Davao City 2007 COA Audit 4
July 4, 2010
4. Accountable forms and drugs and medicines that remained on hand as of December 31, 2007 in the amount of P4,654,410.00 and P2,727,439.29, respectively, were not recognized as inventories at year-end the reason being purchases during the year were directly recorded as expense account instead of coursing through the inventory account resulting in the understatement of the inventory and overstatement of the expense account in the total amount of P7,381,849.29.
Provisions of Section 51, Volume 1 of the Manual on the New Government Accounting System (NGAS), provides that:
“Purchase of Supplies. – Purchase of supplies and materials for stock regardless of whether or not they are consumed within the accounting period shall be recorded as assets using the Inventory account following the Perpetual Inventory Method x x x. However, supplies and materials purchased out of the Petty Cash Fund for immediate use or for emergency shall be taken up as expenses.”
Likewise, COA Circular No. 2004-008, dated September 20, 2004, Updated Description of Accounts under the New Government Accounting System, classified Accountable Forms Inventory (156) as the cost of accountable forms purchased/acquired/received for use in the course of government operation and/or sale and Accountable Forms Expenses (756) as the cost of accountable forms issued/used. Similarly, drugs and medicines purchased/received for stock/use in government operations are classified under Drugs & Medicines Inventory Account (159) and the cost of drugs and medicines used in government operations/projects are classified under the Drugs and Medicines Expenses account (759).
Records of the City Treasurer’s Office and the City Health Office disclosed that the accountable forms and drugs and medicines that remained on hand amounted to P4,654,410.00 and P2,727,439.29, respectively (Annex H & I ). The balances of the accountable forms represent prior years and current year purchases that were still not issued as of year-end. On the other hand, the balances of the drugs and medicines are those purchases made during the year which were not yet distributed as of December 31, 2007.
Verification of the pertinent accounting records showed that the city government purchased accountable forms and drugs and medicines during the year totaling to P3,803,332.00 and P6,375,603.63, respectively, but were directly recorded as expense under the account Accountable Forms Expenses (756) (Annex J) and Drugs and Medicines Expenses (759) (Annex K ).
Interview with the concerned personnel of the City Health Office revealed that drugs and medicines kept in their stockroom are ready to be distributed upon the request of the various health officers. It was also revealed that the reason why there are drugs and medicines kept in the stockroom is because of an existing policy, to maintain a balance of 30% out of their existing stocks as reserves for contingency.
Accounting records showed that as of December 31, 2007, no adjustments were made to take up the accountable forms and drugs and medicines that remained on hand as of year-end. Accordingly, the Accounting Office has no basis in recording the inventory on hand as of December 31, 2007 as no inventory reports that were submitted to their office.
As a consequence thereof, accountable forms and drugs and medicines inventory and expense account was overstated and understated in the amount of P4,654,410.00 and P2,727,439.29, respectively.
The management averred that they resorted to directly charge purchases of supplies as expense since the items were immediately distributed to the requisitioning department. However, the audit recommendations were well taken.
Recommendation for Davao City Government:
Prepare the necessary correcting/adjusting entries to book up all unused balance of the accountable forms and drugs and medicines purchased and ensure that in the subsequent purchases, the same should only be taken up as an expense upon the actual issuance and/or distribution to end-users.
Compliance with the provisions of Section 51 of the Manual on the New Government Accounting System in the purchase of accountable forms and supplies.
Davao City 2007 COA Audit 3
July 4, 2010
3. The unadjusted disposition of Motor vehicles costing P6,310,884.12 sold as scrap, the non valuation of Unserviceable ones totaling P 29,765,908.53 , and the unrecorded motor vehicles amounting to P31,641,201.90, contributed to the inaccurate amount presented in the Financial Report.
Financial Report as of December 31, 2007 for the General Fund of the City showed the amount of P591,898,261.08 for motor vehicles with an accumulated depreciation totaling P86,131,977.12 thus a Net Book value of P505,766,283.96.
With the exception of some items bearing erroneous entries of acquisition dates, the schedule generated as of December 31, 2007 showed that acquisitions were made since 1974 up to the present. Summary is as follows:
Inclusive years of Acquisition Accumulated Net Book Acquisition Cost Depreciation Value 1974 – 1984 1,806,240.46 0.00 1,806,240.46 1986 – 1990 17,559,888.02 0.00 17,559,888.02 1991 – 1995 71,781,322.20 (13,714.42) 71,795,036.62 1996 – 2000 263,952,221.49 20,793,163.09 243,159,058.40 2001 – 2005 171,796,043.54 58,300,178.82 113,495,864.72 2006 – 2007 60,068,439.95 7,015,578.2 53,052,861.75 Erroneous Date 3,951,757.88 36,771.43 3,914,986.45 TOTAL 590,915,913.54 86,131,977.12 504,783,936.42
The above schedule thus showed that the life of a number of motor vehicles carried in the books ranged from less than a year to thirty three (33) years or way beyond the estimated useful economic life of seven (7) years. Verification revealed that a number of motor vehicle included in the schedule were already unserviceable or some were disposed through public auction. Disposition of more unserviceable property is in progress.
During the year, records of the General Services Office showed disposals of unserviceable vehicles were made through public auction. Duly accomplished Inventory, Inspection and Appraisal form together with a copy of the Official Receipt were transmitted to the accounting office informing that property listed may now be dropped from the book of accounts of the office concerned.
In 2007, offices of the City Engineer and the City Environment and Natural Resources, both submitted an Inventory and Inspection of Unserviceable Property to the General Services Office (GSO) wherein disposition through public auction was recommended by the GSO. The total cost of these properties is P36,076,792.65 of which status of the disposition is as follows:
Status No. of units Amount Sold 13 units 6,310,884.12 Disposal through public auction in progress 18 units 29,621,578.53 Reported as junk but no disposition yet 2 units 144,330.00 TOTAL 36,076,792.65
The thirteen units were sold on July 25, 2007 as scrap in the amount of P370,606.25 under Official Receipt Nos. 5142449, 514901 and 5142903. These receipts were recorded in the Trust Fund as a credit to Due to Other Funds. In the books of the General Fund, Due from Other Funds was recognized and credited to Prior Years Adjustments per JEV No. 2007-07-040568 dated July 31, 2007. These entries were accordingly prepared because at the time the receipt of payment by the buyer was forwarded to the accounting office, list of property being disposed of was not yet submitted together with the receipts. Necessary adjustment of the Prior Year Adjustments account is supposed to be effected at the time the list of disposed property were transmitted by the General Services Office to the Accounting.
The due to other funds in the trust fund and due from in the general funds were adjusted in August 14 and 16 per JEVs No. 2007-08-005539 and 2007-08-44424 respectively. However, the corresponding motor vehicles in this particular transaction were not dropped from the books thus the original cost remained unadjusted.
Below is the list of motor vehicles sold but are still carried in the books (Annex C):
Acquisition Property No. Date Cost 241-002-0010-0001-SDV-315 May 12, 1993 288,500.00 241-002-0001-0003-SBU-978 Jul 14, 1993 85,000.00 241-002-0001-0005-SDV-207 Feb 3, 1994 137,500.00 241-005-0004-0002- SBA-741 Jan 16, 1986 80,000.00 241-005-0004-0001-D88-SCP-103 Oct 7, 1987 692,461.00 241-005-0004-0001-D88-SCP-108 Oct 7, 1987 692,461.00 241-005-0004-0001-D88-SCP-107 Oct 7, 1987 692,461.53 241-005-0004-0001-D88-SCP-110 Oct 7, 1987 692,461.53 241-005-0004-0001-D88-SCP-111 Oct 7, 1987 692,461.53 241-005-0004-0001-SEN-138 Sep 26, 1996 2,225,000.00 241-002-0001-0005-SBA-751 Jan 16, 1986 10,000.00 241-008-0005-0001- SBA-781 Jan 16, 1986 10,000.00 241-002-0009-0001-LAL-946 Jan 16, 1986 12,577.53 TOTAL P 6,310,884.12
On the other hand, a number of motor vehicles totaling P31,641,201.90 under the responsibility of the CENRO acquired during the years 1990 to 1996 were included in the Report of Inventory and Inspection of Unserviceable Property submitted by the property officer of this office. These vehicles were not included in the Schedule of Motor Vehicles per accounting records. Please refer to Annex D for the details.
Further, Motor Vehicles with an aggregate amount of P29,765,908.53 were already reported as unserviceable by the offices of the CENRO and the City Engineer. These vehicles were acquired from 1988 to 1996 and still carried in the book at cost. Please refer to Annex D for the details, Annex E for the IIRUP dated November 8, 2006 submitted by the Supply Officer of that CENRO to the GSO and Annex F for the Inspection Report for Returned Property dated March 19, 2007 prepared by the General Services Office.
Generated PPE schedule further showed that eight (8) units of motor vehicles bear an erroneous entry on the dates of acquisition as enumerated below:
Plate Est. Resp. Acquisition Acc. Net Book Property Number No. Acq. Date Life Center Cost Dep’n. Value 241-008-0006-0001 SDD-272 Jan 0, 1900 7 CMO 477,000.00 0.00 477,000.00 241-008-0002-0001 SCP-122 Jan 0, 1900 7 CMO 525,000.00 0.00 525,000.00 241-008-0002-0001 SDV-495 Jan 0, 1900 7 CMO 217,207.88 0.00 217,207.88 241-008-0002-0001 SDD-252 Jan 0, 1900 7 CMO 452,550.00 0.00 452,550.00 241-006-0002-0001 SE-1745 Jan 0, 1900 7 CSSDO 66,000.00 36,771.43 29,228.57 241-002-0007-0002 SDD-268 Jan 0, 1900 7 CSSDO 365,000.00 0.00 365,000.00 241-008-0004-0001 SDC-554 Jan 0, 1900 7 CTO 224,000.00 0.00 224,000.00 241-005-0004-0001 SDV-131 Jun 15, 1905 7 CENRO 1,625,000.00 0.00 1,625,000.00 TOTAL 3,951,757.88 36,771.43 3,914,986.45
Property No. 241-005-00004-0001 for SDV 131 in the above listing was a purchased of a dump truck on December 29, 1993. This property was included in the Inventory and Inspection Report of Unserviceable Property dated November 8, 2006 submitted by the City Environment and Natural Resources Office to the General Services Offices.
Further, 90 items of sirens and other accessories with a unit value of P2,000.00 to P3,200.00 each totaling P240,000.00 were accounted for as Motor Vehicles. These items were assigned a Property No. and computed depreciation. Please refer to Annex G for the details.
During the exit conference, it was learned that adjustment of the sold motor vehicles were made in 2008 and same properties were dropped from the books. That adjustments on the Property, Plant and Equipment account is still on the process.
Recommendation:
a. Prepare journal entries to record dropping of the sold motor vehicles costing P6,310,884.12 and the taking up the unrecorded motor vehicle costing P31,641,201.90.
b. Conduct re-appraisal of motor vehicle specially those whose life already extended beyond the prescribed economic useful life of seven (7) years and prepare the necessary adjustment, if warranted.
c. Sirens and other accessories if purchase as part of the cost of the motor vehicle should be accounted as cost of the specific vehicle. However, if it was purchased separately, it should have been accounted as Other PPE with corresponding report as to their disposition; and
d. For the erroneous recorded dates, make the necessary corrections.
Davo City 2007 COA Audit 2
July 4, 2010
2. The balance of Other Supplies Inventory (165) account in the amount of P76,210,312.32 showed a difference of P8,632,071.12 as compared with the Report on the Physical Count of Inventories of P67,578,241.20 due to the inability of the Accounting and General Services Departments to reconcile their records and maintain subsidiary records, as required under the provisions of Section 114, Volume 1 of the NGAS Manual, thus rendering the account balance unreliable.
Dispositive portion of COA Circular No.2005-002 dated April 14, 2005 is hereby reproduced as follows:
2.2 However, there are tangible assets with serviceable life of more than one year but small enough to be considered as PPE. To address this issue, the Commission hereby prescribes the following policies.
2.2.1 Small tangible items with estimated useful life of more than one year shall be recorded as inventories upon acquisition and expense upon issuance
2.2.2 …
2.3 For monitoring, control and accountability an Inventory custodian Slip (ICS)…. shall be prepared upon issuance of small tangible items covered by approved Requisition and Issuance Slip (RIS).
Section 114, Volume 1 of the NGAS Manual provides among others, that the Chief Accountant shall maintain the perpetual inventory records comprising of Supplies Ledger Card for each commodity/stock. The General Services Offices shall likewise maintain stock cards in their custody to account for the receipt and disposition of the same. The balance per stock card/property cards should always reconcile with the ledger cards of the accounting unit.
Comparison of the recorded balance of the other Supplies Inventory (165) account of P76,210,312.32 as against the inventory report of P67,578,241.20 (Annex A), showed a discrepancy of P8,632,071.12. The difference was attributed to the following:
1. Subsidiary ledgers were not updated, hence reconciliation could hardly be made; and
2. The physical inventory was not reconciled quarterly with the stock cards maintained by the GSO, thus, any discrepancy/ies had not been verified and adjusted.
This rendered the other supplies inventory account unreliable considering the discrepancy noted.
The concerned agency officials acknowledged that this has been a perennial problem and assured the audit team that reconciliation will be made.
Recommendation for Davao City Government:
The Accounting and the General Services Departments are advised to reconcile their records to arrive at the correct balance of the Other Supplies Inventory (165) account.
Instruct every Department to Submit to GSO periodically the listings of their Other Supplies Inventory, to facilitate the update of records with the said office.
Davao City 2007 COA Audit 1
July 4, 2010
I. FINANCIAL AND COMPLIANCE AUDIT
1. The Real Property Tax (RPT)/Special Education Tax (SET) Receivables set up in the books of accounts at the beginning of the year in the amount of P446,219,756.74 and P378,824,672.09, respectively, were based on NGAS CY 2005 forwarded balances due to the inability of the City Treasurer to provide the City Accountant with an updated certified list of taxpayers showing the names and amounts due and collectible for the year, contrary to the provisions of Section 20, Volume 1 of the Manual on New Government Accounting System (NGAS). Likewise, closing the difference between the amount established against the amount collected to prior year’s adjustment account in the amount of P422,394,430.96 and P376,375,924.49, respectively, is inappropriate, rendering the year-end balances of the total receivable account unreliable.
Provisions of Section 20, Volume 1 of the Manual on New Government Accounting System provides that:
“Real Property Tax Receivables/Special Education Tax Receivables shall be established at the beginning of the year based on the Real Property Account Register/Taxpayer’s Index Card. At the beginning of the year, the Treasurer shall furnish the Chief Accountant of a duly certified list showing the name of taxpayers and the amount due and collectible for the year. Based on the list, the Chief Accountant shall draw a Journal Entry Voucher to record the debit to Real Property Tax Receivable/Special Education Tax Receivable and crediting to Deferred Real Property Tax Income/Deferred Special Education Tax Income.”
Verification of the RPT and SET Receivables set up by the City Accountant in the books of accounts at the beginning of the year disclosed that the amounts of P446,219,756.74 and P378,824,672.09, respectively, were based on the balances extracted by the NGAS that were set-up in CY 2005. For CY 2006 and CY 2007, the City Accountant requested from the City Treasurer the updated duly certified list of taxpayers showing the names and amounts due and collectible for the year, as required under Section 20, Volume 1 of the NGAS Manual, however, the City Treasurer was not able to comply the same for the reason that the City Assessor’s Office real property records have not been adjusted/cleared of duplication of tax declarations of real properties. Cleansing of duplication of tax declarations of real properties are still in process. They added that the RPT in-house system has many lapses and weaknesses.
In May 2007, the city outsourced a new real property tax system known as the Davao City Real Property Tax Administration Computerization Project with the aim to solve the above problem and to increase revenue collections, improve revenue operations and enhance delivery of basic services. However, as of December 31, 2007, the new system is not yet 100% completed and/or operational.
During the year, the balances of the RPT/SET Receivables were reduced based on the actual collections.
At the end of the year, no balance was reflected for the Real Property Tax and Special Education Tax Receivable accounts since the difference between the amounts established against the amounts collected was closed to prior year’s adjustment account as shown below:
Account Title Account
Code Amount
Set-Up Amount
Collected
Closed to Account 684 Real Property Tax Receivable 127 446,219,756.74 23,825,325.78 422,394,430.96 Deferred Real Property Tax
Income
451
446,219,756.74
207,889,718.50
238,330,038.24 Special Education Tax Rec. 128 378,824,672.09 2,448,747.60 376,375,924.49 Deferred Real Property Tax
Income
452
378,824,672.09
139,566,330.00
239,258,342.09
The above condition rendered the total receivable account unreliable considering that there are still RPT/SET receivables for the year and that not all taxpayers were able to pay their taxes during the year and there are still delinquent taxes remain to be unpaid in prior years.
In the conduct of an exit conference, Management assured to work for the required submission of a certified list showing the collectibles for the year since cleansing of real property owner’s records were almost complete.
Recommendation for Davao City Government:
Require the City Treasurer to strictly comply with the provisions of Section 20 of the Manual on the New Government Accounting System.
Facilitate the verification of the taxpayer’s list extracted from the RPTAS database to be able to come up with a certified list of taxpayers and the amount due and collectible for the year as the basis of the City Accountant to record the correct RPT/SET Receivables.
