Republic of the Philippines

COMMISSION ON AUDIT
Commonwealth Avenue, Quezon City

ANNUAL AUDIT REPORT

ON THE

MUNICIPALITY OF BINALONAN
Province of Pangasinan

For The Year Ended December 31, 2012

Republic of

the Philippines
COMMISSION ON AUDIT
Supervising Auditor
Pangasinan II
Binalonan, Pangasinan

Office of the
Audit Group F-

February 28, 2013

The Honorable RAMON V. GUICO III
Municipal Mayor
Municipality of Binalonan
Binalonan, Pangasinan
Sir:
We transmit herewith the report on the financial and compliance audit of the accounts and
operations of the Municipality of Binalonan, Pangasinan for the year ended December 31,
2012, in compliance with Section 2, Article IX-D of the Philippine Constitution and pertinent
sections of Presidential Decree No. 1445. The report was prepared by Ms. Corazon A. Paragas,
Audit Team Leader and Ms. Gladys C. Bathan, Ellen S. Queano, Audit Team Members..
The audit was conducted to ascertain the propriety of financial transactions and
compliance with prescribed rules and regulations. It was also conducted to ascertain the accuracy
of financial records and reports, as well as, the fairness of presentation of the financial statements.
The report consists of four parts: Part I contains the Audited Financial Statements, Part II
details our Significant Findings and Recommendations which were discussed with the concerned
management officials and staff, Part III presents the Status of Implementation of Prior Years
Recommendations and Part IV shows our Annexes.
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 the General Provisions of Section 94 of Republic Act
No. 10155, otherwise known as the General Appropriations Act of 2012.
We acknowledge the cooperation extended to the audit team by the officials and staff of
that agency.
Thank you.
Very truly yours,
CECILIA G. ANCHETA
Supervising Auditor
Cc:

The Director, DILG Regional Office No. I, City of San Fernando, La Union
The Director, BLGF Regional Office No. I, City of San Fernando, La Union
The Director, DBM, Regional Office No. I, City of San Fernando, La Union
The Presiding Officer, Sangguniang Bayan, Municipality of Binalonan, Pangasinan
Assistant Commissioner, LGS, COA, Quezon CIty

Republic of

the Philippines
COMMISSION ON AUDIT
Audit Team Leader-Team 5
Pangasinan
562-0959

Office of the
Binalonan,
Tel No. (075)

February 28, 2013

Ms. Cecilia G. Ancheta

Supervising Auditor
Commission on Audit
Audit Group F Pangasinan
Binalonan, Pangasinan
Madam:
In compliance with Section 2, Article IX-D of the Philippine Constitution and
pertinent sections of Presidential Decree No. 1445, we conducted a Financial and
Compliance Audit on the accounts and operations of the Municipality of Binalonan,
Province of Pangasinan for the year ended December 31, 2012.
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 to
ascertain the accuracy of financial records and reports, as well as the fairness of the
presentation of financial statements.
The results of our audit are embodied in our attached report consisting of four
parts, Part I Audited Financial Statements, Part II-Detailed Findings and
Recommendations, Part III Status of Prior Years Audit Recommendations and Part IV Annexes. The findings and recommendations were discussed with concerned
management officials and staff.
A qualified opinion on the fairness of the presentation of the financial statements
was rendered due to the inadequacy of records maintained by the municipality and the
non-submission of the physical inventory report of the properties of the municipality
which affected the reliability of the Property, Plant and Equipment in the amount of
P
200,886,616.80.
Our audit was conducted in accordance with generally accepted state auditing
standards and we believe that it provides reasonable bases for the results of audit.
Very truly yours,

CORAZON A. PARAGAS
State Auditor III
Audit Team Leader

EXECUTIVE SUMMARY
A. AUDIT HIGHLIGHTS
As of December 31, 2012, the total assets, liabilities and government equity of
the Municipality of Binalonan amounted to P289,537,062.71, P77,742,898.08 and
P211,794,164.63, respectively.
For the year 2012, the Municipality had generated an income of
P105,078,253.69 or an increase of P1,105,867.15 over that of last years actual
income of P103,972,386.54
Current appropriations amounted to P118,590,714.87 and continuing
appropriations amounted to P39,194,320.26 of which P98,089,902.12 and
P28,931,7282.36 respectively were obligated. The total expenses incurred for the year
2012 amounted to P90,172,612.07, increased by P10,524,830.26 or 13.21 percent as
compared to last years P79,647,781.84.

B. SCOPE OF AUDIT
The audit covered the operations of the Municipality of Binalonan for the
calendar year 2012. The types of audit employed consist of financial and compliance
audit aimed to ascertain the fairness and reliability of the financial position and
results of operation of the municipality and to check agencys adherence to auditing
laws, rules and regulations. Likewise, a Value for Money Audit was conducted on
selected areas to ascertain whether management had attained its goals and objectives
in an economical, efficient and effective manner.

C. AUDITORS OPINION ON THE FINANCIAL STATEMENTS

A qualified opinion on the fairness of the presentation of the financial
statements was rendered due to the inadequacy of records maintained by the
Municipality and the non-submission of the physical inventory report of its properties
which affected the reliability of the Property, Plant and Equipment (PPE) account in
the amount of P 200,886,616.80.

D. SIGNIFICANT FINDINGS AND RECOMMENDATIONS

Summarized below are the significant audit findings and the corresponding
recommendations:
1. The Cash in Vault account had an outstanding balance of P 917,173.73 indicating that
the collections were not deposited intact contrary to Section 32 of the Manual on New
Government Accounting System (MNGAS), Volume I thereby exposing the
undeposited amount to possible misuse.
We recommend that the Municipal Treasurer must deposit intact all the collections to
avoid possible misuse or misappropriation of fund. Also, the Municipal Treasurer
should refrain from using collections in paying disbursement vouchers. Instead, petty
expenses must be paid out of the petty cash fund while checks must be issued for
bigger amounts. Likewise, the Municipal Accountant should make necessary
adjusting entries to correct the negative balance of Cash in Vault under the General
Fund.
2. Cash advances granted to various officials and employees amounting to P367,059.02
were not liquidated at year-end which is not in accordance to COA Circular No. 97002. This may lead to understatement of expense account and overstatement of the
receivable account.
It is hereby recommended that in case where the officials/employees were not able to
liquidate immediately their cash advances, measures should be availed of in line with
the provisions of COA Circular 97-002.
3. Trust Liability-DRRM (148) in the Trust Fund Books for the
unexpended/unobligated amount on the Quick Response Fund of Local Disaster Risk
Reduction and Management Fund (LDRRMF) was not recorded which not in
consonance with COA Circular 2012-2. The non-recording may expose the amount to
pay for expenditures other than the intended purpose.
We recommended and management agreed to follow strictly the provisions of DILG
Memorandum Circular No. 2012-73 dated April 17, 2012 most specially the
allocation of Local Disaster Risk Reduction and Management Fund (LDRRMF).
4. The Municipality did not conduct complete physical inventory of its Property Plant
and Equipment valued at P 200,886,616.80 contrary to the provisions of Section 124
of the Manual on the New Government Accounting System (MNGAS), thereby
rendering the account unreliable.
We reiterate our previous years recommendation that the committee created to
complete the inventory taking of the Municipalitys property, plant and equipment,
and prepare a report thereon in accordance with Section 124 of the Rules and
Regulations of the MNGAS. Require the Accountant and the Property Officer to

maintain their respective equipment ledger cards/property records for reconciliation

purposes.
5. Disbursement Vouchers, payrolls and journals were not submitted to COA for postaudit within the reglementary period set forth under Section 100 of PD 1445. Thus,
precluding the Audit Team from performing a timely review and evaluation of the
agencys transactions.
We recommend that the officials concerned shall render monthly reports of their
transactions within the reglementary period set forth under Section 100 of PD 1445.
6.

No separate financial statements were prepared pertaining to the University of

Eastern Pangasinan (UEP) contrary to the provisions of Section 105 and 110 of the
Manual of the New Government Accounting System (NGAS), thereby resulting in the
difficulty of monitoring the operations of the said operating unit.
We recommend strict compliance with the provisions of Section 110 of MNGAS.
Likewise, financial statements pertaining to the University of Eastern Pangasinan
(UEP) be submitted to COA office within the prescribed period.

7. Maximum Benefits for the intended beneficiaries/recipients could have been attained
had the projects/programs under the Gender and Development (GAD) Programs were
fully implemented.
We reiterate our previous years recommendation that the management identify the
priority programs, activities and projects to be provided with specific budgetary
allocations under the Gender and Development (GAD) Plan to ensure their full
implementation for the benefit of the intended beneficiaries/recipients.
E. STATUS OF IMPLEMENTATION OF PRIOR YEARS AUDIT
RECOMMENDATIONS
Out of the eight recommended measures embodied in the 2011 Annual Audit
Report, four (4) partially implemented and the remaining were not implemented. Reasons
for partial implementation and non-implementation are discussed in Part III of this report.

TABLE OF CONTENTS
Page No.
PART I Audited Financial Statements
State Auditors Report on the Financial Statements
Statement of Management Responsibility
Consolidated Balance Sheet
Consolidated Statement of Income and Expenses
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Government Equity
Notes to Financial Statements

1
2
3
4
5
6
7

PART II Detailed Findings and Recommendations

15

PART III Status of Implementation of Prior Years Recommendations

21

PART IV Annexes
Financial Statements by Fund
General Fund
Annex A Balance Sheet
B Statement of Income and Expenses
C Statement of Cash Flows
D Statement of Changes in Government Equity
Special Education Fund
Annex E Balance Sheet
F Statement of Income and Expenses
G Statement of Cash Flows
H Statement of Changes in Government Equity
Trust Fund
Annex I Balance Sheet
J Statement of Cash Flows
K Statement of Changes in Government Equity
Status of Appropriations, Allotments and Obligations
Annex L Current Legislative Appropriations
M Continuing Appropriations
Others
Annex N Analysis of Cash in Vault Account
O Schedule of Cash Advances
P Utilization of Gender and Development (GAD)

Part I
Audited Financial Statements

Republic of the Philippines

COMMISSION ON AUDIT
Commonwealth Avenue, Quezon City

STATE AUDITORS REPORT ON THE FINANCIAL STATEMENTS

Hon. Ramon V. Guico III
Municipal Mayor
Binalonan, Pangasinan
Pursuant to Section 2, Article IX-D of the Constitution of the Philippines and Section 43
of the Government Auditing Code (P.D. No. 1445), we have audited the accompanying Balance
Sheet of the Municipality of Binalonan, Province of Pangasinan as of December 31, 2012 and
the related Statements of Income and Expenses and Cash Flows for the year then ended. These
financial statements are the responsibility of the management. Our responsibility is to express an
opinion on these financial statements based on our audit.
Except as discussed in the following paragraph, we conducted our audit in accordance
with generally accepted state auditing standards in the Philippines. These standards require that
we plan and perform our audit to obtain reasonable assurance that the financial statements are
free of material misstatements. Our audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. It also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides reasonable basis for our
opinion.
The inadequacy of records maintained by the Municipality and the non-submission of the
physical inventory report of the properties of the Municipality affected the reliability of the
Property, Plant and Equipment (net of Accumulated Depreciation) in the amount of
P 200,886,616.80. Owing to the inadequacy of the records of the Municipality, we were unable
to ascertain the existence, accuracy and validity of the accounts by other audit procedures.
In our opinion, except for the effects of the matters discussed in the preceding paragraph,
the financial statements referred to above present fairly, in all material respects, the financial
position of the Municipality of Binalonan, Pangasinan as of December 31, 2012, and the results
of its operations and cash flows for the year then ended in conformity with generally accepted
state accounting principles in the Philippines.
COMMISSION ON AUDIT
By:
CORAZON A. PARAGAS
State Auditor III
Audit Team Leader
February 28, 2013

NOTES TO FINANCIAL STATEMENTS

(With Comparative Figures for 2011)
1. Agency Profile
1.1 Creation
The name Binalonan evolved from the Ilocano word balon which is
synonymous to baon in Tagalog and packed meal in English. The story on how
Binalonan got its name, as transmitted through generations, traced its origin to the
Spanish regime. A certain Don Salvador, a resident of Manaoag, Pangasinan,
owned the uninhabited land where Binalonan is situated. Two (2) camachile trees
which stood majestically at the center of this land became the converging points
of Don Salvadors workers during their lunch breaks and enjoyed their balon
under the cool shade of the trees. As the workers regularly brought and eat their
balon, the place was eventually referred to as binnalonan.
With the exodus of Ilocano migrants to Binalonan, this once obscure,
insignificant, flat and grassy place, flourished. It grew into a village and was later
transformed into a township. In May 1836, Don Silverio delos Santos of
Manaoag took the reign on Binalonan, two years later, in 1838, Binalonan became
a separate municipality. However, there is no known decree, law or any official
act, proclamation or executive order available on record for its creation as a
municipality.
Agency Vision
Binalonan is now a first class municipality with the vision By 2020,
Binalonan is a University Town thats anchored on a virtuous citizenry
guided by its core values Go Makadiyos, Go Marunong and Go Malinis and
directed by its mission To provide the necessary business infrastructure and
create an investment-friendly environment to harness the towns potential for
economic growth and development that ultimately redounds to the benefit and
protection of the interest of its people.
Fund Composition
The local government unit (LGU) of Binalonan, Pangasinan maintains three
funds: General Fund, Special Education Fund and Trust Fund.
1.2 Economic Enterprises Operated
Public Market
In addition to the old public market, the municipality operates the two-storey
New Binalonan Public Market (NBPM) Phase I which was completed in 2006.
7

Its construction was largely financed by a loan from Quedan and Rural Credit
Guarantee Corporation (QUEDANCOR).
Another structure in the public market is the multi-purpose Market Shed
which was constructed and completed in 2010. This shed has uniform display
tables or tapangkos for vendors selling vegetables, fruits, spices and native
cakes.
University of Eastern Pangasinan (UEP)
The LGU-owned and managed university previously occupying a significant
portion of the second floor space of the NBPM now transferred to its New
Building along the National Highway, adjacent to the Juan G. Macaraeg National
High School (JGMNHS) and the Department of Education Division II Office.
Binalonan Food Terminal
The Binalonan Food Terminal consisting of two (2) Buildings serve as selling
area for fruits, vegetables, other food items and merchandise especially during the
big market days, Wednesdays and Sundays. In 2012, one building and a part of
the second building was converted into a food court which was inaugurated last
December 8, 2012.
2. Summary of Significant Accounting Policies
Basis of Preparation
The consolidated financial statements have been prepared in accordance with the
generally accepted State Accounting Principles and Standards.
Basis of Recording
The agency follows a modified accrual basis of accounting. All expenses are
recognized when incurred. Accrual method of accounting is used to record Share
from Internal Revenue Collections while modified accrual method is used for real
property taxes. All other taxes, fees and other revenues are recorded on cash basis of
accounting.
Supplies and materials purchases for inventory purpose are recorded using the
perpetual inventory system.
Property and Equipment are carried at historical cost. Infrastructures under
construction in-progress are valued following the construction period theory.

Fundamental errors of prior years are corrected using the Prior Years Adjustment
account while errors affecting the current years operations are charged to the current
years accounts.
Monetary Denomination Used
All amounts in the financial statements are expressed in Philippine Peso, the
domestic currency.
3. Cash
The Cash Account consists of the following:
2012
Cash in Vault
Petty Cash Fund
Payroll Fund
Cash in Bank-Local Currency, Current Account
Cash in Bank-Local Currency, Time Deposits

2011

917,173.73
326,183.40
249.67
138.35
12,563.78
40,973.64
72,771237.13 75,886430.31
2,683,997.11 2,643,583.39
76,385,221.42 75,897,309.09

Types of deposits maintained

Four (4) current accounts and one (1) time deposit account are maintained
under the General Fund. One (1) current account is individually maintained
under the Special Education Fund and the Trust Fund.
Period of time deposit
The time deposit account with the Philippine National Bank (PNB), Urdaneta
City branch has a 30-day term and at the end of maturity date, the amount is being
rolled over.
4. Receivables
This account includes the following:
Due from Officers and Employees
Real Property Tax Receivable
Special Education Tax Receivable
Due from NGAs
Due from LGUs
Due from Other Funds
Receivables Disallowances/Charges
9

2012

2011

8,410,458.72
3,605.18
3,605.18
7,745.79
202,473.73
1,764,002.80
630,700.00

8,415,375.39
2,772,994.39
2,772,994.39
7,745.79
202,473.73
2,726,536.81
630,700.00

Advances to Officers and Employees

Other Receivables

367,059.02
593,770.85
___44,873.46 ___30,191.46
11,434,523.88 18,152,782.81

Due from Officers and Employees account is mainly comprised of the cash
shortage of the former Municipal Treasurer, Mrs. Marilyn O. Valenzuela, totaling
P8,408,914.06.
5. Inventories

Consist of the following:

2012

Office Supplies Inventory

Accountable Forms Inventory
Medical, Dental and Lab. Supplies Inventory

477,185.09
6,029.00
59,343.14
542,557.23

2011
474,956.60
8,729.00
22,072.90
505,758.50

6. Prepayments
2012

2011

Consist of:

Other Prepaid Expenses

237,819.82

2,176.50

The substantial amount of this account pertain to prepaid guarantee fee.

The LGU Guarantee Corporation (LGUGC), as guarantor on the P70 million loan
with the Bank of the Philippine Islands (BPI), absolutely guarantees the prompt
and full payment of the principal and/or interest on the loan up to eighty-five
percent (85%) of the principal and interest. The Guarantee Fee equivalent to one
point twenty-five percent (1.25%) per annum on guaranteed portion of the
principal and interest on the loan is payable in advance.
For the first year, the amount was deducted from the initial loan release in
December 2010. Subsequent annual guarantee fees are payable based on the
schedule provided by the guarantor.
7. PROPERTY, PLANT & EQUIPMENT
This account consists of:

Particulars
Land
Land improvements
Electrification, Power and Energy

Balance
12/31/12
3,405,363,48
71,090.04
10

Net Addition/
(Reduction)
-

Balance
12/31/11
3,405,363,48
71,090.04

Structures
Office buildings
School buildings
Hospitals and health centers
Markets and slaughterhouses
Other structures
Office equipment
Furniture and fixtures
IT Equipment and Software
Library Books
Machineries
Communication Equipment
Construction and Heavy Equipment
Medical, Dental and Laboratory
Equipment
Military and Police Equipment
Sports Equipment
Technical and Scientific Equipment
Other Machineries and Equipment
Motor Vehicles
Other Property, Plant and Equipment
CIP, Agency Assets
CIP, Roads, Highways and Bridges
CIP, Irrigation, Canals and Laterals
CIP, Other Public Infrastructures
Total Cost
Less: Accumulated Depreciation
Net Book Value
8.

3,231,267.55
5,327,467.00
71,734,734.56
1,626,336.60
88,945,595.25
18,213,103.99
8,772,682.30
5,148,734.24
7,827,309.13
992,953.68
4,380,000.00
1,291,703.30
4,293,806.00

138,678.00
(0.44)
70,959,461.66
4,824,638.48
879,230.97
367,973.50
547,867.23
171,116.00
378,715.00
678,000.00

3,092,589.55
5,327,467.44
775,272.90
1,626,336.60
88,945,595.25
13,388,465.51
7,893,451.33
4,780,760.74
7,279,441.90
821,837.68
4,380,000.00
912,988.30
3,615,806.00

736,089.25
2,400.00
468,699.06
321,626.00
61,468.94
3,551,604.60
68,829.60
4,473,731.61
6,005,888.72
1,411,820.00
(32,106,033.02)
(883,360.00)
240.881,255.30 47,439,336.98
39,994,638.50 14,113,205.33
200,886,616.80 33,326,131.65

733,689.25
468,699.06
321,626.00
61,468.94
3,482,775.00
4,473,731.61
4,594,068.72
32,106,033.02
883,360.00
193,441,918.32
25,881,433.17
167,560,485.15

Other Assets

Composition:
2012

Breeding Stocks
Other Assets
9.

48,851.00
1,472.56
50,323.56

2011
0.00
1,472.56
1,472.56

Current Liabilities
Composition
2012
4,845,592.83
0.00
0.00

Accounts Payable
Due to Officers and Employees
Interest Payable
11

2011
2,278,154.18
0.00
0.00

Due to BIR
Due to GSIS
Due to PAG-IBIG
Due to PHILHEALTH
Due to Other NGAs
Due to LGUs
Due to Other Funds
Performance/Bidders/Bail Bonds Payable
Tax Refunds Payable
Other Payables

525,583.96
11,216.3
19,619.52
50.00
111,054.54
3,519,353.47
1,764,002.80
209,595.76
38,515.06
5,703,378.71
16,274,962.95

1,812,628.08
11,109.90
6,119.52
50.00
111,054.54
3,592,882.26
2,726,536.81
198,529.57
69,448.57
7,224,666.02
18,031,179.45

10. Long-term Liabilities

2012
Loans Payable - Domestic

58,888,888.88

Refinanced loan with Land Bank by BPI

For the construction of the UEP Building

2011
42,419,444.44

13,888,888.88 22,975,000.00
45,000,000.00 19,444,444.44

The municipal government of Binalonan, Pangasinan availed of a loan on

November 10, 2010 with the Bank of Philippine Islands (BPI) and guaranteed by the
LGU Guarantee Corporation (LGUGC). The credit facilities consisted of a P25 million
medium term loan and a P45 million long term loan. It bears an interest rate of PDST R2
plus 2.5% on any term band.
The P25 million loan was used to fully repay the outstanding loan with the Land
Bank of the Philippines (LBP) and is payable in four (4) years and six (6) months (the
remaining term of LBP loan). On the other hand, the P45 million loan is payable in
seven years, with two-year grace period.
11. Deferred Credits

Composition
Deferred Real Property Tax Income
Deferred Special Education Tax Income
Other Deferred Credits

2012
3,605.18
3,605.18
2,571,835.89
2,579,046.25

2011
2,772,994.39
2,772,994.39
4,719,982.58
10,265,971.36

Other Deferred Credits account is made up of the following:

2012
Goodwill (New Public Market)
Seven Years Advance Rental

625,201.00
289,371.39
12

2011
295,201.00
2,970,079.48

Reservation Fee
Two (2) Months Advance Rental
One (1) Month Deposit

15,000.00
869,187.00
773,076.50
2,571,835.89

15,000.00
847,411.00
546,966.00
4,719,982.58

12. Government Equity

Government Equity, Beginning Balance

Add/Deduct: Retained Operating Surplus
Current Operations
Prior Years Adjustments
Total
Add/Deduct: Transfer from (to)
Transfer of PPE/completed projects from
Trust
Fund/General Fund/Other Fund
Transfer of PPE/completed projects to
General
Fund/Other Fund
Transfer of completed Projects to
Registry:
Public Infrastructures
Reforestation Projects
Transfer of PPE/completed projects from
Other LGUs
Transfer of PPE/completed projects to
Other LGUs
Other Adjustments @
Other transactions under Trust Fund
Government Equity, Ending Balance

2012
199,403,389.36

2011
174,829,724.32

14,905,641.62
(373.00)
214,308,657.98

24,324,604.70
92,169.47
199,246,498.49

9,306,172.66

21,793,655.19

(9,306,172.66)

(21,793,655.19)

(7,144,092.83)

(11,751,306.61)

4,689,000.00
(59,400.52)

11,908,197.48
-

211,794,164.63

199,403,389.36

Other adjustments amounting to P4,689,000.00 under Trust Fund as shown in its

Statement of Changes in Government Equity consist of the following:
Receipt of the following funds:
From PDAF of Congresswoman Carmen Kimi S. Cojuangco for the
following projects:
13

P3,500,000.00 Completion of UEP Building

P 639,000.00 Brgy. Dumayat Water System
P 50,000.00 Brgy. San Felipe Central Water System
P4,189,000.00
From PDAF of Senator Francis Escudero:
P 500,000.00 for construction/rehabilitation of Public Market
Other transactions under Trust Fund:
P59,400.52 - disbursements for the purchase of supplies
against the balances of completed projects.

chargeable

Note 13. Income accounts

Income Accounts consist of the following:
Local Income
Permits and Licenses
Service Income
Business Income
Other Income

2012
17,815,450.81
3,300,286.80
1,827,271.53
15,636,920.04
66,498,324.51
105,078,253.69

2011
18,044,953.92
2,577,053.65
2,760,252.28
12,495,529.83
68,094,596.66
103,972,386.34

Internal Revenue Allotment of P65,060,735.00 is classified under Other Income.

Note 14. Expenditure accounts
Expenditure accounts are as follows:
2012
Personal Services
Maintenance and Other Operating Expenses
Financial Expenses

14

45,048,847.00
41,569,210.95
3,554,554.12
90,172,612.07

2011
40,979,410.15
36,670,105.03
1,998,266.66
79,647,781.84

Part II
Detailed
Findings and Recommendations

PART II
DETAILED FINDINGS AND RECOMMENDATIONS
I. Financial and Compliance Audit
1. The Cash in Vault account had an outstanding balance of P 917,173.73 indicating that
the collections were not deposited intact contrary to Section 32 of the Manual on New
Government Accounting System (MNGAS), Volume I thereby exposing the undeposited
amount to possible misuse.
Verification of the Cash in Vault account in the general ledger showed a balance of
917,173.73 as of December 31, 2012 which composed of the following:
General Fund
Special Education Fund
Trust Fund
Total

P
P

(433,640.70)
808,044.56
542,769.87
917,173.73

Analysis of the said account revealed that balances per month were accumulated to big
amounts as shown in Annex N.
Also, the Cash in Vault account under the General Fund had an abnormal negative
balance of P 433,640.70. However, it was explained by the Municipal Treasurer that RPT
collections were all deposited in the General Fund account including the amount supposedly
for SEF. As a result, the over deposit affected the balance of Cash in Vault under General
Fund which resulted to a negative balance.
Attention is invited to the provisions of Section 32 of the MNGAS, Volume I, which
states that all collections shall be deposited intact with authorized depository bank daily or
not later than the next banking day.
The practice of not depositing collections intact may expose government funds to
possible misuse.
It was also noted that Cash in Vault were utilized to pay claims/disbursement vouchers
instead of paying disbursement vouchers by check.
We recommend that the Municipal Treasurer must deposit intact all the collections
to avoid possible misuse or misappropriation of fund. Also, the Municipal Treasurer
should refrain from using collections in paying disbursement vouchers. Instead, petty
expenses must be paid out of the petty cash fund while checks must be issued for bigger
amounts. Likewise, the Municipal Accountant should make necessary adjusting entries
to correct the negative balance of Cash in Vault under the General Fund.

15

The Municipal Treasurer said that she will adopt measures to avoid huge Cash in Vault
balance and to every extent possible cash will only be paid to petty cash expenses.
2. Cash advances granted to various officials and employees amounting to P367,059.02

were not liquidated at year-end which is not in accordance to COA Circular No. 97-002.
This may lead to understatement of expense account and overstatement of the
receivable account.
Review and analysis of the financial statements and accounting records disclosed that
cash advances granted to various officials and employees in the amount of P367,059.02
remained unliquidated as of year-end. (See Annex O)
The non-liquidation of the cash advances within the reglementary period is contrary to
COA Circular No. 97-002 dated February 10, 1997, prescribing the rules and regulations on
the grant, use and liquidation of cash advances. Moreover, the LGU was deprived of using
the funds for other programs and activities;
Pertinent provisions of the above-cited circular states that:
4.1.1 No cash advance shall be given unless for a legally specific
purpose.
4.1.2

No additional cash advance shall be allowed to any official or

employee unless the previous cash advance given him is first
settled or a proper accounting thereof is made.

4.1.4

Only permanently appointed officials shall be designated as

disbursing officers. Elected officials may be granted a cash
advance only for their traveling expenses.

5.8

All cash advances shall be fully liquidated at the end of each

year. The accountable officer shall refund any unexpended
balance to the cashier/collecting officer who shall issue the
necessary official receipt.

It is hereby recommended that in case where the officials/employees were not able to
liquidate immediately their cash advances, the following measures should be availed of in
line with the provisions of COA Circular 97-002.
a.

The Accountant should withhold their salaries and/or other

benefits;

b.

Administrative actions against the official/employee be

undertaken for the liquidation of their cash advances.

16

Management has been adopting measures to enforce liquidation of the cash

advances.Otherwise, the amount of unliquidated cash advances shall be deducted from the
salaries of concerned officials and employees.
3. Trust Liability-DRRM (148) in the Trust Fund Books for the
unexpended/unobligated amount on the Quick Response Fund of Local Disaster Risk
Reduction and Management Fund (LDRRMF) was not recorded which not in
consonance with COA Circular 2012-2. The non-recording may expose the amount to
pay for expenditures other than the intended purpose.
Section 22 of R.A. 10121 states that:
(a) The present Calamity Fund appropriated under the annual General Appropriations Act
shall henceforth be known as the National Disaster Risk Reduction and Management Fund
(NDRRM Fund) and it shall be used for disaster risk reduction or mitigation, prevention and
preparedness activities such as but not limited to training of personnel, procurement of
equipment, and capital expenditures. It can also be utilized for relief, recovery, reconstruction
and other work or services in connection with natural or human induced calamities which
may occur during the budget year or those that occurred in the past two (2) years from the
budget year.
(b) The specific amount of the NDRRM Fund and the appropriate recipient agencies
and/or LGUs shall be determined upon approval of the President of the Philippines in
accordance with the favorable recommendation of the NDRRMC.
(c) Of the amount appropriated for the NDRRM Fund, thirty percent (30%) shall be
allocated as Quick Response Fund (QRF) or stand-by fund for relief and recovery
programs in order that situation and living conditions of people in communities or areas
stricken by disasters, calamities, epidemics, or complex emergencies, may be normalized
as quickly as possible.
(d) All departments/agencies and LGUs that are allocated with DRRM fund shall submit
to the NDRRMC their monthly statements on the utilization of DRRM funds and make
an accounting thereof in accordance with existing accounting and auditing rules.
(e) All departments, bureaus, offices and agencies of the government are hereby
authorized to use a portion of their appropriations to implement projects designed to
address DRRM activities in accordance with the guidelines to be issued by the NDRRMC
in coordination with the DBM.
COA Circular No. 2012-002 provides that:
1. Thirty percent (30%) of the amount appropriated shall be allocated to the Quick
Response Fund (QRF) or stand-by fund for relief and recovery projects and
activities.

17

2. All unexpended balance of Quick QRF and the DRRMF-MOOE shall be

transferred to the Special Trust Fund under the account Trust Liability-DRRM
(Code 438) in the Trust Fund Books.
We recommended and management agreed to follow strictly the provisions of DILG
Memorandum Circular No. 2012-73 dated April 17, 2012 most specially the allocation
of Local Disaster Risk Reduction and Management Fund (LDRRMF).
4. The Municipality did not conduct complete physical inventory of its Property Plant and
Equipment valued at P 200,886,616.80 contrary to the provisions of Section 124 of the
Manual on the New Government Accounting System (MNGAS), thereby rendering the
account unreliable.
Verification of the financial statements disclosed that the Property Plant and Equipment
account of the agency amounted to P 200,886,616.80 as of December 31, 2012.
We noted that the agency conducted physical inventory of its Property Plant and
Equipment but was not completed and no report was made thereon.
Section 124 of the Manual on the New Government Accounting System (MNGAS), Vol. I
provide:
Physical Count of Property, Plant and Equipment by type shall be made annually and
reported on the Report on the Physical Count of Property, Plant and Equipment (RPCPPE).
This shall be submitted to the Auditor concerned not later than January 31 of each year.
We reiterate our previous years recommendation that the committee created to
complete the inventory taking of the Municipalitys property, plant and equipment, and
prepare a report thereon in accordance with Section 124 of the Rules and Regulations
of the MNGAS. Require the Accountant and the Property Officer to maintain their
respective equipment ledger cards/property records for reconciliation purposes.
5. Disbursement Vouchers, payrolls and journals were not submitted to COA for post-audit
within the reglementary period set forth under Section 100 of PD 1445. Thus,
precluding the Audit Team from performing a timely review and evaluation of the
agencys transactions.
Section 100 of Presidential Decree 1445 requires that Disbursing Officers in any
government agency shall render monthly reports of their transactions pursuant to regulations
of the Commission on Audit to be submitted not later than 5 th day of the ensuing month to the
auditor concerned.
Records show that the submission of Disbursement Vouchers, Payrolls and
Journals were made beyond the prescribed period, thus precluding the Audit Team from
timely review and evaluation of the municipal transactions. Further, propriety of the pertinent
accounts in the financial statements could not be verified.

18

We recommend that the officials concerned shall render monthly reports of

their transactions within the reglementary period set forth under Section 100 of PD
1445.
The Municipal Accountant committed to submit all vouchers/ reports that are
ready for transmittal within the prescribed period for submission.
II. VALUE FOR MONEY AUDIT
6.

No separate financial statements were prepared pertaining to the University of Eastern

Pangasinan (UEP) contrary to the provisions of Section 105 and 110 of the Manual of
the New Government Accounting System (NGAS), thereby resulting in the difficulty of
monitoring the operations of the said operating unit.
Section 105 of the NGAS Manual states that Local Government Units shall maintain
accounts in the General Fund for public utilities and other economic enterprises, loans,
interests, bond issues, and other contributions for specific purposes and development projects
funded from the share of the local government concerned from the internal revenue
collections and development of national wealth and such other special accounts which may
be created by law or ordinance.
Section 110 of the same manual likewise provides that at the end of the year, post-closing
trial balance shall be prepared for each special account. Also, the following financial
statements shall be prepared:
1. Balance Sheet
2. Statement of Income and Expenses
3. Statement of Cash Flows
Verification of records showed that no separate financial statements for the University of
Eastern Pangasinan (UEP) were submitted to COA Office within the prescribed period.
Consequently, no adequate information was provided as to the operation of the said school.
We recommend strict compliance with the provisions of Section 110 of MNGAS.
Likewise, financial statements pertaining to the University of Eastern Pangasinan
(UEP) be submitted to COA office within the prescribed period.
The Municipal Treasurer shall open a separate bank account for the transactions of
the school so that separate books shall then be prepared.

7. Maximum Benefits for the intended beneficiaries/recipients could have been attained
had the projects/programs under the Gender and Development (GAD) Programs were
fully implemented.
The municipality reported a budget for Gender and Development Program for budget
year 2012 of P900,000.00. However, verification of records disclosed that only the total
amount of P394, 553.74 (Annex P) was expended. It is barely 44% of what has been
budgeted. About 56% or P 505,446.26 remained unexpended as of December 31, 2012.
19

The projects/programs of the Municipality under the Gender and Development (GAD)
Program which were not fully implemented are the following:
Projects/ Programs
1. Social Development Program
2. Saranay ti Barangay
3. Women's Development Program
4. Women's Health Celebration
5. BTL/NSV (TEV)
6. PAP SMEAR
7. Purchase of Medical Equipment
8. Supplemental Feeding
Grand Total

Unexpended Balance
P
200,000.00
124,787.00
7,659.26
14,000.00
24,000.00
125,000.00
10,000.00
P
505,446.26

Had the projects/programs under Gender and Development (GAD) Program were fully
implemented, the maximum benefits for the intended beneficiaries/ recipients especially the
children, youth, women and senior citizens could have been attained.
We reiterate our previous years recommendation that the management identify the
priority programs, activities and projects to be provided with specific budgetary
allocations under the Gender and Development (GAD) Plan to ensure their full
implementation for the benefit of the intended beneficiaries/recipients.
Management said that they shall endeavor to identify the priority programs, activities and
projects to be provided with specific budgetary allocations under the Gender and
Development (GAD) Plan.

20

Part III
Status of Implementation of
Prior Years Audit
Recommendations

PART III
Status of Implementation of Prior Years Audit Recommendations
Out of the eight recommended measures embodied in the 2011 Annual Audit Report, four (4)
were partially implemented while the remaining recommendations were not implemented by
management, to wit:
Audit
Observation

Recommendation

Ref

Management
Action

Status of
Implementation

Reason for
Partial/NonImplementation

1. The
Municipality
was not able to
submit
the
inventory
report of its
Property, Plant
and Equipment
totaling
P167,560,485.
15 contrary to
the provisions
of Section 124
of the Manual
on the New
Government
Accounting
System
(MNGAS),
hence,
the
accuracy, value
and existence
of the account
were
not
ascertained.

We
AAR
recommended
2011
that
the
committee
created
to
conduct
the
physical
inventory
complete
the
inventory taking
of
the
Municipalitys
property, plant
and equipment,
and prepares a
report thereon in
accordance with
Section 124 of
the Rules and
Regulations of
the MNGAS.

Partially
Implemented

Management
was able to
undertake partial
inventory taking
but no report was
submitted on the
result of the
inventory

2. The Cash in
Vault account
under
the
Special
Education
Fund and Trust

We reiterated our AAR

previous years 2011
recommendation
that the Municipal
Treasurer deposit
immediately the

Not
Implemented

Management has
yet to act on this
recommendation

21

Fund had a
year-end
balance
totaling
to
P418,041.60
indicating that
collections
were
not
deposited daily
and intact as
required under
Section
32,
Chapter 3 of
the Manual on
the
New
Government
Accounting
System
(MNGAS),
Volume I, thus
exposing
government
funds
to
possible loss,
misuse
or
misapplication.
3. The Cash in
Vault account
under
the
General Fund
had a balance
of
(P91,858.20)
which
is
contrary
to
Generally
Accepted
Accounting
Principles and
Section 45 of
the Manual on
the
New
Government
Accounting

undeposited
collections with
the
authorized
depository bank.
Likewise, she is
required
to
deposit intact all
her collections as
well
as
the
collections which
will be turnedover to her with
the
authorized
depository bank
daily or not later
than the next
banking day to
avoid misuse or
misapplication of
government
funds.

We recommended AAR
that management 2011
require
the
Municipal
Treasurer
and
Municipal
Accountant
to
exercise diligence
in the recording
of transactions to
avoid abnormal
balances in the
financial
statements.

Not
Implemented

22

Management has
yet to act on this
recommendation

System
(MNGAS),
Volume I.
4. Non-setting up
of depreciation
expenses
for
depreciable
assets
amounting
to
P8,004,978.89
resulted to the
understatement
of
expense
account
and
overstatement
of
Property,
Plant
and
Equipment
(PPE) account.

We recommended AAR
that the officials 2011
concerned
determine
the
dates
of
acquisition/constr
uction of the
undepreciated
Property,
Plant
and Equipment to
be used in the
computation
of
depreciation
expense in order
to present fairly
the book value of
the assets in the
financial
statements.

Not
Implemented

Only PPE
acquired
/constructed
starting 2002
were subjected to
depreciation due
to absence of
records prior to
2002

5. Some
disbursements
were
paid
despite
the
absence
of
proper
and
complete
documentation
contrary
to
Section
4
paragraph 6 of
Presidential
Decree
No.
1445,
hence
casting doubts
on the legality
and propriety of
the accounts.

We recommended AAR
that management 2011
submit
the
required
supporting
documents
in
order to correct
the deficiencies
noted in the postaudit of accounts.
In addition all
disbursement
vouchers
and
payrolls and the
corresponding
supporting
documents
be
properly signed
and
accomplished.
Likewise,
we

Partially
Implemented

Management is
exerting effort in
implementing
this
recommendation

23

recommended that
payment be made
only
on
disbursement
vouchers
and
payrolls
with
complete
supporting
documents.
6. Disbursement
vouchers,
payrolls and
journals for the
month of
November and
December 2011
were not yet
submitted to
COA for postaudit, thus
precluding the
Audit Team
from
performing the
review and
evaluation of
the agencys
transactions.

The Audit Team AAR

recommended
2011
that the officials
concerned submit
the
November
and
December
2011
accounts
immediately.
Likewise, strict
compliance as to
the
prescribed
period relative to
the submission of
monthly reports
be observed.

Partially
Implemented

Management is
exerting effort to
implement this
recommendation

7.

We recommended AAR
that
the 2011
management
identify
the
priority programs,
activities
and
projects to be
provided
with
specific budgetary
allocations under
the Gender and
Development
(GAD) Plan to
ensure their full

Partially
Implemented

Management is
exerting effort to
implement the
recommendation

Maximum
benefits for the
intended
beneficiaries/rec
ipients
could
have
been
attained had the
projects/progra
ms under the
Gender
and
Development
(GAD) Program
were
fully
implemented.

24

implementation
for the benefit of
the
intended
beneficiaries/
recipients.
8.

No separate
financial
statements
pertaining to the
University
of
Eastern
Pangasinan
(UEP)
were
submitted
to
COA
office
within
the
prescribed
period, thereby
resulting in the
difficulty
of
monitoring the
operations
of
the
said
operating unit.

We recommended AAR
strict compliance 2011
with
the
provisions
of
Sections 105 and
110
of
the
MNGAS.
Likewise,
financial
statements
pertaining to the
University
of
Eastern
Pangasinan
(UEP)
be
submitted to COA
office within the
prescribed period.

Not
Implemented

25

Management has
yet to act on this
recommendation

Part IV
Annexes