Republic of the Philippines

COMMISSION ON AUDIT
OFFICE OF THE AUDITOR
Team No. 29 Audit Group D
Local Government Sector
Diplahan, Zamboanga Sibugay

AUDIT OBSERVATION MEMORANDUM

AOM No.:2013-001 (2010-2012)

June 21, 2013

For

:Hon. JERRY R. LAGAS

Punong Barangay
Barangay Poblacion
Buug, Zamboanga Sibugay
Attention: Dolores D. Montero
Barangay Treasurer

We have audited the Calendar Year 2010-2012 accounts and operations of the Barangay
Poblacion, Buug, Zamboanga Sibugay and observed the following deficiencies/errors:
Observation No. 1

Non-provision of Depreciation of Property Plant and Equipment amounting P6,387,383.20

as of December 31, 2012.
New Government Accounting System (NGAS) provide among others Accumulated
Depreciation - Accumulation of systematic and rational allocation of the cost/value of property,
plant and equipment due to wear, tear and usage (accounts 302-326) and Depreciation expense
- the periodic allocation of cost for the wear and tear of property, plant and equipment (PPE)
used in operations (accounts 902-926).
COA Circular No. 2003-007 dated December 11, 2003 provides that The straight line method
of computing the depreciation for government property, plant and equipment shall be adopted;
3.0 For uniformity in the application of useful life and simplification in its computation, the
Estimated Useful Life of PPE by classification are presented as Annex A of this Circular; 4.0 A
residual value of equivalent to ten percent (10%) of the acquisition cost/appraised value shall be
deducted before dividing the same by the estimated useful life; 5.0 Any adjustment arising from
the reversion of useful life shall be charged against Prior Years Adjustments ...xx
Examination and audit of accounts disclosed that management failed to provide for the periodic
depreciation and the corresponding accumulated depreciation of its PPE accounts, thereby
overstating the net operating income, total assets and government equity accounts.
Further verification revealed that the Municipal Accountant could not compute the depreciation
expense and accumulated depreciation due to the failure of the barangay officials to submit the
CY 2012 PPE inventory which will serve as the basis in preparing Lapsing Schedule of
Depreciation of PPE.
Recommendation
The Punong barangay and other concerned barangay officials should submit to the Municipal
Accountant Office the report physical inventory as of December 31, 2012 and every end of the
year thereafter in order for the latter to prepare the lapsing schedule of depreciation of PPE and
adjust the books as well.

Observation No.2
Various unserviceable assets and beyond economical repair Property Plant and Equipment
(PPE) were not reclassified to Other Assets account.
New Government Accounting System (NGAS) Chapter I Letter P- Reclassification of Obsolete
and Unserviceable Assets, as well as no Longer used by the Agency to Other Assets Account.
Assets declared by proper authorities as obsolete and unserviceable including assets of the
agency no longer used, shall be reclassified to Other Assets account from the corresponding
inventory and property, plant and equipment accounts.
Section 79 of PD 1445 provides that when government property has become unserviceable for
any cause, or is no longer needed, it shall, upon application of the officer accountable therefor, be
inspected by the head of agency or his duly authorized representative in the presence of the
auditor concerned and if found to be valueless or unusable, it may be destroyed in their presence
and if found to be valuable, it may be sold at a public auction to the highest bidder under the
supervision of the proper committee on award or similar body in the presence of the auditor
concerned or other duly authorized representative of the Commission, xxx In the event of public
action fails, the property may be sold at a private sale at such as may be fixed by the same
committee or body concerned xxx.
Paragraph 67 of PAS 16 provides that xxx the carrying amount of an item of property plant and
equipment shall be derecognized: a) on disposal or b) when no future economic benefits are
expected from its use or disposal xxx. In addition, accumulation of unserviceable, no longer
needed or obsolete properties unnecessary increases costs of maintaining them and/or use up
needed storage space/s.
In our inspection of PPE and inventory report, we noted that various property and equipments
amounting P 1,601,16085 are identified as unserviceable and beyond economical repair were still
in their records. These PPEs are located in the premises of the barangay hall building and
elsewhere in barangay Poblacion, Buug, Zamboanga Sibugay waiting for proper disposal
proceedings.
The failure of the management to reclassify the said equipment to other assets will overstate the
particular PPE account and understate the other asset account. The unserviceable asset if sold
will generate income for its operation and the space which is presently used can be utilized for
other PPE.
Recommendation
Reclassify the unserviceable PPE to other Assets Account to comply with regulation, by so doing
management will be able to monitor assets which are to be disposed or awaiting disposal. The
Punong Barangay thru the Sangunian should constitute a committee, pursuant to Section 79 of
PD 1445 to undertake prescribed disposal proceedings for the above mentioned unserviceable
properties and other properties of the barangay that need to be disposed to minimize maintenance
expense and so that the carrying costs of these assets can already be derecognized/dropped from
the books so that corresponding asset accounts will be fairly presented.
Observation No. 3
Property Plant and Equipment-Land amounting P 50,000.00 were not titled to prove
evidence of ownership.
Management Assertion over assets includes Rights and Obligations which dictates that the
entity should possess and maintain valid and legal evidence and documents to prove its rights
and ownership over the properties booked-up in its Books of Accounts and Financial Statements.
And among these documents is the Transfer Certificate of Title (TCT) which is the ultimate
proof of absolute ownership to a real property, particularly Land.

In our audit of the Barangay Poblacion, Buug Municipality accounts, particularly PPE-Land and
Land Improvements amounting P50,500.00. with an area of 1,418 square meters, we have noted
that the subject land is not yet titled in the name of the Barangay. The barangay possessed only a
copy of a Deed of Donation, subdivision plan and tax declaration as evidence of ownership of
the land.
The failure of the barangay officials by not titling the real property it claims to own may result to
losing its legal right/ownership to the property/s if not acted promptly especially if the heirs will
contest the transaction in court.
Recommendation
The Barangay Officials should secure the pertinent documents and process the titling of the land
to prove claims of ownership on the real property-Land to safeguard government interest. Also, a
budget should be allocated for the expenses in titling the property.
Observation No. 4
Unexpended/unobligated balance of Quick Response Fund (QRF) and Local Disaster Risk
Reduction Management Fund (LDRRMF) amounting P 293,783.35 are not transfered to
the Special Trust Fund.
COA Circular No.2012-002 dated September 12, 2012 provide among others that all
unexpended/unobligated balance of the Quick Response Fund (QRF) and Local Disaster Risk
Reduction Management Fund LDRRMF-MOOE shall be transfered to the Special Trust Fund
under the account Trust Liability-DRRM (Code 438) in the trust fund books.
During the year, the LDRRMF of the Barangay Poblacion are utilized as follows:

Examination and verification thereof revealed that the subject unexpended/unobligated balance
of LDRRMF are not separated from the General Fund thereby violating the above-cited
regulation.
Recommendation
Require the Punong Barangay and the Barangay Treasurer to open a separate bank account
purposely for LDRRMF only.
Observation No.5
Some disbursements were not properly supported with the required documents and other
evidences to establish the validity and correctness of the claims.
Sec.168, Volume I of the Government Accounting and Auditing Manual (GAAM) requires,
among others that disbursements/expenditures shall be (a) duly approved by the head of office
or his duly authorized representative; and (b) supported with documents and other evidences to
establish the validity and correctness of the claim for payments.
Sec. 4(6) PD 1445 state that claims against the governmrnt funds shall be suppoted with
complete documentation.

Audit of disbursement vouchers and liquidation documents of cash advances from Janaury 2011
to December 2012 revealed that:
Claims for taveling expenses are not supported with used Bus/Van Tickets. Bus Tickets is the
proof that claimants taking a public utility vehicle (PUV) during the travel, however it was
observed that most of the travel claims within Zamboanga Peninsula were not supported PUV
tickets, allegedly claimants are taking passenger vans which mostly do n t issue tickets, thereby ,
no proofs that claimant have actually taken a PUB.
Purchases of equipments, supplies and materials and Semi-expendable supplies/equipments are
not supported with Acknowledge Receipt of Equipment (ARE), Requisition and Issuance Slip
(RIS) and Inventory Custodian Slip (ICS), as the case maybe, to prove the receipt of the thereof
by the respective end-users.
Payments of contract of services for cultural and sports activities are not supported with
accomplishment report, photos and such other proofs that the activies are altually undertaken and
done.
The validity and legality of claims or Disbursement Vouchers (DV) are doubtful if these DVs do
not have the required supporting documents.
Recommendation
a. Appropriate supporting documents should be attached to the respective DVs such as:
Official Receipt (OR)/ Acknowledgement Receipt/RER to acknowledge receipt of
payments
Requisition and Issuance Slip (RIS), Inventory Custodian Slip (ICS)
Acknowledgement Receipt of Equipment (ARE) - to acknowledge receipt of
equipment, supplies and materials by the end user thereof.
Attendance Sheets, photos -Proofs that the activity has been undertaken, (assembly,
cultural and sports activities, etc.
PUB Tickets -proofs that the claimant has actually taking Public Utility bus or van as a
mode of inland transportation.
and such other documents to prove the validity,existence and occurence of a
transactions or events.
b. The required documents of these paid claims should be submitted mmediately to the audit
team.
May we have your comments/reply on the foregoing audit observations within five (5) calendar
days from receipt hereof.
RENE J. MANGONA
State Auditor III
Audit Team Leader
Proof of Receipt of AOM:
Hon. JERRY R. LAGAS
Date:___________________

HELEN T. BUGAHOD

State Auditor V
Supervising Auditor