Part II

A. COMMENTS AND OBSERVATIONS

1. Recurring cases of unexpended subsidy balances not immediately returned or

without immediate submission of requests for realignment by electric
cooperatives to NEA.

1.1 To pursue its mandate, NEA has been receiving subsidy funds from the national
government for subsequent release to various electric cooperatives (ECs) for the
electrification of depressed, low income, remote or isolated barangays, puroks, or
localities, and for financing the rehabilitation of distribution lines and/or systems
damaged by typhoons, earthquake and other related calamities.

1.2 Every Memorandum of Agreement (MOA) entered into by and between an electric
cooperative and NEA relative to the subsidy fund release to the former contains a
provision stating that:

a. All unexpended subsidy balance, including interest earned thereon, shall

be immediately returned/remitted to NEA to form part of a revolving fund
from which NEA may provide grants or similar financial assistance
requested by electric cooperatives in implementing projects for the
electrification of depressed, low income, remote or isolated barangays,
purok or localities and for rehabilitation of distribution lines and/or system
damaged by typhoon, earthquakes and other related natural calamities.;
and

b. However, the EC may request authority to use the savings/balance as

well as interest accruing to the fund for activities related to the project.

1.3 Audit of the subsidy funds released to electric cooperatives for CY 2012 disclosed
unexpended subsidy funds after the completion of the projects in the total amount
of P19,916,094 which were not returned to NEA by 11 ECs covering the years from
2004 to 2012, with details below.

Interes
Name of
2004 2005 2006 2007 2008 2009 2010 2011 2012 t Total
EC
Earned
ISELCO I 419,042 70,476 2,056 88,046 579,620
IFELCO 1,802,432 50,471 1,852,903
PELCO II 247,258 191,807 439,065
CANORECO 875,851 329,842 227,417 668,911 91,585 2,193,606
SORECO II 2,428,631 371,175 173,856 56,819 3,030,481
LEYECO II 3,953,700 126,648 4,080,348
MOELCI I 1,486,005 476 73,043 1,559,524
MORESCO II 685,708 1,716,987 461,022 2,863,717
DANECO 216,877 216,877
LASURECO 2,848,108 2,848,108
MAGELCO 252,845 252,845
GRAND 1,003,44
TOTALS 3,914,636 1,918,913 2 330,318 5,844,543 5,628,899 191,807 52,527 668,911 363,098 19,917,094

27
1.4 Similar audit observation was noted in the previous years’ audits. Unexpended
subsidy fund balances totaling P37,549,405 and P29,712,047.13 were found not
returned to NEA as at end of CYs 2010 and 2011, respectively. The CY 2010
unreturned balances pertained to nine ECs covering CYs 2002 to 2009 while the
CY 2011 unreturned balances pertained to 12 ECs covering
CYs 2004 to 2009. As of December 31, 2012, these were either returned by the
ECs or their requests for realignment were approved/acted upon.
1.5 Management submitted the status of the action taken on the unexpended subsidy
fund balances as of CY 2012, as follows:

Electric Unexpended Status of the Action Taken by

Cooperative Subsidy Fund NEA
ISELCO I 579,620 EC’s request of EC for realignment,
for NEA’s evaluation.

IFELCO 1,852,903 EC was directed to immediately

return excess subsidy.

PELCO II 439,065 EC’s request for realignment, for

NEA’s evaluation.

CANORECO 2,193,606 EC’s request for realignment, for

NEA’s evaluation.

SORECO II 3,030,481 EC’s request for realignment, for

NEA’s evaluation.
.
LEYECO II 4,080,348 EC submitted updated Accounting of
Funds which shows full utilization of
subsidy fund, which is for NEA’s
evaluation.

MOELCI I 1,559,524 EC’s request for realignment, for

NEA’s evaluation.

MORESCO II 2,863,717 EC will submit documents

requesting for realignment.

DANECO 216,877 EC’s request for reconsideration in

the computation of contingencies,
for NEA’s evaluation/approval. (2011
AAR Finding)

LASURECO 2,848,108 EC was directed to return excess

subsidy funds. (2011 AAR Finding)

MAGELCO 252,845 Frozen account under money

laundering due to Ampatuan Case.
(2011 AAR Finding)

TOTAL 19,917,094

28
1.6 We noted that requests of ECs concerned, for realignment or for reconsideration of
unexpended subsidy fund balances were not immediately forwarded for approval to
NEA

1.7 We recommend that NEA closely monitor the unexpended subsidy fund
balances, and either demand the return of the same immediately after the
completion of the project, or require immediate submission of request for
realignment of the amount for implementing electrification-related projects/
activities, to wit:

Amount to Request for

ECs Projects Date Completed be returned Realignment
ISELCO I Purok 4A; 2; & 6 Wigan Cordon 11/15;11/14 & 11/17, 2011
419,042.06
Purok 5 & 7 Planas, Ramon 10/23 & 24,02011
Purok 3 & 4 Balintocatoc 11/2/2011
Purok 3 Gaddanan, San Mateo 9/15/2011
Purok 6 Bagong Sikat 11/13/2011
Purok 5 Kakilingan, Cordon 12/15/2011 10/22/2012
Purok 1 Gayong Cordon 12/12/2011
Purok 7 Anonang Cordon 12/14/2011
Jet; Dipugo & Ahud Rizal San Guillermo 12/10;012/11; 12/11, 2011
Sitio Pakak, San Juan, Alicia 11/8/2011 2,055.85
1 Multi-Cab w/ communication equipment 70,476.19
Interest Earned 88,046.21
IFELCO Brgy. Liwo, Mayoyao 4/15/2009 1,802,431.40
Brgy. Natum 10/28/2009
Brgy. Ayangan 4/15/2009 3/12/2013
Brgy. Banao 5/15/2009
Sitio Lana, Brgy. Bolog, Kianan 11/29/2011 50,471.18
PELCO II 439,065.01 4/3/2013
CANORECO P1, Brgy. Rizal, Sta. Elena 6/19/2007 576,189.65
P1 & P2, Brgy. Manlukugan, Vinzons 2/6/2007
P1, Brgy. Calabagas, San Vicente 6/12/2007
S. Mambalinag, Brgy. Napilihan, Vinzons 9/19/2006
P3, Brgy. Mataque, Capalonga 3/9/2008
P4, Looban, Brgy. Calangcawan Sur, Vinzons 2/5/2009
P5, Brgy. Calangcawan Norte, Vinzons 3/2/2007
P6, Brgy. San Lorenzo, Sta. Elena 6/27/2007
BrgBgry. Dahican, Jose Panganiban 8/25/2009 299,661.70
Brgy. San Ramon, San Lorenzo Ruiz 10/17/2005
Pk. 3, Brgy. Caawigan, 6/9/2009
Pk.1, Brgy. San Jose, Basud 6/9/2009
Pk.1, Isla Verde, Brgy. Gahonon, Daet 6/9/2009 1. Justification
3/8/2013
Along CNNHS, Brgy. Camambugan, Daet 12/22/2008 2. Board
Resolution
Pk.3, Brgy. Caawigan, Talisay (additional)
3/21/2013
Talisay 227,416.86
Calle Trece de Mayo St., Borabod 3/3/2008 329,841.51
Pk.1, Brgy. San Isidro 2/13/2008

29
 Amount to Request for
ECs Projects Date Completed be returned Realignment

Pks. 3,5, &6, Brgy. Pamorangon 12/4/2007

Sangangdaan St., Brgy. Catioan 2/4/2008
Pk.3, Gahonon 9/3/2007
Pk.5, San Isidro - corr.P-3, San Isidro, Talisay 1/25/2008
Mamb alite Line Section 1/25/2008
Paracale Line Section, Fishport 1/25/2008
Replacement of various Transformers 12/28/2007
Installation of Cut Out and Arrester 12/28/2007
Pk.3, Brgy. Malacbang, Paracale 2/7/2008
Pk.1, Brgy. Matnog, Basud 12/28/2011 26,899.90
Pk.4, Oliva, Basud 5/30/2012
Pk.3, Brgy. Mampili, Basud 5/30/2012
Pk.1, Brgy. Sabang, Vinzons 5/30/2012
Pk.2, Brgy. Sabang, Vinzons 5/30/2012
Gawad Kalinga, Brgy. Matacong, Sn Lorenzo
Ruiz 5/30/2012 328,369.51
Pk.1, Brgy. Dagotdotan, San Lorenzo Ruiz 5/30/2012
Pk.3, Brgy. San Felipe, Basud 5/30/2012
Pk.5, Dagotdotan, San Lorenzo Ruiz 5/30/2012
Guyaman, Brgy. Tawig, Paracale 5/30/2012 313,641.64
Danao, Catabaguangan, Capalonga 5/30/2012
Purok 7, Brgy. Calabaca, Capalonga 5/30/2012
Sn Antonio, Brgy. Calogcog, J Panganiban 5/30/2012
Pks. 2 &4, Brgy. Bagong Silang III, Labo 5/30/2012
Pk. 1, Brgy. Pinagbirayan Munti, Paracale 5/30/2012
Pk. 2, Brgy. Malaguit, Paracale 5/30/2012
Interest Earned 91,584.67
SORECO II Sitio Little Baguio, Gimaloto 5/31/2005 335,730.35
Purok II Cabigaan 6/30/2005
Sitio Casuy, San Juan 6/30/2005
Sitio Barayong, Carriedo 12/20/2005
Calle Amador, Pob. Bacon 5/27/2005
Purok Marcos, Brgy. Buhatan 8/30/2005 35,444.55
Sitio Ilawod, Brgy. Guinlajon 8/30/2005
Portion of Brgy. San Isidro 3/6/2008 173,855.91
1/30/2013
BNCC Relocation Site,So. Sip-ac, Cabid-an 3/8/2008
Portion of Brgy. San Joan,Roro 3/8/2008
Bayamihan St. Brgy. Piot 3/12/2008
Rehab/Upgrade of lines & replacement of
defective meters and installation of
Storm Guy 11/10/2008
Interest Earned-O-Ilaw & Regular Subsidy 56,819.33
Unexpended Fund per audit report dated

10/29/04 2,428,631.01
LEYECO II Rehab of DX lines Brgy. Cabalawan to 3,953,699.33

30
 Amount to Request for
ECs Projects Date Completed be returned Realignment

Abucay Substation
Brgy. Tagpuro-Brgy Babatngon Proper
Brgy. Nagasaan-Brgy. Malibago
Brgy. Malibago-Bgry. Magcasuang
8/8/2011
Brgy. Gov. Jaro Junction-Brgy. Sn Agustin
Brgy. Sn. Agustin-Brgy. Guinitigian
Replacement of KWHr meters
Interest Earned 126,648.25
MOELCI I 1,559,823.88 2/12/2013
MORESCO II 2,863,717.15 7/2/2012
DANECO Prk Kitam, Brgy. Cambanogoy 216,877.00 Request for re-
Dadatan 1 to Dadatan 2 Kaputian Igacus consideration in
Brgy. Sto. Nino Naak computation of
So. Pagsilaan, Andap,New Bataan contingencies for

NEAs evaluation
and approval
LASURECO 2,848,108.00 EC was directed
by NEA to return
excess subsidy
fund.
MAGELCO 252,845.00 Frozen account
under money
laundering case
due Ampatuan
case

2. Delayed implementation of projects by electric cooperatives.

2.1 Under Memorandum of Agreement entered into by and between the electric
cooperatives and NEA, and under Memorandum dated March 7, 2001 of the NEA
Administrator to all ECs, the latter are required to complete the project within three
months from receipt of the subsidy fund from NEA.

2.2 Audit disclosed that in CY 2012, nine electric cooperatives incurred delays in the
implementation of 46 subsidy-funded projects, ranging from 1 to 25 months.
Likewise, two of these nine ECs were not able to implement two projects. Details
are shown in the table below.

Projects Delayed # Projects

Name of EC Not
# of Projects No. of Months
implemented
Delayed Delayed
ISELCO II 12 3-5 months -
IFELCO 6 1-3 months -
17mos. -1 proj
MOPRECO 3 27days -2 proj -

31
 Projects Delayed # Projects
Name of EC Not
# of Projects No. of Months
implemented
Delayed Delayed
ZAMSURECO I 2 1 month -
LEYECO V 4 2-15 months -
MOELCI I 1 20 months -
CANORECO 15 3-25 months 1
SORECO II 3 11 months -
LANECO - 1
Total 46 2

2.3 The CY 2010 and CY 2011 Annual Audit Reports contained similar audit
observation where 47 projects and 39 projects, respectively, were reported to have
been implemented beyond the three – month period from receipt of subsidy fund by
the electric cooperatives.

2.4 Management informed that all the concerned ECs have submitted justifications
which NEA found acceptable. The common justifications are:

a. right of way and bidding problems;

b. political pressure;
c. poor weather condition; and
d. no road network.

2.5 On two projects that were not implemented, Canoreco submitted a request to NEA
for realignment and LANECO requested funding for the construction of line as
tapping point to energize the project.

2.6 We recommended that NEA ensure that all the requirements for the smooth
implementation of subsidy-funded projects have been complied with or
secured by the electric cooperatives before releasing any subsidy fund.

2.7 We also recommend regular and close coordination with the local
government units to address all the anticipated problems in the project
implementation.

3. Repeated cases of project implementation by electric cooperatives prior to

release of subsidy fund by NEA.

3.1 Audit of CY 2012 subsidy funds disclosed that four electric cooperatives started
and completed 28 projects in advance utilizing their own fund and without the
financial assistance from NEA as evidenced in the projects that were completed
before the receipt of the subsidy, with details below.

32
 Projects Completed
Subsidy Fund
Name of EC
Date Started Released to EC
# of Projects
Mopreco 1 10/3/03 12/19/03
1 9/20/11 1/24/12
1 11/10/11 1/24/12
1 10/25/11 1/24/12
1 10/31/11 1/24/12
6 11/2/11 1/24/12
Zamsureco 1 12/10/07 2/21/08
1 5/20/09 6/9/09
1 12/1/08 8/11/09
4 2/20/09 3/12/09
2 11/8/08 11/19/08
Canoreco 1 2/11/05 7/4/05
1 12/20/00 8/7/06
1 10/9/08 10/16/08
1 10/11/05 10/2/07
2 9/25/07 10/2/07
Soreco II 1 11/12/07 4/25/08
1 12/12/07 3/31/08
28

3.2 It is the policy of NEA that before the ECs can avail of the subsidy from the national
government, the concerned EC should submit the project proposal to be included in
the work plan/ICPM of NEA. All projects in the approved workplan/ICPM to be
funded from NEA loans and subsidies from the National Government will be eligible
for evaluation and approval for release of funds. Additional projects not included in
the approved workplan/ICPM shall be processed upon approval by the
Administrator. Electrification Projects that are funded from the Priority
Development Assistance Fund (PDAF), and initiatives of Congressman and
Senators, that are channeled thru NEA shall also be evaluated and processed
before the release of funds.

3.3 Our audit disclosed however, that there were instances that projects approved by
NEA for implementation were started prior to the release of funds. The concerned
ECs justified that they were forced to implement the projects in advance due to the
commitment by the congressmen to their constituents and the said congressmen
assured them that funds was already allocated for the projects and will be released
by NEA.

3.4 We recommend that NEA revisit their criteria in selecting electric

cooperatives that may be given prioritization in the grant of subsidy fund.

3.5 Management informed that all the concerned ECs submitted justifications that these
were implemented in advance due to political assurance that funds will be released
by NEA.

33
4. Non-compliance of electric cooperatives with the required approval of NEA
before effecting any realignment of subsidy fund.

4.1 In CY 2011, three ECs did not comply with the required approval of realignment of
the purpose of the subsidy fund.

4.2 On the other hand, current audit disclosed that subsidy fund for specific projects by
two electric cooperatives amounting P164,915 were realigned to other projects
without seeking approval from NEA, plus the P6,837,292 prior year audit findings
thereby arriving with cost totaling to P7,002,207 as follows:

34
 Realigned Projects/Location
Subsidy Fund Amount to be
returned to Additional Project
ECs Release Without NEA
NEA
PER NEA EVALUATION PER IMPLEMENTATION
Approval

NUVELCO P190,476 25 pcs 35"/3 wood  25 pcs 35"/3 P91,476

poles for the wood poles for
rehabilitation the rehabilitation
(P190,476 - of lines, P99,000
99,000)
 Four (4)units Four (4)units
25KVA 25KVA
transformer transformer
P137,000

 Fuselink Fuselink P16,800

MOELCI I 2,792,618 Brgy. Sinaad, Brgy. Sinaad,

Sapang Dalaga, Sapang Dalaga,
Brgy. Roxas, Brgy. Roxas,
Aloran Aloran,

Sinampongan, Sinampongan,
Aloran 73,439 Aloran
From 12 sitios it
was reduced to 8
sitios (CY 2011
ILECO II* 3,587,750.11 12 sitios 8 sitios 3,155,480 AAR)
Additional 1 project
Brgy. Pili & Dansalan (CY 2011 AAR)
LANECO* 2,435,987.43 Brgy Baning, Sapad Sapad 1,654,754
With additional 84
sitios (CY 2011
CAPELCO* 12,858,423.56 6 Sitios 92 sitios/brgy 2,027,058 AAR)
P7,002,207
*2011 AAR audit findings

4.3 As provided in the MOA, the electric cooperatives are required to use the funds
solely and exclusively for the projects as approved by NEA and could not divert or
use it for unrelated purposes to it.

4.4 However, we noted that in the cases of ILECO, LANECO, CAPELCO, the project
to which the subsidy fund was realigned are related to 2011 Audit Findings. For
ILECO, the approved project as evaluated by NEA was intended for 12 sitios but
upon implementation it was reduced to 8 sitios. In the case of LANECO, the
approved project was only for one barangay but the EC added one barangay when
it was implemented. CAPELCO on the other hand, realigned its projects for 6 sitios
to 92 sitios without seeking for approval from NEA.

4.5 Management informed that NUVELCO and MOELCI I submitted their justifications
and requested realignment. ILECO II, LANECO and CAPELCO also submitted
request for realignment, and that these requests are under evaluation by NEA

4.6 We recommended that Management conduct a review and evaluation of the

common reasons/justifications submitted by the electric cooperatives on the

35
 realignment of funds and on the non-implementation of the original projects,
in order to minimize if not eliminate fund realignment in the future.

5. Increasing Cases of Delayed Energization/Non-Energization of Completed

Projects

5.1 For CY 2012, we noted that energization of 227 and 50 completed projects took a
longer period of two to twelve months, and beyond 12 months, respectively, after
project completion. Details are shown below.

Delayed Energization/Non-Energization of Completed Projects

Projects Energized after Completion Projects
Immediately 2 to 12 not
Name of EC Projects Beyond
or within a months Energized
12
Completed month from after after
months
completion completion completion
IFELCO 25 19 5 1 -
CEBECO I 331 77 208 46 -
CANORECO 89 82 5 1 1
SORECO II 28 23 5 - -
ISECO 25 22 2 1 -
MOPRECO 33 32 1 - -
MORESCO II 32 30 1 1 -

Totals 563 285 227 50 1

5.2 Similar audit observations were reported in CYs 2010 and 2011 audit reports.
Compared with the figures in CY 2010 and CY 2011, increasing cases were noted,
as shown below.

Energization in 2 Energization beyond

Year No. of ECs to 12 months after 12 months after
project completion project completion
2012 7 227 projects 50 projects
2011 9 75 projects 6 projects
2010 2 12 projects 110 projects

5.3 As represented by the concerned electric cooperatives, these completed projects

were not energized due to the limited number of customers who availed of the
electric services because of the stringent requirements imposed by the local
government units and difficulty on the payment of several fees, charges and taxes
by the consumers to the concerned LGUs.

5.4 On the other hand, there was a delay in the energization of completed projects due
to insufficient consumer applicants as some intended beneficiaries have
encountered financial constraints.

5.5 Management informed that the ECs submitted justifications that are acceptable to
NEA. CANORECO justified to NEA that the EC cannot sustain the operation of the
Genset due to high cost of fuel.

5.6 We recommended that Management coordinate with the LGUs concerned on

how their requirements relative to the energization of completed projects can

36
 be relaxed and how the payment of fees, charges and taxes can be eased up
to help their constituents as part of the poverty alleviation program.

5.7 We also recommend that Management be guided by the lessons learned from
the previous energization of complete projects in approving future projects
of electric cooperatives so that subsidy funds are efficiently and effectively
utilized.

6. Noted deviation from the “As Planned” Staking Sheet of electric cooperatives

6.1 The contract between Jera General Construction & Supply and Sorsogon II Electric
Cooperative, Inc. (SORECO II) provides that the Contractor shall strictly follow the
designs and staking made by the Cooperative and shall ensure that the
construction shall be in accordance with NEA and Philippine Electrical Code
Standards. It further provides that no revision/alteration and/or modification of the
designs and specifications shall be made without the approval of the latter.

6.2 Audit disclosed that materials used in the Staking Sheet “As Planned” compared
with the Staking Sheet “As Built” disclosed that the poles used and the
transformers installed differed from the Staking Sheet “As Planned”.

Per NEA evaluation-As-Planned

Check Per As-built Staking Sheet Difference
PROJECT LINE Date Subsidy Staking Sheet
# Trans
Recd. Recd. Poles Transformer Poles Transformer Poles former
1. Purok Marcos, AD-0- 605,909.
1 Buhatan 05028- 4/5/05 54
Sorsogon City
2. So. Ilawod, 269,247.
Guinlahon 455-6 47
875,157.
Sorsogon City 01
8 GK Housing
1. Castilla GK AD-08- 279,033.
Village, Pob. 11-059 12/17/08 98
Castilla
2. PGMA GK Village, 488,356.
Prieto 02
767,390.
Diaz 00
1. So. Ilawod, Cabid- 265,262.
12 an 214762 3/24/08 63
Sorsogon City
2. So. Sirangan, 429,467.
Cabid-an 215080 2/13/12 29 6 @ 30 ft 69,600.00 6 @ 25 ft 40,800.00 28,800.00 -
Sorsogon City
3. So. Naluho, 452,910.
Buhatan 97
Sorsogon City
4. Purok 5, Mabini, 1,101,254.4
Donsol 1
5. So. Sagurong, 1,012,555.9
Banauang 9
3,261,451.2
Gurang Donsol 9
1. So. Lambik, Sta 822,222.
14 Fe, Pilar 214828 10/7/11 64
2. So. Talisayan, 1,168,453.1
Talisayan, 215076 2/13/12 1
1,990,675.7
Prieto Diaz 5 4 @ 30 ft. 46,400.00 3 @ 30 ft. 34,800.00 11,600.00 -
1. So. Gumamela, 495,390. 1 @ 15 1 @ 10
16 Amomon- 214856 10/12/11 21 KVA 56,000.00 KVA 43,000.00 - 13,000.00
ting, Castilla
2. So. Odom, Loreto, 657,048.
Castilla 215077 2/13/12 54
3. So. Sunflower, 575,430.
Amomon- 80

37
 Per NEA evaluation-As-Planned
Check Per As-built Staking Sheet Difference
PROJECT LINE Date Subsidy Staking Sheet
# Trans
Recd. Recd. Poles Transformer Poles Transformer Poles former
ting, Castilla
1@
4. So. Sunflower 2, 1,042,800.7 15 1 @ 10
Oras, 2 KVA 56,000.00 KVA 43,000.00 - 13,000.00
Castilla
5. Purok 6, San 675,523.
Vicente, 00
Castilla
6. So. Sobet, 357,435.
Canjela, Castilla 78
7. So. Badyang, 282,024.
Loreto, 30
4,085,653.3
Castilla 5

Total 116,000.00 112,000.00 75,600.00 86,000.00 40,400.00 26,000.00

TOTAL 66,400.00

6.3 Likewise, verification of the staking sheet of the project in Barangay Makindol,
Municipality of Benito Soliven of Isabela II Electric Cooperative, Inc. (ISELCO II)
showed that 15KVA transformer costing P23,000 should have been installed on
post #11; however, upon ocular inspection there was no transformer set up on the
said post.

6.4 Management informed that the EC advised the contractor to make the necessary
replacement of materials.

6.5 We recommend that Management require the electric cooperatives

concerned to return the amount of P66,400 to NEA in case of the failure to
follow the designs and specifications of the staking approved by NEA.

7. Project cost based on the “As built” staking sheet per liquidation report lower
than the evaluated cost of NEA .

7.1 Audit of the subsidy releases to ECs and their liquidation reports disclosed that in
some completed projects, the cost based on the “as built” staking sheet was less
than the evaluated cost of NEA. Thus, release of the 10% retention fee to the ECs
concerned would result in excess subsidy. Details are as follows:

Sitio
Total Cost Actual Excess Fund
Subsidy Electrification Unexpended
Name of Fund of Project Cost of on Subsidy
Subsidy
EC per NEA Project per Released vs.
Check Released 10% EC
Fund
liquidation
Evaluation
Number to EC Retained
NUVELCO
-PDAF 18476012 495,050 495,050 990,100 964,777.00 25,322
215001 990,987 1,025,672 2,016,659
326922 8,374,426 - 8,374,426

NUVELCO 327107 7,492,330 1,938,641 9,430,971 18,716,299

-SEP 16,857,743 2,964,313 19,822,056 18,716,299 1,105,757
17,352,793 3,459,363 20,812,156 19,681,076 1,131,080

38
 Sitio
Electrification Total Cost Actual Excess Fund
Subsidy Unexpended
Name of Fund of Project Cost of on Subsidy
Subsidy
EC per NEA Project per Released vs.
Check Released 10% EC
Fund
liquidation
Evaluation
Number to EC Retained

CANORECO 8476000 1,454,403

2149
91 1,163,522
2,617,925 290,881 2,908,806 2,883,525 25,281
21501
5 994,556
795,644
1,790,200 198,911 1,989,111 1,763,300 26,900 198,911
21509
3 1,493,996
327269 1,195,196
2,689,192 298,433 2,987,625 2,360,823 328,370 298,433
32691
6 1,551,837
327269 1,241,470
2,793,307 310,367 3,103,674 2,479,665 313,642 310,367
32693
8 7,531,135
32728
1 6,024,908
13,556,043 1,506,227 15,062,270 13,977,930 1,084,341
23,446,667 2,604,819 26,054,486 23,465,242 668,911 1,917,333
32716
SORECO II 3 6,538,890 6,538,890 13,077,780 12,713,897 363,883
Total 3,412,294

7.2 Management informed that NUVELCO and CANORECO had requested full release
of the subsidy by submitting updated accounting of fund, while SORECO II agreed
that NEA will deduct the excess of P363,882.70 from their succeeding subsidy
releases

7.3 We recommended that Management ensure that release of the 10% retention
fee to the ECs should not result in excess subsidy.

8. Deviation in the implementation of projects under Priority Development

Assistance Fund (PDAF).

8.1 For CY 2012, NEA received PDAF totaling P37,712,144 for 16 Electric
Cooperatives. In cases where the PDAF is inadequate for the project, it is
provided that the deficiency should be shouldered by the EC.

8.2 Our audit disclosed that of the PDAF received, the amount of P3,859,470.29 was
released to five electric cooperatives for the purchase of service vehicles and to
one EC for the distribution of DX lines to one barangay and one purok, as shown in
the table below. It was noted however that the PDAF received was not enough for
the specification / type of the service vehicle as evaluated / approved by NEA.
Hence, the EC concerned deviated from the specification/type approved by NEA,
as shown below.

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 PRIORITY
DEVELOPMENT SPECIFICATION PER NEA SPECIFICATION UPON
ASSISTANCE FUND EVALUATION PROCUREMENT
NAME (PDAF)
OF EC Amount Item/Project Item/Project Total
Date Qty Total Cost Qty
Received Description Description Cost

PELCO I 380,962.38 7/13/2006 Four (4) units droplites 4 3 units Suzuki multi- 3 480,000.00
pick-up latest model cab vehicles
(scrum), free
registration & matting
color-yellow stone
(anzahlolyure thane
with ear door sliding
windows steel
fabrication for ladder
mounting backboard
rear toolbox with
epoxy black paint
IFELCO 190,476.19 2/19/2007 One (1) Delica 1 350,000.00 One (1) unit Toyota 1 342,500.00
(manual vehicle) Noah Utility vehicle
ISELCO I 190,476.19 10/19/2007 Dropside pick-up 6 2 220,000.00 Mitsubishi canter 6w 1 275,000.00
valve without canopy ton double cab
QUIRELCO 190,476.19 2/7/2007 Isuzu Toyota 4-wheel 1 200,000.00 Nissan Path Finder 1 268,000.00
drive pick-up 1995 model (second
hand)
CANORECO 2,716,602.95 11/19/2008 Ext. DX lines: Brgy. 1 106,051.42 Talagpucao 1 168,000.00
Ubang, Cap Site,Brgy. Catioan,
cap
Prk.3 Brgy Taisan 1 330,076.58 Prk 1 Brgy Angas, 1 423,925.00
Basud Basud
*MORESCO I 190,476.39 3/2/2005 4-wd multi-cab 2 200,000.00 4x4 pick up 245,000.00
vehicles Hyundai Galloper
with AM / FM radio
and cassette
player; aircondition;
power steering
wheel; hydraulic
jack;two wrench
and spare tire.
3,859,470.2
TOTAL 9

*2011 AAR Findings

8.3 Our audit disclosed that the PDAF released to SORECO II intended to purchase
one unit service vehicle for the cooperative’s electrification operations was instead
used for the procurement of one unit 2nd hand Mitsubishi L-200; however, the
ownership is still under the seller’s name and not in the name of the cooperative.
On the other hand, PELCO II failed to submit documents on the utilization of PDAF
costing P0.190 million intended for the purchase of two Suzuki type service
vehicles.

8.4 Considering that the subsidy was released for a specific purpose or undertaking,
any deviation should be duly authorized by the concerned Department of NEA.

8.5 Management informed that the ECs submitted justification which is acceptable to
NEA and the ECs will also submit the approval from the Congressmen on the
changes.

8.6 We recommend that Management require EC to obtain prior approval of the

realignment from NEA and PDAF proponent before effecting any changes in
the utilization of PDAF.

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 8.7 For the subject projects, we recommend that Management require post facto
approval by the PDAF proponent of the changes in project implementation;
and require SORECO II to return the amount of P190,476 unless the
ownership has been transferred to its name.

9. Unavailed PKKV Subsidy Fund

9.1 The Pantawid Kuryente: Katas ng VAT (PKKV) Subsidy Fund which is designed to
help the poorest sector of the society, is a one-time P500 subsidy granted to each
lifeline residential consumers to help them pay their electricity bills. Under
Presidential Decree No. 269, as amended, has oversight functions over electric
cooperatives all over the country and will assist the DSWD in the implementation
of the PKKV Program.

9.2 Comparison of the List of Qualified Consumers as approved by NEA as against

the List of Consumers paid by the cooperatives disclosed that qualified consumers
were not credited / paid by the ECs due to recipients’ transfer of residence to other
barangay / town, disconnection of services.

9.3 Shown below is a summary of number of consumers by EC who had not

benefitted from the P500 subsidy.

Name of EC Number of Consumers Amount

INEC 313 96,537
ISECO no data available 86,113
PELCO II 61 30,500
SORECO II 206 103,000
TOTAL 316,150

9.4 We recommended that Management require ECs to return the amount

P0.316 million representing unavailed PKKV Subsidy Fund.

9.5 Management informed that INEC, ISECO and PELCO II will submit reconciliation
of reconnected consumers and return the unapplied PKKV fund to NEA.
SORECO II will apply the unavailed fund to other qualified consumers.

10. Some recipients of PKKV Subsidy not residential consumers

10.1 Inspection made by the Audit Team on selected beneficiaries of PKKV subsidy
revealed that some recipients were not residential consumers but their
buildings/houses are either intended for business, such as stores, rest houses,
schools, churches and barangay halls. These consumers could not be
considered marginal or lifeline consumers that represented the poorest sector of
the society, hence, they could not be made entitled to the PKKV subsidy,
summarized as follows.

Name of ECs Amount

INEC P 129,500
ISECO 59,000
SORECO II 34,500
Total P 223,000

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 10.2 We recommended Management demand from the three electric cooperatives
concerned the return the amount of P223,000 representing PKKV Fund
whose recipients were not residential consumers.

10.3 Management informed that INEC and ISECO submitted request for
reconsideration.

10.4 We maintain that Management require ECs to return the fund applied to non-
residential consumers as provided in the implementing guidelines.

11. Procurement of Private Health Care Services for NEA Personnel for CY 2012 in
violation of COA Resolution No. 2005-001.

11.1 Our audit disclosed that NEA availed the health services of Fortunecare and
Cocolife Healthcare, both private health insurance companies, for comprehensive
corporate health program of NEA employees from January 1 to December 31,
2012 in the total amount of P4,819,405.08. This program includes check-ups,
consultations, hospitalizations, laboratories and other medical benefits.

11.2 COA Resolution No. 2005-001 dated February 3, 2005 prohibits government
agencies or instrumentalities including government-owned or controlled
corporations from securing health care insurance from private insurance agencies.
The government has already provided health insurance to all its employees thru
Philippine Health Insurance Corporation (Philhealth) and procurement of another
health insurance by government agencies from private health insurance
companies is a disbursement of public funds for the same purpose and must be
viewed as a form of additional allowance and compensation.

11.3 Management informed that their Health Insurance was approved by the
Department of Budget and Management (DBM) under the expense account
classification “Taxes, Duties and Fees”. However, it was noted from the approved
Corporate Operating Budget of NEA that the health insurance procurement was
not properly disclosed under the said account. In fact, it was not proper to classify
it under Taxes, Duties and Fees account.

11.1 We recommend that Management seek post facto approval from the Office
of the President. Non-submission thereof will cause the issuance of the
necessary Notice of Disallowance which may be appealed pursuant to Rule
IV, Section 4 of the Revised 2009 Rules of Procedure of COA.

11.2 On the other hand, we will seek clarification from the DBM of the Health Care
Insurance which was claimed to have approved the same notwithstanding
the prohibition under COA Resolution No. 2005-001.

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