Sign pen, blue
Tape, transparent, 1
6/12/07
1/24/06
1/24/06
1/24/06
1/24/06
pc
ream
ream
Box
Ream
1/24/06
9/9/05
1/24/06
Pc
roll
Roll
Tape, masking, 2
Stencil paper,
Cartolina, Asstd
Bathroom soap
Marking pen, Permanent
1/24/06
9/9/05
1/24/06
9/9/05
1/24/06
Roll
Box
Pack
Pc
Pc
Push pins
Ball pen, Black
1/24/06
9/9/05
Bx
Pc
0
0
0
0
0
0
0
0
Data not picked-up
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Data not picked-up
Folder, tagboard, legal

Marking pen, WB,
black
Paper, mimeo, WW, A4
Sign pen, blue
Toilet tissue
Battery, AA
Calculator
Correction fluid
CD rewritable
Detergent powder
Wall fan
Floor wax, red, paste
Furniture cleaner
Glue
Ink cartridge, TO38
Marker, fluorescent
Paper, mimeo, WW,
legal
Pencil, lead w/ eraser
Stapler
0
0
0
0
0
0
0
0
0
Pc
pc
Pouch
Packet
Pc
Pc
roll
Pc
ream
4/16/07
4/16/07
4/16/07
4/16/07
4/16/07
4/16/07
4/16/07
1/4/07
1/4/07
0
Pc
3/1507
Ink cartridge, Lexmark,

#27
Stapler, HD
Ink cartridge, HP6625A
Detergent powder
Battery, AA
Marking pen, black
Data file box
CD rewritable
Paper,
mimeo,
WW,legal
Sign pen, black
Broom, stick
Correction fluid
Battery, AA
CD Rewritable
Correction fluid
Detergent powder
Disinfectant spray
0
0
Required buffer
(3 months
requirements)
2005
2006
Ream
Pc
Data not picked-up
Cagayan de
Oro Depot
1/4/07
4/16/07
Data not picked-up
Tacloban
Depot
Paper, multicopy
CD Rewritable
Data not picked-up
Bacolod
Depot
Stock level at the

time of request (in
months)
2005
2006 2007
Data not picked-up
Pampanga
Depot
Item
Purchase/
Stock
Transfer
request
Date
Unit
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2
Data not picked-up
1
1
39
Location
Purchase/
Stock
Transfer
request
Date
Unit
Item
Paper fastener
Paper , Double AA
Paper, Mimeo, WW, legal
Data file box
Envelope Doc., legal
1/24/06
3/7/06
3/7/06
3/7/06
9/5/05
Box
Ream
ream
Pc
Box
Paper fastener
3/7/06
Box
Ribbon, typewriter
3/7/06
Spool
Required buffer
(3 months
requirements)
2005
2006
1
0
0
0
0
Procurement process exceeded the three months estimated lead time

reckoned from the date of requisition by the Purchasing Division to delivery
date by 45 to 217 days as manifested in the procurement of the following
items:
Item
CD recordable
File organizer
Marking pen, permanent
Paper, bond, PG, A4
Paper, PPC, legal
Stock level at the

time of request (in
months)
2005
2006 2007
Requisition
date
Delivery
date
Time lag
(days)
Over 90
days
03/17/06
12/07/05
11/16/05
2/7/06
10/12/05
11/16/05
10/11/06
08/28/06
9/19/06
6/22/06
5/9/06
7/6/06
204
264
307
135
209
232
114
174
217
45
119
142
Delayed delivery by suppliers ranging from 8 to 85 days from the delivery

dates prescribed in the PO and by the PS Main Office from 8 to 167 days
upon receipt of request by the Regional Depots for stock transfer.
Office
Item
Main Office
CD rewritable
File Organizer
Staple wire #35
Baguio Depot
Battery, AA
Chair, monobloc, w/o armrest
Data folder
Electric fan, wall type
Folder, pressboard, plain, legal
Ink cartridge, TO38
Paper, multicopy
Pencil
Wrapping paper,
CD Rewritable
CCF, 1 ply, 9 x 11
Ink cartridge, Lexmark, #17
Ink cartridge, BCI 24, black
Cutter, HD
La
Depot
Union
Date
Requested
by Depot
Prescribed
Delivery
Date by
Supplier
4/27/06
6/4/06
4/2006
7/16/06
2/14/06
3/23/07
3/23/07
3/23/07
1/15/07
3/23/07
1/15/07
1/16/07
1/4/07
2/14/07
1/4/07
1/4/07
1/4/07
4/11/07
2/28/07
1/4/07
Actual
Delivery
Time
lag
(days)
5/5/06
8/28/06
6/15/06
8/22/06
3/15/06
5/25/07
4/26/07
4/26/07
1/23/07
5/25/07
4/26/07
2/16/07
1/23/07
4/10/07
3/2/07
6/8/07
2/1/07
5/25/07
4/11/07
4/11/07
8
85
56
37
29
63
34
34
8
63
101
31
19
55
57
155
28
44
42
97
40
Office
Pampanga
Depot
Bacolod Depot
Item
Date
Requested
by Depot
Stapler
Paper, multicopy
Detergent powder
Battery, AA
Correction fluid
CCF, 1 ply, 11 x 9 1/2
CD Rewritable
Ink cartridge, Lexmark, #17
Ink cartridge, TO 38
Paper, mimeo, WW, legal
Correction fluid
Battery, AA
CD Rewritable
Correction fluid
Detergent powder
Toilet tissue
Prescribed
Delivery
Date by
Supplier
1/4/07
1/4/07
1/24/07
2/1/07
3/28/07
1/4/07
1/4/07
1/4/07
1/4/07
1/4/07
3/20/07
1/17/07
1/17/07
3/13/07
1/25/07
5/7/07
4/16/07
4/16/07
Actual
Delivery
Time
lag
(days)
5/11/07
3/2/07
5/25/07
5/11/07
5/11/07
2/1/07
6/20/07
3/22/07
3/22/07
1/20/07
5/16/07
5/18/07
6/21/07
5/18/07
5/23/07
6/8/07
7/2/07
5/23/07
127
57
121
99
44
28
167
77
77
16
57
121
155
66
118
32
77
37
Unreliable Regional Depot Database System (ReDDS) due to nonrecording of stock transfers and expired/damaged stocks, posting
errors and non-adjustment of 2007 inventory beginning balances in
Regions I and XII.
The Stock Position is the basis of the Regional Depots in requesting for
stock transfer from the PS Main. This is affected by stocks received or
transferred from the PS Main, stocks issued/sold and adjustments made
such as stocks damaged or returned by client agencies. Any unrecorded
transactions and posting errors to the stock ledgers would affect the
Stock Balances reflected in the Stock Position.
Review of selected transactions, however, revealed that the Stock
Position could not be relied upon due to the following:
Non-recording by Regional Depot No. XI of the expired/damaged

stocks returned to PS-Main on November 27, 2006 amounting to
P1,299,231.46. These expired/damaged stocks were still recorded as
stocks on hand in the ReDDS as of audit date thereby overstating the
stock balance by the same amount.
Item
Ink Cartridge HP C6615A/D, original black
Ink Cartridge HP C6625A, original colored
Ink Cartridge HP 6578A, original colored
Ink Cartridge HP 51649A, colored
Ink Cartridge HPC1823/A, original, tri-colour
Ink Cartridge, Canon BC-20, original black
Ink Cartridge Epson Part No. S020191, colored
Ink Cartridge HPC1823/A, original, tri-colour
Qty.
72
63
232
192
48
1
37
5
Unit Cost
P1,565.00
1,705.00
1,840.00
1,765.00
1,840.00
1,464.52
957.02
1,840.00
Total Cost
P112,680.00
107,415.00
426,880.00
338,880.00
88,320.00
1,464.52
35,409.65
9,200.00
41

Item
Ink Cartridge HP C6625A, original colored
Ink Cartridge, Canon BC-21, colored
Ink Cartridge HP 6578A, original colored
Lexmark Ink #17, black
Lexmark Ink #27, colored
Ink Cartridge, EPSON S020187, original black,
Ink Cartridge, EPSON S020191, original colored
Ink Cartridge, BCI-21, original colored
Fan, heavy duty with stand
Fan, wall type
Fan, orbit type
Toner Cartridge HP7115C
Toner Cartridge HP92298A
Typewriter, 24" manual
UPS
Total
Qty.
1
3
1
3
2
12
100
18
2
3
1
2
1
1
6
Unit Cost
1,705.00
736.01
1,840.00
775.44
903.16
785.00
957.02
736.01
785.00
648.90
900.00
3,425.00
5,560.00
25,500.00
1,400.00
Total Cost
1,705.00
2,208.03
1,840.00
2,326.32
1,806.32
9,420.00
95,701.75
13,248.16
1,570.00
1,946.71
900.00
6,850.00
5,560.00
25,500.00
8,400.00
P1,299,231.46
Non-adjustment in the ReDDS of the expired reservations which were

no longer valid.
Due to the distance of client agencies from PS Regional Depots, the Depots
adopted a 10-day reservation policy, except for RO No. X which adopted
only five days. The procedures require the client agency to fax or call PS
for their requirements. Upon receipt of the clients requirements, the Depot
encodes the items requested in the Quotation/Pending Transactions Menu
of the ReDDS and Price Quotation/Quoted APR and the assigned number
will be generated.
Upon arrival at the PS Depot of the client within the 10-day reservation
period, the Storekeeper will encode the APR number to recall the clients
reservation and to generate DR. If the client agency did not purchase
within the 10 day reservation period, the PS Depot has to manually cancel
the reservation from the ReDDS to make the items available to other client
agencies. The system does not automatically cancel reservation transaction
upon expiry.
Review of the reserved transactions of Region No. XI disclosed that
reservations of numerous transactions not availed of within the 10-day
period were not cancelled. As a matter of practice, if the client agency
arrives after 10 days, the storekeeper prepares another APR without
cancelling the previous APR. As discussed earlier, reserved items no
longer formed part of available balances on hand. Thus, while there are
still actual balances on hand, requests of other agencies could not be served
as the system would no longer generate delivery receipts if the balance
reflected in the system is no longer sufficient to serve the request. This
then contributed in the accumulation of the account Due to Government
Agencies. In some cases, sales actions had to be deferred for a while
pending confirmation of availability of items in the warehouse.
42
Teams Rejoinder
Depot Coordinating Office submitted

its monthly requirements of CU items
(Average Monthly Withdrawal) to
ASD, however, this was not enough to
serve clienteles requirement. Also,
CU items are frequently out of stock.
Some reasons we received from the
concerned divisions were failure of
bidding and under evaluation or has
been allotted to certain agencies here
in Manila.
The team does not discount the

possibility that the stock level
requirement established by PS may
also be inaccurate and needs
reassessment. For this reason, the
established stock level requirement
should be tested by placing
requisitions as soon as the re-order
point is reached. That way, PS
would have a basis for adjusting the
same depending on the stock
conditions resulting from such
If requested items were already actions. As it is, since requisitions
reserved by the ASD, DCO is allowed were prepared only when available
to request for particular item to the stocks were already way below the
Purchasing Divisions.
established buffer stock, and in its
worst, when there were no stocks
available, the validity and accuracy
of the existing stock requirements
could not be tested.
Requisitions below Stock Level
Depot Coordinating Office (DCO)
processes STR upon receiving it.
Depots submission of requests are
done even if they still have stocks on
hand, which based on their clienteles
APRs are already inadequate to serve
their requirements.
As disclosed in the report, in a

number of cases, Regional Depots
requests were served 167 days upon
receipt by such requests by PS Main
Office. Moreover, as discussed
earlier, PS procedures require that
stocks be requisitioned as soon as the
re-order point of three months buffer
stock is reached, with or without
APR received from client agencies.
DCO creates new set of Average

Monthly Withdrawal (AMW) which
was based on the 2007s stocks
issuance of regional depots.
The setting of an AMW can be

considered as an improvement.
However, this would be of no value
if available stocks are not being
monitored and requisitions were not
prepared on time.
If ReDDS is fully functional, stock

level to every depot will be easily
monitored by the DCO. This way, the
DCO will be able to notify the depot
about their stock levels.
The team agrees and in fact

recommended for the enhancement
of the existing computerized system
to monitor stock level. However,
even in the presence of a functional
43
Teams Rejoinder
computerized
system,
if
the
monitoring system is ineffective, the
preparation and approval of requests
for replenishment is not timely, the
procurement process is prolonged,
stock outages would remain to be an
issue.
Procurement process exceeded the

three months lead time
Section 38 of the IRR of RA 9184,
provides that the procurement process
from the opening of bids up to award
of contract shall not exceed three (3)
months, or a shorter period to be
determined by the procuring entity.
While the PS/IABAC concedes that
there are POs issued three months
after the approved Abstract of
Quotations, attention is again called to
the different nature of the PS as
buying agent and not as an ultimate
end-user of the goods being procured.
The PS is just a buying agent of the
government agencies. Procurement
requests submitted to the PS have two
categories: first, a request for
purchase with the corresponding
payment and second, a request for
price estimate with no payments. In
the first category, the PS generally,
has the power to outrightly issue the
PO once the project was awarded.
Although PS deems it proper to secure
first the concurrence of the end-user
agency before we issue the PO. The
second category on the other hand,
requires additional processes and
documentation before a PO may be
issued. As said request is for price
estimate only, the end-result of the
bidding or the award is forwarded to
the end-user. The end-user has now
the discretion to remit the funds for
the items to be purchased or end the
transaction there and then. PS has no
The samples used by the team to

illustrate PS compliance with the
prescribed
timelines
covered
procurement of common-use items
which need no clearance from the
client agencies. Payments for these
items were remitted to PS by the
concerned agencies upon submission
of request for purchase. These,
therefore were within the control of
PS.
44
Teams Rejoinder
power to compel the end-user to

furnish it with funds in order for PS to
issue the PO.
Even assuming that the end-user
agrees to the PS price offer, the
remittance of funds from their end
requires a lot of time and
documentation. The actual remittance
of funds to the PS- which could take
months- is beyond our control.
In fact, even if the funds were
deposited to PS together with the
purchase requests, the process of
securing the end-users conforme to
the purchase sometimes take time.
As discussed earlier, these are

common-use supplies which do not
require conformance by the end
users.
Late delivery by suppliers and

transfer of stocks by PS-Main to
Regional Depots
The DCO prepares the Transfer of
Stock (TOS) once the Depots STR
was received. This will be forwarded
to WADD for the pick-up/delivery
schedule of the forwarder. Also, the
forwarder should deliver the items not
later than the 10 working days, which
is stated in the contract of the
forwarder. Otherwise, forwarder will
be penalized. Only those items which
were out of stock are not included in
the delivery. This will be delivered
depending on how the bidding or
evaluation or preparation of PO or
inspection of the items will take place.
As it appears that PS Main Office

actions on Regional Depots requests
would depend on availability of
stocks, monitoring of stock level and
efficiency in the procurement process
is of paramount importance for PS to
be able to provide responsive
services to clients.
Unreliable ReDDS due to nonrecording of stock movements,

expire/damaged items.
The DCO has proposed to upgrade the We appreciate the enhancements
existing database from certain taken by DCO on this matter.
regional depots. It has already been
done which started in November last
45
Teams Rejoinder
year. This includes the training of the

database users so as the warehousing
management.
DCO is yet to instruct Depot XI to The prescribed process in dropping
deduct the expired/damaged stocks the expired/damaged items from the
that were returned to PS-Main Office books should be followed.
from their inventory. Besides, Depot
XI has already submitted a report of
expired/damaged
stocks
last
November 2006.
2. Demands for non-common use items were not served on time as

manifested in the accumulation of balances of Due to Other Government
Agencies accounts which amounted to P1.857 billion as of December 31,
2006. This can partly be attributed to the failure of the requesting agencies
to provide PS with complete specifications on time.
In addition to servicing the requirements of government agencies for

common-use supplies, a number of government agencies and
instrumentalities coursed their procurement for non-common use items
through PS. Upon request by the client agencies, the corresponding budget
for the items being requested is remitted to PS. The amount remitted is
accounted by PS as Due to Other Government Agencies. Records show that
as of December 31, 2006, this account has an outstanding balance of P1.857
billion composed of 1,924 accounts representing advances from the
following sectors:
Agency
National Government Agencies (NGAs)
Government Owned and Controlled
Corporations (GOCCs)
Local Government Units (LGUs)
Total
No. of
Accounts
Amount
1,453
P1,808,268,338.77
97.39
124
347
1,924
22,110,996.72
26,321,648.76
P1,856,700,98425
1.19
1.42
100.00
The accumulation of advances signifies that a number of requests from client

agencies were not served by PS. Of the total accounts of 1,924, 71 accounts,
with an aggregate amount of P1.749 billion, have balances over P1 million.
Of the amount of P1.749 billion, 62% have been remitted to PS from 1993 to
2005 tabulated as follows:
46
In Millions
Agency
NGAs
GOCC
LGU
Total
%
No. of
Acct
Current
Year 2006
Total
1,453 P 1,723.20
124
11.42
347
14.62
1,924 P 1,749.24
100%
P657.95
6.60
3.94
P 668.49
38.22%
One (1) Year

2005
Two (2) Years

2004
Three (3)
Years
2003
Four Years and

above
Between 1993
to 2002
P215.33
1.53
4.77
P 221.63
12.67%
P3.25
.08
.39
P3.72
0.21%
P114.83
.14
.04
P 115.01
6.57%
P731.84
3.08
5.48
740.40
42.33%
Among the agencies with significant balances follow:

Agency
Account
Code
Amount
Office of the Pres. and Other Executive Offices

Department of Agriculture
Department of Education
Department of Health
Department of Interior and Local Government
Department of Justice (DOJ/Judiciary)
Department of Labor and Employment
Department of National Defense
Department of Public Works and Highways
Department Social Welfare and Development
Department of Transportation & Communication
Constitutional Offices
A
D
F
K
L
M
N
O
P
R
U
W
P 38,430,045.48
10,334,310.49
277,022,861.32
147,863,583.37
180,447,705.74
35,973,497.96
13,223,190.53
847,119,571.92
11,583,719.96
15,774,243.20
30,145,808.30
22,248,095.21
2.35
0.63
16.95
9.05
11.04
2.20
0.81
51.84
0.71
0.97
1.84
1.36
Source: Financial Statement 2006
In order to determine the items requested by the client agencies and assess
the adverse impact on the failure of PS to serve client agencies needs on
time, the Team requested for copy of the following documents for analysis:
Subsidiary ledger (SL) of 27 selected client agencies

Summary of Unutilized Deposits of 31 selected accounts
Status of Agency Requirements of 10 selected agencies
Of the reports requested, only five (5) SLs, seven (7) Summaries of
Unutilized Deposits and 10 Status of Agency Requirements were provided to
the Team. The Team was informed that not all documents could be provided
at once as these were either being prepared only or updated only upon
requests by the client agency for reconciliation of accounts.
Analysis of records made available to the Team revealed that among the
reasons for the delayed procurement are delayed submission of
specifications by the client agencies, prolonged evaluation/testing and
approval by the client agencies of the specifications/samples submitted by
prospective suppliers and failure of public bidding. Due to the absence of
47
timelines prescribed by PS for submission of the required documents, PS

failed to compel agencies to submit the specifications and other requirements
on time.
The status of selected transactions as deduced from the Summary of
Unutilized Deposits follow:
Qty.
Description
Amount (per
Status
Report from
ASD)
Phil Navy
8,872 pcs.
53,228 yards
Camouflage suit
white cloth
17,744 yards
khaki cloth for marines
1,774,400
17,744 yards
green cloth for marines
1,774,400
6,671 yards
navy blue
7,004,550
817 pcs.
raincoat
1,225,500
368 pcs.
2,481 pairs
Helmet
white shoes
3,790,400
2,977,200
495 pcs
tiger camouflage
21,652 yards
21,652 yards
2 pcs
10 pcs
chambray cloth
dungaree cloth
Tire Changer Hydraulic (for
armor vehicle)
Collapsible Tent
4 pcs
Hydraulic Lifter
6 pcs
Multi cab vehicle

Diesel fuel
XCS Plus
Payment
Date
11,090,000 11.30.05
5,322,800
643,500
11.30.05
2,165,200
2,165,200
3,510,000
420,000
275,600
6.15.04
6/15/04
10,000 pcs
648 pcs
12 pcs
79pcs
350,000
9,800,000
5,184,000
240,000
2,768,500
12 pairs
12 pcs
120 pcs
12 pcs
Boots airs
gloves
medicine pouch
rubber boat, inflatable
40,800
20,400
19,200
5,400,000
12 pcs
1 pc
1 pc
3 pcs
headset kit
fumigating machine
fogging machine
Puller
168,000
30,000
87,540
489,339
Specifications submitted to PS on May 7, 2007.

Awardee MLUD to submit prototype to Phil
Navy for approval as per PS letter dated June
13, 2007
PO dated May 25, 2007 amounting to
P1,596,960 was awarded to JEJE Enterprises
for delivery within 60 calendar days
3rd failed bid as per certification dated May 3,
2007. PS required supplier to match the color
with sample provided by the agency.
Samples submitted by prospective suppliers
still for testing/evaluation at the SGS. Results
of test will be the basis for specifications and
test parameters.
Samples submitted by prospective suppliers
are with the Technical Working Group (TWG)
awaiting water repellency test.
Request cancelled. For re-alignment
Agency still to submit specifications/test
parameters.
For bidding. Specifications/test parameters
forwarded to PS on May 7, 2007.
For bidding
Cancelled; for re-alignment
2.23.04
900,000
16,834,847.62
1,269,023.90
Tow car
Safety shoes
helmet level 1
helmet level III
life jacket
Status
For issuance of PO as of May 4, 2007 in the

amount of P 603,200
For bidding
Based on the Summary of Unutilized Deposit
there was unutilized deposit amounting to
P19.67 million. Per Status Report as of June
25, 2007, the Multi cab was cancelled. The
amount remains in the PS for 36 months from
the date of fund transfers.
For bidding and review of specifications
Specs submitted to PD on 05.04.07; re-bidded
Cancelled for re-alignment
For purchase, same spec with PNP, SAF
Samples submitted to PD on 5.9.07; preprocurement on 5.23.07
PN has to answer ALS Marine letters for
reconsideration; New specs for submission by
PN on or before 5.11.07
6.15.04
48

Qty.
3 pcs
1
97 pcs
AFP-GHQ
3,530 rounds
30,000
Description
Amount (per
Status
Report from
ASD)
Lawn mower
Generator
Back Pack, Scuba Cylinder
Single
145,000
438,149
66,032,148 1.12.05
Various mobility spare

parts for 19 vehicles.
23,096,840 09.06.05
Ammo. 5.56 mm Ball
Various Commel Spares

Aircraft BK 117
C421
BNI 2A21
Special Equipment
Spectra Plate
Ballistic helmet
Lam an PEQ-6 mt ass F
9mm
Leupold Daylight Sniper
Scope
Hemostatic Agent
Multi-use
MiniMonocular
Firearms
Long firearms
Firearms accessories
Rapelling & Rescue Equipment
Rapelling rope
500,000 02.09.05
2,610,720
02.09.05
915,000 01.5.06
27,250,000
250,040
w/ PO dated 12/19/05 with delivery period of

30 CD. No delivery yet.
Bidding failed three times. For rebidding
w/ PO
For bidding
12.7.04
480,000
7,040,000
ABC increased , letter dated Jan. 26,2007

Specs to be patterned w/ PAs
PNP to submit specs and ABC as of 2.1.07
12.7.04
Schedule of SB on 1-12-06
160,000
Snap link
Figure of eight
160,000
192,000
Sit harness
Breast harness
97,500
97,500
Full-body harness
45,000
Rope guard
Fast rope
96,000
45,000
Rescue tool
Rescue & Transport
Strap
Holder/Stand
Breaching Equipment
Hydraulic Jack
Bolt cutter
1.19.05
4,400,000
3,960,000
153,600
6,864,000
Public bidding failed. Proponent failed to

comply with eligibility requirements and bid
offer higher than ABC.
Issues/concerns
discussed by the PS-IABAC with GPPB-TSO
to
consider
foreign
bidders/suppliers
participation in the procurement process.
Items for purchase were requested on Nov. 22,
2006 to be replaced by five (5) vehicles. For
opening of bids on 5.11.07.
APR was cancelled and replaced by 1310-s.
For bidding.
Bidding failed 5 times for items 2 & 5 due to
absence of interested suppliers. For item 1,
awardees request for 10% price increase. PS
informed GHQ to procure from other sources
and requested GHQ to get back the remaining
amount remitted. The items were replaced by
Ctg 105mm HE MI received on 12.22.06. Items
for bidding.
Pre-procurement on 6.6.07
No information per status report. The funds
came from balances of various APRs issued
during 1997 to 2002.
For further discussion of IABAC
3,000,000
6,000,000
Status
With PO dated 2/6/07 60 days delivery period.

TWG to review specifications and ABC
PN has to submit samples and list of suppliers.
cartridge, 105mm HE MI
1. Grenade
2. Cap blasting
3. Cord, detonating
4. Fuse, blasting time
5. Igniter time blasting fuse
PNP
1
Payment
Date
12.7.04
Sealed Bidding on Jan. 17, 2006 failed, for

discussion with PNP
47,500
28,500
31,500
214,550
102,675
12.7.04
Sealed Bidding on Jan. 17, 2006 failed, for

discussion with PNP
49

Qty.
Description
Fire ax
Fireman ladder
Communication Equipment
GPS-based
radio
system
Mobility
AUV
Ambulance
Trailer for rubber boat
H. Individual Equipment
Elbow pad
SWAT Boots
Total
Amount (per
Status
Report from
ASD)
Payment
Date
Status
56,000
76,695
9,923,000
12.7.04
7,000,000
2,000,000
120,000
12.7.04
441,408
302,400
44,287,368
12.7.04
PNP to submit specs as of 10.17.06

PNP to submit spec & ABC as of 2.1.07
PNP to submit Specs as of 10.17.06
PNP to submit Specs as of 10.17.06
Re-bid on 1.25.07
Phil Army (PA)

300 pcs.
Tires
1,860,000
7.7.05
60 pcs.
Tires
372,000
7.7.05
118 pcs.
Tires
804,760
7.19.05
600 pcs
90 pcs
Tires
Tires
5,441,280 11.25.05
816,120
730 pcs
Tires
4,526,000
8.16.04
45 pcs
Tires
279,000
7.7.05
12 pcs
Tires
98,400
11.9.04
870 pcs
Tires
5,394,000
7.7.05
46 pcs
Tires
349,600 7.20.06
Awarded by PS at P 2,256,633 (inclusive of 4%

mark up). Specs submitted by the winning
bidders not acceptable to PA. Discussion w/
IABAC/end-user/supplier ongoing.
Awarded by PS at P 451,326.60 (inclusive of
4% mark up). Specs submitted by the winning
Waiting for complete specifications
Pre-bid
Awarded by PS at P 5,491,140.30 (inclusive of
Already awarded with PO 51849 dtd. 9/15/05
but with no delivery yet hence amount still
appearing on the summary as of 12/21/06.
Awarded by PS at P 6,292,536 (inclusive of 4%
mark up). Specs submitted by the winning
Waiting for complete specifications
As may be noted, PS performance is affected by the client agencies failure

to submit specifications and acceptance of specifications submitted/
proposed by the bidders.
50
Chapter 3
Sound Warehousing and Stock Controls
51
SOUND WAREHOUSING AND STOCK CONTROLS
INTRODUCTION
As a policy and in order to ensure availability of stocks upon request of the client
agency, PS is maintaining three (3) months requirements and three (3) months
buffer stocks or stocks equivalent to six (6) months consumption of commonly
used supplies. Safekeeping and monitoring of movements of stocks of this
magnitude is a complex activity. Thus, the need to adopt good warehousing and
stock control systems.
Sound internal control over inventory entails records to be accurate, updated,
parallel to the flow of the products, and with indicated economic inventory
levels. Records should also indicate slow moving, obsolete, expired and
damaged items, and should be reconciled with physical counts. The controls
should also consider sound principles on physical safeguarding of assets which
in this case, required proper lighting and ventilation, stock organization,
restriction of stocks to unauthorized personnel, availability of fire safety
equipment and adequate insurance coverage.
The audit, however, disclosed that these controls were not applied by PS. PS
warehouses were insufficient to accommodate large inventories and deficient in
protective and emergency response paraphernalia. In addition, the accuracy of
inventory records was not assured as these were based on actual count without
reconciling with inventory records. This was compounded by non-adherence to
the principle on segregation of duties, and deficiencies on existing inventory
management systems.
OBSERVATIONS
1. PS was not prepared for its expanded services as warehouse controls were
not in place before procuring in voluminous quantities. Existing
warehouses were insufficient to safeguard and store large inventories and
items that could not be accommodated inside the warehouses were not
protected. Protective and emergency response paraphernalia were also
insufficient further exposing the stocks to undue damage.
52
Proper warehousing requires that proper lighting, product labeling, and

provision of shelf/area for easier stocking, picking, and counting inventories
should be maintained. It also requires protecting stocks from premature
spoilage and fire through proper ventilation at required and/or appropriate
temperature, availability of fire safety equipment, and adequate insurance
coverage.
Ocular inspection conducted by the Team at the PS Main and selected
Regional warehouses, however, revealed that the same were not sufficient to
safeguard and store large inventories and items that could not be
accommodated inside the warehouses were not fully protected. Apparently,
while PS was not prepared for its expanded services and warehouse controls
were not in place, procurement in voluminous quantities were just the same
continued.
Further evaluation revealed that while warehouses were covered by fire
insurance, quite a number have no preventive and emergency response
paraphernalia on site or no smoke detectors, fire alarms, and fire
extinguishers. There were also no adequate air conditioning and ventilation
to preserve and protect the stocks.
The conditions of warehouses at the time of inspection are disclosed below:
LOCATION
CONDITIONS
PS-Main
No smoke detectors, fire alarms and

water
sprinklers
while
fire
extinguishers were not adequate
considering the area of the
warehouse.
Stocks such as marking pens,

inks, and cartridges requiring cold
temperature were kept in a non
air-conditioned and/or not properly
ventilated room.
No roof
insulators to help absorb
the heat from the sun and no
available exhaust fans.
53

LOCATION
CONDITIONS
Doors of warehouse No. 4 are open during the day without proper security
controls
CAR
Baguio City
Stocks enormously filed reaching the ceiling and fluorescent light.
Region I
La Union
Some stocks were stored in the

nd
2 floor hallway leading to the
main doorway as the warehouse
was quite small to accommodate
the increasing volume of stocks.
Stocks stored near the stairway at

the ground floor of the DBM building
leading to a door without security
personnel.
Stocks extremely filed reaching the

ceiling and fluorescent light. There
were no smoke detectors, fire
alarms and fire extinguishers
installed in the entire warehouse
area.
Protective covering not installed at

the warehouse entrance.
54

LOCATION
CONDITIONS
Region III
Pampanga
Bulky and fast moving items

placed outside the warehouse
covered by trapal as the
warehouse was not large enough
to accommodate the increasing
volume of stocks.
PC ng Bayan computers kept in the 2nd floor

of the DBM building.
Stocks are extremely filed reaching

the ceiling and fluorescent light
that may cause fire.
Clients waiting area and passage in

nd
going to the 2
floor of the
warehouse where some items were
stored.
Damaged commissary items no

longer fit for human consumption
stored outside the warehouse
along with other stocks.
55

LOCATION
CONDITIONS
Region VIII
Tacloban
City
st
nd
Some items placed outside the

warehouse due to limited space
exposing the same to possible loss
and pre-mature deterioration.
Items
received by clients are
stocked in the garage with no
walls exposing the same to
possible damage and loss while
large part of the stockroom were
occupied by expired items.
Expired items occupying the stairs

of the warehouse.
Bulky and fast moving items

placed outside the warehouse.
The entrance and exit door where

stocks were stored and clients pass
nd
through to get to the 2 floor.
Stocks are kept in the 1 and 2

floors of DBM building which is
built for office use and dormitory
for transient DBM employees and
visitors.
Region XCagayan de
Oro City
Garage
Region XIDavao City
There were no smoke detectors,

fire alarms and fire extinguishers
area.
56

LOCATION
CONDITIONS
Region XIIKoronadal
City
The depots office where stocks

are exposed to client.
There were no smoke detectors, fire

alarms and fire extinguishers
area. The stocks are enormously
filed reaching the ceiling and
fluorescent light.
Teams Rejoinder
Warehouse is sufficient to store and

safeguard large inventories, items are
protected, deliveries that cannot be
accommodated is not accepted, except
for some like aircons which are for
immediate disposal. Yes, it is true that
protective and emergency response
paraphernalia were insufficient. We
are lacking of proper ventilation, no
pest control program, drainage
improvement, insufficient aircondition
rooms and roof leak.
This is true only at the PS Main

Warehouses.
As illustrated in the
report, warehouses at the Regional
Depots could no longer accommodate
increasing number of stocks.
2. Recording and releasing of stocks are undertaken by the same person

contrary to the principle of good internal control requiring segregation of
incompatible functions. This exposes the stocks to possible
misappropriation and theft.
Sound internal control requires that responsibility for the physical custody of
inventories/stocks be separated from related recordkeeping/accounting of
such inventories/stocks. The audit, however, disclosed that the segregation
of these functions was not observed in a number of regional depots as
depicted in the following conditions:
57
LOCATION
OBSERVATIONS/REMARKS
Region X-Cagayan
de Oro
The employee in charge of preparing the Delivery

Receipts acts as checker and storekeeper whenever
there is unusual influx of clients and during the
absence of the supply officer in charge of checking the
items against the DR before releasing.
Region XI Davao
City
Recording in the stock cards and releasing of stocks to

clients are undertaken by the Administrative Assistant
who is also acting as a storekeeper/warehouseman.
Absence of check and balance opens avenue for
possible misappropriation of stocks.
Region XII
It was
observed that due to limited number of
personnel assigned in releasing of stocks, and in order
to serve all clients during the day, personnel assigned
in record keeping are also assigned in releasing and
checking stocks against the DR.
Koronadal City
The cashiering, bookkeeping and supervision at the Regional Depots were

assigned to DBM personnel detailed thereat while warehousing, including
maintaining of database and stock ledger cards, were done by contractual
personnel. The Team observed that due to lack of manpower, the Regional
Offices resorted to multitasking covering even incompatible duties and
responsibilities that should be segregated for control purposes.
3. Out of the 44 contracted features of the electronic Warehousing

Management System (eWMS), only 34 were so far delivered by the
contractor of which only 22 were being used by PS. Non-implementation of
already available features defeats the purpose of contracting the same and
hinders PS in determining the systems weaknesses and needed
enhancement. Some features tested need enhancement to capture real-time
data and establish accurate inventory balances.
To improve its operation, PS contracted Mannasoft Technology Corporation

in November 2005 to design an inventory management system in the amount
of P200,000. This covers the software license and 62 mandays or 500
manhours with 50% of the cost payable upon start of installation and training
and the remaining 50% upon system acceptance. Some features of the
system were delivered on April 25, 2006 and were being used since then.
The contractor was not yet fully paid as other features were not yet
delivered.
58
Records show that out of the 44 contracted features, only 34 or 77.27%

features were reported by the Planning and Technical Support Services
Division (PTSSD) as delivered by the Mannasoft Technology Corporation.
However, the eWMS as delivered was not being fully utilized by PS. Of the
34 delivered features, only 22 or about 65% were reportedly being used as
tabulated below:
DELIVERED
SCOPE OF WORK
Configure (Master File Setup)
A. Facilities
1. Company
B. Location Level
3. Location
B. Product Engineering (Item Master)
1. Product Structures
2. Category Level
3. Category
4. Attribute
5. Product Group
6. Product Definition
C. Currency
D. Unit of Measurement
E. Department
F. Remarks
G. Customer
H. Supplier
I. Utilities
1. Backup
2. Restore
J. User Account
II. Purchase Orders
A. Create PO
B. Cancel PO
C. Modify PO
D. Approve PO
III. Inbound Traffic
A. Receiving
B. Change Item Location
IV. Outbound Traffic
A. Item Requisition
B. Order Picking
C. Order Replenishment
D. Delivery Receipt
E. Returns
F. Pull Out
G. Stock Transfer
V. Inventory Management
A. Inventory Details
B. Physical Count
VI. Barcode Label Printing
VII. Reports
A. Receiving Report
B. Delivery Report
Implemented
Not
Used
NOT YET
DELIVERED
I.
partially
59

DELIVERED
SCOPE OF WORK
C.
D.
E.
F.
G.
H.
I.
J.
Undelivered Report
Pullout Stock Report
Damage Report
Purchase Order Report
Return to Supplier
Inventory Reports
Accounting Reports
Sales Analysis
Implemented
Not
Used
NOT YET
DELIVERED
Non-implementation of already available features defeats the purpose for

contracting the same and hinders PS for determining the features
weaknesses and needed enhancements.
Each feature allows the user to view, add, edit, delete, cancel, and search
records. Audit test of the delivered and implemented features of the eWMS
disclosed that there were even fields which were not used at all. Other
features can also be enhanced to provide useful information as discussed
below:
DELIVERED FEATURES
UNUSED FIELD/SHORTFALLS
I. Configure
A. Settings (Master File Setup)
1. Facilities
a. Location
This is a menu of the system
where actual items are located.
This menu was not fully utilized. The

particulars / specific depots / warehouses affected by the transactions
were not encoded in the system.
Thus, even if the user views this
menu, the depot/warehouse involved
in the transactions could not be
identified.
2. Product Engineering (Item Master)

a. Category
This is a menu of the system
where types of goods being
served by the PS are identified.
Although, there are 3 types of PS

items already included in the category
list of the system, the system is
utilized for transactions involving
common-use and commissary items
only. The transactions for noncommon items are not yet processed
through this system, instead these
are processed through the use of the
old
system-Financial
Accounting
(FACT) System.
60

DELIVERED FEATURES
3. Department
The department represents the
client agency/customer.
The addresses of clients were not

being encoded. Thus, the generated
Delivery Receipts have no clients
address. The address would aid the
forwarder to identify the location of
the client agency/customer.
The menu has also no field for
region to segregate the client
agencies/customers served in the
regional warehouses/ depots. The
inclusion
of
region
of
client
agency/customer will be useful in
linking the regional depots operations
to main office.
II. Inbound Traffic

A. Receiving
This menu is used by the
Inspection Division for encoding
quantity of goods received based
on the acknowledged Inspection
Certificate and Acceptance Report
(ICAR).
This feature is not yet linked to the

purchase order menu. Hence, the
system would not generate list of
Purchase Orders without and/or
awaiting deliveries.
III. Outbound Transaction

A. Delivery Receipt
This menu is used for the
preparation of Delivery Receipt
(DR) by the Agency Servicing
Division.
There is no available data field or row

for address of customer/ client
agency. Moreover, this is not linked to
the Department feature where there
is an address field. Unfortunately, as
discussed above, the address field in
the Department features was not
being used. The address in the DR is
important to facilitate delivery of
goods.
There are also no data fields for the
person preparing and approving the
DR,
under
the Delivery Invoice
Record. Thus, upon preparation of
the DR, it can be printed or generated
from the system without checking as
to completeness, correctness, and
validity.
The Team also noted that for APR
with complete documentation, an
61

DELIVERED FEATURES
APR number is assigned. At this
stage, DR is prepared and the
ordered quantity is automatically
reflected as on hold quantity. The
on hold quantity is automatically
deducted from the available stock
balance.
Upon delivery of goods to the
customers, the on hold quantity is
closed by scanning or encoding the
delivered quantity.
However, the
scanning or encoding of delivered
quantity of each item is not
immediately done and could not be
immediately done for DR covering
partial deliveries.
B. Stock Transfer
This is where the dummy Stock
Transfer Slip is prepared by the
Depot Coordinating Office. The
dummy Stock Transfer slip is a
temporary Transfer of Stocks slip
to put on hold the items to be
delivered to the depot.
The actual stock transfer is not yet

generated thru eWMS but being
processed thru a separate system,
the Financial Accounting (FACT)
System. The processing of Stock
Transfer directly thru the eWMS
would minimize time and cost of
preparation for transfer.
IV. Inventory Management

A. Inventory Details
This menu allows the authorized
divisions to view transaction
history and incomplete item
requisition, and to generate
inventory/stock
status
report.
There are no data fields required
to be filled-out here. The data
reflected in generated Stocks
Status Report are location,
category, item code, description,
on hand quantity, on hold quantity,
and total quantity
The total quantity reflected in the

Stock Status Report composed of on
hand quantity and on hold quantity.
However, since the scanning of
deliveries were not up to date, the
data generated under this menu is
not accurate.
B. Physical Count
users to add, edit, approve, and
post count plan, cancel approved
count plan, generate count sheet
and cut-off balance report, and
process variance.
This feature was not yet used by PS.

The Team also observed that the
physical count menu has no feature
to hide the quantity on hand column.
Thus, if the count sheet is printed
from the system, the stock on hand
per system is automatically reflected.
62

DELIVERED FEATURES
The generated count sheet should
not reflect the quantity on hand so
that the person conducting physical
count will be independent and not be
influenced by the balances reflected
on the database.
V. Barcode Label Printing

users to print barcode label. The
barcode is used for scanning
inbound and outbound items to
reflect the movement of stocks in the
Stocks Status Report.
The bar code labels are not attached

to the stocks and not used for
scanning.
Instead,
the
WADD
manually counts the issuances of
stocks and manually inputs the
number of quantity on the eWMS.
The items with barcode will facilitate
the processing of
inbound and
outbound transactions if properly
used.
Teams Rejoinder
As of December 31, 2007, PS

discontinued the use of the Electronic
Warehousing Management System
(eWMS) which handle the Inventory
Management System of the PS and on
the process of upgrading and
enhancing the Financial Accounting
(FACT) System.
The Team appreciates the action taken

by PS. As discussed in the report,
using all available features of an
electronic inventory management
system, whether a new or enhanced
version of the existing one, will enable
PS to assess the usefulness or
weaknesses of a certain feature and
identify further improvement.
Upgrading the FACT from a DOS

based to a Window based System
which will now cover both the
Financial and Inventory aspect of the
operations. The new FACT system
will be operational before the end of
April 2008 and its enhancement will
be finish before mid-year of 2008.
63
4. The accuracy and reliability of the recorded merchandise inventory at the

end of the year which was based on actual inventory count was not
assured. This is not being reconciled with the systems generated stock
position report which is designed to track the movement of stocks. The two
records reflected substantial differences.
As prescribed in the NGAS Manual, the Merchandise Inventory account
should be set up upon purchase of merchandise for sale and correspondingly
reduced by the Cost of Goods Sold upon sales, issuance or other forms of
disposition. The remaining balance then would represent the cost of ending
inventory which should be reconciled with actual inventories.
Records show that this provision was not being observed by PS. The PS
accounts inventory transactions using the following entries:
Upon procurement
Purchases
Accounts Payable
xx
xx
Upon Sales
Cash/Accounts Receivables
Sales
xx
xx
At the end of the year

Merchandise Inventory
xx
Income and Expense Summary
xx
As maybe noted, the account Merchandise Inventory was set up only at the
end of the year based on actual inventory count.
At present, the PS is using eWMS and FACT at the PS Main and ReDDS at
the Regional Depots for managing its inventories. Under the systems, the
movements
of
stocks/items
from
procurement/transfers
until
issuance/disposal were being tracked.
The system also generates
inventory/stock position reports. These reports then could be used as basis
for checking accuracy of actual inventories.
The Team, however, noted that the results of the physical counts were being
booked without being reconciled with the systems generated
inventory/stock position report designed to track inventory movement.
Instead, the results of actual count were being reconciled with the manually
prepared Stock Ledger Card/Bin Card Balances.
64
Review of the entries reflected in the manually prepared stock ledger cards
maintained at the PS Main warehouse, covering the period CYs 2005 and
2006, however, revealed that the same could not be relied upon as basis for
testing accuracy as not all transactions were recorded therein. The Team
noted a number of unrecorded receipts and issuances and multiple entries as
depicted in the following samples:
Unrecorded Receipts of Stocks
Item Description
Unit
PERSONAL COMPUTER, AMD

Sempron 2600
Sempron 2600
Sempron 2600
Sempron 2200
Sempron 2200
set
CALCULATOR, desktop, compct, 12 digits
INK CARTRIDGE, Canon BCI-21
unit
piece
ICAR No.
ICAR Date
PO No.
QTY.
RCVD.
2006-4015
12/20/06
61851
100
2006-3922
12/12/06
61851
40
Unit Cost
Total
Cost
14,615
P 1,461,500
14,615
584,600
2006-3907
12/8/06
61851
60
14,615
876,900
2006-0298
2/2/06
51211
120
14,781
1,773,720
2006-0440
2006-0352
2006-3726
2/14/06
2/8/06
11/23/06
51211
60147
61898
123
1,000
300
14,781
215
322
1,818,063
215,000
96,600
Unrecorded Issuances of Stocks

Item Description
CALCULATOR, desk top,
compact, 12 digits
CALCULATOR,
desktop, compact, 12 digits
CALCULATOR,
desktop, compact, 12 digits
RUBBER BAND, #18,
DR No./ date
APR
No.
Client
Agency
Qty.
Selling
Price
Total
Sales
06-00559/ 1/10/06
D0828
BPI
224.65
224.65
06-01269/ 1/20/06
D0760
20
224.65
4,493.00
06-0040406/13/06
06-005277/
6/27/06
4289
4869
LGUManila
City
176.80
176.80
76.75
Unit
unit
box
BPI
Remarks
recorded as 1
153.50 box in the stock
card
Multiple Recording in the Stock Ledger Cards

Item Description
INK CARTRIDGE, HP 51629A,
Unit
piece
INK CARTRIDGE, Canon BCI-21
Date
Issued/
Received
2/28/05
3/2/05
3/28/05
6/16/05
6/21/05
DR
No.
APR/PO
No.
03179
1696
09667
4663
Received
From/ Issued
To
Qty.
Rcvd
NFA
NFA-Zambo
Qty.
Issued
1
1
1
3
3
OT
3
TONER CARTRIDGE, HP 92298A
INK CARTRIDGE, HP 51629A
Item Description
ENVELOPE, mailing, white, with

window, (4" x 9-1/2")
Unit
box
3/1/05
3/30/05
7/6/05
03659
1938
10958
1/23/06
01090
5393
5409
0458
Date
Issued/
Received
DR
No.
APR/PO
No.
4/26/06
2/6/06
5/8/06
2/14/06
5/15/06
1/18/06
5/11/06
3/23/06
4/6/06
11/7/06
11/14/06
01749
02307
0899
198
06-
3074
0848
1339
1063
3645
LSU-Baybay
Leyte S.U.
NSCB
DTI
Received
From/ Issued
To
2
2
1
1
15
Qty.
Rcvd
DPWH-CO
DOLE
DA-PFDA
NCH
PCIC
HDMF-TSAG/NS
UPLB
PS-Legaspi
HDMF Lucena
PS-Koronadal
Qty.
Issued
3
7
3
5
1
100
2
50
10
200
200
PS-Tuguegarao
200
65

Item Description
Unit

Sempron
set
Date
Issued/
Received
4/4/06
4/24/06
1/23/06
4/26/06
5/3/06
3/30/06
2/22/06
6/20/06
DR
No.
APR/PO
No.
00143
01699
0032P
0080
1895
0053
3354
31632
51211
01162
Received
From/ Issued
To
Qty.
Rcvd
GMA-PC
PA-MSPC
GMA-PC
Roxas, Palawan
GMA-PC
Columbia Tech 50
Qty.
Issued
1
1
13
1
1
1
50
Further, comparison of inventory balances of selected items per inventory

count and stock position ledger generated from the FACT and the eWMS/
ReDDs reflected significant variances as illustrated below:
Item
Variance
Per Count
Dec. 2007
Per eWMS/
ReDDs
119
25
1
29,125
145
1,052
105
(2,288)
9
(182)
(20)
(1,297)
1,042
110
270
91
5,090
3,840
28
35,907
1,793
2,422
16,707
2,108
2,533
3,433
1,881
18
2,577
167
43,185
7,036
2,474
6,519
2,337
4,395
5,175
80
35,855
1,768
2,407
15,149
1,625
2,524
3,472
1,881
18
2,547
167
43,445
7,039
2,472
6,423
2,336
4,378
4,663
80
52
25
15
1,558
483
9
(39)
30
(260)
(3)
2
96
1
17
512
-
Can
Pack
piece
305
10,027
259
456
25
99
260
353
1,031
59
182
1,468
180
843
132
608
0
62
58
48
360
5,900
121
423
10,957
33
171
106
(1)
463
186
2,397
(84)
4,016
4,090
344
(255)
(50)
(103)
17,895
514
159
10
(14)
98
(30)
(118)
(930)
226
285
(81)
100
(203)
167
(1366)
143
(3834)
(2662)
(164)
1098
182
711
(17895)
(452)
(101)
38
374
5802
151
unit
piece
cart.
pack
20
693
(7)
100
41
692
7
(80)
(41)
1
Unit
Per Count
each
box
pad
pouch
box
box
set
bundle
piece
piece
bottle
piece
piece
bottle
box
piece
tube
pack
piece
37,703
1,066
1,832
101,350
2,969
2,477
223
22
629
508
573
52,737
5,266
1,306
9,039
2,295
3,686
447
Dec. 2006
Per
FACT
Variance
PS Main
Audio Cassette Tape, 90 mins
CCF, 1 ply, 11x14 7/8
Columnar pad,18-col 22x 1/2x 28
Detergent Powder, 200gms
Envelope, mailing white, with window
Envelope, pay kraft, 4 x 7 1/2
Lighting Fixture, flourescent (1x20w)
Folder, fancy, letter
Ink Cartridge, Canon, BCI-21, colored
Ink Cartridge, HP 51629A, black
Ink for fountain pen
Marking pen, permanent black
Mophead, 100% rayon
Oil for typewriter
Rubber Band, # 18
Sharpener
Stencil Ink
Toilet Tissue
Toner Cartridge HP 92298A
37,584
1,041
1,831
72,225
2,824
1,425
118
2,310
620
690
593
54,034
4,224
1,196
8,769
2,204
(1,404)
(3,840)
419
Regional Depot No. I

Alcohol
Ballpoint pen, black
Battery, AAA
Battery, AA
Calculator, compact, 12 digit
Carbon Paper, ordinary, A4
Carbon paper, ordinary, legal
Cleanser, powder
CD Rewritable
Cutter,HD
Detergent bar
Detergent powder
Dust pan, plastic
Envelope, expanding, plastic, legal
Envelope, documentary
Folder, morocco, legal
Glue
Ink cartridge, Lexmark #27 colored
Ink cartridge, HP8727A, black
Insecticide
Looseleaf cover
Magazine file, large
bot
piece
pack
piece
Box
Box
Can
Piece
piece
Bar
Pouch
Piece
box
Pack
Piece
jar
piece
Region XII
Electric Fan, wall type,
Ink Cart., Canon Part No. Black BC-20
Ink LEXMARK No. 27 Color
Toilet Tissue, 2 ply,
66
Discrepancies between physical count, systems generated reports and stock

ledger cards were also evident in the inventory conducted by the Team on
various dates at the PS Main Warehouse and selected Regional Depots
which revealed the following variances:
Item Description
Unit
Per Physical
Test Count
(A)
Per Stock
Card
(B)
Variance
(A-B)
Per eWMS/
ReDDS
Balance
( C)
(413)
167
(5)
2
40
(574)
3,535
5,934
5,314
1,635
81,244
13,782
4,999
17,484
31,497
44,417
13,809
2,303
62,359
7,517
(200)
(4,173)
(514)
7
(7,362)
(8,911)
(1,499
902
(2,384)
(806)
(10,627)
(12,731)
(72)
1,078
285
559
255
207
591
127
1,041
104
2,113
1,128
2,220
(620)
278
1,507
156
1,019
261
(456)
(17)
23
(16)
90
6
9
(597)
4
(113)
(228)
(29)
1565
720
(25)
556
(155)
(22)
-71
174
136
137
7,585
2,803
17
181
3
350
436
138
446
489
285
288
20
1,517
74
733
25
142
2,235
15
106
9
0
0
7,493
4,770
0
47
(2)
5
0
(1)
(1)
45
13
0
3,369
(10)
40
52
(6)
0
(30)
0
Variance
(A-C)
PS Main-Warehouse
EDP BINDER, plastic, 292mm x 250mm
CD REWRITABLE, 700MB/80 min.
COMPACT DISC RECORDABLE, 70 min.
INK CARTRIDGE, HP51629A, original, black,
MARKING PEN permanent, black,
MARKING PEN, permanent, blue,
PAPER, multicopy, A-4
TOILET TISSUE, 200 twin-ply sheets,
STAPLE WIRE, standard, #35,
AUDIO CASSETTE TAPE, blank,90 min.
SIGN PEN, high tech pen, black,
FILE ORGANIZER, expanding,
DETERGENT POWDER, 480gms.
MOPHEAD, 100% rayon, 400 grams
each
piece
piece
piece
each
each
ream
pack
box
each
each
each
pouch
each
3,335
1,761
4,800
1,642
73,882
4,871
3,500
18,386
29,113
43,611
3,182
2,303
49,628
7,445
Pack
pack
Box
Pc
Box
Pc
Can
pack
Pc
Box
Box
Box
ream
ream
Box
Roll
Pack
pc
622
268
582
239
297
597
136
444
108
2,000
900
2,191
945
998
1,482
712
864
239
bot
pc
pc
pc
pc
pc
box
pack
pc
pc
pc
pc
pc
pc
pc
pc
pc
pc
pc
ream
pc
pc
pc
pc
35
183
136
137
15,078
7,573
17
228
1
355
436
137
445
534
298
288
3,369
1,507
114
785
19
142
2,205
15
3,335
1,761
4,800
1,642
73,882
4,871
3,500
18,799
28,946
43,616
3,182
2,301
9,588
8,019
Regional Depot No. I

CARTOLINA, assorted color
CARTOLINA, white
DATA FOLDER, with finger ring
DUST PAN, plastic with handle
ENVELOPE, documentary A4
FILE ORGANIZER, expanding, legal
FLOOR WAX, paste, natural, 2kg
FOLDER, tagboard, legal
MOPHEAD, rayon
PAPER CLIP, gem type, 33mm
PAPER CLIP, gem type,jumbo
PAPER FASTENER, non-rust metal
PAPER, mimeo, GW, legal
PAPER, mimeo, WW, legal
STAPLE WIRE, standard, #35
TAPE, transparent, (2)
TOILET TISSUE
WASTE BASKET, plastic
Not updated
Region VIII
Alcohol
Audio cassette tape 90 min recording
Ballast 1x40 w
Ballast 20w
Ballpen black
Ballpen, red
Envelope pay Kraft
Folder Tagboard A4
Industrial fan
Ink cartridge HP C6656A
Ink cartridge HP C9352 A
Ink catridge HP 8728
Ink catridge Lexmark # 17
Ink catridge Lexmark # 27
Ink catridgeHP 6615 A/D
Ink catridgeHP 8727A
Marking pen permanent , black
Marking pen whiteboard, blue
Monoblock chair
Paper, bond PG, A4
PC ng Bayan
Ribbon Epson RN 7754
Sign pen, Black
Toner Cartridge HP 2613X
not updated
350
454
138
466
501
298
298
5
(18)
(1)
(21)
(33)
0
(10)
not updated
19
(4)
67
Item Description
Unit
Per Physical
Test Count
(A)
Per Stock
Card
(B)
Variance
(A-B)
Per eWMS/
ReDDS
Balance
( C)
Variance
(A-C)
Region VI
Ink cartridge HP 51645
Ink cartridge HP 6578A
Ink cartridge Lexmark # 17 "Black
Ink cartridge Lexmark # 27
Ink cartridge, HP 6615 A
Floorwax, natural 2kg/can
Ballpoint Pen Blue
Ballpoint Pen Black
Marking Pen permanent Black
Marking Pen permanent Blue
Marking Pen permanent red
Marker Flourescent
Whiteboard marking pen blue
Bond paper PG "A-4"
Bond paper PPC Legal
Toilet tissue
Ribbon Epson 8755'
Ribbon Epson 8750"
Toilet deocake
Paper clip"jumbo" 50mm
Record book 300 pages
Record book 500 pages
Paper mimeo ground wood legal
Cartolina colored
room soft
Correction fluid
Surf 480 gm
pc.
pc.
pc.
pc.
pc.
can
pc.
pc.
pc.
pc.
pc.
set
pc.
ream
ream
pack
bx
bx
pc.
bx
pc.
pc.
ream
pack
pc.
pc.
pc.
21
18
27
16
12
31
4,133
541
87
2,865
13
7
507
710
1,499
543
123
20
8
3
9
25
46
3
10
49
7,640
3
9
20
4,101
140
2,765
501
660
1,276
522
118
14
7,612
18
9
7
16
12
31
32
401
87
100
13
7
6
50
223
21
5
6
8
3
9
25
46
3
10
49
28
3
9
20
4,101
140
2,765
346
660
1,276
522
178
14
7,612
18
9
7
16
12
31
32
401
87
100
13
7
161
50
223
21
(55)
6
8
3
9
25
46
3
10
49
28
each
each
Each
packet
each
BOX
bar
pouch
BOX
each
can
pack
piece
piece
each
ream
set
cart.
each
box
pack
682
3,475
1,148
759
4
202
1,172
642
333
102
950
257
127
5,009
373
176
400
6,373
855
693
701
3,932
1,061
1,723
4
237
1,288
209
637
168
1,009
120
127
5,068
2,282
214
408
9,116
1,013
506
(19)
(457)
87
(964)
(35)
(116)
433
(304)
(66)
(59)
137
(59)
1,909)
(38)
(8)
(2,743)
(158)
187
701
3,479
948
825
4
200
1,172
3
648
218
108
878
261
127
5,007
332
175
400
6,976
858
692
(19)
(4)
200
(66)
2
(3)
(6)
115
(6)
72
(4)
2
41
1
(603)
(3)
1
roll
btl
piece
piece
piece
piece
tube
unit
box
piece
piece
each
piece
unit
can
pack
cart
cart
2,658
2,225
1,031
261
134
241
1,768
1,595
177
24
296
1,127
1
-
3,456
6,844
2,842
1,139
815
603
(37)
22
2,609
1,595
329
203
21
475
795
2
1
(798)
(4,619)
(1,811)
(1,139)
(554)
(469)
37
219
(841)
(152)
(179)
(21)
(206)
332
(1)
91)
87
2,710
1,745
1,710
176
254
557
260
241
1,871
1,605
193
77
(21)
324
1,073
1
232
(87)
(52)
480
(679)
(176)
7
(423)
(260)
(103)
(10)
(16)
(53)
21
(28)
54
(232)
Regional Depot No. X

AUDIO CASSETTE TAPE, blank, 90 min
BALLPOINT PEN, fine point, black,
BATHROOM SOAP, 70 gms.
BATTERY, size AA, alkaline, 2 pcs
BROOM, stick (tingting), standard size
CCF, 1 ply, 280mm x 241mm, '(11" x 9-1/2"),
DETERGENT BAR
DETERGENT POWDER, 200gms.
DISKETTE, 3.5", DS,HD,
FLASH DRIVE, 512MB
FLOOR WAX, paste type, red, 2kg./can,
FOLDER, tagboard, legal, brown
INK CART, HP Part No. C1823A colored
INK CART, HP, Part No. 51649A, colored
MARKING PEN, permanent, red
PAPER, Bond, PPC, A-4, subs. 20
PC AMD SEMPRON, (CPU, monitor & accs.)
RIBBON, Epson RNSO15086
SIGN PEN, high tech pen, black,
STAPLE WIRE, standard, #35,
TOILET TISSUE, 2 ply,
Regional Depot No. XI

AIR FRESHENER, aerosol, 280ml
ALCOHOL rubbing, 70%, 500 ml
BALLPOINT PEN fine point, black
BALLPOINT PEN fine point, blue
BALLPOINT PEN fine point, red
BATHROOM SOAP, 70 gms.,
BLADE for heavy duty cutter, (L500),
CALCULATOR, LCD display, 12 digits
CCF, 3 ply, 280mm x 241mm
Compact Disk RECORDABLE
CHAIR monobloc, w/ back & armrest,
CUTTER heavy duty, retractable, L500
ENVELOPE expanding, plastic, legal,
FAN heavy duty, w/ stand
FLOORWAX PASTE red, 2kg./can,
FOLDER file, legal size, tagboard
INK CART., HP 51645A, original black
INK CART., HP C6578A, orig. colored
68
Item Description
Unit
cart
cart
piece
box
ream
set
dozen
piece
roll
roll
pack
bottle
INK CART., Canon BC-20, orig. black

INK CART., Epson SO20191, colored
MARKING PEN, permanent, black
PAPER FASTENER metal, 70mm
PAPER mimeo, WW, legal, 70gsm.
PC, AMD Sempron 2600+, 2.8 GHz,
PENCIL lead, with eraser
PRINTER RIBBON, RN SO15083/15086
TAPE adding mach., 57mm, 55 gsm.
TAPE masking, 2" width
TIME RECORDER/Card
TOILET BOWL & URINAL CLEANER
Per Physical
Test Count
(A)
Per Stock
Card
(B)
13
2,726
739
2,687
181
314
70
776
250
269
-
16
3,694
1,484
3,301
275
571
132
997
903
331
174
Variance
(A-B)
Per eWMS/
ReDDS
Balance
( C)
(3)
(958)
(745)
(614)
(94)
(257)
(62)
(221)
(653)
(62)
(174)
14
137
2,770
818
1,513
181
26
71
779
267
(81)
Variance
(A-C)
(1)
(137)
(44)
(79)
1174
88
(1)
(3)
250
2
81
The discrepancies between physical count and systems generated stock

position reports were due to, among others:
Items which were already released to the clients but the

corresponding delivery receipts were not yet scanned/encoded by the
WADD still formed part of the ending merchandise inventory per
eWMS.
Unrecorded stocks received by Regions I and III from the PS Main

Office.
Region
I
Item
CCF, 1 ply, 11x14-7/8
CCF,2 ply, 11x9-1/2
Diskette, 3.5, DS,HD
Typewriter, 18, elite
Typewriter,18, pica
Carbon paper, ord. A4
Envelope, mailing, white
Alcohol, rubbing, 500ml
Marking pen, WB, black
Marking pen, perm., blue
Marking pen, perm., red
Marking pen, trans. film
Notebook, stenographer
Paper, bond PG, legal
Paper, mimeo, GW, legal
Tape, transparent, (2")
Data File Box
Carbon Film, A4
Carbon Film, legal
Glue, 300 grams
Blade, heavy duty
Puncher, heavy duty
UPS
Printer, Epson, LX-300+
Ink cartridge, HP 51649A
No.
Stock Transfer
Date
Qty
2007-23
1/8/07
2006-921
2007-23
8/30/06
1/8/07
2006-906
2007-23
2006-906
2007-23
8/29/06
1/8/07
8/29/06
1/8/07
2006-906
2007-23
2007-23
8/29/06
1/8/07
1/8/07
2007-025
1/8/07
2006-922
2007-025
8/30/06
1/8/07
25
80
100
400
300
300
400
200
5
5
200
100
150
720
1552
1440
720
50
500
500
500
1500
576
400
300
500
240
100
96
50
5
5
100
Unit
box
pc
unit
box
btl
piece
set
piece
ream
roll
box
Piece
Pack
Piece
Unit
Piece
69

Region
Item
Ink cartridge, HP 51645
Ink cartridge, HP C6615A
Ink cartridge, Lexmark #27, color
Toner Cart., HP C7115A
Calculator, compact, WS112H
Broom, stick
Monitor Filter, 17"
Columnar pad, 14 cols.
Marking pen, WB, blue
Marking pen, WB, red
Paper, bond PG, A4
Twine, plastic
Floorwax, liquid, TG
Mophandle, screw type
Toilet Bowl and urinal cleaner
III
XI
Fan, Orbit
Envelope, doc., (10"x15")
Ballpoint pen, red
Fan, stand
Battery, AA, alkaline
Battery, AAA, alkaline
Fluorescent tube, 36 watts
Envelope, expanding plastic
Paper, mimeo, WW, legal
Tape, packing, 4mm
Scissors 6
Cutter, heavy duty
Cleanser, powder
Rags, cotton
Airpot, electronic
Calculator, compact, MS-12V
Scouring pad
Ink, cartridge, Lexmark #17
Ink, cartridge, HP C51641
Paper, ruled pad
Stencil ink, #217, 400ml
Tape dispenser
Ink cartridge, HP6615A
Ink cartridge, HP6578D
Paper, onionskin, A4
Toilet Deodorant cake
Fan, stand
Paper, PPC, A4
Printer, laser
Floorwax, liquid, TG
Paper, bond, PG, A4
Alcohol
Calculator, desktop, 12 digits
CD Recordable
Coffee, Nescafe, 3 in 1
Soda in can, sprite
Soy sauce, datu puti
Water, mineral, viva, 500ml
No.
2007-322
2007-284
2007-379
2007-378
Stock Transfer
Date
Qty
3/8/07
3/2/07
3/23/07
3/23/07
2006-906
2007-352
8/29/06
3/16/07
2007-493
2006-906
4/20/07
8/29/06
2006-921
2006-922
8/30/06
8/30/06
2007-382
3/22/07
2007-381
3/23/07
2007-499
4/27/07
2007-498
4/2/07
2007-484
4/23/07
2007-546
2007-547
2007-698
2007-745
2006-281
2007-445
206-283
2006-021
2006-729
2006-952
2006-954
2007-328
2006-729
5/11/07
5/11/07
6/20/07
6/27/07
4/19/06
4/12/07
4/19/06
1/13/06
7/28/06
9/6/06
9/7/06
3/8/07
7/28/06
100
100
100
100
100
100
10
100
500
12
50
200
100
100
3024
1440
1500
100
40
300
240
180
20
100
1000
20
240
240
200
1000
500
288
200
200
240
100
100
50
100
200
48
60
240
2000
500
150
120
40
300
500
50
1000
10
60
150
1000
2304
82
10
2000
36
48
24
24
24
Unit
Unit
Piece
Pad
Piece
Ream
Roll
gal.
Piece
Btl
Unit
Box
Piece
Unit
Pack
piece
ream
roll
pair
piece
can
kilo
piece
unit
pack
piece
pad
tube
piece
ream
box
unit
ream
unit
piece
gal
ream
bot
unit
piece
pack
piece
bot
bot
70

Region
Item
No.
CCF, 3 ply 11 x 9 1/2

Chair, monobloc, w/out armrest
Folder, file, legal size
2007-636
2007-330
2007-748
2007-635
Stock Transfer
Date
Qty
6/2/07
3/8/07
6/28/07
6/2/07
200
150
1000
500
Unit
box
Piece
Pack
Damaged stocks amounting to P1,310,465.14 already returned by

Regional Depot No. XI to PS Main and stocks already approved for
write-off amounting to P20,759.63 were still reflected in the
systems stock position report.
Unrecorded issuances by Regional Office No. XI

Items
Alcohol rubbing, 70 % isopropyl
Ballpoint pen, black
Ballpoint pen , blue
Tape, masking, 48mm (2")
Time recorder/Card,
Biscuit, peanutbutter
Chocolate powder, Milo 80g
Chocolate powder, Ovaltine 72g
Coffee, Nescafe, 3 in 1
Cooking Oil, Golden Fiesta, 250ml
Instant noodles, Lucky Me-Beef 55g
Instant noodles, Mini Cup Batchoy, 35g
Soda in can, Sprite Regular 330ml
Soy sauce - Datu Puti
Water, mineral, Viva 330ml
Alcohol, rubbing, 70 %
Bathroom soap regular size
Calculator, 12 digits
CD Recordable
Cutter, heavy duty
Marking pen, perm., black
PC, AMD Sempron
PENCIL lead, with eraser,
TAPE masking, 48mm (2")
Chocolate powder, Ovaltine 72g
COFFEE, Nescafe, 3 in 1
Delivery Receipt
Number
Date
06-0148
06-0141
06-0327
06-0148
06-0126
ROXI-2343
ROXI-2343
ROXI-2343
ROXI-2343
ROXI-1722
ROXI-1722
ROXI-1722
ROXI-1722
ROXI-1722
ROXI-1722
ROXI-1722
ROXI-1722
ROXI-1722
ROXI-1722
ROXI-3346
ROXI-2697
ROXI-3339
ROXI-3279
ROXI-2770
ROXI-3346
ROXI-3314
ROXI-3315
ROXI-2473
ROXI-2451
ROXI-2789
ROXI-2789
1/31/06
1/30/06
1/27/06
1/31/06
1/27/06
12/29/06
12/29/06
12/29/06
12/29/06
9/29/06
9/29/06
9/29/06
9/29/06
9/29/06
9/29/06
9/29/06
9/29/06
9/29/06
9/29/06
6/26/07
3/14/07
6/26/07
6/19/07
3/28/07
6/26/07
6/22/07
6/22/07
1/26/07
1/23/07
4/10/07
4/10/07
Unit
Qty.
Amount
btl
btl
btl
piece
piece
piece
piece
roll
pack
pack
pack
pack
pack
pouch
pack
pack
Can
bottle
bottle
btl
piece
unit
piece
each
piece
set
dozen
Roll
Roll
case
case
12
2,000
54
25
100
100
50
50
10
40
120
120
12
96
144
90
48
48
60
3
30
1
50
3
6
1
5
150
7
1
2
P 426.00
71,000.00
1,917.00
81.25
325.00
315.00
157.50
2,137.50
593.00
1,081.60
1,789.20
1,612.80
1,746.24
1,901.76
684.00
1,153.80
763.68
493.44
450.00
116.25
294.00
168.95
647.50
31.80
162.90
15,200.00
81.75
2,392.50
111.65
782.14
3,490.16
P114,114.37
Undetected errors/losses in handling actual stocks due to possible

loss on account of pilferages/theft, unclaimed paid items still in the
warehouse and included in the inventory count, miscounting during
issuances and issuances not covered by delivery receipts.
71
In the absence of any reconciliation then, there is no assurance that the

differences between the actual count which is considered for valuating
ending inventory and the systems generated reports which tracked the actual
movements of stocks could be accounted for and were indeed only due to
timing differences and/or errors in recording and not from theft and
pilferages.
Teams Rejoinder
The merchandise inventory account to record all

purchases of items for sale will be used starting
April this year. Since there is a new chart of
accounts, the reclassification of accounts will be
done for the first quarter.
The team appreciates the

managements actions to
this observation.
The FACT System being used as the Inventory

Management System in PS Main was terminated in
March 2006 and was replaced by the eWMS.
ReDDS is being used by the Regional Depots.
This is the reason why in the year 2006, the
Accounting Division recorded the sale, sales
returns and statements of accounts of agencies
manually for common use-MC as well as in the
consolidation of the financial statements. In 2008,
PS Main will be using the FACT System which is a
DOS based until the enhanced version is
customized. PS IT Division is now studying the
possibility of Regional Depots using a simple
Excel program which can be uploaded to the FACT
enhanced system which can also generate a
separate report for the depots.
The result of the physical count are being
reconciled
with
the
systems
generated
inventory/stock position report designed to track
inventory movement and with the manually
prepared Stock Ledger Card/Bin Card Balances as
shown in the attached Annexes A and B. However,
the reconciliation was not finished due to the
resignation of three (3) staff in accounting assigned
to do the inventory. The creation of the Inventory
Committee will be proposed to the Director for this
purpose of efficiently monitor the inventory whole
year round so that the actual movements of stocks
could be accounted for.
The supposedly annexes

were not attached to these
comments. Unless reconciliation is completed, PS
would not be able to
determine the reasons for
such discrepancies and
take appropriate action.
However, the proposed
action to be undertaken is
well-appreciated.
72
5. Considering the total recorded procurement, sales and the declared

inventory balance of commissary items, stocks in the approximate amount
of P7,537,562.13 as of December 31, 2006 could be considered
unaccounted. In addition, out of the total purchases of P46,423,309.76 as
of June 30, 2007, P1,065,031.20 have been disposed of due to expiration or
damages while another P675,105.13 were due to expire in three months
time.
To provide government employees with the opportunity to procure commonuse items at lower than prevailing retail prices in the market, Executive
Order No. 524 was issued on April 10, 2006 expanding the clientele
coverage of the PS to include government workers through government
employees cooperatives and/or associations.
In compliance therein and DBM Circular No. 2006-6 dated April 25, 2006,
PS expanded the items it carries on stock from paper and office supplies and
other commonly used items of government offices to household, grocery,
personal care and bathroom essential items.
The responsibilities of parties identified as stakeholders under this endeavor
follow:
Stakeholder
PS
Government
Agencies
Employees
Cooperatives
Responsibilities
Sell common-use items to government employees
cooperatives/associations within the authorized mark-up
consistent with EO 359;
Provide the signage and when requested, suggest the layout of
the items in the agency commissary which shall be called PX
Marts. It should be a store permanently located within the
premises of the government agency and managed by a
registered employees cooperative/association;
Transact only on a strictly cash basis with the government
employees cooperatives/associations with valid Certificate of
Endorsement (COE) issued by the agency head or his
authorized representative;
Provide the necessary space within its office premises to serve
as the permanent location of its PX Mart;
Where informal employees associations are concerned (i.e.,
groups of at least twenty (20) employees of the same agency),
issue a per purchase transaction COE authorizing the
purchase of PS items for subsequent retail among themselves.
Sell exclusively items bought from the PS;
Charge only a minimum mark-up to ensure that the items sold
would cost lower than the prevailing retail prices in the
market;
Pay PS the full amount of items ordered and delivered.
73
Records show that in compliance with such Order, PS procured

commissary items amounting to P39,355,277.12 from May to December
2006.
Date
Amount
May
June
July
August
September
October
November
December
Total
155,171.20
1,447,342.27
6,147,058.34
8,586,497.97
8,768,999.36
1,920,983.57
2,843,410.17
9,385,814.24
P39,255,277.12
To meet the objective of providing non-cash benefits to government

employees, out of the total procurement, P16,055,942.62 were reportedly
released to the PS MartMain, DBM-SME and different depots
nationwide. PS also sells directly to the different employees association
and government agencies within Metro Manila. During the year, total
commissary items transferred and sold to the different associations and
government agencies were reported to be P24.937 million leaving a
balance of P14.317 million at the PS Main warehouse.
Records, however, revealed that as of December 31, 2006, the PS financial
records reflected only a balance of P6.780 million manifesting
unaccounted difference of P7.537 million as computed below:
Particulars
Total Purchases
Total transfers and sales
Transfers to Regional Depots
June
July
August
September
October
November
December (returns)
Total
Sales at PS Main
Should be balance at PS Main Warehouse
Reported Inventory at the PS Main
Warehouse as of December 31, 2006
Unaccounted Difference
Amount
P39,255,277.12
90,965.74
1,427,976.97
5,231,055.46
6,836,520.39
2,099,505.05
837,104.01
(567,185.00)
16,055,942.62
8,881,765.22
24,937,707.84
14,317,569.28
6,780,006.15
P 7,537,562.13
74
As may be noted, the Teams computation considered the total gross sales
which includes 4% mark-up in computing the should be inventory balances
at the PS Main Warehouse as of December 31, 2006.
Records further show that from January to April 2007, additional
commissary items amounting to P7.168 million were procured. The status
of such procurement could not be thoroughly analyzed as inventory reports
were being issued only at year ends.
In addition to unaccounted items, records further show that out of the total
procurement as of April 30, 2007 of P46.423 million, P.513 million were
reported to have expired or been damaged. In addition, out of the total
remaining stocks of sardines at Region III depot, stocks amounting to P.552
million were found during inspection to be damaged by termites. At the
time of audit, this incident was yet to be communicated to PS Main Office.
The stocks of sardines were found stored in the staff house garage without
pallets. This brought the total damaged and expired items to P1,065,031.20
computed as follows:
Regional
Depot
Return to PS
Main/Disposed
For Return
DBM-SME
P 43,680.00
CAR
50,351.70
I
1,015.05
P13,831.76
II
18,598.85
III
8,226.00
24,778.00
V
8,617.39
VIII
692.47
X
38,362.16
XI
32,615.36
PS Main
210,539.66
DSWD
10,322.20
Subtotal
P 423,020.84
P38,609.76
Items found damaged at Region III
Total
Damaged
P121.95
6,103.50
45,090.65
275.40
P51,591.50
Total
P 43,680.00
50,473.65
20,950.31
18,598.85
78,094.65
9,168.19
692.47
38,362.16
32,615.36
210,539.66
10,322.20
513,497.50
551,533.70
P1,065,031.20
As maybe noted, items amounting to P210,539.66 reached expiry at the PS

Main Office without even having been transferred to Regional Depots.
Further evaluation revealed that additional commissary items amounting to
P675,105.13 were about to expire in three months-time. These were stored
in the warehouses of the following depots:
Regional Depot
CAR
I
III
VIII
X
Total
Amount
P 267,763.63
108,487.73
293,298.10
1,665.69
3,889.98
P675,105.13
75
To minimize losses due to expiration of other items, PS issued a

Memorandum on March 29, 2007 allowing PS Main to sell items expiring
within one month time on a buy-one-take-one promo, while those nonmoving and soon-to-expire (two to three months) items were sold at 10%
discount. At the Regional Depot level, selling of commissary items at
discounted rates were done on a case to case basis. As of September 2007,
only Regional Depot Nos. I, II and XII were given authority to sell items at
discounted prices.
Inspection disclosed the following conditions at selected depots:
Depot
Condition/violations
CAR
A PS PX Mart was established and

manned by a DBM
employee
receiving honorarium from PS contrary to the
requirement that this should be managed by employees
cooperative/association. DBM employees were allowed to get
items from the PS Mart on account.
DBM PX Mart was established and operated by DBM

employees. However, the Mart was selling items other than
those acquired from PS contrary to the provision of the Circular
that a PX Mart is authorized to be operated within the agency
premises which shall sell, exclusively, items bought from the
PS.
VIII
A PX Mart was established and operated by DBM employees

cooperative. This Mart likewise get PS items on account
contrary to the requirement under EO 524. As of August 8,
2007, PS receivables from DBM Employees Cooperative
amounted to P250,225.22 inclusive of common-use items.
XI
PS launched its commissary services in Regional Depot No. XI

on September 25, 2006. While EO 524 only allows signage to
be provided by PS to government cooperatives willing to sell PS
commissary items, PS provided furnishings worth P34,083.97 to
a PX Mart operated by DBM-Regional Office XI employees
cooperative.
Audit also disclosed that PS commissary items were transferred,
covered by Delivery Receipts, by the PS Regional Depot No. XI
to the PX Mart XI, DBM compound on consignment basis. This
is contrary to existing regulations requiring PS to sell strictly on
cash basis only. From September 29, 2006 to July 16, 2007,
stock transfers to PX Mart amounted to P804,845.49, of which
only P293,833 were so far paid as of July 7, 2007 leaving a
balance of P565,012.43 representing 70.20% of the total
consigned goods.
76

Depot
Condition/violations
XII
The Depot transferred P785,220.45 worth of goods to Dream

Coop PX Mart of DBM Region XII presumed to be on
consignment arrangement, of which only P49,005.17 were so far
paid on May 10, 2007 under OR No. 6023930.
Results of survey conducted by the Team revealed that the government

employees lack of patronage over PS commissary services were due to
the following:
Employees not aware of the PS commissary services

Survey conducted by the audit Team showed that 21 or 8.9% of the
235 government agency respondents were not aware that there were
such services being offered by PS.
PS prices are higher than market prices

Comparison of PX Mart and supermarket prices at Region XI
disclosed that of the 111 items compared, PX Mart prices for 54 items
are higher by .28% to 46.44%. In Region VI, four items were found to
be 4% to 56% higher while in Region XII, 51 items were higher by
0.80% to 254.48%. This may have been due to the mark up of 4% and
freight cost of 5% to 10% being added by PS to the cost of the items,
in addition to the mark up being imposed by the
cooperatives/associations.
PS Regional Depots are inaccessible or far from the government

offices
Of the 235 respondents on the survey conducted by the Team, 30.64%
verbalized that the PS Regional Depots were inaccessible or far from
the government offices. Strategically, grocery stores are more
accessible either from the government offices or from the employees
residences than the regional depots.
Stringent requirements of transacting with PS

As provided for in the implementing guidelines of EO 524, PS shall
transact only with government employees cooperatives/associations
with valid Certificate of Endorsement (COE) issued by the agency
head or his authorized representative; and sell items to government
employees cooperatives/associations on a strictly cash basis only.
The COE issued to a duly registered employees cooperative/
association shall be valid unless revoked for cause by the Agency Head
while the COE issued to informal employees association shall be
valid for one transaction only.
77

Results of surveys and the Teams analysis revealed that these
requirements are burdensome to government employees who want to
transact with PS since not all employees are organized as cooperative
or association and with readily available cash. The stringent
requirements then defeats the purpose of providing non-wage benefits
to government employees.
78
Chapter 4
Effective Utilization of the

E-Procurement System
79
EFFECTIVE UTILIZATION OF THE E-PROCUREMENT SYSTEM
INTRODUCTION
To enhance transparency and efficiency in the government procurement process,

all government agencies are mandated to register and post their procurement
requirements in a single and centralized electronic portal known as the
Government Electronic Procurement System or G-EPS. The G-EPS shall serve
as the primary source of information on all government procurement and shall be
managed, operated and maintained by PS under the supervision of GPPB.
The audit, however, disclosed that the objective of the G-EPS was not fully
attained as only 3,645, out of the 4,555 government agencies, excluding
barangays, have been registered and only 1,888 have posted their procurement
requirements at the G-EPS.
OBSERVATION
The benefits of the electronic procurement system which already costs

P187.74 million as of December 31, 2006 could not be maximized as some
government agencies were not registered and posting their procurement
requirements in the system. Out of 4,555 government agencies, excluding
barangays, only 3,645 were registered of which only 1,888 were posting their
procurement notices. Likewise, of the 21,585 registered suppliers, only 3,148
have internet connections.
The government-wide electronic procurement system (EPS) under the

management of PS was launched on October 8, 2001 under EO 40. The system
was then being rented from Bearing Point until 2006. Upon enactment of RA
9184 on January 2003, the central posting of all government requirements for
goods, consulting services and civil works, through the internet infrastructure
known as the Government Electronic Procurement System (GEPS), became
mandatory.
Thus, in April 2004, PS decided to construct the system and awarded the
contract with an estimated cost of P480 million to Ayala System Technologies,
Inc. (ASTI). The project was estimated to be completed in 2008.
80
As of June 2007, out of the five components covered in the contract, three were
operational:
Component
Functions
Status
Electronic billboard
Used for posting procurement opportunities,

notices, awards and reasons for award for
government procurement
Suppliers Registry
Used for the registration of suppliers who wish to

do business with government agencies
Electronic Catalogue
Used to support purchases of common goods,

supplies, materials and equipment by public sector
agencies. The catalogue is a listing of all the items
available in the Procurement Service
Virtual Store
Will allow agencies to order and pay on line for

items available at Procurement Service
Electronic Bid
Submission
Will allow on line submission of bids by

interested suppliers although the issue on
confidentiality of the documents is still to be
resolved.
Operational
Under
construction
As of December 31, 2006, expenditures incurred for the operation of the system
already amounted to P187.74 million:
Particulars
Personal Services
Job Order-salaries
Travel-local
Travel-foreign
Training expenses
Water and electricity
Telephone/internet
Subscription-newspaper
Rent and association dues
Office supplies
Consultancy
Rent-connectivity
Repairs-office equipment
Repairs-IT equipment
Personal Services
Repairs-motors vehicle
Other expenses
Total MOOE
Capital outlay
Total Expenditures
Income-seminars and certificate
Total
Amount
P 16.54
1.74
.40
.29
3.09
1.40
4.81
.11
4.47
2.08
.51
141.62
.02
.31
P
16.54
.01
1.41
P
162.27
9.12
P
187.74
(8.97)
P 178.77
81
Of this amount, P8.97 million was charged from income generated from
seminars conducted by the PhilGEPS to introduce the system while P178.77
were charged from the income earned by PS from investing the funds advanced
by the client agencies.
All government agencies, including barangays, are required to register and post
all procurement opportunities, results of bidding and related information in the
G-EPS bulletin board. PhilGEPS report as of December 31, 2006 disclosed that
out of 4,555 government agencies, excluding barangays, only 3,645 were
registered. It was also noted that of the 3,645 registered government agencies,
only 1,888 government agencies posted their notices of procurement and awards.
This is a manifestation that the benefits to be derived from constructing the
system were not maximized.
The Team was informed that agencies not complying with the posting
requirements have been constantly reminded by the GPPB. It was also reported
that as of December 31, 2006, there were 289,681 procurement notices and
40,354 notices of awards posted thereon.
The benefits from the supplier registry were likewise not fully maximized. As of
December 31, 2006, there were 21,585 suppliers registered with the system of
which, only 1,348 have internet connections. The absence of internet
connections then limited the opportunity of these suppliers to access information
at any point in time and participates in the bidding process. Thus, even PS
procurements were, in a number of times, participated by only one or two
bidders or declared a failure to as many as six times due to the absence of
bidders.
Teams Rejoinder
Based on the figures presented, we can

agree with the findings that the
objective of PhilGEPS was not fully
attained but (allow) us to qualify our
agreement. At first glance, the figures
may appear unimpressive but 87% of
the total agencies having registered is
already
high
considering
the
geographical
landscape
of
the
Philippines and the low penetration of
internet access among government
agencies. Allow us to cite several
reasons for the low compliance in
posting namely:
82
Teams Rejoinder
Some COA Resident Auditors do

not require agencies to post notices
in PhilGEPS;
No express provision in RA 9184
penalizing a procuring entity for
failure to post notices in PhilGEPS;
Lack of champion within the agency
to use PhilGEPS;
Agencies
have
no
internet
connection or no connection at all;
Posting in PhilGEPS is considered
additional work by buyers;
These concerns should have been

addressed
during
project
conceptualization by designing a
comprehensive plan including strategies
for obtaining cooperation of all
stakeholders.
Besides, all these
concerns could be addressed by PS and
GPPB through proper coordination with
concerned parties.
Procuring entities using the system is

only 1,888 which represent 52% of the
3,645 registered agencies. Likewise,
only 3,148 suppliers have internet
connection out of the 21,585 registered
suppliers. However, as of December
2007, PhilGEPS database reveal that
13,448 or more than 53% out of 25,263
suppliers registered with PhilGEPS are
actively using the system. This tells us
that internet cafes abound not only in
urban cafes but also in less developed
ones. What is important is that
procuring entities must require their
suppliers to use PhilGEPS by
downloading the attachments of bid
notices.
The team appreciates improvements in

PhilGEPS utilization as about 53% of
the registered suppliers were reportedly
already using PHILGEPS as of
December 2007.
However, the
suppliers eagerness to use the portal
would be of more value if government
agencies could be obliged to post their
requirements regularly.
The figures cited above has also shown

that there has been low compliance and
this has been a problem ever since and
we may say, not entirely under
PhilGEPS control. Another area cited
which PhilGEPS can improve on is to
intensify information campaign towards
users. This has always been recognized
and PhilGEPS has in fact gone all over
the country several times to conduct
hands-on training and information
campaign. The GPPB has appointed
SUCs and composite Teams to conduct
training to BAC members and
procurement officials. This is not to say
that the information campaigns which
have been conducted are sufficient.
By now, PS should be taking necessary

measures within its control considering
that the reasons for the agencies dull
participation have already been
identified. As the lead agency, it should
also take measures necessary to solicit
assistance from other agencies.
83
Teams Rejoinder
PhilGEPS can not do this alone

considering that it has no police powers.
The most it can do is write letters of
reminders to erring agencies and it is up
to the agency whether it will do
something or not. What we would like
to point out is that a wholistic approach
should be undertaken by all concerned:
GPPB to issue rules and regulations
(specifying penalties and sanctions)
to address the issue of agencies
failure to use PhilGEPS;
COA to strictly require procuring
entities to post their bid notices and
results in PhilGEPS and disallow the
transaction for non-compliance;
COAs role is very critical to the
high success rate of using PhilGEPS.
The case of Pasig City is a perfect
example of why it is religiously
using PhilGEPS for its procurement.
Its resident auditor requires that no
payment to supplier can be
processed unless a printout of the bid
notice posting and award posting in
PhilGEPS are attached to the
disbursement vouchers;
BACs of procuring
ensure that posting in
performed for all
regardless of the
method employed;
agencies to
PhilGEPS be
procurement
procurement
BAC shall require suppliers to

submit PhilGEPS certificate of
Registration as part of eligibility
documents;
Buyers of procuring entities shall
upload attachments that contain
more relevant information about the
bid to encourage suppliers to
download these attachments;
PhilGEPS
to
intensify
its
information campaign by drawing up
a communication plan (the GPPBTSO has secured a grant from World
Bank and has started conceptualizing
its procurement reform communication plan and PhilGEPS is part of it).
84
Teams Rejoinder
PhilGEPS to regularly conduct

hands-on training for agencies and
suppliers;
PhilGEPS to come up with the
trainers program to be funded by the
WB and ADB so that trainings can
be simultaneously performed all over
the country resulting in more
agencies and suppliers using the
system. Release of the grant is
expected middle of this year. The
WB and ADB have recognized the
importance of PhilGEPS in the
governments effort at procurement
reforms that is why they have
considered funding for the trainers
training.
One of the benefits that have come

about when PhilGEPS was established
was the savings on newspaper
advertisements. Because PhilGEPS has
supplanted the requirement on multiple
advertisements
in
newspapers,
considerable
savings
for
the
government have been realized. Since
April 2001 until December 2007, the
potential savings because of reduction
on newspaper advertisements already
amounted
to
approximately
P424,375,362.00 more than enough to
pay the expense in operating PhilGEPS.
The
team
acknowledges
that
considerable savings may have been
realized due to establishment of
PHILGEPS. This could, however, be
realized only if a great majority, if not
all agencies, would register with
PhilGEPS and consistently post their
procurement requirements.
For agencies that have been posting in

PhilGEPS, considerable savings have
been realized due to more suppliers
participating in bids that result in
generating very competitive prices. In
DBM-Central Office for example, out
of 22 bid notices posted in 2007, it
realized savings on 16 bids, ranging
from a low of 4% to a high of 48%.
85
Chapter 5
Appropriate Utilization of Funds
86
APPROPRIATE UTILIZATION OF FUNDS
INTRODUCTION
To finance its operation, PS was authorized to charge service fees not exceeding
5% of the value of supplies, materials and equipment, procured and supplied to
the agency concerned to cover its personnel services and other operational
expenses. As a branch of the government, PS is expected to follow existing
government laws, rules and regulations in the disposition of its funds.
The audit, however, disclosed that PS is using substantial part of its income to
finance the operations of PhilGEPS instead of remitting the same to the National
Treasury. While the operation of PhilGEPS was allowed under existing
regulations, outright use of collection is in effect bypassing the normal budgeting
process and violating Section 4 of the General Provisions of General
Appropriations Act (GAA), FY 1997 or RA 8250.
OBSERVATION
Interest income amounting to P226,511,035.44 as of December 31, 2006

generated by PS out of advances by client agencies were not remitted to the
National Treasury in violation of Section 4 of the General Provisions of GAA,
FY 1997or RA 8250.
Moreover, of the total income generated,
P178,772,981.49 were used to finance the operation of PhilGEPS, the
government internet infrastructure project. While the operation of PhilGEPS
was allowed under existing regulations, the outright use of income in effect
bypassed the normal budgeting process.
PS was created for the purpose of procuring supplies and material requirements
of government agencies in the most economical and efficient manner and is
operating out of the 5% service charge being imposed to clients. In the course of
its operations, PS accumulated funds from advances of various government
agencies for the procurement of the needed supplies and materials which were
not addressed by PS at once. These funds, with total balances of
P1,843,512,412.05 as of December 31, 2006, have earned interest income of
P226,511,035.44 from 1995 to 2006.
Under Section 4 of the General Provisions of GAA, FY 1997 or RA 8250,
interests and other income earned from deposits of receipts derived from
business-type activities of department, bureaus, offices or agencies shall be
deposited with the National Treasury.
87
Records, however, disclosed that the interests earned by PS from 1995 to 2006
were not remitted to the National Treasury in violation of the aforementioned
regulation. Instead, certain amount was used by PS to construct and operate
PhilGEPS. While operation of PhilGEPS is allowed under existing rules and
regulations, outright use of income for the purpose in effect bypassed the normal
budgeting process.
As disclosed in the Philippines Medium-Term Public Investment Program
(MTPIP) for 2005-2010, the national government, thru the DBM, should invest a
total of P265.13 million for the operations of PhilGEPS. As of to date, no funds
have been released by DBM to PS for the said purpose. Thus, expenses incurred
for the operation of the system were financed by funds generated from operating
the same and other interest income generated by PS from investing advances
made by client agencies. PhilGEPS expenditures are capitalized and classified as
Other Asset-Organizational Cost account in the books of accounts of PS.
Managements Comment
Teams Rejoinder
RA 9184 clearly mandates the PS to

manage the PhilGEPS under the
supervision of GPPB. However, the
funding source for the operation of
said system is not expressly provided
in the law. PS solely depends on its
income from the service fees of 4%
collected from the government
agencies to order goods and services,
although PS can charge up to 5%
under E.O of 1989.
The team recognized that PS is

dependent on the service fees
collected from client agencies and
that there were no releases for the
implementation of the PhilGEPS.
In the course of operation of PS,

government agencies are authorized
to deposit or make advance payments
to order for goods and services. In
some instances, there are delays in the
delivery of such goods and services
considering changes in specifications
and policies, hence, the interest
income generated from bank deposits.
The team is not questioning the

advances to PS made by the
government agencies and the interest
income
generated
from
such
investment. Rather, it is emphasizing
that such interest income should be
remitted to the national treasury as
required under existing regulations.
With limited funds of PS, its income

is not sufficient to cover the funding
requirement of PhilGEPS. In the
absence of funds to cover the
operation and maintenance of
PhilGEPS, PS is temporarily utilizing
PS should make strong representation

for the funding of PhilGEPS that will
go through the normal budgeting
processes.
88
Managements Comment
Teams Rejoinder
the interest income which had

accumulated in the amount of
P226,220,279.00 as of December
2006. It should be emphasized that
the non-remittance thereof is merely
temporary until such time that fees
can be collected from the operation of
the PhilGEPS and/or funding from
eGov. Fund.
Considering the huge funding
requirement for the maintenance and
full implementation of the PhilGEPS
and the benefit it has given to the
government, a Memorandum address
to DBM Secretary Rolando G.
Andaya, Jr. requesting to the possible
funding from the e-Gov Fund to
cover PhilGEPS expenses for the
period 2007 to August 2011 in the
amount of P253.40M and request
from the COA for the deferment of
the enforcement of its decision
requiring PS to deposit to the BTr the
accumulated interest income earned
from bank deposits and continuously
charged the PhilGEPS expenses
against said interest income pending
collection of revenues from the
operation of the PhilGEPS.
PS
requested from
Commission on
Information and Communication
Technology (CITC), in charge of the
e-Gov Funds, to subsidize PhilGEPS
remaining four years of system
development amounting to P199
million. In the letter dated December
19, 2007, the CITC endorsed the
request for the funding of PhilGEPS
amounting to P38.518,980.00 from
the 2007 eGov Fund to pay the 2008
billing of the private sector provider,
Ayala Systems Technology, Inc.
Since PS is not receiving funds from
the National Government, specifically
from the General Appropriations Act,
DBM as a national agency was
tapped to administer the eGov Fund.
We appreciate the actions being taken

by PS to address this concern.
89
Managements Comment
Teams Rejoinder
In view of this, starting January 2008,

all expenses of PhilGEPS will be
charged to the respective expense
accounts.
However, prior years
amortization cost will only be done
when there is income derived from
training and fees for accreditation of
PhilGEPS.
90
Part IV
Recommendations
91
RECOMMENDATIONS
RECOMMENDATIONS
To remedy the deficiencies noted, the team recommends that PS should consider
the following courses of action.
To improve its operations and be able to respond to the needs of the

client agencies on time, the existing computerized system should be
enhanced and/or totally replaced.
Meantime that the computerized system is not fully operational, the team
recommends that PS should:
Expedite procurement actions by establishing timelines for

each step in the procurement process e.g. screening of request,
conferences with clients.
Strictly monitor stock position and prepare requests for

procurement upon reaching reorder point.
Study the possibility of entering into an ordering agreement scheme

good for one (1) year with the lowest calculated and responsive bidder to
cover common-use supplies considering that the needs of the client
agencies could not be accurately determined. This way, the needs of the
clients could be served on time and any existing warehousing problems
could be minimized. There would be no need to procure and store bulky
items in large quantities as orders of such items could be arranged to be
delivered directly to the client agencies.
To be able to offer lower prices to clients, advertise in newspapers of

general circulation all procurement in excess of P2 million and consider
the results of price monitoring in the determination of ABC. PS should
also refrain from procuring items that it could not provide at lower
prices.
To avoid the accumulation of long outstanding advances by client

agencies:
For common-use supplies, the payments to be advanced by the

client agencies should cover only costs of stocks available, as
practiced by the Regional Depots.
92
RECOMMENDATIONS
For non-common use supplies, procurement process should be

facilitated by establishing timelines for submission by the
client agencies of the specifications and results of evaluation
of the specifications submitted by prospective bidders.
Advances pertaining to any request that could not be served
within two (2) years should be remitted to the National
Treasury.
Determine the status of all unserved requests as of December

2007 and remit
to the National Treasury amounts
corresponding to items that have been dormant for about two
(2) years and could not be served within three (3) months.
To improve the current warehouse conditions and physical control over

inventories and protect stocks from pre-mature spoilage and undue
incidents:
Conduct regular disposal of damaged/expired items in

accordance with existing rules and regulations.
Install protective and emergency response paraphernalia.
Revise/rearrange existing office and warehouse layout to

accommodate all inventories within the warehouse and
minimize the risk of loss/theft.
Segregate responsibility for handling inventory/stocks from

recording, processing of receipt and issuances of stocks, and
general accounting. Consider hiring full time employees for
PS instead of using/designating DBM employees.
Reconcile manual and systems generated ledger inventory

balances with actual inventory count on hand and conduct
investigation for unreconciled balances. Meantime that the
computerized system of tracking inventory movement is not
yet fully operationalized, continue the manual recording and
tracking of inventory and set-up a system linking accounting
and inventory management systems.
Discontinue the procurement of commissary items which are

considered slow moving and/or unsaleable, delicate to store
and with short expiration period. Meantime, facilitate the
selling of items expiring within the next six (6) months.
93
RECOMMENDATIONS
To maximize the benefits to be derived from the PhilGEPS, intensify

information campaign for its use by emphasizing its advantages and
imposing sanctions on government agencies not registering and posting
their requirements in the GEPS. Make proper representation with
concerned government agencies to solicit and obtain their cooperation
and assistance.
Remit to the National Treasury interest income earned from all deposits
and investments out of advances from client agencies and request
funding for the operation of PhilGEPS.
94
Submitted in compliance with MS/TS Office Order No. 2007-013 dated

March 22, 2007.
95

Procurement Service

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Report No. 2007- 02

Central Procurement System

Republic of the Philippines

May 22, 2008

Mr. ESTANISLAO C. GRANADOS, JR

Very truly yours,

Central Procurement System

Economical Procurement of Goods

Responsive Services to Clients

Sound Warehousing and Stock

Effective Utilization of the

Appropriate Utilization of Funds

The audit was conducted to assess the effectiveness of PS in procuring,

AUDIT SCOPE AND METHODOLOGY

Acquiring resources at the most reasonable

Timely supplying to clients of the required

Maintenance of warehouse sufficient to

Maximizing the benefits of the system

Compliance with existing government laws,

Reviewed, documented and analyzed existing policies and procedures and

Inspected PS-Main and selected Regional Depots warehouses to verify

Interviewed concerned PS main and selected regional office personnel.

Inadequate stocks of common-use supplies and non-submission by the

For non-common supplies, procurement process should be

For common-use supplies, the payments to be advanced by the

MANAGEMENTS REACTION TO AUDIT OBSERVATIONS

Central Procurement System

CENTRAL PROCUREMENT SYSTEM

CENTRAL PROCUREMENT SYSTEM

In addition, there were 63 DBM Regional Offices personnel assigned to manage

CENTRAL PROCUREMENT SYSTEM

CENTRAL PROCUREMENT SYSTEM

PS aims to make readily available to government agencies and

PS maintains 6 warehouses at the Main Office and 13

UP, Quezon City

PS is using the First-In-First-Out method in issuing stocks.

PS is allowed under RA 359 to sell to government agencies at

CENTRAL PROCUREMENT SYSTEM

As mandated under Executive Order 285 dated July 25, 1987,

To establish an open, transparent, efficient and competitive

Electronic bulletin board

With the passage of RA 9184, all government instrumentalities, national,

GOVERNING LAWS, RULES, AND REGULATONS

LOI 755 dated

Establishment of an integrated procurement system for the

Reiteration of the mandate of PS under LOI 755 by

CENTRAL PROCUREMENT SYSTEM

Establishment of Procurement Policy Board that shall

Otherwise known as the Government Procurement

Enlisting government employees cooperatives and/or

PS financed its operations from the 4% mark-up authorized to be imposed to

CENTRAL PROCUREMENT SYSTEM

The PS procurement and selling processes are graphically presented below:

CENTRAL PROCUREMENT SYSTEM

PROCESS FLOW FOR SALE OF COMMON-USE, PX COMMISSARY,

CENTRAL PROCUREMENT SYSTEM

1. Planning and Technical Service Support Division

inputs the details of the winning bidder

maintains the back-up database

encodes details of APR for common-use

encodes details of APR for non-commonuse items only;

prepares Delivery Receipts (DRs) for

prepares DRs for non-common-use items