The New Government Accounting System prescribed for Local Government Units used the modified accrual basis of accounting. Under this method, all expenses shall be recognized when incurred. It also provides Section 4 (o) that: “Depreciation. The straight –line method of depreciation shall be used. A residual value equivalent to ten percent (10%) of the cost shall be set-up and depreciation shall start on the second month after purchase/completion of the property, plant and equipment”.

In our review, we noted the failure of the City Accounting Office to compute and/or set-up depreciation expenses on depreciable properties to allow for a fair valuation of the property. Such omission may not speak well in the discharge of official functions.

Recommendation:

Direct the City Accounting Office to set-up schedules of depreciation expenses on depreciable properties with their computations thereof for CY 2006, so that depreciation expenses can be recorded. Thus, proper valuation and fair presentation of value of properties can be effected. This is one way of safeguarding the assets of the management from improper interpretation.

Direct the Head, City Accounting Office to ensure compliance of prescribed accounting principles, rules and regulations in accounting financial transactions

9. Library books purchased totaling P1,053,765.00 were directly charged to expense account which is not in conformity to COA Circular No. 98-001. This omission caused the overstatement of total expenses incurred by P1,053,765.00, and understatement of Plant, Property & Equipment account by same amount.

Item 2.0 of COA Circular No. 98-001 dated February 3, 1998, states that: “Purchases of library books and materials costing P10, 000.00 and above per copy set, irrespective of economic or serviceable life shall be charged against allotment for Capital Outlay”.

Our review revealed that during CY 2006, the city had purchased various Library Books for public elementary and secondary schools totaling P1,053,765.00, but were directly recorded in the books to expense account “Textbooks and Instructional Materials”. The correct entry should have been as asset, that is, to Library books (223) under Plant, Property and Equipment account. Details thereof are as follows:

DateParticularsReferenceAmount10/16/06Purchase of Library BooksJEV-2006-10-01615P552,205.0011-21-06Purchase of Library BooksJEV-2006-10-01806 498,500.00TotalP1,053,765.00

The omission resulted to the overstatement of total expenses incurred by P1, 053,765.00, and the corresponding understatement of Library Books account under Property, Plant and Equipment account by same amount.

Recommendation:

Direct the City Accounting Office to draw a Journal Entry Voucher to correct the erroneous entry made by debiting Library books under Plant, Property & Equipment account of P1, 053,765.00 and crediting Prior Year’s Adjustment account of same amount.

8. Failure of management to comply with COA Circular No. 87-278 dated November 12, 1987 deprived the early or timely review of the loans involving P223.638 Million of the City Government from the Development Bank of the Philippines.

As restated in COA Memorandum No. 2005-027 dated February 28, 2005, “COA Circular No 87-278 dated November 12, 1987 requires the audited agency to furnish the Auditor with a copy of perfected contract within five (5) working days upon approval, together with the supporting papers documents for review. The Auditor reviews the perfected contracts in accordance with existing regulations within twenty (20) days from receipt”.

For the year in review, the City Government of Iligan obtained P223.638 Million loans with the Development Bank of the Philippines, details thereof are as follows:

P163.638 Million loan to finance the Solid Waste Management System Project of the City Government. This was the subject of SP Resolution No. 06-503 embodying Appropriation Ordinance No. 06-4969-71 dated June 15, 2006 (Supplemental Budget No. 1) appropriating the proceeds of the loan of P163 Million for Solid Waste Management System. The loan shall be payable quarterly in arrears, as follows:

P156,100,000.00 (KFW) – it shall be fixed at the prevailing KFW rate at the time of drawdown throughout the term of the loan.

P7.538,000.00 (DBP) – Prevailing DBP rate at the time of drawdown reviewable monthly.

Incase of default, pay a default charge at the rate of 24% per annum over and above the bank interest rate. Repayment schedule:

P156,100,000.00 – (KFW) in twelve years, inclusive of two years grace period on principal repayment in forty (40) equal quarterly installments to start at the end of the ninth quarter from first drawdown until fully paid.

P7,538,000.00 – (DBP) in five years, inclusive of one year grace period on principal repayment, in sixteen (16) equal quarterly installments, to commence at the end of the ninth quarter from the first drawdown until fully paid.

As security, a holdout provisions over its quarterly IRA allocations equivalent to two quarter amortization until the loan shall be fully paid.

P60 Million loan to finance the Heavy Equipment Acquisition Project and other priority projects of the City Government, the subject of SP Resolution No. 06-504 embodying Appropriation Ordinance No. 06-4970-72 dated June 15, 2006 appropriating the proceeds of the loan of 60 Million for Acquisition of Heavy Equipment.

The interest rate is 9% per annum reviewable yearly. It shall be payable and discounted quarterly. Incase of default, pay a default charge at the rate of 24% per annum over and above the bank interest rate. Payable in four (4) years; Principal payable in sixteen (16) equal quarterly amortization of P3,750,000.00 to start at the end of the third month from first drawdown. Holdout on Savings Deposits equivalent to 100% of loan outstanding until loan is fully paid as security of the loan.

This was the subject of this Office follow-letter dated September 12, 2006 requesting to be provided copies of the Loan Agreements, Deed of Assignment and other related documents of aforesaid loans. As of audit date, we received not reply, thereby depriving early auditorial review and evaluation of the documents.

Recommendation:

Furnish copies of the following loan documents to the Office of the Auditor for review and reference in audit as required under COA Circular No. 87-278:

Loan Agreement, Deed of Assignment and other related documents relative to the City Government Loan from the Development Bank of the Philippines involving the amount of P163.638 Million to finance the Solid Waste Management System Project.

Loan Agreement, Deed of Assignment and other related documents relative to the City Government Loan from the Development Bank of the Philippines involving the amount of P60 Million for acquisition of equipment and other priority projects.

One of the flagship projects of the city is the “Construction, Supply & Installation of Iligan City Central Material Recovery & Compositing and Facility Equipment, Infrastructure and Its Appurtenance”. The Approved Budget for the Contract (ABC) of the project amounted to P61.765 Million. The project is funded from domestic borrowing/loan from the Development Bank of the Philippines.

Our initial review showed that the project’s Bidding Documents was defective, thus in this Office rejoinder letter of comments dated November 13, 2006 addressed to the City Mayor and the Members of the Bids and Awards Committee (Annex E), in reply to the BAC-TWG letter dated November 10, 2006, we reiterated the implementation of our recommendations contained in our letter dated October 31, 2006. Among others, were the cancellation of the bidding conducted on October 25, 2006, and the careful review/revision of the Bidding Documents aimed at rechecking with due care the relevance of its provisions against the requirements of the specific Works to be procured in accord with the provisions of the IRR-A of RA 9184.

The BAC, in its meeting on February 23, 2007 finally declared the bidding conducted on October 25, 2006 a failure, after almost four (4) months from date of the opening,.

Had the bidding been declared a failure at an earlier date, or at least during the bids evaluation process, which per regulation must be completed in not more than fifteen (15) days from the deadline for receipts of proposals (IRR-A Section 32.2), re-bidding of the project after rectifying the Bidding Documents in conformity with pertinent provisions of the IRR-A of Republic Act 9184 would have been made earlier than it would have been.

During the exit conference, we reminded management that observance to properly crafted Bidding Documents and timely resolution of issues would ensure a successful procurement. The types and sizes of contracts should be provided in the Bidding Documents.

Recommendation:

Require all concerned to properly craft project’s Bidding Documents in accordance with the IRR-A of Republic Act No. 9184 to ensure a successful procurement.

6. Due to the failure of management to implement in CY 2006 City Ordinance No. 06-4682, an Ordinance adopting the direct subsidy scheme to subsidize cost of power in accordance with Section 2.1.1 of DILG-DOE Joint Circular No. 95-01, the city constituents were deprived of the benefits that could have been derived there from.

Section 294, Book II of the Local Government Code, provides that: “x-x-x- at least 80% of the proceeds derived from the development and utilization of hydrothermal, geothermal and other source of energy shall be applied solely to lower the cost of electricity in the LGU where such source of energy is located.”

To implement the above-quoted provision, Section 2.1.1 of DILG-DOE Joint Circular No. 95-01, dated October 31, 1995, which prescribes the “Guidelines and Procedures on the Utilization of the Share of National Wealth Taxes, Royalties, Fees or Charges”, provides, that “either one or a combination of two basics approaches can be employed in the implementation of reduction in cost of electricity, namely, subsidy and non-subsidy schemes.”

The utilization of the 80% share derived from national wealth taxes has been dormant since CYs 2004 to 2005. City Ordinance No. 05-4682 dated January 11, 2005 was not implemented in CY 2005 due to serious administrative problems in preparing the billings for the household consumers who have different and individual billing periods. It was difficult to apply the direct subsidy provision of the Ordinance, which classifies the household consumers on KWH consumption but each with different billing periods; which would entail so much man-hours and computers data base or programming activities on the part of the Iligan Light and Power, Incorporated. Thus, at the end of CY 2005, balance per book of the 80% share from National Wealth accumulated to about P61 Million.

Again, the Sangguniang Panlungsod enacted SP Resolution No.06-193, embodying City Ordinance No. 06-4925 dated February 28, 2006, amending City Ordinance No. 05-4682. The Ordinance provides that the delivery of the subsidy to the individual household consumers be made semi-annually, but each group of household consumers, namely; 1 to 100 KWH consumption, 101 to 300 KWH consumption, and 301 and above KWH Consumption to be credited with a P28.00; P24.00 and P20.00 per month, respectively of direct subsidy.

For the initial implementation of the ordinance, the average monthly consumption for a duration of nine (9) months (divided by 9) from April 2005 to December 2005, shall serve as basis of determining the category under which the household consumer shall qualify. The delivery of the direct subsidy to the household consumers shall be computed in accordance with the following schedule:

For the direct subsidy benefits which accumulated from April 2005 (when the Ordinance took effect) to December 2005, to be applied for the next billing period of each household consumer upon the implementation of the ordinance;

For the direct subsidy benefits which accumulated from January 2006 to June 2006; to be applied to the billing period of each household consumer after June 2006;

For the direct subsidy benefits which accumulated from July to December 2006; to be applied to the billing period of each household consumer after December 2006; and

The billing period for each household consumer, after every six (6) months after/from December 2006 and infinitum or until the ordinance remains in force and effect.”

Worthy of notice, Section 2 of City Ordinance No. 06-4925 states that: “The collections or receipts of remittances and those to be collected and/or received in the future, from the National Power Corporation, and other government or privately owned entities, which may hereafter be legally bound to remit the share to the City of Iligan, hereafter constituted as a Trust Fund with Special Account Code under this Ordinance, shall be appropriated and correspondingly disbursed to subsidize to and pay a portion of the electric bills for the residents of Iligan City x-x-”. However, it may not prosper to consider collections from National Wealth as “Trust Fund”. National Wealth is classified as Special Accounts of the General Fund; the use thereof requires legislative appropriations.

The project, however, was not implemented in CY 2006 depriving the people of Iligan City the timely benefits that could have been derived from the 80% proceeds of the utilization and development of the national wealth.

Management reasoned out that the non-implementation of the program could be attributed to some administrative problem that has to be ironed out on the part of the Iligan Light and Power Incorporated. The implementation of the Ordinance will take-off during the first quarter of CY 2007.

Recommendation:

Cause the amendment of Section 2 of City Ordinance No. 06-4682 reclassifying proceeds from National Wealth to Special Accounts of the General Fund before implementation. There being no stated amount appropriated under City Ordinance No. 06-4682, an Appropriation Ordinance stating the amount appropriated has to be enacted for the program to prosper.

This is a reiteration of prior years’ audit findings. There has been no physical inventory report on file for Plant, Property and Equipment account for the past several years. The absence of adequate records prior to the adoption of the New Government Accounting System (NGAS) did not permit us the application of alternative procedures to ascertain the reliability and validity of the accounts involved.

The Physical Inventory Task Force created to establish the validity, existence, condition and serviceability of accounts comprising Plant, Property and Equipment has not yet submitted its final report, As of December 31, 2006, total city properties carried under Plant, Property and Equipment account amounted to P1,791,883,326.86 as against last year’s P1,604,486.399.31:

December 31 Property, Plant and Equipment 20052006PPE – General Fund1,426,695,855.491,603,403,914.78PPE – Special Education Fund150,815,227.48160,576,565.34PPE – Trust Fund26,975,316.3427,902,846.34Total – All FundsP1,604,486,399.31P1,791,883,326.86

During the exit conference, we reiterated the necessity of completing, as soon as possible, the inventory taking. The undertaking will establish and check the accuracy, correctness, existence, condition and serviceability of properties. We also quoted the following pertinent prescribed rules and regulations under Volume 1 of the Manual on the New Government Accounting System (NGAS) for Local Government Units, namely:

Section 114. Perpetual Inventory Method. This provision requires the Chief Accountant and the General Services Officer to maintain perpetual inventory records comprising of stock cards and property cards for supplies, property, plant and equipment in their custody to account for the receipts and dispositions of the same. The balance per stock/property cards should always reconcile with the ledger cards of the accounting unit.

Section 124. Inventory of Supplies or Property. This provision requires the local chief executive to require, among others, periodic physical count of property, plant and equipment by type shall be made annually and reported on the

Report on the Physical Count of Property, Plant and Equipment (RPCPPE). This shall be submitted to the Auditor concerned not later than January 31 of each year.

Such gesture, for the non-completion of the Physical Inventory of Property, Plant and Equipment for the past two (2) years, might be misinterpreted for inefficiency.

The City Accountant reasoned out that the non-completion of the inventory taking at the end of the calendar year could be attributed to the fact that all members of the Task Force are having their respective regular functions to perform, which they gave preference. He, however, promised to exert efforts to complete the project in due time.

Recommendation:

Direct the members of the Task Force to ensure the early submission of physical inventory report of plant, property and equipment for the eventual reconciliation of the balance per count and balance per book.

Likewise, institute measures to ensure a regular and periodic annual physical inventory as provided under the pertinent provisions of the NGAS.

4. Non-compliance of the procedures contemplated in COA Circular No. 94- 013 dated December 13, 1994 in the release of P1.1 Million financial assistance to the Iligan City-MSU-Farmers Academy stalled the settlement and/or liquidation thereof.

In January 20, 2003, to open an avenue towards redirecting Iligan City’s thrusts, a Memorandum of Agreement was entered into by and between the City Government of Iligan (CGI) and the Mindanao State University System (MSUS). Thus, the creation of the “Iligan City Mindanao State University Farmers Academy”, with the main objective of producing graduates in agriculture who will return to farms.

Some of the salient features of the partnership terms and conditions provided under the Memorandum of Agreement were the following:

A. Obligation of the parties

The College of Agriculture, Mindanao State University, Marawi

City

From its present faculty strength, the College of Agriculture, MSUS shall assign a Director who shall implement the programs of the IC-MSU Farmers Academy. The Academy Director shall be responsible to both the MSUCA Dean and MSUS President and the City Government of Iligan City. The Director shall submit to these agencies annual budgetary requirements and annual reports and from time to time shall defend the same before the Farmers Academy Council of Administrators;

The MSUCA upon the recommendation of the Farmers Academy Council of Administrators (FACAd) shall select and assign faculty members to teach in the IC-MSU-Farmers Academy, unless, otherwise, the local school board fund can warrant the hiring of additional faculty members, However, the selection, initial ranking and re-ranking of faculty shall be done using the MSUS’ existing ranking scheme and by the MSU Ranking Scheme Committee following usual rules of the Civil Service Commission;

The MSUCA shall serve as the academic degree granting unit of the Iligan City-MSU Farmers Academy which will include usual procedure of submitting graduating students to the University Council deliberations and the Board of Regents. The MSUCA shall award diploma, certificates HONORS CAUSA and other academic documents.

2. The Iligan City Government

The City Government, through the Office of the City Agriculturist shall augment both the teaching and non-teaching staff of the Academy, subject to the usual and normal requirements and procedure of recruitment of the MSUS using its BOR approved Ranking Scheme and those prescribed by the Commission on Higher Education (CHED);

The Iligan City Government through its poverty alleviation fund, local school board fund and other sourced funds shall provide an annual seed money for the operation of the IC-MSU Farmers Academy Learn and Earn Scheme projects, these being the practical portion of the various curricular offerings. An initial seed money of ONE MILLION FIVE HUNDRED THOUSAND PESOS (1.5 M) will be used to operate the Learn and Earn Scheme the beneficiaries of which are the students of the MSU Farmers Academy and the members of Iligan City MSUFA Multi-purpose Cooperative;

Except for the teaching force, the Agricultural technicians, the Academy Secretary/Registrar, the Iligan City Government who will hire two personnel; the Administrative Officer II and the Bookkeeper upon the recommendations of the Academy Director;

The ONE MILLION FIVE HUNDRED THOUSAND (P1,500,000.00) be made into a TRUST FUND which shall be deposited in separate account under the Iligan City-Mindanao State University Farmers Academy account;

At the inception of the implementation of the program in CY 2003, It was suggested that the financial assistance/annual seed money to the academy shall be released through the Mindanao State University System following the procedures prescribed under COA Circular No. 94-013 dated December 13, 1994, entitled “Rules and Regulations in the Grant, Utilization and Liquidation of Funds Transferred to Implementing agencies”.

The Circular was issued to ensure that:

the transfer is properly taken up in the books of both agencies,

the transferred funds are used only for the intended purpose, and that

proper accounting and reporting is made of the utilization of the funds.

Some of the General Guidelines prescribed in the Circular are the following:

The Source Agency (SA) shall enter into an agreement with the Implementing Agency (IA) for the undertaking by the latter of the project of the former. The Agreement shall provide for the requirements for project implementation and reporting:

The check shall be issued in the name of the IA (MSUS) for deposit to its trust account in its authorized government depository bank. The IA (MSUS) shall issue its official receipt in acknowledgment.

A separate subsidiary record for each account shall be maintained by the IA (MSUS) whether or not a separate bank account is opened.

Within ten (10) days after the end of each month/end of the agreed period for the Project, the IA (MSUS) shall submit the Report of Checks Issued (RCI) and the Report of Disbursement (RD) to report the utilization of the funds to the SA (CGI). Only actual project expenses shall be reported. The reports shall be approved by the Head of the IA (MSUS).

The SA (CGI) shall draw a Journal Voucher to take up the reports. The amount to take up the liquidation per the RCI shall be net of the cash advances granted by the IA (MSUS) to its accountable officers in accordance with Commission on Audit Circular No. 90-331 dated May 3, 1990.

The IA (MSUS) Auditor shall audit the disbursements out of the trust accounts in accordance with COA Regulations.

The IA (MSUS) shall return to the SA (CGI) any unused balance upon completion of the project.

For the year in review, P1.1 Million of the P1.5 Million appropriations earmarked for Iligan City-MSU-Farmers Academic have been released. It was covered by Disbursement Voucher No. 101-06-02 -00532 under check No. 559946 dated February 24, 2006 in amount of P1,100,000.00.

The payment, however, was made directly to the “ILIGAN CITY-MSU-FARMERS ACADEMIC”, instead of the Mindanao State University System that will implement the project. The covering Journal Entry Voucher was a debit to “Due from GOCC account ” of P1,100,000.00 and a credit to “Cash-in-Bank – Local Currency – Current account” of same amount. This paved the way for the utilization of the amount of P1,100,000.00 by the Iligan City-MSU-Farmers Academy, by-passing the Mindanao State University System.

The schemed adopted partakes the nature of a cash advance to the Iligan City-MSU-Farmers Academy, which posed some nagging problem that has to be ironed out because the project requires inter-agency implementation. There would have been no problem for the liquidation of this account had payment thereof was made directly to the Mindanao State University System. As contemplated, liquidation thereof shall be on the basis of the financial/fund utilization report of the Mindanao State University System (Implementing Agency) to the City Government of Iligan (Source Agency).

During the exit conference, management officials in attendance failed to justify their action taken. However, they promised to exert efforts for the early liquidation/settlement of the amount granted/released.

Recommendation:

Require all persons involved in the processing of the claim to explain why subject payment was made in the name of the “ILIGAN CITY –MSU – FARMERS ACADEMY”, and not to the “Mindanao State University System”, the implementing agency.

Direct the City Accountant to effect the necessary adjustment in the books of accounts by drawing a correcting Journal Entry Voucher debiting “Cash Disbursing Officer account” in the name of the person/official accountable pending liquidation/settlement thereof, and crediting Due from GOCC account.

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.

2. The Suspension of the implementation of Executive Order No. 395, amending or revoking Executive Order No. 196-A caused the non-recording of various purchases totaling P11.574 Million in the Office of the City General Services, in violation of Section 118. Vol. I, NGAS.

Before leaving for United States of America, Honorable Lawrence Ll. Cruz, the City Mayor, issued Executive Order No. 395 dated August 9, 2006, entitled “Further, Amending E.O. 196 and 196-A, Hereby Withdrawing the Additional Functions Granted to the Special Bids and Awards Committee under Executive Order No. 196-A dated December 27, 2005”, This was by way of implementing our letter of comment dated May 31, 2006 recommending for the immediate revocation and/or withdrawal of Executive Order No. 196-A, s. of 2005, dated December 27, 2005 (Annex B).

It was our position that Executive Order No. 196-A dated December 27, 2005 delineating the following mandated functions of the City General Services Office to the Special Bids and Awards Committee (for the procurement of Medical Supplies, Equipment, Goods and Services for the City Health Office, Social Welfare and Development, Gregorio T. Lluch Memorial Hospital), such as:

1. Preparation and serving of Purchase Orders;

2. Accept deliveries of procured medical supplies and equipment;

Prepare vouchers for claims for payment of goods and its supporting papers documents.

Precisely, the import of EO 196-A, in so far as delineating the functions of the CGSO to the Special Bids & Awards Committee, is contrary existing laws and prescribed state accounting procedures and fiscal controls, specifically the following (in italic):

As prescribed in Republic Act 9184 – “The Government Procurement Reform Act”

The functions of the Bids and Awards Committee (BAC) are explicitly defined in Section of the IRR, Part A, of RA 9184. Among others, the BAC recommend the award or purchase order or contract to the head of the procuring agency after it has performed all the required procedures adopting a particular mode of procurement. In accordance with the principle on check and balance, there being conflict of interest, the BAC, its TWG and Secretariat, are divorced from the implementation of contract/purchase order. Their respective responsibility in procurement ends when the contract or purchase order is awarded/issued.

As prescribed in Republic Act 9160 – “The Local Government Code”

One of the mandated functions of the general services officer, as provided in Section 490 {3(i)} of RA 7160 read as: “take custody of and be accountable for all properties, real or personal, owned by the local government unit and those granted to it in the form of donation, reparation, assistance and counterpart of joint project.

Prescribed State Accounting and Auditing Procedures

1. Person/Unit responsible to preparation and serving of purchase orders

Purchase order shall be serialized and numbered, making it easy to monitor and keep of them. Section 122 (d) of Volume I, Manual on New Government Accounting System for Local Government Units (NGAS) prescribed that the person/unit responsible in the preparation of Purchase Order is the GSO/Local Treasurer.

2. Person/Unit responsible to accept deliveries of items purchased

Deliveries of items purchased by the local government units shall be accepted first by the general services officer or municipal treasurer as the case maybe before inspection. Inspection of purchases shall be made by the authorized inspector/s for conformity with specification. (Section 118, Vol. I, NGAS). The General Services Officer or the Local Treasurer, as the case maybe, shall number each type of supplies and maintain Stock Cards per stock number. He shall likewise maintain Property Cards per category of property, plant and equipment. (Section 119, Vol. I, NGAS)

3. Person/Unit responsible to prepare vouchers for claims for payment purchases goods.

After recording of delivered items in the stock property cards. The GSO prepares Disbursement Vouchers (DV), sign box A and forward the same with the delivery receipts/invoices/appropriate documents to Accounting Unit. (Section 122 (h), Vol. I, NGAS)

But, the said EO 395 (Annex C) was never implemented because the City Vice Mayor, in his capacity as Acting City Mayor, issued Executive Order No. 416 dated August 18, 2006 (Annex D), “Suspending the Implementation of Executive Order No. 395 dated August 9, 2006, and hereby directing the Members of the Special BAC to continue performing the functions embodied in Executive Order No. 196-A dated December 27, 2005.

EO 395 was not implemented because the Office of the City Legal Officer has manifested a conflicting view with regards to the implications of E.O.395. We received no reply relative to our Memorandum dated August 24, 2006 addressed to the Office of the Regional Legal and Adjudication Office, COA Regional Office No. X. requesting for legal opinion/advice on the matter.

The schemed adopted disabled the City General Services Office in recording goods purchased handled by the Special – Bids and Awards Committee totaling about P11,574,556.66 for the year in review, as follows:

Drugs and medicines - P 7,413,744.13

Dental & Laboratory Supplies - P 4,043,711.53

Total P11,574,556.66

==========

The City Mayor was not in attendance during the exit conference. The City Administrator in attendance promised to brief the City Mayor on this matter. On April 23, 2007, the City Mayor issued Executive Order No. 140, Series of 2007, An Order Reconstituting the Special Bids and Awards Committee. By implication, it repealed the provisions of EO 196-A deemed repugnant to existing prescribed rules and regulations.

Recommendation:

Direct the Special Bids and Awards Committee, through its Chairman, to submit a listing of purchase orders served and the corresponding deliveries made brought about by the issuance of EO 196-A amounted to P11,574,556.66 to the Office of the City General Services for recording.

1. Various goods purchased totaling P33.432 Million were not coursed through the Inventory account, instead such procurement were directly charged to current operational expenses, contrary to prescribed generally accepted state accounting procedures (Sec. 114, Vol. I, NGAS)

The new government accounting system used the modified accrual basis of accounting. Under this method, all expenses shall be recognized when incurred. Regular purchases shall be coursed thru the Inventory account and issuances thereof shall be recorded as they take place, except those purchased out of the petty cash fund which shall be for the immediate use and for stock in which case shall be charged immediately to the appropriate expense account. The Chief Accountant and the General Services Officer shall each maintain perpetual inventory records comprising of stock cards and property cards for supplies, property, plant and equipment in their custody to account for the receipt and disposition of the same. The balance per stock/property cards should always reconcile with the ledger cards of the accounting unit. (Sec. 114, Vol. I, NGAS)

The perpetual inventory method and the moving average method shall likewise be adopted in the accounting and costing of inventory. The general procedures, the forms and reports for the holding of inventory shall also be followed. However, separate perpetual inventory records shall be maintained by the Accounting Unit, while the General Services Officer or the Treasurer, as the case maybe shall maintain stock cards. Likewise, separate weekly Summary for Supplies and Materials Issued pertaining to the fund shall be prepared. (Section 103, Vol I, New Government Accounting System).

Our review of goods purchased worth more than P50,000.00 per purchase order totaling P33,432,644.37 which should have been initially recorded to the Inventory account were instead directly charged to operating expenses, as follows:

Office Supplies Expenses (Annex A – Table I)P 2,539,531.74Drugs and Medicines Expenses (Annex A – Table II)5,896,495.48Medical, Dental & Lab. Expenses (Annex A -Table I1I)6,204,925.80Other Office Supplies Expenses (Annex A – Table IV)11,102,849.65Textbooks & Instructional Expenses (Annex A – Table V)2,933,375.00Spare Parts Expenses (Annex A – Table VI) 4,755,466.70TotalP =SUM(ABOVE) 33,432,644.37

Certainly, this is a deviation or departure from the above mentioned generally accepted prescribed accounting principles, rules and procedures.

During the exit conference, the Head, Bookkeeping Section, City Accounting Office explained that subject supplies and materials purchased were, almost immediately, issued and put into use by the end-users, thus were recorded to the appropriate expense accounts.

We further opined that the rationale behind such a regulation requiring regular purchases shall be coursed thru the inventory account and issuances thereof shall be recorded as they take place is not hard to perceive. The evident purpose of the different scattered laws, rules and regulations are designed as effective control measures in the use of government funds and properties.

Recommendation

Direct the City Accounting Office to record all supplies and materials purchased worth more than P50,000.00 per transaction initially in the Inventory Account. Upon issuance thereof, the Inventory account shall be credited while the expense account shall be debited.

The City Accounting Office is further advised to ensure compliance to the accounting procedures prescribed in Sections 113, 114 and 121 of the New Government Accounting System.