EXECUTIVE SUMMARY

A. Introduction

The Municipality of Lupao is reclassified as 3rd class under the classification of

municipalities of the Province of Nueva Ecija effective July 29, 2005, promulgated by the
Department of Finance under Department Order No. 20-05, prescribing the New Income
Brackets for the Reclassification of Provinces, Cities and Municipalities.

The Municipality of Lupao comprises twenty four (24) barangays and has a total land
area of 17,378 hectares bounded on the north by Umingan, Pangasinan, on the south by
San Jose City, on the east by the town of Carranglan and on the west by the town of
Talugtug, both of Nueva Ecija.

B. Financial Highlights

The Municipality’s financial condition, results of operations and sources and application
of funds for CY 2017 with comparative figures for CY 2016 are as follows:

Increase
2017 2016
(Decrease)
Financial Position
Assets ₱129,434,893.77 ₱119,853,256.49 ₱ 9,581,637.28
Liabilities 49,148,025.34 55,831,969.17 (6,683,943.83)
Government Equity 80,286,868.43 64,021,287.32 16,265,581.11
Financial Performance
Revenue 127,133,369.79 125,663,745.03 1,469,624.76
Expenses 112,923,484.40 115,771,737.98 (2,848,253.58)
Excess of income over
Expenses 14,209,885.39 9,892,007.05 4,317,878.34
Sources and Application
of Funds
Appropriations 117,131,660.58 107,581,281.53 9,550,379.05
Allotments 117,131,660.58 107,581,281.53 9,550,379.05
Obligations 111,509,906.37 102,358,371.20 9,151,535.17
Balances 5,621,754.21 5,222,910.33 398,843.88

C. Audit Scope

The audit covered the financial transactions and operations of the Municipality of Lupao
for the year ended December 31, 2017. The objectives of the audit were to: (a) ascertain
the degree of reliance on the management’s assertions on the financial statements; (b)
recommend agency improvement opportunities; and (c) determine the extent of
implementation of prior year’s audit recommendations.

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In compliance with the Unnumbered Memorandum dated October 12, 2017 by the
Commission on Audit Assistant Commissioner for Local Government Sector (LGS) and
in pursuance of COA Memorandum No. 2016-023 dated November 14, 2016, which
identify the CY 2017 audit foci, we covered in audit the Cash and Cash Equivalents,
Financial Liabilities, Funds Transfers (Due from/Due to NGAs, NGOs/POs, GOCCs, and
LGUs), Funds Directly Released by DBM to LGUs from Appropriations for Local
Government Support Fund (LGSF) (BUB and ADM), Local Disaster Risk Reduction
Management Fund (LDRRMF), Compliance and Performance Audit of 20%
Development Fund, Revenue-Generating Program, Solid Waste Management Fund,
Special Education Fund, Local Council for the Protection of Children, Programs and
Projects related to Gender and Development, Compliance to Tax Laws, Remittance of
Mandatory Contributions (GSIS, PhilHealth and Pag-ibig), and Statement of Audit
Suspensions, Disallowances and Charges. Additional areas included are fuel and
gasoline, meals and snacks, procurement of common-use supplies, full disclosure policy,
and Property, Plant and Equipment. Result of audit with significant observations were
discussed in Part II of this report.

D. Independent Auditor’s Report

We rendered a qualified opinion on the fairness of presentation of the financial

statements of the Municipality of Lupao, Province of Nueva Ecija for the year ended
December 31, 2017 because of the inability of the Municipal GSO and the Accountant to
comply with our audit recommendation on the proper property recording and inventory
management resulted in the unreliability of the Property, Plant and Equipment (PPE)
accounts totaling ₱91,179,041.71 net of accumulated depreciation of ₱40,465,138.14 as
at December 31, 2017 remained doubtful as a result of the continuous failure of the
Municipality to maintain complete property records. Moreover, there was still no
Inventory Committee created contrary to Section 124, Volume I and Sections 13, 15 and
45, Volume II of the Manual on NGAS for LGUs. Thus, management’s assertion on the
fair presentation of the financial statement was not satisfied.

For the above mentioned deficiency we recommended that the Municipal Mayor (a)
require Municipal GSO and the Municipal Accountant to prioritize the updating and
reconciliation of property records; and (b) create an Inventory Committee that will
conduct physical count of all property, plant, and equipment and render a report thereon
to the Municipal Accountant, copy furnished the COA Audit Team.

E. Summary of Other Significant Audit Observations and Recommendations

For CY 2017, commendably we found the Municipality of Lupao to be compliant with

laws, rules and regulations on the withholding and remittance of (a) taxes to the Bureau
of Internal Revenue, and (b) contributions and loan amortizations to the Government
Service Insurance System, Philippine Health Insurance Corporation and the Home
Development Mutual Fund.

On the other hand, the observations which need management action are briefly
summarized as follows:
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1. Cash advances of ₱17,983,002.43 remained unliquidated as of December 31, 2017,
₱15,657,010.10 of which pertains to those that were aged more than five years and
granted to employees who were now no longer connected with the LGU, thus probability
of collection is low. This is contrary to COA Circular No. 97-002 which resulted in the
delayed recognition of assets and expenses that were paid out of said cash advances while
exposing to risk of loss or misuse any unused balance thereof. (Observation No. 02)

We recommended that the Local Chief Executive instruct the (a) accountable officers to
settle immediately all their cash advances which are due for liquidation; (b) Municipal
Accountant and the Municipal Treasurer to withhold the salaries of accountable officers
who will fail to comply with the directive or demand for liquidation; (c) Municipal
Accountant to strengthen the internal control over the granting of cash advances by all
officials concerned to ensure the proper granting, utilization and liquidation of all cash
advances in accordance with the existing rules and regulations; (d) Municipal Accountant
to intensify monitoring of unliquidated cash advances such that the Accountant regularly
give reminders or otherwise issue demand letters to those who have not liquidated their
cash advances and went beyond the reglementary period on which to liquidate; and (e)
Municipal Accountant to make effort to include in his action plan the request for write off
of unliquidated cash advances for those that are eligible for write off subject to COA
rules and regulations on the writing off of accounts.

2. As of year-end, the Municipality faces the risk of not being able to pay its accounts
payable totaling ₱5,132,046.73 and support the unexpended/unobligated balance of the
20% Development and Calamity Funds totaling ₱2,466,930.52 and unearned income of
₱581,091.45 since the available cash balance as of same year-end amounted to only
₱131,927.48 or a forecasted cash deficit of ₱8,048,140.82 contrary to Section 305(e) of
Government Local Code of 1991, Section 4(3) of PD No. 1445.(Observation No. 03)

We recommended that the Local Chief Executive (a) apply effective cash programming
to facilitate the proper handling of cash such that it is available when needed for payment
of obligations and at the same time, optimize its utilization; and (b) adopt austerity
measures on disbursements to improve the cash position of the Municipality.

3. The LGU lacks data requirements in CY 2017 such as an updated data base for DRRM
planning and has no sufficient staff to comply with appropriate structure for DRRM at the
local level as stipulated in RA 1021, thus may negatively impact the effective planning
and implementation of DRRM initiatives at the local level. (Observation No. 04)

With the foregoing, we recommended that the Local Chief Executive instruct the (a) the
DRRM Officer and/or MPDC officer to prepare and complete data base on the
basic/minimum information on vulnerable sectors i.e., Community Based Monitoring
System (CBMS)/Rapid Community – Based Monitoring System (RCBMS) as well as
update said CBMS to properly assess plan and manage disaster risks; (b) the DRRM
Officer and MPDC to consider maintaining the volume of stock pile procured through
public bidding in compliance to RA 9184; and (c) the HRM Officer to provide for
additional two permanent staff in the DRRM Office to comply with the three staff

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structure as required under the minimum standards for disaster risk reduction and
management preparedness.

4. For CY 2017, the Municipality provided budget of ₱2,167,000.00 for Gender and
Development (GAD) equivalent to 1.85% of the LGU’s total appropriations of
₱117,131,660.58, or 3.15% less than the required minimum appropriation of at least 5%
thereof, contrary to the guidelines prescribed under Philippine Commission on Women –
National Economic and Development Authority – Department of Budget Management
(PCW-NEDA-DBM) Joint Memorandum Circular (JMC) No. 2013-01 dated July 18,
2013. Moreover, the Municipality remained non-compliant with the mandated GAD
mechanisms and processes prescribed under Philippine Commission on Women –
National Economic and Development Authority – Department of Budget Management
(PCW-NEDA-DBM) Joint Memorandum Circular (JMC) No. 2013-01 dated July 18,
2013. (Observation No. 05)

We recommended that the Municipal Mayor instruct the GAD focal person and GAD
TWG in coordination with the Municipal Budget Officer put into effect the prescribed
GAD mechanisms and processes such as the establishment of GAD Database, adoption
and formulation and preparation of appropriate GAD plan and budget in accordance with
the provisions of the JMC.

5. Incentive/benefits (Instructional allowance) for teachers of ₱195,000 for CY 2017

were paid out of Special Education Fund (SEF) contrary to the provision under Section 1
of R.A. No. 5447, Sections 100 and 272, RA No. 7160, and DepEd-DBM-DILG Joint
Circular Nos. 01, s. 2017 dated January 19, 2017. Moreover various SEF disbursements
totaling to ₱966,428.03 had incomplete documentation to substantiate validity and
propriety of the transactions. (Observation No. 06)

We recommended that the LCE require the (a) members of the Municipal’s Local School
Board and the Budget Officer to prepare a balanced budget with conscious and concerted
efforts of observing compliance with the legal and regulatory requirements on SEF
budgeting, allocation and utilization and refrain from accommodating expenditures for
activities for which the DepEd has the direct mandate to execute; (b) the Local School
Board and the Superintendent regularly monitor the utilization of SEF and
implementation of PPAs and take appropriate actions on any deviations, if necessary; and
(c) the Municipal Accountant in coordination with the DepEd Superintendent to ensure
the proper and complete documentation of SEF expenditures to support its occurrence
and validity to avoid suspensions and disallowances in audit.

6. In CY 2017, the Municipality of Lupao was not able to completely address solid waste
disposal due to the absence of Sanggunian Bayan authority to renew contract with Metro
Clark Waste Management Corporation (MCWMC) thus could have contributed in
exposing to danger the public’s health, contrary to the mandate of Republic Act No.
9003, otherwise known as The Solid Waste Management Act of 2000. (Observation No.
07)

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We recommended that in the absence of any feasible alternative, the LCE secure
authority from the Sanggunian Bayan for the renewal of the contract with Metro Clark
Waste Management Corporation (MCWMC) to address waste disposal problem and
prevent exposing to danger the public’s health, and to be in adherence to the mandate of
Republic Act No. 9003. Meanwhile, we advise management to refund to MCWMC the
excess amount received from the latter which represented services rendered for the month
of December 2016.

7. Deficiencies were still observed in the budgeting and allocation of 20% Development
Fund where ineligible expenditures for 20% DF were still included contrary to the
provisions of DILG Memorandum Circular No. 2010 – 138 dated December 2, 2010 and
DILG and DBM Joint Memorandum Circular No. 2011-1 dated April 13, 2011 thereby
defeating the objectives for which the fund was established. (Observation No. 08)

We recommended that the Municipal Mayor require the (a) Budget Officer to ensure the
proper charging and allocation of the 20% Development Fund in accordance with DILG
Memorandum Circular No. 2010 – 138 dated December 2, 2010 and Joint Memorandum
Circular No. 2011-1 dated April 13, 2011 of the DILG and DBM; and (b) charge to the
GF the loan amortization pertaining to that applied for the construction of the Municipal
Building and other future similar charges not partaking the nature of development and
capital investments.

8. Under the BUB Projects for CY 2014-2016, there were 13 projects amounting to an
aggregate of ₱30,250,000.00 completed and liquidated to the partner agencies by the
Municipality. And for CY 2017, under ADM, three projects were completed amounting
to P 15,542,000. However, due to lack of coordination or non-compliance with partner
agencies requirements, the Municipality had not received funds totaling ₱5,600,000.00
intended for four BUB projects while two projects with total project funds of
₱2,700,000.00 were dropped from CYs 2014 to 2016. (Observation No. 09)

We recommended that the Local Chief Executive require the (a) Local Poverty Reduction
and Action Team (LPRAT), as the program’s oversight body to (i) coordinate with the
funding agencies to facilitate satisfaction of their requirements; (ii) closely monitor the
project implementation for the timely identification of concerns that may affect the
effective and efficient use of the funds received; and (b) Municipal Engineer oversee the
projects in accordance with the technical specifications required by the funding agencies
and clearly defined in the contract.

9. The validity and reasonableness of fuel consumption with an aggregate amount of

₱4,174,373.82 from January to December 2017 could not be ascertained due to lack of
control and non-compliance with Section 361 of the Government Accounting and
Auditing Manual (GAAM) Volume I and COA Circular No. 77-61 dated September 26,
1977, Prescribing the Use of the “Manual of Audit for Fuel Consumption of Government
Motor Vehicles. (Observation No. 10)

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We recommended that the Local Chief Executive direct the drivers/officials concerned to
(a) accomplish properly and completely the Driver’s Trip Ticket on a per trip basis; (b)
prepare the Monthly Report of Official Travels and the Monthly Report of Fuel
Consumption; and (c) submit the same to the COA Auditor within the ensuing month.

10. The Municipality of Lupao purchased ₱415,845.81 through reimbursements instead

of procuring from the Procurement Service (PS-DBM) as required under Section 4 of
Administrative Order No. 17 dated July 28, 2011 and Department of Budget and
Management (DBM) Circular Letter No. 2013-14 dated November 29, 2013 thus, casting
doubt on the efficiency and economy of purchases made, and had foregone possible
savings out of discounts from bulk purchases. (Observation No. 11)

We recommended that the LCE require the (a) Municipal GSO to procure from the PS-
DBM all common-use supplies and equipment; (b) stop concerned officials and
employees to, except on emergency situations, perform purchasing function otherwise
lodged to the GSO; (c) obtain from DBM-PS Certificates of Non-Availability of Stocks
to support the procurement from local based suppliers; and (d) consider prices offered by
the DBM-PS in making purchases from other suppliers to obtain the most reasonable
prices for procured items.

11. Reimbursement of meals and snacks reportedly incurred while attending dialogue
meetings, query on legislative matters and other activities with an aggregate amount of
₱661,776.54 as of December 31, 2017 may be considered excessive expenditures as
defined under COA Circular No. 2012-003 dated October 29, 2012 due to their doubtful
certainty as manifested by incomplete documentation to justify the transactions.
(Observation No. 12)

We recommended that the Local Chief Executive require the (a) concerned officials and
the Municipal Accountant to submit the required documents to prove the regularity of
said payments; (b) Head of Offices to exercise prudence in the utilization of their
representation allowances in procuring meals and snacks during meetings and other
activities, and to submit fully documentation thereof; and (c) Municipal Accountant being
the LGU’s internal auditor observe the limitations and requirements of such expenditures
as prescribed by regulations.

12. In CY 2017, the Municipality was partially compliant with the requirements of DILG
Memorandum Circular No. 2013-140 dated December 3, 2013 on the full disclosure of
local budget and finances, and bids and public offerings hence, transparency in local
governance was not fully obtained. (Observation No. 13)

We recommended that the Local Chief Executive (LCE) require the Municipal Planning
Development Officer to (a) install a Full Disclosure Bulletin Boards in at least two
publicly accessible and conspicuous places in the Municipality; (b) post thereon the
missing five reports and the reports on fund utilization for TF, SEF and 20% DF and the
QSCF as of the fourth quarter of CY 2017; and (c) henceforth observe the timelines in the

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posting of the required operational reports at the designated places in order to attain
maximum transparency in LGU governance.

13. For CY 2017, the Municipality achieved actual collections of ₱15,182,389.45 which
surpassed its targeted collections by ₱4,086,389.45 or 36.8%. (Observation No. 14)

We recommended to intensify collection on RPT SET, other regulatory fees and service
user charges/service income. Moreover, keep up on its good work of increasing revenue
collections of the Municipality.

F. Summary of Suspensions, Disallowances and Charges at Year-End

The Municipality’s summary of total Suspensions, Disallowances and Charges as of

December 31, 2017 is as follows:

Settlement this
This period
Beginning Balance period Ending Balance
(January 1 to
(as of December (January 1 to (As of December
December 31,
31, 2016) December 31, 31, 2017)
2017)
2017)
NS/ND/NC NSSDC
Notice of ₱ 10,512,533.66 - - ₱ 10,512,533.66
Suspension
Notice of 3,370,652.66 - - 3,370,652.66
Disallowance
Notice of Charge - - - -
Total ₱ 13,883,186.32 - - ₱ 13,883,186.32

G. Status of Implementation of Prior Year’s Unimplemented Audit

Recommendations

Evaluation of the actions taken by the management with respect to the 36 audit
recommendations contained in the previous Annual Audit Report revealed 23 or 64% was
implemented, seven or 19% were partially implemented and six or 17% was not
implemented.

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