July 1, 2010
Value for Money Audit
a. 20% Development Fund
For the year 2008, the city focused on the delivery of basic services to its constituents based on the annual development plan. Programs and activities of the different sectors were implemented for the good of public service.
No adverse finding was noted on this aspect.
July 1, 2010
Accounts Receivable from cooperatives totaling P1,130,250.00 were not recorded in the books, thus resulting to understatement of both the asset and equity accounts by P600,049.00 representing the uncollected balance.
Section 21 of the Manual on the New Government Accounting System, Volume III described Accounts Receivable as an account used to record among others, the amount due from customers/clients resulting from trading/business transactions/operations.
One of the goals of the city government is to increase agricultural productivity and income, diversify agriculture and enhance the economic well being of the people.
Thus, during the year, the city purchased 660 bags of fertilizer costing P1,274,000.00 for distribution on credit to the farmers and some employees of the city who are members of the cooperative organized and located within its territorial jurisdiction. Upon purchase, the fertilizers were received by the City Agriculturist (CA) and the entry made by the Accountant was a debit to Agricultural Supplies Inventory and a credit to Cash in Bank-Local Currency, Current Account.
There was a Memorandum of Agreement between the city government as first party represented by the City Agriculturist and the identified cooperative as the second party, represented by the Barangay Chairman where the cooperative was located.
It was stated in their implementing guidelines that loans shall be interest free for a period of 150 days and shall bear interest of 10% per annum after the due date. But they were given an incentive of 10% based on the total amount of loan if it will be paid on or before the due date. Release of fertilizers to the cooperative was done by the City Agriculturist without submitting a report to the City Accountant.
Verification of records revealed that there were four (4) cooperatives organized and situated in barangays Hoyohoy, Catagan, Caniangan and Guinalaban composing of 84 members that were given fertilizers to be paid on installment basis. Total amount due from the cooperatives accumulated to P1,130,250.00 with collections of P530,201.00 leaving collectibles of P600,049.00 as of end of year (Annex 4).
The City Agriculture’s Office which was tasked to supervise the implementation of the program, keep the records of the farmers and monitor collection of dues. Monthly reports on the status of their accounts were not submitted to the City Accountant. Payment of loans were collected by the City Treasurer and a corresponding official receipt was issued, however, the collections were not treated as loan payment but was recorded as other income. The nature of collection was not indicated in the official receipt.
Likewise the City Accountant failed to record and keep subsidiary ledger of these transactions.
For the failure of the release of fertilizers to the cooperatives, the inventory and income accounts were overstated while liability and loans receivable were understated.
The concerned officials assured to rectify the lapses in the ensuing year.
Require the City Accountant to make a correcting entry in the ensuing year by debiting Loans Receivable-Others for P600,049.00, Prior Year’s adjustments for P530,201.00 and crediting Agricultural Supplies Inventory for P1,130,250.00. Require the City Agriculturist to submit Monthly Status report of cooperative’s account to the City Accountant to facilitate the reconciliation and monitoring of their accounts. Require also the City Accountant to record thereafter the receivables in the books and keep subsidiary ledger on these receivables.
Require the General Services Officer (GSO) to receive deliveries and issuance of fertilizers as recommended by the CA and submit a report to the City Accountant for proper accounting.
July 1, 2010
DETAILED FINDINGS AND RECOMMENDATIONS
Due to the failure of the City Accountant to examine the Work and Financial Plan of the City and the supporting documents submitted by the Philippine National Red Cross (PNRC) to qualify to receive financial assistance, government programs had not been implemented as envisioned.
Provisions of Section 4.4 of COA Circular No. 2007-01 dated December 18, 2007 states the following requisites for entitlement to receive funding from the local government.
1. Certificate of registration with the Securities and Exchange Commission (SEC), and/or either the Cooperative Development Authority (CDA) or the Department of Labor and Employment (DOLE) as the case may be, depending on the nature of the service required to be rendered. This is to ensure that the NGO/PO has a legal personality; has officers who are responsible and accountable for its operations, and is based in the community where the project shall be implemented. Exempted from this registration requirement are international organizations and specialized agencies doing business in this country as a result of bilateral agreements.
2. Authenticated copy of the latest Articles of Incorporation, or the Articles of Cooperation as the case may be, showing the original incorporators/organizers and the Secretary’s certificate for incumbent officers, together with the Certificate of Filing with the SEC/Certificate of Approval by the CDA.
3. Financial reports, audited by an independent Certified Public Accountant, for the past three years preceding the date of project implementation, to ensure that it has a stable financial condition and that the funds provided by the GO shall not be its sole source of funds. For NGO/PO which has been in operation for less that three (3) years, report of accomplishment or any equivalent proof certified by its President and Secretary that it had previously implemented similar projects shall be required, in addition to financial reports for the years it has been in operation.
4. Disclosure by the NGO/PO of other related business, if any, and extent of ownership therein;
5. Work and Financial Plan, and Sources and Details of Proponents Equity Participation in the Project.
6. Complete project proposal approved/signed by its officers which shall be include the objectives, target beneficiaries, feasibility studies, risk assessment, designs, plans, blueprints, charts, etc.
7. List and/or photograph of similar projects previously completed by the NGO/PO, if any, indicating the source of funds for their implementation.
8. A sworn affidavit of the Secretary of the NGO/PO that none of its incorporators, organizers, directors or officials is an agent of or related by consanguinity or affinity up to the fourth civil degree to the officials of the GO authorized to process and/or approve the proposal, the MOA and the release of funds. Relationship of these natures shall automatically disqualified the NGO/PO from being granted the fund.
For the year 2008, the city government released the following financial assistance to the PNRC without the important supporting documents as required in the said circular.
Records showed that the City Accountant certified as to the completeness of the supporting documents, but only Sangguniang Panlungsod Resolution No.6, S. 1998 dated February 25, 1998 granting permanent financial aid and the official receipt were attached to the disbursement vouchers. Financial Aid to PNRC was just reflected in the Annual Appropriation Ordinance without supporting document specifying the specific programs.
Per evaluation, the PNRC had not programmed nor identified projects for its constituents, such as livelihood development, manpower development, sports development, cooperative development and others as mandated in the circular.
It was observed that most of their expenses were on the purchase of office supplies, gasoline, repair and maintenance of vehicles, traveling expenses, promotional expense related to blood donors, mobile phone bills, blood supplies, reagents and financial aid for blood processing fees. (Annex 3) Further, it was alleged by the Administrator that the supporting documents such as receipts and the like were all forwarded to PNRC Manila. Verification of the PNRC records disclosed further that the total amount was expended, thus, showing no balance as the end of the year.
During the year, only 111 (Annex 3a) bags of bloods were being served to the constituents at an average cost of P4,504.50.
Had the City Accountant carefully examined the Work and Financial Plan of the city and the supporting documents submitted by the NGO/PO to qualify to receive financial assistance, government programs could have been implemented as envisioned.
Management agreed to this observation and assured of corrective action.
Require the City Accountant to strictly follow the provisions on the requisites for entitlement to government funds per Section 4.4.1 to 4.4.8 of COA Circular No. 2007-001 particularly on the inclusion of the programs in the Work and Financial Plan of the City.
July 1, 2010
DETAILED FINDINGS AND RECOMMENDATIONS
Due to error committed in recording IRA Receivable in 2001 and 2004 by debiting Due from NGAs and Crediting Internal Revenue Allotment for P15,228,268.00, the net income for the current year was overstated by the same amount.
Accounting principle dictates that transaction for a particular year should be properly recorded and classified in the correct account so that financial statements shall be fairly presented.
Pursuant to Executive Order No. 723 dated May 12, 2008, the Department of Budget and Management issued a Notice of Payment Schedule (NPS) dated May 16, 2008 informing the City Mayor of Tangub City that the city has its share in the Internal Revenue Allotment (IRA differential from FYs 2001 and 2004) corresponding to the difference between the IRA level reflected in the National Expenditure Program (NEP) and the amount released under the re-enacted budgets for said budget years. IRA receivables for CY 2001 is P12,754,130.00 and P2,474,138.00 or a total of P15,228,268.00. This amount shall be paid in seven (7) equal installments at P2,175,467.00 per year to start from May 2009 up to May 2015.
As provided in Section 2 of the same Executive Order, the local government unit (LGU) may use the NPS for enrolment in the IRA Monetization Program where it may opt to collect in advance the discounted value of the above amounts from the trustee bank.
However, the city government, in its desire to finance various priority projects, opted to avail a loan of P15,228,268.00 on August 5, 2008 from Land Bank of the Philippines (LBP), Ozamis City Branch using IRA Receivable in CY 2001 and 2004 as collateral duly supported by Notice of Payment Schedule. The term of the loan is seven (7) years with no grace period payable in equal yearly installment to start on May 31, 2009 to coincide with the NPS while the interest shall be sourced from the 20% of the regular IRA. The interest rate is 9.125% per annum payable quarterly with first payment to be made on August 31, 2008.
Upon Receipt of NPS, the Accountant recorded the IRA Receivable as a debit to Due from NGAs and a credit to Internal Revenue Allotment for P15,228,268.00.
Upon receipt of the Credit Advice from LBP showing the net amount credited to its current account, the entry made was a debit to Cash in Bank-Local Currency, Current Account and a credit to Loans Payable-Domestic for P15,228,268.00.
Another journal entry for the payment of processing fee and documentary stamps was made by debiting Documentary Stamps Expenses for P76,141.40, Other Financial Charges for P76,141.34 and Crediting Cash in Bank-Local Currency Current Account for P15,282.74.
In effect, the net income in the Statement of Income and Expenses during the year was overstated by the amount of P15,228,268.00. The Accountant justified that since NPS was received in 2008, she treated it as current year’s IRA.
The City Accountant accepted our finding and promised to be cautious of the period to which the transactions relate.
Require the City Accountant to record future transactions affecting income accounts considering the period to which they accrue since the Internal Revenue Allotment Account of 2008 had been closed to Retained Earnings Account.
July 1, 2010
DETAILED FINDINGS AND RECOMMENDATIONS
Cash Advances granted to officers and employees for official travel were not liquidated within the prescribed period, in violation of COA Circular No. 97-002, thus resulting to understatement of traveling expenses and overstatement of income by P1,544,201.60.
COA Circular No. 97-002 dated February 10, 1997 provides for a more efficient and effective control over the granting, utilization and liquidation of cash advances. It further states – “No additional cash advances shall be allowed to any official or employee unless the previous cash advance given to him is first settled or proper accounting thereof is made. The accountable officer shall liquidate his cash advance on official travel within 30 days after return to his permanent official station in the case of local travel. Failure of the accountable officer to liquidate his cash advance within the prescribed period shall constitute a valid cause for the withholding of his salary.”
Unliquidated travel cash advances due as of December 31, 2008 amounted to P1,544,201.60. Please see Annex 2 for details.
Records disclosed that management was not quite strict in the implementation of the prescribed rules and regulations. Officers and employees were granted additional travel cash advances even if the previous advances were not liquidated. Hence, traveling expenses were understated while income was overstated by P1,544,201.60
Management confirmed this finding and assured of improving the present situation.
Require the concerned officers and employees to liquidate their travel cash advances within 30 days after return to permanent official station. Require the City Accountant to make a periodic monitoring in the liquidation of cash advances and defer processing of succeeding travel cash advances unless the previous ones are settled as required.
July 1, 2010
DETAILED FINDINGS AND RECOMMENDATIONS
I. Financial and Compliance Audit
The city’s financial transactions, accounts and reports were verified and analyzed. Financial transactions were recorded timely due to the implementation of the eNGAS. These transactions were recorded in the books of accounts and the required reports were prepared and submitted.
Collections were properly receipted in accordance with the rules and regulations and cash payments were made on duly approved payrolls/disbursement vouchers.
However, the following are the deficiencies noted in the audit of the accounts and transaction of the city:
Due to poor supervision and monitoring, regular revenue collectors failed to remit their collections on time to the liquidating officer in violation of Section 29 of the Manual on the New Government Accounting System, thus exposing funds to misuse or misappropriation and depriving the city government of the immediate use of the income earned during the period.
Section 29 of the Manual on the New Government Accounting System provides that at the close of each business day, all collectors/tellers shall accomplish the Report of Collections and Deposits (RCD) in four copies. The original and two copies, together with the duplicates and the official receipts issued, shall be submitted to the treasurer/cashier to whom the cash collected shall be turned over. The fourth copy of the RCD shall be retained by the collector/teller concerned. In the case of collectors assigned to the field, where travel time from their places of assignment to the Treasurer’s Office is more than one day, turn over of collections shall be made at least once a week or as soon as the collections reach P5,000.00
Section 31 of the same Manual provides that collectors shall turn over their collections to their designated liquidating officer if any by increasing the RCD to five copies.
Verification showed that a memorandum from the City Treasurer was issued to the Chief, Business and Realty Tax Division requiring her to strictly monitor the remittances of collections, conduct internal cash count and examination of accountable forms. Despite the policy, records showed that some collectors failed to remit within the time frame as provided by said manual. The delay of remittances ranges from three (3) days to five (5) months (Annex 1).
The deficiency was attributed to poor supervision and inadequate monitoring by the Asst. City Treasurer and the chiefs of the Business and Realty Tax Division. They failed to closely follow up the remittance of collections thus gave an opportunity for the collectors to misuse or misappropriate the funds as evidenced by the late remittance. The city was also deprived of the immediate use of the income earned during the period.
The management concurred with the finding and promised to closely monitor the remittances especially those coming from erring collectors.
Advise the Assistant City Treasurer to closely supervise and monitor the daily remittance of collections, in order to safeguard cash and avoid the opportunity for its misappropriation/misuse or loss. Instruct the Assistant City Treasurer to strengthen the implementation of the memorandum issued by the City Treasurer and to relieve revenue collectors who always fail to remit on time.