AUDIT OBSERVATIONS MEMORANDUM (AOM)

AOM No. ___________

Date: ___________

FOR : ____________________
(Designation)

Attention : ____________________
(Designation)

In compliance with the mandate under pertinent rules and regulations for COA to verify the
Inventory Report of the auditee management, hereunder is the result of our verification and
audit of the said report of Auditees’s properties for the calendar year (CY) _____:

The accuracy and reliability of Auditee’s Inventory Report for CY _____is doubtful
due to: a.) non-reconciliation of balances stated in the inventory report for each type
of fixed assets with that of the balances in the Accounting Books for CY ____; b.) it
disclosed various “damaged properties for disposal” which should have been
reported separately from the serviceable one; c.) some properties which are recorded
as serviceable but verification revealed that they were not; d.) it includes items which
should not be classified as Property, Plant and Equipment (PPE) (for they did not
meet the capitalization threshold of P15,000.00 as required by Government
Accounting Manual (GAM)); among other observations.

1. The submitted Inventory Report for CY ____ does not conform to the required
Report on the Physical Count of Property, Plant and Equipment (RPCPPE) official
form under Appendix 73 of Government Accounting Manual (GAM).

1.1. RPCPPE is the form which shall be used to report the physical count and
condition of the PPE by type as at a given date, including those which are
unrecorded and those which could not be accounted for. It shows the balance of
PPE per property cards and per count and the shortage/overage, if any. It shall
be rendered by the Inventory Committee, on its yearly physical count of
properties owned by the entity. (Sec. 42 (g) of GAM, pg. 203)

1.2. There are differences between the form used by Auditee with that of the required
official form of RPCPPE and some of which are as follows:

1.2.1. The official RPCPPE form requires column for “Quantity per Property
Card” and “Quantity per Physical Count”, and “Shortage/Overage”, which
are not indicated in Inventory Report submitted.
 1.2.2. The official RPCPPE form requires verification by COA, or in other words,
COA representative should be one of the signatories in the said report.
However, the submitted Inventory Report does not provide portion where
COA Representative will sign upon its verification.

1.2.3. The official RPCPPE form requires indicating the official designation, the
office of the accountable officer as well as the date when he assumed
accountability thereof. These requirements were also absent in the
inventory report.

We recommend that Management use the official form of RPCPPE to report the
physical count and condition of its properties instead of the Inventory Report
they are currently using, and to accomplish the RPCPPE completely in
accordance with the Instructions in accomplishing the same.

2. The Inventory Report disclosed items which are already “damaged for disposal”
but corresponding Inventory and Inspection Report of Unserviceable Properties
(IIRUP) where they are supposed to be recorded, and the corresponding Report of
Lost, Stolen, Damaged, Destroyed Property (RLSDDP) per Accountable officer
were not prepared accordingly.

2.1. IIRUP is a report which shall be used to account for all unserviceable property of
an entity which is subject to disposal (Sec. 42(h) of GAM, pg. 204), prepared by
the Supply and/or Property Unit as basis to record dropping from the books the
unserviceable properties carried in the Property, Plant and Equipment (PPE)
accounts (Appendix 74, Instructions in preparing IIRUP).

2.2. The table below shows the amount of items with the status “Damaged for
Disposal” (or deemed Unserviceable Properties) which are still included as part
of the total value of PPE in the Inventory Report:

PARTICULARS Amount of “Damaged for Disposal”

Items in the Inventory Report
Office Equipment 286,401.10
IT Equipment 2,055,016.09
Furniture and Fixtures 4,475.34
Books 30,770.14
Communication Equipment 16,729.00
Other Machinery & Equipment 210,646.06
TOTAL 2,604,037.73

2.3. The Inventory Committee of the Auditee still includes those items as part of its
Inventory Report because according to the concerned personnel the
corresponding IIRUPs with regard to those items are yet to be prepared.
 2.4. Under Sec. 40 (d) of GAM, all unserviceable property shall be reported in the
IIRUP. PPE reported in the IIRUP shall be dropped from the books by debiting
Impairment Loss-Property, Plant and Equipment (cost of the PPE less
Accumulated Depreciation).

2.5. Also, inasmuch as those properties are damaged, the officer accountable thereof
must secure a Report of Lost, Stolen, Damaged or Destroyed Property
(RLSDDP) (Appendix 75 of GAM). RLSDDP is the form which shall be used by
the Accountable Officer to report or notify the auditor of the COA, the Chief
Accountant and all others concerned of the lost, stolen, damaged or destroyed
property (Sec. 42 (i) of GAM, pg 204). With regard to aforementioned items, no
RLSDDPs were furnished to this office.

We recommend that Management prepared IIRUP for those properties

which are already under Unserviceable Condition and endeavor to dispose
the same immediately through public auction if still saleable or through
destruction if not, in the presence of COA Auditor. The accountable officers
should see to it that before surrendering the unserviceable property from
their custody to Property Officer for inspection, they must secure RLSDDP
in connection to those properties which are damaged or destroyed.

3. Comparison of the balance of Property, Plant and Equipment (PPE) under the
Statement of Financial Position (SFP) for year ended December 2017 by the
Accounting Division and this Inventory Report by Inventory Committee under
General Services Division (GSD) of the Auditee revealed material discrepancies
as follows:

Account Per SFP by Per Inventory Differences Remarks

Finance Division Report by GSD

Office Building 23,301,967.22 No record 23,301,967.22

Other
Structures 23,014,364.78 No record 23,014,364.78
Office
Equipment 9,609,456.49 9,563,170.06 46,286.43
IT Equipment 31,456,755.31 33,673,423.40 (2,216,668.09)
Furniture and
Fixtures 5,876,003.54 5,182,417.20 693,586.34
Communication
Equipment 1,633,852.70 1,625,270.52 8,582.18
Books 147,346.96 229,630.02 (82,283.06)
Inventory
Motor Vehicles 11,512,341.16 9,793,700.00 1,718,641.16 Committee uses
the account title
“Land Transport
Equipment”
Other PPE 7,961,879.12 7,301,813.63 660,065.49 Inventory
Committee uses
the account title
“Other Machinery
and Equipment”
TOTAL 114,513,967.28 67,369,424.83 47,144,542.45
 3.1. Pursuant with our prior year’s Audit Observation Memorandum (AOM) re: Audit of
PPE for CY ___ (AOM No. ____), we recommended that Management must
provide details of reconciliation made between GSD’s Inventory Report for CY
2017 and that of Accounting Division’s. The presence of the aforementioned
deficiencies, however, indicates that there was no reconciliation of the reports, or
there is failure of reconciliation between Accounting Division and that of the GSD
to arrive at more accurate balance of the said PPE accounts, thus, adversely
affecting the fair presentation of affected accounts in the Financial Statement.

We reiterate our previous recommendation that Management provide

details of reconciliation between GSD’s Inventory Report with that of
Finance Division’s Report of PPE Balances. Substantiate the same by
attaching IIRUP (to be verified by COA) with regard to those items that were
dropped in the books as a result of reconciliation, and if applicable the
RLSDDP of concerned accountable officer.

4. The Inventory Report still includes those items which does not meet the
capitalization threshold of P15,000.00, or called Semi-Expendable Property,
contrary to the provision under GAM that semi-expendable property (wherein the
issuance thereof to end-user is covered by Inventory Custodian Slip to establish
accountability over them) shall be included in Report on the Physical Count of
Inventories (PRCI) and not in the RPCPPE (or the Inventory Report for PPE).

4.1. Sec. 10, Chapter 8 of GAM provides that Semi-expendable property which were
recognized as PPE shall be reclassified to the affected accounts. Stating
differently, those properties amounting to less than P15,000.00 and was
previously recorded under PPE account shall be reclassified to affected account
(i.e. applicable Semi-Expendable Property account)

4.2. The table below shows number of Serviceable Items in the Inventory Report,
along with their aggregate value, that: a.) partakes that of Semi-Expendable
Items which are erroneously recorded in the Inventory Report for PPE; b.) are
correctly included in the Inventory Report as far as threshold is concerned; and
c.) are questionable for lack of amount.

Semi-Expendable Items Items that Meet the

(erroneously included in Capitalization Threshold Items with No
TOTAL Serviceable Items
Inventory Report for PPE) (Properly Included in Value
Nature of PPE Inventory Report for PPE)
No.
No. of of No. of Total No. of
Items Total Amount Items Total Amount Items Amount Items Total Amount

Office
Equipment 347 1,105,129.58 108 8,171,639.38 0 0 455 9,276,768.96

IT Equipment 342 2,747,841.20 391 28,870,566.11 1576 0 2309 31,618,407.31

Motor Vehicle 0 0 11 9,793,700.00 0 0 11 9,793,700.00

 Furnitures and
Fixtures 1003 3,266,951.41 22 1,168,380.45 74 0 1099 4,435,331.86

Books 134 180,519.53 1 18,340.35 0 0 135 198,859.88

Communicatio
n Equipment 68 231,998.75 32 1,376,542.77 3 0 103 1,608,541.52
Other
Equipment 282 1,136,919.58 52 5,954,247.99 9 0 343 7,091,167.57

TOTAL 2,176 8,669,360.05 617 55,353,417.05 1,662 0 4,455 64,022,777.10

4.3. It was also noted that under Communication Equipment, 21 cellphone units and
three Ipad units were only cost P1.00 each and one Ipad unit and two cellphone
units have no recorded cost. Be it acquired through post-paid plan or acquired
without consideration, it is erroneous to value it significantly lower than that of its
fair value (or no cost at all) at the time the same is acquired. It is a basic principle
that PPE acquired without consideration must be taken up in the book at its fair
value at the date it is acquired. (Sec. 12, Chapter 10 of GAM).

We recommend Management to:

a. report semi-expendable PPE as part of RPCI (that is the Inventory Report

for Supplies) and not as part of RPCPPE (that is the Inventory Report for
Property).

b. indicate the value of the property at cost (if acquired with consideration)
or fair market value (if acquired without consideration) so as not to
understate the value of the property.

5. Verification of some items in the submitted Inventory Report revealed that there
are many handheld items (e.g. cellphones and Tablet PCs) were recorded as
serviceable items, where in truth and in fact they are unserviceable and is subject
for disposal. Also, two or more of those handheld items were issued under the
name of only one accountable officer in violation of Annex D of COA Circular
2012-003.

5.1. Annex D (5) of COA Circular 2012-003 dated October 29, 2012 provides that
“Provision of mobile phone, whether postpaid line subscription or prepaid, in
excess of one unit for each entitled official which should not be lower than
Division Chief rank” is considered Excessive Expenditures. This provision, by
analogy, is also applicable to issuance of Tablet PC (e.g. Ipad) for they share
almost similar functionality and can be acquired in similar way (i.e. post-paid or
prepaid) with that of mobile phones.

5.2. The table below shows those personnel, other than the property officer, of
Auditee who are accountable for more than one unit of mobile phones and tablet
PCs under the Inventory Report.
 Name of Designation No. of Remarks
Accountable Officer Units Held
A OIC- Division Chief, 7 Tablet PCs 3 of those units are still
Information (e.g. Ipad) serviceable and 4 were
Technology Officer already damaged or not
II of Systems efficient for use; only one
of those units is originally
Management Devt. issued under his name and
Division the rest were merely
transferred to him so that
other CITEM staff who may
be in need of those items
may borrow and make use
of the same.
B Info. II, 2 Tablet PCs The accountable officer is
Communication and (e.g. Ipad) not around at the time of
Management and 2 Mobile verification; we were not
Division Phones able to procure her
comment about her
accountability
C Currently assigned 3 Mobile The Accountable Officer is
in other GOCCs ; Phones and currently assigned in
her plantilla is no 2 Tablet PCs Design Center, thus we
longer with that of (e.g. Ipad) were not able to get her
comment with regard to
Auditee this matter.
D IT Officer I of Web 2 Mobile The Accountable Officer is
Marketing Division Phones not a Division Chief, at
least, thus, she is not
entitled to be issued with
mobile phones under COA
Circular 2012-003.; She
opined that one unit is
being used by Social
Media Officer. Both units
are used during events
posting and use it for
facebook live of such
events.
E Assistant Division 3 Mobile The accountable officer is
Chief Phones not a Division Chief, at
least. She is not around
during our verification, thus
we were not able to get her
comment as to her
accountability.
F Retired, previously 2 Mobile The accountable Officer
Division Chief of Phones has already retired.
Agri Marine Division According to her, she
already surrendered those
items to Property Officer.
G Resigned, 2 Mobile The accountable officer
previously Phones was already resigned;
According to his staff, 1
Unit was already returned
to Property officer, while he
has no idea as to
whereabouts of the other
unit.
H Administrative 2 Mobile One unit is no longer
Officer IV of General Phones functioning, while the other
Services Division unit was already lost.
According to accountable
officer, there is policy
guidelines before which
gives provision that the unit
 can be owned by
accountable officer after
two years of paying for
monthly due in lieu of
communication allowance.
Relying on said guidelines,
the accountable officer
believed that there is no
need to return the
aforementioned mobile
phones. However, we were
not get hold of the said
guidelines.
I Department 3 mobile Currently detailed at
Manager III of phones Makati. We were not able
Service Business to get her comment with
Department regard to her
accountability.

5.3. As the result of our verification, there are certain units which were reported as
serviceable communication equipment but the end-user or person accountable
thereof says otherwise. When the property became unserviceable it is the duty of
accountable officer to apply for its inspection as mandated by Sec. 79 of PD 1445
which reads:

“When govt. property has become unserviceable for any cause, or is no longer
needed, it shall, upon application of the officer accountable therefore be
inspected by the head of the agency or his duly authorized representative in
the presence of the auditor concerned and if found valueless, or unsalable, it
may be destroyed in their presence. If found valuable, it may be sold at public
auction to the highest bidder upon the supervision of the proper committee on
award or similar body in the presence of Auditor…”

5.4. The presence of those unserviceable property for a long time, will result to its
further deterioration reducing its salable value. Thus, there is a dire need to
immediately prepare the IIRUP with regard to those item, to facilitate its dropping
to book of accounts and for the accountable officer to secure RLSDDP and if it so
warrants, applied for Relief of Accountability in case of loss of the said property,
otherwise such accountable officer will be held liable.

5.5. The above table disclosed that there are still items in the hand of those
employees who are no longer in service with the Auditee.

We recommend that Management:

a. in issuing mobile phones, and the like, observes the prohibition under
COA Circular 2012-003 that an employee who is below Division Chief Rank
is not qualified to be issued with mobile phones, whether through post-paid
or prepaid, and if he is at least a Division Chief Rank, he is only entitled to
one unit. Moreso, under the same circular, it must also observe that
replacement of serviceable equipment is considered unnecessary
expenditure.
 b. to justify issuance of more than one unit of mobile phones and tablet
PCs without showing that the required RLSDDP with regard to its previous
item was secured by accountable officer.

c. required the accountable officer, before going out of service with the
Center, to settle their property accountability.

May we have your comments on the foregoing observations within 15 days from your receipt
of this memorandum.

___________________
State Auditor IV
Audit Team Leader

______________________
State Auditor V
Supervising Auditor

Proof of Service of AOM No. _________ dated ________.

Office of the Head of Auditee: Office of the Attention Addressee:

Printed Name _________________ Printed Name _________________
Signature _________________ Signature _________________
Date _________________ Date _________________