July 25, 2010
July 24, 2010
July 2, 2010
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:
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.
July 2, 2010
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:
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.
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:
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).
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).
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)
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 Obligations and Charges
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.
July 2, 2010
FINANCIAL AND COMPLIANCE AUDIT
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
Equipment purchased for the Kidapawan City Hospital which was recorded as Donation
Construction of NIA CIS and CIP Projects’ construction in progress directly debited to Other NGAS
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
Unadjusted cash items added to books-dormant
Bank Acct No. 0930-010814-030
Unadjusted deposit items added to bank dormant over 15 years- Bank Acct No. 0930-010814-030
Unrecorded Loan Proceeds
Bank Account No. 01091-930-7
Public Infrastructure in the Property, Plant &
Overstatement in the Property, Plant and Equipment carried over from prior years-balance per books is greater than the total per physical inventory report.
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.
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.
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 -
Per S/L – GF
Per B/S Special Account
[SLs Over (Short)]
General Fund -Proper
Dev Bank of Phil
Integrated Trans Terminal
Dev Bank of Phil
Market and Slaughterhouse
Dev Bank of Phil
Dev Bank of Phil
Dev Bank of Phil
Study Now Pay
Phi Nat Bank
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.