PART II DETAILED OBSERVATIONS AND RECOMMENDATIONS

A. Financial and Compliance

1. Validity of the Other Payables account of P4,425,502.91 could not be ascertained due to lack of records/documents/sufficient evidence, thus rendering the obligation either void or doubtful. It is provided for in Section 59 of Presidential Decree No. 1445 that: In his audit of liabilities, the auditor shall seek to establish that all obligations of the agency have been accurately recorded; only bonafide obligations of the agency have been included; the obligations incurred are properly authorized; all provisions of trust indentures or mortgages are complied with; and mortgages and other encumbrances are fully disclosed. Review of accounting records particularly the Journal Entry Vouchers disclosed that Other Payables of P4,425,502.91 which represents obligations/ indebtedness to contractors/suppliers arising from the purchase of goods and services remained outstanding as of December 31, 2011. These obligations were certified as Other Payables despite the absence of valid proofs such as perfected contracts, purchase orders, invoices, billings/statement of account, delivery receipts, etc. The details and validity of these obligations could not be ascertained, thus rendering the account either void or doubtful. The fund was released by the DBM at the close of the last quarter of the year, hence obligated to avoid reversion. We recommended to management to submit to the Office of the Auditor a detailed schedule with complete documents to support the claims of the creditors against the Municipality which was taken-up in the books.

2. The Property, Plant, and Equipment (PPE) of the Municipality in the total amount of P66,319,967.49 was of doubtful validity due to the absence of complete and accurate inventory report as required under Section 124 of the New Government Accounting System (NGAS) Manual and non-reconciliation of the accounting and the custodian of PPE and Supplies records.

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It is provided for in Section 124 of the NGAS Manual that: The Local Chief Executive shall require periodic physical inventory of supplies or property. Physical count of inventory items by type shall be conducted semestrally and reported in the Report of the Physical Count of Inventories (RPCI). This shall be submitted to the Auditor concerned not later than July 31 and January 31 of each year for the first and second semesters, respectively. Physical count of Property, Plant and Equipment by type shall be made annually and reported in the Report on the Physical Count of Property, Plant and Equipment (RCPPE). This shall be submitted to the Auditor concerned not later than January 31 of each year. Audit of the account Property, Plant, and Equipment (PPE) was made for the months of January to December 2011. Total PPE amounted to P66,319,967.49. The audit revealed that no physical inventory taking was conducted by the Municipality on its PPE during the year. Further examination revealed that records of acquisitions and disposals by the GSO and the Municipal Accountant were incomplete and Acknowledgement Receipt for Equipment (ARE) was not issued to the end users of equipment, semi-expendable supplies/tools and work-animals. Failure of the Municipality to conduct a physical count of its PPE during the year is a violation to the provisions of Section 124 particularly the second paragraph of the NGAS Manual. Physical inventory report for Calendar Year 2011 was not available, thus, reconciliation with the accounting records to check the integrity of its property management and the validity and reliability of the amount appearing in the Balance Sheet is impossible or could not be undertaken. Likewise, physical inspection of selected PPE shows that there was no inventory tags pasted on it, an indication that there was no physical count conducted. This audit observation was already been the subject in our Calendar Year 2009 and 2010 Annual Audit Report which remain still unacted as of to date. We therefore reiterate our recommendation to conduct a physical count of its PPE by type annually and prepare the RPCPPE and submit to the Auditor concerned not later than January 31of each year. Moreover, the Supplies Custodian and the Municipal Accountant should exert extra effort to reconcile their respective records to come up with an accurate balance of the PPE in the financial statements.

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