EXECUTIVE SUMMARY

HIGHLIGHTS ON FINANCIAL OPERATIONS

The autonomy that the Municipality of Kabasalan enjoys in the management of its
resources by virtue of RA 7160 has given more room in programming its priorities and the
opportunity to generate additional revenues.

The Municipality is maintaining three (3) funds namely; General Fund (GF), Special
Education Fund (SEF) and Trust Fund (TF), respectively.

The activities of the Municipality for the year were funded mostly by its share from the
Internal Revenue Allotment (IRA) amounting to P80,775,021.00 or seventy nine percent
(79.45%) of the total Income of P101,664.515.54 an indication that the LGU depends generally
its financial resources from the national government. Income from local sources amounted to
P20,889,494.54. Total expenditures for the year totaled P85,932,545.66.

Table below shows the increase or decrease of its Assets, Liabilities and Equity for
Calendar Year 2013 as compared to last year:

Increase % Increase
Particular 2012 2013 (Decrease) (Decrease)
Assets 256,966,348.44 298,376,908.14 41,410,559.70 13.88%
Liabilities 87,621,068.15 113,112,320.25 25,491,252.10 22.54%
Equity 169,345,280.29 185,264,587.89 15,919,307.60 8.59%

SCOPE OF AUDIT

A comprehensive audit was conducted on the accounts and operations of the Municipal
Government of Kabasalan, Zamboanga Sibugay Province, for the period ended December 31,
2013. The activity included the post-audit of transaction, verification of accounting records,
review of the financial statements, and the evaluation of the internal control system existing in
the Agency.

AUDITORS OPINION ON THE FINANCIAL STATEMENTS

The auditor rendered a qualified opinion on the fairness of the presentation of the
financial statements of the Municipality of Kabasalan, Zamboanga Sibugay for calendar year
ended December 31, 2013, which is discussed in the attached Report.
SUMMARY OF SIGNIFICANT FINDINGS AND RECOMMENDATIONS

FINANCIAL AND COMPLIANCE

FAVORABLE OBSERVATIONS
Observation No. 1

The LGU exceeded its actual collections against its target during the year, thus additional
resources to implement developmental projects that will eventually increase the economic
activity in the area for the benefits of LGUs constituents.
Continue the all efforts and activity that contribute to the positive increase of revenue
most particularly those affecting income from local sources and discard those activities that do
not yield positive results.

Observation No. 2

Implementation and Completion of twelve (12) infrastructure projects amounting

to P 55,500,958.80 thus, contributing to the economic development of the LGU, its
neighboring municipalities, and the entire country as a whole for the benefit of its
citizens.

Continue the implementation of projects that promote and contribute to the economic
development of the LGU and possibly act a role model for other LGUs to follow for the
development of the countryside and the entire country as a whole.

The audit disclosed an improvement on compliance with rules and regulations. However,
there are certain deficiencies noted that somehow affected the Agencys operations. These
deficiencies and the corresponding measures recommended to correct them are discussed fully in
Part II of the Report and these include the following:

Finding No. 1

Expenditure for Personal Services exceeded the 45% limitation for Personal Services by
P 11,297,655.93 in violation of Section 325 (a) of R.A. 7160 , which is not in accordance
with one of the fundamental principles governing the financial affairs, transactions and
operation of local government units, which is to have a balance budget.

Require the strict compliance of the budgetary limitation as provided for under Sec. 325
(a) of R.A. 7160 to ensure that the LGU shall have a balance budget and that funds are allocated
to the delivery of basic services and development projects. Consider coming up with other
sources of income to cope up with the PS limitations.
Finding No. 2

The ownership, valuation, existence and validity of the Property, Plant and Equipment
( PPE) account valued at P 100,818,507.20 remained doubtful due to the Municipalitys
failure to conduct physical inventory and to reconcile the same against the property and
accounting records, contrary to Section 156 of the Rules and Regulations on Supply and
Property Management in the Local Governments as implemented under COA Circular No.
92-386 dated October 20,1992 and Chapter V (c-3) of the Manual on Property
Custodianship.

We strongly recommend that the Inventory Committee be convened and for them to
immediately schedule the conduct of the annual inventory of all assets to ensure fairness of
accounts presentation in the financial statements. In the preparation of the report the different
column should be properly fill-up to ensure that all items are properly identified and accounted
for. Assignment of Property Number should be properly done so that each of the items has a
unique code for easy reference. Likewise, the Municipal accountant and the Property Custodian/
Municipal Treasurer should maintain the required stock cards, equipment ledger cards and
property cards respectively.

In addition, when the physical inventory of PPE is already available it shall be reconciled
with the (a) PPE Ledger Card, ( b) the control accounts and (c) stock and property cards. If any
discrepancies exits, it should be immediately verified and adjusted.

Finding No. 3

Submission of the Statement of Appropriations , Allotments , Obligations and Balances

(SAAOB) List of Property, Plant and Equipment and other periodic reports were not
submitted on time in violation of Section 70 , COA Circular No. 2002-003 dated June 20,
2003 , and Section 122 of the State Audit Code of the Philippines P.D. 1445 , thereby
causing the unnecessary delays in the verification , review and post-audit of the same.

Require the OIC Municipal Budget Officer / Property Custodian to submit the Statement
of Appropriation, Allotment and Balances and List of Property . Plant and Equipment within the
prescribed period of time as required by existing regulations to avoid sanction for non-
compliance of the requirement and the possible institution of disciplinary action against the
erring employee.

Finding No. 4

Supporting documents of Disbursement Vouchers for the period January 1, 2013 to

November 30, 2013 amounting to P 136,882,696.50 were not numbered nor were voucher
number indicated on every supporting document in violation of COA Circulars No. 92-389
dated November 03, 1992 and No. 78-79 dated April 05,1978, showing a weak internal
control.
 Require the Municipal Accountant/Treasurer to strictly comply with the requirements
under the above cited Circulars to maintain a sound internal control in the disbursement of
government funds.

Finding No. 5

The Municipality granted cash advances for Intelligence purposes even the previous one
was not liquidated, contrary to the requirements under COA Circular No. 2003-003 dated
July 30,2003 , which resulted to the accumulation of unliquidated cash advances.

Stop the granting of additional cash advances for intelligence fund to any personnel of the
municipality until such time that the previous ones are duly settled or liquidation of the same was
already transmitted to the Office of the Chairman, Commission on Audit. Such evidence of
liquidation and or accounting should accompany the succeeding granting cash advance.

Finding No. 6

The Municipal Treasurers Cashbook balances are not regularly reconciled with that of
the Subsidiary Ledger maintained by the Office of the Municipal Accountant monthly or at
least every quarter in violation of Section 181 of the Government Accounting and Auditing
Manual ( GAAM ), Volume I, thus rendering the validity of the cash balances doubtful.

The Municipal Treasurer and the Municipal Accountant should coordinate each other and
regularly reconcile the cashbook balances with that appearing per books of account of the LGU
monthly or at least quarterly for timely adjustments discrepancies/errors for accurate and fair
financial statement presentation.

Finding 7

Reconciling items reflected in the Monthly Bank Reconciliation Statements remained

unadjusted for a long period of books of account of the LGU rendering the accuracy and
propriety of the Cash In Bank account doubtful in violation of Section 74 of the State
Auditing Code of the Philippines. Likewise, Sound Accounting practice dictates that the
non-adjustment of reconciling items in a bank reconciliation statement in the books of the
LGU defeats the purpose of its preparation.

Require the Municipal Accountant to coordinate with concerned bank officials to adjust all
reconciling items determined during the preparation of the required Monthly Bank
Reconciliation Statements on a timely basis for an accurate and correct Cash In Bank count
balance reflected in the books of accounts. Likewise, timely adjustments of said reconciling
items will ensure the timely detection of discrepancies, the parties at fault, information for its
existence and its ultimate adjustments in the books who committed such error/discrepancy.
Finding No. 8

Collections by accountable officers were not liquidated to the local treasury daily or within
the prescribed period contrary to the provisions of Paragraph 33, Chapter 2, Revised Cash
Examination Manual; Sec. 29, Vol. 1, NGAS for LGUs and Section 69, P.D. 1445 thus, the
possibility of misuse and ultimately loss of government resources.

Require all accountable officers to remit and deposit their collection intact at the end of
the day as required by applicable laws, rules and regulations. Likewise, the Municipal Treasurer
should always monitor the activity of her staff most particularly those relating to the collection
and liquidation aspects as well as in the receipt and issuance of accountable forms to ensure that
loss or wastage of government funds and property arising from theft, malversation and misuse
are prevented.

Finding No. 9

Monthly Bank Reconciliation Statements for its Cash In Bank account prepared and
submitted by the Municipal Accountant to the Office of the Auditor were not supported
with the original copies of the Bank Statements, cancelled and paid checks, Bank Debit and
Credit memos as provided under Paragraph 3.0, COA Circular No. 96-011, dated October
2, 1996 thus, preventing the latter to verify said report as provided for by said regulation.

Require the Municipal Accountant to submit copies of the Bank Statements, debit/credit
memos, cancelled and paid checks and all other supporting documents necessary to facilitate the
timely verification of Monthly Bank Reconciliation Statements submitted to the Office of the
Auditor for the verification process.

Finding No. 10

The Municipal Treasurer failed to send written notices to payees of checks one (1) month
before the check issued in their favor become stale contrary to the provisions of Section 59,
Manual on the New Government accounting System thus, checks amounting to P
404,088.64 and P120,625.00 in the General Fund and Trust Fund respectively, became
stale and remain outstanding as October 16, 2013. Likewise, the Municipal Accountant
failed to prepare the necessary adjusting entries on the accounts affected by the afore cited
event as illustrated in Section 61 item 6 of the same Manual, thus, misstating the financial
statements.

Require the Municipal Treasurer to notify the payees or holder of checks issued by her
Office one (1) month prior to the date when issued checks will become stale so that the
concerned payees will be aware of the depository banks action on these issued checks six
months after the date of its issuance. Likewise, the Municipal accountant must always be
responsive to appropriately adjust the books or the affected accounts whenever stale checks are
discovered particularly during the preparation of Bank Reconciliation Statements.
Finding No. 11

Special Disbursing Officers do not maintain cashbook to record their cash advances
received, payments made, refunds and adjustments effected , and the balance at any
point in time contrary to the provisions of Section 28, Vol. 2, LGU-NGAS thus, difficulty
in monitoring the details of transactions and activities of said accountable officers and is
indicative of a weak internal control system by management in safeguarding government
resources against loss and wastage.

Require the Municipal Social Welfare and Development Officer (MSWDO) who was
also designated as a Special Disbursing Officer to maintain a cashbook where she will record
her cash advances received, payments made out of said cash advances, refunds and adjustments
effected therein, and balance to be shown at the end of the month or at any point in time as
maybe required of her from time to time for easy monitoring of her transactions and activities by
concerned LGU officials and regulatory bodies. Likewise, to ensure that an effective internal
control system is in place by management in safeguarding of government resources against loss
and wastage.

Finding No. 12

The Due from Other Funds ( Account 144 ) and Due to Other Funds (424) under the
General Fund , Special Education Fund and Trust Fund , do not reconcile due to control
lapses in recording transactions in the books of accounts , thus the reported balances were
inaccurate in contrary to section 123 of Presidential Decree ( PD) No. 1445.

It is recommended that the Municipal Accountant should review the Journal Entry
Voucher to ensure that all transactions are properly and accurately recorded in the books of
accounts, moreover, analyze the account and prepare the necessary adjustment to reflect the
correct balances in the books of accounts , due from and due to other funds.

Finding No. 13

The Municipality failed to prepare the waste materials report for spare parts procured
for the maintenance of its equipment and vehicle as required under Section 362(b) of
Government Accounting and Auditing Manual, casting doubts as to the validity of the
transactions.

We recommend that the Municipal Accountant be directed to require the attachment of

the Waste Material Report in all payment of repairs and maintenance of vehicle and similar
nature as part of the supporting documents.
Finding No. 14

The Chairman and Vice-Chairman of the Bids and Awards Committee (BAC) were pre-
designated/appointed by the Head of the Procuring Entity (HOPE) instead of elected by the
BAC members among themselves in violation of Section 11.2.3 of the Revised Implementing
Rules and Regulations of RA 9184.

It is recommended that succeeding executive order to be issued by the Local Chief

Executive ordering the re-composition of the Bids and Awards Committee should indicate and
appoint only the members of the BAC without any disclosure as to who will be the chairman and
vice-chairman to allow the members to choose and elect among themselves the Chairman and
Vice-Chairman of the BAC.

Finding No. 15

Composition of the Bids and Awards Committee do not include a representative from the
end user in accordance with Section 11.2.3.b of the Revised Implementing Rules and
Regulations of Republic Act 9184.

Management should follow strictly the provisions of RA 9184 most particularly on the
composition of the BAC requiring that it should include a representative from the end user.

Finding No. 16

Procurement Monitoring Report was not prepared by the Bids and Awards Committee to
be approved by the Local Chief Executive and submitted to the GPPB in printed and
electronic format within fourteen days after the end of each semester in compliance with
Section 12.2 of the Revised Implementing Rules and Regulations of Republic Act 9184.

It is recommended that the Bids and Awards Committee must prepare a procurement
monitoring report to be approved by the Local Chief Executive and submit the same to the GPPB
in printed and electronic format within fourteen calendar (14) days after the end of each
semester.

Finding No. 17

Pre-Repair and Post-Repair Inspection were not conducted every time to purchase tire and
spare parts for motor vehicles and heavy equipment were subjected for repairs as
provided in Chapter IV of the Handbook on Property and Supply Management, thus the
necessity of repair and extent of the damage were not determined and failed to verify
whether the scope of work specified in the Job Order has been performed and whether
the replacement parts are as specified and brand new.
 Please require the Property/Supply Officer/LGU Inspector to accomplish the pre-repair
inspection report after the conduct of pre-repair inspection of properties subjected for repairs and
furnished a copy of this report to the COA Auditor within five (5) days from the date of
evaluation/inspection. Likewise, when the subject properties were already repaired immediately
conduct post-repair inspection and submit a report thereon.

Finding No. 18

Memorandum Receipt (MR) or Acknowledgment Receipt for Equipment (ARE) were not
renewed every three years contrary to existing provision per the NGAS Manual and the
Handbook on Property and Supply Management System.

Require the property officer to renew Memorandum Receipts and/ or Acknowledgment

Receipt for Equipment using the new format in accordance with the instructions under the COA
Handbook on Property and Supply Management System.

Finding No. 19

Laxity in the enforcement of COA Circular No. 97-002 on the settlement and liquidation of
previous cash advances resulted to the accumulation of unsettled cash advances amounting
to P 17,461,236.18 as of December 31, 2013.

Concerned management officials should follow strictly all laws, rules, and regulations in
the granting and liquidation of cash advances including the application of all remedies available
to management in the liquidation of the outstanding balance as reflected in the books of the
LGU.

VALUE FOR MONEY AUDIT

Finding No. 20

The Economic Enterprises of the local government incurred big amount of operating
expenses with corresponding small amount of income resulting to huge losses thus,
defeating the purpose of its establishment.

Management should plan well and monitor properly the activity and performance of
the LGUs economic enterprises most particularly that of the Market and Operations for it to
yield positive net income figures in the succeeding years envisioned. Likewise, proper and
appropriate charging of expenses particularly those classified as personal services to prevent
the business activity in incurring losses periodically or continuously year after year to the
detriment of the LGUs constituents and for it to achieve its mandate in promoting the
economic development of the area.
COMPLIANCE WITH TAX LAWS

The Municipal Government of Kabasalan has satisfactorily complied BIR Revenue

Regulation No.10-93 dated June 16,1993 including VAT and other existing BIR Revenue
Regulation as withholding agency, having P1,247,498.35, ending balance on Due to BIR
account which is due for remittance on January, 2014.
STATUS OF ISSUANCE OF STATEMENT OF AUDIT SUSPENSIONS,
DISALLOWNCES AND CHARGES (SASDC)

The Notice of Suspensions (NS), Notice of Disallowances (ND), Notice of Charges (NC), and the
related Statement of Audit Suspensions, Disallowances and Charges issued during the year by the Audit
Team are summarized below :

Beginning Issued during the Settled during the Ending Balance

Balance as of period ( January 1 to period ( January 1 to as of December
January 1,2013 December 31,2013 December 31,2013 31,2013

Notice of Suspension (NS) 0.00 0.00 0.00 0.00

Notice of Disallowances(ND) 3,770.55 0.00 3,770.55 0.00
Notice of Charge (NC) 0.00 0.00 0.00 0.00
TOTAL 3,770.55 0.00 3,770.55 0.00

STATUS OF IMPLEMENTATION OF PRIOR YEARS AUDIT

RECOMMENDATIONS

Out of the ten (10) recommendations to correct deficiencies mentioned in the CY 2012
Annual Audit Report, three (3) were fully implemented, two (2) was partially complied with and
five (5) were not acted upon.

Likewise, for the CYs 2006-2011 audit recommendations, two (2) were fully
implemented, eleven (11) were partially complied and four (4) remained un-acted.