Findings No.3 COA Annual Audit Report 2006

July 25, 2008

3. The cost of mayor repair of various Heavy Equipment which increased their economic benefits or service potential totaling P3.287 Million were recorded as direct charged to expense account, contrary to generally accepted state accounting standards, thereby overstating total expense incurred by same amount.

The recording of procurement and issuance of Inventory, Property, Plant and Equipment (PPE) is necessary for the proper documentation of assets of the agency and monitoring their utilization and whereabouts.

Item 7.3 of the Philippine Government Accounting Standards provides that: “Repairs and maintenance of equipment shall be charged to account “Repairs and Maintenance” of the specific equipment. Major repairs which resulted in increased economic benefits or service potential shall be added to its carrying amount.”

In our review, we noted that the costs of major repairs of the following dilapidated heavy equipment were directly charged to the expense account “Repairs and Maintenance”, namely:

ParticularsReferenceAmountRepair/reconditioning - Heavy Equipment JEV 2006-04-010688P400,000.00Repair/reconditioning - Heavy EquipmentJEV 2006-10-033814929,201.00Repair/reconditioning - Heavy EquipmentJEV 2006-12-0400551,174,604.00Repair/reconditioning - Heavy EquipmentJEV 2006-12-0414481,957,737.70Total P3,286,938.70

The cost of major repair should have been capitalized or added to the carrying amount of each equipment repaired for it resulted in increased of their respective economic benefits or service potential.

Consequently, total expenses would have been lesser by P3,286,936.70. On the other hand, Plant, Property & Equipment account would have been more by same amount.

Departure from the prescribed accounting principles and procedures in recording financial transactions may indicate inadequate sense of responsibility in the discharge of official functions.

During the exit conference, the Head of the City Accounting Office expressed the same view. He further opined that such error was unintentional brought about by the resignation for greener opportunity abroad of some of his personnel assigned in the Bookkeeping Section.

Recommendation:

Require the City Accounting Office to draw Journal Entry Voucher debiting the cost of major repair of the equipment to account Plant, Property & Equipment by P3,286,936.79, crediting Prior Year’s Adjustment account by same amount.

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Written by admin · Filed Under Commission on Audit, Iligan City