July 4, 2010
VALUE FOR MONEY AUDIT
5. Loans Receivable – Others totaling P2,958,760.19 cannot be determined as having served its purpose of providing livelihood projects to the beneficiaries of the loans.
Year-end reports of the LGU showed balance of P 2,958,760.19 for Loans Receivable-Others under the General Fund.
This account represented loans granted to individuals and groups/organizations with the purpose of financing livelihood projects with loan amount ranging from 1,000 to a considerable sum of 100,000 which were granted as early as 1987 (Annex III.b.) As determined, pertinent documents relative to the granting of loans were not maintained by the LGU.
Likewise, the LGU failed to monitor the extent of the granting of the loans to the recipients, thus, information or statuses on the following aspects were not established:
a) whether or not the granting of loans had contributed to the attainment of socio-economic development goals of the LGU;
b) whether fund assistance have been given to non-qualified applicants;
c) whether the proceeds of the loan have been used by the beneficiaries for the purpose applied for;
d) whether the loans have been properly recorded and accounted for in the LGU’s books.
The existence of lapses in the management of the loans granted to different beneficiaries cannot provide adequate proof that economy, efficiency and effectiveness in the disposition of government funds had been attained.
Furthermore, these loans were granted as early as 1987 and have been dormant for over three (3) years now indicating that percentage of collectibility is very remote.
With the end in view of eliminating waste and promoting efficient use of public funds and resources and ascertainment of agency’s effectiveness by determining whether desired results have been achieved and programs have accomplished their purpose and objectives, Section 2 of PD1445 is quoted hereunder:
“DECLARATION OF POLICY. It is the declared policy of the State that all resources of the government shall be managed, expended, utilized in accordance with law and regulations, and safeguarded against loss or wastage through illegal or improper disposition, with a view to ensuring efficiency, economy, and effectiveness in the operations of government. The responsibility to take care that such policy is faithfully adhered to rests directly with chief or head of the government agency concerned.”
During the exit conference, the City Mayor assured has assured compliance of our audit recommendations.
Recommendations for Mati City Government:
Cause the formation of a committee that shall oversee whether or not such granting of livelihood programs had contributed to the socio-economic development goals of the LGU as its references in future decision- making.
Require the Accountant and other persons responsible for the implementation of the Livelihood Project to conduct extensive, exhaustive verification and evaluation of the dormant loans and to come up with appropriate recommendations including the possible writing off of the established doubtful accounts pursuant to Section 36 of P.D. No. 1445, otherwise known as the Government Auditing Code of the Philippines.
July 4, 2010
4. Propriety of various disbursements of gasoline, oil and lubricants totaling P1,482,245.53 is held doubtful as these did not conform to the provisions set forth in COA Circular 77-61 as well as with Section 4 of PD1445.
COA Circular No. 77-61 dated September 26, 1677 was prescribed in order to minimize, excessive and unnecessary expenditures for fuel consumption of government vehicles, in line with the government concern and efforts to ensure the effective conservation of energy and proper utilization of government motor transportation. Dispositive portions of this Circular is hereby quoted, thus:
“B. Rules and Regulations
(1) Excessive use of government motor transportation shall be disallowed to officials specifically authorized the use thereof under existing appropriations law or other special laws.” x x x
Specific x x x
(2) Use of government vehicle shall be properly controlled and regulated.
- The use of government vehicles should be controlled through properly accomplished and duly approved Driver’s Trip Tickets (Appendix A) which should be serially numbered, a summary of which shall be made at the end of the month in a Monthly Report of Official Travels (Appendix F) for audit purposes.
(3) Fuel consumption of government motor transportation shall be properly controlled and accounted for through approved Requisition and Issue Voucher or equivalent (Appendix B).xxx
Likewise, provisions of Sec. 4 of P.D. No. 1445 which mandate for the observance of the fundamental principles is quoted as follows:
(6) Claims against government funds shall be supported with complete documentations.
(7) All laws and regulations applicable to financial transactions shall be faithfully adhered to.
(8) Generally accepted principles and practices of accounting as well as of sound management and fiscal administration shall be observed, provided that they do not contravene existing laws and regulations.”
Review of the financial transactions for the period January-September 2007 (Annex III.a) of the LGU pertaining to expenditures of fuel and oil disclosed that some claims were either not supported with trip tickets and fuel utilization reports or both. In addition, where trip tickets are attached to the sample disbursement vouchers, the following deficiencies were noted:
1. Plate Number and type of vehicle was not indicated in the trip tickets;
2. Trip tickets attached were not duly approved and/or serially numbered;
3. Official purpose of travels was not indicated.
The existence of the deficiencies relative to the disbursement of gasoline and oil cast doubt whether gas and oil consumption was effectively controlled and properly accounted for.
In the exit conference, the City Mayor reminded the officials to comply with the audit recommendation and have this institutionalized in the processing of claims for fuel.
Recommendation for Mati City Government:
Enforce the provisions on COA Circular no. 77-61 on the preparation and submission of the Fuel Consumption Report to establish the reasonableness on the consumption of gasoline, oil and lubricants of every vehicle.
July 4, 2010
3. Other Maintenance and Operating Expenses account (969) amounting to P18,078,140.04 included various expenses that can be classified to specific expense accounts.
Year-end financial statements of the General Fund of the LGU showed a balance of P 18,078,140.04.
Under the New Government Accounting System, the account Other Maintenance and Operating Expenses (Account 969) is used to record the amount of expenses not otherwise classified under the specific maintenance and other operating expense accounts.
Review of charges against the funds recorded as Other Maintenance and Operating Expenses disclosed that these consist of salaries and wages of casuals and job order employees charged to various offices and programs of the LGU.
In a schedule submitted by the Accounting Office, charges made to the different offices and programs of the LGU under the account Other Maintenance and Operating Expenses (969) were broken down as follows:
OFFICE/PROGRAM AMOUNT Security P 5,643,341.79 Casuals from Barangays, SB, MMO,Other Offices and Janitorial 4,477,951.33 Draftsman and Tax mapping 420,341.19 Sports 57,463.06 Traffic Management/Tourism 271,716.14 GSO,LCR,Housing Program 610,469.98 Comelec,CRMP,Business Bureau,BAC Program 1,077,393.93 UDP 376,007.57 MHO, Health special Program 753,132.58 Clean and Green Solid Waste Program 1,947,924.58 MTO Program 224,697.89 Cithihood expenses 2,217,700.00 Total P 18,078,414.04
Salaries and wages are assigned specific accounts under Personal Services in the chart of accounts under the New Government Accounting System (NGAS).Thus, it had appeared that charges made to said account had in effect of exhausting available funds even if such expenditures were not appropriate to be accounted for as Other Maintenance and Operating Expenses such that objectivity and consistency in keeping the accounts had not been strictly observed which resulted in an inaccurate and misleading information.
Salaries and Wages paid to either casual and /or contractual employees are classified as Personal Services (PS) while Other Maintenance and Operating Expenses (969) are a Maintenance and Other Operating Expenses (MOOE). Thus, recording the salaries and wages paid to casual and/or contractual employees of the LGU as Other Maintenance and Operating Expenses (969) provided inaccurate and misleading information.
During the exit conference, the City Accountant explained that Other Maintenance and Operating Expenses(969) was used to record wages paid to casual and/or contractual employees that were actually labor component of the programs and activities undertaken by the LGU. Likewise, the other agency officials stressed that the practice has to be resorted in order to avoid deviation from the limitation on the grant of personal services which is not exceeding 55% set forth under section 325 of the R.A. No. 7160, the Local Government Code of 1991. Furthermore, the City Mayor explained that with the increase in the share in the Internal Revenue allotment , charging of salaries and wages to Other Maintenance and Operating Expenses(969) maybe minimized or completely avoided.
Recommendations for Mati City Government:
Require the official and employees responsible for the processing of claims against the LGU’s funds to see to it that claims are accounted for and classified according to its proper and appropriate accounts as specified in the NGAS Chart of Accounts.
Likewise, provisions on the Local Fiscal Administration under Title V, Book II of R.A. No. 7160, otherwise known as the Local Government Code of 1991 are to be strictly observed in the management, utilization and other disposition of LGU’s funds and property.
July 4, 2010
2. Fund transfers from the Special Education Fund (SEF) to the General Fund totaling P8,050,000.00 had indicated the use of the former fund to back up the operational expenses under the General Fund contrary to existing provisions of law.
One of the fundamental principles governing the financial affaires, transactions and operations of local government units as mandated under Section 305 of RA. No. 7160, otherwise known as the Local Government Code, provides that no money shall be paid out of the local treasury except in pursuance of an appropriations ordinance or law.
Furthermore, Section 309 of the Code mandates for the maintenance of special funds by the local government units quoted as follows:
“Section 309. Special Funds. – There shall be maintained in every provincial, city of municipal treasury the following special funds:
(a) Special Education Fund which shall consist of the respective shares of provinces, cities, municipalities and barangays in the proceeds of the additional tax on real property to be appropriated for purposes prescribed in Section 272 of the Code; and x x x
Section 272 of the same code also provides for the application of the proceeds accruing to the special fund quoted as follows:
“Section 272. the Application of proceeds of the Additional One Percent SEF Tax. – the proceeds from the additional one percent(1%) tax on real property accruing to the SEF shall be automatically released to the Local school boards: Provided, That, in case of provinces, the proceeds shall be divided equally between the provincial and municipal school boards: Provided, however, That the proceeds shall be allocated for the operation and maintenance of public schools, construction and repair of school buildings, facilities and equipment, education research, purchase of books and periodicals, and sports development as determined and approved by the local school board.”
Review of the Due to Other Funds of the General Fund disclosed the following entries:
a) JEV #10007031601 dated March 2007- fund transfer from SEF dated May 8, 2007 P 4,000,000.00 b) JEV # 10007072248 dated May 2007- fund transfer from SEF dated May 8, 2007 1,800,000.00
c) JEV # 10007072964 dated July 2007- fund transfer from SEF dated June 07,2007 100,000.00 d) JEV # 10007093700 dated September 2007 – fund transfer from SEF dated August 2007 2,150,000.00
Sub-total P 8,050,000.00 Less: repayment under JEV # 10007093700
2,150,000.00 Total P 5,900,000.00
Analysis on the above journal entry vouchers revealed that fund transfers from the SEF were made to back up the General Fund operational expenses. Moreover, it was also determined that there are still funds in the General Fund amounting to P5,900,000.00 which have not been returned yet to the SEF. Apparently, the observations noted on the fund transfer is a violation on the use of SEF as provided under the Code.
It was further noted that the subsequent repayments made to SEF which were not programmed in 2007 had the effect of depleting the cash available for operations of the general fund during the year.
Furthermore, it has also been determined that the fund transfers from the SEF were taken up as reconciling items in the bank reconciliation statements (BRS) without corresponding journal entry vouchers to record the adjustment in the books; thus, year-end balances of the SEF showed Due from Other Fund of only P5,636.11 when Due to Other Funds under the General Fund showed year-end balance of P 4,074,794.92. In effect, treating the fund transfers as reconciling items in the BRS understated the SEF Due from Other Funds account.
In relation to the reconciling entries in the BRS, Section 3.3 of COA Circular No. 96-011 dated October 02, 1996 is quoted hereunder:
”3.3 The accountant shall draw journal vouchers to record all valid reconciling items that require adjustment and correction in the GL.”
It is worth stressing that keeping these reconciling items outstanding for a longer period of time does not provide timely and accurate financial reporting of the Cash in Bank account of the LGU. Provisions of Section 111 of P.D. 1445 is quoted hereunder to put emphasis on the issue:
Section 111. Keeping of Accounts – (1) The accounts of an agency shall be kept in such detail as is necessary to meet the needs of the agency and at the same time be adequate to furnish the information needed by fiscal or control agencies of the government.
(2) The highest standards of honesty, objectivity and consistency shall be observed in the keeping of accounts to safeguard against inaccurate or misleading information.
During the exit conference, the City Mayor explained that repayment to the SEF had been already effected in January 2008 and directed the City Accountant to prepare adjusting entries to the SEF. She also emphasized that such fund transfers will not happen again in the future.
Recommendations for Mati City Government:
Refrain from utilizing the Special Education Fund to back up the operational expenses of the General Fund.
Require the Municipal Accountant to effect adjustments in the Due from Other Fund account of the SEF, taking into consideration the reconciling items pertaining to the fund transfers.
Observe strictly the fundamental principles governing the financial affairs, transactions and operations of local government units enshrined under Section 305 of the Local Government Code.
July 4, 2010
DETAILED FINDINGS AND RECOMMENDATIONS
I. FINANCIAL AND COMPLIANCE AUDIT
1. Physical Inventory-taking of the Property, Plant and Equipment costing P250,321,676.53 had not been conducted rendering the existence, validity and propriety of the account balance doubtful. Likewise, appropriate depreciation expense for depreciable assets amounting to p 81,000,226.66 was not set up during the year in contrary to the provisions under the New Government Accounting System, resulting in the understatement of expense account and correspondingly overstating the income and asset accounts.
Existing regulations require the annual physical-inventory taking of the Property, Plant and Equipment as of the end of the year, and to reconcile the count with the accounting records. The City of Mati failed to adhere to such regulation, thereby rendering the existence, validity and propriety of the account amounting to P50,321,676.53 doubtful.
Furthermore, one of the basic features of the New Government Accounting System (NGAS) is the setting up of depreciation on the property, plant and equipment as provided for under Section 4 of NGAS Manual for the Local Government Units prescribed under COA Circular No. 2003-007 dated December 11, 2003, hereby quoted as follows:
“The straight line method of depreciation shall be used. A residual value equivalent to 10% of the cost shall be set up & depreciation shall start on the 2nd month after purchase/completion of the Property, Plant & Equipment. Public Infrastructure shall not be charged any depreciation.”
Depreciation as defined in the New Government Accounting System is an account use to record the reduction in value of property due to use in the course of government operation or in production of income. This account is debited as expense and is included in the income statement with Accumulated Depreciation as its corresponding credit which is a contra-asset account included in the balance sheet presentation.
Review of the financial records of the LGU as of December 31, 2007 showed a combined book value of P 81,000,226.66 for its depreciable assets under the General and Special Education Fund. No Depreciation expense had been set up for the year.
Likewise, the failure of the LGU to conduct physical inventory of its Property, Plant, and Equipment consequently cannot provide updated appraisal of the useful lives; hence, the Accounting Office cannot set up Depreciation account that may be relied upon as accurate and adequate.
When depreciation expenses is not provided for its depreciable assets and so is its contra-account, Accumulated Depreciation and the book value of the accounts Property, Plant and Equipment and Government Equity may not be relied upon as fairly presented in the financial statements.
It was discussed during the exit conference that physical inventory had been undertaken by management, however, it is not yet completed and the members of the inventory committee agreed to have the inventory be completed this year.
Recommendations for Mati City Government:
Cause the immediate physical inventory-taking on all the properties, plant and equipment and reconcile them with accounting records, to establish the existence and validity of the reported balances. Observe the procedures outlined in the conduct of inventory-taking laid out in Section 491 of the Government Accounting and Auditing Manual (GAAM), Vol. 1, COA Circular No. 92-386 and other pertinent guidelines.
Likewise, require the prompt submission of the report on the physical count or inventory-taking and to come up with appropriate recommendations thereon including the possible disposal of the established unserviceable properties pursuant to the Rule on Disposal of Supplies and Property implementing Section 79 of PD 1445.
Accordingly, the setting up of depreciation as required under the NGAS has to be complied with.