Mindanao Daily

3.
Collection efficiency of the City Government could have been higher had the management addressed the unfavorable information affecting its governance.

One of the primary organizational objectives of the City Government is to have
an efficient and effective tax information system and proper implementation of all taxation laws and ordinances to further generate revenues to the local government unit.

To achieve this objective, the City Government maintains  and  updates its  tax
information system,  among others,  including access to  media.

However,  within the purview of Department     Order  No. 23-08   dated  July
29, 2008,   the   income classification of Provinces, Cities and Municipalities serves as the basis for the determination of the financial capability of Local Government Units (LGUs) to provide in full or in part the funding requirements of development projects and other priority needs in their locality.

A recall  on  the actual collection level of the City Government  for the  current
2008 and during the last fours years revealed unfavorable variance, as follows:

Collections
Variance/
Year
Estimates
Actual
Deviation

2004
P 309,701483
P 282,742,582
(P 26,958,901)
2005
343,731,455
336,847,199
( 6,884,336)
2006
411,183,490
417,160,623
5,977,133
2007
407,397,699
399,801,252
( 7,596,447)
2008
390,526,565
415,267,018
24,740,453

The  huge positive variance in 2008 was  brought   about  by  the  collection of
Royalties  and  property tax from the Philippine National Oil Corporation  or PNOC and may only be temporary.

On top of this,  the  Bureau  of  Local  Government  Finance,      Department of
Finance, in its Memorandum Circular No. 01-C-08 dated November 27, 2008 for the new classification of cities,  reclassified the City of Kidapawan from a second class city to a third class city on the basis of the average annual income as certified by the Commission on Audit.  This can result in a disadvantage if the LGU is poorly rated and the possible public impression that goes with it – that the City Government operates ineffectively and inefficiently.

Included  in  the  revenues  shown  above  is  the  City’s   Internal        Revenue
Allotment from the national government which was used as consideration for the Deed of Assignment in favor of the lending banks as required by the debt agreement on loans.   In relation to the City’s loan obligation with banks, the level of loans payable is now equivalent to 48% of the internal revenue share of Kidapawan City from the national income of the government.

The City Government has four (4) years from July 9, 2008 to work doubly hard
on  own-source revenue efforts to promote greater fiscal sustainability as intended by the LGU reclassification program of the Bureau of Local Government Finance of the Department of Finance and to recover from the recent circumstances of being downgraded.

As tackled in  our  Audit  Observation Memorandum  No. 2009-001,   the audit
encompasses assessing the environment that affects the ability of the LGUs to achieve its goals and objectives.  And it shows that the City Government of Kidapawan operates in an environment where unfavorable local radio broadcast happen.

The tax    information   system,  which have for its objective to enhance the financial capability of the City through its tax collection funds,  could  have  been  adversely  affected by the  negative broadcast media at certain levels.  Publicity about the City LGU which was made out of context of public policy, morals and good customs ran counter to the City’s own tax information campaign broadcast.

In identifying risks in LGU governance  and how the management address these risks at certain levels,  the City was unable to address those baseless media statements and negative media publicity  which  can  significantly affect the City’s reputation, fraud prevention controls and exposes the LGU to loss of revenues, low employee morale and employee fraud, among other.   A decline in public confidence would impair an LGU’s ability to efficiently raise funds.  The public could be misled by the untrue information from the media against the LGU,  its core operations and strategies.  The negative impact would be that the public might not have the necessary confidence in the LGU’s potential to provide services in return.  The consequences can be severe – the LGU will not have the same efficient access to the capital it needs to fuel its growth, execute its strategies, and generate future financial returns.

The management committed to look into significant issues and concerns affecting the LGU more seriously and in the right perspectives and to work most extensively on its reputation of providing socio-economic  services not only to its officials and employees but also to its constituents as whole.

Recommendation for Kidapawan City Government:

Work   doubly  hard  on own-source  fund with the end  in view  of  decreasing
the City’s dependency on the Internal Revenue Allotment and to address the adverse circumstances of the City as regards reclassification, evaluation and assessment  regularly done by the Department of Finance which are basically based on LGU revenues or income.

We   affirm  the    recommendation  contained in  our       Audit   Memorandum
No. 2009-001 dated February 5, 2009. The City of Kidapawan LGU should be able to position itself against negative media publicity and redirect its tax information system and strategies  in the light of the circumstances.

While  it would be sensible to institute  such  actions  deemed   necessary   and
appropriate      under        the circumstances of the LGU,   the amount of trouble, sacrifices, resources and other costs to the LGU in protecting its rights and obtaining justice should also be weighed versus the positive derivatives and  benefits of LGU actions and decisions.

VALUE-FOR-MONEY AUDIT
2.
Extent of desired results or benefits established for the utilization of Calamity Fund was not achieved due to the absence of a written policy and administration plan.

A DBM-DILG Joint Memorandum Circular  was  issued to  provide
clarificatory guidelines on the use of the 5% Calamity Fund, the pertinent provisions of which read, as follows:

1.
Pursuant to the provisions of RA 8185, otherwise known as “An Act Amending Section 324 (d) of RA 7160, otherwise known as the Local Government Code of 1991”, its implementing rules and regulations, and Executive Order No. 201 dated 26 April 2003, it is hereby clarified that the 5% local calamity fund of every local government unit (LGU) shall be utilized only for the relief, reconstruction, rehabilitation and other works and services, in connection with a calamity which occurred during the budgeted year.

2.
The calamity fund may also be utilized for undertaking disaster preparedness activities and measures, provided that the sanggunian concerned shall declare an imminent danger of calamity.

Under the aforesaid Act, calamity has been defined as a state of extreme distress or great misfortune caused by adverse event or natural force, causing widespread loss or extensive damage to livestocks, lives, crops and properties.

Accordingly, any adverse event, such as but no limited to, acts of terrorism and spread of Severe Acute Respiratory Syndrome (SARS) or other endemics, that could fall within the ambit of the definition of calamity defined by law, can be a legal basis for LGUs concerned to declare their own state of calamity.

In extreme case and under extra-ordinary circumstances, such as but no limited to, acts of terrorism and outbreak of dangerous and highly communicable diseases such as SARS, the calamity fund may also be utilized for disaster preparedness without the need of sanggunian declaration of calamity provided that there is a Presidential proclamation to the existence of an adverse event that would warrant the declaration of the entire country to be under the state of national calamity, which needs to be prevented or suppressed.

It must be emphasized however that all unexpended balances of the Calamity Fund shall be reverted back to the unappropriated surplus for re-appropriation during the succeeding budget year as provided under item b.4 of the Implementing Rules and Regulations (IRR) of R.A. No, 8185.

The appropriation for capital outlays shall remain valid until fully spent or reverted.

In cases as may be determined by the sanggunian concerned, the unexpended balance of the maintenance and other operating expenses portion of the aforesaid fund in support for the relief, rehabilitation, reconstruction and other works and services undertaken during the year in connection with the occurrence of the calamities, the effective implementation of which may extend beyond the calendar year subject to accounting and auditing rules and
regulations being observed for the purpose.

The 5% Calamity Fund can be utilized as a funding source for:

1.
Post relief expenses for relief, rehabilitation, reconstruction and other works or services in connection with calamities which may occur during the budget year (Par. (d), Section 1, RA 8185).

2.
Preparedness activities for relief, rehabilitation, reconstruction and other works or services in connection with man-made disasters resulting from unlawful acts of insurgents, terrorists and other criminals as well as for disaster preparedness and other pre-disaster activities. (DBM-DILG Joint Memorandum Circular No. 2003-1, dated March 20,2003).

3.
Provided that:

3.1
Such fund shall be used only in the area, or a portion thereof, of the local government unit or other areas affected by a disaster or a calamity, as determined and declared by the local sanggunian concerned. (Par, (d), Section 1, RA 8185)

3.2
In extreme cases and under extra-ordinary circumstances, such as but not limited to, acts of terrorism and outbreak of dangerous and highly communicable diseases such as SARS, the calamity fund may also be utilized for disaster preparedness without need of Sanggunian declaration of calamity provided that there is a Presidential proclamation to the existence of an adverse event that would warrant the declaration of the entire country to be under the state of national calamity, which needs to be prevented or suppressed (undated DBM-DILG Joint Memorandum Circular).

The Audit  Team  assessed  the efficiency and  effectiveness  of  predetermined

goals and objectives of the calamity fund and determined whether the city government’s compliance with the requirements of the law on calamity fund has contributed to the attainment of such goals and objectives.

Thus,   specifically  on  the  requirement   or   local  development           council

monitoring on the use and disbursements of the local calamity fund and utilization for undertaking disaster preparedness activities and measures, provided that the sanggunian concerned shall declare an imminent danger of calamity,  the audit team expected a defined standard of measure such as the City Disaster Preparedness Plan or its equivalent upon which the desired level for achieving the predetermined goals and objectives of a calamity fund can be best measured and used for subsequent planning.

The City  Disaster  Coordinating Council  was reorganized  and  its  functions
and responsibilities redefined under Executive Order No. 005 dated March 3, 2005.  However, there were still instances during the audit year 2008 where the city was barred the  use and disbursements from the calamity fund for activities which were noted to be within the ambit definition of calamity as enunciated by law,  and could be authorized expenditures chargeable to calamity fund,  mainly due to constraints in the execution of standard procedures.  Such standard procedures could have actually been executed had the City Disaster Coordinating Council come up with a standard City Disaster Preparedness Plan with the allotted fund requirement.  The activities,  measures and utilization to be laid in the City Disaster Preparedness Plan are those for undertaking disaster preparedness activities and provided the sanggunian concern shall declare an imminent danger of calamity.

Apparently,   the  efficiency  and  effectiveness of  the   purpose  for which  the
calamity fund is prescribed by law and  for undertaking disaster preparedness activities and measures may be best gauged had there been a City Disaster Preparedness Plan.  Such Plan could have also served as the  delivery system  to ensure the continuing relevance of activities and attainment of intended objectives  for which the calamity fund is constituted.

A  bird’s  eye  view  of  the   5% calamity fund ,  allotment  and charges  for the
calendar year, 2008 gives us the following:

Total Appropriation
P17,863,654.33

Total Obligations and Charges
5,089,899.10

Balance
12,773,755.23

At a glance, the City Government has so much reason to be thankful for.  The

figures above would show that there was no crisis during the year.  But it may not really be the case.  As mentioned,  there expenditures which were noted to be within the ambit definition of calamity as enunciated by law,  and could be authorized expenditures chargeable to calamity fund but that the City Government was barred from using the fund mainly due to constraints in the execution of standard procedures.

Of  the total charges of  P5,089,899.10,  P1,600,000.00 was for  the  acquisition
of one (1) unit refrigerated centrifuge for the use of the Kidapawan City Blood Bank.  Based on the records provided to the Audit Team, the acquisition and the charge to calamity fund was authorized under Sanggunian Panlungsod Resolution No. 08-247. The said resolution did not speak of a declaration of calamity but that it was,  at the same time,  taken as proof of sanggunian declaration of calamity.  Furthermore, the purchase was recorded as plain donation despite the herein pronouncement of the law on capital outlay and of COA GAFMIS Circular Letter No. 2003-003 dated November 13, 2003.  On the financial and compliance aspect on one hand,  a proposed an adjusting journal entry was made in the appropriate portion of this report. On the other hand and in the realm of predetermined goals and objectives, certain failures could have been avoided had there been judiciously and meticulously made disaster preparedness plan for the City.
Recommendation for Kidapawan City Government:

Evaluate the  basic  needs  versus  ability to  timely    procure   and     distribute

goods or deliver many other activities during crisis times.  These can be best addressed following the guidelines and procedures in the adoption of an  appropriate disaster preparedness plan incorporating all crisis preparedness and prevention activities subject to the declaration of eminent danger of calamity by the local sanggunian.

FINANCIAL AND COMPLIANCE AUDIT

1.
Lapses in the recognition of financial transactions and in the formulation of accounting entries have materially misstated some individual accounts presented in the financial  statements as of December 31, 2008.

In accordance with the generally accepted  accounting  and  auditing standards,
the  New Government Accounting Systems Manual presents the basic policies and procedures to be adopted by all local government units in accounting for government funds and property.  It prescribes the use of  standard accounts in accounting for the financial transactions of the government.  The Manual provides the title and description of accounts in the accounting and recording of such financial transactions.

Some lapses in the recognition of financial transactions and in the formulation
of accounting entries were noted.  These have materially misstated some individual accounts presented in the financial statements as of December 31, 2008.  Proposed Adjusting Journal Entries (PAJE) were made for the said financial transactions  which include the following:
Brief Description of Facts
Amount
1.
Equipment purchased for the Kidapawan City Hospital which was recorded as Donation
P 1,600,000.00

2.
Construction of NIA CIS and CIP Projects’ construction in progress directly debited to Other NGAS
33,406,980.98

3.
Local Currency Current Account-Difference in balances between  books and bank:

Undetermined difference added to bank per BRS
Bank Acct No. 01090-930-2 TF Proper
0742-1011-34
01091-930-7
442,171.04
957,870.63
48,376.34

Unadjusted cash items added to books-dormant
Bank Acct No. 0930-010814-030
01091-930-7
1,976,014.26
1,552,977.50

Unadjusted  deposit items added to bank dormant over 15 years- Bank Acct No. 0930-010814-030
942,167.13

Unrecorded Loan Proceeds
Bank Account No. 01091-930-7
0742-1011-34
10,000,000.00
1,253,177.31

4.
Public Infrastructure in the Property, Plant &
Equipment account
2,131,088

5.
Overstatement in the Property, Plant and Equipment carried over from prior years-balance per books is greater than the total per physical inventory report.

16,831,167

6.
Amount of cash shortage covered by special investigation report and filed and already under the disposition with the Office of the Ombudsman as per CPL-M-08-0258 not taken up in the books.

6,750,736.68

7.
Appropriation and payment for loan  undertaken under the general fund for the delinquent liability account in the Trust Fund. The repayment was not eliminated in the consolidation of accounts.  Thus, the debit item in the long-term liability schedule.

(     250,000)

A summary of these proposed adjusting journal entries was made part of this
report as Annex C.

In addition, accounts presented in the financial statements of the special accounts
in the general fund do not tally with the respective subsidiary ledger balances.  We are showing below the discrepancy in the Cash in Bank, Local Currency Current Account as sample of accounts which showed such discrepancy,  thus -

AMOUNT
Special Accounts
Per S/L – GF
Per B/S Special Account
Difference
[SLs Over (Short)]
General Fund -Proper

Land Bank
P 93,780,412.68

Dev Bank of  Phil
121,912,530.20

Total
215,692,942.88
P 201,365,564.04
P 14,327,378.84
Integrated Trans Terminal

Land Bank
9,214,707.69

Dev Bank of  Phil
(590,636.35)

Total
8,624,071.34
51,464,959.74
(42,840,888.40)

Market and Slaughterhouse

Land Bank
6,106,645.87

Dev Bank of  Phil
(239,705.56)

Total
5,866,940.31
4,135,115.25
1,731,825.06
Hospital

Land Bank
(5,906,339.71)

Dev Bank of  Phil
(262,983.11)

Total
(6,169,322.82)
(6,574,778.02)
405,455.20

20% EDF

Land Bank
(42,561,623.22)

Dev Bank of  Phil
(4,952,473.52)

Total
(47,514,096.74)
(65,769,718.00)
18,255,621.26

Study Now Pay
Later Plan

Phi Nat Bank
24,812.74
-
24,812.74
GRAND TOTAL
P 176,525,347.71
P 184,621,143.01
(P 8,120,608.04)
24,812.74
In the SL schedule totals – not in balance sheet of the GF

while the special accounts in the general fund disclosed red balances, as shown in Annex F  in view certain  deficiency during the setting up of the accounts under eNGAS and in the subsequent accounting entries.

Recommendation for Kidapawan City Government:

Recognize accounting facts and transactions  in  accordance  with the generally
accepted accounting and auditing standards and pursuant to basic policies and procedures, account titles and description as provided under the New Government Accounting System.

Require the reconciliation of subsidiary  ledger   balances and  figures presented
in the financial statements as of a given period.  Subsidiary ledgers and their balances supporting the figures in the financial statements provides reasonable assurance on the accuracy and the reliability of financial records that allows the preparation of such financial statements.  Therefore, observance of these standards must always be given utmost concern.