Findings No.4 COA Annual Audit Report 2005

July 26, 2008

3. Instead of a modified accrual method of accounting, the agency used cash basis of accounting for Real Property Tax (RPT) income in violation of Section 19(b) of COA Circular No. 2002.003 thus, receivable account arising from the provincial share on RPT collected by municipalities was not recognized and RPT income was understated.

Section 19(b) of COA Circular 2002-003 dated June 20, 2002 prescribing the Manual of the New Government Accounting System for use in Local Government Units provides that modified accrual method of accounting shall be used for the real property taxes.

Section 20 of the same Circular also provides the basis of recording the Real Property Tax/Special Education Tax. It provides as follows:

“Every end of the week, thereafter the Municipal Accountant shall furnish the Provincial Accountant with the summary of the JEVs showing the breakdown of the amounts Due to LGUs. The summary, which shall be supported with the copies of JEVs, shall be the basis of the Provincial Accountant to draw the JEV taking up RPT Income. The account Due from LGU shall be debited and Real Property Tax Income shall be credited.”

The agency however, used the cash basis of accounting for its share on the Real Property Tax collected by the 14 municipalities. RPT were taken up in the books as income only upon the receipt of remittance of the same from the municipality concerned.

The Provincial Accountant failed to request the Municipal Accountants to submit to the office the summary of Journal Entry Vouchers (JEVs) showing the breakdown of the amounts Due to Local Government Units which shall be the basis of the Provincial Accountant to draw the JEV taking up Due from LGU and the corresponding RPT Income.

Also, the Provincial Accountant was apprehensive that the recording of RPT Income based on the modified cash basis might affect the collection efficiency of the Provincial Treasurer.

Moreover, it was observed that most of the municipalities failed to maintain complete subsidiary records on the Due to LGU’s Account-RPT Share.

The aftermath, receivable account “Due from LGU’s “ arising from share of Real Property Tax Income collected by the Municipalities was not recognized and RPT Income was understated considering that the municipalities were not remitting fully to the Provincial Government the latter’s share on the RPT collected. (Annex 5) . This ultimately provides a misleading financial statement.

Likewise, the management confirmed the audit observation.

Recommendation:

Require the Provincial Accountant to request the Municipal Accountant of the 14 Municipalities to furnish her office with a summary of the JEVs showing the breakdown of the amounts Due to LGUs every end of the week. Based on the summary, draw a JEV taking up Due from LGUs as debit and RPT

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Written by admin · Filed Under Commission on Audit, Misamis Occidental