Download - 01 AAR2011 San Ildefonso,Isur

7/29/2019 01 AAR2011 San Ildefonso,Isur

1/51

Republic of the Philippines

COMMISSION ON AUDIT

Commonwealth Avenue, Quezon City

ANNUAL AUDIT REPORT

ON THE

MUNICIPALITY OF SAN ILDEFONSO

Province of Ilocos Sur

For the Year Ended December 31, 2011


2/51


COMMISSION ON AUDIT

Office of the Supervising AuditorAudit Group G- Ilocos Sur Province

Provincial Capitol, Vigan City

March 30, 2012

HONORABLE MARK ANTHONY A. PURISIMA

Municipal MayorMunicipality of San Ildefonso, Ilocos Sur

Sir:

We transmit herewith the report on the comprehensive audit of the accounts and

operations of the Municipality of San Ildefonso, Ilocos Sur for the year ended December31, 2011, in compliance with Section 2 Article IX - D of the Philippine Constitution and

pertinent section of Presidential Decree No. 1445. The report was prepared by Ramon B.Festejo, Audit Team Leader, Team IX.

The audit was conducted to ascertain the propriety of financial transactions and

compliance with prescribed rules and regulations. It was also made to ascertain theaccuracy of financial records and reports, as well as the fairness of the presentation of the

financial statements. The audit also aimed to assess or determine whether the resources of

the municipality were disbursed economically, effectively and efficiently.

The report consists of four parts: Part I - Audited Financial Statements, Part II

Detailed Findings and Recommendations, Part III Status of Implementation of Prior

Years Audit Recommendations and Part IV - Annexes. The Detailed Findings and

Recommendations were discussed with the concerned management officials and staff inan exit conference held on February 21, 2012. Managements comments were included in

the report, where appropriate.

We request that the findings and recommendations contained in the said report be

fully addressed and we would appreciate being informed of the action taken in this regard

within sixty (60) days from receipt hereof, pursuant to Section 94 of the GeneralProvisions of Republic Act No. 10147, otherwise known as the General Appropriations

Act of 2011.

We acknowledge the cooperation extended to the audit team by the officials andstaff of that agency.

Thank you.

Very truly yours,

ELVIRA M. JIMENEZSupervising Auditor

cc: The Director, DILG, Regional Office No. I, San Fernando City, La Union

The Director, BLGF, Regional Office No. I, San Fernando City, La UnionThe Director, DBM, Regional Office No. I, San Fernando City, La Union

The Presiding Officer, Sangguniang Bayan, San Ildefonso, Ilocos Sur


3/51

The Assistant Commissioner, LGS, COA, Quezon City


COMMISSION ON AUDIT

Audit Group G- Ilocos Sur ProvinceTeam IX

Municipal Hall, Bantay, Ilocos Sur

February 29, 2012

ELVIRA M. JIMENEZ

Supervising AuditorCommission on Audit

Audit Group G- Ilocos Sur Province

Provincial Capitol, Vigan City

Madam:

In compliance with Section 2, Article IX-D of the Philippine Constitution and

pertinent sections of Presidential Decree No. 1445, we conducted a comprehensive auditon the accounts and operations of the Municipality of San Ildefonso, Ilocos Sur for the

year ended December 31, 2011.

The audit was conducted to ascertain the propriety of financial transactions and

compliance of the agency to prescribed rules and regulations. It was also made toascertain the accuracy of financial records and reports as well as the fairness of the

presentation of the financial statements. The audit also aimed to assess or determine

whether the resources of the municipality were disbursed economically, effectively andefficiently.

The results of our audit are embodied in our attached report consisting of fourparts: Part I - Audited Financial Statements, Part II Detailed Findings andRecommendations, Part III Status of Implementation of Prior Years Audit

Recommendations and Part IV - Annexes. The Detailed Findings and Recommendations

were discussed with concerned Management Officials and staff during an exit conferenceheld on February 21, 2012.

An unqualified opinion was rendered as to the fairness of the presentation of the

financial statements of the Municipality of San Ildefonso, Ilocos Sur as of December 31,2011 because these were free of material misstatements.

Our audit was conducted in accordance with generally accepted state auditing

standards and we believe that it provides reasonable bases for the results of the audit.

We acknowledge the cooperation extended to the Audit Team by the officials andstaff of the agency.

Very truly yours,

RAMON B. FESTEJO

State Auditor III

Audit Team Leader


4/51

EXECUTIVE SUMMARY

A. Highlights of Financial Operation

The municipalitys assets, liabilities and government equity as of December 31,

2011 registered at P100,297,508.93, P17,195,373.95 and P83,102,134.98 respectively.

This years income totaled P45,701,683.81 compared to that of last years income

of P38,338,766.03 registering an increase of 19.20%.

Total appropriations for the year amounted to P47,773,680.05 broken down into

Current Appropriations and Continuing Appropriations of P47,729,180.08 and P44,500.00

respectively.

Total expenditures during the year amounted to P23,082,862.26 broken down into

Personal Services, Maintenance and Other Operating Expenses, Financial Expenses andSubsidies and Donations in the total amounts of P17,084,349.04, P5,752,513.22, P100.00

and P245,900.00 respectively.

B. Operational Highlights

Below are the major plans and targets vis--vis accomplishments of the

Municipality for the year 2011:

Programs/Projects/Activities Targets AccomplishmentsPercentage of

Accomplishments

Repayment of Loan to World Bank P 636,004.00 P 636,003.48 100%

Solid Waste Management 448,626.64 400,997.84 89.38%

Outreach Program 364,851.76 363,051.00 99.51%

Day Care Services 303,600.00 303,600.00 100%

Kinder Education 180,000.00 180,000.00 100%

Aid in Financial Crisis Situation 161,000.00 161,000.00 100%

CBMS Formulation 125,000.00 125,000.00 100%

Support to Agriculture Program 100,000.00 72,564.40 72.56%

Textbooks 75,000.00 74,902.50 99.87%

Supplemental Feeding 75,000.00 75,000.00 100%

Improvement of BNHS 70,000.00 70,000.00 100%

Sports Development Program 58,500.00 53,000.00 90.60%TOTAL P 2,597,582.40 P 2,515,119.22 96.83%

C. Scope of Audit

A comprehensive audit was conducted on the accounts and operations of theMunicipality of San Ildefonso, Ilocos Sur. The audit consisted of review of operating

procedures, inspection of the municipalitys programs and projects, interview of concerned


5/51

government officials and employees, verification, reconciliation and analysis of accounts

and such other procedures considered necessary.

D. Auditors Opinion on the Financial Statements

The auditor rendered an unqualified opinion on the fairness of presentation of the

financial statements of the Municipality of San Ildefonso, Ilocos Sur as of December 31,

2011 because these were free of material misstatements.

E. Significant Findings and Recommendations

The following are the significant findings and their corresponding

recommendations which were discussed with management during the exit conference.Management comments are included in the report, where appropriate.

1. The Other Receivables account balance of P3,084,000.00 representing claims

against various debtors was still carried in the books although the account has

remained dormant for more than ten (10) years and whose collectability has beenrendered improbable due to the lack of source documents to support the account.

We recommend that the Municipal Mayor should instruct the Municipal

Accountant to request in writing to the Commission Proper thru the Audit Team Leader

for the writing-off of the dormant and uncollectible accounts amounting toP3,084,000.00.

2. The observers were not invited by the Bids and Awards Committee (BAC) in all

stages in the procurement of goods and infrastructure projects through public

bidding valued at P1,176,781.50 and P10,035,550.71, respectively, as required

under pertinent provisions of the Implementing Rules and Regulations (IRR) ofR.A. No. 9184 thereby defeating the principle of transparency in the procurement

process because the observers were unable to assess the extent of the BACs

compliance with the provisions of the IRR and areas of improvement in the BACs

proceedings.

We recommend that the Bids and Awards Committee should invite in writing

the required observers in all stages in the procurement of goods and infrastructureprojects through public bidding as required under pertinent provisions of the

Implementing Rules and Regulations of R.A. No. 9184 to enhance transparency in the

procurement process and to enable the observers to assess the extent of the BACs

compliance with the provisions of the IRR and areas of improvement in the BACsproceedings.

3. The Bids and Awards Committee did not adopt the required conditions and

procedures in the conduct of post-qualification on the bidders who tendered the

Lowest Calculated Bid in the procurement of goods and infrastructure projects

through public bidding in the amount of P1,176,781.50 and P10,035,550.71,

respectively, as prescribed under pertinent provisions of Section 34 of the Revised

Implementing Rules and Regulations of R.A. No. 9184. Thus the veracity of the

statements made and authenticity of documents submitted by the concerned

bidders was not properly established.


6/51

We recommend that the Bid and Awards Committee should strictly observe theconditions and procedures in the conduct of post-qualification as provided under

pertinent provisions of Section 34 of Implementing Rules and Regulations of R.A. No.

9184 to ensure the authenticity of documents submitted, and the veracity of statementsmade, by bidders who tendered the Lowest Calculated Bid in the procurement of goods

and infrastructure projects through public bidding.

The other significant findings and recommendations are discussed fully in PartII of this report.

F. Status of Implementation of Prior Years Audit Recommendations

Out of the seven (7) recommendations embodied in the 2010 Annual AuditReport, five (5) were implemented and two (2) remained unimplemented by the

Municipality.

TABLE OF CONTENTS

Part I Audited Financial Statements

Audit Certificate 1

Statement of Management Responsibility for Financial Statements 2

Consolidated Balance Sheet 3As of December 31, 2011

(With Comparative Figures for 2010)

Consolidated Statement of Income and Expenses 4



Consolidated Statement of Cash Flows 5



Notes to Consolidated Financial Statements 6


7/51

Part II Detailed Findings and Recommendations

I. Financial and Compliance Audit 17II. Value for Money Audit 27

III. Revenue Audit 31

IV. Compliance with Tax Laws 33

Part III Status of Implementation of Prior Years Audit

Recommendations 35

Part IV Annexes

Financial Statement by Fund A

Status of Appropriations, Allotments, Obligations and Balances BSchedule of Contracts for the Procurement of Goods and

Infrastructure Projects C

Schedule of Suppliers/Contractors Who Tendered the LowestThe Lowest Calculated Bid D

Schedule of Contracts for the Procurement of Goods and

Infrastructure Projects EProjects Covered under the 20% Development Fund F

Schedule of Taxes Withheld and Remittances G


8/51

PART I AUDITED FINANCIAL STATEMENTS


COMMISSION ON AUDIT

Commonwealth Avenue, Quezon City

AUDIT CERTIFICATE

HONORABLE MARK ANTHONY A. PURISIMA

Municipal MayorMunicipality of San Ildefonso, Ilocos Sur

We have audited the accompanying Balance Sheets of the Municipality of San

Ildefonso as of December 31, 2011 and the related Statements of Income and Expenses and

Statements of Cash Flows for the year then ended. These financial statements are theresponsibility of the Municipalitys management. Our responsibility is to express an

opinion on these financial statements based on our audit.

We conducted our audit in accordance with laws, COA and INTOSAI standardsand applicable generally accepted auditing standards. These standards require that we plan

and perform the audit to obtain reasonable assurance about whether the financial statements

are free of material misstatements. Our audit included examining on a test basis, evidencesupporting the amounts and disclosures in the financial statements. It also included

assessing the accounting principles used and significant estimates made by management, as

well as evaluating the overall financial statement presentation. We believe that our auditprovides reasonable basis for our opinion.


9/51

In our opinion, the financial statements referred to above present fairly, in allmaterial respects, the financial position of the Municipality of San Ildefonso as of

December 31, 2011 and the results of its operations and cash flows for the year then ended

in conformity with applicable generally accepted accounting principles.

COMMISSION ON AUDIT

By: RAMON B. FESTEJOState Auditor III

Audit Team Leader

February 28, 2012


10/51


11/51

Notes to Consolidated Financial Statements

1. Agency Profile

San Ildefonso was established during the Spanish era in the year 1625. Duringthe Spanish era, a small community in Northern Luzon was found. Arguing on how

and what to name it some dwellers who were living near the Bantaoay River saw a

big wooden box that contained an engraved statue of San Ildefonso and decided tocall that community San Ildefonso. The people decided to make him the patron

saint of the place and an annual town fiesta celebration is held every 23 rd of January,

the day when the image was found. By virtue of an Executive Order in 1901,

providing smaller towns to be annexed to adjacent bigger ones, San Ildefonso wasannexed as a barrio to Sto. Domingo. Through the help of the late Pres. Elpidio

Quirino, then an assemblyman, San Ildefonso was again made a separate town in

1920.

The Municipalitys operations are focused mainly on the provision of basic

services through enhancement of tourism industry to increase local source revenue.The municipality is geared towards the attainment of higher and sustainable level of

Socio-economic Growth and Development through the following:

Vision:

A green community of educated and empowerment citizenry, determined

to overcome challenges in attainment of progress thru the enhancement oftrade, industry and culture to be actualized by effective governance.

Mission:

To act as partner of the community guiding the citizenry, to achieve a

sustainable social, economic and environmental condition trough theenhancement and promotion of its trade, industry and culture to generate the

necessary revenue for the delivery of effective and efficient basic services.

To achieve these, the municipality had set the ALISTO flagship programsstated hereunder:

People Empowerment with participative NGOs and

Renewed Dynamism and Transparency of

-Bids and Awards Committee

-Gender and Development

Overwhelming Commitment and Dedication thru

-Agricultural Productivity

-Seed and Fertilizer Subsidy-Livelihood Projects


12/51

Good Governance towards

-Human Resource Development

Rural Development attaining

-Improved infrastructure facilities-Technology Transfer

-Communication and Transportation

Economic and Ecological Balance under

-Solid Waste Management-Investment Promotion/Tourism Industry

Service Oriented

-Social Services (health and sanitation, education, social welfare,

peace and order and public safety)

Organizational Management Systembased on-Executive-Legislative Agenda

2. Basis of Financial Statement Presentation

The financial statements have been prepared in accordance with generally

accepted accounting principles and reflect amounts that are based on best estimatesand informed judgment of management with an appropriate consideration of

materiality. The management maintains a system of accounting and reporting which

provides for the necessary internal control to ensure that transactions are properlyauthorized and recorded and that assets are safeguarded against unauthorized use or

disposition and liabilities recognized.

3. Summary of Significant Accounting Policies

The following are the significant accounting policies that the agency follows:

A. Revenue and Expense Recognition

The agency uses accrual basis of accounting in the recognition of expenses

and revenues. All expenses are recognized when incurred and reported in

the financial statements in the period to which they relate. Real propertytaxes are accounted following the modified accrual basis. Collections of

delinquent accounts for Real Property Tax/ Special Education Tax prior

CY 2002 shall be recognized as direct credit to Real Property Tax/ SETaccounts. Other revenues and taxes are recognized under the cash basis.

The Modified Obligation System is used to record allotments received and

obligations incurred. Separate registries are maintained to controlallotments and obligations for each class of allotments.

B. Petty Cash Fund


13/51

Petty Cash Fund account is maintained under the Imprest fund System. Allreplenishments are directly charged to the expense accounts. The petty

cash fund is not used to purchase regular inventory items for stock.

C. Office Supplies and Materials

Office Supplies and Materials not consumed within the accounting

period shall be recorded as assets using the inventory account followingthe Perpetual Inventory Method. The inventories on hand are stated at cost

and are determined using the Moving Average Method, the balances are

checked by means of physical counts.

D. Property, Plant and Equipment (PPE)

Property, Plant and Equipment are carried at cost less accumulated

depreciation.

The straight-line method of depreciation is used in depreciating the

property, plant and equipment purchased/constructed; estimated economiclives ranging from five to fifty years. A residual value, computed at ten

percent (10%) of the cost of the asset is set and depreciation starts on thesecond month after purchase or completion of the PPE.

Properties of the government constructed during the current year whichare used by the general public are accounted and reported under the

Registry of Public Infrastructures. Those properties constructed in the

prior years are still carried under the Property, Plant and Equipmentaccount due to the inability of the agency to maintain subsidiary ledgers.

E. Payables

Payable accounts are recognized and recorded in the books of

accounts only upon acceptance of the goods and /or rendition of the

services to the agency and upon receipt of billings from the supplier.

F. Financial Expenses

Financial expenses such as bank charges and interest expense are

separately classified from maintenance and other operating expenses.

G. New Government Accounting System

Accounts were reclassified to conform to the new chart of accounts

prescribed under the New Government Accounting System, which wasimplemented effective January 1, 2002.


14/51

Pursuant to Accounting Circular No. 2006-01 dated

November 9, 2006, two accounts such as Cash-Disbursing Officer (103)

and Due from Officers and Employees (123) were reclassified to PayrollFund (106) and Advances to Officers and Employees (148), respectively.

4. Correction of Fundamental Errors

Fundamental errors of prior years are corrected by using the Prior Years

Adjustment Account while errors affecting current year operations are charged to thecurrent years accounts.

5. Cash and Other Cash Accounts

2011 2010

Cash in Vault P 138,718.78 P 37,913.21Payroll Fund 38,000.00 0.00

Petty Cash Fund 2,851.00 1.29Cash in Bank-LCCA 18,950,009.80 3,044,350.42

Cash in Bank-LCTD 7,576,931.33 7,387,438.00

TOTAL P 26,706,510.91 P 10,469,702.92

The time deposit account comprises only of the municipal share from RA7171 Tobacco Excise Tax in the Land Bank of the Philippines.

6. Receivables

This is composed of the following accounts:

2011 2010

Real Property Tax Receivable P 976,836.70 P 437,754.05

Special Education Tax Receivable 976,836.70 437,754.05

Due from NGAs 4,321.58 4,237.09Due from GOCCs 270,618.02 270,618.02

Due from LGUs 266,726.59 266,726.59Due from Other Funds 3,492,311.08 394,239.41Receivables-Disallowances/Charges 3,645,933.98 3,645,933.98

Advances to Officers and Employees 548.01 548.01

Other Receivables 4,103,592.07 4,103,592.07

TOTAL P 13,737,724.73 P 9,561,403.27


15/51

The account Real Property Tax Receivable represents uncollected realproperty taxes in CYs 2002 to 2011.

Due from GOCCs represents the debit balance of the accounts GSIS Payable,Due to PHILHEALTH and Due to PAG-IBIG in prior years.

Due from LGUs represent the assessment made to the provincial government

in the amount of P 11,966.84 and the balance of the account is Cash in Other LocalGovernment Treasury in the amount of P113,314.32.

Due from Other Funds account includes funds transferred from General Fundto Trust Fund account for the implementation of various projects such as Community

Based Management System (CBMS) of P91,162.50, Supplemental Feeding of

P31,943.50, Improvement of Farmers Park and Plaza of P3,342,942.10 and thebalance consists of interest earned in trust fund account in the amount of P21,262.98

and walk for a cause contribution due to General Fund amounting to P1,000.00.

The account Receivables-Disallowances/Charges represents the amount due to

suppliers, contractors, and/or employees resulting from audit disallowances whichhave became final and executory. In 2010, there were disallowances in audit on the

salaries of some employees for the period January 1 to June 25, 2010 amounting toP178,590.20 in violation of Local Budget Circular No. 2009-92 dated September 3,

2009, of which P4,281.00 was settled.

Advances to Officers and Employees account includes employees share on

premium contributions amounting to P48.01 and the remaining balance represents

unliquidated cash advance for travel.

Other Receivables account includes debit balance of liability accounts in the

Trust Fund account amounting to P492.21 and the balance of P4,103,099.86 consistsof Livelihood Projects distributed to residents of San Ildefonso.

7. Inventories

This account consists of unused and unissued drugs and medicines and othersupplies intended for the Community Outreach Program.

8. Prepayments

2011 2010

2011 2010

Drugs and Medicines Inventory P 90,631.39 P 32,278.93

Other Supplies Inventory 510,489.95 160,038.95

TOTAL P 601,121.34 P 192,317.88


16/51

Advances to Contractors P 950,620.30 P 0.00

This account consist of fifteen (15) percent mobilization fee paid tocontractors for the Improvement and Renovation of Municipal Hall Phase I and Phase

II in the General Fund and for the Improvement of Farmers Plaza and Park

implemented under the Trust Fund account.

9. Other Current Assets

2011 2010

Other Current Assets P 18,708.50 P 18,708.50

This amount was due to a disbursement erroneously charged to the RA 7171

account. It should have been charged to Trust Fund.

10. Property, Plant and Equipment

This account includes the following:

Land Improvements account still include cost of public infrastructures forgeneral public use such as roads, plazas and other fixed assets that were constructed

during the prior years. Other Property, Plant and Equipment acquired prior to the

implementation of NGAs were not subjected to depreciation. The significant increasein Land and Land Improvements was due to a two (2) parcels of lot acquired during

the year located in Poblacion West and Sagsagat in this Municipality.

Balance

Dec. 31, 2010

Net Addition/

(Reduction)

Balance

Dec. 31, 2011

Land and Land Improvements P 14,658,351.74 3,231,300.00 P 17,889,651.74Buildings 13,661,039.28 179,682.32 13,840,721.60

Office Equipment, Furniture

and Fixtures 1,295,846.75 146,740.00 1,442,586.75Machineries and Equipment 628,180.00 2,000.00 630,180.00

Transportation Equipment 325,000.00 738,828.00 1,063,828.00

Other Property, Plant andEquipment 45,000.00 45,000.00

Construction in Progress-

River Walls Equipment 19,955,177.87 3,449,082.72 23,404,260.59

Total 50,568,595.64 7,747,633.04 58,316,228.68

Accumulated Depreciation (789,111.97) (297,673.31) (1,086,785.28)

Net Book Value P 49,779,483.67 7,449,959.73 57,229,443.40


17/51

The addition to the Building account comprises solely of the pavementconstructed in the Public Market.

Various equipment such as desktop computers, laptop, filing cabinet, digitalcamera, electric fans etc. were purchased during the year.

Increase in Machineries and Equipment account includes purchase of

agricultural equipment.

One (1) Farmers vehicle (van) was added in the Motor Vehicle account.

Other Property, Plant and Equipment account consists of trash bins intended

for the waste segregation program of the LGU.

The Construction in Progress account consists of Improvement and

Renovation of Municipal Building Phase I and II in the amount of P2,329,534.44 and

P1,119,548.28, respectively. The remaining balance of which is for the Constructionof River Protection Project in the amount of P19,955,177.87 which was supported by

Municipal Development Fund Office (MDFO). With regard to the said project, theLGU-San Ildefonso, Ilocos Sur has applied financial assistance from Department of

Finance (DOF) in the year 2007 through the MDFO for the LOGOFIND (LocalGovernment Finance and Development) Project which aimed to assist local

government units in expanding and upgrading basic infrastructure, services and

facilities and in strengthening their capacities in governance, investment planning,revenue generation and project development with the utmost consideration of

environmental and social concerns.

The LGUs subproject, Construction of River Protection in Bungro, San

Ildefonso, Ilocos Sur, costs P19,955,177.87 with the following L-G-E (Loan, Grant

and Equity) allocation:

70% Grant P 13,968,624.51

20% Loan 3,991,035.57

10% Equity 1,995,517.79Total Subproject Cost P 19,955,177.87

The grant and loan portion was made available through MDFO and the equityportion was the counterpart of the LGU for the subproject as stipulated in the

Subproject Sub loan Agreement.

The LOGOFIND sub-project was 100% completed last July 2007 but it will

only be transferred to Registry of Public Infrastructure until the loan, which partlyfinanced the project, is fully paid/settled.

11. Other Assets

2011 2010


18/51


19/51

Due to Other Funds account includes funds received for the implementation of

various projects in the amount of P1,800,000 in the General Fund which consists of

Priority Development Assistance Fund (PDAF) of P1,500,000.00 and DILG fund forMedical Assistance of P300,000.00. In the Trust Fund, this account includes on-going

projects such as Supplemental Feeding of P6,943.50, CBMS of P84,876.39,

Improvement of Farmers Park and Plaza of P3,342,942.10 and the remaining balance

represents interest earned in this funds bank account and receipt of contribution forthe Walk for a Cause amounting to P21,262.98 and P1,000.00, respectively.

Performance/Bidders/Bail Bonds Payable represents claims of biddersresulted from receipt of cash to guarantee performance of terms of contract/

participation of bidding.

Other payables account includes unpaid retention fee of P50,447.01 to Firefox

Construction and the balance represents unpaid loans.

13. Long-term Liabilities

The loan is the 20% component of the total subprojects cost extended by the

government through MDFO to the LGU to finance part of the subproject,

Construction of River Protection. It shall be payable in 15 years (from CY 2007- CY2021) at an interest rate of 12 % per annum. The amortization of the principal

amount started in 2010 which reduces the balance of this account.

14. Deferred Credits

This account is composed of the following:

2011 2010

Deferred Real Property Tax Income P 976,836.70 P 437,754.05

Deferred Special Education Tax Income 976,836.70 437,754.05

TOTAL P 1,953,673.40 P 875,508.10

15. Government Equity

2011 2010

Loans Payable Domestic P 3,647,454.93 P 3,829,243.97


20/51

This account is broken down as follows:

2011 2010

Portions Pertaining to PPE:Total PPE P 58,316,228.68 P 50,568,595.64

Accumulated Depreciation (1,086,785.28) (789,111.97)

Loans Payable-Domestic (3,647,454.93) (3,829,243.97)

53,581,988.47 45,950,239.70Contingent Assets 3,645,933.98 3,645,933.98

Prepayments 950,620.30 0.00

Inventories:

Drugs and Medicines Inventory 90,631.39 32,278.93

Other Supplies Inventory 510,489.95 160,038.95

601,121.34 192,317.88

Continuing Appropriations 10,783,447.71 0.00

Available for Operations 13,539,023.18 10,917,893.84

TOTAL P 83,102,134.98 P 60,706,385.40

Contingent Assets represents receivables from suppliers or entities resulting

from audit disallowances/charges which have become final and executory.

Prepayments includes include advances to contractors for various projects.

Continuing Appropriations consists of Calamity Fund amounting to

P1,171,710.00 and RA 7171 Tobacco Excise Tax in the amount of P9,611,737.71.

A portion of the Available for Operations amount for CY 2011 includes 20%

Development Fund savings of P1,081,396.30, Special Education Fund savings of

P63,762.32 and the remaining balance accrues to the General Fund.

16. Income Accounts

2011 2010

Local Taxes P 757,263.90 P 1,012,106.67

Permits and Licenses 320,902.59 258,950.92Service Income 213,217.15 272,639.90

Business Income 302,506.17 244,129.85Other Income 44,107,794.00 36,550,938.69

TOTAL P 45,701,683.81 P 38,338,766.03

17. Expenditures Accounts

2011 2010


21/51

Personal Services P 17,084,349.04 P 15,903,751.79

Maintenance and Other Operating

ExpensesFinancial Expenses

5,752,513.22100.00

6,428,843.500.00

Subsidies and Donations 245,900.00 4,148,928.50

TOTAL P 23,082,862.26 P 26,481,523.81


22/51

PART II DETAILED FINDINGS AND RECOMMENDATIONS


23/51

Detailed Findings and Recommendations

I. Financial and Compliance Audit

1. The Other Receivables account balance of P3,084,000.00 representing claimsagainst various debtors was still carried in the books although the account has

remained dormant for more than ten (10) years and whose collectability has

been rendered improbable due to the lack of source documents to support the

account.

Review and verification of Trial Balance, Balance Sheet and supportingschedules under the General Fund showed Other Receivables account balance of

P3,084,000.00 as of December 31, 2011. The account represents the claim of the

municipality against five (5) debtor organizations for the implementation of

livelihood projects. The details are as follows:

No. Name of Debtor Address Particulars Amount

1Kabisig

OrganizationsSan Ildefonso, I. Sur

Kabisig

LivelihoodP 2,804,000.00

2 RIC Organizations San Ildefonso, I. Sur RIC Livelihood 100,000.00

3Dancers


Dancers

Livelihood30,000.00

4Farmers


Farmers

Livelihood120,000.00

5RIC San Ildefonso

ChapterSan Ildefonso, I. Sur RIC Livelihood 30,000.00

TOTAL P 3,084,000.00

Considering that the transaction occurred sometime in June 1997 or more

than ten (10) years ago and that the account were not supported with sourcedocuments such as subsidiary ledgers, names and addresses of individual debtors and

specific amounts released to them, management believes that the collection or

recovery of the same is improbable.

Hence, the existence of the dormant and uncollectible accounts in the books of

the municipality continue to affect its true financial condition which requires thewriting-off of the account as enunciated in COA Resolution No. 2003-002 dated

January 30, 2003 as follows:

WHEREAS, this Commission, in the exercise of this authority has

authorized the writing-off of unliquidated cash advances, dormant and

uncollectible accounts of government agencies the existence of which in the books

continue to affect the true financial condition of the government;

17


24/51

WHEREAS, the New Civil Code provides that the right of action upon a

written contract, upon an obligation created by law, or upon a judgment prescribes

in ten (10) years (Article 1144).

Management concurred with our observation during the exit conference and

assured us to comply with our recommendation.

We recommend that the Municipal Mayor should instruct the Municipal Accountant

to request in writing to the Commission Proper thru the Audit Team Leader for the writing-

off of the dormant and uncollectible accounts amounting to P3,084,000.00.

2. The observers were not invited by the Bids and Awards Committee (BAC) in all

stages in the procurement of goods and infrastructure projects through public

bidding valued at P1,176,781.50 and P10,035,550.71, respectively, as required

under pertinent provisions of the Implementing Rules and Regulations (IRR) of

R.A. No. 9184 thereby defeating the principle of transparency in the

procurement process because the observers were unable to assess the extent ofthe BACs compliance with the provisions of the IRR and areas of improvement

in the BACs proceedings.

The procurement process includes the following: (a) Invitation to Bid

particularly the conduct of pre-procurement and pre-bid conferences, if applicable;(b) Receipt and Opening of Bids; (c) Evaluation of Bids; (d) Conduct of Post-

Qualification; e) Award of Contracts.

Review of invitation letters to observers prepared by the BAC and observation

of its activities revealed that the required observers were only invited during the

receipt and opening of bids stage in the procurement of goods and infrastructureprojects through public bidding valued at P1,176,781.50 and P10,035,550.71,

respectively. The details are shown in Annex C. The observers were not invited by

the BAC to sit in its proceedings in the pre-bid conference, where applicable,

evaluation of bids, conduct of post-qualification and award of contract stages asopposed to the pertinent provisions of the Implementing Rules and Regulations (IRR)

of R.A. No. 9184, as amended on September 2, 2009 regarding the invitation of

observers in all stages in the procurement process as follows:

13.1. To enhance the transparency of the process, the BAC shall, in all

stages of the procurement process, invite, in addition to the representative of the

COA, at least two (2) observers, who shall not have the right to vote, to sit in itsproceedings, where:

At least one (1) shall come from a duly recognized private group in a

sector or discipline relevant to the procurement at hand, for example:

18


25/51

a) For infrastructure projects, national associations of constructors duly

recognized by the Construction Industry Authority of the Philippines (CIAP), such

as, but not limited to the following:

(1) Philippine Constructors Association, Inc.;

(2) National Constructors Association of the Philippines, Inc.; and(3) Philippine Institute of Civil Engineers (PICE).

b) For goods, a specific relevant chamber-member of the Philippine

Chamber of Commerce and Industry. xxx

The other observer shall come from a non-government organization

(NGO).

13.4. The observers shall have the following responsibilities: a) To prepare

the report either jointly or separately indicating their observations made on the

procurement activities conducted by the BAC for submission to the Head of theProcuring Entity, copy furnished the BAC Chairman. The report shall assess the

extent of the BACs compliance with the provisions of this IRR and areas of

improvement in the BACs proceedings.

Since the observers were not invited in other stages of the procurement ofgoods and infrastructure projects as shown in Annex C, they were unable to assess the

extent of the BACs compliance with the provisions of the IRR and areas of

improvement in the BACs proceedings.

During the exit conference, the Vice-Chairman of the Bids and Awards

Committee claimed that observers were only invited during the receipt and opening ofbids. However, he informed us that all officials and employees concerned in otherstages of the procurement process were invited to sit in its proceedings.

We recommend that the Bids and Awards Committee should invite in writingthe required observers in all stages in the procurement of goods and infrastructure

projects through public bidding as required under pertinent provisions of the

Implementing Rules and Regulations of R.A. No. 9184 to enhance transparency in theprocurement process and to enable the observers to assess the extent of the BACs

compliance with the provisions of the IRR and areas of improvement in the BACs

proceedings.

3. The Bids and Awards Committee did not adopt the required conditions and

procedures in the conduct of post-qualification on the bidders who tendered the

Lowest Calculated Bid in the procurement of goods and infrastructure projects

through public bidding in the amount of P1,176,781.50 and P10,035,550.71,

respectively, as prescribed under pertinent provisions of Section 34 of the

Revised Implementing Rules and Regulations of R.A. No. 9184. Thus the

19


26/51

veracity of the statements made and authenticity of documents submitted by the

concerned bidders was not properly established.

Review of post-qualification reports made by the Bids and Awards Committee

(BAC) disclosed that they did not adopt the required conditions and procedures in the

conduct of post-qualification on the bidder who tendered the Lowest Calculated Bid(LCB) in the procurement of goods and infrastructure projects through public bidding

in the amount of P1,176,781.50 and P10,035.550.71 (Annex D).

Moreover, the post-qualification reports were not supported with documents

or reports substantiating the Technical Working Groups (TWG) validation of the

authenticity of documents submitted and veracity of statements made by the

concerned bidders as to the following:

a. Validation of the authenticity of the documents submitted and veracity

of information thereon;

b. Validation of compliance of the goods offered with the requirementsspecified in the Bidding Documents, duly supported with inspection

reports on the goods offered and test results;c. Validation of the sufficiency of the bid security as to type, amount,

form and wording, validity period;

d. Validation of compliance with the financial requirements; ande. Minutes of the post-qualification activities.

The conduct of post-qualification of bidders who tendered the Lowest

Calculated Bid in the procurement of goods and infrastructure projects through publicbidding is prescribed under pertinent provisions of Section 34 of the Revised

Implementing Rules and Regulations of R.A. No. 9184 as follows:

Section 34.1. The Lowest Calculated Bid/Highest Rated Bid shall undergo

post-qualification in order to determine whether the bidder concerned complies

with and is responsive to all the requirements and conditions as specified in the

Bidding Documents.

Section 34.3. The post-qualification shall verify, validate, and ascertain all

statements made and documents submitted by the bidder with the Lowest

Calculated Bid/Highest Rated Bid, using non-discretionary criteria, as stated in the

Bidding Documents. These criteria shall consider, but shall not be limited to, the

following:

a) Legal Requirements. To verify, validate, and ascertain licenses,

certificates, permits, and agreements submitted by the bidder, x x x x.

b) Technical Requirements. To determine compliance of the goods,

infrastructure projects, or consulting services offered with the requirements

specified in the Bidding Documents, including, where applicable:

20


27/51

i) Verification and validation of the bidders stated competence and

experience, and the competence and experience of the bidders key personnel

to be assigned to the project, for the procurement of infrastructure projects

and consulting services;

ii) Verification of availability and commitment, and/or inspection andtesting for the required capacities and operating conditions, of equipment

units to be owned/leased/under purchase by the bidder for use in the contract

under bidding, as well as checking the performance of the bidder in its

ongoing government and private contracts (if any of these on-going contracts

shows a reported negative slippage of at least fifteen percent (15%), or

substandard quality of work as per contract plans and specifications, or

unsatisfactory performance of the contractors obligations as per contract

terms and conditions, at the time of inspection, and if the BAC verifies any of

these deficiencies to be due to the contractors fault or negligence, the agency

shall disqualify the contractor from the award, for the procurement of

infrastructure projects;

iii) Verification and/or inspection and testing of the goods/product,

after sales and/or maintenance capabilities, in applicable cases, for the

procurement of goods; and

iv) Ascertainment of the sufficiency of the bid security as to type,

amount, form and wording, and validity period.

c) Financial Requirements. To verify, validate and ascertain the bid price

proposal of the bidder and, whenever applicable, the required CLC in the amount

specified and over the period stipulated in the Bidding Documents, or the bidders

NFCC to ensure that the bidder can sustain the operating cash flow of the

transaction.

As stated in the foregoing, the intent of post-qualification is to determinewhether the concerned bidder with the LCB had complied with and responsive to all

the requirements and conditions as specified in the bidding documents. If such

process is not properly observed by the BAC, prospective bidders who have

submitted unauthentic documents and made false statements may be post-qualifiedand ultimately awarded the contracts to the detriment of eligible and qualified

bidders.

During the exit conference, the Municipal Accountant who is a member of the

Technical Working Group recalled that she was able to verify the Income Tax

Returns (ITR) and Bid Security of some bidders who tendered the Lowest CalculatedBid. On the other hand, The Vice-Chairman of the BAC explained that some

documents submitted were not verified due to financial constraints. However, they

agreed to abide by our recommendation.

21


28/51

We recommend that the Bid and Awards Committee should strictly observe

the conditions and procedures in the conduct of post-qualification as provided under

pertinent provisions of Section 34 of Implementing Rules and Regulations of R.A.No. 9184 to ensure the authenticity of documents submitted, and the veracity of

statements made, by bidders who tendered the Lowest Calculated Bid in the

procurement of goods and infrastructure projects through public bidding.

4. Management did not furnish the Auditor with copies of perfected contracts

and its supporting documents for the procurement of goods and infrastructure

projects within five (5) working days from its execution and issuance costing

P1,176,781.50 and P10,035,550.71, respectively, for review purposes, as required

under pertinent provisions of COA Circular No. 2009-001. Thus defects and/or

deficiencies in the purchase orders and contracts as well as corrective measures

to be undertaken, if any, were not informed to management at once.

Review of 2011 transactions of the municipality from January 2011 toDecember 31, 2011 disclosed that copies of eight (8) perfected contracts pertaining to

the procurement of goods and infrastructure projects costing P1,176,781.50 andP10,035,550.71, respectively, (Annex E) were not furnished by management to the

Auditor within the prescribed period as required under the pertinent provisions of

COA Circular No. 2009-001 dated February 12, 2009 as follows:

Section 2.1 This Circular shall cover all contracts, purchase orders, and the

like, entered into by any government agency irrespective of amount involved.

Section 3.1.1- Within five (5) working days from the execution of contract

by the government or any of its subdivisions, agencies, instrumentalities including

government-owned or controlled corporations and its subsidiaries, a copy of said

contract and each of all documents forming part thereof by reference or

incorporation shall be furnished to the Auditor of the agency concerned.

Section 3.1.4- The Auditor shall review the contract within a period ranging

from five (5) to twenty (20) working days from receipt of the contract. X x x.

Without waiting for the period herein established, the Auditor concerned shall call

the immediate attention of management of regarding defects and deficiencies noted

in the contract and suggest corrective measures as appropriate and warranted.

Xxx.

Section 3.2.1- A copy of the purchase order irrespective of amount and each

and every supporting document shall within five (5) working days from issuance

thereof, be submitted to the Auditor concerned. Within the same period, the

Auditor shall review and point out to management the defects and deficiencies, if

any.

22


29/51

In view of the inability of management to comply with the submission of

copies of purchase orders and contracts to our office within five (5) working days

upon approval together with its supporting documents for review, we could notimplement a systematic and effective review process directed towards immediately

informing them of relevant audit results especially defects and/or deficiencies noted

in the purchase orders and contracts, if any.

Under the circumstances, we could not also suggest or offer to management

specific corrective measures on the defects and/or deficiencies noted, if any.

During the exit conference, the Municipal Accountant explained that the

required documents were only submitted to the Auditor concerned during the conduct

of inspection on the completed projects and delivered items of the municipality. TheBAC Secretariat however agreed to comply with our recommendation.

We recommend that the Municipal Mayor should require the BAC Secretariat

to comply with the pertinent provisions of COA Circular No. 2009-001 regarding thesubmission of copies of purchase orders and perfected contracts together with its

supporting documents to the Auditor within five (5) working days from execution forreview and evaluation so that management will be immediately informed of defects

and deficiencies noted, if any.

5. The procurement monitoring report which shall be approved and submitted

by the Head of the Procuring Entity to the Government Procurement Policy

Board (GPPB) in printed and electronic format within fourteen (14) calendar

days after the end of each semester was not prepared by the Bids and Awards

Committee as prescribed under Section 12.2 of the Revised Implementing Rules

and Regulations of R.A. No. 9184

Section 12.2 of the Revised Implementing Rules and Regulations of Republic

Act (R.A.) No. 9184 otherwise known as the Government Procurement Reform Actprovides that The BAC shall be responsible for ensuring that the procuring entityabides by the standards set forth by the Act and this IRR, and it shall prepare a

procurement monitoring report in the form prescribed by the GPPB. The

procurement monitoring report shall cover all procurement activities specified in

the APP, whether ongoing and completed, from the holding of the pre-procurement

conference to the issuance of notice of award and approval of the contract,

including the standard and actual time for each major procurement activity. The

procurement monitoring report shall be approved and submitted by The Head of

the Procuring Entity to the GPPB in printed and electronic format within fourteen

(14) calendar days after the end of each semester.

Our inquiry with the Bids and Awards Committee (BAC) Chairman of the

municipality including our communications to his office on the preparation, approval

and submission by the Municipal Mayor of the procurement monitoring report to the

23


30/51

Government Procurement Policy Board (GPPB) in the prescribed form and period

produced no positive outcomes. The said report was not prepared by the BAC. Such

report shall cover all procurement activities specified in the APP, whether ongoingand completed, from the holding of the pre-procurement conference to the issuance of

notice of award and approval of the contract, including the standard and actual time

for each major procurement activity.

Since we failed to obtain a copy of the procurement monitoring report from

the BAC in the prescribed form which is downloadable from the GPPB website, wewere unable to entirely verify whether or not the procurement activities of the

municipality was undertaken in accordance with their approved Annual Procurement

Plan (APP) and consistent with its duly approved yearly budget.

Furthermore, the inability of the municipality to submit the procurement

monitoring report to the GPPB in the prescribed format and period may unfavorably

affect the GPPBs performance of their duties and responsibilities to ensure proper

implementation by procuring entities of the Implementing Rules and Regulations(IRR) of R.A. No. 9184 to conduct an annual review of its effectiveness and to

recommend any amendments thereto, as may be necessary.

During the exit conference, the members of the BAC mentioned that they are

not aware on the aforesaid procurement law. However, they expressed theirwillingness to comply with our recommendation.

We recommend that the Municipal Mayor should require the members of the

Bids and Awards Committee to prepare the Procurement Monitoring Report for hisapproval and submission to the Government Procurement Policy Board in printed and

electronic format within fourteen (14) calendar days after the end of each semester as

prescribed under Section 12.2 of the Revised Implementing Rules and Regulations ofRepublic Act (R.A.) No. 9184.

We also recommend that the Municipal Mayor should direct the members ofthe Bids and Awards Committee to download the prescribed form of the procurement

monitoring report from the Government Procurement Policy Board website for

reference as to coverage and contents thereto.

6. The 2011 Annual Procurement Plan for Common-Use Supplies and

Equipment was not submitted by management to the Department of Budget and

Management Regional Office No. 1, City of San Fernando, La Union within the

time prescribed under Budget Circular Letter No. 2011-6 dated August 25, 2011.

Thus the required information therein was not included in the consolidation of

required data to be forwarded to the Procurement Service as basis in its

projection of inventory requirements, scheduling of procurement activities and

overall management of the central procurement of common-use goods.

24


31/51

Inquiry with the Chairman, Bids and Awards Committee (BAC) of the

municipality on February 3, 2012 disclosed that the 2011 Annual Procurement Plan

for Common-Use Supplies and Equipment (APP-CSE) was not submitted within theprescribed time to the Department of Budget and Management Regional Office No. 1,

City of San Fernando as required under pertinent provisions of Budget Circular Letter

No. 2011-6 dated August 25, 2011.

The pertinent provisions of Budget Circular Letter No. 2011-6 dated August

25, 2011 with respect to the use of the Procurement Service in procurement activitiesare as follows:

Section 4.1.All National Government Agencies, including Military and

Police Units; GOCCs, GFIs and LGUs are required to submit their Annual

Procurement Plan for Common-Use Supplies and Equipment (APP-CSE), using

the prescribed format shown as Annex A. The same may be downloaded thru the

Procurement Service website at http://www.procuremen t service.org. Downloads

tab and the PhilGEPS website at http://www.philgeps.net-AboutPhilGEPS tab-Useful Downloads. The submission of the APP-CSE, nonetheless, shall not affect

the responsibility of the procuring entity to submit their Annual Procurement Plan

pursuant to Section 7 of R.A. 9184 and its IRR.

Section 4.2. The accomplished APP-CSEs are due for submission to the

DBM on the following dates:

FY 2011 APP-CSE on or before September 15, 2011

FY2012 APP-CSE on or before November 15, 2012; and

Henceforth, the APP-CSE shall be submitted on or before

November 15 of each year.

Section.4.2.2SUCs and LGUs are likewise required to submit their APP-

CSE to the DBM Regional Office.

Since the APP-CSE was not submitted as required by the foregoing budget

regulation, the necessary information that is supposed to be contained in the APP-

CSE, was not included in the consolidation of required data to be forwarded to theProcurement Service to serve as basis in its projection of inventory requirements,

scheduling of procurement activities and overall management of the central

procurement of common-use goods.

During the exit conference, we were informed that the municipality did not

receive the aforesaid letter. However, the personnel concerned told us that the 2011

APP-CSE as required by the DBM was already submitted.

We recommend that the Municipal Mayor should require the Bids and Awards

Committee to strictly comply with the submission of the 2011 Annual ProcurementPlan for Common-Use Supplies and Equipment in consonance with Budget Circular

25
http://www.procurement/http://www.philgeps.net-about/http://www.philgeps.net-about/http://www.procurement/


32/51

Letter No. 2011-6 dated August 25, 2011 to ensure the inclusion of useful

information required by the DBM-Regional Office for consolidation purposes and to

provide data to the Procurement Service relative to the projection of inventoryrequirements, scheduling of procurement activities and overall management of the

central procurement of common-use goods.

7. The Procurement of Common-Use Supplies from the Procurement Service-

Department of Budget and Management (PS-DBM) for the year 2011 was not

observed by management as provided under Administrative Order 17 dated July

28, 2011 thereby affecting the comprehensive reforms undertaken by the

national government to modernize and standardize government procurement

systems.

Review of 2011 transactions of the municipality pertaining to the procurement

of goods disclosed that it did not procure common-use supplies and equipment from

the PS-DBM contrary to pertinent provisions of Administrative Order No. 17 datedJuly 28, 2011 issued by His Excellency President Benigno C. Aquino III directing the

use of the Procurement Service and the Philippine Government ElectronicProcurement System in procurement activities in accordance with R.A. No. 9184, and

improving the operation of the Procurement Service as follows:

Section 1. Reiteration of Policy. The national government hereby reiteratesthe policy that procurement of government supplies, materials, and equipment shall

be done in the most transparent and competitive manner by purchasing from

legally, technically, and financially capable sources in economic lot sizes, by

observing cost-efficient specifications, and by making prompt payment. In line with

this, all government agencies shall procure their common-use supplies from the PS

and use the PhilGEPS in all their procurement activities, including publishing all

their bid opportunities and posting all their awards and contracts in it, in

accordance with R.A. No. 9184.

Section 2. Coverage.This Administrative Order shall apply to all NationalGovernment Agencies, including Military and Police Units; Government-Owned

and/or Controlled Corporations (GOCCs); Government Financial Institutions

(GFIs); State Universities and Colleges (SUCs); and Local Government Units

(LGUs).

Section 4. Procurement of Common-Use Supplies.Common-use supplies

shall be procured directly from the PS or its depots without need of public bidding

as provided in Section 53.5 of the Implementing Rules and Regulations (IRRs) of

R.A. No. 9184.

If the municipality will not fully and consistently abide with the foregoing, it

would contribute to the inability of the national government to achieve the

26


33/51

comprehensive reforms it has undertaken to modernize and standardize government

procurement systems.

Management noted our observation during the exit conference and agreed to

abide by our recommendation.

We recommend that management should procure Common-Use Supplieswhich are necessary in the transactions of its official business from the Procurement

Service-Department of Budget and Management as provided under Administrative

Order No. 17 to contribute to the attainment of a modernized and standardizedgovernment procurement system.

II. Value for Money Audit

8. Government funds totaling P10,035,550.71 representing the share of the

municipality from the fifteen percent (15%) of excise taxes on locally

manufactured Virginia-type cigarettes was utilized for projects other than thoseprescribed under pertinent provisions of Memorandum Circular No. 61-A dated

January 9, 1992 thereby defeating the policy of the government to extend special

support to local farmers as well as depriving them of projects that will increase

their income and productivity.

As a component of a Virginia tobacco-producing province, the municipality

received from the Department of Budget and Management the total amount of

P19,812,461.00 representing its 2011 share fromthe fifteen percent (15%) of excisetaxes on locally manufactured Virginia-type cigarettes pursuant to R.A. No. 7171.

Out of this, the total amount of P10,617,934.12 was appropriated for differentinfrastructure projects. However, audit and review of transactions pertaining to theutilization of the fund disclosed that the total amount of P10,035,550.71 was used for

the implementation of five (5) projects other than those prescribed under pertinent

provisions of Memorandum Circular No. 61-A thereby defeating the policy of thegovernment to extend special support to local farmers as well as depriving them of

projects that will increase their income and productivity. The details are as follows:

27


34/51

The pertinent provisions of Memorandum Circular 61-A prescribing the

guidelines for the implementation of R.A. No 7171 dated January 9, 1992 are as

follows:

The respective shares of the LGUs of beneficiary provinces shall be treated

as a special account under the general fund of the LGUs of provinces to be utilized

for the following projects:

Cooperative projects that will enhance better quality of products,

increase productivity, guarantee the market and as a whole increase

farmers' income;

Livelihood projects particularly the development of alternative farming

system to enhance farmers' income;

Agro-industrial projects that will enable tobacco farmers in the Virginia

tobacco-producing provinces to be involved in the management and

subsequent ownership of these projects such as post-harvest and

secondary processing like cigarette manufacturing and by-product

utilization; and

Infrastructure projects such as farm-to-market roads.

During the exit conference, the Municipal Mayor explained that the aforesaid

projects were envisioned to be used by the farmers of the municipality.

We recommend that management should strictly comply with the provisions

of Memorandum Circular 61-A dated January 9, 1992 relative to the utilization of its

share from the fifteen percent (15%) of the excise taxes on locally manufacturedVirginia-type ofcigarettes to conform with the policy of the government to extendspecial support to local farmers as well as to provide them with projects that will

increase their income and productivity.

28

No. Name of Project Appropriation Contract Amount

1Improvement and Renovation of

Municipal Building, Phase I P 5,000,000.00 P 4,434,118.43

2Improvement and Renovation of

Municipal Building, Phase II 2,019,737.66 2,009,706.86

3 Concreting of Pavement at the PublicMarket 180,000.00 179,682.32

4Repair and Improvement of Stairs

Leading to Bungro Elementary School 70,000.00 69,099.00

5Improvement of Farmers Plaza and In

front of the Municipal Hall 3,348,16.46 3,342,42.10

TOTAL P 10,617,934.46 P 10,035,550.71


35/51

9. Out of the 20% Development Fund appropriation of P4,733,756.40 the

amount of P723,250.55 or 15.28% was used for programs, projects and activities

other than those specified in Section 3.0, DILG-DBM Joint Memorandum

Circular No. 1, Series of 2005, dated September 20, 2005. Thus the use of thefund did not fully contribute to the attainment of desirable socio-economic and

environmental outcomes for the municipality to the detriment of intended

beneficiaries.

Review of the 2011 annual budget of the municipality disclosed that the

amount of P4,733,756.40 was appropriated for the 20% Development Fund. Of this,

the amount of P723,250.55 or 15.28% was used for programs, projects and activitiesother than those specified in the joint circular prescribing the guidelines on the

appropriation and utilization of the 20% of the Annual Internal Revenue Allotments

for development projects. The details are as follows:

Name of Program/Project Obligation

Christmas Decor and Lights P 22,910.00

Support to Bureau of Fire Protection 41,140.55

Philhealth Membership 648,400.00

Honorarium of Physical Fitness Instructor 10,800.00

TOTAL P 723,250.55

Section 3.0 of the Department of Interior and Local Government andDepartment of Budget and Management (DILG-DBM) Joint Memorandum Circular

enumerates the projects covered to be funded out of at least 20% of the annual

internal revenue allotment. The projects therein cover social and economicdevelopment and environmental management. (Annex F)

As a result, the use of the 20% development fund for projects did not fully

contribute to the attainment of desirable socio-economic and environmental outcomesfor the municipality to the detriment of intended beneficiaries.

During the exit conference, management noted our observation and agreed toabide by our recommendation.

We recommend that management should utilize the 20% Development Fund

for projects, programs and activities as specified under Section 3.0, DILG-DBM JointMemorandum Circular No. 1, Series of 2005, dated September 20, 2005 to attain

desirable socio-economic and environmental outcomes for the municipality and

intended beneficiaries.

10. The Municipality did not formulate its 2010 Gender and Development

(GAD) Plan as set forth in Section 31 of the General Provisions of the 2011

29


36/51

General Appropriations Act and Section 4.4 DBM, NEDA and NCRFW Joint

Circular No. 2004-1. Thus, no appropriations were allocated for the

implementation of GAD related projects, programs and activities to the

detriment of the intended beneficiaries.

Gender and Development (GAD) mainstreaming is the main strategy forensuring that the government pursues gender equality in all development projects to

achieve the vision of gender responsive society where men and women contribute to

and benefit from development projects.

Review and examination of the 2011 of the approved annual budget of the

municipality showed that no appropriation was set aside to support GAD relatedprojects, programs and activities.

Furthermore, inquiry with the GAD focal person disclosed that no GAD Planwas formulated for 2011 contrary to the following:

Section 31 of the General Provisions of the 2011 General Appropriations Actstates:

Programs/Projects related to Gender and Development. All departments,

bureaus, agencies, SUCs, GOCCs, and LGUs shall formulate a Gender and

Development Plan designed to address gender issues within their respective sectors

or mandate x x x x. The GAD Plan shall be integrated in the regular activities of

the agencies, which shall be at least five percent (5%) of their respective budgets.

The formulation of the GAD Plan shall proceed from the conduct of gender

analysis, the generation and review of sex-disaggregated data, and consultation

with gender advocates and women clientele. Its implementation shall contribute tothe economic empowerment especially of marginalized women, the protection,

promotion, fulfillment of womens rights and the practice of gender-responsive

governance. Utilization of the GAD budget shall be evaluated based on the GAD

performance indicators identified by said agencies.

Section 4.4 of DBM, NEDA and National Commission on the Role of Filipino

Women (NCRFW) Joint Circular No. 2004-01 provides:

GAD planning and budgeting shall be observed annually and

incorporated in all programming and budgeting exercises of agencies. The GAD

activities in the GAD plan and budget must be included in the agency budgetproposal in accordance with the budget call. Agencies shall ensure that the cost

of implementing activities is part of their budget. x x x x. Agency heads shall be

responsible for ensuring that GAD activities are provided with adequate

resources.

As a result, no GAD related projects, programs and projects were

implemented for the year 2011 to the detriment of intended beneficiaries.

30


37/51

During the exit conference, the Budget Officer claimed that no GAD Plan was

formulated for 2011. However, she informed us that there were GAD relatedprograms, projects and activities implemented under the 20% Development Fund of

the municipality.

We recommend that the Municipal Mayor should require the GAD Focal

Person to formulate a GAD Plan designed to address womens issues and concerns

which implementation is funded with at least 5% of the annual local budget toguarantee that women especially those from the marginalized sectors benefit from

GAD projects and programs.

III.Revenue Audit

11. The thirty five percent (35%) and twenty five percent (25%) share of theProvince of Ilocos Sur and concerned barangays from the proceeds of real

property tax collections for the year ended December 31, 2011 totaling

P267,025.88 was not distributed as required under pertinent provisions of

Section 271 of R.A. No. 7160. Hence, the intended recipients were denied of

additional funds to finance the delivery of basic services and the implementation

of development projects and programs for their constituents.

Examination of the books of accounts of the municipality covering the year

ended December 31, 2011 disclosed that Due to Local Government Units accountunder the General Fund has a balance of P267,025.88. These represented the thirty

five percent (35%) and twenty five percent (25%) share of the Province of Ilocos Surand concerned barangays from the proceeds of real property tax collections in theamount of P155,765.15 and P111,260.73, respectively, but were not distributed to the

intended recipients as provided under pertinent provisions of R.A. No. 7160, to wit:

Section 271. Distribution of Proceeds. - The proceeds of the basic real

property tax, including interest thereon, and xxx shall be distributed as follows:

(a) In the case of provinces:

(1) province - Thirty-five percent (35%) shall accrue to the general

fund;

(2) municipality - Forty percent (40%) to the general fund of the

municipality where the property is located; and

(3) Barangay - Twenty-five percent (25%) shall accrue to the Barangay

where the property is located.

(d) The share of each Barangay shall be released, without need of any

further action, directly to the Barangay Treasurer on a quarterly basis within five

31


38/51

(5) days after the end of each quarter and shall not be subject to any lien or

holdback for whatever purpose.

Hence, the intended recipients were denied of additional funds to finance the

delivery of basic services and the implementation of development projects and

programs for their constituents.

During the exit conference, the OIC-Municipal Treasurer claimed that the

provincial and barangay shares were distributed on a yearly basis. She agreedhowever to comply with our recommendation.

We recommend that the Municipal Mayor should require the OIC-Municipal

Treasurer in coordination with the Municipal Accountant to distribute the provincialand barangay shares derived from the proceeds of real property tax collections to

provide intended recipients with additional funds to finance the delivery of basic

services and the implementation of projects and programs for their constituents.

12. The municipality has updated its Revenue Code thereby imposing and

adjustingthe rates of taxes, fees and chargesand consistent with the exercise of

its revenue-raising power but there were deficiencies noted therein contrary to

pertinent provisions of the Local Government Code of 1991.

The municipality through the Sanggunian Bayan has updated its 2006

Revenue Code by the enactment of the 2011 Revenue Code thus consistent with the

exercise of its revenue-raising power and the adjustment of rates of taxes, fees andcharges as well, pursuant to the following:

The power to create sources of revenue by the municipality is provided underSection 129 of the Local Government Code which states Each local governmentunit shall exercise its power to create its own sources of revenue and to levy taxes,

fees, and charges subject to the provisions herein, consistent with the basic policy

of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the

local government units.

Whereas the authority of Local Government Units to adjust rates of taxordinances is provided under Section 191 of the same Code which states that Local

units shall have the authority to adjust the tax rates as prescribed herein not

oftener than once every five (5) years, but in no case shall such adjustment exceed

ten percent (10%) of the rates fixed under this Code.

Conversely, review of tax ordinances and 2011 Revenue Code disclosed thefollowing deficiencies, to wit:

The ordinances levying such taxes, fees or charges were enactedwithout prior public hearing conducted for the purpose as required under

32


39/51

Section 187 of the Local Government Code which provides that The

procedure for approval of local tax ordinances and revenue measures

shall be in accordance with the provisions of this Code: Provided, That

public hearings shall be conducted for the purpose prior to the

enactment.

The publishing and the posting of the tax ordinances was not

observed as provided underSection 188 of the Local Government Code

which states that Within ten (10) days after their approval, certified true

copies of all provincial, city, and municipal tax ordinances or revenue

shall be published in full for three (3) consecutive days in a newspaper

of local circulation: Provided, however, That in provinces, cities and

municipalities where there are no newspapers of local circulation, the

same may be posted in at least two (2) conspicuous and publicly

accessible places.

During the exit conference, the personnel concerned noted our observationand assured us to comply with our recommendation.

We recommend that the Municipal Mayor should advise the Sanggunian

Bayan to abide with the provisions of the Local Government Code as to the conduct

of public hearing, publishing and posting of tax ordinances or revenue measures priorto its enactments.

IV. Compliance with Tax Laws

13. Out of the taxes withheld by the municipality during the year from varioussources totaling P809,525.04, the amount of P808,733.29 was remitted by

management to the Bureau of Internal Revenue. The remaining balance of

P791.75 as of December 31, 2010 was also remitted on January 2012 pursuant to

pertinent and applicable Revenue Regulations.

Audit of Due to BIR account in all funds disclosed that the municipality

withheld taxes from various sources totaling P809,525.04 as of December 31, 2011.Out of this, the total amount of P808,733.29 was regularly remitted by the OIC-

Municipal Treasurer to the Bureau of Internal Revenue (BIR). The year-end balance

of P791.75 (Annex G) was remitted to the BIR on January of 2012 in compliance

with pertinent and applicable revenue regulations as follows:

Section 2.81 of BIR Revenue Regulations 2-98 provides that Every person

required to deduct and withhold the tax and compensation shall make a return and

pay such tax on or before the 10th day of the month following the month on which

withholdings were made to any authorized agent bank with the Revenue District

Office.

33


40/51

Section 2 (a) of BIR, Revenue Regulations No. 1-87 provides that The

Provincial Treasurer and Governor in provinces; the City Treasurer and Mayor in

cities; the Municipal Treasurer and Mayor in municipalities; the Head of Office in

departments, bureaus, agencies, instrumentalities, government-owned and

controlled corporations, and other government offices are personally charged with

the duty to withhold and remit taxes on compensation, expanded and finalwithholding taxes, as well as government money payments on value added taxes

and other percentage taxes including franchise taxes.

Management was pleased with our observation and assured us to continue to

comply with BIR regulations regarding the remittance of withheld taxes to the BIR to

ensure that the municipality is doing its share in the contribution of revenues to the

national government.

We recommend that management should faithful carry on with the prompt

remittance of taxes withheld from various sources as required by BIR Regulations to

generate funds for the national government.

34


41/51

PART III STATUS OF IMPLEMENTATION OF PRIOR YEARS

AUDIT RECOMMENDATIONS


42/51

Status of Implementation of Prior Years Audit Recommendations

Out of the seven (7) recommendations embodied in the 2010 Annual Audit

Report, five (5) were implemented and two (2) remained unimplemented, as detailed

below:

Audit Observation &

RecommendationRef

Management

Action

Status of

Implementation

Reason for

Partial/Non

Implementation

1. Procured, delivered andaccepted items worth

P823,122.63 were not

inspected because the

Supply Officer did notnotify the Auditor of the

time and date of

deliveries or furnish himcopies of delivery

documents within twenty

four (24) hours after suchacceptance as provided in

Section A.2 and Section

6.9 of COA Circular No.

96-010 and 2009-002,respectively.

We recommendthat the Supply Officer

should notify the Auditor

or to furnish him copiesof delivery documents

within twenty four (24)

hours from acceptance ofdelivered items for

inspection purposes to

ensure that procured,

delivered and accepted

items are those orderedby the municipality as to

quantity, quality andspecifications.

2010AAR

Complied FullyImplemented

2. Notices of Award for theprocurement of goods

obtained through

Shopping amounting to

2010AAR


35


43/51

P741,044.33 were not

posted in the PhilippineGovernment Electronic

Procurement System

(PhilGEPS) website and

at any conspicuous placein the premises of the

municipality as providedin Section 54.3, Rule

XVI of the Revised

Implementing Rules and

Regulations (RIRR) ofR.A. No. 9184.

We recommendthat the Bids and Awards

Committee (BAC),through its Secretariat,should strictly observe

the posting of the Notices

of Award for procurement of goods

obtained through

Shopping in the

PhilGEPS website, and atany conspicuous place in

the premises of the

procuring entity to ensureinterested users ready

access to information and

to promote transparencyand competition in the

procurement process.

3. Several disbursementvouchers for claims

subject to pre-audit

totaling P297,956.00were not submitted to

Auditors Office. These

were paid even withouthis audit action as

prescribed under

pertinent provisions ofCOA Circular No. 2009-

002. Thus we were

unable to determine the

2010AAR


36


44/51

validity and propriety of

the transactions.

We recommend

that management should

strictly comply with thepertinent provisions of

COA Circular No. 2009-002 governing

government transactions

subject to pre-audit to

ensure validity andpropriety of the same and

to avoid possible audit

suspensions anddisallowances.

4. The establishment ofP212,500.00 as Real

Property Tax Receivable

and Special EducationTax Receivable at the

beginning of the year was

not observed by

responsible local officialsas prescribed in Section

20 of the Manual on the

New Government

Accounting System forLocal Government Units

(MNGAS for LGUs),Volume I thereby

affected the correctness

and reliability of these

receivable accounts andthe related Deferred Real

Property Tax Income.

We recommend

that the OIC-Municipal

Treasurer should furnishthe Municipal

Accountant at the

beginning of the yearwith a complete and

accurate list of taxpayers

with the corresponding

2010AAR Complied FullyImplemented

37


45/51

amount of taxes due and

collectible for the year toserve as basis in

recording in the books of

accounts the Real

Property Tax (RPT) andSpecial Education Tax

(SEF) Receivablesaccounts and related

Deferred Real Property

Tax Income/Deferred

Special Education TaxIncome.

5. The twenty percent(20%) component of the

Annual Internal Revenue

Allotment (IRA)amounting to

P4,375,082.40 and

P4,054,665.27 wasappropriated and utilized

respectively, for

development projects or

93% budget utilizationpursuant to pertinent

provisions of DBM-

DILG Joint

Memorandum CircularNo. 1. Thus it contributed

to the realization ofdesirable social,

economic development

and environmental

outcomes essential in theattainment of its goals for

a better quality of life of

the constituency.

We recommend

that management shouldclosely monitor the

impact of implemented

development projects onidentified beneficiaries to

ensure efficient and

effective utilization of

2010AAR


38


46/51

funds in terms of the

achievement of theobjectives of each

projects and programs.

6. The Municipality did not

formulate its 2010Gender and Development(GAD) Plan as set forth

in Section 32 of the

General Provisions of the

2010 GeneralAppropriations Act and

Section 4.4 DBM, NEDA

and NCRFW JointCircular No. 2004-1.

Thus the lack of

appropriation and non-implementation of related

programs deprived

recipients of the benefitsto be derived thereto.

We recommend

that management shouldformulate a GAD Plan

designed to address

womens issues and

concerns whichimplementation is funded

with at least 5% of theannual local budget to

guarantee that women

especially those from the

marginalized sectorsbenefit from GAD

projects and programs.

2010

AAR

No GAD

Plan wasformulatedfor 2011.

Not

Implemented

Reiterated In

Finding No. 10.

7. Had the municipality

enforced the remedies for

the collection of delinquent real property

taxes aged (two) to nine

(9) years totalingP437,754.05 as of

December 31, 2010,

concerned taxpayers

could have been

2010

AAR

No action

taken

Not

Implemented

Management

explained that

posting ofnotices of

delinquency to

the mainentrance of the

Municipal Hall

is not possible

because of the

39


47/51

persuaded to pay their

obligations thusproviding additional

funds to finance other

local projects, programs

and activities.

We recommendto the Municipal Mayor

the following:

Require the OIC-

Municipal Treasurer to

cause the posting ofnotices of delinquency

to the main entrance of

the municipal hall andin a publiclyaccessible and

conspicuous place in

each Barangay of themunicipality. Such

notice should specify

the date upon whichthe tax became

delinquent and shall

state that personal

property may bedistrained to effect

payment.

Require the OIC-

Municipal Treasurer to

deputize the BarangayTreasurers of each

Barangay under the

jurisdiction of the

municipality to collect

all taxes on realproperty provided that

the latter is properlybonded for the purpose

and that the premium

on the bond should bepaid by municipality.

on-going

renovation ofsaid building.

40


48/51

Require the OIC-Municipal Treasurer to