Section 29 of the New Government Accounting System Manual (NGAS) provides among others that “… at the close of each business day, the collectors/tellers shall accomplish the Report of Collections and Deposits (RCD) in four copies. The original and two copies, together with the duplicates of the official receipts issued, shall be submitted to the Treasurer/Cashier to whom the cash is collected shall be turned over. … In the case of collectors assigned to the field, where travel time from their places of assignment to the Treasurer’s Office is more than one day, turn-over of collections shall be made at least once a week or as soon the collections reach P5,000.00.”

Verification disclosed that collections were not turned-over daily to the Liquidating Officer. Further, evaluation of the records showed that collections remained in the custody of the collectors for 1-69 days at amount up to P101,732.04 before the same were turned-over to the Liquidating Officer. (Annex B)

Thus, the above-cited condition would expose government funds to risk of loss thru misuse or theft.

The management commented that the collectors are highly obliged to remit their collections daily except for those collectors assigned in the field for they are given fifteen days travel time but once their collections reach P5,000.00 they are required to turn-over the same to the Liquidating Officer for deposit to the bank maintained by the LGU.

Recommendation:

Require all collectors to comply religiously with the turn-over of their collections daily, or in the case of the collectors assigned in the field, whenever their collections reach P5,000.00, to the Liquidating Officer with the accomplished Report of Collections and Deposits (RCD).

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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 by type 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.” and

Section 114 of the same manual provides that “The Chief Accountant shall maintain the perpetual inventory records comprising of the Property, Plant and Equipment Ledger Card (PPELC) for each category of plant, property and equipment and Work and Other Animals and Breeding Stocks Ledger Card (WOABSLC) for each type of livestock. Such ledger cards shall contain the details of the property, plant and equipment and livestock accounts 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 cards of the accounting unit. They should 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 P409,432,344.49 as of December 31, 2005.

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 differences 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 Sections 124 and 114 of NGAS Manual.

In effect, the accuracy and the correctness of the account balance of P409,432,344.49 rendered doubtful.

The management commented that the Accounting Division are in the process of maintaining and updating the ledger cards for reconciliation of the differences, if any.

Recommendation:

Implement the provisions of Section 124 and 114 of NGAS Manual to facilitate accurate recording of the Property, Plant and Equipment. Likewise, reconciliation with the accounting records should be regularly conducted to ensure correctness.

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Section 04(n) of COA Circular No. 2002-003 otherwise known as the New Government Accounting System provides that “The Registry of Public Infrastructures (RPI) shall be used to record completed Infrastructures for the use of the general public.” A separate Registry shall be maintained for each class of property or asset, as follows:

- Plazas, Parks and Monuments

- Roads, Highways and Bridges

- Harbors, Seawalls, River walls and others

- Runways

- Waterways, Aqueduct, etc.

- Irrigation canals and laterals

- Reforestation projects

- Other Public Infrastructures

It was disclosed that the City Accountant failed to maintain the Registry of Public Infrastructures (RPI) as required in the Sec. 04 (n) of COA Circular 2002-003.

The management commented that they have partial compliance with the requirement of maintaining a Registry of Public Infrastructures (RPI) only for the projects constructed for the year 2004 wherein only the lump sum amount was reflected in the subsidiary ledgers due to the difficulty in identifying the specific projects since the amount shown in the books was an accumulated balance.

Recommendation:

Require the City Accountant to maintain a Registry of Public Infrastructures (RPI) in conformity with Sec. 04(n) of COA Circular No. 2002-003.

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Section 162 of COA Circular 92-386 provides that when supplies or property of any local government unit have become unserviceable for any cause or are no longer needed, the same shall be disposed of in accordance with the procedures prescribed in the rules and regulations.

The City General Services Office shall be responsible for the disposal of supplies or property of the local government unit.

Section 165 of the same Circular also provides that supplies or property which have become unserviceable or are no longer needed shall be sold, whenever applicable, at public auction, subject to applicable rules and regulations.

In addition, Section 145 of said circular mentioned that the person in actual physical possession of or entrusted with the custody or control of the property shall be responsible for the proper use and care of the same and shall exercise due diligence in the utilization and safekeeping thereof.

Verification of property records disclose that there were unserviceable construction and heavy equipment in the City Engineering compound and in the rock crushing plant. These equipment were kept in the open space, exposed to sun, rain and other elements which contributed to their fast deterioration. These properties which were acquired as far back as Calendar Years 1979 and the 1980’s are found to be still valuable but remained undisposed. These were valued in the books at acquisition cost totaling P1,821,099.43 (Annex 3)

Further verification revealed that the General Services Officer and the City Engineer had already filed the application for disposal of these equipment. A request for technical inspection and appraisal of these properties dated September 13, 2004 of the City Mayor was forwarded to the Director, Commission on Audit, Region X, Cagayan de Oro City. To facilitate the inspection and appraisal of the subject properties, the Regional Cluster Director of Technical Service and Management Office in his 2nd Indorsement dated October 20, 2004 had required to submit the following documents, to wit:

Submit copies of checklist of unserviceable equipment (Please refer to “Annex A” COA Memo. No. 98-569-A for proper guidance), and

Submit current photograph of these properties taken at two different angles.

An inquiry from the City Engineer revealed that these requirements were not complied with.

Management concurred to our finding and assured us to comply with the above-cited requirements.

Instead of allowing these equipment to remain idle for many years in their stations and exposed to wear and tear the same could have generated additional revenue had these been disposed of appropriately.

Recommendation

Direct the General Services Officer and the City Engineer to comply with all the required documents enumerated in the 2nd Indorsement letter of the Regional Cluster Director, Technical Service and Management Office so that disposal of these properties could be facilitated.

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A loan should be covered by a loan agreement between the City of Tangub represented by the City Mayor and the farmer.

The city`s program during the year was to help and assist farmers uplift their living conditions. Thus various activities and projects were prioritized through the City Agriculture’s Office. One of these was to release fertilizers and hybrid corn seeds to farmers in the form of loan.

Examination of the records disclosed that the city government purchased 1600 bags of fertilizers, and 100 bags of hybrid corn seeds totaling P728,000.00 in the middle of the year for distribution to farmers in the form of loan. (Annex 2) These purchases were properly funded and authorized. The loan agreement was signed by the barangay chairman on behalf of the farmers and the City Agriculturist on behalf of the city government regarding the manner and mode of payment of the loan. On the other hand, an agreement was entered into by and between the barangay chairman and the farmers indicating among others, their obligation upon the receipt of the loaned fertilizers and seed and the mode of payment. One provision was that the farmers will pay in kind upon harvest to be priced by the city agriculturist.

Out of the 1600 bags of fertilizers and 100 bags of hybrid seeds, only 365 bags and 35.5 bags respectively were loaned to farmers.

Further verification showed that after receiving the items from the General Services Office through a Requisition and Issue Slip (RIS), the items were then distributed to the farmers. The City Agriculture’s Office had then required the farmers to sign in a logbook to record the receipt of the items, showing the following data:

Local Government Unit;

Office;

Date, Sheet Number;

Description of the Item, Unit of Issue;

Item Number, Quantity, Unit Cost, Total Amount;

Name of End-User, Signature, and

Certification of the Correctness of the Issuance by the Head of Office

Thus, the accountability of the farmers could not be legally established, as the loan agreement was not made between the City Government and the farmers.

Therefore, the payment of loan is exposed to the risk of not being collected.

Recommendation

Require the City Agriculturist to prepare a contract to be signed by the City Mayor and the farmers showing the quantity and amount of fertilizers and/or corn seeds received by the latter from the former and the corresponding payment scheme as agreed by both parties. Require him also to monitor collections.

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Joint Circular No. 8-85 issued on October 31, 1985 by the Commission on Audit, Department of Finance and Department of Budget and Management provides that a check is considered stale if it has been outstanding for over six months. This is also the implementing guideline of Section 97 of Presidential Decree No. 1445, otherwise known as the Government Auditing Code of the Philippines, in the disposition of stale warrants or checks.

Section 59, Volume I of the Manual on the New Government Accounting System for local government units, provides that checks maybe cancelled when they become spoiled or stale. It is stale if it has been outstanding for over six months from date of issue or as prescribed by the depository bank. At least one month before a check becomes stale the Treasurer shall send a written notice to the payee of the existence of the check.

Verification revealed that total outstanding checks per bank reconciliation dated December 31, 2006 amounted to P248,168.24. (Annex 1a-c).

Apparently, due to non-encashment and or presentation of the checks by the payees to the bank within the prescribed period, the checks became stale. Moreover, the failure of the Cashier to inform the payees a month before the checks became stale added to the accumulation of stale checks.

As of this writing, the Cashier has been informed of the stale checks and the regulation governing the same, and having understood gave assurance to implement the rules and guidelines as provided under Joint Circular No. 8-85 dated October 31, 1985 and Presidential Decree No. 1445

In effect, Cash in Bank and Accounts Payable accounts were understated due to the presence of those stale checks.

Recommendation

Require the City Treasurer to send written notices to the payees of the existence of the stale checks. Advise him further, to send written notices to payees at least one month before a check becomes stale. Require the Accountant to debit Cash in Bank-Local Currency, Current Account and credit Accounts Payable Accounts for P248,168.24 to restore the liability to creditors. Instruct the Treasurer to replace the stale checks upon its presentation.

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Section 26 of COA Circular No. 92-382 provides that at the close of the business day, collectors shall turn over all their collections intact to the treasurer/cashiers. In case of collectors assigned to the field, where travel time from their place of assignment to the treasurer’s office is more than one day, turn over of collections shall be made at least once a week, or as soon as the collections reach P5,000.00

Section 31 of the same Circular provides that collectors shall turn-over their collections to their designated liquidating officer following the procedures prescribed in Section 26.

Evaluation of records revealed that the City treasury has made an internal policy that collections from Monday to Friday should be remitted every Friday to the Liquidating Officer while collections from Friday to Sunday shall be remitted every Monday or as soon as the collections reach P500.00. Despite the policy, records showed that some collectors failed to remit within the time provided by said circular. The delay of the remittances ranges from 4 days to 21 days. (Annex 7)

Said deficiency was attributed to poor supervision and inadequate monitoring of the Assistant City Treasurer. The Assistant City Treasurer failed to closely follow up the remittance of collection, thus gave an opportunity for the collectors to misuse/ misappropriate the funds, as evidenced by the late remittance.

The Assistant City Treasurer concurred with the finding and promised to closely monitor the remittances, especially those coming from erring collectors.

Recommendation

Advise the Assistant City Treasurer to closely supervise and monitor the remittances of collections to ensure their timely remittance, in order to safeguard the collections, avoid misappropriation/misuse or loss of cash. Instruct the Assistant City Treasurer to strengthen the implementation of the internal policy of the agency and to relieve revenue collectors who always fail to remit on time.

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Section 143 of RA 7160 provides that the barangays shall have the exclusive power to levy taxes in accordance with Section 152 (a) of the same Code which further provides that the taxes on stores or retailers with fixed establishments having gross sales or receipts of the preceding calendar year of P50,000 or less in the case of cities shall be at a rate not exceeding one percent on such gross sales or receipts.

But the City enacted Tax Ordinance No. 97-06-119 dated June 6, 1997 requiring all business establishments within the city to pay business taxes. During the year, P514,816.78 (Annex 6) were collected from 295 business establishments of the 20 barangays with annual gross sales of not more than P50,000. These were treated as income of the City.

This deficiency was brought to the attention of the Chief Executive in one of the conferences we had in October, 2005.

The City Mayor justified that it was one way of increasing their local revenue and since it was within their power to issue Mayor`s permit, the business tax on annual gross sales was attached to it. This information was also relayed to the concerned barangay officials to avoid double taxation to which said barangay officials concurred.

This practice however deprived the barangays of the income due to them which could have redound to the benefits of the residents in the form of basic services.

Recommendation

Amend the tax ordinance of the City by imposing business taxes on establishments with annual gross sales of more than P 50,000 only and let the barangays exercise their power to levy taxes in accordance with Section 152 of RA 7160.

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Section 21 of the Manual on the New Government Accounting System, Volume III described Accounts Receivable as an account used to record among others, the amount due from customers/clients resulting from trading/business transactions/operations.

The city government, in its desire to uplift the living condition of its constituents in the barangays, particularly the farmers, had always included in its agriculture program the supply of fertilizers to farmers on credit. This was strengthened by a Memorandum of Agreement duly executed by and between the city government and the farmers who availed of the loan.

Records showed that the recipients of the loan totaled 152 farmers coming from the 20 barangays of the city. The agreement included among others, that the fertilizer loan would be paid in installment basis; that it would be payable within one (1) year from the time it was granted. The total amount of loan was P478,574.82. Out of the total amount loaned to farmers, P326,246.04 or 68% was collected thereby leaving a balance of P151,878.78 at year-end. (Annex 5). Moreover, the records also revealed that farmers from the four (4) barangays paid 100% of their loan, 14 barangays paid 50% or less and the remaining two (2) barangays did not pay at all.

The City Agriculture’s Office which was tasked to supervise the implementation of the program, keep the records of farmers and monitor the collection of payments from farmers did not prepare and submit monthly report on the status of the farmers’ accounts, thus the City Agriculturist had no way of knowing who regularly paid and whether the amount paid was sufficient to cover for the amount loaned.

Due to the failure of the City Agriculturist to supervise and monitor the collection, the unpaid balance of P151,878.78 remained outstanding at year-end, thus deprived the other farmers of the remaining 35 barangays to avail of the loan.

Recommendation

Require the City Agriculturist to prepare the monthly report on status of the farmers’ account to be able to closely supervise and monitor the payments of the farmers; intensify collections when it is logging behind to avoid huge balances of accounts receivable from the farmers at year-end to give way for other farmers to avail of the loan.

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Republic Act No. 656 provides for the insurance of all government property, assets and its interests against any insurable risk. Furthermore, the insurance of all property, assets and interests of the government, which are required to be insured with the General Insurance Fund, as administered by the Government Service Insurance System, is further reiterated under Administrative Order No. 141 dated August 17, 1994.

However, records revealed that the city’s Office Buildings in the amount of P99,042,865.73 and Other Structures totaling P28,346,516.13 were not insured with the Government Service Insurance System as mandated under RA No. 656 against any insurable risk.

In an interview with the City Treasurer and the Acting Accountant, the property were not insured because no amount was appropriated for the purpose. This was further brought to the attention of the City Mayor in a conference held in October, 2005 and in response gave assurance to appropriate an amount for the insurance of the city’s property and assets, for the property to be insured in the ensuing year.

If the city’s property, assets and interests would not be insured against any insurable risk, and loss or damage to such property occur, there could be no way for the city to be indemnified or compensated from such loss or damage. The officials and employees responsible for such loss or damage could also be meted with the appropriate administrative sanctions.

Recommendation

Appropriate an amount for the insurance of the city’s property, assets and interests and ensure that these property, assets and interest are insured with the General Insurance Fund against insurable risk, in order for the city to be indemnified or compensated for any damage to, or loss of it’s property due to fire, earthquake, storm or other fortuitous events or casualty.

3. The depository accounts of the City maintained at PNB Ozamiz City Branch amounting to P2,207,756.62 were deducted of monthly bank charges because these have been dormant for years, thus depleting the Cash in Bank balance.

Section 311 of the Local Government Code authorizes the local treasurers to maintained depository accounts in the name of their respective local government units to any authorized depository bank. The City Government of Tangub had opened sixteen (16) accounts to the authorized depository banks. One of them is PNB Ozamiz Branch with three (3) accounts and their balances as of December 31, 2005, namely:

FundNature of DepositAccount No.AmountGeneral FundCurrent Account455-860004-2P 111,829.24General FundCurrent Account455-86000-501,983,957.07Trust FundSavings Account455-514095-4111,969.69TotalP 2,207,756.60

Verification of the Cash in Bank accounts revealed that those maintained with PNB Ozamiz Branch were deducted monthly bank charges of P20.00, P50.00 and P220.00 thereafter, in accordance with the existing bank policy. These accounts had not moved for the past 7 years. Neither deposit nor withdrawal had been made by the city government too. Total bank charges amounted to P8,430.00 after an interest income of P3,385.48 was credited, thus leaving a balance of P2,207,756.60. (Annex 4)

Further, the following accounts listed below were also dormant, but were not deducted with bank charges, namely:

FundNature of DepositAccount No.AmountGeneral FundCurrent AccountLBP 0812-1039-89P 56,808.21General FundSavings AccountDBP 5-08283-835-02,353.06Trust FundCurrent AccountLBP 0812-1025-912,090,457.36Trust FundSavings AccountLBP 0811-0103-40334,186.90Trust FundCurrent AccountRBTC 21-00036-51,976,020.17Trust FundCurrent AccountLBP 0812-1039-9755,092.17Trust FundCurrent AccountLBP 0812-1048-291,009,952.47TotalP 5,524,870.34

Because of dormancy, the Cash in Bank account was subjected to bank charges, thereby depleting the balances of these accounts.

In our conference with the Local Chief Executive, we informed her of our findings, particularly on the deposits made with the different depository banks. She concurred with our findings and we quote:

“We did not anticipate that these accounts which have no more transactions and or non-moving would be subjected to monthly bank charges. We shall see to it that these accounts would be activated; if not, we will close the accounts and transfer these accounts to any moving account.”

Despite the assurance, we informed the City Mayor that we will follow-up the matter to ensure that closing and or transferring of the accounts would be done.

Recommendation

Require the City Treasurer to activate the dormant accounts, otherwise close the accounts and or transfer the accounts to any moving account maintained at its authorized depository banks to prevent further depletion of the Cash in Bank Balances.

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