DEPARTMENT OF HEALTH – REGULAR AGENCY FUND

Notes to Financial Statements for the year ended December 31, 2015

  1. General Information/Agency Profile

The financial statements of Department of Health – Regular Agency Fund were authorized for issue on January 29, 2016 as shown in the Statement of Management Responsibility for Financial Statements signed by Nemesio T. Gako, MD, MPH, CESO I; the Undersecretary of Health, Office of Administration, Finance and Procurement.

The DOH is the principal health agency in the Philippines. It is responsible for ensuring access to basic public health services to all Filipinos through the provision of quality health care and regulation of providers of health goods and services.
Given the mandate, DOH is both a stakeholder in the health sector and a policy and regulatory body for health. As a major player, DOH is atechnical resource, a catalyzer for health policy and a political sponsor and advocate for health issues in behalf of the health sector.

The DOH’s Vision is Kalusugang Pangkalahatan (KP) that can be achieved through: (1) Improve financial risk protection through expansion in National Health Insurance Program (NHIP) enrollment and benefit delivery; (2) enhance health facility and improve access to quality health care facilities; and (3) attain the health-related Millennium Development Goals (MDGs).

The DOH is composed of the following offices in the Central Office, 16 Centers for Health Development located in various regions, 67 hospitals,2 bureaus, and attached agencies.

Central Office

The central office is composed of the Office of the Secretary and six (6) functional clusters:

  1. Office of the Secretary is composed of the following units:Office of the Secretary of Health: Internal Audit Service (IAS); Legal Service (LS); HFEP Management Office; and Legislative Liaison Division.
  1. Office for Technical Services is composed of: Disease Prevention and Control Bureau including the Mental Health Program; Epidemiology Bureau; Health Facility Development Bureau; Health Promotion and Communication Service including Medical Tourism; Health Emergency Management Bureau; and attached agencies: Commission on Population, National Nutrition Council and Philippine National Aids Council.
  1. Office for Health Regulations includes: Food and Drugs Administration including Bureau of Health Devices and Technology; Health Facilities and Services Regulatory Bureau; Bureau of Quarantine; Pharmaceutical Division; and Philippine Institute of Traditional and Alternative Health Care.
  1. Office for Policy and Health Systems consists: Health Policy Development and Planning Bureau (including Department Legislative Liaison Office); Bureau of Internal Health Cooperation; Health Human Resource Development Bureau; Bureau of Local Health Systems and Development; Knowledge Management Information Service; and Quality Management Systems Office (ISO Certification, Integrity Management Program, Performance Governance System, Social Dialogue).
  1. Office for Administration, Finance and Procurement includes: Financial and Management Service; Administrative Service; and Procurement Service.
  1. Office for Health Operations includes and work interdependently with the above Offices and the Bureaus/Services/Units: the Regional Offices; The Retained Hospitals, Treatment and Rehabilitation Centers and Sanitaria; and Metro Manila Hospitals.

The Financial Statements of the following closed Foreign Assisted Projects (FAPs) were included in the Financial Statements of Regular Agency Fund:

CY 2013

  1. Joint UN Programme on HIV and Migration,
  2. Waste Water Treatment Program,
  3. UNICEF-Country Program for Children V,
  4. FAMUS Project,
  5. Evaluation of Correction Factors Applied for Different Ionization Chambers,
  6. Upgrading of Radiological Capabilities,
  7. Child Survival Program,
  8. Essential National Health Research,
  9. First Water Supply, Sewerage and Sanitation Sector Project,
  10. Social Development fund Grant for prevention and Control of SARS,
  11. Integrated Community Health Service Project,
  12. Rotavirus Gastroenteritis in Children Under 5 Years of Age in the Philippines,
  13. Women’s Health and Safe Motherhood Project 2,
  14. Women’s Health and Safe Motherhood Project IBRD Loan 3852,

CY 2014

  1. Health Sector Development Project
  2. EC – Grant Health Sector Reform Project
  3. Sub-Specialty Capabilities
  4. PCSO – SARS Trust Fund
  5. Philippine Health Development Project – Loan Proceeds
  6. Philippine Health Development Project – Grant
  7. Primary Health Care Financing
  8. Rural Water Supply and Sanitation Sector Project,
  9. Women’s Health and Safe Motherhood Project – ADB Loan 1331.
  1. Statement of Compliance and Basis of Preparation of Financial Statements

The financial statements have been prepared in accordance with and comply with the Philippine Public Sector Accounting Standards (PPSAS) issued by the Commission on Audit per COA Resolution No. 2014-003 dated January 24, 2014.

The financial statements have been prepared on the basis of historical cost, unless stated otherwise. The Statement of Cash Flows is prepared using the direct method.

  1. Summary of Significant Accounting Policies

3.1Basis of accounting

Thefinancial statements are prepared on an accrual basis in accordance with the Philippine Public Sector Accounting Standards (PPSAS).

3.2 Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and cash at bank. For the purpose of the statement of cash flows, cashand cash equivalents consist of cash and short-term deposits.

3.3 Inventories

Inventory is measured at cost upon initial recognition. To the extent that inventory was received through non-exchangetransactions (for no cost or for a nominal cost), the cost of the inventory is its fair value at the date ofacquisition.

Inventories are recognized as an expense when deployed for utilization or consumption in the ordinary course ofoperations of the Department of Health.

3.4Property, Plant and Equipment

Recognition

An item is recognized as property, plant, and equipment (PPE) if it meets the characteristics and recognition criteria as a PPE.

The characteristics of PPE are as follows:

  • tangible items;
  • are held for use in the production or supply of goods or services,for rental to others, or for administrative purposes; and
  • are expected to be used during more than one reporting period.

An item of PPE is recognized as an asset if:

  • It is probable that future economic benefits or service potentialassociated with the item will flow to the entity; and
  • The cost or fair value of the item can be measured reliably.

Measurement at Recognition

An item recognized as property, plant, and equipment is measured at cost.

A PPE acquired through non-exchange transaction is measured at its fair value as at the date of acquisition.

The cost of the PPE is the cash price equivalent or, for PPE acquired through non-exchange transaction its cost is its fair value as at recognition date.

Costincludes the following:

  • Its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates;
  • expenditure that is directly attributable to the acquisition of the items; and
  • initial estimate of the costs of dismantling and removing the itemand restoring the site on which it is located, the obligation for which anentity incurs either when the item is acquired, or as a consequence of

having used the item during a particular period for purposes other than

to produce inventories during that period.

Measurement After Recognition

After recognition, all property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.

When significant parts of property, plant and equipment are required to be replaced at intervals, the Department of Health recognizes such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major repair/replacement is done, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized as expense in surplus or deficit as incurred.

Depreciation

Each part of an item of property, plant, and equipment with a cost that issignificant in relation to the total cost of the item is depreciated separately.

The depreciation charge for each period is recognized as expense unless it is included in the cost of another asset.

Initial Recognition of Depreciation

Depreciation of an asset begins when it is available for use such as when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

For simplicity and to avoid proportionate computation, the depreciation is for one month if the PPE is available for use on or before the 15th of the month. However, if the PPE is available for use after the 15th of the month, depreciation is for the succeeding month.

Depreciation Method

The straight line method of depreciation shall be adopted unless another method is more appropriate for agency operation.

Estimated Useful Life

The Department of Health uses the Schedule on the Estimated Useful Life of PPE by classification prepared by COA.

The Department of Health uses a residual value equivalent to at least five percent (5%) of the cost of the PPE.

Impairment

An asset’s carrying amount is written down to its recoverable amount, or recoverable service amount,if the asset’s carrying amount is greater than its estimated recoverable service amount.

Derecognition

The Department of Health derecognizes items of property, plant and equipment and/or any significant part of an asset upondisposal or when no future economic benefits or service potential is expected from its continuing use. Any gain orloss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and thecarrying amount of the asset) is included in the surplus or deficit when the asset is derecognized.

3.5Revenue from non-exchange transactions

Recognition and Measurement of Assets from Non-Exchange Transactions

An inflow of resources from a non-exchange transaction, other thanservices in-kind, that meets the definition of an asset are recognizedas an asset if the following criteria are met:

  • It is probable that the future economic benefits or service potentialassociated with the asset will flow to the entity; and
  • The fair value of the asset can be measured reliably.

An asset acquired through a non-exchange transaction is initially measured at its fair value as at the date of acquisition.

Recognition Revenue from Non-Exchange Transactions

An inflow of resources from a non-exchange transaction recognized as anasset is recognized as revenue, except to the extent that a liability isalso recognized in respect of the same inflow.

As Department of Health satisfies a present obligation recognized as a liability inrespect of an inflow of resources from a non-exchange transactionrecognized as an asset, it reduces the carrying amount of the liabilityrecognized and recognize an amount of revenue equal to that reduction.

Measurement of Revenue from Non-Exchange Transactions

Revenue from non-exchange transactions is measured at theamount of the increase in net assets recognized by the entity, unless a corresponding liability is recognized.

Measurement of Liabilities on Initial Recognition from Non-Exchange Transactions

The amount recognized as a liability in a non-exchange transactionis the best estimate of theamount required to settle the present obligation at the reporting date.

Fees and fines not related to taxes

The Department of Health recognizes revenues from fees and fines, except those related to taxes, when earned and the asset recognitioncriteria are met.

Other non-exchange revenues are recognizedwhen it is probable that the future economic benefits or service potential associated with the asset will flow to theentity and the fair value of the asset can be measured reliably.

Gifts and Donations

The Department of Health recognizes assets and revenue from gifts and donations when it is probable that the future economic benefits or servicepotential will flow to the entity and the fair value of the assets can bemeasured reliably.

Goods in-kind are recognized as assets when the goods are received. If goods in-kind are receivedwithout conditions attached, revenue is recognized immediately. If conditionsare attached, a liability is recognized, which is reduced and revenuerecognized as the conditions are satisfied.

On initial recognition, gifts and donations including goods in-kind aremeasured at their fair value as at the date of acquisition, which wereascertained by reference to an active market, or by appraisal. An appraisal ofthe value of an asset is normally undertaken by a member of the valuationprofession who holds a recognized and relevant professional qualification. Formany assets, the fair value is ascertained by reference to quotedprices in an active and liquid market.

Transfers

The Department of Health recognizes an asset in respect oftransfers when the transferred resources meet the definition of an assetand satisfy the criteria for recognition as an asset, except those arising from services in-kind.

Transfers from other government entities

Revenues from non-exchange transactions with other government entities and the related assets are measured at fair value andrecognized on obtaining control of the asset (cash, goods, services and property) if the transfer is free fromconditions and it is probable that the economic benefits or service potential related to the asset will flow to the Department of Health and can be measured reliably.

3.6Revenue from Exchange transactions

Measurement of Revenue

Revenue shall be measured at the fair value of the considerationreceived or receivable.

Rendering of Services

The Department of Health recognizes revenue from rendering of services by reference to the stage of completion when theoutcome of the transaction can be estimated reliably. The stage of completion is measured by reference to laborhours incurred to date as a percentage of total estimated labor hours.

Where the contract outcome cannot be measured reliably, revenue is recognized only to the extent that theexpenses incurred are recoverable.

Interest Income

Interest income pertains to interest earned on current account deposits with bank.

3.7Foreign currency transactions

Transactions in foreign currencies are initially recognized by applying the spot exchange rate between the function currency and the foreign currency at thetransaction.

Exchange differences arising (a) on the settlement of monetary items, or(b) on translating monetary items at rates different from those at whichthey were translated on initial recognition during the period or inprevious financial statements, are recognized in surplus or deficit inthe period in which they arise.

3. 8 Budget information

The annual budget is prepared on a cash basis and is published in the government website.

As a result of the adoption of the cash basis for budgeting purposes, a separate Statement of Comparison of Budget and Actual Amounts is presented showing the basis, timing or entity differences. Explanatory comments are provided in the notes to the annual financial statements; first, the reasons for overall growth or decline in the budget are stated, followed by details of overspending or underspending on line items.

3.9 Employee benefits

The employees of Department of Health – Regular Agency Fund are member of the Government Service Insurance System (GSIS), which provides life and retirement insurance coverage.

The Department of Health – Regular Agency Fund recognizes the undiscounted amount of short term employee benefits, like salaries, wages, bonuses, allowance, etc., as expense unless capitalized, and as a liability after deducting the amount paid.

The Department of Health – Regular Agency Fund recognizes expenses for accumulating compensated absences when these are paid (commuted or paid as terminal leave benefits). Unused entitlements that have accumulated at the reporting date are not recognized as expense. Non-accumulating compensated absences, like special leave privileges, are not recognized.

  1. Cash and Other Cash Accounts

Accounts / 2015 / 2014
Petty Cash / 745,000.00 / 650,000.00
Cash in Bank - Local Currency, Current Account / 60,096,790.82 / 49,738,948.23
Cash - Treasury/Agency Deposit, Regular / - / -
Cash - Treasury/Agency Deposit, Trust / 149,831,637.66 / 287,315,870.48
Cash - Modified Disbursement System (MDS), Regular / 15,702,209.65 / 213,068,523.81
Cash - Modified Disbursement System (MDS), Special Account / 17,624.53
Cash - Modified Disbursement System (MDS), Trust / 1,343,382.77
Total Cash and Cash Equivalents / 227,736,645.43 / 550,773,342.52

Petty Cash Fund (PCF) consists of cash granted to Regular or Special Disbursing Officers for payment of petty or miscellaneous authorized expenditures which cannot be conveniently paid by check. During the year, P175,000.00was credited to the account as liquidation, and P920,000.00 was debited as additional petty cash, which causes the account to increase.

Cash in Bank – Local Currency, Current Account is used to record deposits with Authorized Government Depository Banks (AGDBs) of amounts received for which the agency has authority to use income; trust receipts authorized under specific contracts and agreements; Revolving Fund under specific laws; and credit advices/memos received from the AGDBs. The account consists of the following balances:

Description / Amount / Purpose
LBP – COBAC Account / 48,885,775.96 / Payment of honoraria of COBAC Member & TWG and overtime of COBAC SecretariatCOBAC TWG
LBP – Payroll Account / 6,654,980.94 / Payment of salaries and other benefits of DOH Personnel.
LBP – Bldg & Facilities / 2,240,429.25 / Payment of repairs and maintenance expenses of DOH bldg & facilities
LBP – Grants & Donations / 892,782.34 / For receipt of cash from different donors to be used for specific purpose as specified by the same
PVB – DOH – SARS Fund / 1,422,822.33 / Dormant balance of closed completed project already requested for remittance to Bureau of Treasury
TOTAL / 60,096,790.82

Dormant balances of closed completed projects such as Philippine Health Development Project of P149,592.54, Women’s Health ADB of P368,447.55, and Rural Water of P169,332.38 were already remitted to Bureau of Treasury during the year, likewise the P2,528,600.77 balance of grants and donations account subject to request for NCA. The amount reflected under Grants and Donations is the unreleased checks as of year-end. The account increased due to COBAC collections.

Cash – Treasury/Agency Deposit, Regular account is used to record in the agency books the amount of collections remitted to the Bureau of Treasury (BTr) under the General Fund. During the year, P68.8m was debited to this account for collections remitted to Bureau of Treasury (BTr) and likewise closed to Accumulated Surplus/(Deficit) account at year end. The account increased due to increase in collected income.

Cash – Treasury/Agency Deposit, Trust account is used to record in the agency books the amount of trust receipts/collections and trust funds remitted to the BTr. The balance of the account consists of: