Findings No.7 COA Annual Audit Report 2005

July 25, 2008

7. The total amount of P5,475,676.20 representing a portion of the Accounts Payable – General Fund as of December 31, 2005 were found to be not in accordance with the definition provided under Section 141 of the Manual of the New Government Accounting System, Volume III.

Accounts Payable is an account used to record obligations/indebtedness to contractors/suppliers arising from the purchase of goods and services. This also includes those held under escrow by government agencies and other obligations in connection with the agencies’ operations, trade/business. (Sec. 141, Manual on New Government Accounting System).

In the old accounting system, the above account was titled as “Payables – Unliquidated Obligations/Vouchers (8-81-400) and defined as “This account is used to record the amount of unliquidated obligations at the close of the year. Debit this account for: amounts paid to settle or liquidate the liabilities, and reversion of excess certifications. Credit this account for unliqudiated obligations of allotted funds in the approved annual budget and purchase of goods and services on account.

In line with the above definitions, sound management demands that:

All obligations shall be supported by valid claims;

Unliquidated obligations or accounts payable which has been outstanding for two years or more and against which no actual claims, administrative or judicial has been filed or which is not covered by perfected contracts or record should be reverted;

Obligations for maintenance and other Operations Expenses (MOOE) and Capital Outlay (CO) for which goods and services were not delivered or rendered or were only partially delivered/accomplished at year-end shall be accordingly adjusted. The portion of obligation pertaining to undelivered goods and unaccomplished services shall be de-obligated and reclassified to Continuing Appropriations. On the other hand goods and services already delivered/rendered but documentation/billings of which have not been received shall be accrued and recorded as payables.

Review of the Accounts Payable revealed that at the start of CY 2005, the city has a recorded obligations of P27,949,848.77, broken down as follows:

Accounts Payable – 2004 – P21,257,596.64

Accounts Payable – 2003 – 3,209,239.08

Accounts Payable – 2002 – 3,483,012.45

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Total – - – - – - – - – - – - - - P27,949,848.77

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The balance of Accounts Payable (A/P) incurred in CY 2002 amounting to P3,483,012.45 is not supported by valid claims/perfected contracts on file, thus, no schedule was prepared and submitted. Further, the amount have been existing for more that two years.

On the Schedule of Accounts Payable as of December 31, 2003 amounting to P3,209,239.08, the account and amount of P1,992,663.83 could not be relied upon for the following deficiencies:

Misclassification – recorded as A/P, it should have been recorded as “Due to officers and Employees”

The Accounts Payable incurred in CY 2004 amounting to 21,257,596.64, included in this account totaling P1,670,204.50, were unpaid salaries and wages overtimes pay, cash gift, extra bonus and financial incentives that should have been taken up as “Due to Officers and Employees”. However, these were all liquidated/settled in CY 2005

Creditors not indicated, thus, no actual claimant

Some Accounts Payables were recorded on the basis of Purchase Request (PR) and Abstract of Bids and not on actual delivery of supplies.

Non-adjustment of insignificant balances remaining as a result of overstatement of the accounts payable.

All settlement/liquidation of Accounts Payable during the period January to October 2005 relates to the payables incurred in CY 2004. Documents supporting the claims were not validated to determine which accounts are to be reverted and to be retained.

The above practices resulted to overstatement of expenditures and Accounts Payables and does not provide an effective protection against irregularity.

The management agreed and accepted the aforementioned observation and agreed to correct the noted deficiency and further disclosed that a review has been made on the items referred to which was included in the Accounts Payable for CY 2002 and CY 2003. While the reversion was already taken up as recommended for it being considered as unsubstantiated and long outstanding, the City Accountant will have to review the said accounts. Documents have to be reviewed to ascertain that no accounts are left unpaid. For CY 2005, all accounts identified therein as Accounts payable are for goods delivered and expenses incurred in that year..

Recommendation

Require the City Accountant to revert unsubstantiated and long-outstanding accounts to payable amounting to government equity account. Likewise, strictly comply to the provisions of Section 141 of the Manual on New Government Accounting System.

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