01-LapulapuCity2012 Audit Report

Copy furnished:
Commission Proper, COA Central Office, Quezon City

Sangguniang Panlungsod
The Regional Director, DILG, Region VII
The Regional Director, DBM, Region VII
The Regional Director, BLGF, Region VII
Republic of the Philippines
COMMISSION ON AUDIT
Regional Office No. VII
Cebu City
March 15, 2013
Sabiniano G. Cabatuan
Regional Director
Commission on Audit
Cebu City
Sir:
In compliance with Section 2, Article IX-D of the Philippine Constitution and pertinent
sections of Presidential Decree No. 1445, we conducted a Financial and Compliance Audit
on the accounts and operations of the City of Lapu-Lapu, Province of Cebu for the year
ended, December 31, 2012.
The audit was conducted to ascertain the propriety of financial transactions and compliance
of the agency to prescribed rules and regulations. It was also made to ascertain the accuracy
of financial records and reports, as well as the fairness of the presentation of the financial
statements. The audit also includes assessing whether the financial statements are presented
in conformity with generally accepted accounting principles applied on a consistent basis.
We conducted our audit in accordance with generally accepted auditing standards (GAAS).
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement/s. Our audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. The audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for the results
of audit.
Our attached report consists of four (4) parts, Part I contains the Audit Certificate, Statement
of Management Responsibility for Financial Statements, Audited Consolidated Financial
Statements and Notes to Consolidated Financial Statements. Part II presents the detailed
findings and recommendations that were discussed with concerned officials and staff. Part
III presents the Status of Implementation of Prior Years’ Recommendations and Part IV is the
Annexes.
As discussed in Part II hereof, the financial statements were not free of material
misstatements due to the following reasons:
 Real property tax receivable from the Mactan Cebu International Airport Authority
(MCIAA) totaling P928.122M exclusive of penalties and interests covering CYs
1992-2012 were not recorded in the books of accounts, resulting in the
understatement of the City’s real property tax receivable (RPT) and its appropriate
deferred real property tax.
 Accounting and property records on Property, Plant and Equipment had an

unreconciled difference of P1.056B casting doubts on the accuracy and reliability of
the account balance.
 Disbursements totaling P1.417M were not recorded in the books due to non-
submission of vouchers and supporting documents, resulting in the misstatement of
affected asset, liability and equity accounts.
 Inter-agency fund transfer account, Due from LGUs had an unreconciled difference
of P4.553M compared to the Barangay records on the reciprocal account Due to
LGUs thus, affecting the fairness of the presentation of the account in the financial
statements.
 Cash advances granted to officers and employees totaling P9.584M and financial
assistance granted to NGOs/POs amounting P7.470M remained unliquidated at year
end. The bulk of these amounts had already been expended, considering that 73% or
P7.016M of the advances and 94% or P6.996M of the financial assistance granted
were aged 90 days and above. The consequent non-recognition of expenses in the
books misstated the financial condition and results of operation of the City.
In our opinion, because of the effects of the matters discussed in the preceding paragraph, the
financial statements referred to above do not present fairly in conformity with generally
accepted accounting principles, the financial position of Lapu-Lapu City as of December 31,
2012, and the results of its operations and its cash flows for the year then ended.
Very truly yours,
DELIA E. MONTE DE RAMOS

Supervising Auditor
COMMISSION ON AUDIT
Office of the Auditor
Lapu-Lapu City
February 28, 2013
Sabiniano G. Cabatuan
Regional Director
Commission on Audit
Cebu City
Thru: Delia E. Monte de Ramos

Supervising Auditor – Audit Group Cebu B
Commission on Audit
Cebu City
Sir:
In compliance with Section 2, Article IX-D of the Philippine Constitution and pertinent
sections of Presidential Decree No. 1445, we conducted a financial and compliance audit on
the accounts and operations of the City of Lapu-Lapu, Province of Cebu for the year ended
December 31, 2012.
The audit was conducted to ascertain the propriety of financial transactions and compliance
of the agency to prescribed rules and regulations. It was also made to ascertain the accuracy
of financial records and reports, as well as the fairness of the presentation of the financial
statements. The audit also includes assessing whether the financial statements are presented
in conformity with generally accepted accounting principles applied on a consistent basis.
We conducted our audit in accordance with generally accepted auditing standards (GAAS).
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement/s. Our audit
statement presentation. We believe that our audit provides a reasonable basis for the results
of audit.
Our attached report consists of four (4) parts, Part I contains the Audit Certificate, Statement
of Management Responsibility for Financial Statements, Audited Consolidated Financial
Statements and Notes to Consolidated Financial Statements. Part II presents the detailed
findings and recommendations that were discussed with concerned officials and staff. Part
III presents the Status of Implementation of Prior Years’ Recommendations and Part IV is the
Annexes.

statements.
Very truly yours,
LYDIA B. CLAPANO
State Auditor IV
Audit Team Leader
EXECUTIVE SUMMARY
Introduction
The City of Lapu-lapu was created thru Republic Act No. 3134, otherwise known as
the Charter of Lapu-lapu City. It was approved on June 17, 1961. Last May 12, 2007 the
City of Lapu-lapu was declared as Highly Urbanized City, which a plebiscite was being
conducted on the same date.
Pursuant to RA 7160, known as the Local Code of 1991, the city, like the other
government units, enjoys total independence in managing, deciding and planning its own
administrative, fiscal and development affairs in conformity with the national government’s
thrust for sustainable social economic growth.
To accelerate the social and economic development of the city, management focused
in the implementation of its infrastructure projects for the year 2012 as shown in Annex F.
A. HIGHLIGHTS OF FINANCIAL OPERATION
A.1. Sources of Funds
Total income realized during the year amounted to P1,174,096,103.40, an increase of

P50,158,190.13 or 4.46% compared to that of the preceding year of P1,123,937,913.27. A
comparative schedule is shown below:
Increase/
INCOME 2012 2011 (Decrease) %
Internal Revenue 410,493,728.00 469,046,167.00 (58,552,439.00) (12.48)
Allotment
Local Income 463,379,425.40 377,370,039.00 86,009,386.40 22.79
Permits and 35,434,053.91 32,209,676.01 3,224,377.90 10.01
Licenses
Service Income 33,098,136.74 19,405,635.17 13,692,501.57 70.56
Business Income 24,851,673.59 25,630,394.67 (778.721.08) (3.04)
Other Income 206,839,085.76 200,276,001.42 6,563,084.34 3.28
TOTAL 1,174,096, 103.40 1,123,937,913.27 50,158,190.13 4.46
A.2. Appropriations
For calendar year 2012, total appropriation of the city amounted to P1,651,440,773.02
compared with last year’s P1,582,270,432.54, showing an increase of P69,170,340.48 or
4.37%. See Annex E for details. A comparative fund distribution is shown as follows:
FUNDS 2012 2011 Increase/ %

(Decrease)
General Fund 1,560,058,773.02 1,488,255,948.61 71,802,824.41 4.82
SEF 91,382,000.00 94,014,483.93 (2,632,483.93) (2.80)
TOTAL 1,651,440,773.02 1,582,270,432.54 69,170,340.48 4.37
A. 3. Obligations
During the year, the city incurred an obligation of P1,293,767,804.40 an increase of

P185,818,140.72 or 16.77% compared to that of the preceding year of P1,107,949,663.68.
See Annex E for details. A comparative schedule is shown below:
Increase/
FUNDS 2012 2011 %
(Decrease)
General Fund 1,226,601,855.39 1,050,253,263.79 176,348,591.60 16.79
SEF 67,165,949.01 57,696,399.89 9,469,549.12 16.41
TOTAL 1,293,767,804.40 1,107,949,663.68 185,818,140.72 16.77
A.4. Financial Ratios
Liquidity Formula 2012 2011

Current Assets Current Assets/Current
Ratio Liabilities 3.24:1 4.46:1
Quick (Acid Test) Current Assets less
3.12:1 4.33:1
Ratio Inventory/Current Liabilities
Net Working Current Assets less Current
1,008,819,172.14 1,050,827,547.34
Capital Liabilities
B. SCOPE OF AUDIT
A financial and compliance audit was conducted on the accounts and operations of
the City Government of Lapu-lapu for the year ended December 31, 2012. Our audit
statement presentation.
C. AUDITOR’S OPINION ON THE FINANCIAL STATEMENTS
The auditor rendered an adverse opinion on the fairness of the presentation of the
financial statements of the Lapu-lapu City Government in view of the material misstatements
observed in the accounts as follows:

statements.
D. SIGNIFICANT FINDINGS AND RECOMMENDATIONS
I. FINANCIAL AND COMPLIANCE AUDIT
1. The contract prices of four (4) completed and fully paid projects were found
excessive by P1,432,080.47, in violation of Section 3.3 of COA Circular 85-55A.
The amount of overprice could possibly increase to P2,572,514.56, if the unfinished
project on Concreting of Various Roads in Olango Island, with excessive contract
price of P1,140,434.09 is not settled by the contractor.
We recommend that management:

a. requires the concerned contractors to refund excessive contract costs of the
above mentioned projects.
b. negotiates with Goldfin Construction for the possible reduction of the contract
price by P1,140,434.09, of the ongoing project on Concreting of Various Roads
in Olango Island, which exceeded the COA Evaluation Cost by the same
amount. If no agreement is reached, cause the withholding of said amount from
its remaining collectibles until such time that the subject issue is fully settled.
2. Completed concreting project of Timpoloc-Babag Road in Lapulapu City, with a

contract amount of P1,555,975.58, was deficient by 4.44% in workmanship,
resulting in the overpayment of the contractor by P69,085.89.
a. requires the contractor to refund the overpayment of P69,085.89;
b. henceforth, directs those concerned employees to exercise due care and

diligence in the inspection, evaluation and acceptance of projects turned over by
the contractor to avoid overpayment.
.
3. Five (5) procurement contracts for drugs and medicines totaling P3,517,461.26
can be obtained for only P1,849,892.61 at the retail botica managed by the
Department of Health (DOH). Thus, the City lost the opportunity to save at least
P1,667,568.65.
We recommend that management procures medicines which are available and

cheaper at the DOH retail botica to save and sustain well-meaning government
initiated program/project.
We also recommend that the BAC scrutinizes purchase requests on drugs and
medicines and conduct market surveys at DOH retail Botica and
distributors/suppliers to obtain the most advantageous price for the City with due
consideration to the timely response to the needs of the hospital.
4. Remittances/deposits of collections were delayed by one (1) to twenty-nine (29)

days contrary to Section 69 of PD 1445, COA and MOF Joint Circular 1-81 and
Section 32 of the NGAS Manual for LGUs, thus exposing the accumulated
unremitted/undeposited collections to possible loss thru theft or misuse.
We recommend that the City Treasurer faithfully monitors and ensures compliance
with Section 69 of P.D. 1445, COA and MOF Joint Circular 1-81 and Section 32 of
the NGAS Manual for LGUs. We also recommend that administrative sanctions be
imposed on collecting officers and cashier who repeatedly did not perform their
sworn duties in accordance with law and regulations.
5. The recording of refunds of excess cash advances even though there was no
amount turned-over to the cashier resulted to inaccurate or misleading cash balances
contrary to Section 111(2) of Presidential Decree (PD) 1445 or the Government
Auditing Code of the Philippines. This practice is prejudicial to the interest of the
City Government because on record the accountable officer has no more cash
accountability.
We recommend that the City Government directs the disbursing officer to stop the
practice of recording refunds in the cashbook unless there is actual turnover of cash
to the cashier and for her to explain in writing the incorrect entries which resulted to
inaccurate and misleading daily cash balances.
6. Cash advances granted to officers and employees totaling P9,584,312.28

remained unliquidated as of the year end contrary to Section 89 of PD 1445 and
COA Circular No. 97-002 dated February 10, 1997 thus, may expose any
unexpended amounts to risks of loss or misuse and deprives the government from
the use thereof for other important projects.
We recommend that management institutes appropriate sanctions pursuant to

Section 9 of COA Circular No. 2012-004 against those employees whose cash
advances as of December 31, 2011 remained unliquidated as of January 31, 2013,
despite the final demand stated under Section 6 thereof.
We further recommend that the City Government issues demand letters to all
concerned parties to settle pursuant to the provisions of Section 89 of PD 1445 and
COA Circular No. 97-002, all unliquidated cash advances granted after December
31, 2011. In case of failure to settle their accountabilities, cause the withholding or
suspensions of their salaries.
7. The 20% Development Fund (DF) of the City of Lapulapu was depleted by
P709,400.00 due to the improper charging of the purchase of one (1) unit cargo
truck and three (3) units motorcycles, which is outside the fund’s intended purposes
as provided under DBM and DILG Joint Memorandum Circular No. 2011-1.
We recommend that Management:
a. appropriates funds from the General Fund totaling P709,400.00 and thereafter
direct the Budget Officer and the Accountant for the proper recording of
adjustments affecting the transactions listed above, and restitute the said amount
to the 20% DF which was depleted due to improper charging thereof;
b. henceforth, observe the proper utilization of the 20% DF pursuant to the

provisions of the DILG and DBM Joint Memorandum Circular No. 1, s. of 2005
to attain the government’s objectives.
8. The City of Lapulapu failed to record in the books of accounts the real property
tax receivable from the Mactan Cebu International Airport Authority (MCIAA)
totaling P928,122,879.30 exclusive of penalties and interests covering CYs 1992-
2012, resulting in the understatement of the City’s real property tax receivable
(RPT) and its appropriate deferred real property tax income by the same amount
which contravened Sections 19 and 20 of the New Government Accounting System
Manual (NGAS) for LGUs.
a. directs the City Treasurer to include MCIAA in its list of taxpayers which has
real property tax liability and every year thereafter, until such time subject
agency gets favorable ruling from the court, so that such amount including the
unsettled portion of P928,122,879.30 will be recorded by the Accounting Office
as part of the real property tax receivable;
b. directs the City Treasurer to conduct extensive tax mapping activities to identify
business establishments located within the property of MCIAA and determine
their appropriate business tax dues and send appropriate notices directing them
to pay and settle their obligations in compliance with the City’s Tax Code;
c. sends demand letters requiring the MCIAA to settle its tax liabilities totaling
P1,727,348,182.45 otherwise, institute appropriate legal action by citing the
foregoing Supreme Court ruling to advance its case against the subject agency.
9. The non-recording of disbursements totaling P1,417,082.09 in the books of

accounts, due to the failure of the City Treasurer to submit vouchers and supporting
documents comprising of current and prior year’s transactions to the Accounting
Office, may result in the misstatement of financial statements of the City of
Lapulapu, and prevent concerned parties to review the validity, legality, and
propriety of subject disbursements, in violation of Section 4 (6) of Presidential
Decree (PD) 1445.
a.instructs the City Treasurer to facilitate the retrieval of vouchers and its
supporting documents from the concerned personnel and submit them
immediately to the Accounting office for appropriate recording;
b. henceforth, directs the City Treasurer to institute effective measures to

streamline the releasing of payment or checks to avoid the occurrence of this
nature in the future;
c.imposes appropriate sanctions against those who failed to submit the documents
in question, otherwise the disbursed amount of P1,417,082.09 will be
disallowed in audit, and those officials who are signatories to the check will be
jointly and severally liable thereto.
10. Productivity Enhancement Incentive granted to regular and casual employees

totaling P25,176,268.74 were not subjected to withholding tax as required under
pertinent tax laws and regulations of the Bureau of Internal Revenue due to its
exclusion in determining the gross taxable income, thereby resulting in the loss of
revenue due the national government.
We recommend that the City Government:
a. directs the Accountant to collect from the concerned parties the proper amount
of withholding tax and remit the same to the BIR furnishing the Auditor a copy
of the report.
b. henceforth, impose the appropriate withholding of taxes from taxable claims

and benefits pursuant to existing laws, rules and regulations.
11. Rules and regulations in the grant of financial assistance to Non-Government

Organizations (NGOs) and People’s Organizations (POs) and monitoring over the
submission of liquidation reports on the utilization thereof as provided under COA
Circular No. 2007-001 dated October 25, 2007 were not strictly enforced resulting
in unliquidated grants of P7,469,511.80. Further, additional financial assistance
was still granted inspite of the unsettled balances resulting to accumulation thereof.
We recommend that the City Government makes concrete efforts by sending

demand letters to NGOs/POs for the immediate settlement of their outstanding
balances and improve the present monitoring and control measures on the
liquidation of fund releases. For future grants of financial assistance to NGOs/POs,
strict adherence to COA Circular No. 2007-001 is enjoined to ensure prompt
liquidation thereof. It is also recommended that the City Accountant stops the
granting of additional fund assistance unless the previous ones are first settled.
12. The failure of the City Accountant to reconcile inter-agency fund transfers under
account Due from LGUs with Barangay records on the reciprocal account Due to
LGUs resulted in an unreconciled difference of P4,553,222.98 as of December 31,
2012 thus, affecting the fairness of the presentation of the accounts in the financial
statements.
We recommend that the City Accountant and Barangay Bookkeeper reconcile their
records and effect the necessary adjustments to present the correct financial
condition of the agency.
13. Liquidation reports to settle the financial assistance granted contained audit
deficiencies totaling P2,127,223.49 which remained uncorrected, due to non-
compliance and/or non-submission of the documentary requirements mentioned in
the credit notices by the recipient barangays, causing undue delay in the recording
of settlements. This resulted in an unwarranted understatement of the expense
account and overstatement of the receivable and government equity accounts
considering that the subject financial assistance has already been spent. Thus, the
City’s statement of income may present unreliable data that could possibly mislead
management to use the reported income for budgetary allocations even with the
apparent misinformation that may result in improper spending procedures.
a. calls the attention of barangay officials concerned and require them to comply
with the requirements enumerated in the credit notices issued by the Auditor to
facilitate the recording of settlements of the financial assistance so that
appropriate accounts affected thereon are properly presented in the financial
statements to avoid misleading information.
b. henceforth, advise the Accounting Office to review properly the liquidation

reports submitted by the barangays to minimize if not eliminate the foregoing
audit deficiencies so that the actual amount spent thereof are recorded
immediately, thus credits to the account on piecemeal basis is prevented.
14. Failure of the City Government to refund the unutilized financial assistance
granted by the Department of Tourism (DOT) on December 5, 2006 for the 12th
ASEAN Summit scheduled on January 10 to 14, 2007 despite demand and various
audit observation memorandum issued has resulted to unsettled balance of
P8,705,916.09 contrary to the Memorandum of Agreement and COA Circular 94-
013 dated December 13, 1994.
We recommend that Management follow up their request from DOT Manila to use
the unexpended balance for beautification projects of the City of Lapulapu,
otherwise, the amount of P8,705,916.09 be immediately refunded pursuant to the
provisions of COA Circular 94-013 and MOA.
15. Liquidations of intelligence fund were recorded in the books by the City
Accountant despite non-receipt of Credit Notice and authorization from the COA
Chairman contrary to COA Circular No. 2003-003 dated July 30, 2003 thus,
understating the reported asset account and overstating the appropriate expense
account.
We recommend that the City Accountant stops the practice of recording liquidations
of Intelligence Fund unless upon receipt of Credit Notice from the COA Chairman.
We also recommend for the immediate restoration of the amount of cash advance
recorded without the Credit Notice and to adhere strictly to the provisions of COA
Circular 2003-003 for a fair presentation of the accounts in the financial statement.
Momentarily, in the absence of the Credit Advice, a notation maybe made in the
schedule of unliquidated cash advance that such amount of settlement had been
made and forwarded to the COA Chairman for audit.
16. The accuracy and reliability of Property, Plant and Equipment Accounts totaling
P1,904,975,753.83 remained doubtful due to a) unreconciled difference of
P1,056,511,188.96 between accounting and property records; b) inability of
management to conduct physical count; c) incomplete property and accounting
records; d) erroneous classification of accounts contrary to pertinent accounting
rules and regulations.
We recommend that management implements the following corrective measures to

ensure better internal control thereat and to present the correct financial condition of
the PPE accounts:
 instruct the Accountant and GSO to reconcile the difference of

P1,056,511,188.96 and effect the necessary adjustments to correct the record
with erroneous entries, thus, present the correct financial condition of the
agency;
 consider creating a Special Inventory Team to conduct physical inventory of
all PPE owned by the city and reconcile the report with the records of the
Accounting and GSO Sections to determine their existence, status/conditions
and whereabouts of the assets and submit a report thereon;
 advise the inventory team to use property tags during the count to facilitate
identification and location of the PPE;
 advise the inventory team to submit a report for whatever assets found in
station during the count but not recorded per books so that these could be
taken up in the agency books for control purposes and pinpoint accountability
in case of loss;
 direct the GSO and Accountant to update recording on the Property Cards and
Equipment Ledger Cards, respectively, to ensure the accuracy and reliability
of the property and accounting records;
 reclassify small tangible assets to its proper inventory/expense accounts in
accordance with COA Circular No. 2005-002 dated April 4, 2005;
 provide adequate information on the inventory reports such as serial number,
acquisition cost, persons accountable, whereabouts, conditions and property
number to facilitate identification during the count;
 require clearance from retired/resigned officials and employees to clear them
of their property accountability and cancel the corresponding
Acknowledgement Receipt for Equipment (ARE) for the return items.
17. Claims for daily wage and monthly honorarium of Job Order Contract Employees
who are assigned in the City’s barangays were not supported with proper daily time
records and/or individual accomplishment reports, thus the validity and propriety of
disbursements may prove doubtful and the extent of services rendered cannot be
properly validated in violation of Section 4 (6) of Presidential Decree (PD) 1445.
a. requires JO employees who are reporting in the barangays to maintain a daily

record of attendance and submit accomplishment report for proper evaluation
and documentation;
b. coordinates with the Punong Barangays to oversee the proper implementation of
the foregoing instruction; and
c. directs the Accountant to refrain from processing daily wage claims and/or
honorarium of JO employees without proper DTRs and/or accomplishment
reports duly verified by the Punong Barangays.
E. STATUS OF IMPLEMENTATION OF PRIOR YEAR’S AUDIT

RECOMMENDATIONS
Of the thirty-two (32) audit recommendations embodied in the 2011 Annual

Audit Report, seven (7) were fully implemented and thirteen (13) were partially
implemented and twelve (12) were not implemented.
.
Table of Contents
Part I Audited Financial Statements Page No.
 Audit Certificate 1
 Statement of Management Responsibility 3
 Financial Statements
 Consolidated Balance Sheet 4
 Consolidated Statement of Income and Expenses 6
 Consolidated Statement of Cash Flows 8
 Consolidated Statement of Changes in
Government Equity 9
 Notes to Financial Statements 10
Part II Detailed Findings and Recommendations
 Financial and Compliance Audit 18
Part III Status of Implementation by the Auditee 51

of Prior Years’ Audit Recommendations
Part IV Annexes 72
COMMISSION ON AUDIT
OFFICE OF THE REGIONAL DIRECTOR
REGIONAL OFFICE NO. VII
COA Compound, Cor. V. Sotto-M.J. Cuenco Streets
Cebu City
AUDIT CERTIFICATE
Honorable Paz C. Radaza

City Mayor
City of Lapu-Lapu
Province of Cebu
Pursuant to Section 2, Article IX-D of the Philippine Constitution and pertinent

provisions of Presidential Decree No. 1445, we have audited the accompanying Consolidated
Balance Sheet of the City of Lapu-Lapu as of December 31, 2012 and the related
Consolidated Statement of Income and Expenses and Cash Flows for the year then ended.
These financial statements are the responsibility of the Lapu-Lapu City’s Management. Our
responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with laws, COA and INTOSAI standards, and
Generally Accepted Auditing Standards (GAAS). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. Our audit included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. It also included assessing
the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit provides
reasonable basis for our opinion.
1
statements.
COMMISSION ON AUDIT
DELIA E. MONTE DE RAMOS

Supervising Auditor
March 15, 2013
2
3
City of Lapu-lapu
Province of Cebu
NOTES TO FINANCIAL STATEMENTS
For the Calendar Year 2012
Note 1 – Agency Profile
The City of Lapu-Lapu was created thru Republic Act No. 3134, otherwise known as
the Charter of Lapu-Lapu City. It was approved on June 17, 1961. Pursuant to RA 7160,
known as the Local Code of 1991, the city, like the other government units, enjoys total
independence in managing, deciding and planning its own administrative, fiscal and
development affairs in conformity with the national government’s thrust for sustainable
social economic growth. It is a body politic and corporate endowed with powers to be
exercised in conformity with laws. As such, it shall exercise powers as a political sub-
division of the national government and as a corporate entity representing the inhabitants of
the territory. It is responsible for the delivery of basic services and facilities and promotes the
general welfare of its inhabitants.
Last May 12, 2007, a plebiscite was being conducted to all the 30 barangays in Lapu-
lapu City to make the city a highly urbanized one. It was a successful event with the “Yes”
votes winning to make the City of Lapu-lapu a Highly Urbanized City as declared
accordingly. Consequently, a law was passed to Congress last Calendar Year 2009 making
the City of Lapu-lapu a lone district separate and distinct with the Province of Cebu and
accordingly been approved on that same year thus making Lapulapu City as the 7th District.
The Consolidated Financial Statements includes the operations of Market and

Slaughterhouse, Development Fund and the newly integrated Hospital Fund under General
Fund, UHNP and Trust Funds as well as the Special Education Fund, respectively. Projects
funded through loans are also part of General Fund.
Note 2 – Summary of Significant Accounting Policies
The financial statement has been prepared in accordance with Generally Accepted
State Accounting Principles and Standard. The basic policies and procedures adapted were in
accordance with the New Government Accounting System in compliance with the
Commission on Audit Circular No. 2001-005 dated October 30, 2001.
The financial statement is presented using the Peso Denominations as the Official
Currency used in our country in accordance with the Central Bank of the Philippines.
10
Accounting Policy observed for each account are the following to wit;
1. Cost of inventories are based on perpetual method and priced following the moving
average method. Previous year’s inventory balances were priced following the first-
in-first-out method.
2. Petty Cash Fund account is maintained under the Imprest System. All replenishments
are directly charged to the expense account. The PCF is not used to purchase regular
inventory items for stock.
3. Property, Plant and Equipment are carried at cost net of accumulated depreciation.
Infrastructures under construction in progress are valued following the construction
period theory. Properties of the government used by general public are accounted for
under Public Infrastructure. Completed public infrastructures are dropped from
Property, Plant and Equipment accounts and recorded in the Registry of Public
Infrastructures.
4. The Straight Line Method of depreciation is followed. Assignment of estimated
useful lives of depreciable assets is based on COA Circular No. 2003-007 dated
December 11, 2003. A residual value at ten percent of the cost of asset is set and
depreciation start on the following month after the purchase/completion of the PPE,
irrespective of the date within the month. No depreciation is charged to public
infrastructures likewise to infrastructures projects under construction.
5. Accounts were reclassified to conform with the new Chart of Accounts prescribed
under the Revised New Government Accounting System (per COA Circular No.
2003-001 dated June 17, 2003) which was implemented effective October 2003.
6. Financial Expenses such as bank charges are separately classified from Maintenance,
& Other Operating Expenses.
Fundamental errors of prior years are corrected by using the Prior Years
Adjustments account. Errors affecting current year’s operation are charged to the
current years’ accounts.
Note 3 – Cash CY PY
P 815,838,366.27 P 782,726,617.98
Composition of Cash
The Balances of Cash Disbursing Officers are as follows:
11
General Fund SEF Trust Fund
Leny Caras - (15,502.00) ( .05) 21,933.68

Maridel Dignos 5.02 (100.00)
Judith Fuentes 998.96
-------------- ------------- -----------------
(14,498.02) (100.05) 21,933.68
======== ======== ==========
The Balance of Petty Cash Fund represents the following:
Note 4 – Receivables CY PY
12
P 569,153,211.29 P 510,761,841.92
This account includes the following:
Note 5 – Inventories CY PY
P 52,935,796.73 P 39,003,350.21
Supplies Inventory as well as Agricultural, Fishery and Forestry Products composed

the Inventory Account. Textbook and Instructional Materials Inventory of P 23,067,588.67
represents almost 50% of the total inventory value from the Special Education Fund which is
non-moving for two years now, a portion in the amount of P20,810,545.89 was already
dropped from the inventory account. Medicine worth P8,354,087.27 procured under Trust
Fund caused the increase of the inventory accounts which will be subject to liquidation once
consummated.
Note 6- Prepayments CY PY
P 8,807,757.09 P 9,330,650.52
One of the components of the Prepaid Expense Account represents prepayments of

GSIS Contributions with the total amount of P 5,780,541.55. The account was build up long
before the creation of the Office of the City Accountant. Personnel involved with the
recording are already assigned to other offices, therefore reconciliation needs ample time.
We initiated the reconciliation with the present personnel in accounting office but
could not be continued due to lack of proper turn-over and absence of information because of
personnel’s resignation and retirement.
Note 7-Investments CY PY
P 1,663,646.00 P 1,663,646.00
13
Composition of Investments consisted on the following:
Investments of Stocks P 1,500.00

Other Investments and Marketable Securities 1,662,146.00
The said account is non-moving for so many years now and evidence that such
investment is far remote to be accounted and verified since the people that may have
knowledge of such are no longer been connected with the government.
Note 8- Property, Plant &Equipment (net of Accumulated Depreciation)
CY PY
P 1,685,950,560.06 P 1,627,416,578.27
This account consists of:
A. Depreciation was implemented starting 2003 on current purchases only.

Property, Plant and Equipment beginning balances are still not included in the
computation of depreciation and we are still awaiting for the submission of
GSO listings to be depreciated The allocation of salvage value is
implemented starting January 2004 pursuant to COA directives.
14
B. Other Assets composed of Assets from Special Education Fund amounting to
P43,894,061.65 which is non-moving since then. These are assets which are
remote of existence and accordingly dumped in these account.
Note 9-Current Liabilities CY PY

P 450,611,244.78 P 303,644,323.83
Current Liabilities account compose of payroll taxes and government taxes payable
(Inter-Agency Payable) and Intra-Agency Payable. Accounts Payable to creditors and
suppliers are one of the compositions in this account as well as other liability accounts like
Guaranty Deposit, Performance/Bail bonds/Bidders and tax refund.
Note 10- Long Term Liabilities CY PY

P 258,105,443.64 P 316,472,509.27
The amount of P 385.50M Loans Payable, Domestic account composes the

availed loan from the Land Bank of the Philippines with the remaining balance of P
258,105,443.64 which is for Priority Project Loan broken down as follows;
1. Sport and commercial project intended for SME’s P 180.00M

2. Jeepney Terminal 20.50M
3. Fire Station 30.00M
4. Site Development 55.00M
5. Comprehensive Drainage System 100.00M
------------
TOTAL P 385.50M
=======
The composition of the total loan amounting to P258,105,443.64 follows:
Priority Project Loan P 167,873,968.31

IRA-Hold-Out Loan 4,431,408.42
IRA-Unprogrammed 9,125,496.00
Socialized Housing 1,693,960.18
Construction of Phase II Hoopsdome 74,980,610.73
----------------------
P 258,105,443.64
=============
One of the provisions stipulated in the Loan Agreement is to increase our bank
deposit by at least P100,000,000.00 and governed either in a contract whether it will be
internally funded or through Special Fund.
Another loan granted from Landbank of the Philippines (IRA-Unprogrammed) which

we have a collateral of 40M time deposit which is being set aside and can not be withdrawn
15
to guaranty the uncollected Internal Revenue Allotment (which represents the increase of
our allotment) from Department of Budget. The said current loan will mature on May 31,
2013 and repayment of principal started last May 2007.
Another loan availment in the amount of P90,000,000.00 was availed for the
construction of Hoopsdome-Phase II with a term of 10 years to pay which was fully
released last October 2010 amounting to P 89,976,000.00.
Note 11-Deferred Credits CY PY

P 504,438,025.57 P 449,779,852.47
Deferred Credits is composed of the following:
Deferred Real Property Tax Income P 256,087,447.47

Deferred Special Education Tax Income 229,691,328.31
Other Deferred Credits 18,659,249.79
Deferred tax income represents uncollected real property tax income by the Office
of the City Assessor both in the General Fund and Special Education Fund. Other deferred
credits are the taxes withhold pertaining to business taxes and realty taxes.
Note 12- Government Equity CY PY

P 1, 977,783,970.64 P 1,957,549,471.52
Composition of Government Equity
Note 13-Others
16
i. Intelligence Fund for the third and fourth quarter of 2011 were subsequently
liquidated on January 2013. Pertinent documents were forwarded in the COA
head office for recording and evaluation and there is still no Credit Notice
being sent for Journal Entry.
ii. There were changes in the Government Equity Account for Trust Fund
amounting to P15,172,515.52 and General Fund amounting to P12,504,887.87
within the CY 2012 which was the result of the intensive reconciliation of the
Government Equity Account conducted by our Internal Audit Office and
Accounting likewise. Details in the changes and journal entries are duly
supported by its subsidiary ledgers.
iii. Real Property Tax Receivables from MCIAA amounting to P1,510,127,661.79

is set up in January 2013 per COA Observation NO. 2013-019(12) and per
JEV No. 101-13-01-000. A corresponding business tax in the amount of
P217,220,520.66 is estimated to be collected also from MCIAA once
negotiations will be done and effected.
iv. The unexpended balance as of December 31, 2012, of the Calamity Fund
Account amounting to P52,744,270.75 is accordingly transferred to Trust
Fund Account in consonance with Republic Act No. 101211 governing the
Philippine Disaster Risk Reduction and Management Act of 2010. Actual
transfer of cash will be done on CY 2013 but the transfer in the books was
done at the closing of CY 2012. A resolution was made by the Sangguniang
Panlungsod, This City, to effect the transfer on the books.
v. Real Property Tax Income of General Fund for Cy 2012 was erroneously
deposited in the Special Education Fund account in the amount of
P1,408,048.64 thus understating the Income Account of the General Fund and
overstating the SEF Account. A corresponding transfer of funds will be made
this CY 2013 as per communication with the City Treasurer’s personnel and
accordingly charged it to Prior Year’s adjustments.
17
PART II – DETAILED FINDINGS AND RECOMMENDATIONS
In our audit of the CY 2012 transactions, accounts and operations of the City of
Lapu-lapu, we noted favorable audit observations as follows:
1. The year-end financial reports of the City for CY 2012 were submitted to COA on
February 14, 2013 or within the reglementary period prescribed under COA Circular
No. 2010-001 dated March 2, 2010 thus, making possible the early completion of the
audit of the accounts.
2. The proper composition of the government equity account, such as the continuing
appropriation, invested equity, obligated allotments and the unappropriated surplus
under the Market and Slaughterhouse and Hospital accounts of the General Fund has
been established in conformity with the pertinent accounting and auditing rules and
regulations. The balance of the unappropriated surplus, which is the usual source for
supplemental budgets, is properly established so as not to mislead management into
appropriating funds without cash back up.
However, there were some deficiencies noted in the course of the audit which need
corrective actions as follows:
FINANCIAL AND COMPLIANCE AUDIT
1. The contract prices of four (4) completed and fully paid projects were found
excessive by P1,432,080.47, in violation of Section 3.3 of COA Circular 85-55A.
The amount of overprice could possibly increase to P2,572,514.56, if the
unfinished project on Concreting of Various Roads in Olango Island, with
excessive contract price of P1,140,434.09 is not settled by the contractor.
Section 3.3 of COA Circular 85-55A states that, “The term excessive expenditures
signify unreasonable expense or expenses incurred at an immoderate quantity or exorbitant
price. It includes expenses which are unreasonably high, and beyond just measure or
amount (Highlighting supplied). They also include expenses in excess of reasonable limits.”
The City of Lapulapu entered into various contracts with the following construction
firms for the implementation of the City’s projects, to wit:
% of Unpaid
COA Excess per Amount as of
Contract Allowable Excessive Cost TITS Amount Paid 12.31.12 (C-
Project/Contract Contractor Amount Cost (C-D) report as of 12.31.12 G)
(A) (B) (C) (D) (E) (F) (G) (H)
I. Improvement of Velonta P 816,182.81 745,614.23 70,568.58 20.41% P 816,182.81 -
Lapulapu City Construction
Cooperative and and Supply
Livelihood Center
18
% of Unpaid
COA Excess per Amount as of
Contract Allowable Excessive Cost TITS Amount Paid 12.31.12 (C-
Project/Contract Contractor Amount Cost (C-D) report as of 12.31.12 G)
(A) (B) (C) (D) (E) (F) (G) (H)
II. Concreting of San Narciso 8,097,125.75 6,830,618.53 1,266,507.22 30.39% 8,097,125.75 -
Hoopsdome Builders Inc.
Access Road Incl.
Curb, Gutter and
Sidewalk
III. Concrete Gonzalodo 2,993,057.53 2,929,158.45 63,899.08 12.40% 2,993,057.53 -
Paving of Sangi- Enterprises
Cemetery Road
IV. Concreting of JJ & J Constn. 2,162,645.00 2,131,539.41 31,105.59 11.61% 2,162,645.00 -
Agus-Ibabao Road and Supply
Sub Total 14,069,011.09 12,636,930.62 1,432,080.47 14,069,011.09
(Completed)
V. Concreting of Goldfin 9,396,881.28 8,256,447.19 1,140,434.09 25.19% 3,194,939.63 6,201,941.65
Various Roads in Construction
Olango Island
TOTAL 23,465,892.37 20,893,377.81 2,572,514.56 - 17,263,950.72 6,201,941.65
Per technical review conducted by the Technical and Information Technology

Services (TITS), COA RO7, Cebu City, the contract amount per project exceeded the COA
Allowable Cost. The total amount representing the excessive cost reached P2,572,514.56 for
the five (5) projects. Of the five (5) projects however, only four (4) were completely paid as
of December 31, 2012 (I - IV) while partial payment of P3,194,939.63 equivalent to 34%
work accomplished was made per check no. dated 448811 dated October 30, 2012 for the
unfinished project (V) as shown in the above table.
As a result, the funds of the City of Lapulapu was unnecessarily depleted by

P1,432,080.47 after fully paying the four (4) completed projects (A-D). This amount could
possibly increase to P2,572,514.56, if the project on Concreting of Various Roads in Olango
with excessive contract price of P1,140,434.09 is not settled by the contractor and no
collection thereof is made after project completion or appropriate explanation/s from
concerned parties justifying the subject deficiency are submitted.
The individual computations showing the excessive amount per project are explained
in details in the contract review reports on engineering aspects rendered by the engineers of
the TITS Office, COA, RO7.
Management Comment:
The City Engineer acknowledged that indeed there were discrepancies primarily in
the unit quantities of Portland cement after a careful review of the program of work and
estimates on the Improvement of Lapulapu City Cooperative and Livelihood Center project
due to plain oversight. However, management and the contractor agreed that an additional
work for the kitchen area and other portions therein that still needs improvement shall be
undertaken by the latter to cover for the excess cost.
As regards to the findings noted in the Concreting of Hoopsdome Access Road

including Curb, Gutter and Sidewalk project, the discrepancies noted therein were attributed
to lack of proper site inspection by the Engineering Department which explained the variance
19
in the quantities of the materials. On the aspect of the unit cost, the haulers and contractors
could not maintain a unit cost similar to the mainland Cebu since they will have to observe
the load limit restriction enforced on the bridges, thus entailing additional trips thereby
increasing the cost thereof.
The same explanation as discussed in the preceding paragraph is applied with regards
to the Concrete Paving of Sangi-Cemetery Road project where there is price variance in the
cost of aggregate base course and the aggregate surface course.
a. requires the concerned contractors to refund excessive contract costs of the

above mentioned projects.
b. negotiates with Goldfin Construction for the possible reduction of the

contract price by P1,140,434.09, of the ongoing project on Concreting of
Various Roads in Olango Island, which exceeded the COA Evaluation Cost
by the same amount. If no agreement is reached, cause the withholding of
said amount from its remaining collectibles until such time that the subject
issue is fully settled.
2. Completed concreting project of Timpoloc-Babag Road in Lapulapu City, with a

contract amount of P1,555,975.58, was deficient by 4.44% in workmanship,
resulting in the overpayment to the contractor by P69,085.89.
The City of Lapulapu contracted Megaplus Construction for the concreting of

Timpoloc-Babag Road project worth P1,555,975.58. As of August 10, 2012, the project was
100% completed per Statement of Work Accomplished and the contractor collected its 2nd
and full payment thereof per check no. 448580 dated October 16, 2012.
However, per Inspection Report of COA, Technical and Information Technology

Services, RO7 personnel, the project was only 95.56% completed, because of an aggregate
deficiency of 4.44% in three (3) items of work, with computed cost of P69,085.89:
Agency’s Reported COA Verified % Equivalent

Work Items Contract Accomplishment Accomplisment Variance Cost
Item % %
No. Description Amount Wt% Completed Wt% Completed Wt%
102 Excavation/Scarifying P 96,776,68 6.22 100% 6.22% 96 5.98% .24% P 3,734.15
of Existing Pavement
201 Spreading & 310,124.75 19.93 100% 19.93 92 18.31 1.62% 25,208.33
Compacting of Agg.
Base Course
300 Spreading & 97,091.38 6.24 100% 6.24 100 6.24 - -
Compacting of Agg.
Surface Course
504 Fabrication & Instn. 20,857.32 1.34 100% 1.34 100 1.34 - -
of Reinforcing SB
311 Portland Cement 1,031,125.45 66.27 100% 66.27 96 63.69 2.58% 40,143.41
Concrete Pavement
TOTAL P1,555,975.5 100% 100% 95.56 4.44% P69,085.89
20
Agency’s Reported COA Verified % Equivalent
Work Items Contract Accomplishment Accomplisment Variance Cost
8
Management Comment:
Management explained that the concreting project actually involved a city road with
varying width of 4.3 – 5.1 meters. Ensuring a 5-width road, would entail RROW payments,
hence, the deficiency or overpayment. Upon completion thereof, the City Engineering
Department informed the contractor concerned to lengthen the subject road concreting to
cover the overpayment of P69,085.89, which was then acted upon. Thus, a re-inspection by
the COA Engineers is desired to determine if the work instituted thereon would equate with
the deficient amount.
a. requires the contractor to refund the overpayment of P69,085.89;
b. henceforth, direct those concerned employees to exercise due care and

diligence in the inspection, evaluation and acceptance of projects turned over
by the contractor to avoid overpayment.
3. Five (5) procurement contracts for drugs and medicines totaling P3,517,461.26 can
be obtained for only P1,849,892.61 at the retail botica managed by the Department
of Health (DOH). Thus, the City lost the opportunity to save at least P1,667,568.65.
Section 2 of RA 9184 stresses the policy and commitment of the government to

promote good governance and its effort to adhere to the principle of transparency,
accountability, equity, efficiency, and economy in its procurement process. (Highlighting
for emphasis)
The City of Lapulapu is persistent in acquiring its drugs and medicines requirement
from local suppliers without first considering the availability of the items from the
Department of Health (DOH) retail botica, which was established by the government
pursuant to DOH Administrative Order No. 2005-0010 dated April 4, 2005. The botica serves
as a wholesale and distribution hub of low cost and quality medicines to retail drugstores or
hospital pharmacies like the LGUs, Botika ng Barangays, Drugstores operated by the
Cooperatives/NGOs, and Community Based Organizations (CBOs).
Although the Botica cannot provide all the requirements of the City, as it sells only
those items listed in the Philippine National Drug Formulary (PNDF), nevertheless, it would
be advantageous to the City government to procure available items which are much cheaper
at the Botica.
The PNDF is an integral component of the Philippine National Drug Policy, aimed at
making available and accessible, essential medicines of proven efficacy, safety and quality at
affordable cost. Its formulation by the DOH through the National Formulary Committee
21
(NFC), formerly called the National Drug Committee, has been mandated by R.A. 6675,
otherwise known as the Generics Act of 1988. The essential medicines included in the PNDF
list are selected with due regard to public health relevance, evidence of efficacy and safety
and comparative cost effectiveness.
With the establishment of these government pharmacies/boticas nationwide, LGUs,

which is one of the targeted beneficiaries, may resort to direct contracting pursuant to
Sections 48 and 50 of Republic Act (RA) No. 9184. Thru direct contracting, the City could
take advantage of a more convenient, time saving, and inexpensive procurement process
aside from buying medicines at a cheap, if not cheaper price than those offered by privately-
owned pharmacies/establishments.
The City government however, did not make use of such facility but preferred to
procure its drugs and medicines requirement from private suppliers, using either mode of
small value procurement or public bidding. Although the action of management is in
compliance with the law, the results however were not beneficial to the City.
Five (5) procurement contracts for drugs and medicines of the City of Lapulapu were
disadvantageous to the government. The purchase price of various items totaling
P3,517,461.26 can be obtained for only P1,849,892.61 at the government owned DOH retail
botica. Thus, it lost the opportunity to derive savings for at least P1,667,568.65, in violation
of Section 2 of RA 9184.
Management Comment:
The City Health Officer (CHO) explained that the City agreed with the intention of
the audit observation as it is beneficial to the government, but emphasized that majority of
the drugs needed by the City government are not available in the DOH Botica, so that by
directly making the purchase, will not eliminate the hassle of procurement and the conduct of
public bidding in the acquisition of those items not available from said botica.
He further averred that some of the drugs purchased by the City of Lapulapu in the
latter part of CY 2012 enumerated below are even lower compared to the DOH Botica, to
wit:
Particulars Price per DOH LLC Purchase

Botica (Php) Price (Php)
a. Cefalexin caps 500 mg 3.20 3.00
b. Cloxacillin caps 500 mg 5.27 4.00
c. Mefenamic Acid caps 500mg 1.22 0.75
d. Verorab Vaccine 1,293.85 1,249.00
It was found out that the DOH Botica has no ready stocks, that acquiring from them
would only cause so much delay, thereby prompting the BAC to do another bidding for the
unserved items. After conducting a cost-benefit analysis to determine whether it is beneficial
for the City to purchase its requirements from the DOH Botica through an Agency to Agency
22
agreement, the result would be beneficial to the City if the purchase is done from the private
suppliers.
Auditor’s Rejoinder:
The justification was signed by the City Health Officer (CHO) and noted by the Hon.
Mayor. But he is not the proper party to answer the issues thereto since this matter is the
concern of the Bids and Awards Committee (BAC). The allegation that procuring medicines
available at the DOH Botica will only cause so much delay because the facility has no ready
stocks is not supported with proper documents and therefore, has no basis. The BAC has not
presented proof that the City of Lapulapu served a Purchase Request to the DOH Botica.
Direct procurement from DOH Botica would entail only few processes, which starts from a)
furnishing them with the list of the requirements, then a price list is immediately released
thereafter. The price list may now be the basis of the agency 2) to prepare the PO and submit
to the botica, and 3) the order is prepared by the facility and in 2-3 days time the stocks are
ready for pick up. As compared to public bidding, there is already a required 7 days during
the posting of advertisement alone before the BAC can go into the next stage which is the
opening of bids. So, “delay” as alleged, is not a valid justification.
Per DOH Botica price list for CY 2012, the price of some medicines purchased by the
City of Lapulapu were cheaper at the Botica, as shown below:
Particulars Price per DOH Botica LLC Purchase

CY 2012 (Php) Price (Php)
a. Cefalexin caps 500 mg 2.70 3.00
b. Cloxacillin caps 500 mg 3.60 4.00
c. Mefenamic Acid caps 500mg 0.75 0.75
d. Verorab Vaccine 1,221.96 1,249.00
The CHO confined his conclusion on few items as shown in the foregoing table and
sensorcaine, which is a branded drug. He did not give due notice to other items such as
dextrose (fluids), which are in different preparations, and among the essential drugs needed
by hospitals. The price of these items at the DOH Botica, is the lowest not only in the locality
but region wide because these are sourced directly from manufacturers.
The cost benefit analysis was not prepared and signed by BAC members and there
were no costs mentioned therein, which could support the conclusion of the CHO.
We recommend that management procures medicines which are available and

cheaper at the DOH retail botica to save and sustain well-meaning government initiated
program/project.
We also recommend that the BAC scrutinizes purchase requests on drugs and
medicines and conduct market surveys at DOH retail Botica and distributors/suppliers
to obtain the most advantageous price for the City with due consideration to the timely
response to the needs of the hospital.
23
4. Remittances/deposits of collections were delayed by one (1) to twenty-nine (29) days
contrary to Section 69 of PD 1445, COA and MOF Joint Circular 1-81 and Section
32 of the NGAS Manual for LGUs, thus exposing the accumulated
unremitted/undeposited collections to possible loss thru theft or misuse.
Section 69, PD 1445 provides that public officers authorized to receive and collect
moneys arising from taxes, revenues or receipts of any kind shall remit or deposit intact the
full amounts so received and collected by them to the treasury of the agency concerned and
credited to the particular accounts to which the said moneys belong. The amount of the
collections ultimately payable to other agencies of the government shall thereafter be
remitted to the respective treasuries of these agencies under regulations which the
Commission and the Department of Finance shall prescribe.
Section 32 of the NGAS Manual for LGUs states that the Treasurer/Cashier shall
deposit intact all his collections as well as all collections turned over to him by the
collectors/tellers with the authorized depository bank daily or not later than the next banking
day.
Joint Circular No. 1-81 of the Commission on Audit (COA) and Ministry of Finance
(MOF) provides that if the distance of the depository bank is 15 kilometers or less, travel
time is less than one day and the accumulated collection is P500 or more, the frequency of
deposit should be daily, while in the case whereby daily collection is less than P500, then the
deposit can be made weekly or as soon as collection reaches P500.
Cash examination conducted on the designated collecting officers assigned at the City
Treasurer’s Office for CY 2012 disclosed that collections ranging from P500.00 to
P6,626,763.18 were not turned-over to the liquidating officer/cashier at the close of each
business day. It took them 1 to 29 days before these were finally remitted to the liquidating
officer/cahier.
We observed that the liquidating officer/cashier did not deposit daily and intact to the
bank, the collections turned-over by the collecting officers. The delay in deposit ranged from
2 to 30 days in amounts ranging from P247,673.09 to P18,644,639.14. The practice is
contrary to Section 69 of PD 1445, Section 32 of the NGAS Manual and COA and MOF
Joint Circular 1-81. The accumulated undeposited collections while in the hands of the
liquidating officer/cashier for a number of days are exposed to possible loss or misuse.
Management Comment:
The City Treasurer’s Office had been considering extensions of collections

particularly the last day of the month to accommodate those who are transacting on the last
hour. Although the collections were dated on the last day of the month, in reality these were
made in succeeding days after the end of the month. Said collections were immediately
24
deposited on the day following the date of actual collection, thus the City was never deprived
of the funds and likewise did not expose the funds to possible loss or misuse.
Review of report of collections showed that it did not only occur at the end of the
month but was happening during weekdays or midweek from January to December.
We recommend that the City Treasurer faithfully monitor and ensure

compliance with Section 69 of P.D. 1445, COA and MOF Joint Circular 1-81 and
Section 32 of the NGAS Manual for LGUs. We also recommend that administrative
sanctions be imposed on collecting officers and cashier who repeatedly did not perform
their sworn duties in accordance with law and regulations.
5. The recording of refunds of excess cash advances even though there was no
amount turned-over to the cashier resulted to inaccurate or misleading cash
balances contrary to Section 111(2) of Presidential Decree (PD) 1445 or the
Government Auditing Code of the Philippines. This practice is prejudicial to the
interest of the City Government because on record the accountable officer has no
more cash accountability.
A sound internal control system provides that recording of transactions and events
should be accurate and as they occur to maintain their relevance and value to management in
controlling operations and making decisions.
Section 111(2) of PD 1445 states that:
“The highest standards of honesty, objectivity and consistency shall be observed in

the keeping of accounts to safeguard against inaccurate or misleading information.”
Section 28 of NGAS Manual, Volume II, for Local Government Units provides that a
disbursing officer shall maintain a cashbook to record the cash advances received and
payments, refunds and adjustments and the balance. He shall likewise certify in the
cashbook that his/her record of the cash transactions is correct and complete during the
period.
Cash examination conducted on September 18, 2012 on the accounts of Ms. Judith P.
Fuentes, Disbursing Officer assigned at the City Treasurer’s Office for the period covering
December 5, 2011 to September 18, 2012 disclosed that in fourteen (14) instances, refunds or
returns of excess cash advances totaling P264,136.62 were recorded as credits in the
cashbook even if there was no actual turnover of cash to the cashier. As a result, the cash
balances in the cashbook were not reflective of the actual accountability of the disbursing
officer because per record she had no more accountability, which is prejudicial to the interest
of the government.
25
Comparison of entries in the cashbook and official receipts revealed discrepancy on
dates. Refunds were recorded earlier in the cashbook compared to the actual receipt of cash
by the cashier as shown below:
Date per
Cashbook OR Date OR No. Amount
02/29/12 03/06/12 3283930 12,911.81
02/29/12 03/06/12 3283929 3,704.00
03/30/12 04/12/12 3316576 16,250.00
04/19/12 04/24/12 3328389 8,000.00
04/19/12 04/24/12 3328392 2,450.00
04/19/12 04/24/12 3328393 5,400.00
04/30/12 05/08/12 3340798 82,123.54
04/30/12 05/08/12 3340799 65,310.60
05/11/12 05/14/12 3352968 2,450.00
05/11/12 05/14/12 3352969 5,400.00
05/25/12 05/31/12 3475060 34,135.28
07/24/12 07/31/12 3521033 2,698.31
08/13/12 08/16/12 3539413 19,053.08
08/15/12 08/17/12 3539416 4,250.00
Total 264,136.62
The above practice resulted in inaccurate accountability of the cashier per cashbook
since it is not reflective of the actual transaction that was generated for the same period.
We recommend that the City Government directs the disbursing officer to stop
the practice of recording refunds in the cashbook unless there is actual turnover of cash
to the cashier and for her to explain in writing the incorrect entries which resulted to
inaccurate and misleading daily cash balances.
6. Cash advances granted to officers and employees totaling P9,584,312.28 remained

unliquidated as of the year end contrary to Section 89 of PD 1445 and COA
Circular No. 97-002 dated February 10, 1997 thus, may expose any unexpended
amounts to risks of loss or misuse and deprives the government from the use
thereof for other important projects.
A cash advance is settled either by returning the money advanced if unspent, or by the
presentation of regularly accomplished vouchers, giving satisfactory detail of the items
thereon paid which must be in accordance with the purpose for which the cash advance was
granted, and further supported by proper receipts and other evidence of payment, subject to
the result of the post-audit thereof by the auditor concerned.
Section 2 of Presidential Decree No. 1445, places the responsibility to faithfully take
care that government funds and property be safeguarded from wastage directly with and
primarily on the chief or head of the government agency concerned.
26
Section 89 of PD 1445 provides that a cash advance shall be reported on and
liquidated as soon as the purpose for which it was given has been served.
Section 5.7 of COA Circular 97-002 dated February 10, 1997 states that 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.
Section 5.8 of the same circular requires that all cash advances should be fully
liquidated at the end of each year. Except for petty cash fund, the accountable officer shall
refund any unexpended balance to the Cashier/Collecting Officer who will issue the
necessary official receipt.
Verification of subsidiary ledger records and schedule of cash advances showed the
balances of the following accounts as of the year-end:
Account Type of Fund Amount

Advances to officers and employees General Fund P7,741,738.18
Advances to officers and employees Trust Fund 1,639,784.10
Advances to officers and employees Special Education Fund 202,790.00
Total 9,584,312.28
The balance of P9,584,312.28 was net of negative balances of P17,556.80 of some

subsidiary ledger accounts. Out of the total, P6,989,130.20 were granted in CY 2012 and
P2,612,738.88 were granted in CY 2011and prior years.
Section 6.0 of COA Circular No. 2012-004 dated November 28, 2012 states that the
Circular serves as final notice and demand to all concerned to settle and liquidate all
outstanding cash advances as of December 31, 2011, on or before January 31, 2013. Section
9.0 thereof enumerates the three consequences of failure to settle and liquidate cash advances
within the prescribed period.
Further, Civil Service Commission Resolution No. 1200103 dated January 12, 2012
provides that: “The failure of an Accountable Officer to render an account in full within the
periods prescribed and after formal demand shall constitute the administrative offense of
gross neglect of duty punishable by dismissal from the service for the first offense. Full
liquidation/settlement/payment of the subject cash advance outside the given period shall
constitute the offense of simple neglect of duty punishable by suspension from the service for
one (1) month and one (1) day to six (6) months for the first offense, and dismissal from the
service for the second offense”.
The bulk of the unliquidated cash advances granted in CY 2012 are the Intelligence
Fund of the City Mayor, Lapulapu City in the amount of P4,000,000.00 granted sometime in
September 2012 and P1,614,444.10 granted to the City Social Welfare Development Officer,
Lapulapu City, on December 26 and 28, 2012 for the implementation of Supplementary
Feeding Program of the DSWD.
27
The liquidation report for the P4,000,000.00 intelligence fund of the City Mayor had
been forwarded to the Office of the Chairman, COA, Quezon City on February 5, 2013 per
LBC Express Receipt No. CEA021000010174, for issuance of Credit Notice.
COA Circular 2003-003 states that all cash advances chargeable against the
intelligence and/or confidential funds of all local government units shall be liquidated within
one (1) month from the date the purpose of the cash advance was accomplished. For projects
continuing beyond one month, a monthly progress liquidation report shall be submitted. The
first progress report shall be submitted one month after the commencement of the project.
Moreover, six (6) officials and employees had unsettled cash advances of P50,000.00
and above totaling P1,888,595.98 04 as shown below. The non-liquidation may make them
liable under the Solana Covenant, a joint anti-corruption plan of the Civil Service
Commission (CSC), Commission on Audit (COA) and Office of the Ombudsman. The three
(3) constitutional bodies identified the need to strictly implement the rules on liquidation of
cash advances as this has become a source of graft and corruption in the bureaucracy.
Type of
No. Name of Official/Employee Amount Date Granted
Fund
1 Arce, Silveria P233,800.00 January 2011 GF
2 Avila, Clifford 50,000.00 January 2009 GF
3 Codina, Teodoro 1,336,548.30 March 2011 GF
4 Pagdalian, Maria 119,200.00 November 2011 GF
5 Weigel, Ernest 96,207.68 March 2000 GF
6 Rivera, Mary Agnes 52,840.00 January 29, 2009 SEF
Total 1,888,595.98
The above prevailing conditions illustrate the agency’s failure to enforce settlement of
cash advances by the officials concerned. The continued inaction of these personnel to settle
their cash advances immediately and to return the unspent amount had deprived the City
Government from the use of such funds for other priority requirements. Further, if there are
unexpended significant amounts in the hands of accountable officers, the risk of loss of funds
thru misappropriation is high.
Had there been strict enforcement of the laws, rules and regulations regarding the
rendering of accounts and prompt settlement of cash advances, the agency could have
reduced long outstanding cash advances and managed its fiscal resources effectively.
We recommend that management institutes appropriate sanctions pursuant to

Section 9 of COA Circular No. 2012-004 against those employees whose cash advances
as of December 31, 2011 remained unliquidated as of January 31, 2013, despite the final
demand stated under Section 6 thereof.
We further recommend that the City Government issues demand letters to all
concerned parties to settle pursuant to the provisions of Section 89 of PD 1445 and COA
28
Circular No. 97-002, all unliquidated cash advances granted after December 31, 2011.
In case of failure to settle their accountabilities, cause the withholding or suspensions of
their salaries.
7. The 20% Development Fund (DF) of the City of Lapulapu was depleted by
P709,400.00 due to the improper charging of the purchase of one (1) unit cargo
truck and three (3) units motorcycles, which is outside the fund’s intended purposes
as provided under DBM and DILG Joint Memorandum Circular No. 2011-1.
Section 3.0 of Joint Memorandum Circular (JMC) No. 2011-1 dated April 13, 2011
enumerates the projects covered by the 20% IRA: Section 3.1 covers Social Development;
Section 3.2, Economic Development; and Section 3.3 on Environmental Management. The
purchase of cargo truck and motorcycles is not among the items listed in section 3.3.
The City of Lapulapu appropriated funds in the amount of P709,400.00 for the
purchase of the following motor vehicles using the 20% DF, to wit:
Ck No. Date Payee Particulars Gross Amount

435469 4.16.12 Du Ek Sam Inc. 3 units motorcycle P 179,400.00
434856 2.29.12 Cebu Titan Surplus Inc. 1 unit Fuso Canter cargo truck 530,000.00
TOTAL P709,400.00
The afore-stated vehicles were requested by CENRO Engr. Federico Tagaan, covered
by purchase request (PR) nos. 1110171 and 1109146 dated October 10, 2011 and September
6, 2011 for cargo truck and motorcycles, respectively. Per PRs, these vehicles were intended
for the Solid Waste Management Office (SWMO), in which the cargo truck is for hauling
purposes when there are demolition activities, while the motorcycles are used for monitoring
of garbage presence or collection in the barangays.
However, the utilization of the subject funds purposely to acquire the motor vehicles
in question was improper since it was outside the purpose for which the 20% DF was
intended.
Although the acquisition of said motor vehicles may partake of a capital outlay
expenditure, not one of the items was contemplated to be part of the development projects
enumerated in Section 3.0 above, of the DILG and DBM JMC No. 2011-1. Besides, Section
4.7 thereof, explicitly excludes expenses for the purchase, maintenance or repair of motor
vehicles or motor cycles not related to and/or not connected with the implementation of
development projects, programs and activities, thus not to be paid out of the 20%
development fund.
As a result, the 20% DF of the City of Lapulapu was depleted by P709,400.00 due to
its improper utilization.
Management Comment:
29
Engr. Federico Tagaan, CENRO of Lapulapu City, explained that the Fuso Canter
Truck is used as a rescue garbage truck in the morning to clear up the City’s roads of
uncollected garbage which the regular garbage trucks failed to collect during night time.
Also, it is utilized to collect solid wastes during declogging operations of drainage lines,
coastal clean-up and other environmental concerns of the City.
As regards to the motorcycle (MC) units, these vehicles are used to monitor garbage
collections of the City ensuring that proper segregation procedures is observed before
delivery to MRF. Moreover, the MCs are utilized to monitor the implementation of the
environmental management program of the City.
a. appropriates funds from the General Fund totaling P709,400.00 and

thereafter direct the Budget Officer and the Accountant for the proper
recording of adjustments affecting the transactions listed above, and restitute
the said amount to the 20% DF which was depleted due to improper
charging thereof;
b. henceforth, observe the proper utilization of the 20% DF pursuant to the

provisions of DILG and DBM Joint Memorandum Circular No. 1, s. of 2005
to attain the government’s objectives.
8. The City of Lapulapu failed to record in the books of accounts the real property tax
receivable from the Mactan Cebu International Airport Authority (MCIAA)
totaling P928,122,879.30 exclusive of penalties and interests covering CYs 1992-
2012, resulting in the understatement of the City’s real property tax receivable
(RPT) and its appropriate deferred real property tax income by the same amount
which contravened Sections 19 and 20 of the New Government Accounting System
Manual (NGAS) for LGUs.
Section 19 of the NGAS Manual for LGUs states that: “Modified accrual method of
accounting shall be used for real property taxes. At the beginning of the year, Real Property
Tax Receivable and Special Education Tax Receivable shall be established. This is in view of
the need to record in the books not mere income estimates from real property taxes but actual
receivables from said taxes.”
Section 20 of the same manual also states that “Real Property Tax
Receivables/Special Education Tax Receivables shall be established at the beginning of the
year based on Real Property 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 Receivable/Special Education Tax Receivable and crediting to Deferred Real
Property Tax Income/Deferred Special Education Tax Income.”
30
Inquiry with the City Treasurer’s Office (CTO) disclosed that MCIAA was not
included in its list of taxpayers which has taxable real properties that are due for recording in
the books of accounts by the Accounting Office at the beginning of each year since it is listed
under the exempt classification.
Putting said agency under the exempt status seemed to place CTO’s income
projection on a safe level so as not to prejudice its targeted collections on account of
MCIAA’s declaration that their office is exempt from paying taxes to the LGU pursuant to
Section 14 of RA 6958, which provides that the Authority or MCIAA shall be exempt from
realty taxes imposed by the National Government or any of its political subdivisions,
agencies and instrumentalities, provided, that no tax exemption herein granted shall extend to
any subsidiary which may be organized by the Authority.
With such pronouncement, MCIAA discontinued paying their RPT obligations

including the business tax which is applicable to the business establishments operating or
situated in their property which are supposed to pay subject tax to the City government.
CTO records showed that as at December 31, 2012, MCIAA has an outstanding basic
RPT dues of P928,122,879.30 with penalty amounting P582,004,782.49 covering CY 1992-
2012 and P217,220,520.66 of business taxes including interests and surcharges for taxable
years 1998-2012.
The same line of argument was used by MCIAA when it stopped paying their RPT
obligations with the City of Cebu where it owned parcels of land located at the old Lahug
Airport. However, the Supreme Court (SC) ruled (G.R. No. 120082 dated September 11,
1996) in favor of the latter requiring the former to pay its real property taxes. This SC
decision may now be used by the City to strengthen its case against the MCIAA.
The above condition resulted in the understatement of the City’s real property tax
receivable (RPT) and its appropriate deferred real property tax income by 928,122,879.30 in
contravention to Sections 19 and 20 of the Local Government Accounting Manual.
a. directs the City Treasurer to include MCIAA in its list of taxpayers which has
real property tax liability, and every year thereafter, until such time subject
agency gets favorable ruling from the court, so that such amount including
the unsettled portion of P928,122,879.30 will be recorded by the Accounting
Office as part of the real property tax receivable;
b. directs the City Treasurer to conduct extensive tax mapping activities to

identify business establishments located within the property of MCIAA and
determine their appropriate business tax dues and send appropriate notices
directing them to pay and settle their obligations in compliance with the
City’s Tax Code;
31
c. sends demand letters requiring the MCIAA to settle its tax liabilities
including penalties, interest and surcharges totaling P1,727,348,182.45
otherwise, institute appropriate legal action by citing the foregoing Supreme
Court ruling to advance its case against the subject agency.
9. The non-recording of disbursements totaling P1,417,082.09 in the books of

accounts, due to the failure of the City Treasurer to submit vouchers and
supporting documents comprising of current and prior year’s transactions to the
Accounting Office, may result in the misstatement of financial statements of the
City of Lapulapu, and prevent concerned parties to review the validity, legality, and
propriety of subject disbursements, in violation of Section 4 (6) of Presidential
Decree (PD) 1445.
Section 4 (6) of PD 1445 provides that claims against government funds shall be
supported with complete documentation.
Records showed that the City of Lapulapu paid P1,417,082.09 to various creditors but
these disbursements remained unrecorded in the books of accounts for lack of disbursement
vouchers and supporting documents. Some of these refer to prior year’s transactions as far as
CY 2003 yet.
Inquiry revealed that the City Treasurer’s Office has not submitted the above-
mentioned documents to the Accounting Office for proper recording in the books. The CTO
which is cognizant thereof, executed demand letters requiring responsible personnel to return
subject documents, which were allegedly borrowed for delivery of payment and signature by
payees.
The non-recording of these transactions, affects appropriate assets, liabilities, equity

and expense accounts of undetermined amounts, which may result in the misstatement of the
agency’s financial statements.
Moreover, the absence of subject documents prevented concerned parties to

determine the validity, legality, and propriety of the disbursements in violation of Section 4
(6) of PD 1445.
a. instructs the City Treasurer to facilitate the retrieval of vouchers and its
supporting documents from the concerned personnel and submit them
immediately to the Accounting office for appropriate recording;
b. henceforth, directs the City Treasurer to institute effective measures to

streamline the releasing of payment or checks to avoid the occurrence of this
nature in the future;
32
c. imposes appropriate sanctions against those who failed to submit the
documents in question, otherwise the disbursed amount of P1,417,082.09 will
be disallowed in audit, and those officials who are signatories to the check
will be jointly and severally liable thereto.
10. Productivity Enhancement Incentive (PEI) granted to regular and casual

employees totaling P25,176,268.74 were not subjected to withholding tax as
required under the National Internal Revenue Code, as amended due to its
exclusion in determining the gross taxable income, thereby resulting in the loss of
revenue due the national government.
The National Internal Revenue Code (NIRC) provides that all compensation paid to
the employee is subject to withholding tax. Compensation includes all remunerations for
services performed by an employee for his employer under an employer-employee
relationship.
However, Section 32, par. B of the Code enumerates the items exempted from
taxation as follows:
 Xxxxxxx
 Miscellaneous items – among others, 13th month pay and other benefits
provided, however, that the total exclusion under this subparagraph shall
not exceed thirty thousand pesos (P 30,000.00). (Highlighted for emphasis)
Section 3 of BIR Revenue Regulations (RR) No. 10-2008 dated July 8, 2008 further
amended Section 2.79 of RR 2-98, which read as follows:
“Sec. 2.79. Income Tax Collected at Source on Compensation Income.
(A) Requirement of Withholding. – Every employer must withhold from

compensation paid an amount computed in accordance with these Regulations. Provided, that
no withholding of tax shall be required on the Statutory Minimum Wage (SMW), including
holiday pay, overtime pay, night shift differential and hazard pay of Minimum Wage Earners
(MWE) in the private/public sectors as defined in these Regulations. Provided, further, that
an employee who received additional compensation such as commissions, honoraria, fringe
benefits, benefits in excess of the allowable statutory amount of P30,000.00, taxable
allowances and other taxable income other than the SMW, holiday pay, overtime pay, hazard
pay and night shift differential pay shall not enjoy the privilege of being a MWE and
therefor, his/her entire earnings are not exempt from income tax and consequently shall be
subject to withholding tax.”
Post-audit conducted on payrolls for CY 2012 disclosed that the City Government
granted Productivity Enhancement Incentive (PEI) at the rate of 115% of their monthly basic
salary and additional P10,000.00 to all regular and casual employees in the total amount of
P25,176,268.74 . Review of records submitted by the Accounting Section disclosed that the
PEI was excluded in the computation of income tax due to BIR to avoid excess on the
33
allowable statutory amount of P30,000.00 ceiling of “other benefits” excluded from gross
income as provided in the above regulation and Section 1 thereof which provides that MWE
receiving “other benefits” exceeding the P30,000.00 limit shall be taxable on the excess
benefits, as well as on his salaries, wages and allowances, just like an employee receiving
compensation income beyond the SMW.
The review also revealed that the P30,000.00 limit per employee will be exceeded if
the subject PEI will be considered in determining the P30,000.00 ceiling of “other benefits”
which already included the 13th month pay, ACA and loyalty benefits.
Further review revealed that the PEI was instead included in the computation of “De
Minimis” benefits which are exempt from income tax on compensation as provided under
BIR Revenue Regulation No. 5-2011 dated March 16, 2011. RR No. 5-2011 enumerates
those items considered as “De Minimis” benefits not subject to income tax as well as
withholding tax. It was noted however that PEI is not among those listed therein.
Section 80 of the same Code holds the employer liable for the withholding and
remittance of the correct amount of tax and the payment of penalties in case of failure to
withhold and remit the same.
It should be remembered that taxes are the lifeblood of the nation and the non-
collection thereof deprives the national government of the income that could have been
generated therefrom which could be used to finance other projects of the government.
Management Comment:
The City Accountant justified that the PEI was not subjected to withholding tax on
account of the reply of the Presidential Communications Development and Strategic
Planning Office (PCDSPO) which states among others that PEI is non-taxable.
The City Accountant may be mislead to believe that the subject PEI is not taxable.
The appropriate agency which could give an appropriate answer on such query is the Bureau
of Internal Revenue being an authority as far as tax matters is concerned. Besides, the printed
copy of the supposed reply of the PCDSPO has qualified its answer by stating that the year-
end bonus, which is composed of the 13 th month and cash gift may be taxable if it is more
than P30,000.00. This qualification is consistent with BIR rules that other benefits including
bonus in excess of P30,000.00 is already taxable.
We recommend that the City Government:
a. directs the Accountant to collect from the concerned parties the proper
amount of withholding tax and remit the same to the BIR in compliance with
Section 2.79 of RR 2-98, as amended, furnishing the Auditor a copy of the
report.
34
b. henceforth, imposes the appropriate withholding of taxes from taxable claims
and benefits pursuant to existing laws, rules and regulations.
11. Rules and regulations in the grant of financial assistance to Non-Government

Organizations (NGOs) and People’s Organizations (POs) and monitoring over the
submission of liquidation reports on the utilization thereof as provided under COA
Circular No. 2007-001 dated October 25, 2007 were not strictly enforced resulting
in unliquidated grants of P7,469,511.80. Further, additional financial assistance
was still granted in spite of the unsettled balances resulting to accumulation
thereof.
COA Circular No. 2007-001 dated October 25, 2007 provides:
Section 4.1 Government Organizations (GOs) funds granted to Non-Governmental

Organizations (NGOs)/Peoples Organizations (POs) shall retain their character as public
funds.
Section 5.1 of the same circular also states: “It shall be the responsibility of the
recipient NGO/PO to keep and maintain financial and accounting records of the funds
granted by GO in accordance with the Philippine Accounting Standards. The NGO/PO shall
submit the required financial reports to the GO as agreed upon in the MOA and make
available all records and documents, including disbursement vouchers relative to the
utilization of the funds, to the COA Auditors.”
Section 5.4 Within sixty (60) days after the completion of the project, the NGO/PO
shall submit the final Fund Utilization Report certified by its Accountant and approved by its
President/Chairman of the GO, together with the inspection report and certificate of the
project completion rendered/issued by the GO authorized representative, list of beneficiaries
with their acceptance/acknowledgement of the project/funds/good/services received. The
validity of these documents shall be verified by the internal auditor or equivalent official of
the GO and shall be the basis of the GO in recording the fund utilization in its books of
accounts. These documents shall support the liquidation of funds granted to the NGO/PO.
The fund Utilization Report is a document showing the Summary of Expenses

incurred in the implementation of the project for a given period of time.
Verification of records as of December 31, 2012 on financial assistance granted to

NGOs/POs for the implementation of various programs/projects disclosed that several
grantees failed to submit the Fund Utilization Report as required under Section 5.4 of COA
Circular No. 2007-001 resulting in unliquidated amount of P P7,469,511.80 as shown on the
next page:
35
Date Granted Name Amount
January 2008 Boy Scout of the Philippines 100,000.00
March 2008 Police Tribune Foundation 25,000.00
May 2008 SK Federation 73,412.13
November 2008 SK Federation ( Cultural Activity) 60,000.00
December 2009 SK Federation (Additional Expense for GARBO) 100,000.00
SK Federation 325,800.00
August 2012 Lapu-Lapu SK Federation 750,000.00
June 2008 Philippine Anti Drug Support Group, Inc 12,000.00
July 2008 Iba Basak Vendor's Urban Poor Association 100,000.00
July 2008 Rotary Club of Mactan 140,000.00
February 2009 Girl Scout Council 200,000.00
September 2009 Sagip Kapamilya Community Dev Corp 100,000.00
September 2009 Project Seahorse Foundation for Marine Conservation 200,000.00
October 2009 Mactanganon Cooperative 150,000.00
October 2009 WOVFED 150,000.00
October 2009 Pajo National High School 150,000.00
November 2009 Association of Barangay Council ( Garbo 2009 ) 277,598.97
May 2009 Association of Barangay Council ( Inter-Brgy Sportsfest) 360,000.00
November 2010 Association of Barangay Council ( Garbo 2010) 768,663.00
December 2009 Sinag Consumers Cooperative 120,000.00
January 2010 Malamboon Multi Purpose Cooperative 120,000.00
January 2010 Marigondon HHS & STHS Multi-Purpose Cooperative 120,450.00
January 2010 Philippine Red Cross (225,161.71)
March 2010 Olango Island Multi Purpose Cooperative 50,000.00
May 2010 Mission Family of Jesus Multi Purpose Cooperative 100,000.00
September 2010 Norfil Foundation 250,000.00
Norfil Foundation 49,465.69
December 2010 Philippine Tennis Association 800,000.00
Emergency Rescue Unit Foundation 262,783.72
CAOCAMPIO(Cebu Assoc.of City and Municipal PIO) 15,000.00
November 2012 Opon Puericulture Center 300,000.00
April 2011 Philippine Councilor's League 100,000.00
May 2011 Philippine Councilor's League 500,000.00
January 2012 Philippine Councilor's League 150,000.00
April 2012 Philippine Councilor's League 250,000.00
November 2011 Vice Mayor's League 200,000.00
January 2012 Tripartite Ind. Peace Council 10,000.00
July 2012 Philippine League of Secretaries 60,000.00
September 2012 Federation of Lapu-Lapu Urban Poor President's Assn. 20,900.00
November 2012 Philippine League of Local Budget Officers Inc 80,000.00
November 2012 Advance Karate Do 53,100.00
December 2012 40,500.00
TOTAL 7,469,511.80
Records further disclosed that some of these fund assistance have been outstanding in
the books for over four (4) years dated way back CY 2008 yet. The project may have already
36
been completed; however the required reports and their supporting documents were not yet
submitted thus, recording of transactions in the books of the City could not be undertaken.
Moreover, the failure of the City Government to closely monitor the utilization and
inspection of project implementation consequently resulted in the non-submission of
liquidation reports by the NGOs/POs concerned.
Section 5.3 of the above mentioned circular states that: “The signing officials of the
GO to the MOA shall cause close monitoring and inspection of project implementation and
verification of financial records and reports of the NGO/PO, and shall ensure compliance
with the provisions of the MOA and of this Circular.”
It has also been noted that additional financial assistance were granted to NGOs/POs
in spite of their unsettled balances.
The foregoing deficiencies resulted in the accumulation of unliquidated balances

which, considering the lapse of time, could have already been expended/utilized. These are
indicative breakdowns in the enforcement of controls in the grant of fund assistance and
monitoring over their liquidation.
We recommend that the City Government makes concrete efforts by sending

demand letters to NGOs/POs for the immediate settlement of their outstanding balances
and improve the present monitoring and control measures on the liquidation of fund
releases. For future grants of financial assistance to NGOs/POs, strict adherence to
COA Circular No. 2007-001 is enjoined to ensure prompt liquidation thereof. It is also
recommended that the City Accountant stops the granting of additional fund assistance
unless the previous ones are first settled.
12. The failure of the City Accountant to reconcile inter-agency fund transfers under
account Due from LGUs with Barangay records on the reciprocal account Due to
LGUs resulted in an unreconciled difference of P4,553,222.98 as of December 31,
2012 thus, affecting the fairness of the presentation of the accounts in the financial
statements.
A sound internal control system requires that there should be adequate checking and
reconciling procedures to produce accurate records. The responsibility for fair presentation
and reliability of financial statements rests with the management of the reporting agency. All
financial data should be accurate and reliable.
Section 30 of the NGAS Manual for Local Government Units, Volume III provides
that the Account, Due from LGUs (131) shall be used to record the amount due from
provinces, cities, municipalities, barangays and other local government units.
Section 154 of the same Manual further provides that the account Due to LGUs (431)
shall be used to record the amount of liabilities Due to LGUs. These include collections
received or amounts withheld for the account of LGUs, advances made by LGUs for specific
37
purposes, shares of other LGUs on real property tax (basic and additional) and deposits of
LGUs with other local government treasuries.
Audit disclosed that the City Government granted financial assistance to different
barangays located in the City of Lapulapu totaling P11,965,423.58 for the implementation
of certain programs/projects. However, review of records of both agencies disclosed that the
inter-agency transferred funds do not reconcile as shown hereunder:
As shown above, the account Due from Other LGUs, representing funds transferred
to the different barangays disclosed an unliquidated balance of P11,965,423.58 as of
38
December 31, 2012 while records of the barangay under the reciprocal account Due to LGUs
showed an unliquidated balance of P16,518,646.56 as of the same period thereby reflecting
an unreconciled difference of P4,553,222.98.
Interview and verification of records disclosed that the following are the causes of
unreconciled balances of inter-agency transferred funds:
 Some barangays have already submitted their liquidation to the City Accounting
Unit but the Barangay Bookkeepers have not recorded these liquidations in their
books of accounts;
 The City Accountant had recorded the liquidation upon receipt of Credit Notice
from COA but the Barangay Bookkeeper failed to record the same in their books;
 There were some barangays who have already recorded the liquidations in their
books but the City Accounting Unit was not furnished copies thereof;
 Some barangays have interpreted the financial assistance as donations, hence no

liquidation was made.
The failures of both agencies to reconcile their records on the total reported inter
agency receivable and payable accounts resulted in unreliable balances, thus affecting the
fairness of the presentation of the accounts in the financial statement.
We recommend that the City Accountant and Barangay Bookkeeper reconcile

their records and effect the necessary adjustments to present the correct financial
condition of the agency.
13. Liquidation reports to settle the financial assistance granted contained audit
deficiencies totaling P2,127,223.49 which remained uncorrected, due to non-
compliance and/or non-submission of the documentary requirements mentioned in
the credit notices by the recipient barangays, causing undue delay in the recording
of settlements. This may result in an unwarranted understatement of the expense
account and overstatement of the receivable and government equity accounts
considering that the subject financial assistance has already been spent. Thus, the
City’s statement of income may present unreliable data that could possibly mislead
management to use the reported income for budgetary allocations even with the
apparent misinformation that may result in improper spending procedures.
Reports covering disbursements in the amount of P2,153,909.74 to liquidate the

financial assistance granted to the City’s barangays showed audit deficiencies in the amount
of P2,127,223.49, which comprised the suspended portion of the amount liquidated, owing to
lack of the mandated and/or documentary requirements as summarized below.
39
Requirement
Amount Amount of per Suspended
Barangay Ck No Date of FA Liquidation Credit Notice Amount
Pajac 348867 1.12.10 100,000.00 100,000.00 Documentary 100,000.00
evidence to
prove the
conduct of
public
bidding
Babag 377914 12.6.10 150,000.00 149,820.00 -do- 149,820.00
Looc 404545 4.05.11 300,000.00 300,000.00 -do- 300,000.00
Babag 403321 1.4.11 50,000.00 49,650.00 Doc. 49,650.00
requirements
- pre and post
repair
inspection,
POW, bill of
materials
Bankal 349623 2.26.10 15,000.00 15,000.00 Doc. 15,000.00
requirements
to support the
disbursement
Pajo 324660 7.9.09 250,000.00 250,000.00 Documentary 250,000.00
evidence to
prove the
conduct of
public
bidding
San 403345 1.17.11 150,000.00 148,788.00 Doc. 148,788.00
Vicente requirements
to support the
disbursement
s
Tingo 14323 3.1.10 15,000.00 15,000.00 -do- 15,000.00
404948 4.29.11 25,000.00 25,000.00 -do- 25,000.00
Pusok 405706 6.16.11 25,000.00 25,000.00 -do- 25,000.00
Poblacion 20552 1.4.11 150,000.00 150,000.00 Documentary 150,000.00
evidence to
prove the
conduct of
public
bidding
Looc 378355 1.6.11 50,000.00 49,950.00 Doc. 49,950.00
requirements
40
Requirement
Amount Amount of per Suspended
Barangay Ck No Date of FA Liquidation Credit Notice Amount
to support the
disbursement
Looc 403322 1.4.11 50,000.00 49,950.00 -do- 49,950.00
Looc 349622 2.26.10 15,000.00 15,000.00 -do- 15,000.00
Babag 403321 1.4.11 50,000.00 49,650.00 -do- 49,650.00
Babag 405771 6.23.11 25,000.00 25,000.00 -do- 10,000.00
Babag 406195 7.20.11 100,000.00 100,000.00 No barangay 100,000.00
resolution –
Justification
on Splitting
of purchase
Buaya 419294 11.10.11 50,000.00 49,800.00 Doc. 49,800.00
requirements
to support the
disbursement
Buaya 405693 6.16.11 32,000.00 32,000.00 -do- 22,000.00
Buaya 419293 10.10.11 50,000.00 49,800.00 -do- 49,800.00
Buaya 419295 10.10.11 50,000.00 48,000.00 -do- 48,000.00
Tungasan 419546 11.28.11 30,000.00 29,980.00 -do- 29,980.00
Tungasan 419544 11.28.11 50,000.00 49,485.00 -do- 49,485.00
Tungasan 404795- 4.18.11 370,000.00 203,836.74 Documentary 203,836.74
96, 4.28.11 evidence to
405840- 6.27.11 prove the
41, conduct of
404914- public
15 bidding
Calawisan 419807 12.13.11 100,000.00 48,200.00 Barangay 48,200.00
resolution,
canvass
documents w/
proper
addresses
and names of
suppliers
Calawisan 419808 12.13.11 50,000.00 50,000.00 -do- 50,000.00
Calawisan 420368 1.17.12 50,000.00 50,000.00 -do- 49,800.00
Looc 404909 4.28.11 25,000.00 25,000.00 Doc. 23,513.75
requirements
to support the
disbursement
TOTAL 2,377,000.00 2,153,909.74 2,127,223.49
41
Recipient barangays’ inaction to comply with requirements as mentioned in the credit
notices issued by the Auditor caused undue delay in the recording of settlements. This may
result in an unjustified understatement of the expense account and overstatement of the
receivable and government equity accounts considering that the subject financial assistance
was already spent. Thus, the City’s statement of income may present unreliable data that
could possibly mislead management to use the reported income for budgetary allocations,
even with the apparent misinformation, that may result in improper spending procedures.
a. calls the attention of barangay officials concerned and require them to

comply with the requirements enumerated in the credit notices issued by the
Auditor to facilitate the recording of settlements of the financial assistance so
that appropriate accounts affected thereon are properly presented in the
financial statements to avoid misleading information.
b. henceforth, advise the Accounting Office to review properly the liquidation

reports submitted by the barangays to minimize if not eliminate the
foregoing audit deficiencies so that the actual amount spent thereof are
recorded immediately, thus credits to the account on piecemeal basis is
prevented.
14. Failure of the City Government to refund the unutilized financial assistance
granted by the Department of Tourism (DOT) on December 5, 2006 for the 12th
ASEAN Summit scheduled on January 10 to 14, 2007 despite demand and various
audit observation memorandum issued has resulted to unsettled balance of
P8,705,916.09 contrary to the Memorandum of Agreement and COA Circular 94-
013 dated December 13, 1994.
COA Circular No. 94-013 dated December 13, 1994 was issued to ensure that:
 the transfer of funds is properly taken up in the books of both agencies;

 the transferred funds are used only for the intended purpose; and
 proper accounting and reporting is made on the utilization of funds.
Paragraph 6.7 of the above mentioned circular which prescribed the rules, regulations
in the grant, utilization and liquidation of funds transferred to Implementing Agencies (IA)
provides that the IA shall return to the Source Agency (SA) any unused balance and refund
disallowance upon completion of the project.
Section 6 of the Memorandum of Agreement (MOA) states and we quote:
“The City of Lapulapu shall return to DOT, if any, the unused balance of the Inter-
Agency Fund Transferred upon completion of the Projects for which the funds were
42
transferred and the DOT shall issue to the City of Lapulapu the corresponding official receipt
including refunded or disallowance remitted”.
Audit disclosed that sometime on December 6, 2006, the City of Lapulapu, being one
of the host cities of the Summit, received financial assistance from Department of Tourism
(DOT) in the total amount of P15,680,000.00 specifically intended for preparatory activities
for the 12th ASEAN Summit scheduled on January 10 to 14, 2007 for Beautification, Lighting
and other Tourism related Projects in the City based on the approved Project Program of
Work. The terms and conditions of the DOT financial assistance were contained in the MOA
signed by then Mayor Arturo O. Radaza and Patricia Aurora B. Roa, then Regional Director,
DOT VII on December 5, 2006.
Records further disclosed that the City incurred various expenses totaling
P6,974,083.91 for beautification, lighting and tourism related projects in relation to the 12th
ASEAN Summit thus leaving an unused fund of P8,705,916.09.
The City in its various communications to DOT requested for the realignment of the
unused funds of P8,705,916.09 for future projects of the City. Secretary Alberto A. Lim in its
answer dated November 23, 2010 suggested that the unexpended balance of the amount
extended to the City of Lapulapu for the beautification, lighting and other tourism projects in
relation to the 12th ASEAN Summit in 2007 be first refunded by the City after which a new
proposal may then be submitted in the amount of the unexpended balance. To date, the
unused amount of P8,705,916.09 remained unrefunded to DOT, thus depriving the National
Government on the use of the fund for other priority projects.
Audit further disclosed that in CY 2008, a year after the completion of the Project, the
City incurred additional expenditures of P2,794,985.30 for beautification project which
amount was charged against the financial assistance granted by DOT. The expenditures are
considered irregular and contrary to the provisions of the MOA which provides that in no
case shall the Inter-Agency Fund transferred be utilized for other purpose except for the
implementation of the Projects. Further, Section 94, Volume I of the NGAS Manual for
LGUs also provides that Trust Fund shall only be used for the specific purpose for which it
was created or for which it came into the possession of the local government unit. This audit
observation has also been communicated to Management as contained in the CY 2008
Annual Audit Report.
This is a reiteration of the CY 2011 audit observation which to date had remained
unimplemented. During the exit conference on May 30, 2012, Management committed to
coordinate with DOT to reiterate their request to use the unexpended balance of
P8,705,916.09 for beautification projects of the City of Lapulapu.
We recommend that Management follow up their request from DOT Manila to

use the unexpended balance for beautification projects of the City of Lapulapu,
otherwise, the amount of P8,705,916.09 be immediately refunded pursuant to the
provisions of COA Circular 94-013 and MOA.
43
15. Liquidations of intelligence fund were recorded in the books by the City
Accountant despite non-receipt of Credit Notice and authorization from the COA
Chairman contrary to COA Circular No. 2003-003 dated July 30, 2003 thus,
understating the reported asset account and overstating the appropriate expense
account.
COA Circular No. 2003-003 dated July 30, 2003 provides that liquidation of
intelligence and confidential funds of local government units shall be submitted in a sealed
envelope with a visible label “Confidential-For COA Chairman Only” directly to the
Chairman’s Office, COA thru any of the following modes:
 Registered mail
 Courier
 Authorized liaison officers
If the liquidation vouchers and supporting papers are in order, the COA Chairman or
authorized representative shall issue a credit advice addressed to Head of Local Government
Unit, Attention the Chief Accountant, copy furnished the Provincial or City Auditor of the
local government unit.
Subsequent cash advances shall be granted only after the issuance of credit advice
from the Chairman or the submission of liquidation vouchers/reports for the previous cash
advance to the COA Chairman. One copy of the transmittal letter, for the purpose, duly
received by the Chairman or his authorized representative, must be forwarded to the
Accountant of the local government unit and the auditor concerned for reference.
A credit notice is issued to the Accountable Officer (AO) to inform her/him of the
amount allowed in audit and any suspensions/and/or disallowances made. In case of
disallowance, a copy of the Credit Notice is furnished to the Accountant who shall record the
restoration of the cash advance for the amount disallowed. In case of suspension, the AO
shall submit the document to settle his suspensions and another Credit Notice is issued to lift
the suspension.
Audit of Intelligence Fund of the City Government of Lapulapu disclosed a yearly

budget of P8,000,000.00. Records further disclosed that liquidations of intelligence fund
were sent thru registered mail to the Office of the Chairman as soon as the purpose of the
cash advance was accomplished. Copy of the mailing receipt is then forwarded to the City
Accountant for recording of the liquidation and another cash advance is issued by the
Accounting Section.
The aforecited practice of the City Accountant to record the transaction in advance in
the absence or non-receipt of Credit Notice from the COA Chairman contradicts the
provisions of COA Circular No. 2003-003. As a result, the asset account is understated and
the expense account is overstated.
44
We recommend that the City Accountant stops the practice of recording
liquidations of Intelligence Fund unless upon receipt of Credit Notice from the COA
Chairman. We also recommend for the immediate restoration of the amount of cash
advance recorded without the Credit Notice and to adhere strictly to the provisions of
COA Circular 2003-003 for a fair presentation of the accounts in the financial
statement. Momentarily, in the absence of the Credit Advice, a notation maybe made in
the schedule of unliquidated cash advance that such amount of settlement had been
made and forwarded to the COA Chairman for audit.
16. The accuracy and reliability of Property, Plant and Equipment Accounts totaling
P1,904,975,753.83 remained doubtful due to a) unreconciled difference of
P1,056,511,188.96 between accounting and property records; b) inability of
management to conduct physical count; c) incomplete property and accounting
records; d) erroneous classification of accounts contrary to pertinent accounting
rules and regulations.
Section 353(b) of the Government Auditing and Auditing Manual (GAAM), Volume
III, Government Auditing Standards and Procedures and Internal Control System, requires
the comparison of recorded accountability with existing assets to determine whether the
actual assets agree with the recorded accountability. Any discrepancy should be investigated
in accordance with existing regulations and appropriate action taken thereon.
The reliability of the balances of Property, Plant and Equipment (PPE) accounts
totaling P1,904,975,753.83 which represent 59.70% of the total assets of the city totaling
P3,190,938,684.63, could not be ascertained due to various significant/material accounting
deficiencies and errors noted in the analysis of these accounts as follows:
Particulars Amount
a. Unreconciled difference between book balance and P 1,056,511,188.96

inventory reports
b. Non conduct of PPE physical inventory 1,904,975,753.83
c. Incomplete Property and Accounting Records
a. Unreconciled Difference between book balance and inventory reports
Audit disclosed that the balances of various PPE accounts of P1,904,975,753.83 as of

December 31, 2012 did not reconcile with the total balances appearing in the Inventory
Reports on PPE in the total amount of P848,464,564.87 or a difference of P1,056,511,188.96
.
Fund Per Books Per Inventory Report Over (Under)
Difference
General Fund P1,516,825,567.25 P 823,276,945.32 P693,548,621.93
Special Education
Fund 359,460,315.27 7,545,159.55 351,915,155.72
45
Trust Fund 28,689,871.31 17,642,460.00 11,047,411.31
Total 1,904,975,753.83 848,464,564.87 1,056,511,188.96
The inventory reports submitted were based only on the Acknowledgement Receipt
for Equipment (ARE) on file at the GSO Office since there was no actual count conducted.
This is a reiteration of prior year’s audit observation on the unaccounted difference

between the balances per books and inventory reports on PPE.
b. Non-conduct of PPE Inventory P848,464,594.87
Section 490 of the GAAM, Volume I states that physical inventory-taking is an

indispensable procedure for checking the integrity of property custodianship. In all cases, the
physical inventory-taking which is required semi-annually or annually should be regarded
with importance.
Section 124 of NGAS Volume I 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 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.
Interview with the OIC, GSO disclosed that due to time constraints and lack of
personnel, they were not able to conduct physical inventory count of PPE.
Since there was no actual physical inventory conducted and the difference is material,
the validity and reliability of the accounts remain uncertain. Moreso, there is no assurance
that all properties recorded in the books are still existing and serviceable and that existing
properties are duly recorded in the books thus, increasing the risk of loss of these properties.
c. Incomplete Property and Accounting Records
Section 114 of NGAS Manual, Volume I also provides that the chief accountant shall
maintain the perpetual inventory records comprising of Property, Plant and Equipment
Ledger Card (PPELC) for each category of plant, property and equipment account in the
inventory control account in the general ledger.
The General Services Officer (GSO) shall likewise maintain property cards for
property, plant and equipment 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.
Verification of records showed that while the GSO and the Accounting Unit maintain
Property Cards and Property Ledger Cards, respectively, these are not complete and properly
maintained. It was further noted that entries on these records are not updated. Records also
46
disclosed that the Accounting and GSO failed to conduct reconciliation of their records, thus
rendering the accuracy and reliability of the PPE accounts balances unreliable.
The Accounting and GSO Sections are now in the process of updating their records to
facilitate reconciliation.
d. Other deficiencies noted
 Inventory reports submitted by the GSO were not complete;

 absence of serial numbers, acquisition cost, acquisition date, persons
accountable, whereabouts, conditions and property numbers thus causing
difficulty in identifying and locating the properties listed in the inventory
reports;
 some items are still assigned to persons no longer connected with the office;
 inclusion of small tangible items contrary to COA Circular 2005-002 dated
April 14, 2005;
 absence of inventory tags
We recommend that management implements the following corrective measures

to ensure better internal control thereat and to present the correct financial condition of
the PPE accounts:
 instruct the Accountant and GSO to reconcile the difference of

P1,056,511,188.96 and effect the necessary adjustments to correct the
record with erroneous entries, thus, present the correct financial
condition of the agency;
 consider creating a Special Inventory Team to conduct physical inventory
of all PPE owned by the city and reconcile the report with the records of
the Accounting and GSO Sections to determine their existence,
status/conditions and whereabouts of the assets and submit a report
thereon;
 advise the inventory team to use property tags during the count to
facilitate identification and location of the PPE;
 advise the inventory team to submit a report for whatever assets found in
station during the count but not recorded per books so that these could be
taken up in the agency books for control purposes and pinpoint
accountability in case of loss;
 direct the GSO and Accountant to update recording on the Property
Cards and Equipment Ledger Cards, respectively, to ensure the accuracy
and reliability of the property and accounting records;
 reclassify small tangible assets to its proper inventory/expense accounts in
accordance with COA Circular No. 2005-002 dated April 4, 2005;
 provide adequate information on the inventory reports such as serial
number, acquisition cost, persons accountable, whereabouts, conditions
and property number to facilitate identification during the count;
47
 require clearance from retired/resigned officials and employees to clear
them of their property accountability and cancel the corresponding
Acknowledgement Receipt for Equipment (ARE) for the returned items.
17. Claims for daily wage and monthly honorarium of Job Order Contract Employees
who are assigned in the City’s barangays were not supported with proper daily time
records and/or individual accomplishment reports, thus the validity and propriety
of disbursements may prove doubtful and the extent of services rendered cannot be
properly validated in violation of Section 4 (6) of Presidential Decree (PD) 1445.
Section 4 (6) of PD 1445 provides that claims against government funds shall be
supported with complete documentation.
Review of payrolls for daily wage claims and monthly honorarium of job order (JO)
contract employees who are assigned in the City’s barangays, showed that there were no
attachments of daily time records (DTRs) and individual accomplishment reports. What is
attached thereto is only a signed certification by the Punong Barangay stating therein that the
JOs appearing in the payroll have rendered the required services for the specific period.
Subject claims therefore, lack the proper documentations in support thereof in violation of
Section 4 (6) of PD 1445.
Interview with the barangay officials revealed that JOs assigned in their barangays
were not required to sign in the attendance logbook and submit accomplishment reports,
except Barangay Looc which is already maintaining a record of attendance recently. JOs
would have to report directly to their respective assignments within the barangay where their
services are being monitored by the section heads or the punong barangay himself.
Daily paid workers, have to render an eight (8) hours per day service while those
receiving fix monthly honorarium ranging from P500.00, P1,000.00 or P1,500.00, are
required to work for only a certain number of hours during the day, week, or month. For
those receiving P250.00 per month, they have to report to the barangay once, twice or as the
need arises.
With the foregoing condition, the extent of services rendered by the subject
employees cannot be evaluated properly on account of the failure of management to
coordinate with the barangay officials to institute proper controls to effectively monitor their
attendance, and accomplishment to protect the interest of the government and discourage
those who wanted to take advantage of the situation.
a. requires JO employees who are reporting in the barangays to maintain a

daily record of attendance and submit accomplishment report for proper
evaluation and documentation;
48
b. coordinates with the Punong Barangays to oversee the proper
implementation of the foregoing instruction; and
c. directs the Accountant to refrain from processing daily wage claims and/or
honorarium of JO employees without proper DTRs and/or accomplishment
reports duly verified by the Punong Barangays.
Summary of Issued NSs/NDs/NCs
The unsettled disallowances and suspensions as reflected in the Statement of Audit

Suspensions. Disallowances and Charges (SASDC) as of December 31, 2012 amounted to
P13,564,237.43 as shown in the table below:
Ending
Beginning Issued this Settled this period
Balance as of
Balance as of period January- January-
December 31,
12/31/2011 December, 2012 December, 2012
2012
Notice of Suspension 1,642,483.76 2,477,505.00 1,472,280.00 2,647,708.76
Notice of
10,409,106.75 570,576.14 63,154.22 10,916,528.67
Disallowance
Notice of Charge -0- -0- -0- -0-
Total 12,051,590.51 3,048,081.14 1,535,434.22 13,564,237.43
Reconciliation of IRA with DBM
Comparison made between the Internal Revenue Allotment (IRA) per DBM and IRA
per Financial Statement of the City of Lapulapu for CY 2012 disclosed differences in the
amount of P7,500,034.00 as explained below:
Per DBM Website Per FS/AAR Difference

P402,993,694.00 410,493,728.00 P7,500,034.00
The difference of P7,500,034.00 is broken down as follows:
Particulars Amount
2001 and 2004 IRA differential P3,068,626.00
2000 and 2001 unprogrammed IRA 4,431,408.00
Total 7,500,034.00
The final allocation for the IRA of the City of Lapulapu for FY 2012 was
P402,993,694.00. In addition, the City had additional releases which covered the IRA
differential for FY 2001 and 2004 when the national government operated in a reenacted
budget amounting to P3,068,626.00 and P4,431,408.00 or a total of P7,500,034.00
representing the 2000 and 2001 unprogrammed IRA for the LGU respectively. The latter
49
amounts were then withheld in the national government’s budget but said issue was later
resolved in the Supreme Court’s decision promulgated last July 19, 2000 stating that the “the
IRA for LGUs shall not be subjected to any lien or holdback that may be imposed by the
national government”.
Gender and Development Program
The budget allotted for the implementation of the Gender and Development Program
amounted to P109,387,088.00 which is 7% of the total agency budget of P1,651,440,773.00.
During the year, the amount of P83,494,124.35 or 76.33% was expended for GAD related
activities.
The above joint circular mandates the earmarking of at least 5% of the total agency
budget appropriation.
50
PART III - STATUS OF IMPLEMENTATION BY THE AUDITEE OF PRIOR YEARS’ AUDIT
RECOMMENDATIONS
Status of Reason for

Audit Observation Recommendations Ref Implemen- Management Partial/Non-
tation Action Implementation
1. Due to want of careful We recommend that 2011 Not The City had sent Failure to follow
study and proper data in management: AAR Implemented letter request to up request from
determining the possible DOTC for the DOTC.
number of commemorative •institute appropriate extension on the use
car plates (CCPs) needed measures and aggressive of commemorative
and aggressive advertising promotion or advertising plates.
strategies, only 115 pieces strategies to dispose and sell
or 6% out of 2,000 pieces the remaining 1,885 CCPs
CCPs purchased were before the expiration of its Will furnish COA
disposed of to promote and usage on June 30, 2012. the reply of the
highlight the celebration of DOTC, if already
the 50th year anniversary of •direct the concerned parties available.
the City of Lapulapu. to account for the four (4)
Consequently, the City unaccounted CCPs,
stands to lose P1,885,000.00 otherwise, instruct those
worth of government funds found accountable thereof to
thru wastage if no pay the purchase cost of
appropriate action is taken subject car plates.
to fast track the disposal
thereof before the expiration •henceforth, observe proper
of its usage on June 30, planning and/or study before
2012. undertaking a particular
project or activity for an
effective and successful
implementation thereof to
avoid wasteful utilization of
government funds.
2. The City failed to take We recommend that 2011 Not Majority of drugs The City still
advantage of the availability management avail the AAR Implemented needed by the City purchased from
of the low priced drugs and services and the low priced are not available at private suppliers
medicines including medical medicines and medical DOH Botica. of their drugs and
supplies offered by Vicente supplies offered by VSMMC, medicines
Sotto Medical Center a government owned DOH There are drugs we requirements
(VSMMC), a government Botica, pursuant to Section need to justify its
hospital authorized by the 53.5 of RA 9184 and GPPB efficacy.
Department of Health to Resolution No. 018-2007
engage in wholesale dated May 31, 2007 which
procurement and allows a government agency
distribution of essential to procure from another
drugs but rather procured its government agency by way
requirements from private of direct contracting thru an
entities, thus it spent more agency to agency agreement
than P2,062,337.59 in the and avoid the hassle of the
procurement thereof as bidding process, cost of
prices of subject items were advertisement, thereby
found excessive at an deriving more savings in
average of P16,367.76 or terms of man-hours,
150% per item purchased in manpower and government
51
contrary to Section 3.3 of funds.
COA 85-55A.
3. The City spent We recommend that 2011 Not The City will devise Failure of the City
P1,020,225.00 for road right management: AAR Implemented its payment scheme to comply with
of way and lot acquisitions thru expropriate the
of portions of three (3) a. henceforth, avoid paying proceeding so that recommendations.
cadastral lots affected by the claims for road right of way payments to lot
development and or lot acquisitions affected by owners can be safely
implementation of various the implementation of the deposited with the
agency projects, without City’s development projects court until questions
appropriate protection and if subject properties had of ownership on the
guarantee as absolute owner existing encumbrances or lot subject to
or possessor thereof, owing involved in ownership issues acquisition by the
to the presence of which could not be settled by City has been totally
encumbrances and several mere prescription but through settled.
claimants annotated in the a court ruling or intervention,
original certificate of title or unless the subject concerns
transfer certificate of titles are properly addressed
and/or tax declarations of ensuring that the interest of
the foregoing properties the government is fully
which is prejudicial to the protected.
interest of the City, that may
likewise result in the b. if the preceding
possible misspending or recommendation has to be set
wastage of government of aside due to the pressing
funds, contrary to Section 2 demands of the project and/or
of PD 1445. necessity of installation of
risk reduction measures
attributable to emergency or
calamity situations, devise a
policy by entering into a
compromise agreement with
the lot owners providing
therein appropriate
provisions for safety nets and
other legal means in favor of
the City without sacrificing
its interests and objectives
thereof.
c. advise the legal office to

investigate whether or not
Aniceta Yu was properly
compensated on the use of
her lot for the construction of
a concrete fence in which an
overlapped portion thereof
was also used in the subject
road widening/opening
project which could possibly
result in double payment in
52
favor of the lot owner. If it
can be established that Ms.
Yu has indeed been paid
twice, institute appropriate
action to recover the amount
paid by the City equivalent to
the overlapped portion.
d. submit the following for

evaluation:
1. Memorandum of
agreement entered into by
and between Nono T. Yu and
heirs of Saturnino Catagcatag
executed before a Notary
Public, Atty. Bienvinido
Saniel Jr. entered as Doc. No.
382, Page 79, Book No. XIX,
series of 2002.
2. eight (8) tax declarations
indicated in TD No. 01924,
mentioned as follows; TD
Nos. 00336, 01383, 01384,
00341, 00342, 01293, 01294
and 01386.
3. explanation from the
Register of Deeds, Lapulapu
City relative to the deletion
of encumbrances on the
adverse claims of Siegfredo
Dublin recorded as entry no.
5708-A-V-XVI-D.B., Benito
P. Diamos, former manager
of MCIAA with entry no.
5708-B-V-XVI-D.B., and
Vicente Lawas with entry no.
5758-V-XVI-D.B. upon
issuance of TCT no. 37742
4. Due to non-adherence of We recommend that 2011 Partially Promised to comply Salary payment
the proper control management: AAR Implemented with the thru ATM not yet
procedures in the grant of recommendation. implemented
cash advances for salaries, • stop the practice of giving
wages, allowances, additional cash advances if
honoraria and other similar previous cash advances are
payments, disbursing not yet settled;
officers were still allowed to
get new cash advances even • see to it that all cash
if previous cash advances advances for salaries, wages,
were not yet settled and/or allowances, honoraria and
not supported with other similar payments are
53
appropriate payrolls or list supported with duly
of payees with their net approved payrolls or list of
payments, hence the individual payees with their
granting of excessive cash net payments properly
advances cannot be reviewed by authorized
effectively monitored or officials before approvals are
contained and in effect made;
exposing government funds
to risks against loss or • simplify disbursement
misuse thru theft, procedures, by adopting the
malversation, or widely accepted, safe,
embezzlement, contrary to convenient, effective, and
Sections 4.1.2, 4.2.1, and efficient method of paying
4.2.2 of COA Circular 97- salaries, wages, allowances
002. and honoraria thru the
automated teller machine
(ATM), by coordinating with
the LBP management,
Lapulapu City branch for its
smooth implementation
thereby saving time, effort
and resources and avoiding
the inherent risks attributable
to the manual method of
payment. Upon
implementation thereof,
cause the assignment of the
four (4) disbursing officers
handling these cash advances
to other tasks particularly in
the tax collection or revenue
generating functions to
improve the City’s income.
5. Properties and completed We recommend that 2011 Fully Already adjusted

projects transferred from management: AAR Implemented
trust fund to the general
fund account totaling • advise the Accountant to
P36,258,998.88, were make the appropriate
improperly recorded as adjusting entry by recording
income from grants and the P36,258,998.88 as a debit
donations in CY 2007 to the Prior Years’
resulting in the increase of Adjustment account (684)
the retained operating and crediting the government
surplus account of that year equity account (501) with
and consequently appropriate reduction on its
overstating the cumulative unappropriated surplus.
unappropriated surplus of
the agency. Thus, • if it could be established
management could be that the amount of
misled into appropriating P36,258,998.88 was already
said amount without the appropriated for the City’s
54
proper cash back up, that operations, cause the
may result in the non- immediate amendment of the
payment of its obligations appropriation ordinance
and instability of its enacted for the purpose, to
financial resources contrary avoid difficulty in settling
to Section 172 of the obligations and ensure
Manual on NGAS, Volume stability of its fiscal
III and Section 306 (i) of resources.
RA 7160.
6. Accounting records We recommend that 2011 Fully The Chief of

relative to the usage or management instruct the AAR Implemented Hospital has started
utilization of hospital Chief of Hospital to perform implementing the
supplies costing the following: recommendations
P1,981,144.55 proved upon receipt of the
deficient since issuances of a. oversee the proper issuance COA audit
these items were not procedures of hospital observation
properly receipted and supplies by directing the memorandum.
documented, contrary to supply officer and heads of
Section 123, Volume II of central supply, laboratory,
the Manual on NGAS for operating room dental and
LGUs, thus account radiology sections to refrain
balances for medical, dental from issuing hospital
and laboratory supplies supplies without the
expense (760) and its appropriate requisition and
corresponding inventory issue slips or withdrawal
account (160) proved to be slips to support thereto.
inaccurate and unreliable.
b. advise the designated
supply officer to henceforth,
prepare a summary of
supplies and materials issued
for all issuances of hospital
supplies made by the central
supply, operating room,
dental, laboratory and
radiology sections duly
supported with appropriate
requisition and issue slips,
withdrawal slips or utilization
reports for submission to the
City Accountant and
appropriate recording thereof.
7. The balance of financial We recommend that 2011 Not Communicated with Communicated
assistance amounting to Management comply with the AAR Implemented DOT Central office with DOTC
P8,705,916.09 granted by suggestion of then DOT for approval on the Manila.
the Department of Tourism Secretary Alberto A. Lim that use of said funds.
to the City on December 5, the unexpended balance of Still awaiting reply.
2006 for the 12th ASEAN the amount extended to the
Summit scheduled on City for the Beautification,
January 10 to 14, 2007 Lighting and Tourism related
55
remained unliquidated as of projects in connection with
the year end contrary to the the 12th ASEAN Summit in
Memorandum of Agreement 2007 be first refunded by the
and COA Circular No. 94- City of Lapulapu to DOT
013 dated December 1994, after which a new proposal
thus depriving the National may then be submitted in the
Government on the use of amount of the unexpended
the funds for other priority balance. Unless legally
projects. Moreso, justified, we recommend for
expenditures amounting to the refund of the amount of
P2,794,985.30 for P2,794,985.30 incurred
beautification project of the without legal basis and to
City for CY 2008 was refrain from using Trust Fund
charged against the said for any other purpose except
fund, which assistance was for which the fund was
specific to the 12th ASEAN created to avoid disallowance
Summit, in contrary to the in the future.
herein mentioned agreement
and Section 94, Volume I of
the NGAS Manual for
LGUs.
8. The grant of financial We recommend that 2011 Partially Promised to comply Only Opon
assistance to Non- management: AAR Implemented with the Puericulture
Governmental recommendation. Maternity House
Organizations a. henceforth, stop granting Inc. has not
(NGOs)/People’s financial assistance to submitted the
Organizations (POs) NGOs/POs without complete required
amounting to documentation and strictly documents.
P1,450,000.00, lack the enforce compliance of the However, records
required propriety and requirements under the showed that
regularity due to the provisions of COA Circular subject NGO/PO
inadequacy of supporting 2007-001. was given another
documents and the apparent financial
failure of the City to act b. submit the appropriate assistance despite
with prudence to show documents mentioned above non-compliance
compliance with the to comply with the thereof.
mandated requirements, in requirements to entitlement
contrary to the pertinent of government funds by the
provisions of COA Circular NGOs/POs and proof of
2007-001 dated October 25, compliance by the City on
2007. the proper procedures for the
availment, release and
utilization of subject funds
pursuant to Section 4.4 and
Section 4.5, respectively of
COA Circular 2007-001,
otherwise, the amount of
P1,450,000.00 will be
disallowed in audit.
9. Collections out of We recommend that 2011 Not College President Submitted the
56
examination and insurance management: AAR Implemented (CP) committed to required
fees of at least P503,800.00 submit within 2 accounting of
were neither issued a. require the College weeks after the exit collections after
appropriate official receipts President to account for at conference the the exit
nor remitted to the City least P503,800.00 worth of required accounting conference. Still
Treasurer by the Lapulapu collections comprising of of collections with in the process of
City College in violation of insurance and examination proper receipts or review.
Sections 68 and 69 of PD fees based on the actual documents.
1445 and Section 307 of RA number of enrollees and As of now, the CP
7160, thus exposing those collections of has not submitted
government funds to risks undetermined amount from the subject
against loss or misuse thru applicants who either failed documents as
theft or malversation. or passed the entrance promised.
examination but opted to
enroll elsewhere, duly
supported with appropriate
receipts or invoices, and
other related documents.
b. direct the LLCC to stop

collecting school fees without
issuing official receipts and
BOT approval and to
coordinate with the City
Treasurer to address the
problem of proper collection
procedures until a permanent
collecting officer is assigned
at the school.
c. instruct the City Treasurer

for the possible assignment
of a collecting officer at the
LLCC, otherwise, designate a
school faculty to perform the
collection functions with
appropriate compliance on
the bonding requirements
pursuant to existing
regulations.
10. The contract cost of We recommend that 2011 Fully Already settled. The
P6,953,068.00 on management deduct the AAR Implemented matter was
Concreting of Aviation Road amount of P447,798.76, from reconsidered by
towards Barangay Buaya the remaining claim of JJ & J COA after
was found to be Construction and General submission of
P447,798.76 or 17.57% Supply representing sufficient
above the COA Cost excessive cost of the justification.
Evaluation, thus considered contract price, if it deemed
an excessive expenditure unable to present convincing
which is prejudicial to the evidence to prove their side,
interest of the government, otherwise the amount will be
57
contrary of Section 3.3 of disallowed in audit.
COA Circular 85-55A.
11. Due to exclusion of We recommend that 2011 Not Accounting to Grant of PEI still
certain benefits and management: AAR Implemented coordinate with not subjected to
allowances in determining HRM Division for withholding tax.
the gross taxable income of a. instruct the Accountant to the correct tax
employees, the City failed henceforth exercise due exemption of
to withhold income tax prudence in computing employees and the
amounting to P592,606.83 properly income tax of consistency of
and erroneously set up employees in accordance appropriate income
excess tax refunds payable with laws and BIR tax deductions in the
of at least P129,534.60 , regulations; respective payrolls.
thus accounts Due to BIR
and Due from officers and b. advise the Accountant to
employees were understated make the proper adjusting
by P722,141.44 and entry by debiting the
P592,606.83, respectively accounts, Due from officers
and overstating the tax and employees (148) and Tax
refunds payable account by refunds payable (429) in the
P129,534.60 , contrary to amount of P592,606.83 and
the pertinent provisions of P129,534.60, respectively
BIR Revenue Regulations and crediting P722,141.44 to
2-98, as amended. the Due to BIR (412)
account. Moreso, ensure the
collection of unpaid taxes by
deducting the same from the
employees concerned and
remit the amount
immediately to the BIR.
12. The failure of the City to We recommend that 2011 Not Some projects may Insufficiency of
implement various Management fastrack the AAR Implemented not be implemented funds.
programs/projects/activities implementation of the due to insufficiency
relative to financial Project, Program and of funds thus it
assistance received totaling activities funded out of the would appear that
P59,372,298.24 from other financial assistance received certain balances
government units and from from other national agencies were not utilized
Priority Development and different legislators so when in fact
Assistance that the intended corresponding
Fund/Countrywide beneficiaries may enjoy the program of works
Development Fund of benefits derived therefrom. were already
different legislators We also suggest that prepared and
deprived the constituents of Management request for approved.
the benefits that could have realignment of those with
derived therefrom to the insufficient balance so that
disadvantage of the general the project may be realized to
public. the advantage of the general
public.
13. Total unpaid We recommend that 2011 Fully For compliance.
58
honorarium, allowances and management direct the AAR Implemented
other benefits of regular and Accountant to see to it that
job order employees totaling all obligations for the
P8,586,694.56 were not period are recorded in the
taken up in the books, year it was incurred. We also
thereby understating the enjoined the Accounting
liabilities/expense accounts and Treasury Sections to
and overstating the city’s closely coordinate with each
income as of year end. other relative to unpaid
obligations to avoid similar
incident in the future.
14. Funds transferred to We recommend that 2011 Partially Management Additional grants
Non-Governmental management: AAR Implemented promised to comply were given despite
Organizations/Peoples with non-liquidation of
Organizations (NGOs/POs) a. Send a formal letter to the recommendation. previous
totaling P9,185,321.57 different NGOs/POs assistance.
remained unliquidated as of requesting them to submit the
December 31, 2011 and are liquidation reports on the
still recorded as Receivable utilization of fund assistance
Account. These fund granted by the City for a fair
assistance have been presentation of the account in
outstanding in the books the financial statement and to
from seven (7) months to avoid suspensions
three (3) years in violation /disallowances thereof;
of Section 5.4 of COA
Circular No. 2007-001 dated b. Stop the practice of
October 25, 2007, thus granting additional financial
overstating the total assistance unless the previous
reported receivables and ones are settled;
understating the appropriate
expense accounts. c. Prepare journal entry to
reclassify the amount of
P500,000.00 granted to
VSMMC to Due from NGAs
instead of Due from
NGOs/POs.
15. The City failed to adopt We recommend that 2011 Partially Promised to comply Partial liquidation
an effective monitoring management adopt an AAR Implemented with the reports were
scheme on the submission effective monitoring scheme recommendation. submitted
of liquidation reports on to enforce the
funds transferred to national submission of the liquidation
agencies and local reports in order to record the
government units and expenditures or the asset
continuously granted said accounts and credit the
assistance inspite of corresponding amounts
unsettled balances resulting expended to the receivable
to the accumulation thereof account for a fair
totaling P19,400,811.96, presentation of the account in
hence expenditures incurred the financial statement.
59
by the implementing
agencies for various projects
in CY 2011 and prior years
were not recorded in the
books thus, the balance of
the subject receivable
account is overstated.
16. The Real Property Tax We recommend that 2011 Not Promised to comply Upgrading of
and Special Education Tax Management direct the City AAR Implemented with the computerized
Receivables amounting to Treasurer to comply strictly recommendation. system
P279,765,557.25 and with the provisions of
P160,981,868.80, Sections 20 and 84 of the
respectively, are not reliable NGAS Manual for LGUs,
due to failure of the City Volume I, in the preparation
Treasurer to furnish the City of certified list of taxpayers
Accountant with the with the corresponding
certified list of taxpayers amount due and collectible
with the corresponding for the year based on the
amount due and collectible Assessment Roll prepared by
contrary to Sections 20 and the City Assessor and submit
84, Volume I of the NGAS the same to the City
Manual for LGUs. Accountant as basis in setting
up the correct RPT and SET
receivable for a fair
presentation of the accounts
in the financial statement.
17. The reported balance of We recommend that 2011 Fully

the account Advances to Management direct the City AAR Implemented
Contractors (Code 181) Accountant to make the
amounting to P3,550,108.97 necessary adjusting entries on
is misstated due to the recorded and non-
erroneous and non- recorded transactions to
recording of recoupment of arrive at a corrected balance
advances paid by at year end.
contractors totaling
P1,132,917.19 thereby
overstating/understating the
assets and liabilities account
by the same amount.
18. The balances of the We recommend that 2011 Partially Accounting and Lack of personnel
fixed assets accounts management implement the AAR Implemented GSO will coordinate to do the
amounting to following corrective for the purpose reconciliation.
P1,627,416,578.27 could measures to ensure better
not be relied upon due to a) internal control thereat and to
unreconciled difference of present the correct financial
P1,289,366,857.01 between condition of the PPE
accounting and property accounts:
records; b)incomplete
accounting/property records • instruct the Accountant and
60
and other relevant GSO to reconcile the
documents to support the difference of
reported balance; c)inability P1,289,366,857.01, and
of management to submit effect the necessary
complete physical inventory adjustments to correct the
count; and d)erroneous record with erroneous entries
classification of accounts thus present the correct
contrary to pertinent financial condition of the
accounting rules and agency;
regulations.
• direct the Inventory Team to
facilitate the conduct and
submission of physical
inventory count of the 21
accounts and reconcile the
report with the records of the
Accounting and GSO
Sections to determine their
existence, status/conditions
and whereabouts of the
assets;
• advise the inventory team to

use property tags during the
count to facilitate
identification and location of
the PPE;
• advise the inventory team to

submit a report for whatever
assets found in station during
the count but not recorded
per books so that these could
be taken up in the agency
books for control purposes
and pinpoint accountability in
case of loss;
• direct the GSO and

Accountant to update
recording on the Property
Cards and Equipment Ledger
Cards, respectively, to ensure
the accuracy and reliability of
the property and accounting
records;
• reclassify small tangible

assets to its proper
inventory/expense accounts
in accordance with COA
Circular No. 2005-002 dated
61
April 4, 2005;
• provide adequate
information on the inventory
reports such as serial number,
acquisition cost, persons
accountable, whereabouts,
conditions and property
number to facilitate
identification during the
count;
• require clearance from

retired/resigned officials and
employees to clear them of
their property accountability
and cancel the corresponding
Acknowledgement Receipt
for Equipment (ARE) for the
return items.
19. The total balance of We recommend to 2011 Partially Accounting and Lack of personnel
Inventory Accounts of Management the following AAR Implemented GSO will coordinate to do the
P39,003,350.21 is unreliable courses of action: for the purpose reconciliation.
because of a) net
unreconciled difference of • Instruct the Accountant and
P28,913,595.09 between the General Services Officer to
balance per books and reconcile the accounting and
inventory reports; b) property records and any
unrecorded issuances caused discrepancy be immediately
by the non-preparation of verified and adjusted to
Summary of Supplies and reflect the accurate value of
Materials Issued thereby inventories;
overstating the inventory
accounts and understating • Require the General
the related expenses; c) non- Services Officer/designated
preparation/maintenance of custodians to prepare the
supplies ledger cards by the SSMI for issued inventories
Accounting Section and to end-users based on duly
stock cards by the General approved Requisition and
Services Office/different Issue Slips and ICS and
offices. submit the same to the
Accountant for recording in
the books;
• Direct the Accountant and

General Services Officer to
prepare the Supplies Ledger
Cards and Stock Cards,
respectively, in compliance
with Section 114 of the
NGAS Manual, Volume 1.
20.The purchase/acquisition We recommend that 2011 Fully Use of bleachers has
62
of steel bleachers costing management: AAR Implemented been maximized not
P21,311,168.00 and only in the City’s
additional amount of • observe the prudent way of big events but in all
P316,288.00 for eight (8) 20 spending by avoiding any other activities
footer container vans, that undertaking that entails which require the
served as storage facilities substantial amount of use of these
for these items, primarily government funds without bleachers.
used during the five (5) day getting the proper assurance
hosting of the Asian Davis that expected benefits are
Cup Tennis Tournament commensurate to the amount
Elimination Round, and as spent;
one way of promoting the
City as a tourist destination, • conduct cost benefit
may prove to be a costly analysis before embarking
endeavor, and does not into an aggressive
commensurate with the undertaking to achieve a safe
amount of benefits the City and sound investment
has gained therefrom due to program for the best interest
limited use of steel of the city;
bleachers and absence of
quantifiable data showing • look for possible
the extent of its success as alternatives and effective
far as the promotion of methods to maximize the
tourism and the economic utilization of steel bleachers
gains are concerned in so that all the supposed
contrary to the tenets of a benefits obtainable therefom
sound investment strategy. will be fully enjoyed by the
City;
• if possible, offer the steel

bleachers to willing lessees
for a fee to generate more
income for the City; and
• submit appropriate
documents showing the
extent of success for this
endeavor for proper
evaluation.
21. Income from business We recommend that 2011 Partially The City Treasurer Lack of
taxes estimated at management conduct AAR Implemented had already met information
P2,539,251.08 could have information dissemination with the MCIAA dissemination.
been generated by the City, thru seminars with all officials and also
had there been proper government agencies within made coordination
information dissemination the jurisdiction of Lapulapu with PEZA and
and coordination with other City on the Revised City other concerned
government agencies Revenue Code of 2007 in offices.
located in Lapulapu City, to order to get the support and
withhold the appropriate cooperation of said agencies
amount of taxes from for the successful
transient or temporary implementation of the
63
contractors and/or suppliers ordinance and generate more
doing or transacting funds for the city.
business in their respective
offices pursuant to Section Further, direct also the City
2I.02 (f) of the Lapulapu Treasurer to institute
City Ordinance no. 070- appropriate business tax
2007, otherwise known as collection strategies to boost
the Lapulapu City Revised the City’s income by
Revenue Code (LLRRC) of requesting the assistance of
2007. private establishments
operating in the City and get
them involved in the
collection thereof. If possible,
offer certain forms of
incentives to encourage their
active participation in the
collection thereof, thus
enhancing the City’s chances
to make this undertaking
more doable.
22. The utilization of Hoops We recommend that 2010 Partially Promised to comply Available spaces
Dome and jeepney terminal Management: AAR Implemented with the for lease and or
facilities costing recommendation. occupancy at the
P213,930,444.10, was not a. maximize the promotion of jeepney terminal
maximized owing to its the availability of the City’s remained
limited users and absence of facilities or if possible, offer unutilized
willing occupants/lessees of discounts or reduce rates of
available office/business rental within reasonable
spaces in both edifices limits in order to attract
which is inconsistent with potential users and earn more
the principles of sound revenues for the government.
planning and reliable fund
management thus the b. exert efforts to fast track
expected benefits for the installation of lighting
increased revenue were not facilities at the hoops dome
fully achieved. area and establish alternate
tricycle and/or jeepney routes
in the area.
c. coordinate with the Chief

of Police for the availability
of adequate police force to
man the outpost round the
clock at the hoops dome area.
d. henceforth, conduct
feasibility study before
implementing any
government projects
especially those that requires
substantial funding so that
64
the expected benefits will be
attained.
23. Due to misdeclaration of We recommend that 2010 Partially Promised to comply Not all concerned
gross sales/receipts (GSRs) Management: AAR Implemented with the taxpayers have
by taxpayers and the lack of recommendation. settled their tax
appropriate assessment • instruct the City Treasurer dues. It seemed
strategy by the City to collect from the concerned that the City is
Treasurer’s Office to taxpayers business taxes powerless to
effectively verify the totaling P123,296.37 with collect from those
propriety of such GSRs, six appropriate penalties and who ignored the
(6) business establishments surcharges by sending out demand sent by
were issued improper notices of tax deficiencies the City since they
business tax assessments, with corresponding just change names
resulting in the under assessments; and apply for a
collection of business taxes new business
amounting to P123,296.37 • advise the City Treasurer to name/permit and
contrary to Section 2I.02 (b) coordinate with the barangay continue with
and (f) of the Lapulapu City officials and/or City their business.
Ordinance No. 070-2007 Accountant to furnish the
otherwise known as the CTO henceforth, with the
Lapulapu City Revised appropriate reports of checks
Revenue Code (LCRRC) of issued in addition to the same
2007. form of reports already
available at the said office for
the City of Lapulapu
transactions and those list of
taxpayers and corresponding
income tax returns furnished
by the Bureau of Internal
Revenue to use such
data/reports as an effective
tool to assess business taxes
properly particularly to those
establishments involved in
contracting or selling goods
and services.
24. The Lapulapu City We recommend that 2010 Partially Had complied with The barangays
government could have Management: AAR Implemented the have already
earned an additional income recommendation. imposed the
of P178,983.91, had the • direct the City Treasurer to collection of
City Treasurer properly issue proper instructions to business taxes.
instructed or disseminated all barangay officials for the However, the
to the Barangay officials the effective implementation of barangays did not
imposition or withholding withholding or collection of show interest in
of business taxes of the appropriate business taxes collecting those
project cost or gross from transient or temporary taxes applicable to
sales/receipts upon the start contractors and/or suppliers prior years.
of the project or transaction operating or doing business
from transient or temporary or exercising such privilege
contractors and/or suppliers in their respective barangays
65
doing business within the and remit such amount to the
City of Lapulapu pursuant City Treasurer pursuant to
to Section 2I.02 (f) of the Section 2I.02 (f) of the
Lapulapu City Ordinance Lapulapu City Ordinance no.
no. 070-2007, otherwise 070-2007, otherwise known
known as the Lapulapu City as the Lapulapu City Revised
Revised Revenue Code Revenue Code of 2007.
(LLRRC) of 2007.
• instruct further the City
Treasurer to furnish each
barangay a list of transient
contractors and/or suppliers
who transacted business with
them during the preceding
calendar year (2009) for the
possible collection of
P178,983.91 of unpaid
business taxes by requiring
said taxpayers to pay the
proper amount due to the
City Treasurer’s office,
otherwise, they shall be
barred from entering into any
transaction within the City of
Lapulapu more importantly
in the barangay level and
subject them to other
appropriate sanctions which
the City government has the
power to impose.
25. Cash advances We recommend that 2010 Partially Had issued demand Long overdue
granted to officers and Management: AAR Implemented letters to parties accounts remained
employees totaling concerned. unsettled
P11,424,929.03 for Special • issue demand letters to all
Purposes and for travels concerned parties to settle
remained unliquidated as of their outstanding cash
December 31, 2010, advances immediately
resulting in the pursuant to the provisions of
overstatement of the COA Circular 97-002,
receivable account and Sections 14 of EO No. 292
understatement of expenses and Section 89 of PD 1445,
due to the a) failure of the otherwise, cause the
accountable officers to withholding or suspension of
liquidate their cash the salaries of the officials
advances within the and employees concerned for
prescribed period; b) non- non-compliance therewith.
completion of necessary
documents to liquidate cash • enforce strictly existing
advances; and c) failure of laws, rules and regulations
management to enforce governing the proper
strictly the rules and handling of cash advances
66
regulations in the grant and and the rendering of accounts
liquidation of cash advances by the accountable officers
particularly COA Circular concerned in order to reduce
No. 97-002 dated February long unsettled accounts.
10, 1997, Section 14 of
Executive Order No. 298 • direct the Accountant to
and Section 89 of PD 1445. record the suggested
adjusting journal entry below
and furnish the Auditor a
copy thereof showing the
said adjustment.
Code Dr Cr
148 76,139.95
403 76,139.95
• instruct the Accountant to

observe the proper recording
of excess liquidation of cash
advances by crediting the
transaction to the Due to
Officers and Employees
(403) instead of the Due from
Officers and Employees
(148) and debit the
appropriate expense account.
• coordinate with the officials

and employees concerned
those with existing claims but
of minimal value and ask for
a waiver for the condonation
of their claims so that these
amounts can be closed and
free the books of immaterial
balances.
26. Payment of overtime We recommend that 2010 Partially Had stop paying Required
services totaling management: AAR Implemented overtime for CY documents were
P1,377,483.76 could have 2012. submitted but
been dispensed with had • require offices requesting could not support
there been proper planning for authority to render the urgency of
and prudent fund overtime services to submit overtime thus the
management in the grant the following documents/data necessity of
thereof, thus resulting in the and evaluate the urgency or refund of the
irregular payment of necessity of subject services amount claimed
overtime. Moreso, before appropriate action is which until now
authorization granted was made: has not been
not specific as to work to be list of personnel made.
accomplished, names of required to render overtime
employees authorized to and the work activities to be
render overtime and period undertaken should be shown
67
covered in contrary to in detail with a fixed or
Sections 278 and 280 of the definite completion date duly
GAAM, Volume 1 and supported with justification
Section12.1(a) of the IRR of signifying the urgency and
RA 9433 or the Magna necessity of overtime
Carta for Public Social services and the adverse
Workers. consequences if the same is
not rendered.
 the number of
personnel involved to render
overtime shall be
proportionate to the scope,
magnitude, importance and
complexity of the work.
• direct the personnel

concerned to submit
individual work program
showing targeted
number/quantity of work to
be done together with the
individual accomplishment
report covering overtime
services rendered from
January 16 - November 30,
2010.
• instruct the employees

concerned to refund the
amount claimed for overtime
pay if they failed to validly
justify the rendition of
overtime work.
• endeavor to eventually
phase out overtime services
in line with the austerity
measures of the government
pursuant to Administrative
Order No. 103 by
implementing the 24 hour
work shifting schedule except
in the exigencies of the
service or by proper
distribution and prioritizing
its work activities.
27. The balances of We recommend that 2010 Not Promised to comply Failure to conduct
reciprocal Accounts, Due management direct the AAR Implemented with the reconciliation
from Other Funds and Due Accounting Section to recommendation.
to Other Funds totaling reconcile the reciprocal
P17,243,759.46 and accounts and effect necessary
68
P20,717,362.61, adjustments to reflect the
respectively, are not correct account balances and
reconciled, thus, the present reliable data on the
validity, accuracy and agency’s operation as of a
reliability of these accounts given period.
could not be ascertained.
28. The balance of the We recommend that 2010 Not Promised to comply Failure to
Account Due to BIR management remit regularly AAR Implemented with the reconcile the
totaling P22,449,339.95 as all taxes withheld to the BIR recommendation. account Due to
of December 31, 2010 is within the prescribed time to BIR
unreliable due to a) errors in avoid payment of penalties
recording remittances; b) and surcharges and to
unremitted withholding conduct reconciliation
taxes of substantial amount; thereof for a fair presentation
c) failure to support of the account in the financial
remittances with schedules, statement.
thus affecting the fairness of
the presentation of the
account in the financial
statement.
29. Payment of hazard We recommend that 2010 Not Promised to No collection of

pay and other allowances management: AAR Implemented communicate with withholding tax
totaling P14,244,217.10 the BIR if subjected was made
were not deducted of the • direct the Accountant to to tax.
withholding tax as required collect from the concerned
under pertinent tax laws and parties the proper amount of
Bureau of Internal Revenue withholding tax and remit the
rules and regulations, same to the BIR furnishing
thereby resulting in the loss the Auditor a copy of the
of revenue due to the report.
national government
amounting to P2,532,295.02 • henceforth, impose the
which could have been used appropriate withholding of
for other priority projects. taxes from taxable claims and
benefits pursuant to existing
laws, rules and regulations.
30. The accuracy and We recommend that 2010 Not Promised to comply Lack of personnel
reliability of the Accounts Management direct the AAR Implemented with the to do the
Due to GSIS, Pag-ibig and Accounting Section to recommendation. reconciliation.
Philhealth representing reconcile the accounts and
contributions withheld from remit whatever balance due
its employees amounting to to the agencies concerned to
P9,600,140.27 as of avoid incurrence of penalties
December 31, 2010 are and surcharges and in order
doubtful due to various to fairly present the account
errors in the recording of balance in the financial
transactions and statements of the agency as
unreconciled/unremitted of a given period.
current and prior year’s
69
contributions, thus
depriving the member
beneficiaries from the
availment of the privileges
and benefits due them.
31. Various reconciling We recommend that 2010 Partially Will secure Difficulty in
items in the bank management direct the AAR Implemented documentation from securing
reconciliation statement Accounting Section to secure bank. documentation
since 2007 are still carried proper documentation from from bank since it
in the report and left bank so that appropriate pertains to prior
unadjusted as of December adjustments can be taken up years adjustments.
31, 2010 due to inability of in the agency books thus
management to determine attain accurate and realistic
the nature of transactions cash account balances.
and secure proper
documentation from bank as
basis for adjustments in
agency books, contrary to
Sections 58 and 74 of PD
1445, thus making the cash
account balances inaccurate
and unrealistic.
32. Infrastructure Projects The Local Chief Executive 2007 Fully

totaling P463M were not should initiate the proper AAR Implemented
implemented depriving implementation of the
beneficiaries to enjoy the projects/programs funded out
benefits that they can of the 20% Development
derive from it at the earliest Fund and the financial
possible time. assistance extended by the
national government and
other LGUs to allow the
intended beneficiaries to
enjoy the benefit they can
derive from completed
or conducted projects and
programs. For financial
assistance, submit to the
funding agencies the status
or result of the project
implementations for
monitoring purposes and
make representations from
these agencies that
unexpended balances from
completed projects be
reverted to the General fund
appropriation. Make
representation with the
Local Development council,
the Sangguniang
70
Panlungsod and Local School
Board to re-program/re-
prioritize the
projects/programs under the
continuing Appropriation to
tailor what are the immediate
needs of the city and schools.
Revert any Continuing
appropriation to be made
available for current
appropriations for new
prioritized projects or
programs.
71
PART IV
LIST OF ANNEXES
A. FINANCIAL STATEMENTS BY FUND – Balance Sheet
1. Consolidated General Fund
2. Special Education Fund
3. Trust Fund
4. UHNP
B. FINANCIAL STATEMENTS BY FUND – Statement of Income and
Expenses
C. FINANCIAL STATEMENTS BY FUND – Statement of Cash Flows
3. Trust Fund
4. UHNP
D. FINANCIAL STATEMENTS BY FUND – Statement of Changes in
Government Equity
3. Trust Fund
4. UHNP
E. STATUS OF APPROPRIATIONS ALLOTMENTS AND
OBLIGATIONS
1. General Fund
F. ACCOMPLISHMENTS OF THE CITY
72

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Commission Proper, COA Central Office, Quezon City

March 15, 2013

 Accounting and property records on Property, Plant and Equipment had an

Very truly yours,

DELIA E. MONTE DE RAMOS

February 28, 2013

Thru: Delia E. Monte de Ramos

 Accounting and property records on Property, Plant and Equipment had an

Very truly yours,

A. HIGHLIGHTS OF FINANCIAL OPERATION

A.1. Sources of Funds

Total income realized during the year amounted to P1,174,096,103.40, an increase of

FUNDS 2012 2011 Increase/ %

SEF 91,382,000.00 94,014,483.93 (2,632,483.93) (2.80)

TOTAL 1,651,440,773.02 1,582,270,432.54 69,170,340.48 4.37

During the year, the city incurred an obligation of P1,293,767,804.40 an increase of

SEF 67,165,949.01 57,696,399.89 9,469,549.12 16.41

TOTAL 1,293,767,804.40 1,107,949,663.68 185,818,140.72 16.77

A.4. Financial Ratios

Liquidity Formula 2012 2011

 Accounting and property records on Property, Plant and Equipment had an

D. SIGNIFICANT FINDINGS AND RECOMMENDATIONS

I. FINANCIAL AND COMPLIANCE AUDIT

We recommend that management:

2. Completed concreting project of Timpoloc-Babag Road in Lapulapu City, with a

We recommend that management:

a. requires the contractor to refund the overpayment of P69,085.89;

b. henceforth, directs those concerned employees to exercise due care and

We recommend that management procures medicines which are available and

4. Remittances/deposits of collections were delayed by one (1) to twenty-nine (29)

6. Cash advances granted to officers and employees totaling P9,584,312.28

We recommend that management institutes appropriate sanctions pursuant to

We recommend that Management:

b. henceforth, observe the proper utilization of the 20% DF pursuant to the

We recommend that management:

9. The non-recording of disbursements totaling P1,417,082.09 in the books of

We recommend that Management:

b. henceforth, directs the City Treasurer to institute effective measures to

10. Productivity Enhancement Incentive granted to regular and casual employees

We recommend that the City Government:

b. henceforth, impose the appropriate withholding of taxes from taxable claims

11. Rules and regulations in the grant of financial assistance to Non-Government

We recommend that the City Government makes concrete efforts by sending

We recommend that management:

b. henceforth, advise the Accounting Office to review properly the liquidation

We recommend that management implements the following corrective measures to

 instruct the Accountant and GSO to reconcile the difference of

a. requires JO employees who are reporting in the barangays to maintain a daily

E. STATUS OF IMPLEMENTATION OF PRIOR YEAR’S AUDIT

Of the thirty-two (32) audit recommendations embodied in the 2011 Annual

Part I Audited Financial Statements Page No.

Part II Detailed Findings and Recommendations

 Financial and Compliance Audit 18

Part III Status of Implementation by the Auditee 51

Honorable Paz C. Radaza

Pursuant to Section 2, Article IX-D of the Philippine Constitution and pertinent

DELIA E. MONTE DE RAMOS

March 15, 2013

Note 1 – Agency Profile

The Consolidated Financial Statements includes the operations of Market and

Note 2 – Summary of Significant Accounting Policies

The Balances of Cash Disbursing Officers are as follows:

Leny Caras - (15,502.00) ( .05) 21,933.68