Audit Observation Memorandum: Office of The Team Leader
Audit Observation Memorandum: Office of The Team Leader
Audit Observation Memorandum: Office of The Team Leader
COMMISSION ON AUDIT
OFFICE OF THE TEAM LEADER
Cluster 5 – Education and Employment
Audit Group – NGS-5-A
Audit Team No. R9-15
Dipolog City, Zamboanga del Norte
XXXXXXXXXXXXXXX
Property/Supply Officer
We have verified the Agency’s compliance with laws, rules and regulations, and
observed the following deficiency/ies:
The validity, accuracy, and existence of the reported balances of Property, Plant and
Equipment (PPE) accounts in the agency’s financial statements as of December 31,
2015 with a book value amounting to P999,827,979.44 cannot be fully relied upon due
to the absence of physical inventory reports for PPE accounts and the non-
maintenance of complete perpetual inventory records which are not in keeping with
the applicable provisions of the Government Accounting and Auditing Manual
(GAAM) and the Manual on the New Government Accounting System (MNGAS).
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inventory taking should be regarded with importance. The same provision also prescribes the
following:
The physical inventory taking will not only determine the physical existence of the
Inventories, but likewise identifies the responsibility and accountability of the public officers
entrusted with the keeping of the Inventories. Moreover, the RPCPPE serves as basis in
verifying the correctness of the recorded PPE in the General Ledger controlling account.
The immediately preceding NGAS provision requires the preparation of the RPCPPE
annually. Subsequent submission of this report to the Auditor concerned, certified by the
Inventory Committee and Approved by the Head of Agency, shall not be later than January
31 of each year.
Likewise, Section 43 of the same Manual requires the Accounting Unit to maintain
Property, Plant and Equipment Ledger Cards (PPELC) for each category of plant, property
and equipment including work and other animals, livestock, etc. The subsidiary ledger cards
shall contain the details of the General Ledger accounts. For check and balance, the Property
and Supply Office/Unit shall maintain Property Cards (PC) for property, plant and
equipment. The balance in quantity per PC should always reconcile with the ledger cards of
the Accounting Unit.
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The agency’s year-end Statement of Financial Position for Calendar Year 2015
reflects the following balances of PPE Accounts:
Accumulated
PPE Accounts Cost Book Value
Depreciation
Buildings 88,598,513.50 60,674,562.01 27,923,951.49
School Buildings 770,836,163.40 97,479,592.64 673,356,570.76
Other Structures 10,178,408.44 8,492,291.62 1,686,116.82
Office Equipment 12,480,729.90 7,997,706.33 4,483,023.57
Information and Communication 42,536,660.16 43,953,819.55 -1,417,159.39
Technology Equipment
Communication Equipment 388,341.00 0.00 388,341.00
Motor Vehicles 1,104,383.00 1,104,383.00 0.00
Furniture and Fixtures 41,125,214.38 31,768,630.12 9,356,584.26
Books 36,819,818.00 40,501,799.80 -3,681,981.80
Construction in Progress - Buildings 286,499,287.73 0.00 286,499,287.73
and Other Structures
Other Property, Plant and Equipment 1,611,457.46 378,212.46 1,233,245.00
TOTAL 1,292,178,976.97 292,350,997.53 999,827,979.44
Verification showed that the desired operation of asset reconciliation has not been
realized by the DepEd Division Office of Zamboanga del Norte which is not in keeping with
the foregoing policies and procedures. This breakdown or ineffective operation of the control
provided by the asset reconciliation came about because:
a. the Property Section did not conduct physical count of its PPE nor maintained the
Property Cards for all types of PPE items; and
b. the Accounting Section did not maintain the PPELC
for all types of PPE.
Asset reconciliation cannot proceed without conducting complete physical count of all
PPE items. Likewise, reconciliation cannot also proceed in the absence of the PC and
PPELC, as these records contain the critical information that will make the reconciliation and
tracking of assets possible.
In the absence of physical count of PPE, the validity, existence and valuation of these
assets could not be ascertained; hence, the financial assertions in the financial statements with
regard to these accounts are doubtful and cannot be fully relied upon.
In addition, the above table shows two (2) PPE accounts with a negative book value at
year-end, to wit:
Accumulated
PPE Accounts Cost Book Value
Depreciation
Information and Communication 42,536,660.16 43,953,819.55 -1,417,159.39
Technology Equipment
Books 36,819,818.00 40,501,799.80 -3,681,981.80
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This simply indicates that these PPE accounts were over depreciated resulting to an
overstatement of the corresponding Accumulated Depreciation Accounts. In effect, the total
depreciation expense recorded for these PPE accounts accumulates to more than their
depreciable amounts. Since depreciation expense account is by its nature temporary and is
closed to equity at year-end, the Accumulated Surplus account balance that will be reported
every year-end will be overstated by an amount equivalent to the excess depreciation until the
same is corrected or adjusted.
The proper balances of these accounts could have been determined as of the balance
sheet date had the Accounting and the Property and Supply Office made a conscious effort to
reconcile their respective inventory records to be able to present a reliable financial
statements. Also, the recording of depreciation expenses could have been properly monitored
to avoid or minimize errors, such as over depreciating a PPE account, had the Accounting
Office maintain a complete perpetual inventory record, as in this case the PPELC.
May we have your comments on the foregoing audit observation within five (5)
calendar days from receipt hereof. Thank you.
ESTRELLA B. AVILA
State Auditor V
Regional Supervising Auditor
Date: ______________________