Tacurong City 2008 COA Audit 1
July 2, 2010
Detailed Findings and Recommendations
1. Out of the appropriated amount of P32,300,000.00 for its Infrastructure projects funded from 20% Development Fund for CY 2008, 95% or P30,601,356.20 was utilized and implemented. Infrastructure projects include installation of streetlights, construction of drainages and concreting of roads of the following:
a. 20 barangays of Tacurong City
b. Terminal Exit Road connecting national highway to the Public Terminal
c. Cemetery at Barangay Calean
d. City Roads
This is the positive response of the management in our Audit Observation Memorandum from our last year’s Annual Audit Report to maximize the utilization of the 20% Development Fund.
2. Tacurong City purchased a lot located in Barangay New Isabela amounting to P2,000,000.00 intended for extension of Public Terminal.
Findings and Recommendations
1. Financial and Compliance Audit
1.1 The validity and accuracy of the Property, Plant and Equipment accounts totaling P 254,543,821.26 could not be ascertained due to the non reconciliation of physical inventory with the accounting records and the failure of the City General Services Officer to conduct a complete physical count of city property resulting in a discrepancy of P248,508,224.08 against the accounting records. Reconciliation of balances could not be effected as the Accounting and General Services Departments failed to maintain ledger and property/stock cards as required under Section 114, Volume I of the NGAS Manual.
Sec. 124, Volume I of the NGAS Manual requires periodic physical inventory of supplies or property. Physical count of property, plant, and equipment by type shall be made annually and reported on the Report on the Physical Count of Property, Plant and Equipment (RPCPPE). This shall be submitted to the Auditor concerned not later than January 31 of each year.
Section 114 of the same Manual requires the Chief Accountant to maintain Property, Plant and Equipment Ledger Card (PPELC) for each category of plant, property and equipment. The General Services Officer is required to maintain property cards for property, plant and equipment in their custody to account for the receipt and disposition of the same. The balance per property cards should always reconcile with the ledger cards of the accounting unit.
The GSO conducted physical count of the City’s property for the year 2008 and submitted the Report on Physical Count of property, plant and equipment to this Office on February 9, 2008 showing a total of P113,838,748.12. Comparison of the reported balances of the inventoried property, plant and equipment with the accounting records of P254,543,821.26 revealed a difference of P248,508,224.08. Details are shown in Annex 5.
Verification of records and inquiry with concerned officials disclosed the following procedural lapses and deficiencies that resulted in the discrepancy:
* The costs of Land, buildings and other structures were not included in the inventory report as the General Services Department was not aware that these should also be inventoried.
* Physical count of some items far exceeded the book value per accounting records either due to misclassification of property and some of the items include properties that should be considered inventory supplies as provided in Annex A of COA Accounting Circular No. 2005-02 dated April 14, 2005 (see Annex 6 for the list of these items).
* The costs of property already disposed of by the General Services Office are still carried in the books of accounts as discussed in audit finding no. 1.3
* The Accounting and General Services Departments failed to maintain ledger and property/stock cards.
* There was no regular reconciliation of records between the GSO and Accounting Department in current and previous years.
In addition, it was also observed that most of the Property, Plant and Equipments have no property tags that indicate it as government properties, thus exposing these items to loss or thefts.
Hence, fair presentation of the balances of Property, Plant and Equipment in the financial statements could not be ascertained
In the exit conference conducted on April 14, 2009, management commented that the GSO is instructed to implement the reconciliation and complete inventory of Property, Plant and Equipment and instructed also the City Assessor’s Office to coordinate regarding the valuation of real properties.
Advise the GSO to conduct a complete inventory of all the Property, Plant and Equipments as a basis for the preparation of annual inventory report and secure these items with property tags to prevent loss or thefts. The General Services Officer and City Accountant are enjoined to take appropriate action to facilitate the dropping of disposed property in the books of accounts. Accordingly, the Accounting Department and General Services Office should maintain complete ledger and property/stock cards as control records for PPE accounts.
Further, we advise management to strictly monitor and give full support to the reconciliation of accounting records and inventory report to establish the correct value and classification of property, plant and equipment in the financial statements. We likewise recommend that an Asset Management Division as an internal division within the City General Services Office be created to directly manage the fixed and real estate assets owned by the Tacurong City Government.
1.2 The total inventory supplies expense amounting to P13,895,352.08 is not fairly presented in the financial statement due to non-adoption of Perpetual Inventory Method provided in Sections 114 to 124 of the NGAS Manual, Volume I, prescribing the process to be followed in the control of inventory. In addition, findings show that there was poor internal control of management of inventory supplies, thus, exposing these supplies to loss or wastage thru irregular, unnecessary and excessive usages.
All resources of the government shall be managed, expended or utilized in accordance with law and regulations, and safeguarding against loss or wastage through illegal or improper disposition, with a view to ensuring efficiency, economy and effectiveness in the operations of government. (Section 2 of Presidential Decree No. 1445)
COA Circular No. 85-55-A dated September 8, 1985 which provides for the rules and regulations on the prevention of irregular, unnecessary, excessive or extravagant expenditures or uses of funds and property and defines that the term unnecessary expenditures pertains to expenditures which could not pass the test of prudence or the diligence of a good father of a family, thereby denoting non-responsiveness to the exigencies of the service. Unnecessary expenditures are those not supportive of the implementation of the objectives and mission of the agency relative to the nature of its operation. This would also include incurrence of expenditure not dictated by the demands of good government, and those the utility of which cannot be ascertained at a specific time. An expenditure that is not essential or that which can be dispensed with without loss or damage to property is considered unnecessary. The mission and thrusts of the agency incurring the expenditures must be considered in determining in whether or not an expenditure is necessary.
Regarding this provisions, COA established a process in inventory control of supplies thru Section 114 to 123 of the NGAS Manual, Volume I, which requires that:
“Sec. 114. Perpetual Inventory Method. –Purchases of supplies and materials for stock regardless of whether or not they are consumed within the accounting period shall be recorded as inventories following the perpetual inventory method. Under the perpetual inventory method, an inventory control account is maintained in the General Ledger on a current basis. In addition, detailed inventory records are maintained for each inventory. Supplies and materials purchased out of the Petty Cash Fund for immediate use shall be taken up as expense.
Sec. 116. Requisition Procedures. – (c) At the beginning of the year, the Office of the General Services Officer (GSO) shall prepare a Purchase Request (PR) for supplies and materials needed for the quarter based on the approved Annual Procurement Program. Subsequent requisition from stock shall be made by the head of office or department needing the supplies. A Supplies Availability Inquiry (SAI) shall be used to inquire as to availability of supplies needed from the Accounting office. If supplies are available, the Requisition Issue Slip (RIS) shall be prepared and submitted to the GSO for the issuance of supplies. If the supplies needed are not available form stock, a PR shall be prepared.
The head office or department needing the supplies shall certify as to their necessity for official use and shall specify the project or activity where the supplies are to be used.
Sec. 118. Acceptance and Inspection of Purchases. – Deliveries of items purchased by the local government units shall be accepted first by the general services officer before inspection. Inspection of purchases shall be made by the authorized inspector/s for conformity with specification in the order. Acceptance and inspection shall be made using the Acceptance and Inspection Report (AIR).
Sec. 119. Property Records to be Maintained. – The General Services Officer or the Local Treasurer, as the case maybe, shall number each type of supplies and maintain Stock Cards per stock number.
Deliveries of supplies or property shall be immediately recorded in the property records on the basis of the AIR and other supporting documents. The AIR and other supporting documents shall be forwarded to the Chief Accountant for the preparation of the DV and recording of deliveries in the appropriate ledger cards.
Sec. 120. Recording of Deliveries of Supplies or Property in the Books of Accounts. – The Chief Accountant shall maintain Supplies Ledger Cards per stock number; Property, Plant and Equipment Ledger Cards for each category of assets; and Real Property Ledger Cards for land.
Upon receipt of the AIR and other supporting documents, the Chief Accountant shall record the deliveries in the appropriate ledger cards. Upon completion of the disbursement process pertaining thereto the Chief Accountant shall prepare the JEV taking up the in the books the procurement made. Thereafter, the Chief Accountant shall reconcile the JEV with the appropriate ledger cards.
Sec. 121. Reporting on Issuance of Supplies/materials. – The General Services Officer shall consolidate weekly the RIS for which supplies and materials were issued using the Summary of Supplies and Materials Issued (SSMI). The SSMI together with the original copy of the RIS shall be submitted to the Chief Accountant, who shall compute cost of supplies issued and ending inventory using the moving average method. Based on the SSMI, a JEV shall be prepared to record the expenditures using the appropriate expenditure accounts.
Sec. 122. Inventory Process. – See Annex 7 for the narrative flowchart.
Sec. 123. Receipts of Issuance. – All issuances of supplies or property shall be properly receipted using the forms prescribed under applicable rules and regulations on supply and property management in local government units.
Sec. 124. Inventory of Supplies or Property. – The Local chief executive shall require periodic inventory of supplies or property. Physical count of inventory items by type shall be conducted semestrally and reported in the Report of the Physical Count of Inventories (RCPI). This shall be submitted to the Auditor concerned not later than July 31 and January 31 of each year for the first and second semesters, respectively.”
Evaluation of transactions for CY 2008 pertaining to purchases of various supplies that were used by different offices for basic, social, medical and livelihood services and for repair and maintenance of various infrastructures undertaken by administration revealed that these supplies mentioned were bid separately per office/program/project according to their annual supply procurement plan and bid quarterly or when it is needed. Mostly each office then go to the winning bidders’ stock rooms to claim their supplies and, in cases of repairs of infrastructures, these supplies were directly delivered to various sites of repair. In addition, the GSO sometimes are not conducting actual inspections nor recorded the delivered items on the stock cards though Acceptance and Inspection Report (AIR) has been prepared to support the Disbursement Voucher.
On the other hand, the Accounting unit did not prepare the Supply Ledger Card to record the inventory on the basis of AIR. Instead the said items were directly charged to each expense account totaling to P13,895,352.08. Details are shown in Annex 8.
These procedures prevented the management to conduct physical inventories of these supplies which is required, as stated in the above provisions. Further, the total inventories supply expenses amounting to P13,895,352.08 stated in the financial statement (Annex 8) do not fairly present the actual expenses consumed by the Local Government Unit because some of these supplies are still unused examples of which are accountable forms which are still found in the stock room of the Treasury Office, office supplies and construction materials that are not yet used nor consumed by the agency.
Overall, these procedures are indication of poor internal control in safeguarding these assets against loss or wastage through irregular, unnecessary and excessive usages and contrary to Sections 114 to 124 of the NGAS Manual, Volume I, which prescribe the process to be followed in the control of inventory that is very important in ensuring efficiency, economy and effectiveness in the operations of the government.
In the exit conference conducted on April 14, 2009, management commented that the inability to adopt the Perpetual Inventory Method was primarily due to absence of a stockroom/bodega and lack of staffs to manage the issuances of supplies, but they assured that they will partially implement the method starting 2nd Quarter of 2009 as soon as the completion of there stockroom and will formulate a guidelines regarding the issuances of supplies to the end-users.
Recommendations for Tacurong City Government:
We advise the management to formulate a sound internal control in regulating and safeguarding the use of these inventory supplies. To make it effective, the management should consider that inventory control should be automated or computerized so that costing and tracking of the movement of inventories will not be laborious nor complicated.
We also advise the management to have a sound feasibility plan for these inventory supplies and construction materials that will be consumed by the management in there operations and for the repairs and maintenance of various infrastructures by administration for the whole year and consolidate it at the beginning of the year and purchased similar items in bulk quarterly or monthly to avail discounted prices that will be beneficial to the government.