Findings No.2 COA Annual Audit Report 2005

July 28, 2008

2. Assets acquired through purchase were not properly accounted, nor managed against improper use to the disadvantage of the city government.

Section 50 of COA Circular No. 2002-003 requires that property, plant and equipment acquired through purchase or construction shall be recorded in the books of accounts immediately as asset. Section 113 provided the categories of assets to which the acquisitions should fall. COA Circular 2004-008 further provided the proper classification of assets acquired.

Records show that in April 2003 the City acquired the buildings and equipment of Mindeva Coco-Coir Industries, Inc. (MCCI) for P880,000.00. The Deed of Absolute Sale was attached together with a list of properties acquired (Annex 1). The transaction was recorded as a debit to Other Structures (code 215). Verification also revealed that these assets were not included in the city’s Inventory Report of Property, Plant and Equipment.

The entry to record the purchase was in lump sum and not in accord with Sections 50 and 113 of COA Circular No. 2002-003, and COA Circular 2004-008. As a result, details of the accounts are not reflected in the respective property ledger cards neither in the inventory report of Property, Plant and Equipment.

A memorandum of agreement was entered into by and between the City of Oroquieta and DLMR Coconut Products Industry as investor for the use of the whole MCCI compound in January 2004. Included in the conditions are the following:

a.)The INVESTOR shall, at all time, keep the premises of the compound hygienic, sanitary, clean and unpolluted, thereby protecting the environment, including the provision of safety and precautionary measures, equipments, pharaphelnias, and tools necessary in the secured (such as from fire, conflagration, combustion), safe and sound operation of the factory, including its surroundings and vicinity.

b.)The INVESTOR shall not allow nor tolerate, at any time, any other persons, entity, or firm to use and/or utilize any part of the compound without the consent and authority of the LGU.

The ocular inspection of the site, however, disclosed that:

Another group of workers had used some machinery for free but stopped when power supply was cut due to non-payment of electric bills.

A few of the workers of the previous coir industry reside in the vicinity for free.

Some of the properties were left unsecured and exposed to the heat of the sun and rain.

On the count of properties, results showed:

Classification

QuantityInventory as of April 2003Ocular Inspection

Condition as of December 31, 2005FunctionalJunkFunctionalJunk/DestroyedMissing

Building

2Other Land Improvement

2Machinery & Equipment

55Farm Equipment

1Transportation Equipment

1Furniture & Equipment

Total

133

Improper recording and use of these properties may cause its destruction and loss.

Management affirmed this observation and had planned for proper action on the recommendation.

Recommendation

Form a committee to appraise the values of MCCI properties per asset classification. Require the City Accountant to draw the journal entry voucher to correct the asset classification recorded as Other Structures. Require the General Services Officer to take this up in the property ledger cards after valuation. Provide security measures to protect the properties from loss and deterioration.

Review the memorandum of agreement entered into by the city and the DLMR Coconut Products Industry. See to it that all provisions are followed and observed. Also settle the use of the site by persons other than the investor.

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Written by admin · Filed Under Commission on Audit, Oroquieta