5. The Provincial Government failed to maintain special accounts in the general fund for the operation of various hospitals and other economic enterprise contrary to Section 313 of Republic Act 7160 and Section 105, Chapter 6, Volume I of the New Government Accounting System (NGAS) Manual.

Section 313 of Republic Act 7160 states that:

“The local government units shall maintain special accounts in the general fund for the following: a) public utilities and other economic enterprise . . . . . Receipts, transfers and expenditures involving the foregoing special accounts shall be properly taken up there under . . . . .”

Likewise, Section 105, Chapter 6 of the New Government Accounting System (NGAS) provides that:

“Local government units shall maintain special accounts in the General Fund for public utilities and other economic enterprise, loans, interests, bond issues, and other contributions for specific purpose. . . ..”

Verification on the Consolidated Statement of Cash Flows disclosed that the auditee failed to maintain separate special accounts despite the above cited provisions.

Cash in flows from economic enterprise will form part of income of the provincial government. Separate journals, ledgers and depository accounts are required to be maintained to facilitate the preparation of financial reports like, trial balance, financial statements and cash flows.

Had the Provincial Government complied with the above mentioned provisions it will allow management officials to determine whether proceeds/income generated from the economic enterprise and public utilities is sufficient to meet the respective operating cost and provide information as to the assets, liabilities and equity of such special accounts.

The inability of the auditee to maintain special account would eventually affect the presentation of the Financial Statements because other income were not presented in details which entail the occurrence of inaccurate information that disagree with the provisions of Section 111 and 112 of Presidential Decree 1445 to wit:

The accounts of an agency shall be kept in such detail as is necessary to meet the needs of the agency and at the same time be adequate to furnish information needed by fiscal or control agencies of the government.

The highest standards of honesty, objectivity and consistency shall be observed in the keeping of accounts to safeguard against inaccurate or misleading information.

Management concerned accepted the deficiencies and promised to comply with the regulations in the ensuing year.

Recommendation

Require concerned officials to maintain separate special accounts in the General Fund for economic enterprise as provided under Section 313 of Republic Act 7160 and Section 5, Chapter 6, of the New Government Accounting System (NGAS) Manual, Volume I.

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4. Non-reconciliation between the accounting records and the treasurer’s cashbook on Cash Accounts casts doubts on the validity and existence of the declared balances.

Section 174 of Government Accounting and Auditing Manual (GAAM), Volume I provides that:

“The Accountable Officer (AO) shall reconcile the cashbook balance with the cash on hand daily. The Accountable Officer and the Accountant shall reconcile their records (the cashbook and the subsidiary/general ledger) at least at the end of each quarter.

Furthermore, Chapter l of the Cash Examination Manual (4) requires:

“the Accountable Officer to reconcile her/his cashbook entries with the accounting records at least quarterly.”

Verification of records disclosed that the accounting records do not reconcile with the cashbook balances. Below is the comparative figure between the cash book and the ledger records:

EMBED Excel.Sheet.8

An interview with the incumbent OIC-Provincial Accountant disclosed that Cash Disbursing Officer composed of unliquidated cash advances by disbursing officers.

Verification of Cash in Bank and Cash Disbursing Officer balances as of December 31, 2006 disclosed total discrepancies of P62,918,894.89 (Annex B and C) between accounting records and cashbook balances analyzed as follows:

Per Ledger/Accounting Records - P 300,467,567.93

Per Treasurer’s Cashbooks - 237,548,673.04

Difference - P 62,918,894.89

=============

Compared to last year’s discrepancy of P123,917,656.49 it has decreased by P60,998,761.60 or 49%, presented as follows:

This is a prior year audit finding but is hereby reiterated due to the materiality of the amount.

Further verification disclosed that the discrepancies for the non-reconciliation of the records are as follows:

- Some checks issued by the Provincial Treasurer within the month but not yet received by the claimant were not recorded in the journal of checks issued; thus Monthly Reports of Checks Issued is overstated against the Journal of Checks Issued

Preparation and submission of the monthly Bank Reconciliation Statement is not updated

Some dormant and doubtful accounts were not corrected/adjusted.

The accounting and treasury personnel failed to reconcile their balances at least every quarter.

Had there been proper coordination between the Accounting Division and Treasury Division, any discrepancy noted could be immediately adjusted and corrected.

In effect, the cash accounts carried in the books are unreliable and doubtful as these do not reflect the actual cash position of the agency as of the year end.

The Provincial Treasurer and OIC-Provincial Accountant assure as to give priority attention to the matter to reflect the correct amount it its books of accounts.

RECOMMENDATION

Require the Provincial Treasurer to record all checks issued during the month in the Monthly Reports of checks Issued for the accounting personnel to record in the Journal of Checks Issued.

Instruct the Provincial Treasurer and OIC-Provincial Accountant to reconcile the balances between the cashbooks and ledgers monthly.

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• Findings No.3 COA Annual Audit Report 2005

3. Management failed to complete physical inventory conducted of each plant, property and equipment totaling P1,286,480,885.03 in violation of Section 156, COA Circular No. 386 thus, valuation, validity and existence of the fixed assets could not be determined and ascertained.

Section 156 of COA Circular NO. 386, provides that the local chief executive shall require an annual physical inventory of all supplies or property of the local government unit as of December 31 of each year, to be conducted by office or department by a committee of three (3) consisting of the representative of the local chief executive as the chairman and general services officer, municipal or barangay treasurer, as the case may be, and the supply accountable officer of the department or office concerned, as members. The inventory report shall be submitted to the local chief executive and copy furnished the provincial, city or municipal auditor concerned.

Likewise, Section 124 of the New Government Accounting System Manual, Volume I, provides that the local chief executive shall require periodic physical inventory of supplies or property. Physical count of inventory items by type shall be conducted semestrally and reported in the report of the Physical Count of Inventories (RPCI). This shall be submitted to the Auditor concerned not later than July 31 and January 31 of each year for the first and second semesters respectively.

With the cited provisions, the local Chief Executive is mandated by law, to require a periodic physical inventory of supplies and property every semester/year. The purpose of conducting physical count of inventory items, is to ascertain the validity, existence and accuracy of the properties owned by the agency.

Verification disclosed that, the auditee failed to complete the physical count conducted in some departments hence. physical inventory reports were not submitted to the office of the auditor. Per interview, concerned officials informed us that they lack manpower to conduct the physical count of all their properties and has priority activities to attend to.

Had the agency officials conducted/reported the physical inventory of all fixed assets and submitted the same to the Provincial Auditor, the ownership, valuation, validity, existence and the effectiveness of the control over their assets could have been determined and ascertained. More so, any damage to and/or loss of property was not determined or identified for possible adjustments in the auditee’s books of accounts because of this deficiency.

This is a prior years finding but reiterated due to the materiality of the amount and to remind management to conduct the inventory taking to ascertain existence and valuation of the fixed assets account.

Management officials reasoned out that they have started the physical count of some departments but was not able to complete because of some priority activities to be accomplished. Furthermore, they explained that they lack manpower to do the physical count.

RECOMMENDATION

Prioritize physical inventory taking of all property, plant and equipment, in order to ascertain the validity, existence and accuracy of the recorded supplies and fixed assets accounts. Assign additional personnel to specifically focus on the conduct of physical inventory.

Remind the Supply Officer or the General Services Officer being the property custodian of the agency, to initiate the conduct of periodic physical inventory of all properties owned by the provincial government. She shall be assisted by the inventory/appraisal team to be created by the local chief executive.

Since this is a reiteration of prior year finding, withholding of salaries of the concerned officials will be recommended if they failed to submit the complete physical inventory report this year.

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• Findings No.1 COA Annual Audit Report 2005

2. Pharmacist assigned in the District hospitals were authorized to collect payments of hospital fees, medicines and other hospital bills without the corresponding bond in violation of Section 101 of PD 1445, thus government funds in their possession are not adequately protected.

Section 305(f) of RA 7160 provides that:

“Every officer of the local government unit whose duties permit or require the possession or custody of local funds shall be properly bonded, and such officer shall be accountable and responsible for said funds and for the safekeeping thereof in conformity with the provisions of law”.

Likewise, Section 101 of Presidential Decree No. 1445 states further that: (1) Every officer of any government agency whose duties permit or require the possession or custody of government funds or property shall be accountable therefor and for the safekeeping thereof in conformity with law. (2) Every accountable officer shall be properly bonded in accordance with law.”

Interview conducted revealed that some pharmacist assigned in the District Hospitals are authorized to issue official receipts and collect hospital bills, fees, medicines and other hospital obligations. They were designated but not bonded.

The practice is in violation to the above cited regulations. In case these officials abscond or die; the agency cannot recover lost funds from the fidelity fund.

Bond collected by the Bureau of Treasury shall constitute a fidelity fund. The fidelity fund therefore shall answer for any defalcations shortages and unrelieved accountability after all possible means of recovery of the amount from the accountable official/employee has been exhausted or her/his insolvency declared by a competent court.

Concerned officials reasoned out that some pharmacists of the district hospitals were designated as collecting officers and were authorized to issue official receipts and collect hospital bills, sale of medicines and other fees on Saturdays, Sundays and holidays because the cashiers office on these days is closed. However, they will look into possible solutions to this problem.

RECOMMENDATION

It is recommended that only the designated collecting/disbursing officer who are bonded will be authorized to collect hospital fees, sale from medicines and issue official receipts.

Stop authorizing pharmacist without bond to collect any hospital fees to safeguard government funds pursuant to the existing regulations.

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1. Cash advances by the disbursing officers of P2,550,291.81 and the accumulated cash advances of P11,208,565.69 by the officers and employees, remained unliquidated at year end in violation of Section 89 of PD 1445 and COA Circular No. 97-002, thereby exposing part of the amount to possible loss, misuse or misappropriation and resulting to the understatement of the expense account and overstatement of assets.

COA Circular No. 97-002 and Section 89 of RA 1445, prescribed the guidelines on the granting, utilization and liquidation of cash advances. The law provides that:

no cash advance shall be given unless for legally authorized specific purpose.

No additional cash advance shall be allowed to any official or employee unless the previous cash advance given to him is first settled or a proper accounting thereof is made.

Cash advances shall be reported and liquidated as soon as the purpose for which it was given has been served.

Moreover, COA Circular No. 96-004 dated April 19, 1996, states that domestic traveling expenses shall also be taken up in the book of accounts as cash advances and the same shall be liquidated by the official or employee concerned strictly within thirty (30) days after his return to his permanent official station as required under Section 16 of Executive Order 248. Otherwise, payment of his salary shall be suspended until he complies therewith.

Review and verification of the financial report disclosed that the status of cash advances as of December 31, 2006 granted to the Regular and Special Disbursing Officers had an outstanding balance of P2,550,291.81 at year end. The cash advances consists of P1,801,250.61 for the current year and P749,041.20 for the prior years (Annex A-A1).

Furthermore records showed that the unliquidated cash advances of officers and employees at year end amounted to P11,208,565.69, please see (Annex A2).

This is a previous year audit finding but is hereby reiterated due to the materiality of the amount even though reduction in the amount of P14,378,672.46 or 56% has been effected as compared to last year’s cash advances P25,587,238.15 for the officers and employees.

Had these cash advances been liquidated immediately, proper accounting of expenses and accurate determination of assets could have been undertaken.

The OIC-Provincial Accountant promised to closely monitor the submission of liquidation papers to immediately settle the accumulated cash advances.

RECOMMENDATION

Comply strictly with the laws, rules and regulations pertaining to cash advances in order to lessen the accumulation of the same. Limit cash advances to the minimum or actual needs of the province or individual employee.

The accounting office, being the internal audit unit of the agency should see to it that previous cash advances are fully settled prior to the granting of new cash advance.

Demand from the concerned accountable officers the immediate liquidation of the subject cash advances. Instruct the OIC, Provincial Accountant to withhold the salaries of the concerned accountable officers who failed to liquidate their obligations within thirty (30) upon receipt of the demand letter.

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• Findings No.4 COA Annual Audit Report 2006

Section 287 of Republic Act No. 7160 provides that:

“Local Development Projects- Each local government unit shall appropriate in its annual budget no less than twenty percent (20%) of its annual internal revenue allotment for development projects. Copies of the development plans of local government units shall be furnished the Department of Interior and Local Government“.

At least 20% of the Local Government Units allocation in the national tax must in turn be allocated for development projects (socio-economic projects that may develop resources, people’s income, employment, etc.) as may be formulated by local development council. This should be mandatory (the 20% allocation) because the LGU might use the total allocated share in just maintaining traditional services (including salaries of personnel) that cannot be categorized as developmental in character.

The Provincial Government had program in its Annual Development Plan the amount of P65,590,176.00 for various projects and activities for the benefits of the constituents.

Per evaluation, it was noted that projects and activities programmed for the 20% development fund were not fully implemented (please see Annex J).

The non-implementation of the said projects would be disadvantageous to the provincial government considering that prices are constantly increasing and the benefits derived there from could not be immediately enjoyed by the constituents.

Concerned officials justified that some projects were not implemented because of the following vital reasons:

Failure of the bidding since the Approved Agency’s Estimates (AAE) was very much lower than that of the bidder’s estimate due to price adjustments.

Most of the equipment were utilized for MIRIDP implementation.

Partial purchase of computer hardwares, will be installed once new capitol building is in place.

RECOMMENDATION

Implement fully projects and activities funded out of the 20% Development Fund to attain its goals and objectives beneficial to the constituents

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5. Provincial Engineers Office has no depot for defective and unserviceable equipment thus, causing more damage to the units and exposing them to risk of loss and wastage of government funds and property.

Observation disclosed that pieces of equipment which has minor defects and unserviceable were just placed in an open area at the Provincial Engineering compound which are exposed to the elements of nature thus causing more damage and risk to the units.

Further observation disclosed that these defective pieces of equipments cannot be repaired immediately due to lack of manpower. If the deficiency will not be corrected it will cause more damage to the units and exposes them to risk of loss and wastage of government funds and property.

The OIC-Provincial Engineer justified that she is new to the position but acknowledged the deficiency noted and promised to elevate the matter to the Local Chief Executive.

RECOMMENDATION

Request funding for the construction of equipment depot to safeguard government properties. Inform the local chief executive of the immediate need of additional manpower for the smooth operation of the department.

.

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4. Equipment rental income was decreased by P10,746,482 or 46% compared to last year, causing budgetary constraint on the part of the auditee to pay its monthly loan amortization and maintenance of the said equipment.

Equipment rental income is one of the sources of revenue of the province, it ranks as the first most important sources of the total business income of the auditee.

Income derived from equipment rental are purely local shares that would augment financial resources. Before the auditee apply for equipment loan a project feasibility study had been prepared in order to achieve a positive result. It would help attain a level of financial stability sufficient to pay for its monthly obligations and maintenance.

In the review of the financial statement submitted by the auditee it was found out that there was a material decrease of P10,746,482 or 46% of equipment rental realized during the year compared to the previous year.

Presented below is the equipment income collection for the year 2005 compared to CY 2004 in graphical manner, as follows:

Interview conducted with the concerned officials and employees disclosed that the causes for the reduction of the equipment rental were as follows:

a) Some equipment were utilized by the provincial government as equity on the foreign assisted projects;

b) The provincial government has utilized some equipment on the implementation of the 20% Development Fund Projects and other projects funded by the national government;

c) Other equipment are under repair; and

d) Some of the municipalities who availed of the equipment loan offered by the Land Bank of the Philippines discontinue leasing the equipment of the province.

With the above intervening factors, a significant reduction of rental income occurred.

Further verification disclosed that, per 2005 budget the auditee estimated to collect the amount of P21,293,476.56 for equipment rental however only P12,694,965.14 was realized with a collection deficiency of P8,598,511.42 or 40%. The actual income might not be sufficient for the monthly loan amortization and maintenance of the said equipment.

The official concerned justified that some of the equipment are not in good condition and most of the municipalities availed for equipment loan thus causing reduction of equipment rental. However, they assured us to close monitor the proper maintenance of the equipment inorder to be available for rental and to increase rental income this ensuing year.

RECOMMENDATION

Instruct the Provincial Engineer to monitor the proper maintenance of these equipment, so that it could be utilized if needed.

Furthermore, require the Provincial Equipment Maintenance Engineer to give priority for the repair of the heavy and light equipment in order to be available for rental purposes.

Advertise to the public that the Provincial Engineer’s Office have available equipment for rental.

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Chapter l of the Cash Examination Manual (4) requires the Accountable Officer to reconcile her/his cashbook entries with the accounting records at least quarterly.

Verification of records disclosed that the accounting records do not reconcile with the cashbook balances, to wit:

TreasuryAccountingDiscrepancyCash Disbursing Officer

2,245,741.12

1,696,534.60

549,206.52Cash in Bank 320,436,606.13444,903,469.14(124,466,863.01)TOTAL P322,682,347.25P446,600,003.74(P123,917,656.49)

An interview with the incumbent OIC-Provincial Accountant disclosed that Cash Disbursing Officer composed of unliquidated cash advances by disbursing officers.

Verification of Cash in Bank and Cash Disbursing Officer balances as of December 31, 2004 disclosed total discrepancies of P123,917,656.49 (Annex D and E) between accounting records and cashbook balances analyzed as follows:

Per Ledger/Accounting Records - P 446,600,003.74

Per Treasurer’s Cashbooks - 322,682,347.25

Difference - P 123,917,656.49

=============

Compared to last year’s discrepancy of P131,025,664.77 it has decreased by P5,296,435.60 or 4%, presented as follows:

This is a prior year audit finding but is hereby reiterated due to the materiality of the amount.

Further verification disclosed that the discrepancies for the non-reconciliation of the records are as follows:

Some checks issued by the Provincial Treasurer within the month but not yet received by the claimant were not recorded in the journal of checks issued; thus Monthly Reports of Checks Issued is overstated against the Journal of Check Issued

Preparation and submission of the monthly Bank Reconciliation Statement is not updated

Some dormant and doubtful accounts were not corrected/adjusted.

The accounting and treasury personnel failed to reconcile their balances at least every quarter.

Had there been proper coordination between the Accounting Division and Treasury Division, any discrepancy noted could be immediately adjusted and corrected.

In effect, the cash accounts carried in the books are unreliable and doubtful as these do not reflect the actual cash position of the agency as of the year end.

The Provincial Administrator and the OIC-Provincial Accountant alleged that due to lack of personnel and non-availability of supporting documents, this problem was not attended to. However, the management alleged that a committee is created who will focus on the matter.

RECOMMENDATION

Require the OIC-Provincial Accountant to record all checks issued during the month in the Monthly Reports of checks Issued with the Journal of checks issued to reconcile the account balances.

Instruct the OIC Provincial Accountant to coordinate with Provincial Treasurer and make necessary adjustment and corrections at least every quarter for reconciliation purposes in order to present the true and correct cash position of the Provincial Government.

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• Findings No.4 COA Annual Audit Report 2006

2. An accumulated amount of cash advances totaling to P25,587,238.15 remained unliquidated at year end in violation of Section 89 of PD 1445 and COA Circular No. 97-002 resulting to understatement of expenses and overstatement of income.

Section 89 of Presidential Decree No. 1445 specifically provides for the limitations on cash advances and states that:

“No cash advance shall be given unless for a legally authorized specific purpose. A cash advance shall be reported on and liquidated as soon as the purpose for which it was given has been served. No additional cash advance shall be allowed to any official or employee unless the previous cash advance given to him is first settled or a proper accounting thereof is made.”

Likewise, Section 5 of COA Circular 97-002 dated February 10, 1997 provides for the guidelines in the liquidation of cash advances. These are:

a. The Accountable Officer shall liquidate his cash advance as follows:

1. Salaries, wages, etc. – within five (5) days after each fifteen (15) day/end of the month pay period.

Petty Operating Expenses and Field Operating Expenses – within twenty (20) days after the end of the year; subject to replenishment as frequently as necessary during the year.

Official Travel – within sixty (60) days after return to the Philippines in case of foreign travel or within thirty (30) days after return to his permanent official station in the case of local travel, as provided for in EO 248 and COA Circular No. 96-004.

b. Failure of the AO to liquidate his cash advance within the prescribed period shall constitute a valid cause for the withholding of his salary and the institution of other sanctions as provided for under paragraphs 9.2 and 9.3 hereof.

c. When a cash advance is no longer needed or has not been used for a period of two (2) months, it must be returned to or refunded immediately to the collecting officer.

d. All cash advances shall be fully liquidated at the end of each year. Except for petty cash fund, the AO shall refund the unexpended balance to the Cashier/Collecting Officer who will issue the necessary official receipt.”

Moreover, COA Circular No. 96-004 dated April 19, 1996, states that domestic traveling expenses shall also be taken up in the book of accounts as cash advances and the same shall be liquidated by the official or employee concerned strictly within thirty (30) days after his return to his permanent official station as required under Section 16 of Executive Order 248. Otherwise, payment of his salary shall be suspended until he complies therewith.

Verification from the records showed that the unliquidated cash advances of P25,587,238.15 as of December 31, 2005, were the accumulated cash advances of officials and employees for the three (3) funds.

The amount of P23,011,030.60 is under the General Fund remained unliquidated at year end see schedule attached as Annex A.

The amount of P4,788,537.98 were due from other officials and employees and which remained outstanding for over 120 – 360 days while the amount of P18,222,492.69 were outstanding for over 361 days.

The unliquidated cash advances of P1,912,472.63 under the Trust Fund were also the accumulated cash advances of various officials and employees intended for some programs/projects/ activities of the provincial government but remained outstanding for over 361 days (see Annex B).

Furthermore the amount of P663,734.85 under the Special Education Fund remained unsettled for over 361 days (see Annex C), but the purposes of the said cash advances had been served.

Had these cash advances been liquidated immediately, proper accounting of expenses and accurate determination of income could have been undertaken.

Shown next page is the graphical presentation of the unliquidated cash advances as of December 31, 2005, for all funds.

Compared to last year’s unliquidated cash advance of P20,025,809.32 it has materially increased by P5,561,428.83 or 28%. Below is the graphical presentation.

This is a previous year audit finding but is hereby reiterated due to the material increase as compared to last year’s cash advances.

The OIC-Provincial Accountant informed us that Due from Officers and Employees are cash advances for traveling expenses and for implementation of programs and projects of the provincial government as well as program of the Department of Education.

She explained further that some of the unliquidated cash advances which have been long outstanding were the cash advances from the defunct Lanao and carried in the books of accounts of the province. However, she promised to request the writing off of the dormant amount and make some necessary adjustments. She also assured the team to send demand letters to those employees who have long outstanding cash advances.

RECOMMENDATION

Instruct the OIC Provincial Accountant to monitor the immediate and prompt liquidations of the outstanding cash advances granted pursuant to the existing regulations to avoid mis-presentation of the income and expenses accounts.

Make request for the writing off, the amount which have been long outstanding and make the necessary adjustment.

Withhold the salaries of the officials and employees who has long outstanding cash advances.

Comply strictly with the laws, rules and regulations pertaining to cash advances in order to lessen the accumulation of the same. Limit cash advances to the minimum or actual needs of the province or individual employee.

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