PART II

AUDIT OBSERVATIONS AND RECOMMENDATIONS

During the year, we issued 9 AOMs and 2 were already resolved. The following
are the unresolved observation as of February 24, 2016.
1. Lack of control and monitoring of issuance of Accountable Forms and
remittances of collections of Accountable Officers resulted in holding of
collections by as much as 2,159,592.90 for a maximum period of 343 days,
misappropriation of cash and understating the asset and income accounts while
accuracy and completeness of recording these accounts as of the year-end is
rendered doubtful.
Section 91 of Government Accounting and Auditing Manual states:
Accountability for official receipts - An official receipt is an accountable
form held in trust by the Collecting Officer/Treasurer/Property Officer or
other person duly authorized to possess or have custody thereof. He shall
be responsible for its safekeeping, the proper and authorized use or
application thereof and the reporting of its use and condition; and shall be
liable for loss, damage or deterioration occasioned by negligence in the
keeping or use thereof.
In the conduct of the cash examination of the cash and accounts of the Municipal
Treasurer and revenue collectors, we noted that issuance of accountable forms (AF) to
revenue collectors were not controlled and monitored. In the tie-up of accountable forms,
we found out that some are missing, thus we demanded that the said accountable forms be
presented for audit.
The missing accountable forms presented from various collectors were already
consumed. However, collections were not remitted and turned-over to the municipal
treasurer. These collections were allowed to remain/accumulate in their possession for 69
to 343 days amounting to 2,159,592.90 and remained undeposited as of December 16,
2015, the date of our cash examination, shown in the table that follows:

26

Date of
Collection

Serial Numbers

Amount

No. of Days
Delayed up to
December 16,
2015 (time of
cash count)

Name of Collector:
Fernando Raises (AF
56)
01.09-13.2015

1088701-850

124,883.70

343

01.13-15.2015

1089001-300

243,713.50

339

01.15-16.2015

1089351-450

119,028.10

337

01.16-19.2015

1089851-90000

149,809.10

336

01.19.2015

1091051-150

78,411.70

333

01.19-20.2015

1091185-300

160,296.00

333

01.20.2015
01.2002.11.2015
02.2603.11.2015

1091401-429

18,065.00

332

1559101-200

122,626.30

332

1559751-800

108,361.50

295

03.11-30.2015
04.1505.11.2015
05.1108.12.2015
07.1608.18.2015
08.1209.23.2015
09.0210.20.2015
09.1810.21.2015

1559851-900

85,017.90

281

1560051-100

77,959.70

246

1560201-450

393,378.40

220

1560468-500

28,680.30

154

1560501-594

179,806.20

127

1560601-621

33,721.30

106

1560651-691

90,327.50

90

Total

2,014,086.20

43,000.00

282

Name of Collector :
Evangeline Gulle (AF
51)
03.10-31.2015

7917703-718

05.06.2015

7922070

15,000.00

225

05.07.2015

7922092

9,725.00

224

05.08.2015

7922170

6,000.00

223

27

05.25.2015

7923338

6,000.00

206

05.26.2015

7923444

8,500.00

205

06.09.2015

8326631

3,000.00

191

07.20.2015

8329527

6,041.70

150

08.18.2015

8331044

10,000.00

121

8326420

15,000.00

8332879

10,000.00

10.0912.07.2015
Name of Collector :
Evangeline Gulle (BIR
Form 0016)
03.0304.10.2015

8326793-799

2,180.00

69

Total

134,446.70

17406001-050

2,070.00

288

04.21-28.2015

08112701-750

2,120.00

240

07.09-20.2015

08114151-200

1,800.00

161

09.03-30.2015

08116251-350

3,820.00

105

10.06-12.2015

08115370-400

1,250.00

72

Total

Grand Total

11,060.00

2,159,592.9
0

Our verification disclosed that it has been the usual practice of revenue
collectors not to remit their collections daily or weekly, even if collections reached a
substantial amount, and even if the entire booklet of AF was fully consumed because of
the laxity of the Municipal Treasurer to monitor the remittances of AFs issued.
Nevertheless, additional booklets of official receipts were issued to collectors even if the
previously issued booklets were not yet surrendered and corresponding collections not
remitted which resulted in the accumulation of unremitted collections in the hands of the
collectors amounting to 2,159,592.90. An initial demand letter dated February 9, 2016
was issued.
Our inquiry also disclosed that a casual employee is entrusted in the custody and
safekeeping of the accountable forms. Considering her status, other collectors can always
pressure her to issue accountable forms, even without remitting the collection of the
28

previously issued AFs, giving chance to all revenue collectors full and easy access to the
accountable forms. This condition shows the laxity of the Municipal Treasurer as property
custodian and indicated that safekeeping of these accountable forms was not given due
care and consideration where necessary.
Consequently the above lapses resulted in the accumulation/holding
of
unremitted collections in the custody of collectors by as much as 2,159,592.90 for a
maximum period of 343 days as of December 16, 2015, the date of our cash examination.
Likewise, this is an indication that verification of collections and accountable forms at the
close of each day was totally disregarded/not implemented by the Municipal Treasurer in
violation of Section 30 of NGAS, Volume I which states:
Section 30. Verification of Collections and Accountable Forms. - The
Treasurer/Cashier shall verify the Report of Collections and Deposits;
check the statement of accountable forms as to initial balances on hand,
receipts, issues and the ending balances on hand; make a physical count
of accountable forms remaining in the custody of the collector/teller and
check the same against the new balances on hand column. He shall
indicate his verification by affixing his signature at the back of the
triplicate copy of the last official receipt issued. He shall count the money
turned over to him and sign the certification and receipt portion of all
copies of RCD.
Further, Section 51 of GAAM Vol III also provides that qualified and continuous
supervision of subordinates shall be provided to assure adherence to approved policies
and procedures. Management failed to efficiently and effectively manage the collection
process of revenue and receipts which resulted in the occurrence of unremitted cash
collections by the revenue collectors.
Despite the previous audit recommendations, the Municipal Treasurer still
manifested weak internal control and inability to strictly enforce the above cited
regulations in the handling of cash and accountable forms that may result in the misuse
of collections by revenue collectors hence, the loss of government funds.
Management Comment
The Municipal Treasurer stated that because of those long years working together
with her subordinates, she developed total trust and confidence and with that, due care
was not given proper and full attention. However, she admitted her lapses and promised
to impose strict remittance of collections and provide adequate safeguard in the issuance
of official receipts to duly designated revenue collectors.
Teams Rejoinder
The adverse result of the laxity of the Municipal Treasurer could have been given
remedy had management given action to previous years recommendations pertaining to
cash shortage uncovered during cash examinations.
29

Recommendation:
We recommend that the Municipal Treasurer impose strict remittances of
collections and provide adequate safeguard in the issuance of booklets of official
receipts to duly designated revenue collectors. Futher, we recommend management
to monitor controls imposed by the Municipal Treasurer on the the Accountable
Officers.
2. Cash in Local Treasury account showed substantial balance of P2,011,608.50
representing unremitted collections as of year-end contrary to Section 32 of the
NGAS Manual Volume I, thus exposing cash to misapplication and nonremittance overstated the account. This was partially caused by failure to render
reconciliation of records prescribed in Section 181 of GAAM, Vol I.
Section 32 of the NGAS Manual. (Volume I) provides that:
Deposit of Collections. The Treasurer/Cashier shall deposit intact all
his collections as well as all collections turned-over to him by the
collectors/tellers with the authorized depository bank daily or not later
than the next banking day.
Verification of trial balances revealed that the Cash in Vault account in all funds
showed substantial balance of P2,011,608.50 as of December 31, 2015, broken down as
follows:
General Fund
Special Education Fund

1,028,303.10
983,305.40
2,011,608.50

The Cash In Vault has substantial balances every end of the month except for
October, 2015 as follows:
Month

General Fund

SEF

January

42,482.80

507.60

TOTAL

42,990.40

February

32,250.00

32,157.60

64,407.60

March

72,787.00

3,730.20

76,517.20

50.00

18,311.65

18,361.65

April

30

May

5,050.00

40.20

5,090.20

June

96,362.18

40.20

96,402.38

July

57,835.18

40.70

57,875.88

August

80,335.18

40.70

80,375.88

September

69,146.00

40.70

69,186.70

-49.70

1.30

-48.40

November

82,640.45

83,907.25

166,547.70

December

1,028,303.10

983,305.40

2,011,608.50

October

The negative balance of (49.70) of General Fund represents the over deposit of
collections due to mathematical errors in computation.
The foregoing condition of retaining substantial undeposited cash balances at
month end may give opportunities for the Municipal Treasurer or collectors to
misappropriate the said collections which is disadvantageous to the municipality.
Management Comment:
The Municipal Treasurer admitted her lapses and promised to implement the audit
recommendation in the ensuing year.
Teams Rejoinder:
Remittance and deposit of the Cash in Local Treasury has to be made
simultaneous with the action to be taken by the Municipal Treasurer. Considering the
lack of controls in the local treasury, management has to take action in cooperation with
the Local Finance Committee. Recording and monitoring control has also to be made by
the Municipal Accountant. This could be done by reconciliation of the Accountable
Officers cashbook with the accounting records at least quarterly or even more frequently
if necessary as required in Sec. 181 of GAAM, Volume I.
Recommendation:
We recommend that the Local Chief Executive require Accountable Officers
with unremitted collections to remit immediately and henceforth require the
Municipal Treasurer and Accountable Officers to deposit all collections intact daily
or not later than the next banking day in compliance with Section 32 of the NGAS
Manual (Volume I). Further, we recommend the Municipal Accountant and all
Accountable Officers to reconcile the reports at least quarterly as required in
Section 181 of GAAM Vol I.
31

3. Real Property Tax and Special Education Tax totalling P19,566,512.63 remain
uncollected as of December 31, 2015 due to the failure of the management to
avail of the remedies by administrative action as stated in Section 256 of RA
7160.

Fund

GF
SEF

Account Title
Real Property Tax
Receivable
Special Education Tax
Receivable

Balance 1/1/15

Net
Adjustments

Balance
12/31/15

9,933,661.41

(6,728.06)

9,926,933.35

9,646,307.38

(6,728.10)

9,639,579.28

Total

19,566,512.63

Section 256 of RA 7160 provides:

Section 256. Remedies For The Collection Of Real Property Tax. - For
the collection of the basic real property tax and any other tax levied under
this Title, the local government unit concerned may avail of the remedies
by administrative action thru levy on real property or by judicial action.
Moreover, the Municipal Treasurer should be reminded on the provisions in Section 247
and 259 of RA 7160 stating that the collection of tax is her responsibility and that failure
to enforce the remedies of collection has a corresponding penalty.
Section 247. Collection of Tax. - The collection of the real property tax
with interest thereon and related expenses, and the enforcement of the
remedies provided for in this Title or any applicable laws, shall be the
responsibility of the city or municipal treasurer concerned.
Section 259. Penalty for Failure to Issue and Execute Warrant. - Without
prejudice to criminal prosecution under the Revised Penal Code and other
applicable laws, any local treasurer or his deputy who fails to issue or
execute the warrant of levy within one (1) year from the time the tax
becomes delinquent or within thirty (30) days from the date of the issuance
thereof, or who is found guilty of abusing the exercise thereof in an
administrative or judicial proceeding shall be dismissed from the service.
With the aforementioned provision, local treasurers should campaign for tax collection
and inform taxpayers of remedies that can be exercised by the municipality in cases of
delinquencies. Such information would compel property owners to pay their taxes
promptly.
Management Comment
32

The Municipal Treasurer admitted that collection of real property taxes during the
year was low. She promised to work together with the Municipal Assessor and to furnish
the Accounting Office with the certified list of RPT due and collectible for the year, and
hoped to implement the recommendation in the ensuing year.
Recommendation
We recommend that management avail of the remedies by administrative action
thru levy on real property or by judicial action. Steps are properly enumerated in
section 254 to 270 of RA 7160.
4. Reciprocal accounts Due From Other Funds and Due To Other Funds have
unsettled/unadjusted net difference of (P8,760.55) casting doubt on the accuracy
of the asset and liability accounts.
Section 110 of PD 1445 provides that
Government accounting shall aim to (1) produce information concerning
past operations and present conditions; (2) provide a basis for guidance
for future operations; (3) provide for control of the acts of public bodies
and officers in the receipt, disposition and utilization of funds and
property; and (4) report on the financial position and the results of
operations of government agencies for the information of all concerned.
The Manual on the New Government Accounting System (NGAS) describes the
following:
Due From Other Funds amount due from other funds maintained by
the agency.
Due To Other Funds amount received/withheld for the account of other
fund.
A review of the December 31, 2015 financial statements disclosed that accounts
Due From Other Funds and Due To Other Funds had the following balances:

Fund
General Fund
Special Education Fund
Trust Fund
Total

Due From Other

Funds
254,582.51
50,981.07
4,162,766.27
4,468,329.85
33

Due To Other
Funds
4,213,547.34
8,960.55
254,582.51
4,477,090.40

Difference
(3,958,964.83)
42,020.52
3,908,183.76

(8,760.55)

It is evident from the above schedule that the total amount of Due From Other
Funds account do not reconcile with the total amount of Due To Other funds account,
with a net difference of (P14,820.55). The office of the Municipal Accountant and the
Office of the Municipal Treasurer failed to adjust/settle these accounts causing it to
accumulate and remain unsettled as of December 31, 2015.
Under the generally accepted accounting principles, reciprocal accounts should be
eliminated upon consolidation of all funds. Hence, no balance must be shown in the year
end consolidated financial statements.
Management must take note that an entry using a reciprocal account in one fund
would also mean another entry using the corresponding reciprocal account in another
fund.
Section 110 of the PD 1445 provides that government accounting shall aim,
among others to produce information concerning past operations and present conditions
and provide a basis for guidance for future operations.
Relative thereto, all lawful expenditures and obligations incurred during the year
shall be taken up in the accounts of that year and recorded to the fund to which it accrues.
Management Comment
The audit exception was well taken by Management. The Municipal Accountant
promised to trace the transactions affecting the two reciprocal accounts and effect
necessary corrections/adjustments.
Recommendation
It is recommended that management require the Municipal Accountant to
trace the transactions recorded in the Due From Other Funds and Due To Other
Funds accounts and make the necessary corrections/adjustments. Moreover, require
the Municipal Treasurer to settle these accounts to allow the creditor-fund to utilize
the amounts for their intended purposes, if any.

6. Provision for Confidential and Intelligence Funds in the total amount of

P275,000.00 were made in the annual budget despite the absence of a specific
appropriation for Peace and Order Program (POP) in their annual budget
casting doubt as to the necessity of the funds.

Pertinent provisions of COA-DBM-DILG-DND Joint Circular No. 2015-01 dated

January 8, 2015 follows:
4.1 The following are entitled to CF and/or IF:
34

4.1.3 LGUs whose peace and order is a priority concern and which
have duly allocated CF, but not IF, in their annual appropriation
ordinances, provided, that, specific amount for POP is included in their
Peace and Order and Public Safety Plan and, provided further, that
there is a specific appropriation for POP in their annual budget. The
computation of allowable CF of an LGU shall be based on the budget
of the LGU's POP only.
5.1.3.1LGUs with peace and order concerns shall allocate in their
respective Annual Appropriations Ordinance funds for POP, as part of
its Peace and Order and Public Safety Plan, as required under 4.1.3 of
this Joint Circular.
The total amount for CF shall not exceed thirty percent (30%) of the
total annual amount allocated for the LGU's POP.
Review of the LGUs annual budget for 2015 showed no specific appropriation for Peace
and Order Programs but the following were provided for:
Confidential Expenses
Intelligence Expenses
Total

250,000.00
25,000.00
275,000.00
===========

It is clear from the provisions in the joint circular that in order for the LGU to qualify for
the Confidential and Intelligence Funds, they have to establish that peace and order is a
major concern in the locality by providing appropriations for various Peace and Order
Programs (POP). From this provision, a maximum of 30% shall then be allocated for
Confidential Funds.
Absence of POPs would indicate that the peace and order situation in the municipality
may not be a major concern and thus providing for confidential and intelligence funds
may not be necessary.
Management Comment
The audit exception was well taken by Management. They committed to adhere
and follow the cited provisions in the succeeding annual budgets.
Recommendation
We recommend that management allocate funds for confidential and
intelligence expenses only when they have identified that peace and order is a major
concern in the municipality and therefore provision for peace and order programs is
made in their annual budget.
35

6.

Splitting of government contracts may have been resorted to by the local

government unit as similar items were purchased from the same supplier
separately.

Verification of transactions revealed that the municipality purchased, through the

alternative method of procurement, Christmas lights and decors for the Municipal Hall,
plaza and market, with details shown below:
Purchase Order
Number

Purchase Request
Requested
Number
Date
By

Date

Payee

2015LC-1203-54-12

12.04.15

Kevin's
DatKom
Electronics

none

none

MPDC

2015LC-1124-53-1

11.24.15

Kevin's
DatKom
Electronics

none

11.17.
15

MPDC

Particulars
accessory
materials for
public market
Christmas Lights
& Decors
accessory
materials for
Municipal Hall
and Plaza
Christmas Decors
and Lights

Amount

24,470.00

45,570.00

Although the Purchase Orders were issued only 10 days apart, it is apparent that
these all pertain to the same items and purpose.
Section 54.1, Rule XVI of the Revised Implementing Rules and Regulations of
Republic Act No. 9184, otherwise known as the Government Procurement Reform Act
provides:
Splitting of Government Contracts is not allowed. Splitting of Government
Contracts means the division or breaking up of GOP contracts into smaller
quantities and amounts, or dividing contract implementation into artificial
phases or sub-contracts for the purpose of evading or circumventing the
requirements of law and this IRR, especially the necessity of public bidding
and the requirements for the alternative methods of procurement.
This is further defined in COA Circular 76-41 cited below:
Forms of Splitting:
1) Splitting of Requisitions consists in the non-consolidation of requisitions for
one or more items needed at or about the same time by the requisitioner.

36

2) Splitting of Purchase Orders consists in the issuance of two or more purchase

orders based on two or more requisitions for the same or at about the same
time by different requisitioners;
The above-enumerated forms of splitting are usually resorted to in the
following cases:
1
2
3

Splitting of requisitions and purchase orders to avoid inspection of

deliveries;
Splitting of requisitions and purchase orders to avoid action, review or
approval by higher authorities; and
Splitting of requisitions to avoid public bidding.

Moreover, splitting of contracts not only deviates from rules but they also
multiply the works to be done by the concerned personnel in that they have to double the
documents necessary to support the purchase, double their trips to and from various stores
to make the canvass and other related activities all have to be doubled resulting to
wastage of government funds.
Management Comment
The BAC explained that they were not aware that the two (2) Purchase Orders were being
split. However, the audit recommendation was well taken by the BAC and promised that the
same will be monitored and splitting be avoided in the ensuing years.

Recommendation
We recommend that management consolidate requisitions for one or more
items needed at or about the same time by the requisitioner and avoid splitting of
government contracts.

7.

The amount of 271,000.00 was appropriated for expenses which are not
among those identified to be funded by the Special Education Fund (SEF)
pursuant to Article 363 of the Rules and Regulations Implementing the Local
Government Code of 1991 and Section 83, Chapter 5 of the Manual on the
New Government Accounting System for LGUs, Volume I, thus utilization of
the Funds limited resources is not maximized.

Art. 363 of the Rules and Regulations Implementing the Local Government Code
of 1991 provides:
37

a) The proceeds of the additional one percent (1%) real property tax accruing to
special education fund shall be automatically released to the local school boards.
b. xxx
c. Said proceeds shall be allocated as determined and approved by the local
school board concerned only for the following purposes:
(1)
(2)
(3)
(4)
(5)

Operation and maintenance of public schools;

Construction and repair of school buildings, facilities and equipment;
Educational research;
Purchase of books and periodicals; and
Sports development.

In the verification of the School Board Budget for 2015, it was noted that
appropriations included the following expenses which are not among the afore-stated
purposes, to wit:
OBJECT OF EXPENDITURE

AMOUNT

Travel
for Administrators

Trainings and Seminars

91,000.00
100,000.00

Miscellanneous
BSP

40,000.00

GSP

40,000.00
Total

271,000.00

Said total amount was 23% of the total annual SEF budget of 1,163,000.00.
Considering the limited resources for the Special Education Fund, its utility
should be maximized in order to attain/achieve the purpose of creating the fund.
Section 83, Chapter 5 of the Manual on the New Government Accounting System
for LGUs, Volume I provides that the annual school board shall give priority to the
following:
1)

Construction, repair and maintenance of school buildings and other

facilities of public elementary and secondary schools;

2) Establishment and maintenance of extension classes when necessary; and

38

3) Holding of sports activities at the division, district, municipal and barangay

level.
Management Comment
The Municipal Budget Officer stated that the audit recommendations will be
discussed with the Local School Board and assured to implement the same in the ensuing
year.
Recommendation:
We recommend that management require the Local School Board to adhere
to the provisions of Art. 363 of the Rules and Regulations Implementing the Local
Government Code of 1991 and Section 83, Chapter 5 of the Manual on the New
Government Accounting System for LGUs, Volume I, in identifying transactions or
projects to be funded by the Special Education Fund.

B.

STATUS OF ISSUANCES AND SETTLEMENT OF THE NOTICES OF

DISALLOWANCES/SUSPENSIONS AND CHARGES

CY 2015
Balance
Beginning
January 1,
2015

Notice of
Disallowance
Notice of
Suspension
Notice of Charge

C.

Balance End
Issued

Settled

2,319,950.0
0
49,698.0
0

December 31,
2015

2
,319,950.00
49,698.00
None

GENDER AND DEVELOPMENT

Section B, Part 5 of the Updated Budget Operations Manual for Local

Government Units provides that at least 5% of the total annual appropriations must be
allocated for GAD-related activities for the /programs/projects/activities of Local
Government Units.
Likewise, Joint Circular No. 2004-1 of the DBM, NEDA and National
Commission on the Role of Filipino Women which amends Joint Circular 2001-1 dated
August 15, 2001 provides that each local government unit is mandated to allocate funds
39

of at least 5% of the total appropriation for the year for programs, projects and activities
to promote gender-responsive governance, protect and fulfill womens human rights and
promote womens economic empowerment in the GAD Plan and Budget prepared by the
Chairperson of GAD Focal Point and approved by the Head of Agency.
The municipality had a total appropriation of P87,111,309.29, 5% of which is
equal to P4,355,565.46. but the municipality appropriated a total of P5,612,200.00 for
Gender and Development Programs for 2015.

D.

COMPLIANCE WITH TAX LAWS

The National Internal Revenue Code of the Philippines or RA No. 8424 seeks to
ensure efficiency in our tax collection system by monitoring effectively , among others,
the tax incidence in contracts with the government to obtain vital information regarding
potential taxpayers. Hence, the requirement for the submission of lists of government
purchases/contracts for goods and services for tax purposes to the Bureau of Internal
Revenue (BIR).
We noted that the Municipality was able to comply with the said provision thru
the efforts of the Municipal Accountant and Municipal Treasurer .
E. COMPLIANCE TO GSIS LAWS
The Government Service Insurance System Act of 1977 or RA 8291 requires the
mandatory remittance of contributions of the member and the employer to the agency.
Audit of the GSIS remittances of the agencies revealed that they complied with the
mandatory contribution and remitted it to the collecting agency.

40