INTRODUCTION

Procurement is an activity undertaken by any government agency 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 the government’s efforts in pursuing procurement reforms and upholding the following principles:

• Transparency in the procurement process and in the implementation of procurement contracts;

• Competitiveness by extending equal opportunity to all eligible and qualified private contracting parties to participate in public bidding;

• Streamlined procurement process applied uniformly to all government procurement. The procurement process shall be simple and adaptable to modern technology in order to ensure effective and efficient method;

• System of accountability where public officials directly or indirectly involved in the procurement process and implementation of procurement contracts, and private parties dealing with the government are, when warranted by circumstances, investigated and held liable for their actions; and

• Public monitoring of the procurement process and implementation of awarded contracts in ensuring that contracts are awarded pursuant to the provisions of RA 9184 and its implementing rules and regulations and that performance under these contracts are strictly in accordance with approved terms, conditions and specifications.

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 all 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) as the sole regulatory and oversight entity for government procurement. The Board is headed by the Secretary of the DBM as Chairman, with 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.

The audit of the procurement system of the Kapit-Bisig Laban sa Kahirapan (KALAHI) - Comprehensive and Integrated Delivery of Social Services (CIDSS): Kapangyarihan at Kaunlaran sa Barangay (KKB) of the Department of Social Welfare and Development (DSWD) was undertaken as there is a felt need to assess its effectiveness.

The CIDSS was launched in 1994 to alleviate poverty and empower disadvantaged individuals, families and communities for an improved quality of life. This is one of the ten flagship programs under the Social Reform and Poverty Alleviation Act (RA 8425) intensified under Memorandum Circular No. 33 issued on November 28, 2002. Procurement under the KALAHI-CIDSS: KKB projects are governed by the World Bank (WB) Procurement Guidelines, the National and Regional Procurement Sub-Manual, the Community Based Procurement Manual and relevant provisions of RA 9184.

AUDIT OBJECTIVE

The audit was conducted to assess whether the procurement system of the DSWD KALAHI-CIDSS Project was effectively undertaken to ensure quality projects at reasonable costs through provision of adequate capability building assistance to community beneficiaries.

AUDIT SCOPE AND METHODOLOGY

The audit covered the procurement of goods by the community beneficiaries during CYs 2004 and 2005 for the implementation of the KALAHI-CIDSS: KKB Projects. The team assessed the adequacy of the capability building assistance and technical support provided by the DSWD to community beneficiaries to ensure quality projects.

To achieve the audit objective, the team adopted the following audit techniques, among others:

• Reviewed existing policies, guidelines and procedures, records and reports relative to the procurement of goods for the implementation of KALAHI-CIDSS:KKB projects;

• Interviewed concerned officials and employees of DSWD and selected community beneficiaries;

• Conducted inspection/validation of the procurement procedures adopted in selected sub-projects implemented in Regions IV-A and VI.

• Administered questionnaires to gather data necessary in the evaluation.

• Analyzed data gathered.

The audit was conducted from August 15, 2005 to June 30, 2006, in compliance with MS/TS Office Order No. 2005-034 and 034C dated July 1, 2005 and January 10, 2006.

AUDIT CONCLUSION

The audit concluded that the procurement system for the KALAHI-CIDSS: KKB Project was not effectively undertaken due to inadequate capability building assistance and technical support provided by the DSWD to the community beneficiaries.

This is clearly manifested in the following cases:

• The required review of the detailed estimates and Program of Works (POW) in a number of projects was not adequately undertaken resulting in the excess grant of funds, over procurement of goods and varied cost estimates for similar projects. In several projects, unit costs of a number of items reflected in the detailed estimates were higher by 15% to as high as 291% of the actual costs. The excess grants/savings were then used to procure additional materials not included in the detailed estimates and not needed to complete the project as designed.

• A well reviewed detailed estimates and POW would facilitate the procurement activities of the community. Apparently, the multiple assignments of the Deputy Area Coordinator (DAC) limited his capability to provide adequate assistance. The need for a thorough review of each plans and estimates is crucial due to the absence of standard designs and estimates even for commonly implemented infrastructure projects. The absence of standards further resulted in significant variances in unit costs per square meter of similar projects implemented within the same municipality.

• The project procurement plans were likewise not adequately reviewed and compliance thereof not monitored. The procurement plans of two (2) projects were not consistent with the POW and detailed estimates while some other procurement plans were not strictly observed. Even materials not included therein were procured and construction changes implemented without approved change order. The necessity of changes undertaken was therefore not evaluated.

• Likewise, the practice of communities of separately packaging the same or similar items that can be procured from the same suppliers was not corrected. Construction materials intended for a number of projects were divided into seven (7) to 21 procurement packages which resulted in a more tedious procurement process as each package needed to be documented separately. These packages were canvassed from the same set of suppliers on the same date. Under this practice, the community also lost the opportunity to avail bulk discounts.

• Assistance to the community to ensure that materials procured and accepted were of the right quantity and quality and that prescribed procurement procedures were observed were inadequate. Materials not complying with the required specifications would affect the quality of the project. Inadequate assistance were apparent in the following conditions:

• The Monitoring and Inspection Teams (MITs) were not technically capable to ensure that deliveries complied with the required volume and quality.

• Failure of the MITs to subject materials of a number of infrastructure projects to quality tests despite available funds for the purpose. In the absence of tests, the quality of the materials used cannot be determined. In one case, materials used in the project were later found to be unsuitable/substandard largely contributing to the fast deterioration of the road project.

• Non-compliance by the Procurement Team on a number of prescribed procurement procedures such as indicating in the purchase order/contract agreement the complete specifications, delivery period and contract amount. This may cause misunderstanding in settlement of accounts and in the acceptance of deliveries.

As the KALAHI-CIDSS:KKB Project is an on-going concern, the team recommended certain measures to address the deficiencies noted which are discussed under Part IV of the report.

MANAGEMENT’S REACTION

The results of the audit were discussed with concerned DSWD KALAHI-CIDSS officials in an exit conference conducted on November 7, 2006. Overall, they acknowledged the existence of deficiencies with some reservations and are taking measures to address the concerns raised in the report. In particular, they claimed that the DACs continuously review plans and cost estimates, LGUs’ participation is intensified, and that standards of other government agencies for commonly implemented projects were adopted as the standards. Their comments were incorporated in the report, where appropriate.

TEAM’S REJOINDER

As discussed in the report, a number of plans and estimates did not pass through the required review, apparently due to multiple assignments of DACs. Likewise, despite the alleged LGUs intensified participation, results of audit would show that the reviews and assistance of DACs are still necessary.

It is also apparent that the DSWD’s policy of adopting the standards of other government agencies for commonly implemented projects were not strictly observed in Region IV-A. The audit disclosed that similar projects implemented even within the same municipality were of different designs and costs.