DETAILED FINDINGS AND RECOMMENDATIONS

I. Financial and Compliance Audit

1.0 Understatement/Overstatement of Account Balances

1.1. Depreciation was not provided for Building Account totaling to P 1.45
billion representing properties acquired by the City prior to June 30,
2004 due to inadequacy of documents and property/ledger cards as
basis for the computation of the depreciation.

In our last years discussion with management regarding this audit

observation, Management assured us that a PPE Monitoring Team will be
created comprising of the representatives from the Offices of the General
Services, City Accountant, City Assessor and Information Technology to
look into and establish the correctness of the balances of the Property, Plant
and Equipment (PPE) accounts. However, the created PPE Monitoring
Team failed to conduct inventory and submit a report thereon.

As of year-end, Inventory Reports for PPE accounts particularly for

Building Account were not submitted by management necessary for us to
substantiate the costs of account balances in the total amount of P2.43
billion.

The results of our audit showed that, of the Building account balance
as of year-end of P2.43 billion, only P981.72 million or 40.37 percent was
depreciated for CYs 2004 to 2010. The undepreciated cost of buildings
corresponds to those recorded as of June 30, 2004 in the total amount of
P1.45 billion representing balances under the General Fund account. The
City Accountant claimed that there is no basis to compute for the
depreciation of subject property due to unavailability of documents and
property ledger. Likewise, the City General Services Office (CGSO) was
not able to complete the physical count of PPE since they were awaiting for
the PPE monitoring team to convene and conduct a simultaneous inventory.

As a result, Management failed to depreciate the buildings worth P1.45

billion for the period prior to June 30, 2004 which consequently understated
the depreciation expense and accumulated depreciation accounts by an
undetermined amount.

The practice is in defiance to the pertinent provision of Section 4, par.

(o), Volume I of the NGAS Manual which requires the provision of
depreciation for property, plant and equipment (PPE) using the straight-line
method.

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 During the exit conference, Management assured us that the PPE
Monitoring Team will be given a time table of six (6) months to complete
the undertaking of an updated physical inventory of buildings acquired by
the City through purchase and/or donation and to determine their valuation,
best use and disposition, if needed.

We reiterate our previous years recommendation advising

management to exert efforts to locate the documents relative to the costs of
the buildings so that the corresponding depreciation expense could be
computed and taken-up in the books. If it is no longer possible to get the
historical values, require the City Appraisal Committee to determine the
appraised values of the buildings and their remaining useful lives to serve as
basis in updating the property cards and property ledger cards and ultimately
in providing for depreciation costs.

1.2. The expenses related to the Katipunan Bond transactions (CY 2001 to
2007) in the amount of P38.86 million were not recognized in the books
of accounts, thereby overstating the Cash in Bank, LCCA-Trustee Bank
account by P38.86 million and the Government Equity account by P .17
million and understating the related asset account by P38.69 million.

The City floated bonds known as Katipunan Bonds through the

Sangguniang Panglungsod under City Ordinance No. 317, series 2000. The
bonds have a term of seven years from issue date, starting in year 2001 to
2007. The Philippine National Bank (PNB) is the trustee for the purpose of
implementing the projects thru the bond floatation aggregating P620 million
broken down as follows:

Katipunan Bonds Project Financed Amount

Series A Caloocan Justice Hall P 185,000,000

Series B Parking & Commercial
Building Complex 225,000,000
Series C Caloocan Medical Center 210,000,000
Total P 620,000,000

The series A was redeemed by the city government in May 2003 by

availing a five year long term committed loan from the Philippine Veterans
Bank (PVB) to cover the principal balance in the amount of P228.31
million.

The trust indenture agreement for bond flotation has no provision as to

who certifies and approves the disbursements out of the Trust and Sinking
Fund bank account maintained for the collection of income, payment of
maturing bonds and other related expenses required for under Section 344 of

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RA 7160 of the Local Government Code of 1991. Instead, a letter of
authority from the Local Chief Executive to disburse the funds was the basis
for the subject transactions. But copies of the same together with the other
documents to support the disbursements made were directly forwarded to
PNB and no copy was retained by the management. The PNB on the other
hand did not furnish the City with the documents related to the expenses
directly paid by them.

The copies of Trust Fund and Sinking Fund financial statements and/or
statement of receipts and disbursements prepared by the PNB on bond
floatation transactions directly paid by them were not also submitted to the
City Accountants Office since it has been the agencys practice in the past
to send copies of these reports directly to the former City Budget Officer
which per results of verification, no documents were turned over by him to
the present Officer In Charge of said Office. Likewise, bank statement for
PNB trustee bank was not forwarded to the City Treasurer and City
Accountants Office since the account was opened in 2001.

The deficiency noted in the Trust Indenture Agreement and absence of

financial documents led to the non-recording of bond floatation transactions
of P695.36 million subject of our previous years audit findings. It was only
in year 2009 when the City was able to secure copies of the redeemed
Katipunan bond certificates and other related documents from PNB
considering that it had fully settled its bond obligations in 2007. On the
basis thereof, the City Accountants Office effected in the Citys books of
accounts the adjustments of P656.50 million out of the P695.36 million
unrecorded amortization of Katipunan bond principal, interest payments and
other financial expenses.

The remaining bond transaction expenditures for Series B and C

Bonds in the amount of P38.86 million were not however recognized in the
books of accounts as of year end as there were no documents available to
serve as basis for the City Accountant to record the same. In effect, the
Cash in BankLCCA Trustee Bank account was overstated by P38.86
million and Government Equity account was overstated by P.17 million
while the related asset account was understated by P38.69 million. The
practice is not in consonance with the financial statement assertion for
valuation or measurement that an asset or liability is recorded at an
appropriate carrying value, a transaction or event is recorded at the proper
amount, and revenue or expenses are allocated to the proper period.

A letter was sent by management to PNB, trustee bank requesting for

the related bond transaction documents. PNB management informed the
Officials that there is difficulty on their part particularly in the retrieval of
bank records considering that officers previously assigned to this account is
no longer connected to PNB and/or transferred to other branches.

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 We recommend that a representative from the City Accountants Office
personally coordinate with the trustee bank, Philippine National Bank, to
secure documents necessary to substantiate the subject P38.86 million
expenses related to the Katipunan Bonds so that these would be taken-up in
the books of accounts.

1.3. The reciprocal accounts Due to Other Funds (424) and Due from Other
Funds (144) were both understated by P45.03 million and P19.34
million, respectively, because interfund transactions were not recorded
in the corresponding books.

Our audit of the reciprocal accounts Due to Other Funds (424) and
Due from Other Funds (144) for all funds showed balances as of year end in
the amount of P102.74 million and P128.42 million, respectively. The
analysis of said accounts, however, disclosed an understatement of P45.03
million and P19.34 million, respectively arising from expenses
interchangeably paid from other fund accounts and erroneous recording of
transactions, as enumerated below. (Details are shown in Annex F):

Unrecorded GF payables to TF account in the amount to P57.89

million representing GFs expenses chargeable to GFs to Due to
LGUs - Barangay accounts which were interchangeably paid from the
Citys Trust Fund Due to LGUs - Barangay accounts.

Adjustment was not effected in the books of accounts representing

erroneous recording of P15.04 million SEF and TFs liability to GF.
This amount represents the ten percent (10%) deducted and/or
withheld from the real property shares of the Special Education Fund
(SEF) and Barangays as per provisions of Section 59, Chapter 7 of the
Citys Ordinance No. 0388 series 2005 or an Ordinance Enacting the
Updated Caloocan City Revenue Code of 2004. This provision was
found contradictory to Sections 271 and 272 of RA 7160 defining the
distribution of proceeds from real property taxes and its specific
purpose, hence, management put aside the Ordinance in 2006.

GF unrecorded receivables from SEF and TF totaling P4.69 million

representing BIR taxes withheld from claims for projects funded out
of SEF and TF which remittances were erroneously paid out of GF;
and adjustments on prepayments of city tax withheld from contractors
of projects funded out of SEF.

SEF unrecorded receivables from GF amounting to P3.04 million

representing understatement on releases of SEFs RPT shares.

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 Unrecorded payables of SEF and TF to GF during the year of P3.27
million and receivables of GF from SEF and TF of P1.26 million

Unrecorded settlement during the year of P3.12 million

Aside from understating the reciprocal accounts Due to Other Funds

(424) and Due from Other Funds (144) caused by the non adjustment of the
above-mentioned errors in recording interfund payables and receivables, the
corresponding settlement of such payables to the proper fund was likewise
not timely effected.

The above-stated understatements could have been prevented and/or

minimized, had both Offices of the City Treasurer and the City Accountant
closely monitored the recording of financial transactions particularly on
interfund payables and receivables and periodically reconciled the accounts.

Thus, the practice is not in consonance with one of management

assertions inherent in the fair presentation of the financial statements which
is completeness, defined as follows:

Completeness - all transactions and accounts that

should be presented in the financial statements have been
recorded to the proper period.

and likewise not in consonance with sound internal control practices which
dictates that the recording of transaction should be subject to review systems
to include the periodic reconciliation of accounts to ensure the accuracy of
one set of records as against an independent set of documents.

The City Accountant informed that an accounting personnel is now

assigned to look into this account for reconciliation purposes.

We reiterate our recommendation that the City Accountant should

effect the necessary correcting entries to adjust the balances of the accounts
Due to Other Funds and Due from Other Funds.

Thereafter, we recommend the immediate settlement of interfund

payables to the proper fund. Likewise, there should be close monitoring and
review of transactions in order to ensure accuracy.

2.0 Unreconciled Account Balances

2.1. Cash in Bank, Local Currency, Current Account balances for eight (8)
depository accounts were materially bigger by P278.49 million over the

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confirmed bank balances. On the other hand, seven (7) depository
accounts had book balances which were P13.06 million less than the
corresponding bank balances. These instances rendered the reliability
of the cash account balance of P413.45 million doubtful. The
inadequacy of records brought about these unreconciled differences
between the book and the bank balances.

Confirmations made with PNB, LBP and PVB disclosed that per their
records, the City has a total cash balance of P148.02 million for the 15 bank
accounts as of year-end. However, comparing the banks balances with the
books of P413.45 million showed that eight (8) depository accounts were
materially bigger by P278.49 million over the confirmed bank balances
while seven (7) depository accounts had book balances which were P13.06
million less than the corresponding bank balances. Thus, disclosing a net
discrepancy of P265.44 million (Annex G).

Among the reasons on the occurrence of P265.44 million net

difference are as follows:

Four depository accounts maintained with the Philippine National

Bank have been closed but still recorded in the books at P124.11
million.
Three depository accounts with a total of P2.41 million with Land
Bank of the Philippines have become dormant however there were no
recorded balances in the books.
Time deposit accounts of P20 million with Land Bank of the
Philippines was already terminated in 2005 but still recorded in the
books. Its proceeds were credited to PVB current account No. 00501-
000001-0 under the Citys GF account.
The remaining balance of P10 million Time Deposits in the General
Fund which existed in the books prior to 1993 could not be
substantiated as to actual existence in the absence of bank certificates
or equivalent documents.
Absence of documents such as bank statements, debit and credit
memoranda, etc. to support the entries.

Of the total thirty one (31) depository accounts presently maintained

by the City per accounting records, only sixteen (16) accounts were
prepared with Bank Reconciliation Statements in defiance to Section 3.2 of
COA Circular No. 96-011 dated October 2, 1996 which provides that:

The local accountants shall within ten (10) days from

receipt of Bank Statements, reconcile the same (BS) with
the General Ledgers (GL) and prepare the BRS in five (5)

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 copies, distributed as follows: a) Original copy for the
Bank Manager thru the Resident Auditor, b) Duplicate copy
for the City Auditor, c) Triplicate copy for the City
Treasurer, d) Quadruplicate copy for the LGAO Director,
and e) Quintuplicate copy for the City Accountant.

The Bank Reconciliation Statements (BRS) on the other fifteen (15)

depository accounts maintained by the City with the Philippine Veterans
Bank (PVB), Land Bank of the Philippines (LBP) and Philippine National
Bank (PNB) were not updated as follows:

Name of No. of Bank

Status of BRS Submission
Bank Account

1. PVB 1 With BRS up to December, 2007

2. PNB 1 No BRS submitted since account was
opened
3. PVB 3 No BRS submitted since account was
opened
4. LBP 6 No BRS since 1997 and prior years
5. PNB 4 No BRS since 1997 and prior years
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The results of bank confirmation showed that of the accounts in items

4 to 5 above, seven (7) have been declared dormant while the other three (3)
have already been closed but there are still balances appearing in the
accounting records. The City Accountant informed that Bank Reconciliation
Statements could not be readily prepared due to inadequacy of available
records to serve as basis of updating the reconciliation of these accounts. In
addition, the lack of capable manpower has caused the non preparation of
the BRS.

In the absence of bank reconciliation statements, the P265.44 million

discrepancy between the book and bank balances on Account Cash in Bank,
Local Currency, Current Account were not accounted for. Thus, the
reliability of the recorded cash balance and the related expenses or assets or
payment of liability as the case maybe could not be ascertained.

The managements assertion of completeness in the presentation of

financial statement is not complied with for failure to record the transactions
covered by these discrepancy of P265.44 million. Completeness is defined
as follows:

Completeness - all transactions and accounts that

should be presented in the financial statements have been
recorded to the proper period.

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 During the exit conference, Management assured us that strong
representation will be made by them with PNB to secure copies of bank
statements and other supporting documents needed for the reconciliation.

We reiterate our previous years recommendation advising

Management to make strong representation with the Philippine National
Bank to secure the needed bank statements in order to reconcile and adjust
the balances appearing in the books. We also recommend that bank
reconciliation statements be prepared for the dormant accounts with the LBP
pursuant to COA Circular No. 96-011. A staff from the Accounting Office
should be assigned on a full-time basis to handle monthly the preparation of
the bank reconciliation statements.

2.2 Unutilized balances for the transferred funds from the National
Government remained not remitted to the National Treasury despite
completion of the project/purpose of the fund.

The pertinent provision of the Office of the President Executive Order

No. 431 (Par. 3) dated May 30, 2005 entitled Reverting all dormant
accounts, unnecessary special and trust funds to the General Fund and for
other purposes, provides in part as follows:

Xxx. once the purpose for which a special fund was

created has been fulfilled or abandoned, the balance, if
any, shall be transferred to the general funds of the
government

This has been the subject of our previous years audit observation.
However, we reiterate the same since no action and/or response was
undertaken by management.

The review of accounting and treasury records disclosed that the City
maintains seven (7) depository accounts with Land Bank of the Philippines
and Philippine National Bank for various transferred funds from National
Government Agencies. Balances of these accounts are presented in the
books showing that the purpose of the transfer was already completed.

As of year-end, the details of the balances of transferred funds per

general ledger of P3.60 million are shown hereunder:

Description
of Account Amount

Kalookan City Trust P 161,888

LBP 0482-1024-68

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 Const of Social
Development Center 0.00
LBP 0482-1040-96

Local Government
Performance Program 43,283
LBP 0482-1039-01

Urban Health &

Nutrition Project 0.00
LBP 0482-1030-90

NALGU 2,618,715
LBP 0482-1001-04

Mun Devt Proj 2 0.00

0481-0001-06

Mun Devt Proj 771,373

215-860015-6

Totals P 3,595,259

During the exit conference, we were informed that reconciliation is to

be undertaken on this particular account for settlement of unutilized trust
accounts.

Considering that the purpose of the transfer was already completed, we

recommend that the amount of P3.60 million be remitted to the National
Treasury so that the fund may be used for more developmental projects in
consonance to the aforementioned regulation.

3.0 Revenue Generations

3.1. The City has not maximized the collection of income in the approximate
amount of P76.56 million from 628 real property units of idle lands for
non adoption in the Local Tax Code the specific tax rate to be imposed
thereon particularly in consonance with the provisions of Sections 236
and 237 of RA 7160, the additional Ad Valorem Tax on Idle Land.

For calendar year 2010, the City Assessors Office submitted a partial
list of idle lands consisting of 628 real property units (RPUs) with a total
assessed value of P1,531,284,120 (Annex H). The results of audit showed
however that no taxes could be imposed on subject idle lands as the City has

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 not passed an ordinance adopting the provisions in Sections 236 and 237 of
RA 7160. Thus, potential income of more or less P76,564,206 during the
year was not collected which resulted in limited implementation of the citys
projects for public services.

Section 236 of RA 7160 provides that a province or city, or a

municipality within the Metropolitan Manila Area, may levy an annual tax
on idle lands at the rate not exceeding five percent (5%) of the assessed
value of the property which shall be in addition to the basic real property
tax. Likewise, Section 237 of the same law defines idle lands as lands, other
than agricultural, located in a city or municipality, more than one thousand
(1,000) square meters in area one-half () of which remain unutilized or
unimproved by the owner of the property or person having legal interest
therein. Likewise, Section 317 of the Citys Revenue Code requires the
creation of an oversight committee for the preparation of Implementing
Rules and Regulations purposely for the effective implementation of the
updated Revenue Code of 2004.

The results of inquiry with management officials disclosed that the

taxation on idle lands was set aside because the Revenue Code of 2004 of
the City did not specifically provide for the percentage of taxes that will be
imposed.

The Officer in Charge of the City Assessors Office claimed that a

draft ordinance treating on the proposed tax rates to be imposed on idle
lands is already at hand but not yet submitted to the Sangguniang
Panlungsod for approval.

Management also informed us that they are currently undertaking

massive inspection and identification of all idle lands located within the
City.

In effect, the City was not able to maximize the collection of taxes
particularly from the 5% additional ad valorem tax.

We recommend that Management visit the provisions on taxation of

idle lands and look into the possible incorporation of this in the Revenue
Code of the City. On the other hand, the City Assessors Office should
facilitate the identification and completion of the list of idle lands.

3.2. The absence of specific policy requiring the submission of audited

financial statements and/or quarterly income tax returns for the
preceding year as basis in the computation of business taxes and
licenses led the taxpayers to understate the declared annual gross
receipts, consequently the collection of lesser taxes by an estimated

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amount of P1.06 million for several business establishment. Further, tax
enforcement through the examination of business establishments books
of accounts was not exercised.

Business establishments operating or conducting any trade or activity

within the Citys territorial jurisdiction are required to pay business taxes
and licenses either annually or quarterly.

The basis in the computation of taxes and licenses of any given

business is the taxpayers declared gross sales of the preceding year and
prescribed rates provided under Sections 143 of RA 7160 and 66, Chapter I
of the City Ordinance No. 0386 s. of 2004. On the other hand, the power of
the City Treasurer to obtain information for tax enforcement through
examination of the books of accounts of business establishment as well as
the requisite for the revenue district office of the Bureau of Internal Revenue
to make available their records to the local treasurer or his representative is
provided under Section 171 of RA 7160.

To check the accuracy and reliability of the reported gross receipts of

businesses operating within the City, audit of sampled transactions was
undertaken by this Office. The results of audit disclosed that year 2009
annual gross receipts declared by them were different from the amount
reported per BPLO records. The comparison of the declared gross sales by
eight (8) business establishments who were able to transact business with
the City and various barangays showed an understatement in their declared
annual gross sales for the preceding year 2009 by an amount of P146.78
million. This shows that the City was not able to collect an estimated
amount of P1.06 million taxes from eight business establishments sampled.
(Annex I)

Our audit likewise revealed that business taxes amounting to

P860,4150 were assessed and collected on eleven (11) business
establishments which have declared zero sales in their preceding years
operations (Annex J).

The results of interview with BPLO official disclosed that when the
declared gross sales of the taxpayers were apparently unrealistic and/or the
firm declared zero sales, the assessment clerk requires the submission of
relevant documents such as Income Tax Return or Quarterly VAT paid
which could help in validating the correctness of the same. In cases where
taxpayers failed to present the requested documents, the computation of the
business taxes were merely based on the payment history of the company
plus five (5) to ten (10) percent (%) increase per year taking into
considerations the following factors namely: a) line of business; b) business
space; c) number of employees and d) number/type of service vehicles. It

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 was alleged that most often taxpayers pay the computed amount agreed
upon.

Thus, the absence of specific policy requiring the submission of

audited financial statements and/or quarterly income tax returns of the
preceding year or other policy as basis in the computation of business taxes
as well as tax enforcement through the examination of business
establishments books of accounts as per regulations cited above led the
taxpayers to understate the declared annual gross receipts as in the case of
eight (8) sampled business establishments.

The Head of the BPLO explained that her office cannot compel nor
require the submission of audited financial statements as basis for the
computation of business taxes since the said document is not yet available
during the period for the renewal of business permits which is on January 2
to 20 of each year. It was also informed that even without the AFS, her
office regularly checks the financial statements posted in the Securities and
Exchange Commission (SEC) website and have access on the declared gross
receipts filed with the BIR as a reference and guide in determining the
reliability of the declared gross receipts of business establishments. She
further averred that her office is exerting all efforts and has not been remiss
in assessing and collecting the proper taxes due the City Government.

We recommend that in the assessment of business taxes, Management

should require from business establishments the submission of a copy of
their audited financial statements and/or quarterly income tax returns in the
preceding year duly received by the Bureau of Internal Revenue. Any
discrepancy between the declared revenue and the financial statements will
be assessed accordingly.

We also recommend that the City Treasurer exercise the power to

examine the Books of Accounts and pertinent records of business
establishments to confirm the accuracy of gross receipts declared in the
application for renewal of business taxes and licenses for the given year.

3.3. The City Building Official failed to issue occupancy permits for 532
Real Property Units (buildings and improvements) constructed in years
2008 and 2009. Thus, the Office of the City Assessor had no basis to
assess and issue tax declarations thereon. Hence, the appropriate
property taxes pertaining to these property units were not collected on
time.

Section 210 of RA 7160 or the Local Government Code of 1991 as

adopted under the provision in the Revenue Code of the City, mandates that
the City Building Official shall transmit copies of certificate of occupancy

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or use of building and structure to the City Assessor within thirty (30) days
from issuance of such certificates for assessment purposes. Further, where it
is found to be more convenient, the City Building Official may in lieu of
individual copies of the said permits/certificates, furnish the City Assessor
with monthly summaries of such documents within the first ten (10) days of
the succeeding month.

As a general rule, after construction/installation of the improvement, a

certificate of occupancy is issued by the OBO to the owner of the property
before occupancy/use. This certificate can already be used by OCA as basis
for assessing the improvements constructed.

For Calendar Years 2008 and 2009, the Office of the City Building
Official issued two hundred twenty-eight (228) and three hundred sixty-
three (363) residential building permits respectively, or a total of 591
building permits for construction and/or improvement in the different areas
of the City. However, the occupancy permits for corresponding building
permits issued were only twenty-four (24) for 2008 and twenty-one (21) for
2009 or a total of forty-five (45). Thus, the five hundred forty-six (546)
buildings/improvements were not issued the corresponding occupancy
permits.

Audit of 591 building permits issued in 2008-2009 disclosed that only

fifty-nine (59) or ten percent (10%) were found to have individual tax
declarations for taxation purposes, for reason that OBO did not regularly
transmit to OCA the list of occupancy and building permit issued in
compliance to the above-mentioned regulation. Tax declarations issued for
59 RPUs were based on physical inspections resulting from its tax mapping
activities, forty-five (45) of which were covered with occupancy permits and
fourteen (14) were not. The remaining 532 RPUs on structures completed
have no tax declarations for tax purposes. Thus, the assessment of these 532
RPUs were not immediately undertaken and RPT income for the year of
undetermined amount and the corresponding occupancy permits fees were
not collected on time.

It was also observed that the OBO has not monitored the issuance of
building permits. In the absence of its monitoring, a composite team was
constituted by the City in early part of CY 2011 to determine the completed
and/or in-process structures and whether the construction was covered by
building permit. The team will conduct the inventory and field inspection.

The City Building Official committed to submit regularly to the City

Assessors Office a listing of approved building permits and corresponding
occupancy permits for buildings completed and ready for use indicating the
pertinent Property Index Numbers.

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 The Office of the Building Official is advised to submit monthly to the
Office of the City Assessor, for assessment purposes, a report on certificates
of occupancy and other documents for completed structures/improvements.
We further recommend that the Office of the City Assessor conduct
immediate inspection and assess said property units for the issuance of the
corresponding tax declaration to ensure the timely collection of RPT as
provided under Section 221 of RA 7160.

4.0 Compliance with Laws, Rules and Regulations

4.1. Cash Advances totaling to P237.31 million remained unliquidated as of

year-end due to inability of the accountable officers to settle their
accountabilities in defiance to the rules and regulations on cash
advances. This resulted in the non recognition of expenditures in the
respective years of their incurrence and therefore affected the
correctness of the Cash and Government Equity accounts in the
financial statements.

Under COA Circular No. 97-002 dated February 10, 1997 it provides
the following:

4.1.3 A cash advance shall be reported as soon as the

purpose for which it was given has been served.xxx.

5.8 All cash advances should be fully liquidated at the

end of each year. Except for petty cash fund, xxx.

Our analysis of the Accounts Payroll Fund and Advances to Officers

and Employees showed a total unliquidated cash advances of P278.10
million as of December 31, 2010. Of the outstanding Cash Advances,
P40.79 million were liquidated in subsequent year, thus, leaving an
unliquidated amount of Cash Advances of P237.31 million. The summary
of the aging of cash advances are as follows:

Age Amount
Over 5 years P 28,369,626
1 to 5 years 53,387,687
6 months to 1 year 51,203,946
Below 6 months 104,344,857
Total P 237,306,116

It was noted that cash advances granted in prior years which amounted
to P81.76 million represents 34% of the outstanding balance (Annex K).
This comprised cash advances of P17.78 million granted to elective city and
barangay officials and persons who already retire from the service, resigned,

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deceased and/or whereabouts unknown, while P51.59 million pertains to
advances granted to former paymasters with cases under court litigation at
the Office of the Sandiganbayan (Annexes L and M). The remaining P12.39
million or 15.15% of the P81.76 million represents advances granted to
officials and employees who are still in active service. These were granted
as early as 1980.

During the year, demand letters were sent to concerned accountable

officers wherein some of them responded and submitted liquidation reports
to the City Accountant. Liquidation reports for the P 40.79 million cash
advances were submitted and taken up in the books in subsequent year 2011,
thus, the unliquidated cash advances totaled to P237.31 million.

Also, as gleaned from the table presented, a total amount of P155.55

million is outstanding cash advances for less than one year. Of the amount,
P87.81 million pertains to advances for payroll fund granted in December,
2010 but subsequently liquidated in 2011.

It was also disclosed in audit that liquidation reports were not

submitted by Accountable Officers (AOs) even if the purpose of their cash
advances has been served and that monitoring of cash advances was not
undertaken by the City Accountant and Treasurers Office.

Management took note of our observation and assured us that

appropriate action shall be initiated by them accordingly.

The failure of the concerned AOs to submit liquidation of cash

advances on time or as soon as the purpose has been served and completed
and the inability of management officials to enforce immediate settlement
resulted in the enormous balance of cash advances contrary to the above-
cited provisions of COA Circular No. 97-002 dated February 10, 1997.
Consequently, expenses were not recognized on the respective years of their
incurrence and therefore, affected the correctness of the Cash and
Government Equity accounts in the financial statements.

We recommend that the accountable officers strictly comply with the

guidelines in the liquidation/settlement of cash advances provided under
Section 4.1.3 and 5.8 of COA Circular No. 97-002 dated February 10, 1997.

We also recommend that the City Accountant and the City Treasurer
monitor the liquidation of cash advances by sending demand letters as soon
as settlement of cash advance falls due. For the unsettled cash advances in
the books as of December 31, 2010, demand/send letters particularly to
accountable officers and employees who are still in active service and/or
withhold of the payment of any money due them in case of failure to settle
the cash advances despite demand as provided in the law.

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 We likewise recommend that cash advances which had been long
outstanding particularly those with considerable amounts be referred to the
City Legal Officer for appropriate action. Clearances of retiring officers or
employees who have outstanding cash advances should not be given unless
these are settled or liquidated.

Finally, cash advances of former officials who are now deceased and
where the Citys effort to collect or settle is futile may be written off upon
proper authorization from the Commission on Audit.

4.2. The correctness of accounts Due to GSIS and Due to BIR totaling to
P81.75 million and P81.87 million, respectively, existing in the books
since 2004 & prior years could not be established due to unreconciled
difference between the City and the GSIS and the BIR records, the
reconciliation of which was not completed.

Financial Statement assertions are representations by management,

implicit or otherwise, that are embodied in the financial statements. One of
the assertions inherent in the fair presentation of the financial statements is
valuation, defined as follows:

Valuation or measurement An asset or liability is

recorded at an appropriate carrying value, a transaction or
event is recorded at the proper amount, and the revenue or
expenses are allocated to the proper period.

As of year-end, the payable accounts Due to GSIS and Due to BIR

showed balances of P86.06 million and P145.45 million, respectively. Of
the payable account to GSIS, the amount of P81.75 million was carried in
the books prior to 2004. On the other hand, of the total balance of P145.45
million payable to BIR, the amount of P81.87 million or 56% pertains to
balances carried in the books prior to 2004.

The accounting records showed that the amounts withheld from

employees and corresponding employers share for amounts due to GSIS
covering the period 2005 to 2010 were fully remitted to GSIS.

During the year, series of meetings were undertaken by the City,

represented by the City Treasurers Office with GSIS for the reconciliation
of account. Problems were encountered in the process such that the
reconciliation was not completed. Among these problems are as follows:
Difficulty in the retrieval and/or organization of documents to establish
correctness of payable accounts; and changes in the GSIS automated

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 systems and/or program which caused data error along the process such as
remittances of the City not reflected in the GSIS records in some instances.

Another difficulty encountered in the reconciliation is in locating the

contributions remitted in previous years through withholding of the amount
by DBM from the Citys share from the Internal Revenue Allotments.

It was agreed upon that a Memorandum of Agreement (MOA) for the

settlement of the account shall be entered into by the City and GSIS once
the reconciliation is completed.

On the other hand, the account Due to BIR is currently being

reconciled with Bureau of Internal Revenue (BIR) on year to year basis as
agreed upon. Likewise, the absence of documents or insufficiency of records
to establish the payable to BIR that is, amount withheld less remittances,
contributed to the delay in the reconciliation process of said account.

As a result, the correctness of the accounts Due to GSIS and Due to

BIR totaling to P81.75 million and P81.87 million, respectively, existing in
the books since 2004 & prior years could not be established, consequently,
hindered the City to settle these accounts.

As recommended, the Management formed a composite team to

address the reconciliation of these payable accounts.

We recommend that the management finish the reconciliation of the

balances to establish the accuracy of the accounts with these government
agencies. The Team tasked to accomplish the reconciliation should set a
deadline to complete the engagement. Thereafter, the Management should
abide with the MOA to be entered upon to settle these obligations.

Henceforth, Management is enjoined to comply with the GSIS and

BIR regulations particularly on the remittance of the monthly contributions,
remittances of loans and withholding taxes and other taxes payables,
respectively, in order to avoid penalties and/or surcharges.

4.3. The release of the shares from Real Property Taxes in the amount of
P168.45 million to the 188 barangays of the City have been delayed due
to lack of subsidiary ledger for each barangay to determine the
computation and distribution of their situs shares.

Under NGAS Manual, the account Due to Local Government Units

(LGUs) Barangay is provided to account for the shares of the barangay
from Real Property Taxes (RPT) including the interest and fifty percent
(50%) from community tax.

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 For this purpose, the share of each barangay for real property and other
taxes is accounted through the use of subsidiary ledger in pursuance to
Section 10 of the NGAS Manual, Vol. II provided as follows:

Subsidiary Ledger (SL). The Subsidiary Ledger

(Annex 6) is a book of final entry containing the details or
breakdown of the balances of the controlling account
appearing in the General Ledger. Postings to the
subsidiary ledgers generally come from the source
documents. Examples of general ledger accounts which
has subsidiary ledgers are Cash Disbursing Officers,
Cash in Bank Local Currency Current Account, Accounts
Receivable, Accounts Payable, xxxxx, etc. The totals of the
subsidiary ledger balances shall be reconciled to their
respective control account at the end of every month.

These shares from RPT shall be released, without need of any further
action, directly to the barangay treasurer on a quarterly basis within five (5)
days after the end of each quarter and shall not be subject to any lien or
holdback for whatever purpose as provided in Section 271 (d) of the Local
government Code.

The Due to LGUs account showed a year-end balance of P624.16

million of which P509.38 million pertains to the balance of account Due to
LGUs Barangay Government for RPT shares with the following
breakdown:

1. RPT shares in the current year and

release in 2011 P 33.48 million
2. RPT shares for 2005 to 2010 122.21 million
3. RPT shares for 2004 and prior years 46.24 million
4. Shares from Business Taxes 307.45 million

Totals P 509.38 million

The RPT shares of P168.45 million not released to barangays pertain

to situs/location shares that could not be identified to each of 188 barangays
due to absence of subsidiary ledger since 1988 while the share of the
barangays from business taxes in the total amount of P307.45 million
remained part of the Citys trust account in the General Fund due to lack of
Implementing Rules and Regulations required for under Section 317 of the
Citys Revenue code.

In year 2006, the subsidiary ledger records for each of the 188
barangays was initially started by the City Accountants Office but was

36
 discontinued due to lack of personnel to handle the manual recording of
accounts.

It is noteworthy mentioning that the existing automated Abstract of

RPT includes the computation and distribution of the RPT shares accruing
to each barangay in accordance with the City Code.

Despite however, of this feature in the automated system, the

subsidiary record for each 188 barangays was not maintained due to lack of
coordination within the Accounting Office.

The deficiency resulted in the inability of the City Accountants Office

to easily determine the actual share from P182.96 million accruing to each
of the 188 barangays and caused delays in the release of the shares.

A permanent accounting personnel is now assigned for the preparation

and/or reconstruction of subsidiary records specifically for account Due to
LGUs Barangay.

The City should immediately release the long overdue barangay shares
from RPT in accordance with the distribution of RPT proceeds as provided
under Section 271 (d) of RA 7160.

4.4. Lots donated by the National Housing Authority (NHA) for the Citys
socilalized housing program have yet to be transferred to target-
beneficiaries because the revision of the subdivision plan is still to be
undertaken. Further, the guidelines on the disposition of said lots still
needed the approval of the Local Inter-Agency Committee (LIAC). As a
result of the delay, informal settlers were able to occupy the property.

Despite our previous years audit recommendations, still the City

Government has not yet consummated the sale of the 156 lots at Camarin I
and II for its socialized lots project for fifteen (15) years now. As verified
the reasons are: that the City is still in the process of revising the
subdivision plan; and that the formulated procedures and guidelines that will
govern the transfer is still for final approval by the Local Inter Agency
Committee (LIAC).

The Camarin I and II property is part of the land donated by the

National Housing Authority in 1995. Such donated property consists of 156
lots utilized by the city government for its socialized housing program. The
land has an area of 26,200 sq. meters allocated to Camarin I and II and lots 2
and 3 at Block 95 with a land area of 28,234 sq. meters initially classified as
open areas but converted as residential lots. The composition of the 156 lots
is as follows:

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 Camarin I:
Bgy. 174 Paulino Compound 84 lots
Bgy. 175 10 lots
Bgy. 177 & 178 Not identified 6 lots 100 lots

Camarin II:
Bgy. 177 41 lots
Bgy. 178 15 lots 56 lots
Total 156 lots

At the time of the transfer, the 156 lots were already subdivided for
socialized housing however these lots were not disposed of and/or were not
awarded to beneficiaries.

The Office of the Urban Poor Affairs informed us that several informal
settlers are occupying one social lot alone. To date, the subject 156
unawarded lots were occupied by three hundred twenty nine (329) informal
settlers. Of the 329 informal settlers, only twenty nine (29) were identified
bonafide beneficiaries from Paulino Compound who voluntarily applied to
purchase their occupied property and have shouldered the equivalent survey
expenses. Since several informal settlers are occupying one social lot, the
City is now in the process of revising the subdivision plan for awarding
these lots to 300 informal settlers. However, due to lack of necessary survey
funds, revision of the same is delayed during the year.

With regards to occupants of open space which was converted to

residential lots, the City is in the process of awarding to qualified
beneficiaries and signing of equivalent conditional contract to sell for those
occupants who have voluntarily shouldered the corresponding survey
expenses.

We recommend that the necessary survey fund be provided by the City

for the revision of the subdivision plan. Further, we reiterate our previous
recommendation that the Local Inter-Agency Committee facilitate the
submission of procedures and guidelines governing the disposition of the
socialized lots to support Sangguniang Panlunsod Resolution No. 1777,
series of 2006, authorizing the City Mayor to facilitate the disposition of
Camarin I and II projects.

II. Value for Money Audit

1. Earnings from the operation of the citys waterworks system totaling

P89.35 million for the years 2006 to 2010 did not sufficiently meet its
operating expenses for the same period.

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 Section 106 of NGAS Manual, Volume I, enumerates among others the
objectives of maintaining the special account, in the General Fund for
economic enterprise such as to determine whether the income generated by
the public utilities or economic enterprise are sufficient to meet their
respective operating costs.

In 1994, the City took over the financial and administrative operation
of the water service facility located in Bagong Silang, Caloocan City from
the National Housing Authority. This became known as the Serbisyong
Patubig ng Pamahalaang Caloocan (SPPC). It operates as an economic
enterprise and aims to provide safe potable water supply to the residents of
North-Caloocan City. A separate budgetary allocation is provided for
SPPCs operations in the Citys annual budget although its operation is
under the direct supervision of the Office of the Mayor.

As of December 31, 2010, there are about 7,294 active concessionaires

catered by 18 water tanks of SPPC with a reported income of P12,095,544
from its operations at year end. Presently, SPPC has the following
automated systems namely: billing, collection and consumer database
systems.

As gathered from the Citys reported income for the years 2006 to
2010, the SPPCs operation generated a total income of P89.35 million. The
P89.35 million earnings did not, however, sufficiently meet SPPCs
operation for the same period. An average yearly loss from its operation
stood at P4,146,221 as presented in the table shown below:

Annual
Losses from
Income from Operating
Period SPPCs
SPPCs Expenses
Operations
Operation
2006 P 23,404,024 P 27,153,243 P (3,749,219)
2007 19,255,438 21,397,100 (2,141,662)
2008 19,363,959 22,072,501 (2,708,542)
2009 15,226,594 18,551,028 (3,324,433)
2010 12,095,544 20,902,792 (8,807,248)
Total P 89,345,559 P110,076,664 P (20,731,105)
Average yearly loss from operations P 4,146,221

The results of interview with agency officials disclosed that losses

from SPPCs operations for the past years may be attributed to the apparent
decrease in the number of concessionaires due to onset operations of
Maynilad Water Services and the water rate per cubic meter being used has
been in effect since 2004. Thus, the viability of SPPCs operations in terms
of its advantages to the City Government is remote.

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 Likewise, the status of accounts of the concessionaires to determine
receivable if any and their paying habit were not provided for audit purposes
as well as a tool for managements decision making.

Since the SPPC incurred losses yearly in an average amount of

P4,146,221, the purpose as economic enterprise was not achieved. Further,
the presence of Maynilad Water Services in the area, SPPCs operation may
no longer effective.

Management is studying the option to negotiate for the possible

transfer of water services for its concessionaires to Maynilad Water
Services.

We advise the City officials concerned to review the operations of

SPPC and exert efforts to ensure its viability. Likewise, we recommend that
accounts of concessionaires be reviewed for collection of revenue inorder to
generate sufficient and/or additional income necessary to cover its operating
expenses and other services it may serve its constituents best.

2. The City could have yielded additional revenue of P37.18 million per
year had it directly managed the operations of the Maypajo Market and
leased the unoccupied area to its optimum capacity.

As in the past year, management took note of this observation and

explained that evaluation on the current operation of the market will be
undertaken by a separate technical committee and to review the lease
contract with the Maypajo Market Multi-Purpose Cooperative (MMMPC) to
ensure that the terms are advantageous to the City Government. However,
as of this writing no information was received from their end.

Under Sections 260 to 265, Chapter III of the Caloocan City Revenue
Code of 2004, the rental rates range from P5 to P20 applied for varying
product lines on a per square meter per day basis to stallholders and users of
the premises of the City-owned public markets.

Maypajo Market is a three (3) storey public market building purposely

constructed to serve the needs of the Citys constituents and to raise
revenues out of the market fees to be generated therefrom. The building has
an approximate floor area of 6,000 sq. meters per floor and its location is
along J.P. Rizal St., a prime and main street of Caloocan City.

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 In January 29, 1994, the ground floor of the Maypajo market was
leased by the City of Caloocan to the Maypajo Market Multi Purpose
Cooperative (MMMPC) for a period of twenty (20) years to end in year
2014 for a total monthly consideration of P150,000 subject to ten percent
(10%) increase every three (3) years thereafter. To date, there are 600
stallholders at the ground floor who are paying directly to MMMPC.

Presently, the monthly income realized from Maypajo Market Multi-

Purpose Cooperative amounted to P241,576 per month. Additional income
of P6,000 was likewise generated from the markets second floor which is
occupied by three (3) religious groups using spaces estimated at 2/3 of the
entire 2nd floor of which only one (1) is paying a monthly rental income of
P6,000. Hence, the second floor is not fully utilized for business. We were
informed that the third floor is currently being used as storage area of the
City properties.

Had the City opted to manage the leasing of the entire Maypajo
Market based on the rental rates provided under the New Revenue Code of
the City, it could have generated incremental revenue of at least P37.18
million per year computed as follows: (Annex N)

Actual Revenues Realized per existing P 2,970,918

contract agreement

Should be Revenues Realized 40,150,000

if rental rates are based on the
revenue code

Additional Revenues that should have 37,179,082

been earned per year

The very low monthly rental fee and the length of time fixed in the
lease agreement (20 years) agreed upon with MMMPC is disadvantageous
to the City Government. The City Government could have earned more if
the Maypajo Market is directly managed by the City Government as the
income earned by the cooperatives would redound to the Citys coffers.

Management posted advertisement for rentals of Maypajo Market but

due to its non strategic location caused by floods hence its marketability is
remote.

We reiterate our previous years recommendation that the available

spaces in the second and third floors be advertised so these could generate
additional revenue. We further recommend that demand letters be issued to
the religious congregation requiring them to vacate the premises so that

41
available and existing spaces be leased to interested parties. Seek legal
action if demands remain unheeded.

Finally, we reiterate our recommendation that a technical committee be

created to review the lease contract with the MMMPC, to determine if
amendment therein could be possible and to ensure that the terms are
advantageous to the government.

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