Part II – Audit Observations and Recommendations

A financial and compliance audit was conducted on the accounts and operations
of the Municipality of Compostela covering the period January 1, 2016 to December 31,
2016.

Presented and discussed below are the significant audit observations with the
corresponding corrective measures. Viz:

1. Unimplemented and delayed implementation/completion of eighteen (18) 20%

Development Fund projects totaling P19,624,451.85 funded in calendar years
2016, 2015, and 2014 and twenty one (21) Locally Funded projects totaling
P20,951,806.73 funded in calendar years 2016 and 2015, deprived the
constituents of the socio-economic benefits which adversely affected the
efficiency of the local governance.

Section 287 of R.A. 7160 otherwise known as the Local Government Code of
1991 states that:

“Each local government unit shall appropriate in its annual

budget no less than twenty percent (20%) of its annual internal
revenue allotment for development projects.”

Item 2.3 of the Joint Memorandum Circular No. 2011-1 dated April 13, 2011 by
the Department of Interior and Local Government and the Department of Budget and
Management further provides the utilization of the 20% Development Fund that:

“All projects to be funded shall contribute to the attainment of

desirable socio-economic development and environmental
outcomes and shall partake the nature of investment or capital
expenditures.”

Item 5 of the same Joint Memorandum Circular identifies also the responsibility
of the Local Chief Executive, to wit:

“It is the responsibility of every Provincial Governor, City and

Municipal Mayor, and Punong Barangay to ensure that the 20%
of the IRA is optimally utilized to help achieve desirable socio-
economic development and environmental outcomes.”
(underscoring supplied for emphasis)

Further, Article 25 of the Implementing Rules & Regulations of RA 7160 which

is quoted in the next page provides:

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 “Responsibility for Delivery of Basic Services and Facilities. —
The LGUs shall, in addition to their existing functions and
responsibilities, provide basic services and facilities devolved to
them covering, but not limited to, the following:
For the Municipality xxxxxxxxxxxxxxxxxx;
(f) Provision of solid waste disposal or environmental
management systems and services or facilities related to general
hygiene and sanitation;
(g) Construction and maintenance of infrastructure facilities
funded by the municipality to serve the needs of the residents
including, but not limited to:
h) Construction, maintenance, and operation of municipal public
markets, slaughterhouses, and other economic enterprises;

Accordingly, pertinent provisions of RA 7160 provide the functions of the Local

Chief Executive, the Municipal Planning & Development Coordinator and the Municipal
Engineer, which are among others the following:
a. Municipal Mayor

 Exercise general supervision and control over all programs,

projects, services, and activities of the municipal government;
(underscoring supplied for emphasis)
 Enforce all laws and ordinances relative to the governance of
the municipality and the exercise of its corporate power
provided for under Section 2 of the Local Code, implement all
approved policies, programs, projects, services and activities
of the municipality. (underscoring supplied for emphasis)
 Initiate and maximize the generation of resources and
revenues and apply the same to the implementation of
development plans, programs objectives and priorities as
provided for under Section 18 of the Local Code, particularly
those resources programmed for agro-industrial development
and country-wide growth and progress;
 Ensure the delivery of basic services and the provision of
adequate facilities as provided for under Section 17 of the
Local Code(underscoring supplied for emphasis)

b. Municipal Planning & Development Coordinator

 Monitor and evaluate the implementation of the different

development programs, projects, and activities in the LGU
concerned in accordance with the approved development plan.
(underscoring ours)

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 c. Municipal Engineer

1) Initiate, review and recommend changes in policies and

objectives, plans and programs, techniques, procedures and
practices in infrastructure development and public works in
general of the local government unit concerned;

2) Advise the governor or mayor, as the case may be, on

infrastructure, public works , and other engineering matters;

3) Administer, coordinate, supervise, and control the

construction, maintenance, improvement, and repair of roads,
bridges and other engineering and public works projects of the
local government unit concerned; (underscoring ours)

4) Provide engineering services to the local government unit

concerned, including investigation and survey, engineering
designs, feasibility studies, and project management.

For calendar year 2016, a total of P33.4 Million was allocated for 20%
Development Fund of which P15.9 Million was intended for development projects, P12.5
Million for debt servicing and P5.0 Million as LGU counterpart for Bottoms Up
Budgeting (BUB) projects.

Validation of infrastructure projects implementation under the 20% Development

Fund revealed that management had been slow in implementing the 16 programmed
projects for CY 2016 with a total appropriation of P15,978,225.00 Million, as
summarized below :

Status of Project No. of % of Project Cost

Total Cost
Implementation Projects to Total Cost

Completed 2 1,000,000.00 6.3

On-going 4 3,300,000.00 20.7

Unimplemented 10 11,678,225.00 73.0

TOTAL 16 15,978,225.00 100

Further, as of yearend, there are still two projects under 20% Development Fund
(DF) for calendar year 2015 totaling P3,250,000.00. One (1) remained unimplemented
with a total cost of P750,000.00 for Drainage Development, while the other is still on-
going costing P2,500,000.00 for Cemetery Development with a percentage of completion

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of 53% with construction duration of 712 calendar days as it was started last February 16,
2015 and still on-going as of the present.

On the other hand, for CY 2014, the Concreting and Widening of J.P. Laurel and
L.S. Sarmiento Streets under 20% DF remained unfinished with a total cost of
P1,396,226.85. The project was only started last December 1, 2015, with construction
duration of 396 days, and is only 29% completed as of December 31, 2016.

The status of project implementation under 20% Development Fund for CYs
2016, 2015 and 2014 is provide in the next page:

CY 2016 - 20% DEVELOPMENT FUND PROJECTS

% of
Completio
n&%
Cost of
Comp./On
-
going/Uni
mp. to
Total Cost
No. of Days of
Completed/Co Projects
No. Name of Project Location nstructed (CD) Cost (In-bold)

A. Completed  
Pob.
1 Installation of Water System Compostela No Duration 500,000.00 100
Pob.
2 Rehabilitation of Water System Compostela No Duration 500,000.00 100
  TOTAL     1,000,000.00 6.3
B. On-Going    
Rehabilitation of Municipal Roads &
1 Bridges Compostela 395 1,500,000.00 85
Concreting of E. Blanco St. to Lapu-
2 Lapu St. Compostela 150 600,000.00 85
3 Drainage Development Compostela 376 800,000.00 94
Solid Waste Collection & Disposal
4 Facilities Compostela 330 400,000.00 90
  TOTAL     3,300,000.00 20.7
C. Not Started/Unimplemented/For Detailed Estimates  
Rehabilitation of Barangay Roads & 1,000
1 Bridges Compostela   ,000.00 For DE
Pob.
2 Concreting of E. Aguinaldo Street Compostela   2,500,000.00 0
Pob.
3 Concreting of Bayubay Street Compostela   2,500,000.00 0
Pob.
4 Concreting of Senen Suarez St. Compostela   700,000.00 0
Improvement of Public Market Pob.
5 Facilities Compostela   1,000,000.00 0
6 Cemetery Development Maparat   1,000,000.00 For DE

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 7 Development of Eco-Park Maparat   500,000.00 0
Impr. Of Multi-Purpose Purok
8 Centers/Day Care Centers Compostela   1,378,225.00 For DE
Construction of MP Building-IP
9 Bldg. Compostela   400,000.00 0
Construction of CR-Crossing Gabi
10 Public Market Compostela   700,000.00 For DE
  TOTAL     11,678,225.00 73
TOTAL 2016 20% Development Fund     15,978,225.00 100
CY 2015 - 20% Development Fund Projects
Completed      
1 Rehab of Brgy. Roads & Bridges Compostela 365 1,000,000.00
2 Rehab of Mun. Roads & Bridges Compostela 280 1,500,000.00
3 Concreting of Municipal Ground Compostela no start date 500,000.00
4 Improvement of Public Market Facilities Poblacion 415 1,000,000.00
5 Drainage Development Poblacion 380 900,000.00
6 Installation of Water System Poblacion 375 900,000.00
  TOTAL     5,800,000.00
On-going      
1 Cemetery Development Maparat 712 2,500,000.00 53
Unimplement
ed      
1 Development of Slaughterhouse Osmena   750,000.00 For DE
  TOTAL 2015     9,050,000.00
CY 2014 - 20% Development Fund Projects
Conc. & Widening of J Laurel & L.S. Pob.
1 Sarmiento Compostela   1,392,226.85 29
26,420,451.8
GRAND TOTAL   5  

Moreover, for CY 2016 Locally Funded Infrastructure Projects, management

lagged in its implementation, since out of the 12, only four (4) projects were completed
worth P450,000.00 which was only 15.3% of the total appropriation. While one (1)
project was 98% completed costing P500,000.00 and the 11 remained unimplemented as
of December 31, 2016 with a total cost of P1,993,545.42 which is 67.7% of the total
appropriation, per data below :

A. CY 2016

Status of Project No. of % of Project Cost

Total Cost
Implementation Projects to Total Cost

Completed 4 450,000.00 15.3

On-going 1 500,000.00 17

Unimplemented 11 1,993,545.42 67.7

TOTAL 12 2,943,545.42 100

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 Noted further that management was a long way behind in its action to carry through
the implementation of the CY 2015 planned projects costing P23,210,069.74. Out of the
14 projects, 10 projects were completed with a total cost of P4,751,808.43 which is only
20.5% of the total appropriation. While four (4) are still on-going with a total cost of
P4,150,000.00 and ten (10) remained unimplemented costing P9,519,421.38. See table in
the next page:

B. CY 2015

Status of Project No. of Total Cost % of Project Cost

Implementation Project to Total Cost

Completed 10 4,751,808.43 20.5

On-going 4 8,938,839.93 38.5

Unimplemented 10 9,519,421.38 41

TOTAL 14 23,210,069.74 100

The status of project implementation for CYs 2016 and 2015 are provided in the
next page:

2016 - Locally Funded Projects

% of
Completion
& % Cost of
No. of Days
Comp./On-
Completed/C
No. Name of Project Location Cost going/
onstruction
Unimp. to
Duration (CD)
Total Cost of
Projects (In-
bold)
A. Completed
1 Improvement of Municipal Gym Poblacion No Duration 300,000.00 100
2 Construction of MRF San Jose San Jose No Duration 50,000.00 100
Construction of Waiting Shed -
3 Lagab Lagab No Duration 50,000.00 100
Construction of Waiting Shed -
4 Purok 19 Ngan   50,000.00 100
  TOTAL     450,000.00 15.3

B. On-Going      
1 Construction of Bodega Pob. 196 500,000.00 98

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 Compostela
  TOTAL     500,000.00 17
C. Not Started/Unimplemented/For Detailed Estimates
Improvement of Government
1 Buildings Compostela   450,000.00 0
2 Construction of Sports Complex Compostela   420,000.00 0
Construction of SB Office
3 Building Compostela   100,000.00 0
Construction of Multi-Purpose
4 Pavement Panansalan   100,000.00 For DE
Construction of Multi-Purpose
5 Pavement-P-7 Siocon   100,000.00 For DE
Construction of Multi-Purpose
6 Bldg. Compostela   293,545.42 0
Construction of Multi-Purpose
7 Pavement- P8 Mangayon   200,000.00 0
Construction of Multi-Purpose
8 Pavement-P 2 Maparat   200,000.00 0
Improvement of Public Market
9 Facilities Compostela   100,000.00 0
Const. of Activity Center-
10 Panansalan Panansalan   30,000.00 0
Construction of Multi-Purpose
11 Pavement Ngan   30,000.00 0
  TOTAL     1,993,545.42 67.7
TOTAL 2016 - Locally Funded     2,943,545.42 100
CY 2015 - Locally Funded Projects
A. Completed        
1 Improvement of Government Bldg. Compostela 371 450,000.00 100
2 Concreting of Masipag St. Poblacion 15 150,000.00 100
Concreting of Plaridel St. - Final
3 Phase Poblacion No Duration 250,000.00 100
Concreting of Sikatuna St. -
4 Final Phase Poblacion 31 300,000.00 100
Construction of Multi-Purpose 1,122,776.9
5 Building Compostela 571 3 100
1,400,000.0
6 Construction of SB Office Bldg. Poblacion 301 0 100
7 Improvement of Public Terminal Poblacion 55 500,000.00 100
8 Rehab of Water System Compostela 211 500,000.00 100
Const. of Multi-Purpose
9 Pavement - Purok 3 Maparat 46 42,000.00 100
Rehab of Health Center -
10 Bagongon Bagongon 31 37,031.50 100
4,751,808.4
  TOTAL     3 20.5
B. On-Going        
Concreting of San Miguel to 8/1/16- 1,500,000.0
1 Nat'l Highway Junction San Miguel 3/31/17 0 95
Construction of Market Stalls 1,250,000.0
2 (11 units) Poblacion -do- 0 98
Improvement of Multi- 9/1/16-
3 PurposePavement Panansalan 3/31/17 100,000.00 52
4 Const./Imprv.of Day Care Compostela 7/16/16- 1,300,000.0 80

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 Centers & Purok Houses 3/31/17 0
8,938,839.9
  TOTAL     3 38.5
B. Not Implemented/For Detailed Estimates
Pob.
1 Construction of Sports Complex Compostela   420,000.00 0
Construction of Multi-Purpose Pob.
2 Building Compostela   562,990.00 For DE
Improvement of Multi-Purpose
3 Pavement Maparat   350,000.00 0
Improvement of Multi-Purpose
4 Building Compostela   436,431.38 For DE
Construction of Slaughterhouse
5 Building Compostela   1,750,000.00 For DE
Pob..
6 Rehabilitation of Timaya Bridge Compostela   2,000,000.00 For DE
Improvement of
7 Slaughterhouse Osmena   1,000,000.00 For DE
Construction of Public Market Pob.
8 Stalls Compostela   1,000,000.00 For DE
Const. of Multi-Purpose Bldg. Pob.
9 Drop In Center Compostela   1,500,000.00 0
Const./Impr. Of Multi-Purpose Pob.
10 Building Compostela   500,000.00 0
  TOTAL     9,519,421.38 41
TOTAL - 2015 Locally Funded     23,210,069.74 100

The project data above revealed that the Municipal Engineer failed to carry out
the implementation of various infrastructure projects proposed to be pursued on the year
these were included in the budget.

The notable delay posed threat in the non-implementation or partial

implementation of the projects due to peso devaluation considering that project estimates
are based on the current market prices at the time of its inclusion in the budget.

The Municipal Planning and Development Coordinator was also lax in performing
his functions in monitoring and evaluating project implementation. Had religious
monitoring been conducted, causes for the delayed implementation of projects could have
been immediately addressed. His laxity also contributed on the magnitude of unutilized
project funds.

The failure of the concerned personnel of the municipal government to

implement and complete the infrastructure projects under the 20% Development Fund
and Locally Funded projects totaling P40.6 Million led in the non-attainment of the
developmental objectives which eventually failed to timely and fully deliver the socio-
economic benefits to its constituents and/or intended beneficiaries. These lapses
adversely affected the efficiency of the local governance.

Recommendations:
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 We recommend the following courses of action:

The Local Chief Executive shall ensure the timely implementation of

projects/programs under the 20% Development Fund and Local Funds. Further, she shall
see to it that programs/projects proposed to be undertaken during the budget year should be
implemented and completed in the said year in order to attain its objective in providing
socio-economic benefits to its intended beneficiaries as well as minimize peso devaluation.

Instruct the Municipal Engineer to strictly administer and supervise the

implementation of development projects and locally funded projects to ensure its timely
completion.

Create a Team headed by the Municipal Planning and Development Coordinator to

evaluate, assess and address the causes on the delay of project implementation. Determine
whether these are still feasible for implementation. In the event that such projects are
identified to be no longer achievable, management shall make amendments in the Annual
Investment Plan and propose other viable development projects/programs to be funded out
of the 20% Development Fund and local funds.
Management Comments:

The Municipal Engineer stated that the causes of delay in the implementation of
projects are as follows:

1. The mode of implementation of most of the projects is by administration;

2. The lack of personnel to perform the technical aspects considering that aside
from the LGU funded projects, there are also special projects funded by the National
Government Agencies. There are only three (3) personnel under the MEO, one (1)
Licensed Civil Engineer, Building Inspector and Engineering Assistant, while the rest are
three (3) technical personnel on a job order status; 1 CE graduate and 2 Draftsmen. Out
of the six (6) personnel, only three are computer literate and CAD literate (Engr.1 and 2
Draftsmen);

3. Equipment availability constraints. The LGU owned heavy equipment are

already old which most of the time broke down, thus schedule of work assignments for
barangay and LGU projects were delayed.

4. She had overlooked the release of projects funds for some unimplemented
projects which were made on the 4th quarter of 2016;

5. There was a problem on the road right-of way for one (1) project in 2014 under
20% Development Fund since demolition of structures could not be immediately
undertaken due to some unavoidable circumstances and considerations;

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 6. Some projects are for reversion.

The Municipal Planning and Development Coordinator stated that he had

overlooked the status of program/project implementation of the local government unit
concerned but assured that in calendar year 2017 and thereafter, focus will be made on
this area as mandated under the pertinent provisions of RA 7160.

COA’s Rejoinders:

It can be noted on the foregoing project implementation data that there are projects
for more than two years which remained unfinished. These will probably entails additional
funding considering that estimates were made two years ago, thus, project completion will
be a problem. While lack of equipment for use in the project posed a problem due to old
age, the local government may have an alternative way, by renting equipment to be able to
finish what has been started and/or to implement projects with equipment component, to
be able to maximize the utilization of the project funds.

The implementing arm for infrastructure projects which is the Municipal

Engineering Office must have a priority list and timelines in implementing projects so
that whatever problems encountered will immediately be addressed and the foremost is
that, socio-economic benefits can be immediately enjoyed by the constituents.

2. Purchase Orders/contracts totaling P6,284,851.58 were still issued to bidders

despite the non-posting of Performance Security by the winning bidders contrary
to the provisions of RA 9184 which is greatly prejudicial to the interest of the
government.

Sections 39.1 of RA 9184 provides –

“To guarantee the faithful performance by the winning bidder of its

obligations under the contract in accordance with the Bidding
Documents, it shall post a performance security prior to the signing of the
contract.”

Section 40 of RA 9184 states –

“ 40 .Failure to Enter into Contract and Post Performance Security

40.1 If the bidder with the LCRB, HRRB, SCRB or SRRB fails, refuses
or unable to submit the documents required under Section 37.1 of this IRR or
to make good its bid by entering into contract with the Procuring Entity or post
the required Performance Security within the period stipulated in this IRR or
in the Bidding Documents, the bid security shall be forfeited and the
appropriate sanctions provided in this IRR and existing laws shall be imposed,

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 except where such failure, refusal or inability is through no fault of the said
bidder. (underscoring supplied for emphasis)

40.2 In the case of the failure, refusal or inability of the bidder with LCRB
or HRRB to submit the documents required under Section 37.1 of this IRR or to
enter into contract and post the required Performance Security, as provided in
this Section, the BAC shall disqualify the said bidder, and shall initiate and
complete the post-qualification process on the bidder with the second Lowest
Calculated/Bid.Highest Rated Bid: Provided, however, That in the case of
Consulting Services, the second Highest Rated Bid has successfully undergone
the negotiation stage in accordance with Section 33.2.5 of this IRR. This
procedure shall be repeated until the LCRB or HRRB is determining for award.
However, if no bidder passes the post-qualification, the BAC shall declare the
bidding a failure and conduct bidding with re-advertisment. Should there occur
another failure of bidding after the conduct of the contract’s re-bidding,
the Procuring Entity concerned may enter into a negotiated procurement.
(underscoring supplied with emphasis)

40.3 In case of failure, refusal or inability of the bidder with the SCRB or
SRRB to submit the documents required under Section 37.1 of this IRR or to
enter into contract and post the required Performance Security, as provided
in this Section, the BAC shall disqualify the said bidder, and shall declare the
bidding a failure and conduct a re-bidding with re-advertisement and/or
posting, as provided for in Sections 21 and 25 of this IRR. Should there occur
another failure of bidding after the conduct of the contract’s re-bidding, the
Procuring Entity may enter into a negotiated procurement.(underscoring
supplied with emphasis)

The performance security shall be in an amount not less than the required
percentage of the total contract percentage of the total contract price which are a) 5% for
goods and Consulting Services for cash or cashier’s/manager’s check issued by a
Universal or Commercial Bank, …. c) 30% for Surety bond callable upon demand issued
by a surety or insurance company duly certified by the Insurance Commission as
authorized to issue such security in accordance with Section 39.2 of the 2016 IRR of RA
9184.

In the Notice of Award signed by the Local Chief Executive, it clearly indicated
that the bidder is required to provide within ten (10) days the Performance Security in the
form and the amount as stipulated in Section 39.1 of RA 9184. Failure on the part of the
bidder to post the performance security shall constitute sufficient ground for cancellation
of the award and forfeiture of the bid security as provided under Section 40 of RA 9184
above.

The performance security posted by the supplier may be collected in case of

failure to deliver goods.

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 Management awarded contracts to July Gas Station to supply or deliver fuel, oil,
lubricants for use by the heavy equipment and light vehicles of the municipality. July Gas
Station is the lone winning bidder to supply the said goods not only in calendar year 2016
but also in the past year. During the year a total of P3,984,851.58 was procured from the
said establishment.

DG Agrivet was also awarded a contract for the supply of goods for the
Sustainable Livelihood Program (SLP) worth P2.3 Million.

Verification revealed that the above-mentioned supplier failed to provide

Performance Security for the contracts awarded to them. Performance security is a
guarantee for the faithful performance of the supplier.

In AOM No. 2017-005 (16), DG Agrivet has also been remiss in its obligation to
deliver within six months the remaining goods for the SLP worth P1,070,000.00.
The General Services Office failed to check whether winning bidders had
promptly paid the Performance Security required of them before issuing the purchase
orders/contracts. Management’s neglect regarding the posting of performance security of
winning bidders is greatly prejudicial to the interest of the government.

Recommendations:

We recommend the following courses of action:

Require the General Service Office to see to it that Performance Security has been
provided by the winning bidders before the issuance of the contract/purchase orders as a
guarantee for their performance.

Management shall forfeit the bid security, impose appropriate sanctions,

disqualify the bidder and declare the bidding a failure, in case of failure of the winning
bidder to post the required Performance Security in accordance with Section 40 of RA
9184.

Management Comments:

The OIC-General Services Officer stated that when she assumed office, the
practice is that Purchase Order were prepared first before the Notice of Award is issued,
hence, some winning bidders failed to post performance security. However, she
promised to abide to the provisions of RA 9184 and upon her assumption she made it
sure that performance security will be posted by the winning bidder before the issuance
of the purchase orders/contracts.

COA’s Rejoinder:

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 See to it that winning bidders will have a guarantee in performing his obligations
to the government by way of paying the required performance security in order to protect
the interest of the government.

3. Failure of management to enforced the conditions of the contract in the delivery

of goods worth P1,450,469.25 intended for the Sustainable Livelihood Program
has adversely affected the livelihood needs of the beneficiaries, thus, poverty
reduction goals were not fully attained.

On July 6, 2015, a total of P10.6 Million Sustainable Livelihood Program (SLP)

fund was received by the municipality from the Department of Social Welfare and
Development, Region XI, Davao City. This is intended to help alleviate the living
condition of the “4Ps families and those affected by “Typhoon Pablo” by providing them
for their livelihood needs.

On the last quarter of calendar year 2015, bidding was conducted on the following
SLP programs, to wit:
Nature of SLP Program Program Cost
Organic Native Chicken Production 2,400.000.00
Fruit Trees Rehabilitation 2,999,500.00
Organic Sweet Corn Production 1,059,000.00
Organic Peanut Production 529,000.00
Organic Mungbean Production 441,500.00
Total 7,429,000.00

As a result of the bidding conducted, Purchase Order (PO) was issued to DG

Agrivet for six (6) months period supply of 8,000 heads native chicken amounting to
P2,300,000.00 from January 15, 2016 (date of receipt of the PO) up to July 14, 2016. DG
Agrivet made staggered partial deliveries totaling 4,100 heads of native chicken which
were all beyond the 6 month period term. The remaining 3,900 heads of native chicken
worth P1,170,000.00 were not yet delivered as of December 31, 2016, a delay of 169
days.

Renel’s Fruit Nursery had also been given a three (3) month period to deliver fruit
trees seedlings and seed worth P3,227,840.00 from January 25, 2016 (date of receipt of
the purchase order) up to April 24, 2016. Renel’s made partial deliveries for the goods on
June 8, 2016 worth P2,499,038.80 which was 45 days delayed and 6 staggered deliveries
worth P453,756.67 which were also beyond the 3 month period. A total 5,615 hills of
Lanzones seedlings worth P280,469.25 were not yet delivered as of December 31, 2016,
a delay of 246 days.

The failure of the suppliers to deliver the goods for the livelihood needs of the
identified beneficiaries resulted in the non-attainment of the poverty reduction goals of
the SLP and eventually affected the efficiency and effectiveness of the operations of the
local governance.

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Recommendations:

We recommend the following courses of action:

Management shall see to it that program funds intended to the poor constituents
be efficiently and effectively be implemented in order to uplift their living conditions.

Direct the General Services Office to monitor the complete deliveries of goods on
schedule dates and the Municipal Agriculture Office to fast track the implementation of
Sustainable Livelihood programs in order to achieve program goals and objectives.

Management Comments:

The OIC-General Services Officer stated that she failed to monitor the deliveries
of goods for the SLP. However, she assured to communicate with the concerned suppliers
for the undelivered goods.

The Municipal Planning & Development Coordinator who is one of the members
of the Bids and Awards Committee stated that it was emphasized during the pre-bid
conference on their obligations to the local government. Also, site inspection and
evaluation conducted on Renel’s Nursery, they are capable to supply the goods.

COA’s Rejoinder:

Management should exert awareness on prompt delivery of goods by suppliers as

this affect the efficiency and effectiveness of the local government unit.

4. Liquidated Damages totaling P 694,238.82 was not deducted from the claims of
Renel’s Fruit Nursery, DG Agrivet and North Davao Producers and Agri-
Services Inc. for delayed deliveries of goods.

In the event that suppliers failed to deliver goods on the scheduled delivery date,
liquidated damages and/or sanctions shall be imposed by management.

Item 3 of Annex D of 2016 IRR of RA 9184 on Contract Implementation

Guideline for the Procurement of Goods, Supplies and Materials state:

“3. Liquidated Damages

3.1 When the supplier fails to satisfactorily deliver goods under the
contract within the specified delivery schedule, inclusive of duly granted
time extensions, if any, the supplier shall be liable for damages for the
delay and shall pay the procuring entity not by way of penalty, an amount
equal to one-tenth (1/10) of one percent (1%) of the cost of the delayed

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 goods scheduled of delivery for every day of delay until such goods are
finally delivered and accepted by the procuring entity concerned.

3.2 The procuring entity need not prove that it has incurred actual
damages to be entitled to liquidated damages. Such amount shall be
deducted from any money due or which may become due to the supplier,
or collected from any securities or warranties posted by the supplier,
whichever is convenient to the procuring entity concerned. In no case
shall the total sum of liquidated damages exceed ten percent (10%) of the
total contract price, in which event the procuring entity concerned may
rescind the contract and impose appropriate sanctions over and above the
liquidated damages to be paid.” (underscoring supplied for emphasis)

Review of paid financial transactions pertaining to Sustainable Livelihood

program (SLP) revealed that liquidated damages totaling P694,238.82 was not deducted
from the claims of suppliers.

Provided hereunder are the schedules of delayed deliveries of SLP goods of the
following suppliers, to wit:
A. Renel’s Fruit Nursery – Total amount of Purchase Order (PO) - P3,227,840.00

Cost of
Date of Terms of
Should be – Total Cost of No. of Undelivered Amount of
Receipt of Delivery – DR # /Date
Date of Delivered Days Goods (LD- Liquidated
PO by from PO of Delivery
Delivery Goods Delayed 1/10 of 1% Damages (Php)
Supplier recp’t
/day-delay)
1/25/2016 3 mos. 4/24/2016 0215 - 2,499,038.80 45 728,801.20 32,796.05
6/8/2016
1/25/2016 3 mos. 4/24/2016 566 63,919.72 122 664,881.48 81,115.54
-8/24/2016
1/25/2016 3 mos. 4/24/2016 565 – 286,426.80 136 378,454.68 51,469.84
9/7/2016
1/25/2016 3 mos. 4/24/2016 568– 103,410.15 166 275,044.53 45,657.39
10/7/2016
TOTAL 2,952,795.47 211,038.82

B. DG Agrivet – Total amount of PO - P2,300,000.00

Cost of
Date of Terms of
Should be Total Cost of No. of Undelivered Amount of
Receipt of Delivery – DR # /Date of
– Date of Delivered Days Goods (LD-1/10 Liquidated
PO by from PO Delivery
Delivery Goods Delayed of 1% /day- Damages (Php)
Supplier recp’t
delay)
1/15/2016 6 mos. 7/16/2016 326-8/16/2016 240,000.00 31 2,060,000.00 63,860.00
1/15/2016 6 mos 7/16/2016 325-8/17/2016 240,000.00 32 1,820,000.00 58,240.00
1/15/2016 6 mos 7/16/2016 329-9/22/2016 150,000.00 68 1,670,000.00 113,560.00
1/15/2016 6 mos 7/16/2016 330-10/13/206 360,000.00 89 1,310,000.00 116,590.00
1/15/2016 6 mos 7/16/2016 331- 240,000.00 90 1,070,000.00 96,300.00
10/14/2016
TOTAL 1,230,000.00 448,550.00

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C. North Davao Producers and Agri-Services Inc. - Total amount of PO- P550,000.00

Cost of
Date of Terms of Amount of
Should be Total Cost of No. of Undelivered
Receipt of Delivery- DR # /Date of Liquidated
– Date of Delivered Days Goods (LD-1/10
PO fr. PO Delivery Damages
Delivery Goods Delayed of 1% /day-
Supplier rep’t (Php)
delay)
1/25/2016 10 CD 2/4/2016 2265-4/8/2016 550,000.00 63 550,000.00 34,650.00
TOTAL 34,650.00

No appropriate actions or measures/sanctions were undertaken by management

for the winning bidder’s failure to completely deliver SLP goods on the specified date per
contract.

No document showing that management had undertaken actions regarding the

long overdue undelivered goods for SLP which is more or less 269 calendar days
delayed.

Moreover, in the schedule agreed upon by the BAC and the winning bidders, the
goods are to be delivered within three (3) months by Renel’s Fruit Nursery and within six
(6) months for DJ Agrivet in their Delivery Schedule. However, scrutiny of schedule
provided by Renel’s Fruit Nursery, it did not indicate the delivery dates, the nature of the
goods and its quantity. While, for DG Agrivet, it only indicated within six (6) months
from receipt of the purchase order which is also very vague as it did not also clearly
specify the quantity of goods to be delivered and scheduled dates of delivery.

The winning bidders were given ample time to satisfactorily deliver the goods
within the period given to them yet they still failed to completely supply the goods. The
BAC failed to carefully evaluate and assess the conditions as to the delivery schedule
provided by the bidders since they were given the liberty when, what, and how many
deliveries will be made. The delivery schedule should have been taken up during the pre-
bid conference.

The General Services Office, Municipal Accountant’s Office and the Bids and
Awards Committee incurred lapses in the discharge of their functions as provided below:

Nature of Deficiencies Office Concerned

Issuance of Purchase Orders and General Services Office (GSO)
Monitoring of Deliveries of Goods
Preparation and Review of Claims of GSO & Municipal Accountant’s Office
Suppliers
Evaluation of Delivery Schedule Bids and Awards Committee

These deficiencies adversely affected the efficiency of the local governance and
eventually prejudicial to the interest of the government.

98
Recommendations:

We recommend for the following courses of action:

Management shall initiate appropriate measures/sanctions on defaulting bidders to

protect the interest of the government.

Require the Municipal Accounting Office to carefully check and review claims of
suppliers for the proper imposition of liquidated damages that will be deducted from their
claims.

Require the Bids and Awards Committee to conduct thorough evaluation of

documents submitted by bidders especially on staggered delivery of goods.

Management Comments:

The OIC-General Services Officer admitted that she had overlooked the
monitoring of deliveries of goods of some suppliers. She also stated that computation of
liquidated damages was relied to the Accounting Office.

The OIC-Municipal Accountant also admitted that she had overlooked the
computation of liquidated damages for the delayed deliveries made by the suppliers;
however, she assured that the liquidated damages incurred will be deducted from the final
payment to be claimed by the suppliers.

COA’s Rejoinder:

The concerned personnel shall be very vigilant on their responsibilities and

functions in order to protect the interest of the government.

5. The Municipal Treasurer failed to turn over promptly to the Provincial

Treasurer the 50% share of the Special Education Tax totaling P4,558,646.07
contrary to Section 9 of RA 5447, thereby depriving the provincial government
of the opportunity to use the fund for priority programs/projects as budgeted
under special education fund.

Section 9 of RA No. 5447 states –

“Turnover of collections; release of the Fund is ministerial. The

municipal/city treasurers concerned shall retain the shares of the
municipal/city government and turn over the portions of their
collections of the taxes and penalties mentioned in Section four
hereof, appertaining, as the case may be, to the provincial
government and/or National Government to the respective

99
 treasurers thereof monthly within fifteen days of every
succeeding month. No portion of the collections may be
transferred or diverted to the general or any of other fund of the
National Government, provinces, cities, municipalities, or used or
expended for any purpose other than those specified in this Act. It
shall be the ministerial duty of the Budget Commissioner, the
Treasurer of the Philippines, all municipal, provincial and city
treasurers, as well as the officials and employees under their
supervision and control to effect releases from the Fund within
fifteen days from receipt of the order and/or authorization by the
Secretary of Education, in respect to the share of the National
Government from the Fund, and by the municipal, city or
provincial school boards, in respect to their respective shares from
the Fund.” (underscoring ours)
Verification of transactions from January 2016 to November 2016 revealed that
the Municipal Treasurer incurred delays in the turnover of the 50% special education tax
share of the provincial government. A total of P4,558,646.07 was remitted comprising
collections from December 2015 to September 2016. The longest incurrence of delay is
85 days as reflected in the table below:

No.
Due
of
Check OR Date Date of
Date Payee Period Amount Days
Number Number Remitted Remitta
Dela
nce
yed

PTO - December 397,180.

1/15/2016 669271 Comval 2015 51 6101833 1/19/2016 1/15/ 16 4

PTO, January 552,284.

5/5/2016 692282 Comval 2016 41 6501703 5/6/2016 2/15/16 75

PTO - February 344,215.

6/10/2016 692288 Comval 2016 97 6501716 6/10/16 3/15/16 85

PTO - March 510,664.

6/10/2016 692288 Comval 2016 10 6501716 6/10/16 4/15/16 55

PTO - April 849,836.

7/12/2016 692297 Comval 2016 20 6501730 7/13/2016 /515/16 59

PTO - 1,017,049
7/12/2016 692297 Comval May 2016 .39 6501730 7/13/2016 6/15/16 28

PTO - Adv. 13,696.

7/12/2016 692297 Comval Payment 25 6501730 7/13/2016 6/15/16 28

PTO - 337,351.
8/3/2016 692301 Comval June 2016 70 6501739 8/5/2016 7/16/16 21

9/6/2016 692309 PTO - July 2016 215,228. 6505759 9/7/2016 8/15/16 23

100
 No.
Due
of
Check OR Date Date of
Date Payee Period Amount Days
Number Number Remitted Remitta
Dela
nce
yed

Comval 68

PTO - August 197,234.

10/26/2016 692333 Comval 2016 16 6505779 11/2/2016 9/15/16 47

PTO - Septembe 123,904. 10/15/1

10/26/2016 692333 Comval r 2016 70 6505779 11/2/2016 6 17

      TOTAL 4,558,646.07        

The delayed remittance deprived the provincial government of the opportunity to

use the Fund for priority programs/projects under the Special Education Fund.

Recommendation:

We recommend to require the Municipal Treasurer to remit promptly the 50%

share of the Special Education Tax to the provincial government to aid the latter in the
funding and implementation of priority programs and projects under the Special
Education Fund.

Management Comment:

The Municipal Treasurer explained that due to the newly introduced Philippine
Public Sector Accounting Standards in the Accounting Office and the closing of
accounts, there was a delay on the remittance of the provincial share on Special
Education Tax (SET).

COA’s Rejoinders:

As observed on the remittance data above, the Municipal Treasurer actually

incurred delay on the on its remittance on the SET share of the provincial government on
collections made from March 2016 to September 2016. He should have a separate record
on real property tax (RPT) collections for General and Special Education Fund. He
should not be dependent on the accounting records considering that collections were
made by the Treasurer’s Office, hence, there’s no reason that remittance could not be
made on time.

6. Expenses totaling P 288,720.00 were improperly charged against the Special

Education Fund, thus other priority projects/programs were sacrificed which

101
 could have improved the operation of the elementary and public schools in the
locality contrary to the provisions of RA 7160, RA 5447 and other rules and
regulations issued by DECs, DBM and DILG.

Section 1 of RA 5447 provides among other, that the Special Education Fund
(SEF) shall be expended exclusively for the following activities:

a. The organization and operation of such number of extension classes as

may be needed;
b. The programming of the construction and repair of elementary school
buildings, acquisition of sites, and the construction and repair of
workshops and similar buildings and accessories thereof;
c. The preparation, printing and/or purchase of textbooks, teachers’ guide,
forms and pamphlets, approved in accordance with existing laws to be
used in all public schools;
d. The purchase and/or improvement, repair and refurbishing of machinery,
laboratory, technical and similar equipment and apparatus including
spare parts needed by the Bureau of Vocational Education and secondary
schools offering vocational courses;
e. The purchase of teaching materials such as workbooks, flip charts,
science and mathematics teaching aids, and simple laboratory devices for
elementary and secondary classes;
f. The implementation of the existing program for citizenship development in
barrio high schools, folk schools and adult education classes;
g. The undertaking of education research, including that of the Board of
National Education;
h. The granting of government scholarships to poor but deserving students
under RA 4009;
i. The promotion of physical education, such as athletic meets.

Section 272 of RA 7160 also provides that the proceeds from the additional one
percent (1%) tax on real property accruing to the SEF shall be automatically released to
the local school boards, provided that the proceeds shall be allocated for the operation
and maintenance of public schools, construction and repair of school buildings, facilities
and equipment, educational research, purchase of books and periodicals, and sports
development as determined and approved by the Local School Board. (underscoring
supplied for emphasis)

Furthermore, Section 2.1 of DECS-DBM-DILG Joint Circular No. 01-A dated

March 14, 2000 provides that the SEF may be used to fund the establishment of new
classes as extensions of existing public elementary or secondary schools as approved by
the DECS Secretary upon the recommendation of the DECS Regional Director and the
certification of the Division Superintendent concerned of the necessity and urgency of
establishing extension classes in the province, city or municipality as the case maybe,
provided that no extension class be established unless the number of pupil/students in
such extension class shall at least be fifteen (15). (underscoring supplied for emphasis)

102
 On the other hand, Section 2.1 of DECS-DBM-DILG Joint Circular No. 01-B
dated June 25, 2001 clarified Section 2.0 of DEC-DBM-DILG Joint Memorandum
Circular No. 01-A to include among the priority items chargeable to SEF, the payment of
salaries and authorized allowances of teachers hired to handle new classes as extensions
of existing public elementary or secondary schools. (underscoring supplied for emphasis)

Audit of CY 2016 disbursements under the SEF for the period January to
November 2016 revealed that various expenses totaling P288,720.00 were improperly
charged against the fund. These consisted of the following nature of expenses:

Nature Amount
Meal Allowance for Boy Scouts/Advisers to Provincial Jamboree 25,000.00
Meal Allowance for Teachers – GSP Councilwide Star Holiday 43,720.00
Meal Allowance – CNHS Bulawanong Pasundayag Street Competition 10,000.00
Meal Allowance – Campus Journalism & Literacy Day 45,000.00
Cash Prizes for Best Heroes Park – Elementary Level 15,000.00
Cash Prizes for Classroom Restructuring – Elementary Level 15,000.00
Cash Prizes for Kindergarten Day 5,000.00
Cash Prizes for Festival of Talents – Values Education 5,000.00
Cash Prizes for Festival of Talents – Araling Panlipunan 5,000.00
Cash Prizes for Tribal Panaghiusa Festival 5,000.00
Cash Prizes for Kinder Day Program 90,000.00
Cash Prizes for MAPEH Festival - Dances 5,000.00
Cash Prizes for Math Quiz 10,000.00
Cash Prizes for Math Challenge 10,000.00
TOTAL 288,720.00

Noted above that there were payments made for salaries/honorarium of teachers
without established extension classes and the other aforementioned expenses are not also
allowed to be charged to SEF as the fund is intended only for the improvement of the
operation and maintenance of elementary and secondary public schools. Such other
expenses mentioned above shall be charged against the Maintenance and Other Operating
Expenses (MOOE) of the respective schools or District Offices which is annually
included in the General Appropriations Act of the Department of Education.

As a result of this improper charging, other priority projects/programs of the

DepEd were sacrificed.

Recommendations:

We recommend that the Local School Board shall undertake the following
courses of action:

103
 1. Consider and include only expenditures appropriately chargeable to Special
Education Fund pursuant to RA 5447, RA 7160 and DECS-DBM-DILG Joint
Circular No.2 01-A and 01-B during the planning and budget preparation.

2. Refrain future payment of expenditures not allowed to be charged under the

Special Education Fund to avoid audit suspensions/disallowances.

3. For schools in dire need of establishing extension classes, submit request to the
DepEd Division Superintendent supported with the computation of the number of
pupils/students vis-à-vis number of regular DepEd teaching staff in the concerned
elementary/secondary public schools in order to accommodate the salaries of
teachers to be hired which can be appropriately charged against the Special
Education Fund.

Management Comment:

The District Supervisor assured that expenditures to be funded out of the Special
Education Tax will conform on the provisions of RA 5447 and DepEd guidelines and other
issuances.
COA’s Rejoinder:

See to it that future expenses to be charged under Special Education Fund Budget
will be in accordance with laws, rules and regulations to avoid audit suspensions and
disallowances.

7. The municipality failed to completely conduct physical inventory of its

Property, Plant and Equipment (PPE) and to submit a report thereon in
accordance with Sections 124 and 114 of the Manual on the New Government
Accounting System (NGAS), hence the correctness and existence of the reported
PPE accounts of P144 Million as of December 31, 2016 cannot be ascertained.

Section 124 of the Manual on the New Government Accounting System (NGAS)
provides:

“Inventory of Supplies or Property – The Local Chief Executive

shall require the periodic physical inventory of supplies or
property. xxx Physical count of property, plant and equipment by
type shall be made annually on the report on the Physical Count
of Property, Plant and Equipment (RPCPPE). This shall be
submitted to the Auditor concerned not later than January 31, of
each year.”

Further, Section 114 of the same Manual also provides:

104
 “xxx The Chief Accountant shall maintain the perpetual inventory
records comprising of Supplies Ledger Cards (SLC) for each
commodity /stock, Property, Plant and Equipment Ledger Card
(PPELC) for each category of plant, property and equipment xxx.

The General Services Officer or the Municipal Treasurer, as the

case maybe shall likewise maintain stock cards property cards for
supplies; property, plant and equipment, xxx. The balance per
stock card/property cards should always reconcile with ledger
cards of the accounting unit. They should also reconcile with other
property records like Acknowledgement Receipt for Equipment
(ARE).”

The provision of Section 124 of the NGAS Manual, Volume 1, requiring the
periodic physical inventory of property, plant and equipment, has been disregarded for two
years.

The OIC General Services Officer stated that physical inventory of the
municipality properties was conducted and an inventory report was prepared. This was
submitted to the OIC-Municipal Accountant for reconciliation with the books of
accounts.

The OIC-Municipal Accountant however, stated that the Inventory Report

prepared and furnished to her by the OIC-General Services was not in the prescribed
format and the properties were not summarized as to its proper classification which she
found difficult to reconcile with the accounting records.

As of December 31, 2016, the total net book value of the property, plant and
equipment accounts of P182,491,033.84 is 41.2% of the total assets of P442,579,492.13.
Details are as follows:

Nature Amount
Land 10,618,003.54
Other Land Improvements 6,208,543.38
Road Networks 12,049,194.19
Water Supply Systems 4,254,777.37
Other Infrastructure Assets 4,525,918.14
Parks, Plazas & Monuments 32,832.82
Buildings 17,954,430.44
School Building 4,288,266.87
Hospitals and Health Centers 389,463.87
Markets 28,488,480.27

105
 Nature Amount
Slaughterhouse 500,272.57
Other Structures 16,529,574.24
Office Equipment 3,741,344.37
Information and Communication 3,427,844.29
Agricultural and Forestry Equipment 122,914.20
Communication Equipment 230,846.87
Construction and Heavy Equipment 14,368,448.35
Disaster Response and Rescue Equipment 4,703,233.44
Medical Equipment 494,702.76
Printing Equipment 299,545.00
Technical and Scientific Equipment 58,600.00
Other Machinery and Equipment 2,561,415.14
Motor Vehicles 3,328,829.11
Furniture and Fixtures 1,424,771.62
Books 34,775.60
CIP-Infrastructure Assets 26,981,682.67
CIP-Buildings and Other Structures 14,246,210.44
Work/Zoo Animals 491,311.98
Other PPE 491,311.98
TOTAL 182,491,033.84

The failure to completely conduct physical inventory and submit this inventory
report for reconciliation with the accounting books proved doubtful, the correctness and
existence of the reported PPE accounts of P182.5 Million as of December 31, 2016.

Recommendations:

We recommend for the following courses of action:

Require the Municipal Property Inventory Team which should be composed of the
representatives of the Municipal Mayor, Municipal Treasurer/Municipal General Services
Officer, Municipal Assessor and the Accountable Officer of every Department of the
Municipal Government to conduct a complete physical inventory of all properties owned
by the municipality at least once a year. Also, for properties without proper costing, the
appraised value shall be the basis as recommended by the Appraisal Committee. All
unserviceable equipment or properties should be included in the physical count and render
a report thereon for possible disposal and/or dropping from the books of accounts.

Require the Municipal Government Services Office to prepare the Report on the
Physical Count of Property, Plant and Equipment (RCPPE), and furnish the Municipal
Accountant a copy of the report for reconciliation purposes in accordance to Section 124 of

106
the NGAS. Direct the Municipal Accountant and the Municipal General Services Officer to
maintain and update the necessary records on PPE as required in Section 114 of the NGAS
Manual. Property, Plant and Equipment Ledger Card shall be maintained by the Municipal
Accountant and Property Cards by the Municipal General Services Officer. Periodic
reconciliation of the accounting, general services records, and inventory reports of PPE
should be undertaken. Any discrepancies noted, necessary adjustments shall be effected in
order to present an accurate PPE balances in the financial statements.

Management Comments:

The OIC-General Services Officer stated that she had furnished the OIC-
Municipal Accountant of the Inventory Report for reconciliation with the accounting
records; however she missed to follow it up. She promised to submit it as soon as the
accounting finished its reconciliation.

The OIC-Municipal Accountant revealed that reconciliation will still be made and
assets purchased by the municipality for the barangays will also be transferred to the
barangay books.

COA’s Rejoinder:
Submission of a complete and reconciled inventory report of LGU’s property,
plant and equipment as of year-end is very vital so that the auditor can validate the
existence and the accuracy of the reported assets in the financial statements.

8. The General Services Office failed to regularly prepare and submit the
Summary of Supplies and Materials Issued (SSMI) for inventoriables to the
Accounting Office for proper adjustment of expenses, hence the correctness and
validity of the balance of the Inventory Accounts worth P14,112,106.67 is
doubtful.

Sec. 121 of the Manual on the New Government Accounting System, Volume I,
states:

“The General Services Officer or the Local Treasurer, as the case

maybe, shall consolidate weekly the Requisition Issue Slip (RIS)
for which supplies and materials were issued using the Summary
of Supplies and Materials Issued (SSMI). The SSMI together with
the original copy of the RIS shall be submitted to the Chief
Accountant, who shall compute cost of supplies issued and ending
inventory using the moving average method. Based on the SSMI, a
Journal Entry Voucher (JEV) shall be prepared to record the
expenditures using appropriate expenditure accounts.”
As of December 31, 2016, P24,353,924.26 was reflected as balances of the
inventory accounts of the municipality which consisted of the following:

107
Inventory Accounts Amount (Php) % to TOTAL

108
Welfare Good for Distribution 455,477.29 2.00
Agricultural Produce for Distribution 278,705.00 1.00
Other Supplies and Materials for Distribution 71,250.00 0.00
Office Supplies 1,804,663.18 7.00
Accountable Forms, Plates & Stickers 143,811.00 1.00
Non-Accountable Forms Inventory 16,585.00 0.00
Animal/Zoological Supplies 97,539.00 0.00
Food Supplies 59,940.00 0.00
Drugs and Medicines 300,483.45 1.00
Medical, Dental and Laboratory Supplies 455,034.65 2.00
Fuel, Oil and Lubricants 1,745,546.35 7.00
Textbooks and Instructional Materials 99,661.00 0.00
Agricultural and Marine Supplies 1,700.00 0.00
Construction Materials 15,860,017.99 65.00
Other Supplies and Materials 2,963,510.35 12.00
TOTAL 24,353,924.26 100

From the data above, it appears that the construction materials inventory of
P15,860,017.99 share the biggest bulk of the total inventories of P23,353,924.26.

The OIC Municipal Accountant stated that the General Services Office had
minimal submission of Summary of Supplies and Materials Issued (SSMI) on supplies
released to offices, thus adjustments could not be affected on the recorded inventory
accounts.

This resulted in the overstated asset and equity accounts and understated expense
account of the municipality.

Recommendations:

We recommend for the following courses of action:

Require the General Services officer to regularly prepare the Summary of

Supplies and Materials Issued for all inventory items of the municipality and submit the
same to the Municipal Accountant for the proper recognition of expense accounts in
accordance to Section 121 of the Manual on New Government Accounting System,
Volume 1.

Require the OIC-General Services Officer to coordinate with all department heads
on all goods purchased and issued on prior years’ to be able to facilitate the adjustments
to be made on the inventory items reflected in the financial statements.

Management Comments:

The OIC-General Services Officer explained that the bulk of the inventoriables
pertained to prior years’ transactions. She found it difficult to prepare the SSMI for prior

109
years’ issuances of goods as there are no files of Requisition Slips as well as purchase
orders.

The OIC-Municipal Accountant stated that construction materials had the biggest
share on the inventory since various deliveries were made on the last month of the year.

COA’s Rejoinders:

Regular submission of the consumption reports is very important for the proper
recognition of the expense and an accurate valuation of the asset of the municipality.

Consumption reports of supplies shall be submitted to the Accounting Office for

the proper recognition of the expense accounts.

9. Management’s failure to intensify collection of loan accounts resulted to a very

low collection efficiency rate of 2.3% as only P27,088.30 was collected out of the
P1,187,593.60 other receivables which could result to possible loss or wastage of
government funds.

COA Circular 2016 -005 dated December 19, 2016 stated that:

6.1 All government entities shall conduct regular monitoring and

analysis of receivable accounts to ensure that these are collected
when these become due and demandable and that cash advances
and fund transfers are liquidated within the prescribed period
depending upon their nature and purpose (Underscoring supplied)

7.1 The Accountant shall conduct regular and periodic

verification, analysis, and validation of the existence of
receivables, unliquidated cash advances, and fund transfers, and
determine the concerned debtors, accountable officers and the
source and implementing government entities concerned.

Moreover, the same circular provides the procedures in the write-off of dormant
accounts, to wit:

8.2 The Head of the government entity shall file the request for
authority to write-off dormant receivable accounts, unliquidated
cash advances, and fund transfers to the COA Audit team Leader
(ATL) and/or Supervising Auditor (SA). No filing fee is required.

8.3 The request shall be supported by the following documents:

a. Schedule of dormant accounts by accountable
officer/debtor/government entity and by account,
certified by the accountant and approved by the Head
of the government entity;

110
 b. Certified relevant documents validating the existence of
the conditions, as applicable, such:
b.1. Death Certificate issued by Philippine
Statistics Office
b.2. Proof of Insolvency
b.3. Certification from the Department of Trade
and Industry that the debtor has no registered
business
b.4. Certification from the Securities and
Exchange Commission that the Corporation is
no longer active
b.5. Certificate of no residence in the barangay of
the municipality/city of last known address
b.6. Proof of exhaustion of all remedies to collect
the receivables and demand to liquidated the
cash advances and fund transfers, such as but
not limited to copies of served or returned
demand letters
b.7. Certification by Legal Officer of the entity of
no pending case relative to the account
b.8. Certification by the responsible officials of the
entity to the effect that there are no
records/documents available to validate claim
b.9. Other justifications, like in the case of request
for write-off due to loss of documents, the
circumstances of the loss should be stated in
the letter request.
b.10. In case of fund transfer, the unliquidated
amount after reconciliation shall be supported
by certification by the Chief Accountants and
approved by the Heads of the Source and
Implementing entities that the fund was
utilized for the purpose, and certification from
the recipient that the project was partially or
fully implemented, supported by pictures of
the implemented projects.

8.4 The ATL and SA, upon receipt of the request, shall assign a
reference number, verify and validate the above documents and
decide on the requests for authority to write off for amounts not
exceeding P100,000.00 per accountable officer/debtor/government
entity and by account within 15 days from receipt thereof;
8.7 For amounts more than P100,000.00 but not exceeding
P1,000,000.00 per accountable officer/debtor/government entity
and by account, the ATL and SA shall forward the entire records

111
 of the requests to the CD/RD, together with their comments and
recommendations, within 15 working days from receipt thereof;

8.11 For amounts exceeding P1,000,000.00 per accountable

officer/debtor/government entity and by account, the CD/RD shall
forward the entire records of the requests together with his/her
recommendation to the AC of the Sector within 15 working days
from receipt thereof;

11. This Circular shall not be interpreted to neither condone the

written off accounts nor to extinguish the obligations. The
Management shall continue to exert effort to collect the accounts
appearing in the Registry of Accounts Written-off (RAWO) when
circumstances would warrant. Further, this shall not be construed
as a ground to exonerate the liability of the officers/employees for
infidelity in the custody of documents. (Underscoring supplied)

The Other Receivables account (1-03-06-990) is used to record the amount due
from debtors and other agencies not falling under any of the specific receivable account.

As of year-end, the Other Receivables account has an outstanding balance of

P1,160,505.30 for General and Trust Funds. Some of these accounts were existing for
more than 10 years. Provided below is the nature and the aging of the receivable account,
to wit:

Fund Nature Amount Aged

General Livelihood LoanGranted to Individuals/Assn. 586,258.37 Above 10 years
LBP Marginal Deposit 228,848.72 Above 10 years
Understated Deduction of W/Tax- Rasa Survey 100.00 Above 10 years
Overpayment – Apat School & Office Supplies 360.00 Above 10 years
Micro Finance Assistance Program 78,018.71 Above 10 years
Total – General 893,585.80
Trust KKK Loan granted to Individuals 114,319.50 Above 20 years
Livelihood Loan – Individuals 1,200.00 Above 10 years
Livelihood Loan to Coop/Inc. 35,000.00 Above 10 years
DA – 10% Retention 116,400.00 Above 1 year
Total Trust 266,919.50
Grand Total 1,160,505.30

Analysis of the account disclosed that a minimal amount of P27,088.30 was

collected during the year, which is only 2.2% of the total outstanding balance of
P1,187,593.60 as of year-end of CY2015. Further, livelihood loans granted to employees
of the LGU were not even collected.

Management’s leniency in enforcing collection of loans from the borrowers

caused the very high delinquency and low collection efficiency rates. The low recovery
rate on loans exposes government funds to possible wastage and/or loss.

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Recommendations:

We recommend that management direct the offices concerned and/or create a task
force to develop strategies to expedite collections and to enforce loan payment per
provisions of the MOA/Contract.

Moreover, if collections of these accounts are improbable, we recommend that

management submit requests for authority to write-off in accordance with the provisions
of COA Circular 2016-005 dated December 19, 2016.

Management Comment:

The OIC-Municipal Accountant stated that she had prepared letters to confirm the
existence of the associations, business establishments, cooperatives and individuals.
Some of these do no longer exist. While for the Department of Agriculture 10% retention
fee of P116,400.00, it was already collected last January 17, 2017.

COA’s Rejoinders:

Management shall be cautious in the future granting of loans to avoid possible

loss of government funds due to uncollectible loan accounts.

Exert extra effort to collect from cooperatives and/or other borrowers who still
exist in order to augment funds for the local government unit.

10. Failure of the Municipal Accountant to effect the necessary adjustments in the
books of accounts on the full withdrawal of cash from unauthorized
government depository banks which were already deposited/transferred by the
Municipal Treasurer to Land Bank of the Philippines totaling P890,365.06,
resulted to the overstated cash-in-bank-account by the same amount.

Verification of the financial statements of the municipality revealed deposits

made to unauthorized depository banks totaling P890,3654.06. Details are provided in the
next page:
Rural Bank Philippine
Fund Acct. of Acct. No. Trubank Acct. National TOTAL
No. Compostela No. Bank
Inc.
General
Fund 51-242410 1,519.00 53-02649-8 362,571.12 364,090.12
Special 40,134.75
Educ. Fund 53-0001-6 40,134.75
Trust Fund 675-
Proper 56-00021-3 124,676.83 53-0002-0 3,550.00 860079 357,913.36 486,140.19
TOTAL 126,195.83 406,255.87 357,913.36 890,365.06

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 The Municipal Treasurer stated that the aforementioned accounts maintained with
unauthorized government depository banks totaling P890,365.06 were already closed last
October 10,2014 as authorized under Sangguniang Bayan Resolution No. 2014-3346
dated September 12, 2014. The funds were deposited/transferred to the Land Bank of the
Philippines, Nabunturan Branch. The closure of the bank accounts and its transfer was
due to the audit recommendations embodied in the calendar year 2013 Annual Audit
Report of the municipality.

The presence of the aforementioned cash in bank balances in the financial

statements had overstated the cash in bank by P890,365.06.

Recommendation:

We recommend that the Municipal Accountant effect the necessary adjustment on

the overstated cash in bank accounts which were already closed in order to present the
true financial position of the municipality.

Management Comment:

The OIC-Municipal Accountant stated that she had overlooked the preparation of
a Journal Entry Voucher to take up the adjustments of the closed bank accounts and its
fund transfers to LBP. She promised to take up the necessary adjustments in June 2017.

COA’s Rejoinder:

The OIC-Municipal Accountant shall coordinate with the Municipal Treasurer in

the maintenance and closure of bank accounts in order to present an accurate cash
position of the municipality.

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