Mindanao Daily

Cabadbaran City 2008 COA Audit 8

Value for Money Audit      8. The abattoir equipment in the total amount of P729,544.88 have shown signs of rapid depreciation due to the failure of the management to operate/use the new slaughterhouse, thus may result to waste of resources.
The government entered into contract on October 22, 2003 with Fast Move Fabricator Incorporated for the fabrication and installation of equipment in the total amount of P729,544.88.            The project is purposely initiated to establish a modern abattoir considering that the existing abattoir is no longer fit to the needs of the populace.            The equipment was certified in good condition and conformed with the National Meat Inspection Commission (NMIC) standards per inspection and evaluation conducted by the latter’s personnel last November 28, 2003.  (See Annex 6).            During recent inspection on the project, it was observed that some equipment have shown signs of rapid depreciation.  In effect, the very objective of the project is no longer fully attainable and may consequently result to waste of resources if the said project will not be attended.            The management assured that the new slaughterhouse will be operational in the ensuing year.
Recommendation for Cabadbaran City Government:      The management should request again the Office of NMIC to conduct inspection and evaluation of the abattoir equipment before the start of operation of the new slaughterhouse.

Cabadbaran City COA Audit 7

7. Special accounts were not maintained under the General Fund for Market Operation and for Slaughterhouse Operation, contrary to the provisions of Sections 105 to 107, Chapter 6 Volume I of the New Government Accounting System (NGAS) Manual. As a result, adequate information on assets, liabilities and equity in the operation was unavailable for decision making and monitoring.                  Provisions of Section 105, Chapter 6 of the New Government Accounting System Manual requires the Local Government Units to maintain special accounts in the General Fund for economic enterprises and development projects funded from the share of the internal revenue collections.             Likewise,   provisions   of   Section 106  of  the  same  Manual enumerate the objectives of maintaining the special account, as follows:      a. Determine whether the income generated by the public utilities or economic enterprise are sufficient to meet their respective operating costs and;b. Provide adequate information as to assets, liabilities and equity of each special account.            To attain the forgoing objectives, provisions of Section 107 of the Manual provides that special accounts shall be maintained through the use of complete subsidiary ledger. In case the local government unit maintains a number of the same economic enterprise, each shall have its own set of subsidiary ledger.            Verification of the accounting records disclosed that the City did not create special accounts for Market Operation and for Slaughter Operation and no separate subsidiary ledgers were maintained as required in the above stated regulations. All of the transactions were incorporated in the general fund proper books. In effect, operations of the economic enterprise could not be evaluated to determine whether the income generated is sufficient to meet their respective operating costs. As such, adequate information on assets, liabilities and equity in the operation was unavailable for decision making and monitoring.            The Management comments quoted below:            “The City Government has created only this year (CY 2008) a new Economic Enterprise Department or referred to as the Local Economic Affairs Development and Business Center (LEAD-BC).  City Ordinance No. 2008-01 otherwise known as the LEAD-BC Code provides that the LEAD-BC shall operate and manage the Cabadbaran City Supermarket, Land Transport Terminal, Abattoir, Sports Complex, and other business ventures that will soon be established thru an ordinance.  Presently, the operations and transactions of these businesses are maintained and incorporated under the General Fund.  Hopefully, with the operation of the Economic Enterprise Department (LEAD-BC) with a new organizational structure, along with the transfer and operation of the New Supermarket and Terminal, and with the full implementation of the LEAD-BC Code, a separate account and report, the Special Account Fund-Economic Enterprise, shall be prepared and maintained by the City Accountant’s Office and a separate bank account will be opened and maintained by the City Treasurer’s Office mainly for the operation of the income generating arm of the City, the LEAD-BC”.            Recommendation for Cabadbaran City Government:      Instruct the City Accountant to maintain complete set of books for special accounts to comply with the provisions of Sections 105 to 107, Chapter 6, Volume I of the NGAS Manual.

Cabadbaran City 2008 COA Audit 6

6.  Depreciation expenses was not provided for some properties, contrary to Section 4 (0), Volume I of the NGAS Manual, thus overstating the asset account and understating expenses as presented in the financial statements.                   Provisions of Section 4 (o), Volume I of the New Government Accounting System Manual states:            “The straight-line method of depreciation shall be used. A residual value equivalent to ten percent (10%) of the cost shall be set-up and depreciation shall start on the second month after purchase / completion of the property, plant and equipment. Public Infrastructure shall not be charged any depreciation.”            Contrary to the above regulation, it was noted that the following properties were not provided with depreciation:                  ACCOUNT Balance as ofDecember 31, 2008      Land Improvement – GF      P 11,325,555.79      Office Buildings – GF      4,260,010.00      Other Structures – GF      9,363,176.20      School Building – SEF      1,084,663.07      Office Equipment – SEF      1,070,291.65      Machineries –GF       520,300.00            The non-provision of depreciation overstated the asset account and understated expenses as presented in the financial statements.             The Management commented that depreciation on the said properties was not provided due to incomplete records. However, they will exert effort to solve this problem.            Recommendation for Cabadbaran City Government:            The Accounting Office must provide depreciation on all depreciable assets as required under the provisions of Section 4 (o), Volume I of the NGAS Manual. The Accounting Office should assign one employee who will focus in the computation of depreciation.

Cabadbaran City COA Audit 5

5. Improvement of Land Transportation Terminal was taken up as Repair and Maintenance – Other Structures instead of Other Structures as required under COA Circular No. 2004-008 dated September 20, 2004, thus understating the Property, Plant and Equipment by P2,635,716.20. COA Circular No. 2004-008 provides:      “Account Title         :  Other Structures       Account Number        :  215       Normal Balance      :  Debit  Description :  Cost / Appraisal Value of other structures constructed / acquired including related improvements which are permanent or capital in nature.”      Contrary to the above circular, verification showed that improvement of Land Transportation Terminal amounting to P2,635,716.20 was taken up in the book as Repair and Maintenance-Other Structures instead of Other Structures.  As a result, there was understatement in the PPE account by P2,635,716.20.      The Management commented that the adjustment to effect the above requirement is already made and the same will be properly accounted in CY 2008 year-end report. Recommendation for Cabadbaran City Government:      Instruct the City Accountant to prepare necessary adjusting entries to record the Improvement of Land Transportation Terminal as Other Structures pursuant to the provisions of COA Circular No. 2004-008.

Cabadbaran City COA Audit 4

4. Suppliers and dealers of goods were not required to give warranty contrary to Section 62.1 of Implementing Rules and Regulations of Republic Act No. 9184.        Section 62.1 of Implementing Rules and Regulations of Republic Act No. 9184 provides that:      “For the procurement of goods, in order to assure that manufacturing defects shall be corrected by the supplier, manufacturer, or distributor, as the case may be, a warranty shall be required from the contract awardee for a minimum period of three (3) months, in the case of supplies, and one (1) year, in the case of equipment, after performance of the contract.  The obligation for the warranty shall be covered by either retention money in an amount equivalent to at least ten percent (10%) of every progress payment, or a special bank guarantee equivalent to at least ten percent (10%) of the total contract price.  The said amounts shall only be released after the lapse of the warranty period:  Provided, however, that the goods supplied are free from patent and latent defects and all the conditions imposed under the contract have been fully met.”      In the course of our audit we noted that suppliers and dealers of goods were not required to give warranty on their products.  (Please see Annex 5).      In effect, no assurance that the supplier, manufacturer or distributor, as the case may be, will correct any manufacturing defects.      The Management commented that indeed the provision is advantageous to the government, however, they are not certain if suppliers in the locality are willing to supply or even join any public bidding considering the subject requirement.  Nevertheless, the BAC and the General Services Office are instructed to impose the same in CY 2009 onwards.
Recommendation for Cabadbaran City Government:      The City Accountant should ensure that the supplier/dealer concerned will post warranty on their products pursuant to Section 62.1 of IRR of Republic Act No. 9184.

Cabadbaran City 2008 COA Audit 3

3. The City failed to comply the proper recording of Petty Cash Fund in violation of Section 48 of Volume 1 of the New Government Accounting System (NGAS) Manual.        Section 48 of Volume I of the New Government Accounting System Manual provides that:      “Payments out of the Petty Cash Fund – Petty Cash Fund shall be maintained under the imprest system.  The fund shall be sufficient for one recurring, emergency and petty expenses of the LGU for one month.  Disbursements from the fund shall be through the Petty Cash Voucher (PCV) which shall be signed by the payee to acknowledge the amount received.  The official receipt shall be attached to the PCV.      Petty Cash Fund shall be set up at the beginning of the year.  An Allotments and Obligation Slip (ALOBS) shall be prepared for the fund, recorded in the Registry of Appropriations, Allotments and Obligations (RAAO) and obligated as Other Expenses.      Payments out of the fund shall be made through the use of PCVs duly supported by official receipts and other required documents.  Each PCV shall not exceed Php1,000.00.      A Disbursement Voucher shall be prepared for replenishments of the petty cash fund during the year duly supported by a list/summary of PCVs, the PCVs and its supporting documents.  ALOBS shall be prepared for each replenishment and recoded in the RAAO based on actual expenses incurred.      At the end of the year, petty cash fund shall be fully liquidated by preparing a Report of Disbursement supported by the list/summary of PCVs, the PCVs and its supporting documents.  Another ALOBS shall be prepared taking up the liquidation and recorded in the RAAO based on the actual expenses incurred.  Unused cash shall be returned to the Treasurer who shall issue an Official Receipt to acknowledge the amount returned.  A new Cash Advance for Petty Cash Fund shall be set up in the ensuing year.”      Verification and evaluation of internal control pertaining to the handling of petty cash fund, the following are noted:a. Upon replenishment of the fund, Petty Cash Fund Account was debited instead of Expense Accounts.b. Did not use Petty Cash Voucher (PCV) on disbursements from the fund.      Non-compliance with Section 48 of Volume I of the NGAS will weaken the internal control in the handling of Petty Cash Fund.      The Management instructed the City Accountant’s Office and the City Treasurer’s Office to observe the proper accounting and payment/disbursement of funds out of the petty cash fund.  The imprest fund system is already adopted.  Likewise, petty cash voucher is already used.  Recommendation for Cabadbaran City Government:      The Agency should adhere to provisions of Section 48 of Volume I of NGAS Manual in order that Petty Cash Fund shall be properly controlled.

Cabadbaran City 2008 COA Audit 2

2. Contracts entered into by the City Government between the contractors/ suppliers were not submitted on time thus deficiencies noted in the contracts couldn’t be acted immediately.        Section 4.1 of COA Circular No. 89-299 provides that copies of all contracts, variation orders, change orders, extra work orders purchase/letter orders, and supplemental contracts, together with their supporting documents, shall be submitted to the Auditor within five (5) days after perfection thereof.      Records of the Auditor’s Office disclosed that contracts pertaining to infrastructure projects and goods were submitted for review beyond the prescribed period, thus any deficiencies noted in the review cannot be corrected immediately.  (See Annex 4 for details).      The Management already instructed the Project Implementing Units and the General Services Office to adhere and comply the requirements in furnishing the documents necessary in the evaluation within the prescribed period or even right after contracts are perfected or Purchase Orders are approved.   Recommendation for Cabadbaran City Government:      Submit all contracts together with the pertinent documents within five (5) days after perfection thereof to comply with the provision of Section 4.1 of COA Circular No. 89-299.

Cabadbaran City 2008 COA Audit 1

Detailed Findings and Recommendations
1. The balances of Special Education Tax Receivable and Deferred Special Education Tax Income amounting to P56,072.79 and P206,694.98 respectively, as of December 31, 2008 are doubtful.
Provisions of Section 93 of NGAS Manual, Volume 1 provides that:      “Section 93.   Pro-forma  Accounting  Entries  -  Pro – Forma accounting entries for the fund, follows:ParticularsAccount TitleDebitCreditSet- up Special Education Tax ReceivableSpecial Education Tax Receivable       Deferred Special Education       Tax Incomexxx
xxxCollection of Special Education TaxCash in Treasury       Special Education Tax         ReceivablexxxxxxComputation of sharesDeferred Special Education TaxIncome        Special Education Tax         Due to LGUsxxx
xxxxxx      The above entries indicate that collections will decrease Special Education Tax Receivable and Deferred Special Education Tax Income.  Moreover, the said accounts should be equal in every period.            Comparison of the balances of the Special Education Tax Receivable and Deferred Special Education Tax Income for the period January to December 31, 2008, as follows:     Period 2008Special Education Tax ReceivableDeferred Special Education Tax IncomeDifferenceJanuaryP 1,871,606.57P 1,871,606.570.00FebruaryP 1,871,606.57P 1,871,606.570.00MarchP 1,871,606.57P 1,883,378.39P 11,771.82AprilP 1,871,606.57P 1,887,241.09P 15,634.52MayP 1,871,606.57P 1,898,202.13P 26,595.56JuneP 1,871,606.57P 1,898,866.51P 27,259.94JulyP 1,871,606.57P 1,899,342.41P 27,735.84AugustP 1,871,606.57P 1,899,342.41P 27,735.84SeptemberP      56,072.79P      56,072.790.00OctoberP      56,072.79P      56,072.790.00NovemberP      56,072.79P      67,259.71P 11,186.92DecemberP      56,072.79P    206,694.98P 150,622.19            Verification of the Report of Collections and Deposits (RCDs) reveal that the total collection for the period January to December 31, 2008 amounting to P2,189,750.25.  (See Annex 3 for details).                   Failure to record the correct entries of Special Education Tax resulted to doubtful balances of Special Education Tax Receivable and Deferred Special Education Tax Income.      The Accounting Office commented that the difference was due to advance payments received.  Adjustments are already effected to conform with the recommendation.            Recommendation for Cabadbaran City Government:      Instruct the City Accountant to prepare necessary adjusting entries to show the correct balance of Special Education Tax Receivable and Deferred Special Education Tax Income.