Utilization of the Forfeited Swiss Deposits for the Implementation of the Comprehensive Agrarian

238 Pages·2006·7.21 MB·English

Management Services
Report No. 2006-01
Sectoral Performance Audit

Utilization of the Forfeited Swiss Deposits
for the Implementation
of the Comprehensive Agrarian
Reform Program (CARP)
Republic of the Philippines
Commission on Audit
OFFICE OF THE ASST. COMMISSIONER
Management & Technical Services

Commonwealth Avenue, Quezon City, Philippines

Telephone Nos.: 931-92-35, 931-74-55

October 13, 2006

HON. NASSER C. PANGANDAMAN
Secretary and PARC Vice-Chairman
Department of Agrarian Reform
Elliptical Road, Quezon City

Sir:

We are pleased to transmit the performance audit report on the utilization
of the forfeited Swiss deposit transferred to the Agrarian Reform Fund for the
implementation of the Comprehensive Agrarian Reform Program (CARP).

The audit was undertaken by a composite team headed by the team from
the Management Services, this Commission, pursuant to COA Office Order No.
2006-039 dated February 16, 2006 and subsequent amendments. The audit was
conducted from March 1 to June 30, 2006.

The audit covered the evaluation of selected transactions of the different
CARP implementing agencies (CIAs) during CYs 2004 and 2005. The audit also
covered the evaluation of available records maintained by the Offices of the
Bureau of the Treasury, Department of Budget and Management and Presidential
Commission on Good Government pertinent to forfeited Swiss accounts and
subsequent releases therefrom.

The results of the audit were forwarded to concerned CIAs including that
Office for comments. All comments received as of October 2, 2006 were
incorporated in the report, where appropriate.

We look forward to the proper implementation of the recommendations
that falls within your jurisdiction and monitoring of implementation by all other
CIAs. We would appreciate being informed on the actions taken thereon within
one month from receipt hereof.
We acknowledge the cooperation and assistance extended to the team by
the officials and staff of that Department and the PARC Secretariat.

Very truly yours,

By Authority of the Chairman:

ARCADIO B. CUENCO, JR
Assistant Commissioner
Contents Page

Part I Executive Summary 1

Introduction 2
Audit Objective 5
Evaluation Criteria 5
Audit Scope 5
Audit Limitation 6
Audit Methodology 6
Audit Conclusion 7
CIA’s Comments 10
Audit Recommendations 11

Part II The Comprehensive Agrarian Reform Program 13
(CARP)

Introduction 14
Program Coverage 14
Governing Laws and Regulations 14
CARP Funding Sources 15
The Forfeited Swiss Deposits 16
Status of the US$624 Million 18
CARP Management Structure 19
CARP Implementing Agencies 20
Personnel Complement of Implementing
Agencies 21
The CARP Budget 21
Fund Released to CIAs 23
Funds Flow 25
Reported Accomplishments for CYs 2004
and 2005 27

Part III Audit Observations 30

Chapter I Appropriate Fund Disposition 31

Introduction 32
Observation 32, 37, 41, 46, 50, 56, 79
Management’s Comments and Team’s
Rejoinder 34, 39, 45, 50, 52, 56, 82

Chapter 2 Effective Project Implementation 86

Introduction 87
Observations 87, 91, 100, 104, 105, 114
Management’s Comments and Team’s
Rejoinder 90, 96, 110, 119
Contents Page

Chapter 3 Rationale Identification of 122
Infrastructure Projects

Introduction 123
Observations 123, 132, 135
Management’s Comments and Team’s
Rejoinder 129, 135, 139

Chapter 4 Accurate Reporting of 140
Accomplishments

Introduction 141
Observations 141
Management’s Comments and Team’s
Rejoinder 143-145,147-160,162-169,173-183

Chapter 5 Adequate Funding to Landowners 186
Compensation

Introduction 187
Observation 187
Management’s Comments and Team’s
Rejoinder 189

Part IV Audit Recommendations 192

Part V Annexes 200
Part I

Executive Summary
1
EXECUTIVE SUMMARY

INTRODUCTION

The Swiss deposits under escrow at the Philippine National Bank (PNB) in the
estimated aggregate amount of US$658.175 million as of January 31, 2002, plus
interest, was forfeited in favor of the government under Supreme Court Decision
GR No. 152154 promulgated on July 15, 2003. A Writ of Execution was then
issued by the Sandiganbayan on January 22, 2004 demanding PNB to remit the
forfeited Swiss deposits to the Sandiganbanyan.

The Trust Banking Group of the PNB certified that the market value of the assets
subject of Writ of Execution as of January 30, 2004 was in the aggregate amount of
US$688.843 million. This amount is net of accrued expenses/fees deducted from
the market value in the amount of US$1.319 million as reflected in the
accompanying schedule.

In compliance with the Order, the PNB and the petitioner, through the Presidential
Commission on Good Government (PCGG) and the Bureau of the Treasury (BTr),
reached an agreement to put the amount subject of writ to PNB under custodianship
account. Thus, on January 30, 2004, the parties entered into Custodianship
Agreement (CA) whereby the amount of US$624.045 million to be transferred and
delivered to the Republic of the Philippines will be held under custody by the PNB.
The amount under custodianship account was recorded in the BTr books as fully
remitted by the PNB on March 12, 2004.

Out of the certified balance of US$688.843 million as of January 30, 2004,
US$624.045 million was transferred to the national government. This was claimed
to be net of expenses and excluded the following accounts which were retained
under escrow account at the PNB:

• the amount of approximately US$22 million invested with West
LB AG, Singapore Branch;
• the amount pertaining to Arelma Foundation; and
• the amount equivalent to at least 5% of the escrow funds or US$30
million whichever is higher, which was set aside as contingent
fund to answer for expenses in connection with unsettled claims
and any lawsuit or potential lawsuit that may arise against PNB
officers and employees.

This transfer was recorded and accounted in the BTr books on February 4, 2004
under Other Liability account in the amount of P35.043 billion. Funds are
transferred from this account, upon request by the Secretary, Department of Budget
and Management (DBM), to the Agrarian Reform Fund (ARF) for the
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EXECUTIVE SUMMARY
implementation of Comprehensive Agrarian Reform Program (CARP). The funds
transferred to ARF were intended to reimburse the National Government on the
corresponding amount of the Notice of Cash Allocations (NCAs) released by the
DBM to CARP Implementing Agencies (CIAs). As of December 31, 2005, total
requests by the DBM and actual transfers by the BTr amounted to P16.154 billion.
The latest request for transfer of funds was on August 31, 2005.

As of December 31, 2005, total Special Allotment Release Orders (SAROs) issued
by the DBM in CYs 2004 and 2005 amounted to P21.640 billion to cover personal
services (PS), maintenance and other operating expenses (MOOE), capital outlay
(CO) and landowners compensation (LC). Of this amount, P20.163 billion was
covered by Notices of Cash Allocation (NCAs) of which P16.154 billion was
already replenished to the ARF.

The allocations by CIAs follow:

Table 1. SARO and NCA Releases by CIA
In PMillion
Agency 2004 2005 Total

Special Allotment Release Order (SARO)
DAR P 4,424.872 P 3,881.713 P 8,306.585
DENR 190.266 326.188 516.454
LRA 98.980 98.899 197.879
LBP 6,644.033 3,874.227 10,518.260
DTI 54.506 54.186 108.692
NIA 570.568 188.206 758.774
DPWH 1,133.000 100.000 1,233.000
Total P 13,116.225 P 8,523.419 P21,639.644
Notice of Cash Allocation (NCA)
DAR P 4,377.006 P 3,696.379 P 8,073.385
DENR 200.565 307.860 508.425
LRA 93.747 89.650 183.397
LBP 6,644.033 3,874.227 10,518.260
DTI 51.821 48.987 100.808
NIA 373.594 161.230 534.824
DPWH 234.722 8.863 243.585
Total P 11,975.488 P 8,187.196 P 20,162,684

Legend:
DAR- Department of Agrarian Reform DTI- Department of Trade and Industry
DENR- Department of Environment and Natural LBP- Land Bank of the Philippines
Resources LRA- Land Registration Authority
DPWH- Department of Public Works and Highways NIA- National Irrigation Administration

The CIAs’ percentage share on the total releases and the breakdown by allotment
class is depicted on the chart shown in Figure 1.

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EXECUTIVE SUMMARY

Figure 1. Percentage of SARO Releases to CIAs and Breakdown
by Allotment Class for CYs 2004 and 2005

5% CO
52% MOOE
100% LC
43% PS
DAR
LBP P8.307 B
P10.518 B 38%
48%

30% MOOE
LRA DENR 24% PS
70% PS P197.879 M P516.454 M
1% NIA DPWH 2% 76% MOOE
P758.774 M P1.233 B
34% MOOE P108D1.%6T9I 2 M 81% CO 4% 16% PS6 %
66% PS 100% CO
3% MOOE

TThhee aallllooccaattiioonn bbyy aalllloottmmeenntt ccllaassssiiffiiccaattiioonn iiss pprreesseenntteedd bbeellooww::

Figure 2. Total SARO Releases for CYs 2004 and 2005
By Allotment Class

PS
P4.058 B
19%

LC
P10.518 B MOOE
48% P4.789 B
22%

CO

P2.274 B
11%

OOuutt ooff tthhee ttoottaall rreelleeaasseess ttoo DDAARR ffoorr MMOOOOEE ooff PP4.319 billion, P677.450 million
were released to different agencies/organizations for the implementation of various
projects:

Amount
Agencies/Organizations (In PMillion)

National Government Agencies (NGAs) P 520.813
Non-Government Organizations (NGOs) 114.378
Government-Owned & Controlled Corporations (GOCCs) 42.258
Total P 677.449

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EXECUTIVE SUMMARY
Likewise, releases to DAR intended for Capital Outlay of P199.228 million were
transferred to the Local Government Units (LGUs) for the implementation of farm
to market road projects.

AUDIT OBJECTIVE

The audit was conducted to assess the effectiveness of allocation and utilization of
the forfeited Swiss deposits transferred to the Agrarian Reform Fund (ARF) in
ensuring the delivery of the required services to the intended CARP beneficiaries.

EVALUATION CRITERIA

The performance of the CIAs in relation to the above objective was assessed using
the following evaluation criteria:

• Appropriate fund disposition;
• Effective project implementation;
• Rationale identification of infrastructure projects;
• Accurate reporting of accomplishments; and
• Adequate funding for landowners compensation.

AUDIT SCOPE

The audit covered the evaluation of selected transactions funded out of ARF
releases to the different CIAs reimbursed from the forfeited Swiss deposits during
CYs 2004 and 2005 including funds transferred by DAR to the Department of
Agriculture and Philippine Coconut Authority (PCA).

The audit also covered evaluation of available records pertaining to Forfeited Swiss
Accounts and subsequent releases therefrom maintained by the BTr, DBM and
PCGG.

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