Mindanao Daily

Tandag City 2008 COA Audit 4

4. Petty cash fund was maintained under a fluctuating fund system and a balance of P277,036.20 remained unliquidated as of year-end contrary to the provision of section 48 of the New Government Accounting System (NGAS).    Our review on the accounts and operations of the City government noted, that most of the department heads were granted a petty cash fund, purposively for the non – recurring, emergency and petty expenses for their office.   Verification on the granting and utilization of the fund disclosed the following:a.  The fund was maintained under a fluctuating fund system;b. Expenses paid out of the fund were recurring office expenses, such as fuel, supplies and the like;c. Payments were not supported with a petty cash voucher.  Some payments made exceed the amount of P1,000.00;d. The fund is not being replenished,  instead a liquidation was made and a new cash advance is made thus the fluctuation in the amount set up at the beginning of the year.    The existing condition is not in accordance with the guidelines set forth in   the granting, utilization and replenishment of the fund as mandated in the manual on NGAS that provides:“Petty cash funds shall be maintained under the Imprest System. The Fund shall be sufficient for the non-recurring, emergency and petty expenses of the LGU for one month.”       Total cash advances drawn for petty cash fund amounted to P973,300 (Annex B) of which P277,036.20 remained unliquidated as of December 31, 2008.       Paragraph 5 of the same section is also quoted hereunder“At the end of the year, the Petty Cash Fund shall be fully liquidated by preparing a report of disbursement supported by the list/summary of PCVs, the PCVs & its supporting documents.”       AOM No. 2009-005  dated February 3, 2009 was issued to the management informing them of our observation. The City Mayor and the City Vice-Mayor during the exit conference instructed the City Accountant to record the Petty Cash Fund in Imprest System and brief the Petty Cash Fund custodian. The City Accountant on the otherhand, informed us that he had overlooked this provision and treated the Petty Cash Fund as ordinary cash advances. He assured us however, of the immediate implementation of our Recommendation for Tandag City Government:.RECOMMENDATION FOR TANDAG CITY GOVERNMENT:     Advise the City Accountant to account the Petty Cash Fund under the Imprest Fund System.  Likewise, advise the petty cash fund custodian to limit disbursement of the fund to non recurring transaction, support all disbursements with a petty cash vouchers, taking into consideration that each payment shall not exceed the amount of P1,000.00.

Tandag City 2008 COA Audit 3

3. Cash advances to Officers and Employees in the total amount of P10,171,849.57 remained unliquidated as of December 31, 2008 in violation of Section 5.8 of COA Circular No. 97-002 dated February 10, 1997.       The rules and regulations in the granting, utilization and liquidation of cash advance is governed by COA Circular No. 97-002 dated February 19, 1997 Section 5 of which read as follows:“ All cash advances shall be fully liquidated at the end of each year. Except for petty cash fund. The accountable officer shall refund any unexpected balance to the cashier/collecting who will issue the necessary official receipt.”       Section 4.1.2 of the same circular also provides:“No additional cash advances shall be allowed to any official or employee unless previous cash advances given to him is first settled or a proper accounting is made.”       Verification made on the book of accounts of the City Government revealed that cash advances amounting to P10,171,849.57 remained unliquidated at the year end (Annex A).       The aging schedule made on this account showed the following informations:          Amount              Age         % of Total         P    3,775,656.11                                   1-30 days                         37.11%                  549,846.42                                 31-90 days                           5.41%                    58,503.04                                91-120 days                            .58%               3,826,056.06                              121-180 days                        37.61%               1,085,460.06                              181 to 1 year                         10.67%                  876,327.88                                Over 1 year                           8.62%          ———————-                                                                          ———–           P 10,171,849.57                 100%          ==============                                                                        ====== Examination showed that cash advances were not liquidated for more than two months to over one year and additional cash advances were granted to officials and employees even if the previous ones are not yet liquidated. This could mean that the funds entrusted by the government to the accountable officers may  be used for purposes other than those for which the cash advance were granted.       These unliquidated cash advances comprise the intelligence fund of the City mayor,  travelling expenses of the officials and employees of the City and even cash advances for special endeavors and purchases of supplies and materials.  Individual letters of demand for unliquidated cash advances were sent to each accountable officer. Likewise Audit Observation Memorandum No. 2008-013 dated September 6, 2008 was also issued for the information of the management. It should be reiterated that the repeated failure to liquidate their cash advances shall constitute a valid cause for the withholding of their salary pursuant to Section 5.1.3 of COA Circular No. 97-002 dated February 10, 1997.       The City Accountant assured us to implement our Recommendation for Tandag City Government: and that approval of the drawing of cash advance will be minimized by his office especially to those officials and employees who have not liquidated the previous cash advances granted to them. On the other hand, the City Mayor informed us that his liquidation for intelligence fund was already forwarded to COA Central Office however, as of this date, he has not received a Credit Notice. The City Vice-Mayor also commented that most of her cash advances were liquidated in January this year.
RECOMMENDATION FOR TANDAG CITY GOVERNMENT: Advise the City Accountant to withhold or deduct from the salary of those employees or officials their long outstanding  balances of cash advance. Moreover, minimize the granting of cash advances to officials and employees who had not liquidated their previous ones.

Tandag City 2008 COA Audit 2

2. Depreciation expenses were not applied to all Property, Plant and Equipment owned by the City contrary to Section 4 of the manual on NGAS.      One of the basic features of the New Government Accounting System is the depreciation accounting. Depreciation is the gradual allocation of cost of the property over its estimated useful life.      The trial balance of the City as of December 31, 2008 showed Property, Plant and Equipment account amounting to P 166,477,492.93 for all funds.      However, only construction and heavy equipment assets were depreciated contrary to Section 4 of the above cited manual which provides:“Depreciation – 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.”      The failure to book-up the depreciation cost of those assets resulted to understatement of the operating expenses and accumulated depreciation accounts and overstating the net book of Property, Plant and Equipment account as of year-end.      Our observation was brought to the attention of the management through issuance of Audit Observation Memorandum No. 2008-014 dated September 16, 2008. The City Accountant in his management’s comment justified that due to voluminous  transactions of the City Government and the intermittent change of the New Government Accounting System (NGAS) his office had overlooked the provision of depreciation expense of the City’s Property, Plant and Equipment.  He stressed further, that most of the properties don’t have complete data as to the date of acquisition which is a basis in the computation.       While we recognize the difficulty in securing data for those PPE’s which will be used in computing  depreciation, we also noted that even those purchased during the year of which NGAS was already implemented were not also provided with depreciation.RECOMMENDATION FOR TANDAG CITY GOVERNMENT:       Advise the City Accountant to coordinate with the City General Services Officer to come up with the complete data as the basis in computing depreciation. Moreover, compute depreciation for the purchase of Property, Plant and Equipment as of the implementation of the New Government Accounting System.

Tandag City 2008 COA Audit 1

FINDINGS AND RECOMMENDATION FOR TANDAG CITY GOVERNMENT:FINANCIAL AND COMPLIANCE1. The reported valuation of Property, Plant and Equipment amounting to P166,477,492.93 could not be ascertained due to the failure of the Agency to conduct physical inventory as mandated under Section 124 of the New Government Accounting System Manual, Volume I.   The balance sheet of the City Government as of December 31, 2008 showed that Property, Plant and Equipment owned by the City totaled to P166,477,492.93 under the following funds.                          General Fund   P 146,442,277.96                    Special Education Fund         2,283,240.42                    Trust Fund        17,751,974.55                                               ———————–                                               P 166,477,492.93                                               ==============        This amount, however, is doubtful as to its existence since there is no report on physical count of property, plant and equipment. Likewise, Property, Plant and Equipment ledger cards per category were not also maintained.            Section 124 of the New Government Accounting System (NGAS) Manual Volume I states:“Inventory of Supplies or Property – The local chief executive shall require periodic physical inventory of supplies property. Physical count of inventory items by type shall be conducted semestrally and reported in the Report of the Physical Count of Inventory (RCPI).This shall be submitted to the Auditor concerned not later than July 31 and January 31 of each year for the first and second semesters, respectively.Physical count of Property, Plant and Equipment by types shall be made annually and reported on the Report on the Physical Count of Property, Plant and Equipment (RPCPPE). This shall be submitted to the Auditor concerned not later than January 31, each year.”       The existing condition precluded us in applying alternative audit procedures that would have satisfied us the validity and existence of the Property, Plant, and Equipment valued in the books at P166,477,492.93 as of year-end.       We emphasized to the management that the physical inventory taking and the maintenance of records be updated, hence it is a must that proper control should be set up, in order to protect and safeguard properties against losses and/or misuse. Equipment ledger cards are necessary tools in protecting properties owned by the local government since these cards provide easy access to information relative to the whereabouts and condition of the properties.       This observation was communicated through issuance of Audit Observation Memorandum No. 2009-010 dated February 9, 2009. The management acknowledged our observation and the Local Chief Executive assured us that he will issue an executive order creating the inventory committee to conduct the physical count of all LGU property to ascertain the existence, status and whereabouts of the City’s assets. He assured us further, that with recent appointment of the City General Services Officer, this condition will be properly addressed to.RECOMMENDATION FOR TANDAG CITY GOVERNMENT:       Create an inventory committee to conduct physical inventory of all Property, Plant and Equipment and reconcile the report with the records of the City Accountant. Any deficiencies should be properly noted. Likewise, a separate inventory and inspection report should be prepared for unserviceable, obsolete and assets no longer used in the operation to serve as the basis of the City Accountant to drop them from the books of accounts and/or reclassify the assets. The report on physical count must be submitted to the Office of the Auditor.

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