EXECUTIVE SUMMARY

The Municipality of Dumanjug, Cebu has been classified as a third (3rd) class
Municipality based on the latest classification of municipalities issued by the
Department of Finance.
Pursuant to RA No. 7160, otherwise known as the Local Government Code of
1991, the Municipality, like other local government units, enjoys total
independence in managing, deciding, and planning its own administrative, fiscal
and development affairs in conformity with the national governments thrust for
sustainable social and economic growth.
During the year, the agency realized a total income of P71,579,753.27 derived
from its share of the Internal Revenue Allotment, collections of realty and
business taxes, other taxes and licenses which showed an increase of 11.45%
as compared to last years income of P64,225,453.71. Expenses for personal
services amounted to P31,803,058.31 which is 7.87% higher than that of last
year of P29,482,383.71. Maintenance and other operating expenses had also
increased by 9.77% from P23,583,999.70 in CY 2009 to P25,888,170.99 in CY
2010.
It has also implemented several infrastructure projects mostly financed from
financial assistance received from the national government and the provincial
government of Cebu based on the report submitted to us as of December 31,
2010. (Annex 3).
SCOPE OF AUDIT
An audit was conducted on the accounts and operations of the Municipality of
Dumanjug, Cebu for the calendar year ended December 31, 2010. The audit was
made to ascertain the regularity of disbursements, the reliability of financial
reports and the adequacy of accounting records.
OPINION IN THE STATE AUDITORS REPORT ON THE FINANCIAL
STATEMENTS
The auditor rendered a qualified opinion on the financial statements due to the
non-recording of parcels of land with total market value of P58,783,037.06 and
assessed value of P9,453,090.00, registered in the name of the Municipality per
Assessors records, and non-provision of allowance for depreciation on assets
costing P41,029,045.94, constituting 47.8% of total depreciable assets of
P85,844,001.74. Moreover, both cash in bank and current liabilities were
understated by P1,635,672.20 due to the non-reversion of unreleased and stale
checks at year end.

SUMMARY OF SIGNIFICANT FINDINGS AND RECOMMENDATIONS

The following are
recommendations:

the

significant

findings

and

the

corresponding

1. Errors/deficiencies committed in recording/accounting for Property, Plant

and Equipment (PPE) resulted in the misstatement by an undetermined
amount of net PPE stated at P69,301,622.09:
a) Twenty-eight parcels of land, registered in the name of the LGU per
Declaration of Property on file with the Municipal Assessors Office,
were not recorded in the books, resulting to the substantial
understatement of the Land account.
b) Net Property, Plant and Equipment was overstated by an
undetermined amount due to the non-provision of allowance for
depreciation for several properties costing P41,029,045.94, which
is 47.8% of total depreciable assets.
c) Unserviceable properties with a total cost of P3,778,990.00 and
book value of P2,169,795.97 were not reclassified to Other Assets
account, thereby overstating the PPE account balance.
d) Unreconciled/unaccounted difference of P1,673,812.89 obtaining
between the balance per general ledger and the totals per inventory
report rendered unreliable the PPE account balance.
e) Construction in Progress-Agency Assets (Acct. 264) under the
Trust Fund totaling P2,182,765.50 were not reclassified to the
proper PPE account albeit the projects were already completed and
used in operations, thus no allowance for depreciation was
provided for these assets thereby overstating net PPE.
In view of the foregoing, we recommend the following:

Management should coordinate with the proper government

agencies to secure the titling of the lots in the name of the LGU,
and undertake an appraisal of these properties so that their
appraised value can be recorded in the books of accounts.

The Municipal Accountant should review and compute in

accordance with the guidelines in the NGAS Manual the correct
balance of the Accumulated Depreciation that should have been

recorded in the books taking into consideration the dates of

acquisition and estimated useful lives of the assets. The computed
deficiency in the recorded accumulated depreciation as compared
to the total amount that should have been provided as of CY 2010,
should be recorded as Prior Years Adjustment. Henceforth,
consistency should be observed in computing for accumulated
depreciation.

The Property Officer should prepare the Inventory and Inspection

Report of all identified unserviceable properties and facilitate their
immediate disposal to prevent further deterioration and decrease in
salvage values. The Municipal Accountant should effect the
necessary adjustment in the PPE account to reclassify the book
value of unserviceable properties to Other Assets account pending
disposal and close the corresponding Accumulated Depreciation, if
any was provided.

The Accounting and Property section should reconcile their records

on PPE and investigate the causes of discrepancies so that these
can be disposed of accordingly. Henceforth, this activity should be
performed on a regular basis.

The municipal accountant should coordinate with the engineering

department and secure the necessary documents to support the
journal entry voucher which should be drawn to reclassify the asset
to the proper PPE account. He should further compute the correct
depreciation charges that should have been provided, and make
the necessary adjustment in the books of accounts.

2. Funds received as financial assistance for certain programs/projects were

not liquidated despite completion/attainment of the intended purpose,
resulting in substantial balances of the accounts, Due to NGAs and Due to
LGUs under the Trust Fund. The ledger balance of Due to NGAs totaling
P5,673,685.17, represented funds received as financial assistance while
P8,271,280.41 or 93% of the ledger balance of P8,901,203.73 of Due to
LGUs, was also of this nature.
We recommend that management should immediately liquidate trust funds
received, once their purposes had been accomplished or served. They
should refrain from using trust funds for purposes other than those for which
these were intended and instead return funds received in trust, which are no
longer needed.
3. Payment of CNA Bonus for CY 2009 exceeded the savings from released
MOOE allotments, in violation of the guidelines set under Budget Circular

No. 2006-1 dated February 1, 2006, thus resulting in irregular/excessive

disbursement of funds amounting P1,019,635.09.
We recommend that all recipients of the CNA bonus should proportionately
refund the excess amounts collected. Management should ensure that any
future payments for CNA should conform with existing guidelines in order to
avoid disallowances in audit.
4. Non-obligation of cash advances and delayed liquidation thereof, resulted in
unobligated/ unliquidated cash advances totaling P2,911,935.85 and
prompted the Accountant to charge prior years expenses worth
P288,136.55 to current year allotments/operations in violation of Section
119 of P.D. 1445. Consequently, computed savings in allotments were
inaccurate and current years result of operations was overstated.
We recommend the following:

The budget officer should be instructed to always obligate all cash

advances granted. She should stop the practice of obligating cash
advances only upon liquidation and from charging the expenses to
current year allotments.
Management should exercise more prudence in spending so that
savings can be generated to cover for other necessary expenditures of
the Municipality for its effective and efficient operations.
All officials and employees should be required to liquidate their cash
advances at the end of the year or once the purpose of which had
been served.
The accountant should record all expenditures in the year these were
incurred in order to correctly present the results of operations for that
particular year.

5. Savings deposit of the Municipality maintained with the Rural Bank of Barili,
Inc., a private bank, exceeded the P500,000.00 maximum insurance
coverage of the Philippine Deposit Insurance Corporation thereby exposing
public funds to possible risk in case of bank closure or bankruptcy.
We recommend that management must keep the level of its deposits at
RBBI within the insurance coverage limit of the PDIC to protect its funds
from risks of loss. Accumulated deposits should be transferred to the LBP
account once these exceed the insurance coverage. Encashment of checks
from the savings deposits should be discouraged and disbursements should
be made only through the current account. In order to avoid the risk involved
in encashing checks from the LBP account, cash advance checks for payroll
or MOOE should be drawn and deposited earlier to allow enough time for
clearing before these can be withdrawn or credited to the individual
employees savings accounts maintained at the RBBI.

6. Unreleased checks and stale checks totaling P1,599,239.26 and P36,432.94

respectively, were not restored to the Cash in Bank-LCCA and appropriate
liability accounts as of year end, contrary to what is required under COA
GAFMIS Circular Letter No. 2002-001, thereby resulting in the
understatement of both Cash in Bank-LCCA and liability accounts by the
same amount.
Henceforth, the bookkeeper should revert to the proper cash and liability
accounts before the year end closing of the books, the amount
corresponding to the unreleased checks and stale checks in compliance
with COA GAFMIS Circular Letter No. 2002-001 to reflect the correct
account balances in the financial statements.
7. Funds amounting P1,850,000.00 transferred through the Liga ng mga
Barangay of Dumanjug, intended as financial assistance to all barangays for
their Clean and Green Program, were recorded outright as expense
(Subsidy to LGUs) instead of as a receivable account subject to liquidation
(Due from LGUs), thereby overstating expenses and understating assets
and reported net income.
We recommend that the Municipal Accountant should prepare an adjusting
entry to recognize the receivable account from the Liga ng mga Barangay
and demand for the submission of liquidation reports as basis for closing the
receivable account. The barangay bookkeepers should also be advised to
record the financial assistance as a trust liability in the barangay books.
8. Loan from the Presidents Social Fund with a principal amount of
P1,000,000.00 and accrued interest amounting P187,500.00 was not paid
despite the maturity of the loan on November 1, 2009, in violation of the
provisions of the Memorandum of Agreement, thus exposing the LGU to
unnecessary liability in terms of penalties and damages arising from the
default.
We recommend that management should immediately fully settle the loan in
order to avoid the possible imposition of additional penalties that may result
from breach of the agreement due to non-payment or settlement of the loan.
9. A total of 296 bags of Portland cement costing P74,592.00, intended for the
construction of the Sima-Looc drainage system, was wasted due to the
suspension of the project owing to the opposition of the residents in the
area.
We recommend that management should investigate the reasons for the
opposition in order to settle the issue in due time and come up with a
solution to the problem of flooding in the locality. It should also re-evaluate

the project necessity or consider alternative measures in order to prevent

further deterioration of the procured materials that are still usable.
Henceforth, management should observe proper planning, including the
necessary prior consultation with residents in the area, in respect of any
project to be prosecuted in order to prevent waste or loss of public funds.
10. Payment for several procurements totaling P1,598,235.44 were made
through reimbursement basis to individual officials instead of making checks
directly payable to the suppliers in compliance with Section 93 of P.D. 1445,
thus depriving the government from withholding the 2% creditable income
tax prescribed under Revenue Regulation No. 17-2003 issued on May 6,
2003.
We recommend that management should adhere to the regulation requiring
checks drawn to be made payable directly to the creditor. The practice of
buying supplies on reimbursement basis to officials and employees should
be stopped and the correct amount of taxes should be withheld as required
under existing regulations.

STATUS
OF
IMPLEMENTATION
RECOMMENDATIONS

OF

PRIOR

YEARS

AUDIT

Of the 15 recommendations contained in our prior years Annual Audit Reports,

six (6) were implemented, four (4) were partially implemented and five (5) were
not implemented at all.