Findings No.4 COA Annual Audit Report 2006

July 25, 2008

4. Incomplete Inventory Taking

4.1 Incomplete inventory taking and subsidiary records of fixed assets and the failure to drop unserviceable and/or obsolete equipment/motor vehicles amounting to P4,880,132.98 as of December 31, 2006, rendered Property Plant and Equipment (PPE) accounts amounting to P 2,272,550,460.32 for the General and Special Education Funds respectively, of doubtful validity and contrary to Sections 119, 120 and 124 of the NGAS Manual, Volume 1.

Section 13, of the New Government Accounting System,(NGAS) Volume II, provides that Property, Plant and Equipment Ledger Card (PPELC) (Annex 9), is a subsidiary ledger to be kept for each class of property, plant and equipment which shall record the acquisition , description, custody, estimated life, rate of depreciation, disposal, and other information about the property, plant and equipment, based on the source documents of the transactions.

As of year end, the PPE account showed a balance of P2,265,710,028.36, broken down as follows:

PPE Accounts Amount

Land and Land Improvements889,214,312.68Buildings541,403,311.44Office Equipment, Furniture and Fixtures55,062,173.23Machineries and Equipment121,495,575.97Transportation Equipment75,044,916.94Other Property, Plant & Equipment36,729,380.14Other Assets553,660,789.92TotalP2,272,550,460.32

On June, 2006, the City General Services Officer submitted a Report on Physical inventory of PPE as of December 31, 2005, Said report is incomplete because it did not include physical inventory of Land, Land Improvement and Buildings, and was not reconciled with the accounting records owing to the failure of the City Accountant to maintain complete PPE Ledger Cards for each category of assets and Real Property Ledger Cards for land. Further verification of the report of inventory disclosed that equipment/motor vehicles reported in the prior years’ as unserviceable and/or obsolete amounting to P4,880,132.98 are still included in the balances as of December 31, 2005.

Comparison of the inventory balances of sixteen (16) PPE accounts in the General Fund, with those of the accounting records as of December 31, 2005, disclosed a net discrepancy of P80,266,209.78. Details on how the discrepancy was arrived at are shown in (Annex 12).

The discrepancies have not been reconciled for lack of subsidiary records/real property cards wherein important information regarding the assets should have been indicated such as date of acquisition, reference documents, the cost of land and any improvements thereon,, particularly those acquired prior to 2001.

In Calendar Year 2006, the Office of the General Services conducted an inventory of all property, in compliance with regulations. However, the City inventory team still has to complete the conduct of physical inventory of other property accounts, coordinate with the Office of the City Accountant for reconciliation purposes, as recommended in our AOM dated June 8, 2006.

Under the NGAS, assets that are no longer used because they have become obsolete, unserviceable or beyond repair or even if still serviceable but no longer used, should be reclassified from Property, Plant and Equipment to Other Asset account. These items are no longer subject to depreciation.

As a result, the validity of property, plant and equipment totaling P2,265,710,028.36 could not be ascertained.

The City Accountant informed that they are already working on the reconciliation of accounting and property records. As to the December 2006 inventory, the management explained that it is ongoing and that the same could not be completed in due time for the preparation of the Financial Report. However, the City General Services Officer and the City Accountant will be given a specific time to complete the same and so as not to jeopardize the accuracy of the submission of the required Financial Reports.

Recommendation

Require the General Services Officer for the early completion of the physical inventory PPE accounts, to include inventory report of Land and Land Improvements, Buildings and Structures, and preparation of the corresponding report duly reconciled with the accounting records to establish the correct value of property, plant and equipment. Real property cards should be maintained by the General Service Office Department on each of the Property Plant and Equipment account in order to come up with realistic data of property inventory account. The semi-expendable items should be separately reported as Inventory Supplies. The book value of the properties as well as the status or condition of the properties should also be indicated in the report. This will provide the assurance that assets actually exist and that the account balances are fairly presented in the financial statements.

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Written by admin · Filed Under Cagayan de Oro, Commission on Audit