Mindanao Daily

Oroquieta City 2008 COA Audit 6

6.
The city incurred a net loss of P3,780,449.67 at year end due to management’s failure to monitor and strictly follow the budget, in violation of the provisions of Section 235 of Republic Act (RA) 7160, that reduced its capacity to pay current  obligations.
The financial statements are reports that show what had happened in the past and give some indications of what can be expected.   While it is true that the same would serve as a measure of operational performance, it should be one of the tools for self-evaluation, planning and controlling costs.
The Statements of Income and Expenses (SIE) for the year ended December 31, 2008 showed a total net loss of  P3,780,449.67:

TOTAL
General Fund
Special Education Fund
Income
P    243,680,725.96
P    240,425,093.53
P    3,255,632.43
Less:

Expenses
237,621,636.06
233,154,369.80
4,467,266.26
Subsidies
Donations
1,831,248.81
8,008,296.76
1,831,242.81
7,948,296.76
60,000.00
-
P    247,461,175.63
P    242,933,909.37
P    4,527,266.26
Net Loss
P    (  3,780,449.67)
P  (   2,508,815.84)
P   (1,271,633.83)
It was observed that the Calendar Year 2008 estimates were deviated by the city’s actual performance.  On income realization, the city had realized 1.4% more income from the estimate but it spent 1.9% more on expenses.   Compared to last year, income also increased by P8,651,191.96 or 3.68%; but operating expenses had also increased by P38,326,625.06 or 19%.
The condition decreased its ability to pay current obligations by 1.54%.  (Annex 16)
Management agreed that it had incurred expenses more than the income it received.
Recommendation
Strictly monitor and review estimates, actual and prior year/s performance.   Make use of ratios in analysis.  Be sure that the incurrence of expenses does not exceed the receipts of income.
Gender and Development
An audit was also conducted on the city’s involvement in the implementation of the programs on Gender and Development (GAD).
The audit revealed that the city had no separate program for GAD, however, it had included programs and appropriated funds on activities relating to the welfare of women, children and the elderly.
Office Concerned
Program/Project/Activity
o City Health
-Family Cluster Program
o Social, Welfare & Development
-Social Welfare Programs
o Non-Office:  Social & Health Programs & Services
-Social Services Program
o Non-Office:  Miscellaneous General Public Services
-SPES, SK Sports  Dev.  Program
The City took active part in many activities that are related to Gender and Development.
The City Health Office, Social, Welfare and Development Office and the Sangguniang Kabataan are the organizations that shared the biggest involvement.
For 2008, the City Health Office included the attendance to consultations as one of its health promotion program under family cluster program.  These included 15,707 consultations attended not for medication of sickness alone but also on the health care of women.
The rural barangays were reached and extended basic health services such as nutrition education and pre-natal care through the city’s 47 Barangay Nutrition Scholars (BNS) and 423 Barangay Health Workers (BHW).

WINGS activities were also given financial assistance.
The Sangguniang Kabataan Sports Development Program had been supported annually.    Funds for the purpose were also provided.

Oroquieta City 2008 COA Audit 5

5.
Construction in Progress account  for public infrastructure  and agency assets were still not adjusted for the completed projects of the year 2007 with a total amount of P10,243,940.42, overstating Government Equity and the appropriate asset account for P8,668,349.56 corresponding to the public infrastructure accounts that could have been dropped from the books of accounts.
Provisions of Section 50 of COA Circular No. 2002-003 states: that “during the construction period, the agency assets and public infrastructure shall be taken up in the books as “Construction in Progress” with the appropriate assets classification.  As soon as the project is completed, the Construction in Progress for agency assets is closed to the appropriate asset account.”
For public infrastructures funded out of regular income, the Construction in Progress account is transferred to the Public Infrastructure account upon completion.  At the end of the year, the latter account is closed to Government Equity and the asset is recorded in the Registry of Public Infrastructure (RPI).
Verification of records showed that as of December 31, 2008, there are ten (10) completed projects that were left unadjusted and not transferred to the appropriate asset account.
The 10 projects with a total amount of P10,243,940.42 were completed in 2006 and 2007 but still form part of Construction in Progress despite our recommendation for its adjustment.  (Annex 15)  Four infrastructure projects costing P8,668.349.56 could have been dropped from the books of accounts while five projects costing P1,195,350.86 could have been classified as building and P380,240.00 as land improvement.
This was one of the audit findings in the 2007 Annual Audit Report of which action on its recommendation was not made, thus, reiterated.
Personnel in-charge of recording completed projects alleged that this was overlooked.  Their focus was on the Report of Completed Projects for the year 2008.   He promised that the Journal Entry Voucher (JEV) to record the transfer of the already completed projects as of December 31,  2008 shall be made and be included in the January 2009 financial statements.
Failure to adjust the costs incurred of already completed projects overstated Government Equity and understated the appropriate asset account for the year.
Recommendation:
Require the Bookkeepers to check on the City Engineer’s report and cross refer it with their Construction in Progress account monthly.
Require the City Accountant to prepare the JEVs to record completed projects as soon as they are reported as 100% completed to eventually close the in progress account in the books.  The entry should be a debit to Public Infrastructure- P8,668,349.56,  Building and Structures- P1,195,350.86, Land Improvement- P380,240.00 and credit to  Construction in Progress-Roads, Highways and Bridges- P8,668,349.56, Construction in Progress- Buildings and Structures- P1,195,350.86 and Construction in Progress-Land Improvement P380,240.00.

Oroquieta City 2008 COA Audit 4

4.
The LGU incurred an appropriation deficit of P317,836.04 on the appropriation for interest of loan availed on IRA monetization, due to inadvertence in violation of the provision of Section 324 (b) of RA 7160.
Provisions of Section 324 of RA 7160, states the budgetary requirements that should be complied by LGUs for any fiscal year.
Paragraph (b) thereof requires that a full provision for all statutory and contractual obligations of the local government unit concerned shall be made.
During the year, the LGU availed of  a loan for the monetization of  IRA differential of P17,915,520 which was recorded as a long-term liability in the books.  Per Supplemental Budget No. 4, the amount will be used to pay the Feasibility Study for the City Town Center, Rehabilitation of the Komatsu Bulldozer, purchase of one (1) unit Bulldozer, Small-scale projects grant and salary increase of  LGU personnel.
Appropriation for interest of this loan was P525,000.  But the amount of P842,836.04 was deducted directly or was automatically debited by the bank from the LGU’s bank current account.  Land Bank  officials alleged that this was the correct amount of interest due, thus, there was a deficit of financial expense for this loan of  P317,836.04.   (Annex 14)
Such being the scenario, the computation made by management of the interest due was not correctly made, thus, the appropriation for the purpose was less than the amount needed.
The concerned personnel acknowledged our finding and had suggested to appropriate the amount of deficit and to correctly provide for it in full amount the next time it shall be due.
Recommendation
Review the loan contract agreement with the bank.  Review interest computation to be able to provide enough amount of interest expense.     Provide full amounts on all statutory and contractual obligations.

Oroquieta City 2008 COA Audit 3

3.
The LGU approved General Fund Supplemental Budget No. 8 sourcing among others the unexpended portion of the 5% Calamity Fund to pay for Personal Services of the LGU,  for failure to provide fully in the Annual Budget the authorized year-end benefits in  violation of  the provisions of Sections 324 and  336 of  R.A. 7160 and Section 1 of Republic Act No. 8185 as approved by the President of the Phillipines on June 11, 1996.
The budget is a tool to guide disbursements.  Republic Act No. 7160 provides the guideline in its preparation.
Section 324 (b) & (d) of the Republic Act is read as follows:
Budgetary Requirements. -  The budgets of local government units for any fiscal year shall comply with the following requirements:
“ (b) Full provision shall be made for all statutory and contractual obligations of the local government unit concerned …”
Section 336 of the same act is also stated as follows:
Use of Appropriated Funds and Savings..- Funds shall be available exclusively for the specific purpose for which they have been appropriated.  No ordinance shall be passed authorizing any transfer of appropriations from one item to another.  However, the local chief executive or the presiding officer of the sanggunian concerned may, by ordinance, be authorized to augment any item in the approved annual budget for their respective offices from savings in other items within the same expense class of their respective appropriations.
Section 1 of RA 8185 amending Section 324 (d) of RA No. 7160 is read as follows:
(d) Five percent of the estimated revenue from regular sources shall be set aside as annual lump sum appropriation for relief, rehabilitation, reconstruction and other works or services in connection with calamities which may occur during the budget year. Provided , however, That such fund shall be used only in the area, a portion thereof, of the local government unit or other areas affected by a disaster or calamity, as determined and declared by the local sanggunian concerned.
On December 5, 2008, the Sangguniang Panlungsod enacted Resolution No. 2008-12-1355 approving General Fund Supplemental Budget No. 8, with total appropriations of P5,253,064  for various purposes of which 82.68% or P4,343,064 was sourced out from  the  Unappropriated Reserve of the 5% Calamity Fund.
Verification showed that Appropriation Ordinance No. 316-2008 was passed to effect the realignment of the following fund sources amounting P5,253,064.00:

1.
Donations
P     160,000.00
2.
5% Calamity Fund
4,343,064.00
3.
Step Increment
750,000.00

————————–
Total
P 5,253,064.00

===============
For the provision of appropriations for Personal Services (PS) as follows:
1.
Salaries & Wages – Regular
P      652,323.00
2.
Year-end Bonus
3,205,976.00
3.
Cash Gift
1,316,500.00
4.
Life & Retirement
78,265.00

————————–
Total
P  5,253,064.00

===============
Despite its being authorized, the LGU personnel’s year-end benefits (1 month bonus and P5,000 cash gift) for the year 2008 was not fully provided in the annual budget.   It had only provided for one-half (1/2) of the total amount due of the year-end benefits that was paid to its personnel in the middle of the year, thus, the deficiency of funds to pay the other  half at year-end was charged to available savings.  The computation of the available savings included the unappropriated balance of the 5% Calamity Fund and donations which are not part of the Personal Services Expense class.
The personnel concerned did not follow the correct procedure on budgeting.  Non- provision of full authorized PS cost will endanger the LGU to non payment of year-end benefits and use of funds intended for other purposes.  The condition is in violation of the provision of Section 324 (b) of RA 7160, and the utilization of the unexpended portion of the 5% Calamity Fund is also in violation of the provision of Section 326 of the same Act and Section 1 of RA 8185.  The realignment of Donations to PS is also in violation of Section 326 of RA 7160.
Recommendation
Consider all statutory and contractual obligations in the preparation of the annual budget.  Comply with the budgetary requirements.  Strictly follow the rules on how each expense class/item should be appropriated and augmented.   The 5% Calamity Fund is strictly to be used for calamity related expenditures in accordance with the provisions of RA 8185 and DBM and DILG Joint Circular No. 2003-1.

Oroquieta City 2008 COA Audit 2

2.
The City did not register with the G-EPS, thus, cannot  undertake the electronic means of procurement, in violation of the provisions of Section 8.3.3 and 21.2.1 of RA 9184.
Section 8 of the Implementing Rules and Regulations of RA 9184 requires that all procuring entities shall register with the Government Electronic  Procurement  System (G-EPS) and shall undertake measures to ensure their access to an on-line network to facilitate the open, speedy and efficient on-line transmission, conveyance and use of electronic data messages or electronic documents.  It also mandated all central and regional offices of National Government Agencies (NGAs), Government Financial Intitutions (GFIs), Government Owned or Controlled Corporations (GOCCs), State Universities and Colleges (SUCs) and city governments to use the G-EPS and all its available facilities by the end of  2003.
Section 21.2.1 also requires all procuring entities to post all their Invitation to Apply for Eligibility and to Bid (IAEB) in all of its procurement in the website of their  service provider, if any, and the G-EPS during the maximum period of fourteen (14) calendar days.
In the implementation of RA 9184, the city conducted public biddings on the procurement of goods and services that required public bidding.   Observation showed that out of 59 public biddings conducted,  fourteen (14) had zero bidder,  thirty-seven (37) had only one (1) bidder,  seven (7) with two (2) bidders, and one (1) with more than two (2) bidders.
No. of Bidders
Total
0
1
2
2 or more

Public Biddings                       59
14
37
7
1
Percentage  to Total              100%
23%
63%
12%
2%

Most of the public biddings conducted or 63% have only one (1) and the same bidder, thus, not competitive.
Verification showed that the city used two (2) ways of advertising the IAEB.  These are:
1.)
By posting in three (3) conspicuous places for projects or purchases costing below P1M and;
2.)
By posting in three (3) conspicuous places and in a newspaper with nationwide circulation for projects or purchases above 1 million.
Thus, for the 59 public biddings conducted, 54 IAEBs were posted in 3 conspicuous places alone and 5 in both ways and none in the internet.  (Annex 13)
It was learned that for the year 2008, the city is still not registered with the G-EPS, thus, contrary to the requirement of RA 9184, it could not access to an on-line network or advertise in the internet.
Management reasoned that they have stopped their internet connection, thus, could not register in the G-EPS.
The condition violated the provisions of RA 9184, thus, the advantages of procuring through electronic means was not availed.
We have explained that there is no need that an agency have internet connection to be able to register with the G-EPS.
Management was amenable to this observation and promised to register with the G-EPS soonest.
Recommendation:
Register the agency with the G-EPS by submitting requirements specified by the PS-DBM to avail of electronic procurement of goods and to have a wider choice of bidders.  Submission of these requirements may be done on-line at the G-EPS website or physically at the G-EPS Office.

Oroquieta City 2008 COA Audit 1

1.
The Bookkeeper failed to drop the book value of  ‘Other Assets’ sold amounting P4,136,637.21 because it used the account ‘Miscellaneous Income’ to record the proceeds of its sale,  in violation of prescribed Accounting policies and procedures that resulted to overstated income, assets and government equity in the books.
Accounting policies and procedures prescribed the recording of acquisition and disposition of properties.  When the property shall become unserviceable, its book value shall be transferred to ‘Other Assets’.   When these shall be sold, the book value of  Other Assets shall be adjusted and a gain/loss on sale of the disposed asset shall be recognized that shall be ultimately closed to the Retained Earnings account at year end.
During the year, the city sold unserviceable properties with a book value of P4,136,637.21 (Annex 12)  for P586,112.00 and was recorded as a debit to Cash and a credit to Miscellaneous Income.
Verification showed that there was no entry to adjust the Other Assets account and to recognize a gain or loss on the sale.  The entry made recognized the cash received as income but did not record the value of the assets disposed.  The Accountant overlooked that the unserviceable assets sold were previously recorded as ‘Other Assets’ in the books.
The condition, therefore, overstated income by P586,112.00 and assets by P4,136,637.21 but understated expenses by P3,550,525.21 for not recognizing the loss on sale of disposed assets.
The bookkeeper conceded to this finding and will prepare the adjustment to drop the book value of unserviceable assets sold for inclusion in the next month’s financial statements.
Recommendation:
Require the City Accountant to prepare the Journal Entry Voucher (JEV) to adjust Other Assets and Retained Earnings account.    The entry should be a debit to Prior Year’s Adjustments and a credit to Other Assets for P4,136,637.21.
In succeeding sale of  ‘Other Assets’ for disposal, debit “Cash” for the net amount received, debit “Loss on Sale of Disposed Assets” for the difference between cost and net amount received and credit “Other Assets” at recorded cost/appraised value.  Should the sale be more than the recorded cost/appraised value, the difference shall be credited to “Gain on Sale of Disposed Assets”.