AUDIT OBSERVATION MEMORANDUM NO. 5

AUDIT OBSERVATION MEMORANDUM NO. 5. The feasibility / investment study conducted by DPEM Inc. failed to realize what was projected and envisioned as far as financial and economic viability of Bulan Integrated Bus Terminal project is concerned.

DISCUSSION:

Executive Summary of the investment study conducted by DPEM Inc. primarily aims to provide a terminal for all buses servicing inter-provincial routes. The proposed bus terminal will be located in a 10,000 sq. m. lot to be acquired by the municipality. The minimum building floor area will be 2,400 sq. m. as determined by the expected number of people who will be using the terminal. Space has been allocated for a passenger waiting area, loading and unloading bays, an administration and security office, ticket booths, spacious restroom, lounge and restaurant, commercial kiosks, call station, wash bays, and bus parking area. An internal road network with clear, unambiguous directional sign will be provided to ensure the smooth flow of traffic. Parking areas for private vehicles have also been allocated as well as well-defined queuing areas for jeepneys and tricycles right outside the terminal compound.

The feasibility will be utilizing single phased power supply to service the power requirements of the electrical appliances and fixtures to be utilized in the facility. A stand-by generator shall also be provided to serve as back-up supply. The water requirements will be served by a central deep-well water supply located within the compound.

The investment requirement for the integrated transport terminal facility is P30,956,500. The construction cost of the building which is about 65% is the most sizable investment in the facility, followed by site development cost at 29% and the cost for equipment, fixtures and furnitures at 6% is the least of the three project components.

The pre-implementation phase will take about four (4) months. The implementation phase will take about twelve (12) months which is well within the capability of the locally-based contractors who will be competing, through the institutionalized bidding process for the right to implement the project.

The project is owned and managed by LGU Bulan, Sorsogon as a service-oriented income generating venture and as much would be closely monitored by the Chief Executive. Thus, in the interest of time and the LGU’s desired direction of trade and spatial development, the LGU’s investment could be justified provided that a reasonable return is realizable.

An in-depth analysis of the feasibility/investment study prepared and projected by DPEM Inc. for Bulan integrated bus terminal project revealed the following adverse condition/circumstances surrounding the issue of concern to wit:

· The proposed bus terminal located in a 10,000 sq. m. lot was not purchased by LGU, but conditionally donated by Ms. Anecita O. De Castro with a proviso: “That the aforementioned property shall be solely used as the site of the common terminal of the municipality of Bulan, otherwise the said property shall automatically redound back to the DONOR or her heirs.” This is disadvantageous to the intended beneficiaries, concerned taxpayers including its constituents considering the total project cost of the Bus Terminal.

· The building floor area of 1,519.50 sq. m. is smaller than what was projected to the intended beneficiaries of 2,400 sq. m. floor area.

· An internal road network with clear, unambiguous directional sign to ensure the smooth flow of traffic is no longer necessary had the procured/purchased lot was alongside the national highway.

· The facility is utilizing 25 KVA transformer instead of a 50 KVA transformer as programmed.

· A stand-by generator was not provided to serve as back-up supply of electrical power as projected.

· Pre-implementation expense could not be determined in the absence of bank statements or bank debit memos.

· The investment for the construction of Bulan Integrated Bus Terminal was P32, 984,700.00 instead of P30,956,500.00 as programmed.

· Construction cost of the Bus Terminal building at 65% as projected is 44.04% or P14,526,461.88 as implemented and developed.

· The site development cost as projected at 29.5% is 34.13% as implemented and developed.

· The cost for equipment, fixtures and furnitures at P1.724 million or 6% as projected of the major three (3) components is less than 1% as implemented.

· The implementation phase of about twelve (12) months for project execution dated December 13, 2006, the date of notice to proceed with agency certificate of acceptance and turn-over dated December 4, 2007, revealed that the contract duration of one hundred eighty (180) calendar days was not totally observed, but acceptance and turn-over registered a lapse or delay of one hundred seventy one (171) days.

· The LGU’s investment study is unjustifiable due to unrealized projected return.

· The total actual income from the operation of the Bus Terminal from December 17, 2007 to July 31, 2008 in the amount of P1,689,707.25 and Slaughterhouse income from June 1 to July 31, 2008 of P101,345.00 or aggregate total of P1,791,152.25 is less than the interest paid for the same period in the total amount of P2,210,302.60 which registered a shortfall of P419,150.35 for interest alone excluding the principal amortization of P458,442.73 monthly and the corresponding personnel and administrative expense. Monthly amortization starting from October 10, 2008 and maturing on September 10, 2015 with a grace period of one (1) year on principal for the first year interest from October 10, 2007 to September 10, 2008 in the total amount of P3,267,929.83.

COA’S RECOMMENDATION:

Introduce effective marketing strategies that would fast-track the projected realizable income through sales of unoccupied/available commercial spaces that will generate additional revenues or to break-even for the monthly interest alone.

LGU’S COMMENT:

The primary objective of the twin projects, namely the Bulan Integrated Terminal and the Bulan Municipal Slaughterhouse, is the introduction of facilities and provide convenience, comfort and safety to the inhabitants and those of nearby communities. While recouping the costs of implementation and making profits out of the operations are but secondary purposes, the LGU is bent on turning these as self-liquidating and income-generating economic activities. Available income summary of the entities as of September 2008, are as follows:

COLLECTION
PERIOD		ABATTOIR		TERMINAL		TOTAL
2007
Dec. 17 - 31				P120,328.00		P120,328.00
2008
Jan.				216,172.00		216,172.00
Feb.				230,511.00		230,511.00
Mar.				210,190.00		210,190.00
Apr.				228,516.00		228,516.00
May				255,700.00		255,700.00
June		P43,075.00		221,990.00		265,065.00
July		45,845.00		206,370.25		252,215.25
Aug.		35,250.00		224,744.00		259,994.00
Sept.		49,100.00		211,597.00		260,697.00
Total		P173,270.00		P2,126,118.25		P2,299,388.25

Indeed, the returns indicated are still below projections. As of this writing, majority of the stalls are still vacant, not for lack of applicants but due to rigid screening procedures, and applications for transport accreditation are in the process of validation. When all the stalls are leased out and all buses plying the route are accredited the establishments are projected to earn more income than is needed to cover amortization.

With regards to the conditional donation of the terminal lot, the LGU has sent emissaries to the donor to effect the deletion of the adverse conditions incorporated in the agreement. While the LGU respects the generosity, it is but right for all concerned to bow to the greater and more eloquent desire of the people. In the return and in appreciation of her manifested love for the Bulanenos, the LGU is considering the renaming of the project from “Bulan Integrated Bus Terminal” to ANICETA O. DE CASTRO INTEGRATED TERMINAL.