EXECUTIVE SUMMARY

A. Introduction

Tuguegarao City was originally created on May 1604 as a “mission pueblo”. No

record is available establishing the law creating the Municipality. However, Cagayan’s
first City was created by Republic Act No. 8755, “An act converting the Municipality of
Tuguegarao, Cagayan Province into a component City to be known as Tuguegarao City.”
R.A. No. 8755 was approved on November 4, 1999 and ratified on December 18, 1999.

The audit covered the accounts and operations of the City Government of
Tuguegarao for the year 2018 and was aimed at determining whether management
presented fairly the financial statements of the City in adherence to the generally
accepted accounting principles; whether prevailing laws, rules and regulations have been
complied with; and funds were utilized in the most efficient, effective and economical
manner. Financial and compliance audits were conducted to achieve these audit
objectives.

The audit was focused on the different audit thrusts/areas issued by the Local
Government Sector of the Commission.

B. Financial Highlights

The financial condition, results of operation, appropriations, allotments and

obligations of the City Government of Tuguegarao for the year ended December 31,
2018, with comparative figures for CY 2017, are presented below:

Increase /
2018 2017
(Decrease)
Financial Condition
Assets P3,727,800,190.68 P 3,250,370,726.95 P 477,429,463.73
Liabilities 416,256,447.60 832,247,505.92 (415,991,058.32)
Net Assets/ Equity 3,311,543,743.08 2,418,123,221.03 893,420,522.05

Results of Operation
Income P 947,752,963.95 P 856,337,298.89 P 91,415,665.06
Expenses 758,260,201.89 595,244,315.90 163,015,885.99
Net Income 189,492,762.06 261,092,982.99 (71,600,220.93)

Appropriations, Allotments and Obligations

Appropriations - Current P 1,186,942,633.00 P 932,407,791.00 P254,534,842.00
Appropriation - Continuing 0.00 1,580,902.93 (1,580,902.93)
Allotments - Current 1,186,942,633.00 932,407,791.00 254,534,842.00
Allotments - Continuing 304,280,414.50 347,124,326.74 (42,843,912.24)
Obligations - Current 940,587,798.79 806,530,196.99 134,057,601.80
Obligations - Continuing 145,643,453.77 114,149,554.57 31,493,899.20
 The funds received by the LGU and the funds transferred to other agencies and
non-government and people’s organization for CY 2018 with comparative figures for CY
2017 are shown below:

Increase /
2018 2017
(Decrease)
Funds Received from Other Agencies:
Due to NGAs P 124,223,758.55 P 2,173,953.33 P 122,049,805.22
Due to LGUs 0.00 15,249,951.12 (15,249,951.12)
Due to GOCCs 967,050.00 0.00 967,050.00
Funds Transferred to Other Agencies:
Due from NGAs P 0.00 P 1,348,077.62 (P 1,348,077.62)
Due from LGUs 1,472,750.00 12,240,721.26 (10,767,971.26)
Due from GOCCs 0.00 3,757,951.00 (3,757,951.00)
Due from NGOs/POs 19,040,000.00 0.00 19,040,000.00

C. Independent Auditor’s Report on the Financial Statements

The Auditor rendered a qualified opinion on the fairness of the presentation of the
financial statements as of December 31, 2018 of the Tuguegarao City, Cagayan due to the
effects of the noted deficiencies on the balances of some accounts, as summarized in the
succeeding paragraphs and as discussed in detail in part II of the Report.

D. Summary of Significant Findings and Recommendations

1. Accounting and reporting guidelines on local roads asset management

embodied in COA Circular No. 2015-008 were not strictly observed by
concerned departments, thus the correctness of the balance of Road
Networks account of Ᵽ527,848,222.87 could not be ascertained. Further, this
account was not correctly valuated in the financial statements as it was not
provided with allowance for depreciation.

We recommended that the Local Chief Executive enjoin the concerned

departments to strictly follow and implement the provisions contained in the
abovementioned Circular to fairly present the book value of the Road Networks
account in the Financial Statements of the City Government.

2. The correctness, accuracy and existence of the recorded Property, Plant and
Equipment accounts, with gross value of ₱2,376,112,055.48, could not be
ascertained due to Management’s failure to conduct complete physical
inventory, which is not in accord with Section 124 of Volume I of the Manual
on New Government Accounting System for Local Government Units.
 We recommended that the Local Chief Executive require the Inventory
Committee to conduct physical inventory of all the PPE of the LGU and
thereafter, prepare an inventory report, i.e. the RPCPPE, a copy of which should
be submitted to the Office of the Auditor. The inventory report shall be reconciled
with the PPE records or ledgers maintained at the Accounting Office and any
discrepancy/ies should be adjusted.

3. The Receivables-Disallowances/Charges account, with a balance of

P761,238.26, does not reflect the correct amount of disallowances that are
final and executory. Moreover, aside from the disallowances under appeal of
P13,358,351.46, audit disallowances of P1,909,068.26 remained unsettled.

We recommended that the Head of the Agency, who is primarily responsible for
all government funds and property, ensure that the settlement of disallowances be
made within the prescribed period.
Further, the City Accountant should record all disallowances which have become
final and executory amounting to P1,137,402.00 upon receipt of the Notices of
Finality of Decision issued by the Auditor. She should also make the necessary
adjustments for noted errors in their records to establish the correct balance of the
affected accounts Receivables-Disallowances and Charges and Government
Equity.
The submission of the disbursement vouchers showing the deduction of
disallowances from the terminal leave benefits and the official receipts evidencing
the settlements amounting to P231,141.14 is requested.

4. Several infrastructure projects programmed and funded out of the 20%

Development Fund, Special Education Fund, Capital Outlay and
Supplemental Budgets were not yet completed on target dates, thus depriving
students/pupils of the timely use of the school buildings.

We recommended that Management fast track the implementation of all its

programmed projects included in the Annual Investment Plan of the City in order
for its constituents, especially the students/pupils, to enjoy the benefits to be
derived therefrom.

5. The City granted honorarium to the BAC Members, BAC-Technical

Working Group and BAC Secretariat in excess of collections from the sale of
bid documents, in contravention with Item 3.5 of the DBM Budget Circular
No. 2007-003. Hence, the City incurred an excessive expense amounting
P216,500.00.00.

Moreover, several members of the Bids and Awards Committee, BAC-TWG

and BAC Secretariat received honorarium in excess of 25% of their basic
monthly salary, amounting to P287,953.50, which is not in accord with
 Section 15 of the Revised Implementing Rules and Regulations of RA 9184
and Item 5.4 of DBM Budget Circular No. 2004-5A.
Furthermore, some BAC Secretariat, who are assigned in the procuring unit
of the City General Services Office, were granted honoraria, which is not in
accord with Item 5.6 of the same Budget Circular.
We recommended that Management grant honoraria to the BAC Members, BAC-
TWG and BAC Secretariat within the 25% limitation set forth under Section 15
of the Revised IRR and Item 5.4 of DBM Budget Circular No. 2004-5A.
Moreover, in cases of deficiency of collections from procurement activities and
availability of agency savings, the amount of honoraria and overtime pay, if any,
shall be adjusted proportionately for all those entitled thereto, pursuant to Item 3.5
of DBM Budget Circular No. 2007-3.
Finally, it was recommended that the personnel of the BAC Secretariat who are
assigned in the procuring unit of the CGSO shall, henceforth, not be granted with
honoraria.

6. The Municipality did not fully maximize the use of the available
appropriations for the 70% Mitigation Fund of the Local Disaster Risk
Reduction and Management Fund (LDRRMF) totaling ₱117,870,989.73, with
only ₱79,986,947.97 or 67.86% total utilization as of December 31, 2018,
thereby, leaving a total unutilized balance of ₱38,800,402.65, contrary to
Republic Act No. 10121, hence, the fund remained idle and the intended
purpose was not fully achieved. Moreover, the Municipal Disaster Risk
Reduction and Management Officer was not able to submit the Monthly
Report on the Utilization of the LDRRMF to COA Auditor as required
under Item 5.1.5 of COA Circular No. 2012-002.

We recommended that the Municipal DRRM Officer and other concerned

implementing offices: (a) fully utilize the fund and implement all budgeted
projects, programs and activities; (b) submit monthly to the Audit Team the
Report on the Sources and Utilization of the Funds, certified by the Municipal
Accountant, for proper and timely evaluation; and (c) include in the LDRRMFIP
the activities to be funded from the unexpended QRF and DRRMF-MOOE of the
previous years, which were transferred to the Special Trust Fund.

7. Some motor vehicles of the LGU were not marked “For Official Use Only”
while some do not yet bear government plate, hence defeating the purpose as
set forth under COA Circular No. 77-61, on the control and proper use of
Government service vehicles.

We recommended that the Local Chief Executive require the head GSO to mark
“For Official Use Only” and to acquire government plates for all of the motor
vehicles of the LGU in compliance with the provisions of COA Circular No. 77-
61, to ensure the effective conservation of energy and proper utilization of
government motor transportation.
 8. The completed sanitary landfill (SLF) cell as provided in the Updated 10-
Year Ecological Solid Waste Management Plan, is not yet operational, thus it
has become a waste of resources.

We recommended that the City Government use and operate the landfill cell to
comply with the requirement of Republic Act No. 9003, otherwise known as
Ecological Solid Waste Management Act of 2000.

9. The City Government could have generated more revenues for its sustainable
development had the Tuguegarao City Commercial Center (Mall of the
Valley) building been completed and leased out on commercial basis.

We recommended that Management exert its best effort in searching for a Private
Sector Proponent that will finish the construction and will conduct maintenance of
the Tuguegarao City Commercial Center because chances of finding one is
diminishing as time passes by due to tight competition with large private malls
operating and for other mall who will be operating in the future. The completion
of the third and fourth levels of the commercial center, leasing it out on
commercial basis and conducting maintenance and beautification will not only
protect the interest of the City but will ultimately benefit its constituents in terms
of better services.

E. Summary of Total Suspensions, Disallowances and Charges as of Year-End

Issued Settlement
Beginning Ending % of
Particulars During the During the
Balance Balance Settlement
Year Year
Suspensions
Prior Years P 264,789.14 P 0.00 P 0.00 P 264,789.14 0.00%
Current Year 0.00 0.00 0.00 0.00 0.00%
Total P 264,789.14 P 0.00 P 0.00 P 264,789.14 0.00%

Disallowances
Prior Years P 15,690,460.86 P 0.00 P 191,900.00 P15,498,560.86 1.22%
Current Year 0.00 0.00 0.00 0.00 0.00%
Total P 15,690,460.86 P 0.00 P 191,900.00 P15,498,560.86 1.22%

Charges
Prior Years P 0.00 P 0.00 P 0.00 P 0.00 0.00%
Current Year 0.00 0.00 0.00 0.00 0.00%
Total P 0.00 P 0.00 P 0.00 P 0.00 0.00%

Disallowances totaling Ᵽ13,358,351.36 is on appeal.

F. Status of Implementation of Prior Year’s Audit Recommendations

Of the thirty-two (32) audit recommendations embodied in the 2017 Annual Audit
Report, sixteen (16) were fully implemented, eleven (11) were partially implemented and
five (5) were not implemented.