AOM No. 1 Derecognized PPE

Republic of the Philippines
COMMISSION ON AUDIT
LGS C – Leyte II and Biliran Province
Team R8-06, Ormoc City, Leyte
AOM No.: 2021-___

Date : May 28, 2021
AUDIT OBSERVATION MEMORANDUM (AOM)
HON. MICHAEL TORREVILLAS

Municipal Mayor
Matag-ob, Leyte
Attention: JAYSHREE M. DELA CERNA

Municipal Accountant
We have audited the Property, Plant and Equipment account of your Municipality
as of December 31, 2020 and observed the following:
Property, Plant and Equipment
1. Non-existing Property, Plant and Equipment (PPE) with book value of

P1,219,473.04, net of accumulated depreciation, were derecognized from the
books of accounts without authority to derecognize from COA, contrary to
pertinent provisions of COA Circular 2020-006, thus, the PPE accounts was
understated by the same amount.
1.1 COA Circular No. 2020-006 dated January 31, 2020 prescribes the Guidelines and
Procedures in the Conduct of Physical Count of PPE, Recognition of PPE Items
Found at Station, and Disposition for Non-existing/Missing PPE Items, for the One-
Time Cleansing of PPE Account Balances of Government Agencies. Section 7
thereof provides:
1.2 Section 7.11. If there are non-existing/missing PPEs for which accountability could
not be established despite exhaustion of all diligent efforts, the following
procedures shall be followed:
a. The Head of the Agency shall cause the conduct of an investigation to

determine the last known location/office where the missing PPE items were
issued/installed, person accountable, circumstances of the loss, and the
persons responsible for the loss, among others;
AOM No. 2021-___ Matag-ob, Leyte – Derecognized PPE Page 1 of 4
b. If accountability/responsibility over the missing PPE was pinpointed after
investigation, demand shall be made from the accountable personnel to
produce the item or pay the depreciated replacement cost thereof;
c. The Accounting Unit shall be furnished the certified copy of the

investigation report and demand letter to be used as basis to recognize loss of
PPE and set up the corresponding receivables from the concerned accountable
officer/personnel; and
d. If accountability/responsibility over the missing PPE could not be

pinpointed after investigation, authority for derecognition thereof from
the books of accounts may be requested from the COA, in accordance
with Paragraph 8 of this Circular. Pending the grant of authority by the
COA, the said PPEs shall remain in the books of accounts.
1.3 It should be noted that this Circular was issued for one-time cleansing of PPE
account balance, Section 10 on Sunset Provision states that this Circular is issued
for one-time cleansing of PPE account balances; thus, in no case shall the
herein procedures be used to further derecognize non-existing/missing PPEs
and/ cleanse subsequent discrepancies or unreconciled balances in PPE
accounts.
1.4 As of December 31, 2020, LGU Matag-ob reported PPE with account balance of
P184,185,797.60, net of accumulated depreciation. Review of the additions and
deductions to the PPE accounts during the year revealed that PPE classified as
Power Supply Systems costing P1,079,322.31 with Accumulated Depreciation of
P205,071.24, and Other Structures costing P1,136,118.64 with Accumulated
Depreciation of P790,896.67, were derecognized from the books of accounts, as
shown in Table 1.
Table 1. Derecognized PPE

Date of Asset Cost Accumulated Life Book Value
Acquisi Depreciation in 12.31.20
tion Yrs
Power Supply Systems
2005 Sodium P688,382.50 P130,792.68 10 P557,589.82
Electric Posts
within
Poblacion
2005 Improvement 49,852.50 9,471.98 10 40,380.52
of Poblacion
Street Lights
2008 Installation of 341,087.31 64,806.58 10 276,280.73
Street Lights

Date of Asset Cost Accumulated Life Book Value
Acquisi Depreciation in 12.31.20
tion Yrs
along the new
diversion road
Sub-total 1,079,322.31 205,071.24 874,251.07
Other Structure
2002 Municipal 715,439.89 579,506.40 20 135,933.49
Nursery and
Bullshed
2002 Municipal 47,939.00 36,673.37 20 11,265.63
Nursery
Extension
2004 Municipal 29,966.00 20,227.05 20 9,738.95
Nursery
Extension
2004 Improvement 77,322.55 52,192.63 20 25,129.92
of Municipal
Bullshed
2005 Improvement 73,627.50 47,213.64 20 26,413.86
of Municipal
Bullshed/
Breeding CTR
2007 Improvement 71,276.75 40,894.96 20 30,381.79
of Municipal
Nursery
2018 Construction of 120,546.95 14,188.62 20 106,358.33
Vehicle Wash
Rock
Sub-Total 1,136,118.64 790,896.67 345,221.97
TOTAL P2,215,440.95 P995,967.91 P1,219,473.04
1.5 The Municipal Accountant explained that the aforementioned assets were
derecognized from the books because these have been non-existing for a long
period of time, mostly destroyed by Typhoon Yolanda. Also, no document were
available to show accountability of the said PPE. She added that since the PPE were
no longer existing, there was no reason to file a request for the disposal for the
same.
1.6 The derecognition of the PPE were not supported with any documentation, other
than the bare assertion of the Municipal Accountant that the same were non-
existing.
1.7 In CY 2020, COA Circular 2020-006 was issued clearly prescribing the guidelines
and procedures in the disposition for nmon-existing/missing PPE items, among
others, for the One-Time Cleansing of PPE account balances. However, the
Municipal Accountant admitted that she was not aware of this Circular, hence, the
derecognition of the non-existing PPE were not made pursuant to the guidelines set
forth in the same Circular.
1.8 The derecognition of the PPE without any supporting documentation and authority
to derecognize from COA was not valid, hence, understated the PPE Account
Balance reported in the CY 2020 Financial Statements by P1,219,473.04, net of
depreciation.
1.9 We recommend that the Municipal Accountant restore the book value of the
derecognized PPE and adhere to strictly to the guidelines and procedures
prescribed under COA Circular 2020-006 on the derecognition of non-existing/
missing PPE.
May we have your comments of the foregoing audit observation within five (5)
calendar days from receipt hereof.
REINA TERESITA P. JUNTILLA

State Auditor IV
Audit Team Leader
WEMIA P. SENO
State Auditor IV OIC -
Supervising Auditor
Proof of Receipt of AOM:
Hon. MICHAEL TORREVILLAS

Municipal Mayor
Date: ________________
JAYSHREE M. DELA CERNA

Municipal Accountant
Date:______________

AOM No. 1 Derecognized PPE

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Republic of the Philippines

AOM No.: 2021-___

AUDIT OBSERVATION MEMORANDUM (AOM)

HON. MICHAEL TORREVILLAS

Attention: JAYSHREE M. DELA CERNA

Property, Plant and Equipment

1. Non-existing Property, Plant and Equipment (PPE) with book value of

a. The Head of the Agency shall cause the conduct of an investigation to

c. The Accounting Unit shall be furnished the certified copy of the

d. If accountability/responsibility over the missing PPE could not be

Table 1. Derecognized PPE

AOM No. 2021-___ Matag-ob, Leyte – Derecognized PPE Page 2 of 4

REINA TERESITA P. JUNTILLA

Proof of Receipt of AOM:

Hon. MICHAEL TORREVILLAS

JAYSHREE M. DELA CERNA

AOM No. 2021-___ Matag-ob, Leyte – Derecognized PPE Page 4 of 4

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