COA-AOM No. RA-2014-021 (2013) Dated 14 April 2014

April 28, 2014 BIR MEMORANDUM FOR : ACIR Marietta U. Lorenzo Project Management and Implementation Service Project Manager, NPSTAR HREA Myrna E. Sobremonte Administrative Service All Revenue Officials and Employees Concerned RE : COA-AOM No. RA-2014-021 (2013) Dated 14 April 2014 In line with the recommendations of the COA-BIR in its AOM No. RA-2014-021 (2013) dated 14 April 2014, Re: NPSTAR Accomplishments (copy attached), you are hereby reminded and directed to ensure that, in future foreign-funded projects, all activities are carried out as planned and maximize the use of available resources. For the guidance and strict compliance of all concerned. (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue ATTACHMENT Commission on Audit Office of the Auditor AOM No.: RA-2014-021 (2013) Date: April 14, 2013 AUDIT OBSERVATION MEMORANDUM (AOM) For: HON. KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue Quezon City Attention: MS. MARIETTA U. LORENZO Assistant Commissioner Project Management and Implementation Service Project Manager, NPSTAR MS. MYRNA E. SOBREMONTE Head Revenue Executive Assistant Administrative Service Chief Accountant, FMU Subject: NPSTAR Accomplishments Our review of the accomplishments of the National Program Support for Tax Administration Reforms (NPSTAR) as of December 31, 2013 revealed the following observation: aTADCE Management failed to maximize the utilization of the loan from the World Bank due to the delays encountered in undertaking the different activities towards full implementation of the programs and projects under the NPSTAR, thus, affected the attainment of the desired outputs and the low availment rate of the loan that resulted to the incurrence by the government of commitment fees amounting P6,098,399.40 as of December 31, 2013. The NPSTAR is a four-year project that is intended to finance specified expenditures critical for tax reform administration. The objective of the Project is to assist the Borrower in: (a) increasing taxpayer compliance by improving the efficiency and effectiveness of BIR, and (b) enhancing BIR's capacity to undertake a sustainable and long-term tax administration program. The program, funded by a loan from World Bank, commenced in June 25, 2007 and with original loan closing date of December 31, 2011 with an extension of up to June 30, 2013. The program has four components namely: (a) Tax Compliance; (b) Tax Enforcement and Control; (c) Human Resource Development and Management; and (d) BIR Reform Change Management and Project Management. In our last year's observation, there were ten on-going projects; 12 projects with no reported accomplishment; and one completed but with ongoing systems fixes. As a response to the observation, Management submitted updated status of these projects as of April 15, 2013. Follow-up on the status of accomplishment of these projects as of December 31, 2013 showed that of the ten ongoing projects, nine were completed and one was cancelled; of the 12 projects with previously no reported accomplishment, only two were completed and the remaining 10 were cancelled; and the one that was completed still has ongoing systems fixes. Details are as follows: Component Activity/Project Accomplishment as of 12/31/12 Management Response to AOM (April 2013) Updated Status as of 12/31/13 Tax Compliance Electronic Accreditation & Registration System (eAccReg) and eSales System On-going On-going Project Completed on May 31, 2013; With ongoing system fixes under warranty period Geographical Information System On-going On-going Project was pre-terminated due to inability of the contractor to deliver requirements of the contract Procurement of Services for the Redesign of Certain Tax Return Forms and the Packaging of the Annual Income Tax Return Forms No reported accomplishment * Included in the Technical Assistance to be provided by the US Treasury funded by Millenium Challenge Corporation (MCC)/MCA-P Cancelled Excise Tax Administration-Consulting Services for Development of eOfficial Register Books for Tobacco Products On-going Project Completed on February 1, 2013 Project Completed on February 1, 2013; With ongoing system fixes under warranty period Audit-Enhancement of eLetter of Authority Monitoring System Completed; with on-going system fixes under warranty phase Completed; with on-going system fixes under warranty phase Still with ongoing system fixes Enhancement and Expansion of e-Registration System No reported accomplishment * Failure of bidding Cancelled Tax Enforcement and Control Consultancy Services for Application Development of the Collection Reconciliation System On-going On-going Project Completed on August 31, 2012 Consultancy Services- Communication Agency On-going On-going Project Completed on June 26, 2013 Consultancy Services for Review of Ruling from 2003-2010 On-going * Project was dropped; the IMF Tax Rulings Expert engaged by MCC/MCA-P focused on the gap analysis and recommendations for process improvement of the tax rulings process Cancelled ARCS Sustainability and Enhancement On-going Project Completed; Rolled-out in all offices handling Accounts Receivable Project Completed Streamlining of the Ruling Process No reported accomplishment * Taken up by the IMF Tax Rulings Expert Cancelled Software Solution for Tax Ruling and Case Management System (TRCMS) On-going On-going Project Completed on June 28, 2013; With ongoing system fixes under warranty period Mass Printing of the Enhanced and Expanded Collection Manual No reported accomplishment * Contract on Packaging and Lay-outing of Collection Manual was rescinded due to inadvertent error in evaluation for the winning bidder; Project Proponent decided to shift the mass printing to in-house printing; ongoing printing of 2,500 copies of the Manual for distribution to Collection Officers nationwide Project Completed Re-engineering of the Rulings Process Program (Law Division) Consultancy Services-Project Study No reported accomplishment * Project proponent decided not to pursue the project due to time constraint Cancelled Consulting Services for Economic Study on Philippines Tax Treaties Benefits vis--vis Revenues Foregone No reported accomplishment * Project proponent decided not to pursue the project due to difficulty in getting qualified consultants Cancelled Consulting Services for Developing and Writing the BIR Manual on Tax Treaty Negotiations No reported accomplishment * Project proponent decided not to pursue the project due to difficulty in getting qualified consultants Cancelled Data Conversion and Scanning of Rulings Issued by the Law Division No reported accomplishment * Project was dropped; Scope of Services included in TRCMS Cancelled Human Resource Development and Management HR Strategy and Reform-Consultancy Services No reported accomplishment On-going Project Completed on June 28, 2013 Enhancement of HRIS No reported accomplishment * Notice of Award was withdrawn due to government-wide implementation of GIFMIS Cancelled Consultancy Services on Manpower Planning No reported accomplishment * Failure of Bidding due to non-submission of requirements of the winning bidder Cancelled BIR Reform, Management, Change Management and Program Management Consulting Services for Technical Writer for Issuances on Re-engineered Business Process On-going On-going Project Completed on June 28, 2013, however RMOs were not accepted by functional owners Consulting Services for the Enhancement of Project Management System (PMS) On-going On-going Project Completed on June 28, 2013 Consulting Services for the preparation of a toolkit for making Tax Administration Reform projects gender responsive No reported accomplishment * Winning contractor decided not to pursue the contract signing due to a recently signed contract outside BIR Cancelled The implementation of the project was closed on June 30, 2013. Review of the books of accounts of the NPSTAR showed that despite the loan closing date, the project still had outstanding payables totaling P65,883,723.15 as of December 31, 2013. cEHSIC Inquiry with the concerned personnel disclosed that the reason for the said outstanding payables is that processing of the claims were not completed within the prescribed period after the loan closing date due to incomplete documentation of said claims. Since these claims can no longer be paid from the loan proceeds, said claims will be charged to the regular funds of the Bureau. Verification with the records of Bureau of the Treasury disclosed that as of December 31, 2013, only USD6,523,781.95 were availed out of the total loan amount of USD11,000,000.00, or an availment rate of 59.31 percent. The delays and low availment rate of the loan resulted to not only the incurrence by the government of P6,098,399.40 commitment fees as of December 31, 2013 and unpaid obligations of P65.884 million, but more importantly, hindered the full attainment of the goal of the project. In view of the foregoing, we recommend that in the future foreign-funded projects, Management ensure that all activities are carried out as planned and be mindful of the adverse effect of not maximizing the use of available resources in order to minimize, if not avoid commitment fees due to low fund utilization. May we have your comments on the foregoing audit observation within five (5) working days from receipt hereof. (SGD.) ANNIELY P. IBAEZ Audit Team Leader Audit Team 2-Disbursements (SGD.) GLORIA M. BACANI Supervising Auditor Audit Group F-BIR