INTRODUCTION

Under Presidential Decree No. 1823, issued on 16 January 1981, the Lung Center of the Philippines (LCP), a non-profit, non-stock corporation, was created in pursuance to the state’s policy of securing the well-being of the people by providing them specialized health and medical services through the prevention and cure of respiratory and allied diseases.

Executive Order No. 34 dated July 29, 1986 placed LCP under the administrative supervision and control of a Board of Trustees, chaired by the Secretary of Health. LCP is one the government agencies attached to the Department of Health.

For calendar year 1999, the Center has remarkably recovered after the fire incident of May 16, 1998 that razed and destroyed large portion of its building and equipment valued by Management to more than half a billion. During the year, it started the construction of a new LCP building which is partly funded from the P266 million fire insurance received from GSIS and is now at 40% completion.

To continue its mandate and commitment to the public, portion of the unburned building had been improved and transformed into an interim hospital having a 30-bed capacity. So by March of 1999, the Center officially opened its hospital operations and gradually resumed some of its major functions. One notable accomplishment was the establishment of one-room operating theatre and four-bed intensive care unit. Later, various hospital and medical equipment/apparatus were provided and furnished to replace those burned/destroyed by the fire. With the restoration of its hospital/medical programs and activities, a total of 47,800 patients were served and treated. By the end of the year, Management had recalled back to the Center more or less 75% of their workforce deployed to different government agencies after the fire.

As of December 31, 1999, the Center’s balance sheet showed assets, liabilities and networth of P1.12 billion, P670.94 million and P452.20 million, respectively. Net income for the year was posted at P293.92 million, inclusive of P150 million government subsidy and P266.67 million fire insurance proceeds.

SCOPE OF AUDIT

The audit included, among others, the verification of compliance and regularity of transactions and, to a limited extent, the evaluation of the adequacy and effectiveness of systems and procedures of certain aspects of the Center’s operation, the objectives of which were to ascertain the fairness and reliability of the LCP’s financial position and the results of its operation. The results of the VFM audit conducted are in a separate report.

STATE AUDITOR’S REPORT ON THE FINANCIAL STATEMENTS

The Auditor rendered an adverse opinion on the fairness of presentation of the Center’s financial statements because she was unable to ascertain the correctness and validity of P184.40 million worth of furniture, fixture and equipment including burned and damaged properties allegedly costing P602.88 million and P43.76 million liability accounts due to Management’s failure to account and submit complete and reliable inventory reports of burned and unburned properties and provide adequate accounting records and supporting documents. Likewise, the Management failed to record the P584.66 million payable to the Bureau of Treasury representing advances made by the Bureau in payment for the Center’s long-term obligations, the corresponding interests due thereon and the unpaid audit fees.

SUMMARY OF SIGNIFICANT FINDINGS AND RECOMMENDATIONS

For the adverse opinion cited above, the Auditor, recommended, among others, for Management: a) to design and implement a comprehensive and systematic inventory program in accordance with Commission on Audit Circular No. 80-124 dated January 18, 1980; b) to submit complete and more reliable inventory reports on burned/unburned properties, c) to stop certifying obligations not properly authorized and lacking in supporting documents; and d) to record the advances and interests due to the Bureau of Treasury.

In addition, the following are the other significant findings and recommendations which were communicated and discussed with the concerned officials of the Center during the exit conference held on April 14, 2000. Their views and comments, when warranted, are incorporated in this report.

1. The lease-purchase agreement or rent-to-own arrangement of acquiring hospital, medical and office equipment aggregating P20 million was not in accordance with the rules and regulations on procurement.

Institute measures towards improving LCP’s annual equipment procurement program in accordance with National Budget Circular No. 438 dated January 11, 1995 which provides guidelines on purchase of equipment. Stop the practice of acquiring property and equipment through lease-purchase agreement unless appropriation of same is approved by DBM.

2. Major renovations/improvements of building and repairs and installation of equipment aggregating P8.2 million were not capitalized contrary to the generally accepted accounting principles.

Set accounting policies with respect to the recording of cost of maintenance and repairs that conform with generally accepted principles of accounting and for fair financial statement presentation.

3. Two units of ambulances donated by the Philippine Sweepstakes Charity Office (PCSO) costing P1,180,000 remained unrecorded as at year end and same were not insured nor registered with the concerned government agencies in violation of existing rules and regulations.

Record the cost of these vehicles for proper accounting and secure adequate insurance protection thereof.

4. An Internal Audit Service (IAS) was not yet created in violation of Administrative Order No. 278 dated April 28, 1992.

We reiterate our previous years’ recommendation for LCP to organize an IAS for an effective discharge of the Center’s responsibilities and strengthen its internal controls.

5. The Center could have saved at least P1.4 million in security expenses had it hired 26 security guards instead of 38 guards.

Consider hiring of 26 security guards instead of 38 to save funds for the Center’s other prioritized projects and activities.

STATUS OF IMPLEMENTATION BY THE AUDITEE OF PRIOR YEAR’S AUDIT RECOMMENDATIONS

Of the five (5) audit recommendations embodied in the 1998 Annual Audit Report, only one (1) was implemented, two (2) were partially implemented and the remaining two (2) were not implemented by the Center.