EXECUTIVE SUMMARY

A. Introduction

The Municipality was created by virtue of Executive Order No. 269 by then President
Elpidio Quirino on September 28, 1949. It is a 3rd class municipality located on the
southern part of Isabela. It has a total land area of 27,840 hectares more or less that traverse
the Cagayan River. Estimated population is at 24,818 as of the latest local census. It
consists of 23 barangays. Agriculture is the main source of income so farming is the
dominant economic activity of the people. The municipality is popular for its abundance
of banana and native mango. San Agustin is also known as the home of mestizo "Murrah"
buffaloes and is branded as the "HOME OF THE NUANG FESTIVAL". Hence, every
September it celebrates this festivity which coincides with the town's founding anniversary.

The municipality is presently working on its additional territory under the DENR
Administrative Order No. 4-1915.

At present, there are 242 officials and employees in the LGU consisting of twelve (12)
elective officials; fourteen (14) appointive officials; forty-seven (47) rank and file; two (2)
co-terminus and one hundred sixty-seven (167) job orders.

B. Highlights of Financial Information

Presented below is the financial highlights of the Municipality for CY 2018 as compared
to the figures of CY 2017:
% of Increase
CY 2018 CY 2017
(Decrease)
Assets P224,737,843.00 P200,590,997.87 12.04%
Liabilities 81,436,791.67 78,504,016.90 3.74%
Equity 143,301,051.33 122,086,980.97 17.38%
Income 113,715,406.38 106,534,195.81 6.74%
Expenses 87,141,640.00 86,479,515.03 0.77%
Appropriations -
Current-GF 110,818,789.84 92,581,565.73 19.70%
Continuing Appropriation 24,498,435.23 23,499,493.60 4.25%

C. Scope and Objective

The audit covered the accounts and operations of the municipality for the year 2018 and
was aimed at determining whether 1) management presented fairly the financial statements
of the municipality in adherence to the Philippine Public Sector Accounting Standards; 2)
whether prevailing laws, rules and regulations have been complied with; and 3) whether
funds were utilized in the most efficient, effective and economical manner. A financial
and compliance audit was conducted to achieve these audit objectives.
D. Auditor’s Opinion on the Financial Statements

The Auditor rendered an adverse opinion on the fairness of presentation of the financial
statements of the Municipality of San Agustin, Isabela for calendar year 2018 in view of
the significant effects of the errors and deficiencies noted in account balances as discussed
in detail in Part II of the report, summarized as follows:

1. The reconciling items in bank reconciliation statement amounting to

P9,310,397.86 were not adjusted in agency’s book of accounts.
2. Unreconciled difference of Cash in Bank account amounting to P43,004,037.44
between the Cashbook and General Ledgers.
3. Unreconciled difference of Advances to Officers and Employees account
amounting to P2,474,187.79 between the general ledger and the total balances
contained in subsidiary ledgers.
4. Unreconciled difference of Property, Plant and Equipment (PPE) accounts
amounting to P58,712,622.54 between the cost of PPE in the Financial
Statements and the cost in the Inventory of Physical Count of Assets.
5. Completed Projects in Trust Fund amounting to P19,449,758.30 were closed to
Due to NGAs account, thus the specific PPE accounts was understated and the
corresponding depreciation was understated.
6. On-going projects in the general fund amounting to P7,719,732.49 was recorded
in the specific PPE account and provision for depreciation was already made, thus
overstating the PPE account and depreciation and understating the Construction
in Progress (CIP) account.
7. Completed projects in general fund amounting to P505,515.66 still recorded as
CIP account, thus understating the Property, Plant and Equipment (PPE) account
and depreciation.
8. Local Road Networks was not recognized in the Financial Statements
9. Non-provision for depreciation of PPE accounts with an amount of
P10,091,872.49
10. The accuracy of reported balance of biological assets amounting to P565,996.00
cannot be ascertained as it did not include the amount attributed to biological
transformation.
11. Fund transfers from various government offices amounting to P5,866,000.00
were booked-up under Due to NGAS account instead of its proper “Due to”
account, thus overstating the Due to NGAS account and understating the Due to
LGUs and Due to GOCCs account.
12. Cash in bank balance is overstated by P5,405,793.33 due to error in recording the
transfer of unexpended mitigation fund – Maintenance and Other Operating
Expenses (MOOE) and Quick Response Fund (QRF).
13. Cash in bank balance is overstated by P3,668,600.49, Motor Vehicle is
understated by P2,744,361.50 and Trust Liability – DRRM is overstated by
P924,239.99 due to error in recording made for the transfer and purchase of motor
vehicles using Local Disaster Risk Reduction Management (LDRRM) Fund.
14. Unreconcile balance of Due from other Funds and Due to Other Funds amounting
to P3,438,348.29.00.
 15. Income and Government Equity accounts were understated by P94,520.19 and
P55,992.85, respectively while Trust Liability account was overstated by
P150,513.04 because Business Tax and Interest Income accounts were presented
as Liability in the Financial Statements.

E. Summary of Significant Findings and Recommendations

1. The granting of cash advances to officers and employees was not adequately
controlled resulting in the accumulation of outstanding balances amounting to
P35,327,027.12, contrary to the provisions of Section 89 of Presidential Decree No.
1445.

We reiterated our recommendations that management require the Municipal

Accountant to (a) Issue demand letters to notify the concerned officials and employees
of their responsibility to settle their unliquidated cash advances. If no settlement was
made, withhold from their salaries considering that they have been notified and given
adequate time to liquidate; (b) Issue demand letters to employees who already resigned
and transferred to immediately cause the liquidation or settlement of the unilquidated
balances; (c) Request for the write-off of the unliquidated balance of cash advances of
the deceased employees; (d) Reclassify “Other Receivables” account to Advances to
Officers and Employees account in order to present fairly the total balance of unsettled
cash advances; (e) Ensure the completeness of prescribed supporting documents for the
cash advances when processing payment thereof; (f) Not grant additional cash advances
to concerned officials and employees unless the previous cash advance granted to them
have been liquidated; (g) Strictly monitor periodically the submission of liquidation
reports to ensure timely accounting thereof to avoid undue accumulation of outstanding
cash advances; and (h) Strictly comply with the provisions of the abovementioned
Circulars.

2. The reconciling items identified in the Bank Reconciliation Statements were not
adjusted in the agency’s book of accounts, contrary to Item 3.3 of COA Circular
No. 96-011 dated October 2, 1996, thus affecting the reliability of the Cash in Bank
– LCCA totaling P77,482,432.64 as presented in the Financial Statement.

We recommended that the agency should reflect in the agency books the ₱9,310,397.86
as adjustments in the affected accounts. After adjustments, the books and the financial
statements should conform to the adjusted cash balance per bank reconciliation as of
December 31, 2018.

3. Accounting and reporting procedures on the Local Roads Assets Management has
not yet been complied with contrary to COA Circular No. 2015-008 dated
November 25, 2015 which resulted in non-recognition and non-presentation of the
Infrastructure assets accounts under the Property, Plant and Equipment account
in the financial statements.
 We recommended that the Municipal Mayor direct the Municipal Accountant,
Municipal Engineer and Municipal General Services Officer to accomplish the duties
and responsibilities assigned to them and ensure compliance with accounting and
reporting guidelines set forth in COA Circular No. 2015-008 dated November 25, 2015.

4. Nine (9) Projects/Programs/Activities (PAP’s) under the 20% Development Fund

totaling P15,949,756.53 were not completed as of December 31, 2018, thus
depriving the constituents of the LGU of the earliest delivery of benefits that can
be derived therefrom.

We recommended that management ensure that PAPs funded out of the 20% DF are
implemented within the period specified in the AIP. For PAPs that were still
unimplemented and on-going, positive efforts should be made to fast track the
completion of the said PAPs. Also submit explanation on the delay of completion of
the PAPs most especially those under the CY 2016-2017.

5. The percentage of implementation of the Local Disaster Risk Reduction

Management Fund for CY 2018 is 22.94% only depriving the constituents of the
earliest benefit they could derive therefrom.

We recommended that management fully and timely implement its

programs/projects/activities to ensure that preparedness, mitigation and rehabilitation
projects could be achieved in order to avoid, lessen or limit the potential adverse impact
of disaster. Also the LDRRMC should regularly monitor and evaluate its
implementation.

F. Summary of Total Audit Suspensions, Disallowances and Charges

Notice of Notice of Notice of

Suspension Disallowance Charges
Beginning Balances, Jan. 1, 2017 P2,375,219.61 P3,311,176.70 -
Issuances - - -
Total - P3,311,176.70 -
Settlements - 81,000.00 -
Ending Balances, Dec. 31, 2018 P2,375,219.61 P3,230,176.70 -

G. Status of Implementation of Prior Year’s Audit Recommendations

There were twenty-eight (28) audit recommendations contained in the Calendar

Year 2017 Annual Audit Report, ten (10) were implemented, three (3) were partially
implemented, leaving fifteen (15) recommendations not implemented. Some
recommendations which were partially or not implemented were reiterated in this report
with changes in amounts and subject to existing conditions during the year.