Republic of the Philippines

COMMISSION ON AUDIT
Commonwealth Ave., Quezon City

MANAGEMENT LETTER
on the

PHILIPPINE RURAL DEVELOPMENT

PROJECT (PRDP)

Implemented by the
Municipality of Isabel, Province of Leyte

For the Year Ended December 31, 2020

 Republic of the Philippines
COMMISSION ON AUDIT
Regional Office No. VIII
Local Government Sector
Audit Group C - Leyte II and Biliran Province
New City Hall, Ormoc City, Leyte

CONFIDENTIAL

June 8, 2021
Hon. SATURNINO M. MEDINA, Sr.
Mayor
Municipality of Isabel
Province of Leyte

Dear Mayor Medina:

Management Letter on the Audit of the

Philippine Rural Development Project
Implemented by the Municipality of Isabel
For the period January 1 to December 31, 2020

1. INTRODUCTION

1. Pursuant to Section 2, Article IX-D of the Constitution of the Philippines, Section

43 of the Government Auditing Code of the Philippines (PD 1445) and Republic
Act (RA) No. 8182 known as the Official Development Assistance (ODA) Act of
1996, we have audited the accounts, transactions and operations of the Philippine
Rural Development Project (PRDP) implemented by the Municipality of Isabel for
the period ended December 31, 2020. The audit was conducted in accordance with
International Standards of Supreme Audit Institution (ISSAIs). Those standards
require that we plan and perform the audit to obtain a reasonable basis for our
conclusions.

2. The audit covered the accounts and implementation of the PRDP subprojects. The
audit was conducted by the Audit Team led by Reina Teresita P. Juntilla, State
Auditor IV, Audit Team Leader, to (a) ascertain the level of assurance that may be
placed on management’s assertions on the financial statements; (b) determine the
propriety of transactions as well as the extent of compliance with applicable laws,
rules and regulations; (c) recommend agency improvement opportunities; and (d)
determine the extent of implementation of prior year’s audit recommendations.
2
 3. An unqualified audit opinion was rendered on the fairness of presentation of the
financial statements of the PRDP (Annex A-1) and on the special purpose financial
statements (Annex A-2).

4. The project’s Statement of Financial Position, Statement of Sources and

Application of Fund and Statement of Receipt and Expenditures as at December 31,
2020 and Statement of Cash Flows for the year then ended are shown in the
attached audited financial statements (Annexes B to G).

5. Deficiencies observed in the course of audit were earlier communicated through the
issuance of Audit Observation Memoranda (AOMs) and discussed in an exit
conference conducted on May 26, 2021 with officials and employees concerned.
Deficiencies corrected during the year were no longer included in this report.
Comments of management and the proponent group were incorporated in this
letter, where appropriate. The significant audit observations and recommendations
shall be incorporated in the Philippine Rural Development Project Consolidated
Management Letter for CY 2020, ODA Report 2020 and Consolidated Annual
Audit Report of the Department of Agriculture for CY 2020.

II. BACKGROUND INFORMATION

A. Introduction

6. The PRDP is a six-year project financed by a loan from the World Bank and a
grant from the Global Environment Facility (GEF), GOP Counterpart requirements
will be provided by the National Government and the participating LGUs, in
accordance with the annual work and financial plan. The PRDP Project started its
implementation effective December 2014 and will close in May 2021.

7. PRDP aims to raise agricultural and fisheries productivity and incomes through
improving food security; access to climate resilient infrastructure and livelihood
expanding the natural/coastal resource and production base of the country; and
reducing biodiversity loss, considering climate change vulnerability of identified
project areas.

8. The Department of Agriculture is the implementing agency of PRDP. In

partnership with Local Government Units (LGUs) and private sector, the Project
shall provide key infrastructure, facilities, technology and information to raise
incomes, productivity and competitiveness in targeted areas. The participating
LGUs are responsible in carrying out the development process for all types of
infrastructure and livelihood subprojects under the I-BUILD and I-REAP project
components, as follows:

3
 Components/
Sub-components Description Implementing Offices
Component 2 Rural
Infrastructure
Development
(I-BUILD)

i. Value Chain Carrying out of specific Provincial LGUs with

Infrastructure sub-projects to support technical back-stopping
Support (VCIS) infrastructure development from RPCO and the PSOs
by participating LLGUs in
priority commodity value
chains (including among
others, farm- to –market
roads, bridges, tire tracks,
communal irrigation,
portable water systems,
post-harvest facilities,
production facilities, fish
landings, fish sanctuaries,
tram lines, storage
facilities, trading posts,
green houses, solar driers,
watch towers and slope
stabilization works)
Development of technical
ii. Approaches for specifications for climate
improving the resiliency and disaster risk
Effectiveness and mitigation for local
Sustainability of infrastructure
Infrastructure
Investments

Component 3 Enterprise
Development
(I-REAP)

i. Rural Agri-Fishery a) Carrying out of Provincial LGUs with

Enterprise and specific sub-projects to back-stopping from
Productivity support vertical and technical agencies of DA,
Enhancement horizontal clustering, other related government
joint business planning agencies as well as other
and investments by service providers from the
producer academe, the private sector
groups/enterprises and the NGOs, as
operating within appropriate.
priority commodity
4
 Components/
Sub-components Description Implementing Offices
value-chains; and The RPCO coordinates the
b) Promotion of inputs that support the
biodiversity implementation of
conservation and Infrastructure and
coastal resource co- Enterprise sub-projects of
management the Provincial LGUs.
arrangements as well
as carrying out
sustainable income-
generating livelihood
activities.

ii. Technology and Provision of technical

Information for assistance to producers to
Enterprise and Market increase their productivity
Development and incomes through
improved and sustainable
technological, operational
and market knowledge and
facilitation of market
linkages.

9. The investments in the I-REAP (Rural Enterprise and Agriculture and Fisheries
Productivity) Component consist of 60:20:20 (LP:GOP:LGU) cost-sharing scheme.
It is intended to carry out specific subprojects to support vertical and horizontal
clustering, joint business planning and investments, promotion of biodiversity
conservation and coastal resource-co-management arrangements, as well as
carrying out of sustainable income-generating livelihood activities. Technical
assistance to producers is also provided to increase productivity and incomes
through improved and sustainable technological, operational and market knowledge
and facilitation of market linkages.

B. I-REAP Subproject (SP) Status

Particulars Native Chicken Production and Marketing

Subproject Cost
Loan Proceeds (60%) P464,019.00
GOP (20%) 154,673.00
LGU Equity (20%) 154,673.00
Total P773,365.00
Date Started
Target July 2017
Actual July 2018

5
 Particulars Native Chicken Production and Marketing
Date Completed
Target December 2018
Actual April 2020
Percentage of Completion 100%
Status of Implementation Completed

C. Personnel Complement

10. The LGU established a Municipal Project Management and Implementation Unit
(MPMIU) as required by the project. The MPMIU is responsible for the overall
planning, budgeting procurement and implementation of the I-REAP subproject.
The personnel complement of the MPMIU are as follows:

Name of Personnel MPMIU Designation MLGU Position

Engr. Luz E. Conciliado I-Plan Head MPDC
Engr. Samie M. Galos I-Build Head Municipal Engineer
Ruthlyn P. Gorgonio I-Reap Head Municipal Agriculturist
Ma. Lisa P. Amson Finance Unit Head Municipal Accountant
Gerardo P. Embog Procurement Unit Head Municipal Budget Officer
Engr. Luz E. Conciliado Monitoring and MPDC
Evaluation Head
Almira G. Villaseran SES Unit Head Designated MENRO
Jennifer Francisco Information Unit Head PESO Manager

D. Financial Highlights

11. The project’s financial condition and sources and application of funds for CYs
2020 and 2019 are presented as follows:

Particulars 2020 2019

Financial Position
Assets P 112,696.50 P 113,246.50
Liabilities 112,696.50 113,246.50
Net Assets/Equity 0.00 0.00
Sources and Application of Funds
Receipts 0.00 P 133,020.80
Disbursements 0.00 166,276.00

6
 12. The breakdown of receipts, disbursements and liquidations for the implementation
of the I-REAP project on are as follows:

Unliquidated
SP Name Receipts Disbursements Balance Liquidations
Balance
Native Chicken
Production and 773,365.00 772,365.00 1,000.00 P699,344.30 73,020.70
Marketing

III. OBSERVATIONS AND RECOMMENDATIONS

A. COMPLIANCE AUDIT

13. Full liquidation of the PRDP funds amounting to P73,020.70.00 was not made
and the sub-project completion report which is required not later than six
months after the last payment of funds to the proponent group was not
submitted to DA despite full completion of the project in violation of pertinent
provisions in the Implementation Management Agreement (IMA) entered into
with DA-PRDP and COA Circular 94-013, thus, deprived the LGU of the
additional receipt of PRDP funds.

14. Section 7.05 of the Implementation Management agreement (IMA) entered into by
LGU Isabel and Department of Agriculture- PRDP provides that the MLGU shall
submit a Sub-Project Completion Report not later than six (6) months after the last
payment was made by the MLGU to the contractor/or the proponent group.

15. COA Circular 94-013 dated December 13, 1994 prescribes the rules and
regulations on the grant, utilization and liquidation of funds transferred to
Implementing Agencies (IAs). This is to ensure that the grant is properly taken up
in the books of the source agencies (SAs) and IAs, used only for the intended
purpose and that proper accounting and reporting is made on the utilization of
funds.

16. Paragraph 4.6 provides that within ten (10) days after the end of each month/end of
the agreed period for the Project, the IA shall submit the Report of Checks Issued
(RCI) and Report of Disbursements (RD) to report the utilization of the fund.

17. Paragraph 4.9 provides that the IA shall return to the SA any unused balance upon
completion of the project while Paragraph 5.4 provides that the SA shall require
the IA to submit the reports and furnish the IA of the journal entry voucher taking
up the expenditures.

18. LGUs were designated as IAs in the implementation of the I -Build and I-Reap
using the funds transferred by the PSO.

7
19. Verification of the Fund Utilization Reports (FUR) prepared by the proponent
group and verified correct by the LGU Municipal Accountant for the liquidation of
the PRDP funds received by the LGU from DA- PRDP for the implementation of
the project UGMAD Native Chicken Production and Marketing disclosed that out
of the total funds of P773,365.00 downloaded by PSO, the amount of P73,020.70
was already outstanding and due for liquidation as of April 2020.

20. The I-Reap Head/Municipal Agriculturist of the LGU explained that the FUR for
the balance of the fund was not yet submitted by the Proponent Group. The
representatives from the Proponent Group, the UGMAD President, PG Manager
and the Treasurer when interviewed about the delay on the liquidation of the said
balance told the Audit Team that the total amount released to them by the LGU was
only P772,365.00 and the balance of P73,020.70 is still subject for preparation of
FUR. The amount of P21,000.00 is currently in their depository bank for return to
the LGU, however, the P52,020.70 was utilized by them for transportation
expenses in the procurement of native chicken and other items per work and
financial plan.

21. It should be noted, however, that as indicated in Schedule 3 or Estimated Sub-

Project Cost of the IMA, transportation/delivery cost shall be shouldered by the
proponent group as part of its 20% Equity and this can not be charged from the LP,
GoP and MLGU Equities.

22. Review of the timelines set per Schedule 5 or the Implementation Plan in the IMA
revealed the following activities and target period which should have been followed
by the LGU and the PG in the implementation of the subproject.

Activities Target Period Actual

Implementation
I. Preparation Phase
a) Submission of Letter of January to June 2017
Intent
b) SB Resolution authorizing
the LCE to sign IMA
c) Submission of Project Imp. January to
Plan September 2017
and other documents for
IMA approval
d) Approval & signing of
IMA
e) SP passed Appropriation
Ordinance
f) Request for the issuance of
Certificate of Availability
of Funds (CAF)

II. Enterprise Implementation

8
 Activities Target Period Actual
Implementation
Phase
-Financial Aspect July to December
a) LGU deposit equity 2017 August 2018 to
equivalent to 100% of the
equity share of enterprise August 2019
investment cost
b) LGU request for the initial
release of funds
c) Full payment of Enterprise
Investment cost

-Enterprise Implementation
a) Signing of Enterprise January to December Date not clear
Investment Agreement 2017
b) Proponent Group provide
20% Equity Share for the
enterprise
c) Enterprise Implementation
d) LGU Final Inspection Not yet done
e) Completion and Issuance of Not yet done
Certificate of Completion

III. Post Enterprise

Implementation Phase
a) Preparation of subproject November to Not yet done
completion report December 2018
b) Closing of LGU accounts Not yet done

23. In our validation, all of the items reflected in the Work and Financial Plan were
already procured by the PG as of April 2020. The LGU I Reap in charge told the
Audit Team that they have already conducted the final inspection of the project and
found it to be operational despite some noted deficiencies. However, the LGU Final
Inspection Report was not prepared for verification by the Audit Team. Also, no
Certificate of Completion was issued because she said they were waiting for the
FUR and the return of the balance of P73,020.70 by the PG.

24. Also, it was noted that the last release of the fund to the PG was made by the LGU
on August 2019 but the sub-project Completion Report which is due for submission
within six months after the last release of the funds or not later than January 2020
was not yet prepared.

9
25. Hence, non-adherence with the prescribed timelines on the preparation and
submission of completion reports for the PRDP project and the delay in the
liquidation of funds to the Department of Agriculture overstated the Due to NGAs
account, while, the unreturned funds from the PG could have augmented the PRDP
funds for other much needed subprojects of the government. Also, it could deprive
the LGU of additional release of funds for other identified subprojects for its
constituents.

26. We recommended that the Municipal Mayor direct the I- Reap In charge to
demand immediately from the Proponent Group the full refund of the amount
of P73,020.70 to the LGU so that full liquidation of the PRDP fund shall be
prepared for submission to the DA-PRDP.

27. We also recommended that the Municipal Accountant verify the FUR
prepared by the I- Reap In Charge so proper closing of the Due to NGAs
account could be done.

28. Lastly, we recommended that the I-Reap In charge prepare and submit
immediately to the DA-PRDP Regional Office the Sub-Project Completion
Report as required in the IMA.

29. During the exit conference, the LGU I -Reap In charge reiterated her justification
that she had been demanding from the PG to return to the LGU the remaining
unused amount of the fund so the latter can also make full liquidation of the fund
to the DA-PRDP.

30. The PG representatives also committed to return the amount of P73,020.70 as soon
as possible.

31. It was also agreed that the I-Reap In charge prepare and submit to DA-PRDP the
Sub-Project Completion Report as required in the IMA.

32. Maintenance of accounts and records for the subproject operations was not
strictly enforced by the LGU to the Proponent Group contrary to the
provisions in the Enterprise Investment Agreement (EIA) hence impairing the
full attainment of the objective of the subprojects funded by DA-PRDP.

33. Pertinent provisions of Article IV in the Enterprise Investment Agreement

entered into by the LGU and the Proponent Group named United and Genuine
Mahayag Farmer’s Association for Development (UGMAD) includes the
following:
10
 (a.) Maintain a financial management system and prepare financial statements in
accordance with consistently applied accounting standards acceptable to the
Bank, both in a manner adequate to reflect the operations and financial
condition of the participating PG;
(b.)Establish and maintain accounts and books for the Enterprise, reflecting all
expenditures and on withdrawals requested and received from the LGU on the
basis of the Statement of Receipts and Expenditures (SRE);
(c.) Retain, until ten (10) years after the closing date, all records, evidencing the
expenditures and payments on the accounts of the Enterprise, and enable the
DA and LGU representatives to examine such records;
(d.)Have its financial statements for the project referred to above audited by
independent auditors in accordance with consistently applied auditing
standards acceptable to the Bank, NPCO, PSO, and LGU. Each audit of the
financial statements shall cover the period of one (1) calendar year of the PG;
(e.) Furnish the LGU thru the MPMIU as soon as possible , but not later than two
months, an original copy of the reports of such audits, of such scope and in
such details as the LGU shall responsibly request;
(f.) Furnish the LGU such other information concerning the said separate accounts,
records and expenditures and the audit thereof as LGU may reasonably request
from time to time.

34. Also, Article V of the same EIA, on Duties and Responsibilities of the LGU,
provides, among others:

(a) Assist the Proponent Group in installing financial records to facilitate proper
disbursement of funds, liquidation and records keeping;
(b) Ensure adherence of the Proponent Group to PRDP processes as provided in
the PRDP Enterprise Development Operations manual.

35. Verification made on the records, reports and books of accounts for the subproject
UGMAD Native Chicken Production and Marketing disclosed that these were not
maintained nor financial statements prepared by the PG contrary to the stipulations
in the EIA. The PG President explained that they cannot afford to pay a
bookkeeper to do the job.

36. It was also noted, upon examination, that the LGU conducted an Inventory of the
number of head of chicken produced by the PG as of December 2020. It reported
60.5 number of kilos as sales. However, verification made from the PG Treasurer
revealed no official receipt was issued for the share of the PG out of the sales
proceeds equivalent to P20 pesos per kilo of sales or P1,210.00. The Treasurer
explained that he has not yet collected the PG share from the individual member.
Hence no record of Sales was available with the PG Treasurer which should have
been reported in the financial statements.

37. The EIA clearly stipulates that the LGU shall, on behalf of National Project
Coordination Office (NPCO), Project Support Office (PSO) and Regional Project
11
 Coordination Office (RPCO) undertake overall monitoring and evaluation of the
performance of the PG in carrying out the task, responsibilities and obligations set
forth in the Agreement.

38. Hence, non-adherence by the PG of the provisions in the EIA especially on the
keeping of records and accounts and preparation of the financial statements and
such other violations in the Agreement should be reported in writing to the NPCO,
PSO and RPCO for proper action.

39. We recommended that the Municipal Mayor direct the I-Reap In-Charge to
enforce on the PG the keeping of records, accounts and preparation of the
financial statements for the enterprise, otherwise, continued non-adherence to
the requirements in the EIA should be reported in writing to the DA-PRDP
for proper action by the latter.

40. In the exit conference, it was agreed that the Bookkeeper of the LGU will assist the
PG in the maintenance of books of accounts and preparation of the financial
statements.

12
 IV. STATUS OF IMPLEMENTATION OF PRIOR YEARS’ AUDIT
RECOMMENDATIONS

41. Of the 9 audit recommendations embodied in the prior years’ Annual Audit
Reports, 2 were implemented, 7 were partially implemented and 33 were not
implemented.

Recommendati Management Status of

Reference Observation
on Action Implementation
Due to delay in We
processing of recommended
documents by that the Local
the Proponent Chief Executive
Group (PG) and direct the
the scarcity of PPMIU I-REAP
supply of live Component
chickens in the Head to:
locality, the Not
targeted a.)monitor Monitoring was Implemented
completion closely and done but not so
period of the weekly the closely because
Subproject: operations of of other
Native Chicken UGMAD responsibilities
Production and Association of that need to be
Marketing, with its project on attended to by
enterprise cost Native Chicken the LGU
of P 773,365.00, Production and representatives.
exclusive of PG Marketing;
equity of b.)assist the PG The LGU Not
P193,500.00, in the effective representatives Implemented
was not attained and proper use can not enforce
thereby delaying of its funds and strictly on the
the delivery of facilities and PG the efficient
benefits to the equipment for use of the
intended the efficient facilities.
recipients. operations of the
Moreover, livelihood
various project;
deficiencies in
the ongoing c.)assist the PG
operations of the with the Not
enterprise pose procurement of Implemented
risk on the full the remaining
attainment of the facilities needed
objectives of the to maximize the
program. purpose of the

13
 Recommendati Management Status of
Reference Observation
on Action Implementation
funds;

d.)require the The PG equity Not

UGMAD still can not be Implemented
officials to quantified and
provide the no records were
required equity maintained by
of the the PG to show
association for their equity for
the project. the project.
Taxes were not We Not
withheld from recommended Implemented
payments for that the
various facilities Municipal
and equipment Accountant
totaling assist the
P525,310.30, in Proponent
violation of Group in the
DOF-DBM and disbursement
COA Joint process in order
Circular 1-2000 to ensure that
dated January 3, appropriate
2000, thus the taxes are
national withheld from
government was payments to
deprived of the suppliers or
income due dealers of goods
therefrom. and facilities
purchased.
Computation of
the taxes to be
deducted from
the gross
payments to
suppliers should
be reflected on
the face of the
disbursement
vouchers and the
corresponding
Certificate of
Withholding
Tax be issued to
the suppliers and
creditors
14
 Recommendati Management Status of
Reference Observation
on Action Implementation
concerned.

The reported We The equipments Not

balances of recommended procured by the Implemented
assets under and the PG for the
Property, Plant Bookkeeper in- enterprise were
and Equipment charge of PRDP already booked
as well as the books of up in the
Inventory accounts agreed General Fund of
account in the to record the the LGU.
Financial equipment
Statements were procured by the
understated due Proponent
to unrecorded Group in the
equipment and sub-project
other structures financial
procured by the statements,
Proponent including the
Group stocks of 474
amounting to P heads of live
282,767.00, and chicken on hand
the produced as of December
474 live 31, 2019 using
chickens on the prevailing
hand with the market price.
PG, contrary to
IPSAS 1, 12, 17
and 27.

The Report of We
Checks Issued recommended
with all paid that the
vouchers and Municipal
documents Accountant:
evidencing the
transactions, a.)assist the PG The PG did not Not
monthly Trial in identifying maintained Implemented
Balances, and resolving records and
yearend the causes of books of
Financial delay and non- accounts. This
Statements and submission of finding is
supporting the mandatory reiterated in this
schedules were financial report.
not submitted statements and
15
 Recommendati Management Status of
Reference Observation
on Action Implementation
within the period its complete
prescribed supporting
ranging from 10 documents/sche
to 60 days, dules to avoid
resulting in penal sanctions,
delayed review and;
of the
transactions and b) submit the
rendition of financial
audit reports. documents and
reports
regarding the
PRDP sub-
project with
properly
accomplished
and complete
supporting
schedules.

The We The LGU I Reap Implemented

Municipality of recommended Incharge
Isabel did not that the Local committed that
notify the public Chief Executive for their future
about the DA- direct the LGU subprojects, they
PRDP I-REAP officials will post the
Sub-project on concerned to required
Native Chicken comply with the information for
Production and mandatory the project.
Marketing, with posting of
project cost of relevant
P773,365.00, information of
through the the implemented
posting of PRDP
relevant and subproject and
complete ensure that all
information on required
signboards, information in
tarpaulins or the project
similar materials signboards or
with about the similar materials
project, within be provided in
the LGU the prescribed
premises or in size that can be
16
 Recommendati Management Status of
Reference Observation
on Action Implementation
the venue where clearly seen by
the project is the public.
located, contrary
to COA Circular
No. 2013-004
dated January
30, 2013 on
Information and
Publicity on
PPAs of
government
agencies.

V. ACKNOWLEDGEMENT

42. We wish to express our appreciation to the management and staff of LGU Isabel,
Leyte, particularly those in charge with the implementation of PRDP I-Reap
subproject, for their cooperation and assistance extended to the Audit Team
during the audit.

43. We request a status report in hard and soft copy on the actions taken on the audit
recommendations within sixty (60) days from the date of receipt hereof, using the
attached Agency Action Plan and Status of Implementation or AAPSI (Annex
H).

44. We also request to be furnished with a copy of the Transmittal Letters to the
Department of Budget and Management, Speaker of the House of
Representatives, President of the Senate of the Philippines, among others, of the
status report on actions taken on the audit findings and recommendations of the
AAPSI and the proof of the report on the agency’s website as prescribed in the
RA 10964.

Very truly yours,

COMMISSION ON AUDIT

By:
WEMIA P. SENO
State Auditor 1V
Supervising Auditor

17
Copy furnished:

The Regional Executive Director, DA-Regional Field Office VIII

The PSO Director, PRDP PSO
The National Project Director, PRDP
The Regional Director, COA Regional Office No. VIII
The Regional Supervising Auditor/Audit Team Leader, PRDP RPCO VIII
The Supervising Auditor/Audit Team Leader, DA FAPs (PRDP NPCO)

Annexes:

A-1 Independent Auditor’s Report-General Purpose Financial Statements (SCP,

CFS and Notes to FS)
A-2 Independent Auditor’s Report – Special Purpose Financial Statements
(SSAF and SRE)
B Statement of Management Responsibility on the Financial Statements and
Reports
C Statement of Financial Position
D Statement of Cash Flows
E Notes to Financial Statements
F Statement of Sources and Application of Funds
G Statement of Receipt and Expenditures
I Agency Action Plan and Status of Implementation

18
 Annex A-1

Republic of the Philippines

COMMISSION ON AUDIT
Regional Office No. VIII
Candahug, Palo, Leyte

INDEPENDENT AUDITOR’S REPORT

Hon. SATURNINO M. MEDINA, Jr.

Municipal Mayor
Isabel, Leyte

Unqualified Opinion

We have audited the financial statements for the Philippine Rural Development
Program (PRDP) I-REAP subprojects of the Municipality of Isabel, Province of Leyte,
which comprise the Statement of Financial Position as of December 31, 2020, and
Statement of Cash Flows and notes to the financial statements including a summary of
significant accounting policies for the year then ended.

In our opinion the accompanying financial statements present fairly, in all material
respects, the financial position of the PRDP I-REAP subprojects of the Municipality of
Isabel, Leyte as at December 31, 2020, and its cash flows for the year then ended in
accordance with International Public Sector Accounting Standards (IPSASs).

We conducted our audit in accordance with the International Standards of Supreme Audit
Institutions (ISSAIs). Our responsibility under those standards are further described in
the Auditor’s Responsibilities for the Audit of the Financial Statements section of our
report. We are independent of the agency in accordance with the ethical requirements
that are relevant to our audit of the financial statements, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our
qualified opinion.

Responsibilities of Management and those Charged with Governance for the Financial
Statements

Management is responsible for the preparation and fair presentation of these financial
statements in accordance with IPSASs and for such internal control as management

19
determines is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.

Those charged with governance are responsible for overseeing the LGU’s financial
reporting process.

Auditor’s Responsibilities for the Audit of Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements
as a whole are free of material misstatement, whether due to fraud or error, and to issue
an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISSAIs will
always detect a material misstatement when it exists. Misstatements can arise from fraud
or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of
these financial statements.

For the Commission On Audit

By:

REINA TERESITA P. JUNTILLA

State Auditor IV
Audit Team Leader

June 8, 2021

Team R8-06,
LGS-C (Leyte II and Biliran Province)
New City Hall, Ormoc City, Leyte

20
 Annex A-2

Republic of the Philippines

COMMISSION ON AUDIT
Regional Office No. VIII
Candahug, Palo, Leyte

INDEPENDENT AUDITOR’S REPORT

Hon. SATURNINO M. MEDINA, Jr.

Municipal Mayor
Isabel, Leyte

Unqualified Opinion

Pursuant to Schedule 2, Section 2.B (3) of the Loan Agreement between the International
Bank for Reconstruction and Development (IBRD) and the Republic of the Philippines,
IBRD Loan No. 8421-PH for the Philippine Rural Development Program (PRDP) I-
REAP subprojects of the Municipality of Isabel, Province of Leyte, we have audited the
Statement of Sources and Application of Funds and Statement of Receipts and
Expenditures as of December 31, 2020.

In our opinion the accompanying financial statements present fairly, in all material
respects, the receipt and utilization of funds and the financial condition of the PRDP I-
REAP subproject of the Municipality of Isabel as of December 31, 2020, in accordance
with applicable laws and regulations and in conformity with International Public Sector
Accounting Standards (IPSASs).

We conducted our audit in accordance with International Standards of Supreme Audit

Institutions (ISSAIs). Our responsibility under those standards are further described in
the Auditor’s Responsibilities for the Audit of the Financial Statements section of our
report. We are independent of the agency in accordance with the ethical requirements
that are relevant to our audit of the financial statements, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.

Responsibilities of Management and those Charged with Governance for the Financial
Statements

Management is responsible for the preparation and fair presentation of these financial
statements in accordance with IPSASs and for such internal control as management

21
determines it necessary to enable the preparation of financial statements that are free
from material misstatements, whether due to fraud or error.

Those charged with governance are responsible for overseeing the LGU’s financial
reporting process.

Auditor’s Responsibilities for the Audit of Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements
as a whole are free of material misstatement, whether due to fraud or error, and to issue
an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISSAIs will
always detect a material misstatement when it exists. Misstatements can arise from fraud
or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of
these financial statements.

For the Commission On Audit

By:

REINA TERESITA P. JUNTILLA

State Auditor IV
Audit Team Leader

June 8, 2021

Team R8-06,
LGS-C (Leyte II and Biliran Province)
New City Hall, Ormoc City, Leyte

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 Annex B

SMR

23
 Annex C

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 Annex D

Municipality of Isabel
Philippine Rural Development Project

Cash Flow Statement

For the Quarter Ending December 31, 2020

Notes 2020 2019

Cash Flows from Operating Activities
Cash Inflows
Collection from taxpayers
Share from Internal Revenue Allotment
Receipts from business/service income
Interest Income
Dividend Income
Other Receipts
Total Cash Inflows - -
Cash Outflows
Payment of expenses
Payments to suppliers and creditors
Payments to employees
Interest Expense
Other Expenses
Total Cash Outflows - -
Net Cash Flows from Operating Activities - -
Cash Flows from Investing Activities
Cash Inflows
Proceeds from Sale of Investment Property
Proceeds from Sale/Disposal of Property, Plant
and Equipment
Proceeds from Sale of Non-Current Investments
Collection of Principal on loans to other entities
Total Cash Inflows
Cash Outflows
Purchase/Construction of Investment Property

Purchase/Construction of Property, Plant and

Equipment
Investment
Total Cash Outflows - -
Net Cash Flows from Investing Activities - -
Cash Flows from Financing Activities
Cash Inflows
Proceeds from Issuance of Bonds
Proceeds from Loans
Receipt of Equity Counterpart - 487.23
Receipt of GOP Counterpart - 33,340.23
Receipt of Loan Proceed - 99,969.14
Total Cash Inflows - 133,796.60

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 Notes 2020 2019

Cash Outflows
Payment of Long-Term Liabilities
Retirement/Redemption of debt securities
Disallowances/Charges 4,800.00
Payment of loan amortization
Transfer of Fund - Equity to UGMAD - 155,173.46
Transfer of Fund - GOP to UGMAD - 155,773.00
Transfer of Fund - LP to UGMAD - 464,919.00
Total Cash Outflows 4,800.00 775,865.46
Net Cash Flows from Financing Activities (4,800.00) (642,068.86)
Total Cash Provided by Operating, Investing and
Financing Activities (4,800.00) (642,068.86)
Add: Cash at the Beginning of the year 38,275.34 680,344.20
Cash Balance at the End of the Year 33,475.34 38,275.34

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 Annex E

Republic of the Philippines

Province of Leyte

Municipality of Isabel

NOTES TO FINANCIAL STATEMENTS

PHILIPPINE RURAL DEVELOPMENT PROJECT (PRDP)

Note 1. GENERAL AGENCY PROFILE

Philippine Rural Development Project (PRDP) is a poverty – reduction and

agriculture and fisheries development program of the Department of Agriculture (DA)
that aims to increase rural incomes and enhance farm and fishery productivity in the
targeted areas in the Philippines.

The PRDP is jointly funded by the national government, local government units
(LGUs), beneficiaries and the International Bank for Reconstruction and Development
(IBRD). The DA has implemented Adaptable Program Loan (APL) for the Mindanao Rural
Development Project (MRDP) conducted from 2000 to 2012 initiated approaches and
processes in engaging rural communities, local government units (LGUs), and national
government agencies in planning, designing and implementing rural development
projects. The said APL triggered improvements in incomes and food security of
households through better-targeted and sustainable agriculture and fisheries – related
rural development and marine biodiversity conservation projects as well as enhanced
LGU institutional technical, management and financial capabilities and systems.

The DA has designed PRDP as one of the platforms for achieving the Philippine
Government’s Millennium Development Goal for sustainable development.

Note 2 - The financial statements of the PRDP have been prepared in accordance with and
comply with the New Government Accounting Systems (NGAS). The consolidated
financial statements are presented in pesos, which is the functional and reporting
currency of the PRDP and all values are rounded to nearest thousand (P000). The
accounting policies have been applied starting the year 2018.
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Note 3 - Summary of significant accounting policies

3.1 Basis of accounting

The [consolidated] financial statements are prepared on an accrual basis in

accordance with the New Government Accounting Systems (NGAS).

3.2 Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and cash at bank, deposits on
call and highly liquid investments with an original maturity of three months or
less, which are readily convertible to known amounts of cash and are subject to
insignificant risk of changes in value. For the purpose of the consolidated
statement of cash flows, cash and cash equivalents consist of cash and short-
term deposits as defined above, net of outstanding bank overdrafts.

Note 4 – Cash and Cash Equivalents 2020 2019

Cash on Hand

Cash – Local Treasury -

-

Cash In Bank – Local Currency

Cash in Bank – Local Currency-Current Account 33,475.34 38,275.34

Total Cash and Cash Equivalent 33,475.34 38,275.34

Cash in banks earns interest based on the prevailing bank deposit rates. Short-term deposits are
made for varying periods, depending on the immediate cash requirements of the PRDP and earn
interest at the respective short-term deposit rate.

Note 5 – Receivables

Inter-Agency Receivables 2020 2019

Receivables-Disallowances/Charges 6,200.46 0.00

Due from NGOs/POs 73,020.70 73,570.70

Total 79,221.16 73,570.70

Transfers from other government agencies represent those funds received for specific projects
undertaken by the LGU for specific purpose. These funds were received on the basis of the
project budgets submitted. Accordingly, the LGU is contractually bound to spend these funds
only in connection with the projects. Furthermore, the contracts stipulate that the funds
received for the project may only be applied to the costs incurred for the project, as to when the

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phases of the project are certified as complete. The conditions remaining therefore represent
phases of the projects that are yet to be certified as complete. Returned of the unspent portion
of the fund is subject to the conditions stated in the respective Memorandum of Agreement
executed between the LGU and the proponent government agencies.

Note 6 – Liabilities

Inter-Agency Payables 2020 2019

Due to NGAs 58,091.90 58,531.90

Total 58,091.90 58,531.90

2020 2019

Intra-Agency Payables

Due to Other Funds 54,604.60 54,714.60

Total 54,604.60 54,714.60

The two accounts represents balances of funds received from the PRDP to LGU for UGMAD
for specific purposes.

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 Annex F
Republic of the Philippines
Municipal Government of__Isabel_________

Philippine Rural Development Project

UGMAD MAHAYAG NATIVE CHICKEN PRODUCTION AND MARKETING

State me nt of Source s and Application of Funds (SSAF)

For the year Ended December 31, 2020

Loan Proce e ds GOP Counte rpart LGU EQUITY Total

Financing Mix 80.00% 20.00% 20.00% 100.00%

, Contract Cost 464,019.00 154,673.00 154,673.00 773,365.00

Be ginning Balance 600.00 200.00 200.00 1,000.00
ADD: Re ce ipts
January
February
March
April
May
June
July
August
September
October
November
December
Total Re ce ipts - - - -

Total Funds Available 600.00 200.00 200.00 1,000.00

LESS: Expe nditure s
January - - - -
February - - - -
March - - - -
April - - - -
May - - - -
June - - - -
July - - - -
August - - - -
September - - - -
October - - - -
November - - - -
December - - - -
Total Expe nditure s - - - -

Ending balance , De ce mbe r 31, 2020 600.00 200.00 200.00 1,000.00

Cumulative Summary:
Total Receipts 600.00 200.00 200.00 1,000.00
Total Expenditures - - - -
Balance 600.00 200.00 200.00 1,000.00

Annex G

30
 Re public of the Philippine s
Municipality of Isabel
Philippine Rural De ve lopme nt Proje ct
UGMAD Mahayag Native Chicke n Production and Marke ting

State me nt of Re ce ipts and Expe nditure s

For the Month Ende d De ce mbe r 31, 2020
SRE No. 2020-012
Percentage of Completion -100%

Loan Proce e ds GOP Counte rpart LGU Equity Total

Financing Mix 60.00% 20.00% 20.00% 100.00%
Contract Cost 464,019.00 154,673.00 154,673.00 773,365.00

Be ginning balance , Nove mbe r 30, 2020 790.31 269.96 312.23 1,372.50

ADD: Re ce ipts

DV No./ JEV No.

Date Particulars Che ck No.

Total Re ce ipts - - - -

Total Funds Available 790.31 269.96 312.23 1,372.50

LESS: Expe nditure s

Total Expe nditure s - - - -

Ending balance , De ce mbe r 31, 2020 790.31 269.96 312.23 1,372.50

Cumulative Summary:
Total Receipts 464,019.00 154,673.00 154,673.00 773,365.00
Total Expenditures: 463,419.00 154,473.00 154,473.00 772,365.00
Balance 600.00 200.00 200.00 1,000.00

Annex H

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 Municipality of Isabel
Province of Leyte

AGENCY ACTION PLAN and STATUS OF IMPLEMENTATION

Audit Observations and Recommendations
As of December 31, 2020

Ref. Audit Audit Agency Action Plan Status of Reason for Action
Observa Recom- Action Person/ Target Implemen- Partial/ Taken/
tions mendations Plan Dept. Implementation tation Delay/Non Action
Implemen- To be
Responsible Date
tation Taken
From To

Agency Sign-off Date __________________

________________________________
Municipal Mayor

Note: Status of Implementation may either be (a) Fully Implemented, (b) On-going, (c) Not Implemented,
(d) Partially Implemented, or (e) Delayed

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