A.

FINANCIAL AND COMPLIANCE AUDIT

Disbursement vouchers which are subject to pre-audit were paid even without audit action in violation of the pertinent provision of COA Circular No. 2009002. 1. In view of the rising incidents of irregular, illegal, wasteful and anomalous disbursements of huge amount of public funds and disposal of property in general, and in line with the policy of the state of ensuring efficiency, economy and effectiveness in the operation of the government, COA Circular No. 12009-002 dated May 18, 2009 was issued reinstituting selective pre-audit in government financial transaction. 2. Some of the basic and compelling provisions of the said circular were enumerated in Section 6.0 thereof Duties and Responsibilities of Agency Officials, such as: Submit to the Auditor concerned all disbursement vouchers which are subject to pre-audit; Ensure that no transactions are paid out without evidence of the audit action of the concerned Auditor; Submit copies of contract, purchase/letter orders, loan agreement; and Ensure that disbursement vouchers are duly supported with the requisite documents, among other.

Further, the circular requires that All cash advances except for payroll, intelligence, and those granted for travel regardless of amount shall pass through pre-audit The liquidation of cash advance shall first be audited and the corresponding credit notice shall be issued before the same be taken up in the book The grant of cash advance and their liquidation shall be govern by the following guidelines set forth in COA Circular No. 97-002, to wit: a) No cash advance shall be given unless for a legally specific purpose. b) No cash advance shall be allowed to any official or employee unless the previous cash advance given to him is first liquidated and/or accounted for. c) A cash advance shall be liquidated/reported on as soon as the purpose for which it was granted has been served. d) Except for cash for travel, no officer or employee shall be granted cash advance unless he is properly bonded in accordance with law or regulation. The amount of cash advance which may be granted shall not exceed the maximum cash accountability covered by his bond, and e) No cash advance shall be granted for payment on account of infrastructure project or other undertaking on a project basis. 16

3. In the post-audit of disbursement of the municipality, it was observed that cash advances were utilized for the purchase of spare parts, communication equipment, supplies, other incidental expenses, salaries and travelling expenses and had been effected and paid even without passing thru the required pre-audit. Cash advance were also allowed even when the accountable officers had still unliquidated balance which is inconsistent with the above mentioned regulation. 4. Moreover, disbursement voucher submitted for pre-audit which was returned for noted deficiencies were not re-submitted but had already been paid 5. The regulation regarding the implementation of selective pre-audit was not properly enforced by the agency despite earlier briefing and/or orientation of the official concerned. Consequently, timely review of the transaction could not be readily undertaken, thus deficiency if any, was similarly, cannot be communicated to the agency for immediate adjustment/correction of the official concerned. Efficiency and effectiveness in the implementation of the program, project and activities of the agency therefore, were likewise not ascertained at once. 6. This was discussed in the Audit Observation Memorandum No. AOM 2009-001 dated November 10, 2009, sent to and was duly received by the management. It was explained that compliance with COA Circular No. 2009-02 was not fully observed, because they are not yet prepared for its implementation. They assured us however, that compliance with the regulations shall be observed in the succeeding transactions. 7. We advise the Municipal Mayor to require the accountable officer concern, particularly the head of the internal audit unit to submit for audit action all disbursement vouchers including their supporting documents subject to pre-audit. 8. Henceforth, to avoid the sanction provided for in Section 11.2 of the same Circular, which state that and we quote: 9. Section 11.2 Transactions or claim covered by this circular but not submitted for pre-audit shall be a ground for initiating administrative disciplinary action in accordance with Section 127 of PD 1445 and Section 55, Title I-B Book V of the Revised Administrative Code of 1987, without prejudice to the disallowance of the transaction in post-audit, if warranted, compliance with the above cited regulation shall be strictly observed and adhered to. The municipality allowed the claim for payment/reimbursement of the amount paid to a private law practitioner in violation to Section 2.2 Article IX-D of the 1987 Philippine Constitution. 10. COA Circular 98-002 states that Accordingly and pursuant to the power vested by the constitution, the Commission has the exclusive authority to promulgate accounting and auditing rules and regulations including for the prevention and disallowance of irregular, unnecessary, excessive extravagant and/or unconscionable expenditure or uses of public fund or property. 17

11. Meanwhile, Section 2.2 Article IX-D of the 1987 Constitution provides that public fund shall not be utilized for payment of the services of a private legal counsel or law firm to represent government agencies or instrumentalities including GOCCs and local government unit in court or to render legal services for them. With respect to local government unit, Section 481 of RA 7160 provides that it should be the legal officer of the municipality who should handle its legal affair including representation in court. 12. In the absence of the Municipal Legal Officer, the Provincial Prosecutor/Fiscal shall serve as legal officer and can represent a municipality in law suit as provided under Section 1683 of the Revised Administrative Code and complemented by Section 3, RA 2264 or the Local Autonomy Law. 13. In the post-audit of disbursement of the municipality, particularly liquidation voucher of Mr. Menandro M. Alvarez, Private Secretary for his cash advance of P65,000.00, P11,951.00 of which was allowed under Credit Notice No. 2009-001, whereas P53,049.00 was disallowed. 14. While we agree that Mr. Alvarez is an employee of the municipality, he nonetheless failed to show he represented the municipality in hiring a private legal counsel. The fact is, and record would show that he is a respondent in a complaint filed by former SB members against a particular project implemented by the municipality wherein the Municipal Mayor was found innocent/acquitted of the charges. Not only is hiring of private legal counsel prohibited but much less, Mr. Alvarez has acted on his personal behalf so that using public fund was devoid of legal basis, hence the disallowance. 15. The Municipal Mayor is advised not to allow reimbursement or payment of legal fees for services rendered by a private counsel as it is against the established law and jurisprudence. In the event that availing legal service cannot be avoided or in case of exceptional circumstances, the written conformity and acquiescence of the Solicitor General and the Commission on Audit shall first be secured before hiring or employing a private lawyer or law firm as provided under COA Circular No. 98-002. Construction in Progress account of P12,531,647.00 remained open in the books of accounts despite the infrastructure projects they referred to were already completed contrary to Section 50 of the NGAS Manual for local government unit, thus artificially bloated the assets and government equity account. Public Infrastructure account of P7,034,239.21 not yet categorized as to their specific asset account and likewise, not transferred yet to registry of public infrastructure 16 Construction in Progress account refers to accumulated value of infrastructure projects or agency assets while still under construction or process. This may be classified either as agency assets or public infrastructures. 18

17. As required under Section 50 of the New Government Accounting System Manual Volume I, during the construction period, agency assets and public infrastructures shall be taken up in the book as Construction in Progress with the appropriate asset classification. As soon as the project is completed, the Construction in Progress for agency asset is closed to appropriate asset account. 18. For public infrastructure funded out of regular income, the Construction in Progress account is transferred to the Public Infrastructure account upon completion. At the end of the year, the Public Infrastructure account is closed to Government Equity and the asset is recorded in the Registry of Public Infrastructures. However, completed public infrastructures funded out of a loan shall be closed to Government Equity account upon full payment of the loan. 19. Verification of the municipalitys trial balance as of December 31, 2009 disclosed the construction in progress account of P12,531,647.00 not yet closed to appropriate asset account. Whereas, Public Infrastructure account of P7,034,239.21 were not yet classified as to what particular agency asset account or whether the projects are for the use of public. Further verification revealed no Registry for Public Infrastructure is being maintained wherein the infrastructure projects intended for use of public like roads, highways and bridges are supposed to be transferred and recorded. The infrastructure projects referred to, per accomplishment report submitted by the Engineering Office and per validation made, were already 100% completed as of December 31, 2009. As a result, the Property, Plant and Equipment account and the corresponding Government Equity account were both overstated by the same amount of P12,531,647.00 and P7,034,239.21, for a total of P19,565,886.21. 20. The management admitted the lapses and attributed the failure to their lack of awareness with the treatment/recording of construction in progress account and public infrastructure account. 21. We recommend that the Accounting Office and General Service Office exert effort to identify the completed projects under the construction in progress account for appropriate classification of assets account and closed the same to Public Infrastructure account. Make adjustment further at the end of the year by closing the Public Infra account to Government Equity, to eliminate the overstatement of PPE account. 22. Conversely, a Registry of Public Infrastructure should be maintained for transfer of infra projects already closed to government equity account but are intended for public use, such as roads, bridges and highways among others. 23. Henceforth, compliance with section 50 of the NGAS Manual should be observed and adhered to so as to present the true condition of the total net worth of the agency.

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Collections totaling to P1,146,580.73 as of December 31, 2008 were not deposited intact with its depository bank, thus exposing municipal funds to risk of loss and misappropriation. This is a reiteration of previous years recommendation and no action was taken by the concerned accountable officer to implement the recommendation. 24. Section 32 of the Manual of the New Government Accounting System (NGAS) states that The Treasurer/Cashier shall deposited intact his collections as well as all collections turned over to him by the collectors/tellers with the authorized depository bank daily or not later that the next banking day. He shall record all deposits made in the cashbook and prepare the Report of Collections and Deposits (RCD). Likewise, Section 28 of COA Circular No. 92-382 provides that the Municipal Treasurer is mandated to deposit the full amount collected with the authorized depository bank daily or not later than the next banking day. It is further required that in case of the municipalities where travel time to the depository bank is more than one day, deposit of collections shall be made once a week or as soon as the collections reaches P10,000.00. 25. Monitoring of the implementation of previous years recommendations disclosed that the Municipal Treasurer continuously not depositing his collection intact contrary to Section 32 of NGAS Manual. As of December 31, 2009, cash in vault account showed undeposited balance of P1,146,580.73. 26. This showed laxity on the part of the official concerned in so far as management of funds is concerned. Failure of the management to comply strictly with the rules and regulations stated may cause improper use or possible loss of public funds. 27. The Local Chief Executive should instruct the Municipal Treasurer to deposit intact all collections regularly with the authorized depository bank to avoid possible misappropriation and exposure of municipal funds to risk. The practice of retaining part of collections in the Municipal Treasury as cash reserve for cash disbursement should be discontinued. The accuracy of the balance of Cash-in-Bank, LCCA amounting to P29.63 million could not be ascertained due to non-preparation and submission by the Municipal Accountant of the required monthly bank reconciliation statement contrary to Section 74 of the Presidential Decree 1445. This is a reiteration of previous years observations. 28. Section 74 of PD 1445 requires the preparation and submission of Bank Reconciliation Statement monthly for each depository account maintained by the agencies in government authorized depository bank. The main purpose is to check the reliability and accuracy of the balance of cash appearing in the books as reconciled against the balance per bank, and to provide basis for adjustment and/or correction, if warranted.

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29. During the year, the municipal official concerned was again not able to prepare the required bank reconciliation statement contrary to prescribed regulations provided for under the above regulation. As a result, the reliability of the balance of Cash in Bank, Local Currency Current Account amounting to P29,63 million as reflected in the municipalitys record could not be ascertained. 30. The official concerned claimed that some reconciling item could not be determined due to absence of the necessary records such as previous bank statements which made the preparation of the said report failure. However, they assured us, that they will do their best to work back the records in order to determine those reconciling items, so that the true and correct balance of cash in bank may be reflected in the financial statements. 31. The Chief Executive should direct the concerned accounting office official responsible in the preparation of bank reconciliation statement to exert more effort in identifying the reconciling items from the previous year transactions and come up with an updated bank reconciliation statement to ascertain the validity and correctness of the Cash in Bank, Local Currency Current Account. The reliability and validity of the balance of the Property, Plant and Equipment account amounting to P81.92 million appeared doubtful due to inability of the Municipality to submit complete physical inventory report contrary to Section 375 (d) of RA 7160 and Section 124 of the New government Accounting system (NGAS). This is a reiteration of previous recommendation. 32. Section 375 (d) of Republic Act 7160 states that Every Officer primarily accountable for government property, which supposedly is the General Services Officer or the Municipal Treasurer in the case of Municipality, shall keep a complete record of all property under his responsibility and render an inventory report therefore. While under Section 124 of the NGAS, provides that the Local Chief Executive shall require periodic physical inventory of supplies or property. Physical count of Property, Plant and Equipment by type shall be made annually and shall be reported on the Report of Physical count of Property, Plant and Equipment. This shall be submitted to the Auditor concerned not later that January 31 of each Year. 33. During the year under audit, it was observed that the municipality still failed to prepare the required complete physical inventory of property, hence, no report was submitted to this Office. This deficiency created doubts on the validity and correctness of the balance of the Property, Plant and Equipment account amounting to P81.92 million. They commented that inventory report was already in process, however, due to inadequacy of records and time constraint prevented them to submit the said report. It was promised that diligent effort shall be taken up to reconcile the report and submit it to the Auditor for review and evaluation.

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34. The Local Chief Executive should require the Municipal Accountant and the designated Property Officer to strictly observe the yearly preparation of physical inventory of all properties owned by the Municipality, reconcile it from the books of account and submit the corresponding report to the Auditor to ascertain its validity. The Municipality failed to comply fully with the provision of RA 7191 particularly in providing 5% appropriation for the Gender and Development related activities and the monitoring of accomplishment relative thereto in violation to DBM, NEDA and NCRFW Joint Circular No. 2001. 35. Joint Circular No. 2001-01 dated December 19, 2001 of the Department of the Department of Budget and Management, the National Economic development Authority and the National Council on the Role of Filipino Women requires each and every local government unit to provide in its annual budget 5% of the estimated income from the internal revenue allotment for the Gender and Development (GAD) related activities. 36. The circular likewise requires the local government unit to prepare a comprehensive plan and programs for implementation and to submit the end result in a report form to the Department of Interior and Local Government for monitoring and evaluation purposes. 37. During the year under audit, it was observed that the municipality appeared partially compliant only with the provision/requirement of the circular. In the course of audit, we have noted the following: a. b. c. d. The Municipality provided P75,000.00 budget for the GAD which is only less than 1% of the IRA as compared to 5% of P81,591,746 or P4,079,587.30 requirement. There was no specific plan and/or program defined for the purpose. There was no accomplishment report prepared and submitted as required to the DILG or to any office. There was not even an oversight committee created to assess and evaluate the responsiveness of the GAD related activities.

38. We were informed that the management did not only overlooked the intent and Purpose of the RA 7192, but they actually not aware of the reporting requirement and the provision of the 5% appropriation thereto. 39. We recommend that for proper implementation and evaluation on effectiveness of the GAD related activities, a comprehensive and responsive plan and program be formulated and a report for the end result be submitted to the office concerned. 40. Likewise, we recommend that an oversight committee be created which shall be responsible for the smooth implementation of the program.

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