Government-Wide Performance Audit Report
Procurement is an activity involving acquisition of goods, consulting services, contracting for infrastructure projects and lease of goods and real estate.
Government procurement is at present governed by Republic Act No. 9184, "An Act Providing for the Modernization, Standardization and Regulation of the Procurement Activities of the Government and for Other Purposes", enacted on December 18, 2002 and its Implementing Rules and Regulations. The passage of this law highlighted governmentís efforts in pursuing procurement reforms and upholding the following principles:
Even before the passage of RA 9184, the government was already addressing the issue on transparency in government procurement and inefficiency due to manual and paper-driven procurement processes. Thus, in November 2000, the internet-based Electronic Procurement System (EPS) was established. This is at present required to be used by all government agencies.
Government procurement is highly decentralized. Each agency advertises its procurement activities, pre-qualifies its interested entities and awards contract following the procedures prescribed under appropriate implementing rules and regulations.
The central procurement system of the government for common-use supplies, materials and equipment is, however, being handled by the Procurement Service (PS), one of the offices under the Department of Budget and Management (DBM).
The procurement activities and reforms are being supervised by the Government Procurement Policy Board (GPPB) which is the sole regulatory and oversight entity for government procurement. The Board is headed by the Secretary of the DBM as Chairman and the Director-General of NEDA as Alternate Chairman. The members are composed of the Secretaries of the Departments of Public Works and Highways, Finance, Trade and Industry, Health, National Defense, Education, Interior and Local Government, Science and Technology, Transportation and Communications, and Energy, or their duly authorized representatives and representative from the private sector appointed by the President upon the recommendation of the GPPB.
A performance audit on the procurement system of the Department of Health (DOH) was conducted as there is a felt need to assess its effectiveness in ensuring that vaccines for its Expanded Program on Immunization (EPI) were available at the right quantity and drugs and medicines for other selected health programs were acquired at the right costs, quantity and quality.
Procurement of vaccines is undertaken by UNICEF on behalf of the DOH pursuant to a Memorandum of Agreement entered into in 2001 while drugs and medicines for Botika ng Barangay program were procured through the Philippine International Trading Corporation.
The audit was conducted to assess the effectiveness of the procurement system of the DOH in ensuring that vaccines were made available at the right quantity and drugs and medicines for other programs are acquired at the right costs, time, quantity and quality.
AUDIT SCOPE AND METHODOLOGY
The audit covered CYs 2004 and 2005 procurement of vaccines and selected drugs and medicines by the DOH and the Centers for Health and Development (CHDs) intended for the Botika ng Barangay (BnB) and Doctors to the Barrio (DTTB) programs. The procurement system was assessed, in relation to the implementation of RA 9184, using the following evaluation criteria:
To attain the audit objective, the team adopted the following audit techniques:
The audit was conducted from November 7, 2005 to June 30, 2006 pursuant to Management Services/Technical Services Office Order Nos. 2005-034 and 034-A dated July 1, 2005 and December 28, 2005, respectively.
The audit concluded that the existing procurement system was not totally effective in ensuring that vaccines, drugs and medicines at appropriate quantity and right quality were acquired at the least cost and available at the time most needed.
The failure of the DOH to determine the appropriate quantity was manifested in and affected by the following circumstances:
The availability of drugs at the right time was also affected by delayed conduct of public bidding. Yearly public bidding processes started only between July and August and the goods subject of bids were delivered only between October to November 2004 for 2004 bidding and January to February 2006 for 2005 bidding. This was reportedly due to the failure of some offices to submit their PPMPs on time. PPMPs for CY 2005, due on September 2004, were submitted only between October 2004 to June 2005. While the bidding was already delayed, the prescribed timelines for the conduct of the bidding process were still not observed further delaying the availability of drugs and medicines.
Likewise, monitoring of suppliersí performance was inadequate. Deliveries not complying with the required quality of 18 month shelf life were nonetheless accepted. This condition, coupled with delayed distribution of drugs and medicines, which took two (2) to five (5) months for BnB drugs and 12 to 19.5 months for vaccines, shortened their shelf life and increased the probability of expiration before these are eventually sold and/or issued.
Certain drugs and medicines were also not acquired at the right price. Procurement by DOH Central Office from PS-DBM, and by CHD III through shopping and negotiated contracts were higher on the average by 116% when compared with the prices offered by the PITC and the results of public bidding conducted by these offices in 2004. CHD III also resorted to splitting of POs to meet the requirement for shopping and avoid the conduct of public bidding.
Compliance by the BnBs with the provisions of AO No. 144 was also not adequately monitored. Some BnBs were found selling branded medicines at higher prices, others were using the proceeds for personal use instead of for reordering drugs, while a number were ordering from unauthorized dealers due to the failure of the CHDs to accredit dealers. These deficiencies adversely affected the realization of the BnB objective of selling quality drugs at low prices.
Considering that procurement of drugs and medicines is a regular activity of the DOH, the team recommended measures under Part IV of the report to address these concerns.
The results of the audit were forwarded to the DOH Central Office for comments. The DOH likewise requested the World Health Organization (WHO) and the United Nations Childrenís Fund (UNICEF) to comment on the report as partners of the DOH in the Expanded Program on Immunization.
The UNICEF claimed that the audit conclusion did not dwell on cost-effectiveness and quality of vaccines procured and that in 2003, it introduced a vaccine forecasting system globally. It admitted though that such forecast is usually based on assumptions that are not always perfect such as coverage rates, the steady supply of vaccines and a good distribution system. It further explained that its crucial function in the global vaccines supply chain is to advocate and work closely with global vaccine manufacturers and suppliers to make vaccines available in different countries at the right time, quantity and quality.
On the other hand, WHO Representative to the Philippines congratulates COA for bringing out the need for improved vaccine inventory management as this has direct impact on the attainment of its national and international goals. He was, however, concerned that report on EPI contains errors in calculations, omissions and misinterpretations that resulted in incorrect conclusions.
For the DOH, Undersecretary Alexander A. Padilla raised concerns that the report may give the impression that the DOHís procurement system was solely the concern of the members of the Central Office Bids and Awards Committee (COBAC). He explained that other issues covered in the audit such as distribution and logistics fell under the responsibility of another division and that the DOH cannot control or dictate the prices of DBM procurement.
He also claimed that only 77% are fully immunized in 2004, a far cry from the 90% target. Thus, procurement of vaccines could not be considered excessive. There was just failure on the part of CHDs and LGUs to aggressively implement the program. He attributed the low target of 40% coverage for Hepatitis B to insufficient budget.
All comments received by this Office were incorporated in the report, where appropriate.
The team did not cover cost-effectiveness of vaccine considering that cost evaluation was practically done by the UNICEF and not by the DOH. The DOH has no participation in the evaluation of prices of vaccines acquired through the UNICEF. On the other hand, the Bureau of Food and Drugs (BFAD) exempts from the submission of Certificate of Product Registration those vaccines procured through UNICEF, UNDP and WHO. Likewise, the team is not questioning the vaccine forecasting system introduced by the UNICEF.
The team reiterates that the audit conclusion resulted from analysis of data which were made available to the team during the audit and those subsequently submitted to support comments on the audit highlights. As discussed in the audit conclusion, the DOH failed to consider the available stocks at the Quirino Warehouse, thus, the discrepancy in the DOHís and teamís schedule.
It is also emphasized that the audit did not only cover procurement activities undertaken by the COBAC but by other offices as well. The team is aware that logistics and distribution functions are no longer within the responsibility of COBAC. However, while it is true that COBAC cannot dictate the prices to be offered by PS, it has the prerogative to acquire from PS, only drugs and medicines that are found reasonably priced.