EXECUTIVE SUMMARY

HIGHLIGHTS OF FINANCIAL OPERATION

1. Sources and Application of Funds:

1.1 Income

For CY 2013, the Municipality of Macrohon realized an income of P58,785,826.59from

various sources, as reported in the financial statements. However, this amount is in excess of
P1,498,629.69 or 2.62% which pertains to erroneous recording of completed infrastructure
project from Trust Fund which was taken up as Income from Grants and Donations. On the
other hand, this year’s collection reflected an increase of P6,590,591.81 or 12.63% higher than
the previous year which significantly caused by the increase in the Internal Revenue Allotment
releases and from Other Income sources. Below is a comparison of the various income received
for CY 2013 and 2012:
Increase/
Sources of Funds 2013 2012 %
(Decrease)
Local Taxes 2,120,484.80 P 1,941,426.39 179,058.41 9.22
Internal Revenue
52,680,327.00 47,307,631.00 5,372,696.00 11.36
Allotment
Permits &Licenses 684,182.89 634,520.77 49,662.12 7.83
Service Income 337,674.10 537,365.72 ( 199,691.62) (37.16)
Business Income 1,332,547.93 1,507,694.90 (175,146.97) (11.62)
Other Income 1,630,609,87 266,596.00 1,364,013.87 511.64
Total Income P 58,785,826.59 P 52,195,234.78 P 6,590,591.81 12.63

1.2 Appropriations/Allotments and Expenditures

Appropriations/allotments for the current year amounted to P65,658,780.22which

increased by 0.87% compared to that of last year of P60,392,433.36, as tabulated hereunder:

Function/ Increase/
2013 2012 %
Program/Project (Decrease)
Personal Services P 29,182,103.48 P 28,362,704.89 P 819,398.59 2.89
MOOE 29,727,051.61 26,083,528.47 3,643,523.14 13.97
Capital Outlay 2,539,625.13 1,696,200.00 843,425.13 49.72
Financial Expenses 4,210,000.00 4,250,000.00 ( 40,000.00) (0.94)
Total P 65,658,780.22 P 60,392,433.36 P 5,266,346.86 0.87

Expense Classification by Object of Expenditures for the current year 2013 is also
shown below with comparative figures for CY 2012, to wit:
 Increase/(Decrease)
Expense Classification 2013 2012
Amount %
Personal Services P28,200,268.46 P27,930,603.15 P 269,665.31 0.97
Maintenance & Other
Operating Expenses 24,579,584.27 19,745,009.29 4,834,574.98 24.49
Financial Expenses 4,205,021.87 4,247,284.28 (42,262.41) 0.10
TOTAL P56,984,874.60 P51,922,896.72 P5,061,977.88 9.75

SCOPE OF AUDIT

An audit was conducted on the accounts and operations of the Municipal Government
of Macrohon, Southern Leyte, for calendar year 2012. The audit was conducted in accordance
with laws, COA and INTOSAI standards and applicable generally accepted auditing standards.
The audit included examining, on a test basis and on the identified audit thrusts of COA,
evidence supporting the amounts and disclosures in the financial statements, verification and
analysis of accounts, assessing the accounting principles used and significant estimates made
by management, evaluating the overall financial statements presentation, and such other
procedures considered necessary under the circumstances. The audit covered the transactions
for the period January to December, 2013.

AUDITOR’S OPINION ON THE FINANCIAL STATEMENTS

A qualified opinion was rendered on the fairness of the presentation of the financial
statements of the Municipality of Macrohon, Southern Leyte as of December 31, 2013 in view of
the effects of the matters discussed in the Independent’s Auditor Report on the Financial
Statements on the agency’s accounts and of the other deficiencies discussed in Part II of the
report, and the partially implemented and unimplemented recommendations found in Part III,
also of the report.

SUMMARY OF SIGNIFICANT FINDINGS AND RECOMMENDATIONS

A. FINANCIAL AND COMPLIANCE

1. Trip tickets supporting the expenditures on Gasoline, Oil & Lubricant Expenses (Account
761) were not completely filled up while some transactions were not supported with any
trip ticket to substantiate the claims, contrary to Section 4 of PD 1445, thus, rendering the
account balance of P754,570.49 to be of doubtful validity.

We highly recommend that management require the drivers to properly fill-up the trip
tickets with the necessary information on their travel, such as speedometer reading at the
beginning and end of trip, specific car to be used and its plate number, the time of
departure and arrival, and approximate distance traveled based on the speedometer
reading. Likewise, the management should indicate all the places that are actually visited
that should be consistent w/ the total distance travelled, names and signatures of all the
authorized passengers, all specific purposes of the travel, and other required information.
2. Remittances to Philhealth, Pag-ibig Fund and San Roque Multi-Purpose Cooperative
(SRMPC) in the total amount of P843,714.82 were not adequately documented, contrary
to Section 4 of PD 1445.

We recommend that management officials concerned are enjoined to submit/attach in the

payment the necessary Official Receipts as evidence of actual remittances and support
them with Remittance List duly signed and certified by the authorized officials.
Furthermore, they should also submit a Memorandum of Agreement between the
Municipality and Philhealth, authorizing any municipal employee to collect and issue
Official Receipt in behalf of the Philhealth, and submit the deposit slips or any evidence
of actual remittance to the Philhealth account.

3. Accountable forms purchased by the Municipality in CY 2013 are not duly accounted for
due to the failure of the management to indicate the serial numbers in any attached
documents, inadequacy of supporting documents, and failure to submit Treasurer’s
Consolidated Report of Accountability for Accountable Forms, thereby exposing these
forms to possible loss or misuse, in violation of Sections 4 and 111 (2) of PD 1445, and
Section 51 of LGU-NGAS.

We recommend that management should duly account the serial numbers of every
Accountable Form being purchased and support them with Acceptance and Inspection
Reports (AIR) and Requisition and Issuance Vouchers (RIV) in order to establish the
accountabilities of the Accountable Officer. The management is also enjoined to submit
the Treasurer’s Monthly Reports of Accountability that would serve as the key document
to prove that all the new accountable forms are received and duly accounted by the
Treasurer, as well as the issuances and balances on hand.

4. The agency failed to submit documents to prove that the Financial Assistance granted to
barangays and schools in CY 2013 amounting to P1,083,000.00 were used for the
intended purpose and to show evidence that the implementing agencies complied with the
requirements of the law in the implementation of the projects, contrary to Section 4(6) of
PD 1445 and Section 168, Vol. I of the Government Accounting and Auditing Manual
(GAAM).

We recommend that management should properly account the fund transfer for financial
assistance and require the submission of the Fund Utilization Report from the
implementing agencies so that validation for the project implementation can be
undertaken.

5. Almost 60% or P162,446.00 of actual expenses on repair and maintenance of motor

vehicles were improperly recorded in Other Supplies Inventory (Account 165) and were
not supported with adequate documentation, in violation of Sections 4(6) & 111(2) of
PD 1445, COA Memorandum No. 2005-027 and the Updated Chart of Accounts under
the LGU-NGAS, thus, rendering inaccurate the balances of the affected accounts in the
agency’s financial statements, and causing doubt on the propriety and regularity of
transactions.
 We recommend that Municipal Accountant should observe the proper charging of
expenditures based on the nature of transactions. We also recommend the management to
comply with the requirements of COA Memorandum No. 2005-027, particularly the
submission of aforementioned documentary requirements within the prescribed period.
Likewise, the management should refrain from approving disbursement vouchers unless
supported with complete and duly accomplished documents.

6. Due to errors in recording of various equipment purchased in CY 2013, the total balance
of the Property Plant & Equipment (PPE) is understated by P228,593.00, while the
recorded balances in the book of accounts could not be validated due to non-submission
of physical inventory reports for CY 2012 and 2013, in violation of Sec. 111 of P.D. 1445
and Sec. 124 of LGU-NGAS.

We recommend that the accounting department observe proper classification of all the
equipment in the book of accounts in order to present fairly the assets of the agency. The
management should also submit duly accomplished ARE with specific serial numbers of
the equipment in order to establish the accountability of the Accountable Officers or end
users, and to submit Report on the Physical Count of Property, Plant and Equipment
(RPCPPE) as required by the NGAS.

7. The agency failed to submit documents to prove that the procured construction supplies
and materials amounting to P484,723.00 were issued and utilized for the intended
projects and to show evidence that they complied with the applicable laws and
regulations, contrary to Section 4(6) of PD 1445.

We recommend that management submit the aforementioned documentary requirements

as basis for our evaluation and validation on the completed projects, and use proper
account in recording construction materials.

8. Balances of five (5) Inventory Accounts as of December 31, 2013 totaling P2,179,685.89
were unreliable due to various accounting errors, non-submission of Physical Inventory
Reports, and failure to support the credits with Summary of Supplies and Materials
Issued and other necessary documents, contrary to existing laws, rules and regulations,
thus, affecting the fair presentation in the financial statements and exposing these
government assets to possible misuse or wastage.

We highly recommend that management strictly adhere to the provisions of Sec. 111(2)
of P.D. 1445 and related Sections of NGAS for LGU pertinent to the management and
control of inventories, and for the Local Chief Executive to initiate the following actions:
(a) Require the respective departments to prepare and submit at least on a monthly
basis the Summary of Supplies & Materials Issued (SSMI) supported by
Requisition Issue Slips/RIVs and other necessary documents depending on the
nature of transactions, duly signed by individual requisitioner/end-user for
submission to the GSO.
(b) Require the GSO to prepare the Consolidated Summary of Supplies and Materials
Issued (SSMI) of the departments for submission to Accounting division to be the
 basis for the preparation of the Journal Entry Voucher (JEV) for the credits in the
Inventory Account.
(c) Require the Accountant to use the Moving Average Method of costing inventories,
as provided in Section 115 of the Manual on NGAS, in order to provide the
financial values of the issued supplies. Likewise, make the necessary
adjustments/correcting entries and observe proper classification of the items to their
appropriate Inventory accounts so that the correct balances be reflected.
(d) Require the submission of the Report of the Physical Count of Inventories (RPCI)
every Semester pursuant to the above cited provisions of NGAS Manual.
(e) Require adequate documentation in every transaction before approving the
payment.
9. The agency failed to submit advance copies of Acceptance and Inspection Reports (AIR)
within 24 hours upon delivery of goods as required in Section 6 (9) of COA Circular No.
95-006 and Section 465 of the Government Accounting &Auditing Manual (GAAM),
thus depriving the Commission on Audit the opportunity to conduct selective and surprise
inspection to verify the existence, actual date of delivery, completeness, and conformity
with the specifications in the Purchase Orders/Contracts, specially to those high-valued
transactions of the agency.

We recommend that Municipal Mayor direct the concerned officials to submit the
Acceptance and Inspection Reports (AIR) to the Audit Team within 24 hours after
deliveries, pursuant to COA Circular No. 95-006 and Section 465 of the Government
Accounting & Auditing Manual (GAAM), especially those transactions amounting
P10,000 and above as basis for selective inspections.

10. The agency did not comply with various requirements of RA 10121 and COA Circular
No. 2012-002 in the usage and reporting of the Local Disaster Risk Reduction
Management Fund (LDRRMF), which includes obligating a project not related to disaster
risk reduction and management, non-submission of monthly utilization reports, failure to
transfer to Special Trust Fund its unexpended balance of P2,272,989.84, and other
deficiencies in both accounting and documentation, thus a failure to achieve the optimal
output of the program.

We recommend that management comply with the foregoing provisions of RA 10121 and
COA Circular No. 2012-002 in determining the projects to be funded out of LDRRMF,
submission of duly accomplished annual plan (LDRRMFIP), monthly report on sources
and utilization and transfer of unexpended balance of LDRRMF to Special Trust Fund.
We also recommend the management to use subsidiary account codes in reporting the
disbursements of the fund in the journals and a detailed presentation of the LDRRMF
balances in the Notes to Financial Statements.

11. The agency did not set up special account in the General Fund for the 20% Economic
Development Fund (EDF), which, specifically includes not maintaining a subsidiary
ledger nor using sub-codes in the journals, thus transparency in the usage of the fund was
not achieved, in violation of Section 313 of Republic Act No. 7160 (Local Government
 Code of 1991) and Chapter 6, Volume I of The Manual on the New Government
Accounting System (NGAS) for Local Government Units.

We highly recommend that management comply with the requirements of Section 313 of
Republic Act No. 7160 (Local Government Code of 1991) and Chapter 6, Volume I of
The Manual on the New Government Accounting System (NGAS) for Local Government
Units, particularly on setting up and maintaining a special account for the 20% Economic
Development Fund.

12. Accounts Payable (Account 401)taken up in the books in December 2013 amounting to
P2,839,036.88 was not supported with documents to prove the validity, existence and
propriety of the claims, contrary to COA Circular No. 99-004 and Sec. 141, Volume III
of the NGAS Manual.

We recommend that management strictly refrain from permitting the booking up of payables
if not supported with valid documents. Such policy should include prohibitions against
the booking up or crediting to Accounts Payable any purchase of goods not yet delivered
or accepted, or services not yet rendered. This has to be duly adhered to in order to
establish validity in the balances of payables per the financial statement.

13. Operational expenses on financial assistance and wages of job order employees in the
total amount of P2,775,159.92 were misclassified in the Maintenance & Other Operating
Expenses (MOOE) accounts of the agency, in violation of Sections 111 (1&2) of P.D.
1445, thereby causing a misleading presentation of the actual operation of the agency in
the financial statements and rendering doubtful on the regularity and propriety of
disbursements of government funds.

We recommend that management make necessary adjusting entries in the book of

accounts for the forgoing expenditures. The management should comply with Section
111 (Paragraphs 1 &2) in the recording of accounts.

14. Charges to account Due to LGUs (418) of the General Fund, which includes Priority
Development Assistance Fund (PDAF), 5% Calamity Fund/ LDRRMF, and funding for
Farm to Market Road Projects, in the amount of P2,674,999.98, P433,465.00, and
P700,000.00, respectively, were questionable due to the absence of supporting documents
nor adequate explanations in the JEVs and non-disclosure of the reference documents as
the basis for the adjustment, contrary to Section 111 (1 & 2) of PD 1445.

We highly recommend that management submit written explanation for the forgoing
accounting entries, particularly the adjustment in question amounting to
P3,808,464.98 indicating the reference documents such as Check, JEV or DV
numbers as the basis for our verification and validation. Likewise, the management
should make necessary adjusting entries for the forgoing accounting errors, and to
stop using the Due to LGU Account (418) of the General Fund in recording trust
receipts for the Trust Fund.
 15. The transfer of a completed infrastructure project from Trust to General Fund was
erroneously credited to Income from Grants and Donations (Account 662), thereby
overstating the total Operating Income at year end by P1,498,629.69 or 2.55%, in
violation of Section 111 (1 & 2) of PD 1445.

We recommend that the Accountant ensure the correct preparation and recording of
journal entries so as to present accurate financial reports pursuant to the above-cited
provisions of P.D. 1445.

B. COMPLIANCE WITH TAX LAWS

The Municipal Government of Macrohon deducts and remits to the Bureau of Internal
Revenue (BIR) within the prescribed period all the taxes (compensation and supplier’s tax)
withheld in the current year.

C. SUSPENSION AND DISALLOWANCES

As of December 31, 2013, the total suspensions and disallowances issued: P97,457.00
and P64,099.00, respectively. There was no settlement made during the year. Table below
shows the breakdown:

Issuance This Issuance This Ending Balance

Particulars Beg. Balance Period Period As of December
As of Jan. 1, This Year- This Year -2013 31, 2013
2013 2013 (NSSDC)
(NS/ND/NC)
Notice of Suspension P 5,218,288.53 P 97,457.00 P 0.00 P 5,315,743.53
Notice of Disallowance 7,630.00 64,099.00 0.00 71,729.00
Notice of Charges 0.00 0.00 0.00
P 5,225,918.53 P 161,556.00 P 0.00 P5,387,474.53

STATUS OF IMPLEMENTATION OF PRIOR YEAR’S AUDIT RECOMMENDATIONS

Of the ten (10) audit recommendations embodied in the CY 2012 Annual Audit Report,
three (3) were fully implemented, six (6) were partially implemented while one (1) was not acted
upon by management. For CY 2011 audit recommendations, there were still four (4) that were
partially implemented.