In the course of our review of the receivable accounts of the City Government, particularly the Loans Receivable – GOCC (124), Loans Receivable – Others (126) and Other Receivables (149) accounts, we have established that a total of P 7,882,507.35, of these accounts had remained uncollected for 2 years or more, a schedule and ageing of these accounts is attached as Annex F to this Report and made an integral part hereof.

The failure of the City Government to promptly collect these due and demandable accounts beyond the periods stated in memorandums of agreement and other contracts covering these receivables had deprived other constituents of the City to avail of the cash assistance which could have been generated from its collections.

On this audit observation, the City Mayor was glad that we had brought this matter to his attention, more particularly the Loans Receivable from the Bukidnon Second Electric Cooperative amounting to P 1,000,000.00 and had assured the Audit Team that the City Government will exert effort to collect this account.

In addition thereto, we had also been informed that most of the SEA-K receivables were already referred to the Legal Department of the City for collection. For the other accounts, the City Mayor has instructed the City Accountant to trace and establish the accountabilities of the debtors and to form a team to collect these receivables.

Recommendation:

Require the concerned City officials and employees to exert more effort to effectively monitor and

collect these receivable accounts.

The City’s Accountable Officers were either insufficiently bonded in violation of Sec. 101 (2) of the Government Auditing Code of the Philippines (P.D. 1445) and Art. 405 (m) of the Local Government Code of 1991 (R.A. 7160), thereby exposing government funds and properties to undue risk.

In order to safeguard government funds from malversation and embezzlement and to establish accountability of public officers who has access to government funds, Sec. 101 (2) of P.D. 1445 prescribes that –

“Sec. 101. Accountable officers; bond requirement.

x x x

Every accountable officer shall be properly bonded in accordance with law.”

Similarly, Art. 405 (m) of R.A. 7160 mandates that “ every officer of LGU whose duties permit or require the possession or custody of local funds shall be properly bonded, and such officers shall be accountable and responsible for said funds and for the safekeeping thereof in conformity with the provisions of law.”

During the cash examinations of the accountable officers of the City for the first and second semesters for CY 2006, we have established that the bonds covering the risk liabilities of the accountable officers were not promptly renewed by the concerned officials. Some of them were collecting funds for the City with expired or unrenewed bonds, thus exposing the same funds to undue risks.

The City Treasurer explained that they had paid the premiums for the bond to the Bureau of Treasury only last September 2006, on a lump sum payment for all the accountable officers even though they have different expiry dates of their bonds, hence during the cash examinations they were not able to present their bond certificates.

Attached herewith as Annex E is the Schedule of Accountable Officers with Insufficient Bonds for a better appreciation of this findings.

As a rejoinder, we reminded the City Treasurer that it is required by law that every government employee or officer whose duty requires the possession on custody of government funds shall be covered by sufficient bond, thus it is incumbent upon his office to see to it that accountable employees under his supervisions are covered by sufficient and effective bonds.

The City Treasurer had assured us that their Office will facilitate and promptly renew the bonds of the accountable officers so as not to unnecessarily expose the government funds to risks.

Recommendation:

Direct the City Treasurer to promptly attend to the renewal of the bonds of the accountable officers under his supervision

The Audit Team had conducted a financial, compliance and performance audit on the operations and fiscal transactions of the City Government of Malaybalay for the Calendar Year 2007. We had performed our examination in accordance with the prescribed government auditing standards and other applicable laws, rules and regulations which we deemed appropriate for the existing conditions.

Our audit was made to determine the Agency’s degree of compliance with and adherence to the Constitution, the Local Government Code of 1991 and other pertinent laws, rules and regulations in the conduct of their fiscal operations. Of equal importance is our audit objective to ascertain if the financial statements present fairly the financial status and the results of its operations for the year then ended.

In the conduct of our audit, we had performed audit methodologies and techniques which would test the internal controls and other systems employed by the Agency to ensure the validity, legality and propriety of its transactions and operations. We had audited the transactions and phases of operations of the Agency which, to our informed auditorial judgment, has potential material and substantial effect on the fair presentation of its fiscal status and the results of its operations for the year just concluded.

The result of our audit verification disclosed both favorable and unfavorable findings which will be discussed hereunder. We had recommended specific course of actions to be taken by the concerned Agency officials to remedy the latter findings noted in our audit and we strongly suggest that these recommendations be implemented immediately.

We would like to commend the Agency’s management for various laudable accomplishments, noteworthy among these are the following:

The City Government increased the collection of its local income for CY 2007 to P38,934,560.05 from P36,027,384.87, or an increase of 8.07% from its collection in CY 2006;

The City Government has successfully implemented the DOF-LOGOFIND-assisted 7-building, 57-classroom project costing P25,246,96146, constructed in Barangay Managok National High School and Elementary School, Barangay Bangcud National High School and Barangay Sumpong Elementary School. The loan portion of P7,680,238.80 of the project has been fully paid within the required period;

The City was awarded as one of the Most Child-Friendly City for CY 2006 by the Department of Social Welfare and Development; and,

City Mayor Hon. Florencio T. Flores, Jr. was named as one of the Most Outstanding City Mayor for CY 2006 by the League of Cities of the Philippines.

Notwithstanding these accomplishments enumerated above, the City Government, as noted in our audit, had some substantial deficiencies in strategic areas such as procurement, collection of receivables and the establishment of effective internal control on their cash collections.

However, before the discussion of the noted deficiencies, the Audit Team deemed it necessary to disclose in this Report the pending contract review of the contract executed by and between the City Government of Malaybalay and H.R. Lopez Co. Inc. for P225,330,795.38, for the Planning, Design, Site Development and Construction of the Malaybalay City Public Market, Bus Terminal and Commercial Building.

Initial review made by the COA Region X, Technical Services Office raised the following issues:

The contractor have undertaken all the phases of work of the proposed project, in violation of Executive Order No. 40 and its Implementing Rules and Regulations, (Annex A – 3rd Indorsement dated May 24, 2006 of Atty. Francisco G. Opinaldo, Jr., RCD-TSO COA RX);

“Whether or not the award of the project to H.R. Lopez Co., Inc. is valid considering that there is no Certificate of Availability of Funds at the time of Bidding/ Award. The fact that the funds are yet to be derived through floating of Bonds;

Whether or not the mode of award and construction through the contractor’s own “design and construct” is valid in this jurisdiction considering that the Agency did not prepare its own Detailed Estimates as basis for the Approval of the Budget for Contract;

Whether or not a contracted project may be paid on a lump sum basis without quantifying the individual actual accomplishments based on the itemized pay item. The fact that there is no approved budget for contract of the project;

Whether or not Sections 85 and 86 of P.D. 1445 have been breached in this instance.” (Annex B – Unnumbered Memorandum of Atty. F. G. Opinaldo, Jr. Regional Cluster Director, COA RX, TSO, dated Sep. 11, 2006, to Atty. Celso L. Vocal, RCD, COA RX, LAO).

In reply to the issues raised in the review, the Agency submitted the following answers, to wit:

On the issue of the lack of Certificate of Availability of Funds at the time of Bidding/ Award –

“The award of the project to H.R. Lopez Co., Inc. was subject to a resolutory condition. This was made known in the publication of the Invitation for Prequalification, xxx, that the winning Bidder for planning, design, site development and construction of the x x x, is willing to accept payment in form of Malaybalay City Bonds redeemable in Seven (7) years from date of issuance because the funds are yet to be derived through bond floatation.” (Annex C – Letter of City Mayor Hon. Florencio T. Flores, Jr. dated October 25, 2006)

On the validity of the mode of award and construction through the contractor’s own “design and construct” scheme and the non-preparation of the Agency of its own Detailed Estimates –

“a. no funds available to conduct separate bidding for the procurement of consulting services for the design and planning and construction of civil works. xxx

b. Adapted the feasibility study through the Sangguniang Panlungsod Resolution No. 2003-7155 dated July 1, 2003, xxx…” (Annex C)

On the issue as to whether or not the project may be paid on a lump sum basis –

“The project was not paid on a Lump Sum Basis, in fact as stipulated in the Contract Agreement for the project in Article VII 7.8 x x x..:

It is hereby understood by the parties herein that the nature of this Agreement is pay item of work contract for the design and construction of the PROJECT.” (Annex C)

On the last issue of the supposed breach of Sections 85 and 86 of P.D. 1445 –

“The city government has obtained a certification from RCBC Capital Corporation last August 08, 2004 that they will underwrite the proceeds of the Malaybalay City Bonds.” (Annex C)

It is however noted that the Management did not made any responsive reply on the issue raised in the 3rd Indorsement dated May 24, 2006, of the COA RX-TSO, that is– violation of the provisions of Executive Order No. 40, series of 2001 on prohibition on the contractor of undertaking all the phases of work of the project.

Considering the complexity of the issues involved, which admittedly is beyond the competence of the Audit Team to resolve, and coupled with the contract amount involved in the project, we deemed it necessary to seek the assistance of the COA Regional Office No. X, Legal and Adjudication Office.

We are quoting hereunder the action taken by the said Office in its 14th Indorsement dated April 16, 2007 to Dir. Roy L. Ursal, Director III, Legal and Adjudication Office-Local, Legal and Adjudication Sector, COA Central Office –

“Premises considered and considering the immensity of the project involved, the cost being tagged at Php 225,330,795.30 and being a novelty case, this Office elevates the matter to that honorable office for comment and other appropriate disposition.”

Having disclosed this matter, we now go to the discussion of the deficiencies noted by the Audit Team on the financial operations of the City Government of Malaybalay for CY 2006, to wit:

Public bidding as the general mode of procurement was not strictly implemented by the City Government thus, the purchase of drugs and medicines, medical, dental and laboratory supplies amounting to P5,669,077.58 through Direct Contracting or Shopping is questionable and not in conformity with the conditions set forth in Secs. 50 and 52 of the Government Procurement Reform Act (R.A. 9184) and its Implementing Rules and Regulations.

The City Government has purchased a total of P9,386,700.94 worth of drugs and medicines, medical, dental and laboratory supplies for CY 2006. This procurement was made through the following modes:

Competitive Public BiddingP 2,740,849.61Shopping3,099,620.75Direct Contracting2,569,456.83Negotiated Purchase976,773.75Grand TotalP 9,386,700.94

A schedule of the purchase orders covering these procurements is attached hereto as Annex “D” and made an integral part of this Report.

Section 10 of the IRR-A of R.A. 9184 prescribes that –

“All procurement shall be done through competitive bidding, except as provided in Rule XVI of this IRR-A.”

As noted in our audit, it was established that the Agency resorted to public bidding only for the 29% of the total procurement of drugs, medicines, medical, dental and laboratory supplies for CY 2006, contrary to the above-cited provision of law. The City Government resorted to the alternative modes of procurement for the remaining 71% of the subject procurement.

To avail of the alternative methods of procurement, R.A. 9184 and its IRR-A has strictly prescribed for the following requirements, to wit:

“Rule XVI – Alternative Methods of Procurement

Sec. 48. Alternative Methods

Subject to the prior approval of the head of the procuring entity or his duly authorized representative, and whenever justified by the conditions provided in this Act, the procuring entity may, in order to promote economy and efficiency, resort to any of the alternative methods of procurement provided in this rule. In all instance, the procuring entity shall ensure that the most advantageous price for the Government is obtained.

In accordance with Section 10 of this IRR-A, as a general rule, the procuring entities shall adopt public bidding as the general mode of procurement and shall see to it that the procurement program allows sufficient lead time for such public bidding. Alternative methods shall be resorted to only in the highly exceptional cases provided for in this Rule.

Sec. 50.Direct Contracting – Direct contracting or single source procurement is a method of procurement of goods that does not require elaborate bidding documents. The supplier is simply asked to submit a price quotation or a pro-forma invoice together with the conditions of sale. The offer maybe accepted immediately or after some negotiations. Direct contracting may be resorted to by concerned procuring entities under any of the following conditions:

xxx.

xxx.

Those sold by an exclusive dealer or manufacturer which does not have sub-dealers selling at lower prices and for which no suitable substitute can be obtained at more advantageous terms to the Government.

Sec. 52. Shopping

Shopping is the method of procuring of goods whereby the procuring entity simply request for the submission of price quotations for readily available off-the-shelf goods or ordinary/regular equipment to be procured directly from suppliers of known qualifications. This method of procurement shall be employed only in any of the following cases:

When there is an unforeseen contingency requiring immediate purchase: Provided however, that the amount shall not exceed fifty thousand pesos(P50,000); or.

Procurement of ordinary or regular office supplies and equipment not available in the Procurement Service involving an amount not exceeding two hundred fifty pesos (P250,000); Provided, however, that the procurement does not result in splitting of contracts, as provided in Section 54.1 of this IRR-A: Provided, further, That at least three (3) price quotation from bona fide suppliers shall be obtained.

Sec. 54. Terms and Conditions for the use of Alternative Methods

Splitting of Government Contracts is not allowed. Splitting of Government Contracts means the division or breaking up of Government Contracts into smaller quantities and amounts, or dividing contract implementation into artificial phases or sub-contracts for the purpose of evading or circumventing the requirements of law and this IRR-A, especially the necessity of public bidding and the requirements for the alternative methods of procurement. ”

The Bids and Awards Committee, as one of its prescribed function, shall recommend to the head of the procuring entity the use of Alternative Methods of Procurement as provided for in Rule XVI hereof (Sec. 12.1 of the IRR-A of R.A. 9184).

During the review, we had noted that majority of the procurements made through the alternative modes of direct contracting and shopping did not squarely meet the requirements prescribed by the aforementioned provisions of law.

To be more specific, in the procurement of medicine, dental and medical supplies through Direct Contracting, no certification as to the non-availability of suitable substitutes of the items procured which can be obtained at a more advantageous terms to the City Government of Malaybalay were made to justify the resort to Direct Contracting. In resorting to the alternative mode of procurement through Shopping several procurements above the threshold amount of P250,000 were made, in violation of Sec. 52(b) of the said R.A. 9184.

As a result of these deficiencies and in the absence of any comparative prices at the time the procurements were made, we could not ascertain whether the contracts covering these procurements were advantageous and beneficial to the Agency under audit.

When we sought for their comments and justifications on this audit finding, the Management through the City Mayor and the BAC Chairman reasoned out that most of the subject procurements made through direct contracting and shopping were emergency in nature and were not included in the list of medicines submitted by the City Health Office for procurement.

However, they made the assurance that for the incoming CY 2007, they would strictly implement and enforce the provisions of R.A. 9184, particularly on the resort to the alternative methods of procurement.

Recommendation:

Require the City Mayor and the BAC to strictly follow the provisions of R.A. 9184 and its Implementing Rules and Regulations. Also, remind them to carefully screen and evaluate the purchase requisitions that necessitate the use of alternative method of procurement.

The Manual for the New Government Accounting System (COA Circular No. 2002-003) provides for that basis of recording of Basic Real Property/Special Education Tax Receivable, to wit:

“ Sec. 20 – Basis for Recording Real Property Tax/Special Education Tax. – Real Property Tax Receivables / Special Education Tax Receivables shall be established at the beginning of the year based on Real Property Tax Account Register / Taxpayer’s Index Card. At the beginning of the year, the Treasurer shall furnish the Chief Accountant of a duly certified list showing the name of taxpayers and the amount due and collectible for the year. Based on the list, the Chief Accountant shall draw a Journal Entry Voucher (JEV) to record the debit to Real Property Tax / Special Education Tax Receivable and crediting to Deferred Real Property Tax Income / Deferred Real Property Tax Income / Deferred Special Education Tax Income.”

The audit noted that the agency recorded estimates on Real Property Tax Receivables based on estimates made by the City Treasurer’s Office at P 10,400,000.00, instead of P 15,937,474.26 based from the Real Property Tax Account Register/ Taxpayers’ Index Card.

This is not in consonance of Section 20, Volume I of the Manual of the New Government Accounting System, hence, the validity of the accounts becomes doubtful.

The concerned officials commented that the recording was based on the estimated collections of the City Treasurer for CY 2005, as practiced prior to the effectivity of the said COA Circular. They further explained that in the event that the actual collections exceeds the estimated amount, the Accounting Office will set-up the receivables account, before recognizing the income, to illustrate:

Upon Payment of the Taxpayer

RPT/SEF Tax Receivable xx

Deferred RPT/SEF Tax Income xx

Cash-in-Treasury xx

RPT/SEF Tax Receivable xx

Then the regular procedure/entries are followed for the recognition and distribution of income is followed as prescribed in the NGAS.

The erroneous recording of the RPT/SEF Receivables consequently understated the asset (receivables) account of the Agency. Although the periodic adjustments made during actual collections have corrected the deficiency, albeit miniminally, however, the total understatement of P 2,987,796.78 was still noted, computed as follows:

Basic RPT Receivable, January 1, 2005 P 7,968,737.13Add: Increase in assessment for CY 2005 1,338,700.86Total Receivables for CY 20059,307,438.03Less: Recorded Receivable, beginning P 5,200,000.00Adjusted during the year P 2,613,539.647,813,539.64Understatement/Basic RPT Receivable P 1,493,898.39Understatement / SEF Tax Receivable 1,493,898.39Total Understatement P 2,987,796.78

The concerned officials had already informed the Auditor that they will effect the necessary adjustments and comply with provisions of the NGAS to correct and prevent the recurrence of the error noted.

Recommendation:

We have required the City Accountant and the City Treasurer to faithfully comply with Sec. 20 of CoA Circular No. 2002-003.

Cash advances of officials and employees for the current and previous years amounting to P 5,988,052.77 and P 1,077,809.33, respectively, remained unliquidated as of December 31, 2005, contrary to the requirement of Sec. 4.1.3 of CoA Circular No. 97-002, which mandates that all cash advances shall be liquidated at the end of each year.

Sec. 4.1.3 of CoA Circular No. 97-002 provides, among others, that “All cash advances shall be fully liquidated at the end of each year.”

In addition thereto, CoA Circular No. 96-004 prescribes for the period in which cash advances shall be liquidated by the concerned officials and employees;

Salaries and Wages – within 5 days after each pay period

Official Travel – within 30 days after return to its official station, in case of local travel and 60 days after return to Philippines in case of foreign travel.

Verification conducted disclosed that the abovecited provisions were not strictly enforced by the concerned officials of the City Government. The said condition resultantly overstated the asset account of the agency and the understatement of the expenses in the financial statement of the Agency.

By way of their explanation, the concerned City Officials stated that they have already exerted efforts to compel liquidation of these cash advances, including payroll deductions and issuance of demand letters, however, some officials and employees have reasoned out that they are still in the process of completing the documentary requirements to submit their liquidation papers.

We have instructed the City Accounting Office to strictly monitor the cash advances of the Agency Officials and employees with outstanding/unliquidated cash advance and to strictly enforce the provisions of the aforementioned COA Circulars.

Recommendation:

We have directed the concerned LGU Officials to strictly enforce the provisions of COA Circular No. 97-002 and to issue demand letters to officials and employees with outstanding cash advances.

Retention of prior years’ Accounts Payable under the General Fund P6,922,258.43, which no actual claim, administrative or judicial, has been filed and which has been outstanding for two (2) years or more has resulted in the immobilization of funds.

Section 98 of the Government Auditing Code of the Philippines (P.D. 1445) provides that unliquidated balance of accounts payable which has been outstanding for two (2) years or more and against which no actual claim, administrative or judicial, has been filed or which are not covered by perfected contracts on record may be reverted to the unappropriated surplus of the agency.

Verification of Accounts Payable disclosed that an unliquidated balance of P6,922,258.43, which has been obligated in prior years, has remained outstanding as claims against the Agency despite the doubtful validity and actual existence of these claims.

The failure of the Agency to ascertain the validity of such claims and consequently effect the proper adjustment resulted in the unnecessary retention of funds which could have been reverted to the unappropriated surplus of the Agency.

The Management has commented that the failure to revert the unliquidated balances of the prior years’ accounts payable was overlooked due to the volume of work of the Accounting Department.

We had advised the concerned agency employees to review and validate te legality and propriety of the amounts of claim against the Agency and to effect the necessary adjustment if the same are found to be without valid claimants or undocumented claims.

RECOMMENDATION:

Verify and validate the legality, existence and validity of the prior years’ outstatnding accounts payable and revert the same to the unappropriated surplus of the General Fund of the Agency if it is established that such claims are found to be undocumented and without valid claimants, pursuant to Sec. 98 of the Government Auditing Code of the Philippines (P.D. 1445).

Section 124 of the NGAS Manual states that “The Local Chief Executive shall require periodic physical inventory of supplies or property . . . Physical count of property, plant and equipment shall be made annually and reported on the Report of Physical Count of Property, Plant, and Equipment (RPCPPE). This shall be submitted to the Auditor concerned not later than January 31 of each year.”

Section 114 of the same manual provides that “The Chief Accountant shall maintain the perpetual inventory records comprising of Property, Plant and Equipment Ledger Card (PPELC) for each type of livestock. Such ledger cards shall contain the details of the property, plant and equipment and livestock account in the inventory control account in the general ledger.

“The General Services Officer or the Municipal Treasurer, as the case may be, shall likewise maintain property cards for property, plant and equipment and work animals in their custody to account for the receipt and disposition of the same. The balance per property cards should always reconcile with the ledger of the accounting unit. They should also reconcile with other property records like Acknowledgement Receipt for Equipment (ARE).”

Verification revealed that due to the non-prioritization of the financial control on the safeguarding of assets, the Inventory Committee failed to conduct the inventory-taking of their property, plant and equipment costing P 690,603,763.18 as of December 31,2004. Below is the breakdown of the Property, Plant and Equipment:

Land and Land Improvements P 119,258,653.01

Buildings 128,127,694.99

Office Equipment, Furniture and Fixtures 38,716,236.93

Machineries and Equipment 117,491,380.46

Transportation Equipment 17,114,135.72

Other Property, Plant and Equipment 67,971,138.86

Reforestation Projects 29,490.50

Construction-in-Progress 201,895,032.71

P 690,603,763.18

In addition, it was further disclosed that the Accounting Division and General Services Office did not maintain appropriate ledger cards and property cards, respectively. Further, the recorded accountability for assets cannot be compared with the existing assets and any difference could not be acted upon/rectified.

The inadequacy of the accounting records did not permit the Auditor to apply alternative audit procedures.

Such conditions were not in conformity with the provisions of Section 124 and 114 of the NGAS Manual.

In effect, the accuracy and the correctness of the account balance of P690,603,763.18 is rendered doubtful.

The Management commented that the Accounting division are in the process of updating of the ledger cards for reconciliation of the differences, if any. Further, the recommendation will soon be acted upon considering that it will be the first time for the city government to conduct the physical count.

RECOMMENDATION:

Comply with and implement the provisions of Section 114 and 124 of NGAS Manual to establish the accuracy and correctness of the Property, Plant and Equipment account.

2. The LGU failed to furnish copies of all contracts entered into by the City Government with several contractors to the Office of the Auditor for financial, legal and technical review, within five (5) days from the date of execution of the contracts, in violation of the provisions of COA Circular Nos 76-34; 82-195 and 96-010, thus, preventing the immediate rectification of the deficiencies that may be uncovered in the course of the review.

COA Circular No. 76-34 and reiterated under COA Circulars 82-195 and 96-010 provides that “all copies of contracts, job orders.. . irrespective of amount shall be submitted to the Commission on Audit for review, within five days after its execution.”

Examination revealed that contracts entered into by the LGU with the various contractors for projects undertaken thru straight contract and by “Pakyaw” contract were not submitted within five days from the date of its execution to the Office of the Auditor for review as required in the above-mentioned Circulars.

The above-mentioned conditions existed due to the thinking of the officials concerned that the basis fir furnishing copies to the Office of the Auditor was date of the Notice to Commence Work and not the date of execution of the contracts.

The failure to comply with the above-mentioned COA Circulars prevented the immediate rectification on the deficiencies that may be noted in the course of the review.

The Management commented that they will comply with the above-cited provisions and promptly furnish the Auditor with the contracts executed within the period prescribed by said COA Circulars.

RECOMMENDATION:

Comply strictly with the provisions of the above-mentioned COA Circulars relative to the timely furnishing of copies of contracts to the Office of the Auditor.

Sec. 61 of Vol. III of NGAS requires that Deposit on Letters of Credit account shall be credited upon the utilization of the deposits on letters of credit.

The City Government opened two (2) deposits on Letters of Credits with the Land Bank of the Philippines for the importation of heavy equipments, to wit:

EQUIPMENTAMOUNTDATE OF LC2 units Garbage CompactorsP 9,826,436.87September 22, 20031 unit BackhoeP 4,481,013.00October 23, 2003

Despite the utilization of the deposits of letters of credit by the supplier and the delivery of the subject heavy equipment, the City Government failed to close the Deposits on Letters of Credit account and book up the heavy equipment in the proper account.

The failure of the LGU to book up the heavy equipment in the proper account understated the Agency’s depreciation expense account, as no depreciation was provided for the subject heavy equipment.

The concerned officials should confirm with the Land Bank of the Philippines the utilization of the Deposits on Letters of Credit to effect the proper booking up of the heavy equipment to the proper account.

The utilization of the Deposits of Letters of Credits operates as the payment made to the suppliers for the purchase of the heavy equipment, hence, a journal entry voucher shall be prepared to record such transaction, viz;

Dr Cr.

Construction and Heavy Eqp’t. (230) xx

Deposits on Letters of Credit (180) xx

The Management commented that this deficiency was brought about by the failure of the concerned officials to monitor the status of the Deposits on Letters of Credit account.

The Auditor had advised the management to effect the necessary adjustment of the account to book up the receipt of the heavy equipment.

RECOMMENDATION:

Require the BAC officials where the negotiated purchase originated to follow up the necessary documents on the importation to effect proper booking up at the said heavy equipment to proper account.