COA flags deficiencies in DA’s P140-M onion program

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STATE auditors flagged “several deficiencies” in the P140-million onion procurement program between the Department of Agriculture (DA) and Food Terminal Inc. (FTI), including “overpriced” contracts and “questionable” eligibility of the supplier.

In its annual audit on FTI, the Commission on Audit raised questions on its memorandum of agreement (MOA) with DA for the procurement and sale of onions at the height of the country’s so-called onion crisis.

The MOA between the FTI and DA sought to implement a Food Mobilization Project, the KADIWA Food Hub. Under the MOA, P133 million would be used to procure onions and the rest, P7 million, covers the FTI management fee.

“Several deficiencies were noted on the implementation of the MOA dated December 23, 2022, entered into by and between the DA and the FTI with contract cost of P140 million,” the COA said in its report published on its web site recently.

The state auditors noted “lapses” in the procurement of 8,845 bags of onions (about 247,660 kilograms at approximately 28 kilograms per bag), which had a contract cost of P132.993 million, that includes the manner of procurement as well as the contract amount.

Mode of procurement

THE COA said the mode of procurement did not meet the conditions under the 2016 Revised Implementing Rules and Regulations (IRR) of the Government Procurement Reform Act and the Sagip Saka Act.

The supplier of onions did not meet the eligibility requirements stipulated by the two above-mentioned laws, said COA.

The onion supplier lacked these documents:  (a) Certificate of Registration with proper agency; (b) Sworn Affidavit of no relation with the officials/employees of the Procuring Entity and disclosure on related business to the Community-based Project being procured; (c) Statement of all its completed contracts similar to the Community-based Projects; (d) copy of the bank book with complete bank account information; (e) latest Income Tax Return; and (f) updated Audited Financial Statement.

The COA also noted that FTI and the onion supplier entered into a letter of agreement on December 27, 2022, which was the same date as indicated in the financial quotations submitted by the supplier to DA.

Citing the FTI, COA said it was the DA, and not the interested suppliers, who provided the financial quotations to the FTI on December 28, 2022.

“Since the eligibility requirements of the Supplier to supply the onions were not adequately substantiated, it appears that the Supplier did not qualify as an accredited farmer and fisherfolk cooperative that could supply the onions. Hence, rendering the transaction questionable,” the COA said.

Above maximum limit

THE COA said the contract amount for the onion supply was “way beyond” the P5 million maximum limit of Approved Budget for Contract (ABC) for community-based projects as mandated by existing rules and regulations.

There was no document, it added, “that would show that the increase in ABC was previously approved by the Head of the Procuring Entity.” Likewise, there was no document explaining the reason for approving the amount more than the P5-million threshold, the COA added.

“These are all not in accordance with the afore-cited Section 5.6 of GPPB Resolution No. 18-2021. Thus, the propriety of the contract entered by the FTI with the Supplier is doubtful,” the uditors said.

The COA said the request for quotation (RFQ) for the onion project was not published publicly and was not submitted to the Farmers and Fisherfolk Enterprise Development Information System for public dissemination.

Because of the non-posting and non-submission of RFQ, the COA noted that it “could not be ascertained” whether the price quotation provided by the onion supplier was “the most advantageous cost to the government.”

Citing FTI documents, COA said the price quotation submitted by the onion supplier was broken down as follows: P450 per kilogram of onions, P280 per bag agent fee and supervision cost, 4.2-kilogram per 28-kilogram bag allowance for loss worth P1,890 per bag, and P13 per piece of empty bag or sack.

Advance payments

THE COA also called out the FTI for granting 50 percent of the contract price as advance payment to the supplier, breaching rules that advance payment must not exceed 15 percent of the total contract price.

The COA explained that FTI documents showed that it made an advance payment of P66.497 million to the onion supplier on December 29, 2022, about 50 percent of the P132.993-million contract price.

Furthermore, FTI made the advance payment through a manager’s check to “the order” of the chairman of the board of the contract supplier, instead of the name of the supplier-cooperative itself.

COA added that the second 50-percent payment of P66.497 million was already debited from the FTI’s bank account on December 29, which was “subsequently re-deposited to the bank account on January 19, 2023.” The COA emphasized that what FTI did could be deemed an “irregular expenditure.”

FTI responds

IN response to the audit report, the FTI management said it was the Agriculture Assistant Secretary for Consumer Affairs that instructed the FTI to make the 50 percent down payment upon signing of the award of contract and pay the remaining balance upon delivery before the end of 2022.

The FTI management explained that the issuance of the manager’s check to the order of the chairman of the supplier was “warranted by practical circumstances at that time.”

“The FTI was constrained to issue the Manager’s Check in the name of the Chairman of the Supplier so that he could immediately encash the same on the last banking day of that year, to ensure the farmer-suppliers of the onions could be paid in cash,” the FTI management’s responses, which were included in the COA report, read.