EXECUTIVE SUMMARY

A. Highlights of Financial Operation

For CY 2010, the appropriations of the City Government of Manila for the General
and Special Education Funds totaled P10.10 billion. Obligations charged against these
appropriations amounted to P7.93 billion.

Fund Appropriation Obligation

General Fund P 9,000,000,000 P 6,904,459,950

Special Education Fund 1,100,000,000 1,020,619,335
Total P 10,100,000,000 P 7,925,079,285

The operating income of P7.13 billion collected during the year was sourced from the
following:

Special
Particulars General Fund Education Fund Total

Local Taxes P 3,468,509,423 P 1,005,751,739 P 4,474,261,162

Internal Revenue
Allotment 1,789,284,469 1,789,284,469
Permits and Licenses 293,493,798 293,493,798
Service Income 144,409,677 27,761 144,437,438
Business Income 219,569,604 219,569,604
Other Income 206,901,762 2,811,948 209,713,710
Total Operating
Income P 6,122,168,733 P 1,008,591,448 P 7,130,760,181

B. Scope of the Audit

The audit covered the accounts and operations of the City for the year 2010 and was
aimed at determining whether management presented fairly the financial statements of the
City in adherence to the generally accepted accounting principles; whether prevailing laws,
rules and regulations have been complied with; and whether funds were utilized in the most
efficient, effective and economical manner. Financial, compliance, and value for money
(VFM) audits were conducted to achieve these audit objectives.

C. Auditors Opinion on the Financial Statements

 The Supervising Auditor rendered a disclaimer of opinion on the presentation of the
financial statements because the Citys records did not permit the application of other audit
procedures to establish the validity of some accounts, as discussed in Part II of the report.
D. Significant Findings and Recommendations

The following are the significant findings and recommendations in the audit of the
accounts and operations of the City Government of Manila for the year 2010:

1. The validity and accuracy of property, plant and equipment (PPE) aggregating
P13.61 billion cannot be ascertained due to the failure of management to strictly
comply with the prescribed policies and procedures in the recording, reporting and
maintaining of records for the said accounts, as follows:

a. The Inventory Committee was not able to conduct the reconciliation of the
inventory list with the property records due to the failure of the City
Accountant and the City General Services Officer (CGSO) to maintain
PPE ledger cards and property cards, respectively, contrary to the
provisions of Section C.3, Chapter V of the Manual on Property
Custodianship.

b. Several unserviceable and obsolete properties amounting to P25.04

million were not reclassified to the Other Assets account, contrary to
Section 04(p), Chapter 2 of the New Government Accounting System
(NGAS) Manual.

c. Several tangible assets with estimated serviceable life of more than one
year but small enough to be considered as PPE in the total amount of
P81.91 million were included in the inventory report and still classified in
the books of accounts as PPE, contrary to COA Circular No. 2005-002
dated April 14, 2005. (Finding No. 1.1, page 30)

We offer the following recommendations:

a. The Inventory Committee should prioritize the reconciliation of the results

of the inventory count with the property and accounting records. Likewise,
the City Accountant and the CGSO should maintain complete PPE ledger
cards and property cards, respectively.

b. The office/department heads concerned and the CGSO should facilitate the
preparation of the Inventory and Inspection Report of Unserviceable
Property and to furnish the City Accountant a copy thereof as her basis in
the preparation of reclassifying entries.

c. For tangible assets with estimated useful life of more than one year but
small enough to be considered as property, plant and equipment, the City
 Accountant should effect the necessary adjusting entries to reflect the
correct balance of the affected accounts.

2. The reliability and accuracy of the year-end balance of the Cash in Bank
Local Currency, Current Account amounting to P958.10 million cannot be established
due to the failure of the City Accountant to update the bank reconciliation statements
and to effect the necessary adjustments for the identified reconciling items in previous
periods in the net amount of P17.34 million, contrary to Sections 3.2 and 3.3 of COA
Circular No. 96-011 dated October 2, 1996. (Finding No. 2.1, page 32)

The City Accountant is advised to assign additional personnel, as necessary,

to update the preparation of the bank reconciliation statements for all the depository
accounts of the City. Extra effort should likewise be exerted to locate the necessary
documents to support the adjustments of the identified reconciling items.

3. The existence and validity of the year-end balance of the inventory accounts
under the General Fund totaling P786.10 million cannot be ascertained due to the
inability of the City General Services Officer to regularly prepare the consolidated
Summary of Supplies and Materials Issued (SSMI) as basis of the City Accountant to
adjust the account as required under Section 121, Volume I of the NGAS Manual and
to conduct physical inventory on a semestral basis, pursuant to Section 124 of the
same manual. (Finding No. 4.1, page 36)

We advise management to require the Property Custodians of all requisitioning

departments/offices to prepare their respective SSMIs weekly for submission to the
CGSO who shall consolidate the same as basis of the City Accountant to record the
supplies and materials issued/consumed. The CGSO should also conduct physical
inventory of supplies and materials and to submit a Report on the Physical Count of
Inventories semestrally.

4. The year-end balances of the Real Property Tax (RPT) and Special Education
Tax (SET) Receivables amounting to P700.30 million and P52.68 million,
respectively, cannot be relied upon due to the failure of the City Treasurer to submit
the certified list of taxpayers to the City Accountant pursuant of Section 20, Volume I
of the NGAS Manual, as basis for the setting-up of receivables. (Finding No. 3.1,
page 35)

We advise management to facilitate the enhancement of the Real Property Tax

System (RPTS) to expedite the preparation of a certified list of taxpayers showing the
correct amount of tax due and collectible so that there will be a valid basis for the
setting-up.
5. The reconciliation of records being maintained by the City Accountant and the
City General Services Officer, as required under Section 114, Volume I of the NGAS
Manual for the Work/Other Animals (281) account was not conducted during the year,
thus, the discrepancy of P14.03 million remained unadjusted in the books of accounts.
(Finding No. 2.2, page 34)

We reiterate our audit recommendation that the City General Services Officer
furnish the City Accountant with the result of the physical count of animals at the
Manila Zoo. Reconciliation of their respective records should be conducted and
adjustments be effected in the books of accounts, as necessary.

6. The failure of management to strictly implement the rules and regulations on

the grant, utilization and liquidation of cash advances provided for under COA
Circular No. 97-002 dated February 10, 1997, caused the accumulation of long
outstanding cash advances totaling P105.93 million at the end of the year and exposed
government funds to possible loss and misuse. (Finding No. 4.2, page 37)

We reiterate our previous years recommendation for management to strictly

monitor and cause the liquidation of long outstanding cash advances to preclude loss
or misuse of government funds. The accountable officers concerned should be
warned that failure to liquidate their cash advances within the prescribed period shall
constitute valid cause for the withholding of their salaries and allowances. Likewise,
cash advances for salaries and wages should be limited to the net amount of the
payroll for a pay period.

7. The cash available at the end of the year totaling P1.08 billion was insufficient
to cover the Citys trust liabilities of P1.26 billion and other current liabilities of
P2.96 billion or a total cash insufficiency of P3.14 billion due to the failure of the
officials concerned to determine the capability of the City to finance obligations,
hence, corrective actions to ensure the adequacy of cash were not implemented by
management. (Finding No. 4.3, page 39)

We advise the Local Finance Committee and the officials concerned to use the
Cash Flow Analysis in monitoring cash inflows against outflows to ensure that trust
liabilities are used only for its intended purpose and that sufficient cash is available to
settle all obligations as they fall due. Further, cost-cutting measures and strategies to
improve cash position should be adopted to rectify the situation.

8. The remittance of the thirty percent (30%) share of the barangays from the
basic real property tax collections were delayed for periods ranging from 24 days to
more than two months, contrary to the provisions of Section 271 (d) of RA 7160, due
to the failure of the Office of the City Accountant to update the recording of real
property tax receipts and immediately inform the City Treasurer of the share of each
barangay. This hampered the delivery of basic services and the implementation of the
proposed development programs and projects of the barangays. (Finding No. 4.4,
page 40)

We reiterate our recommendation that the City Accountant expedite the

computation of the share of each barangay from real property tax collections to
ensure the timely distribution thereof pursuant to Section 271 (d) of RA 7160.

9. The remittance of the amounts withheld by the City for the BIR, the GSIS, the
Pag-ibig Fund and the Philippine Health Insurance Corporation were delayed for
periods ranging from two (2) months to more than one year, thus, resulting in
penalties and may adversely affect the claims/benefits accruing to the City
employees. (Finding No. 4.5, page 41)

The City Accountant and the City Treasurer are advised to facilitate the
remittance of all BIR, GSIS, Pag-ibig and Philhealth contributions particularly those
pertaining to prior years. Any penalty arising from the delay shall be the personal
liability of both and other officials concerned.

10. Copies of perfected contracts and purchase orders including their supporting
documents were not furnished the Auditor within five (5) days upon approval, as
required under COA Circular No. 2009-001 dated February 12, 2009, hence, timely
review and evaluation of the same could not be conducted which in turn caused
unnecessary delay in the processing of claims for payment. (Finding No. 4.6, page
42)

We recommend that the City Engineers Office and the City General Services
Office strictly comply with the regulations on the submission of the copies of the
approved contracts and purchase orders including their respective supporting
documents within the period prescribed under COA Circular No. 2009-001.

11. The warranty provision for the procurement of goods/equipment and

infrastructure projects, as required under Section 62 of the Revised Implementing
Rules and Regulations (IRR) of RA 9184, otherwise known as the Government
Procurement Reform Law, was not included in the contracts. Thus, the City had no
assurance that manufacturing and construction defects discovered after
implementation will be corrected by the concerned suppliers/contractors. (Finding
No. 4.7, page 43)

The City officials concerned are enjoined to strictly include the warranty
provision in the contracts.
12. The Manila Gender and Development Executive Committee failed to
formulate a Gender and Development (GAD) Plan for the current year and to allocate
5% of the total budget appropriations for the implementation of the programs,
projects and activities to address the identified gender issues and concerns within the
City, contrary to RA No. 7192 and paragraph 2.4 of Joint Circular No. 2004-1 of the
Department of Budget and Management (DBM), the National Economic
Development Authority (NEDA) and the National Commission on the Role of
Filipino Women (NCRFW). (Finding No. 4.8, page 44)

We reiterate our advice to management that the GAD Executive Committee be

directed to diligently perform its functions and duties as mandated under the City
Mayors Executive Order No. 4, series of 2003. Further, the Committee should be
required to prepare the annual GAD Plan and budget which shall include specific
programs, projects and activities with the corresponding estimated cost needed to
address gender issues within the City.

13. The City was unable to maximize the collection of RPT and SET due to the
failure of management to formulate strategies to improve revenue collection and
strictly enforce the mandatory procedures provided under the Local Government
Code in addressing tax delinquencies.

a.The Schedule of Fair Market Value (SFMV) being used as basis for the
computation of RPT and SET was not updated, contrary to the provisions
of Sections 212 and 219 of RA 7160.

b. Delinquent realty taxes totaling P764.91 million remained uncollected

because the remedies provided under Section 256 of RA 7160 were not
strictly enforced.

c.The tax relief granted by the City Treasurers Office to the property owners
to enhance the collection of RPT delinquency was not authorized by the
Sangguniang Panlungsod through an approved ordinance, contrary to
Section 192 of RA 7160. (Finding No. 5.1, page 45)

We recommend the following:

a. The general revision of property assessments be made pursuant to Section

219 of RA 7160.

b. Strictly implement the tax remedies provided under Section 256 of RA

7160 to pursue the delinquent taxpayers.

c. Make representation with the City Council for the passage of an ordinance
authorizing the City Treasurer to enter into compromise agreements with
 delinquent taxpayers and clearly stating the following for proper
implementation:

the coverage of the tax relief;

the percentage of the total delinquency to be paid upon signing of the
compromise agreement;
the period of availment;
the procedures to be followed;
the exemption, if any; and
the validity period of the ordinance.

d. Fast-track the enhancement of the Real Property Tax System to expedite

the generation of the necessary reports required for the efficient collection
of taxes.

e. Once the authority for the City Treasurer to enter into compromise
agreement with the delinquent real property owners is approved by the
City Council, the compromise module under the RPTS should be utilized
to minimize errors in the computation of unpaid taxes and penalties.

14. The uncollected rent and interests due from the Associated Development
Corporation (ADC), accumulated to P91.55 million, due to the inability/leniency of
management to enforce collection and the absence of formal turnover of documents to
and from the different offices handling the patrimonial property portfolio of the City,
contrary to Paragraph 4 of the supplementary contract on leased property dated
August 1, 2003, Section 169 of RA 7160 and Section 42 of City Ordinance No. 7794.
(Finding No. 5.2, page 48)

We reiterate our recommendation that management enjoin the concerned City

officials to enforce the collection of unpaid rentals of ADC including interests. In case
of non-settlement by ADC, exhaust all legal remedies to protect the interest of the
City.

15. Tax discounts of P40.81 million granted to owners of business establishments,

who paid their business taxes, fees and other charges within the extension period
authorized under City Council Resolution No. 10, Series of 2010, was without legal
basis. This deprived the City of additional revenues needed to finance its priority
programs and projects. (Finding No. 5.3, page 49)

We recommend that the Chief, License Division and the In-Charge of Office-
City Treasurers Office be directed to include the amount of unpaid business taxes in
the computation of the future tax obligations of the concerned business owners to
recover the discounts granted to them which were without legal basis.

16. Priority Development Assistance Funds (PDAF) amounting to P41.20 million

remained unutilized, thus, the socio-economic benefit that could have been derived
therefrom by the Citys constituents were delayed. (Finding No. 6.1, page 50)

We recommend that all projects funded out of PDAF be implemented without

delay.

17. The City incurred electricity expenses for CY 2010 amounting to P432.73
million, which was 40.33% higher than the previous years consumption due to the
non-implementation of cost-saving measures and the non-monitoring of consumption
by end-users. (Finding No. 7.1, page 51)

We recommend that:

a. The City Engineering Office and other departments or offices concerned

conduct appropriate action to address the reported pilferage and/or illegal
wire tapping that caused the electricity charges of the City to increase.

b. Electricity cost-saving measures be implemented in all offices, hospitals

and other areas under the jurisdiction of the City.

18. Continuous and speedy delivery of basic health services to the Citys residents
may not be successfully pursued as envisioned in the Medium-Term Development
Plan covering CYs 2007 to 2010 due to inadequate financial resources and the failure
of management to formulate standards and guidelines in the operation and
maintenance of its six (6) hospitals. (Finding No. 7.2, page 52)

We recommend the following remedial measures:

a. Management is encouraged to revisit the operations of its hospitals in the

six (6) districts and to explore the possibility of collecting a minimal
service charge from its patients, particularly those who are gainfully
employed and/or non-residents of the City. The income to be generated
may be appropriated for the maintenance of the hospital facilities, thereby,
ensuring the continuous and up-to-date delivery of medical services.

b. The concerned hospital officials should also consider the possibility of

securing financial assistance or donation from other levels of the
government, from private enterprises, from non-governmental
 organizations and from lawmakers to support the operation of the
hospitals.

c. The Local Chief Executive and the Heads of the City hospitals are advised
to conduct a study on the alternative means of securing the services of a
duly licensed and experienced Janitorial and Allied Services provider to
ensure proper hygiene and sanitation at all times, which are primordial in
hospital operations.

19. The expected improvement in the operation of the Vitas Slaughterhouse was
not attained due to the failure of management to formulate a comprehensive
modernization plan and to employ an effective preventive maintenance system. These
resulted in the increase of maintenance costs and the continuous deterioration of its
equipment and facilities. (Finding No. 7.3, page 54)

We recommend that management adopt the following remedial measures:

a. Formulate a comprehensive modernization plan including a preventive

maintenance system for the Vitas Slaughterhouse, using the advances in
technology, to ensure a sustainable income-generating project for the City;
and

b. See to it that the meat processing equipment are properly utilized and
properly maintained.

20. Appropriate actions were not taken by management to enforce the settlement
of the deficiencies noted in audit as contained in the Notices of Suspensions,
Disallowances and Charges, thereby resulting in their accumulation to P38.97
million, P343.35 million and P2.36 million, respectively, contrary to COA Circular
No. 2009-006 dated September 15, 2009. (Finding No. 8.1, page 55)

We reiterate our advice that the concerned City officials and employees be
required to comply, within 90 days, with the requirements of the transactions
suspended in audit. Settlement of audit disallowances and charges should be
immediately enforced by withholding the salaries or other claims due the persons
liable, in satisfaction of the amounts disallowed or charged. On the other hand, legal
remedies should be employed by management to ensure the settlement of the
liabilities of those officials and employees who are already separated from the
government service.

E. Status of Implementation of Prior Years Audit Recommendations

 Of the 13 audit recommendations contained in the Annual Audit Report of the
preceding year, two (2) were fully implemented, five (5) were partially implemented and six
(6) were not acted upon.