EXECUTIVE SUMMARY

The Municipality of Sagbayan is a fifth class municipality of Bohol province

created by the issuance of an Executive Order by the late President Elpidio Quirino on
February 9, 1949. It is part of the 2nd congressional district of the province and is
politically subdivided into twenty four barangays with a total population of
approximately 20,091 people per 2010 census. It has a total land area of 9,675 hectare
and among the three towns known of its famous chocolate hills.

The municipality, like any other municipalities, enjoys total independence in

planning, managing and deciding its own administrative, fiscal and developmental affairs
in consonance with the national trust for sustainable social and economic benefits to its
constituents pursuant to Republic Act No. 7160 or otherwise known as the Local
Government Code of the Philippines.

HIGHLIGHTS OF FINANCIAL OPERATION

For CY 2013, the municipality’s actual financial performance against its approved
annual and supplemental budget is presented hereunder:

Income P 54,508,086.00 P 52,781,759.73 97%

Expenditures/Appropriations

Personal Services P 27,418,439.66 P 27,418,439.66 100%

Maintenance & Other Operating
Expenses 30,111,352.71 26,542,916.04 88%
Capital Outlay 42,994.50 42,994.50 100%
Economic & Social Services 2,236,972.65 2,329,376.39 104%
Non-Office Expenditures 3,117,574.15 3,079,545.87 99%

Total P 62,927,333.67 P 59,413,272.46 94%

The municipality generated a total collection from all sources amounting to

P52,781,759.73 which increased by 5.74% compared to that of last year’s collection of
P49,917,093.23 or more by P2,864,666.50, shown in details as follows:
%
Increase/ Increase/
Sources of Funds CY 2013 CY 2012 Decrease Decrease
Local Taxes P 3,068,019.87 P 3,250,899.05 P (182,879.18) -6%
Permits & Licenses 1,212,130.76 1,508,007.73 (295,876.97) -20%
Service Income 743,667.13 934,689.92 (191,022.79) -20%
Business Income 5,217,041.75 6,137,430.05 (920,388.30) -15%
Other Income 42,540,900.22 38,086,066.48 4,454,833.74 12%
Total P 52,781,759.73 P 49,917,093.23 P 2,864,666.50 5.74%

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 However, municipality’s expenditures incurred during the year increased by
P2,025,369.18 compared of last year’s figure of P47,547,559.00 summarized as follows:

%
Increase/ Increase/
Expenditures CY 2013 CY 2012 Decrease Decrease
Personnel Services P 29,175,040.67 P 27,666,950.84 P 1,508,089.83 5%
Maintenance & Other Oprtg.
Exp. 17,219,259.08 18,120,088.23 (900,829.15) -5%
Financial Expenses 489,828.43 663,419.93 (173,591.50) -26%
Subsidies& Donations 2,688,800.00 1,097,100.00 1,591,700.00 145%
Total P 49,572,928.18 P 47,547,559.00 P 2,025,369.18 4.26%

For CY 2013, the total amount of P8,413,017.20 was appropriated for the 20%
development fund. The following projects were programmed and its accomplishments:

% of
Projects Appropriation Expenditures Accomplishment
LBP Debt Servicing (Construction of flood
Control) P 1,356,205.26 P 1,318,502.82 97%
LBP Debt Servicing (Purcharse of farm tractor) 156,664.21 156,664.21 100%
Project to Different Barangays 250,000.00 - 0%
Rehabilitation of farm to market roads 1,500,000.00 - 0%
Health Services - Counterpart to referral hospital 100,000.00 100,000.00 100%
Improvement of Waterworks System 3,500,000.00 3,471,797.50 99%
Solid Waste Management 300,000.00 295,930.00 99%
Updating of Comprehensive Land Use Plan
(CLUP) 250,147.73 215,775.91 86%
Construction of Multi-Purpose Building 1,000,000.00 - 0%
Total P 8,413,017.20 P 5,558,670.44 66%

FINANCIAL RATIOS

The municipality’s assets, liabilities and government equity as of December 31,

2013 were as follows:

Increase % Increase
Classification CY 2013 CY 2012 (Decrease) (Decrease)
Asset 97,843,066.87 56,499,171.17 41,343,895.70 73%
Liabilities 53,949,704.40 14,174,379.36 39,775,325.04 281%
Government Equity 43,893,362.47 42,324,791.81 1,568,570.66 4%

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SCOPE OF AUDIT

An audit was conducted on the accounts and operations of the Municipality of

Sagbayan, Bohol for calendar year 2013. The audit was conducted to ascertain the
propriety of financial transactions and compliance of the agency with prescribed rules
and regulations and the programs and objectives achieved efficiently and effectively and
to ensure economy, efficiency and effectiveness in the carrying out of the local
government unit’s programs/projects/activities and/or management of its resources. It
was also made to ascertain the accuracy of financial records and reports, as well as the
fairness of the presentation of the financial statements. However, post-audit were applied
only to selected transactions were due to time and personnel constraints.

AUDITOR’S OPINION ON THE FINANCIAL STATEMENTS

The auditor rendered an adverse opinion on the fairness of presentation of the

financial statements as of December 31, 2013 due to the lack of valid basis in recording
Real Property Tax (RPT) and Special Education Tax (SET) Receivables amounting to
P1,290,587.93, therefore, correctness of the RPT and SET Receivables and their
corresponding contra-accounts are unreliable. In addition, the validity and accuracy of
the receivable accounts are unreliable because Cash Advances to Officers and employees
amounting to P4,075,259.75 remained unliquidated while accounts with doubtful
collectability including KKK Funds Receivables, Accounts Receivables and Other
Receivables accounts amounting to P92,190.15, P6,690.03 and P11,673.47 respectively
still existed as of December 31, 2013.

Further, the existence, accuracy and condition of the Property, Plant and
Equipment amounting to P 56,337,768.79 and Inventories costing P114,442.50 were not
established due to the failure of the municipality to conduct a complete physical
inventory count with corresponding report and to apply for relief of accountabilities and
disposal of damaged properties. Likewise, Public Infrastructures with a total amount of
P34,927,140.39, comprising 65% of the total Property, Plant and Equipment accounts
were still carried in the books, thereby, overstating the LGU’s total assets and
government equity accounts.

Moreover, minimal balances of the Due to Other NGAs and Due to LGUs
accounts remained in the agency books despite full implementation of projects therefore,
validity of the accounts amounting to P269,212.53 and P42,199,629.24 respectively
cannot be assured. Lastly, the accuracy and correctness of the reciprocal accounts, due
from Other Funds and Due to Other Funds, are doubtful due to the unreconciled net
difference of (P91,227.03).

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SUMMARY OF SIGNIFICANT FINDINGS AND RECOMMENDATIONS

1. Effective internal control system was not adopted within the agency with the
designation of the Revenue Collecting Clerk II assigned at the Municipal Treasurer’s
Office who simultaneously performs disbursing functions, contrary to Section 124 of
PD 1445 and Section 50 of GAAM Volume III. Further, the bond of the accountable
officer is insufficient to cover the maximum amount of accountability handled, thus,
detrimental and disadvantageous to the government and contrary to the Treasury
Circular No. 02-2009 dated August 6, 2009 issued by the Bureau of Treasury.

We recommend that the designated disbursing officer should not be allowed to

perform collecting functions to avoid mishandling of government funds, thus,
providing the agency of an opportunity to the provisions of Sections 124 of PD 1445
and Section 50 of GAAM Volume III. We recommend that management
immediately increase the Fidelity Bonds of all accountable officers of the
municipality to amounts corresponding to their maximum cash handled in accordance
with the revised Schedule of premium Rates of Fidelity Bond issued by the Bureau of
Treasury.

2. Casual employees who are not properly designated as accountable officers nor
bonded in accordance with law, were allowed to do collecting functions contrary to
Sections 65 & 66 of the Government Accounting and Auditing Manual collections
and the possible ultimate loss of government funds.

We recommend that management:

a. Refrain from involving any employee in the collecting activities of the local
government unit if he/she is not regularly appointed and officially designated
personnel to perform collection/disbursement function.

b. Require all accountable officers to apply for the proper amount of fidelity bond in
relation to the handled cash accountabilities so as to safeguard government funds
and protect the interest of the municipality.

3. The municipal accountant booked up an estimated Real Property Tax (RPT) and
Special Education Tax (SET) Receivables at the beginning of the year in the books of
accounts due to the absence of a certified list of taxpayers showing the amount due
and collectible for the year contrary to Section 20, Volume I of the New Government
Accounting System (NGAS) Manual for LGUs, thus misstating the financial
statements.

We recommend that management require the municipal treasurer to update

data/information on the Real Property Assessment Roll and furnish the Municipal
Accountant with the certified list of taxpayers containing taxes due and collectible as
basis for recording the Real Property Tax/ Special Education Tax Receivables.

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4. The Municipal Treasurer did not post the Notice of Delinquency in the payment of
Real Property Taxes at the main entrance of the municipal hall and in publicly
accessible/conspicuous spaces contrary to Section Nos. 254 to 256 of the Local
Government Code of 1991 thereby preventing the municipality from availing of the
remedies in the collection of real property taxes from delinquent taxpayers.

We recommend that the Municipal Mayor require the Municipal Treasurer to post the
Notice of Delinquency in the payment of Real Property Tax at the main entrance of
the Municipal Hal and in publicly accessible and conspicuous places in the barangays
of the municipality in compliance with Section 254 RA 7160 and to avail of the
remedies in the collection of the real property tax from the different taxpayers as
stated in Section 256 of the Local Government Code of 1991.

5. Trust Receivables from KKK Funds amounting to P92,190.15 remained unsettled for
more than 30 years contrary to Section 37 of Presidential Decree 1445 and Section 64
of Government Accounting Manual (GAAM) Volume I, thus, collectability and
propriety of these accounts were doubtful.

We recommend that management:

a. Require the municipal accountant to send billings and/or demand letters to the
individuals concerned who are still in the locality or whose whereabouts are
known for possible collections.

b. If collection is futile for valid reasons, request authority from the Commission on
Audit for the write off of these accounts.

c. Require the municipal accountant that for whatever result in the request for write
off of the accounts, take the necessary adjustment in the books of the
municipality.

6. Damaged and lost properties remained in the books of the municipality as of

December 31, 2013, due to the failure of the municipal officials to conduct periodic
physical inventory of supplies and property in violation to Section 124 of NGAS
Manual, Volume I and failure of the general services officer or municipal treasurer to
apply for relief of accountabilities within 30 days after the 7.2 magnitude earthquake
in Bohol contrary to Presidential Decree 1445, thereby, existence, validity and
correctness of the Inventories and Property, Plant and Equipment accounts cannot be
ascertained.

We recommend that the local chief executive initiate the move by creating the
inventory committee to conduct the physical count of all properties of the
municipality. The corresponding equipment/property ledger cards should also be
maintained by the accounting section to serve as their subsidiary records of the
Inventories and PPE accounts. In the absence of available records of acquisitions in

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 the past years, they will have no other recourse but to take hold of the disbursement
vouchers to obtain the necessary data to be recorded in the equipment/property ledger
cards.

We further recommend that management require the general services officer or

municipal treasurer to submit the request for relief of accountability with complete
supporting papers so that the auditors can take proper action on the request.

7. Insurable agency assets were not insured with the General Insurance Fund of the
Government Service Insurance System (GSIS) contrary to Section 489 of the General
Accounting and Auditing Manual (GAAM) and Republic Act No. 656 as amended by
Presidential Decree No. 245, hence, the municipality was deprived of adequate and
reliable protection against any damage to or loss of its properties due to the 7.2
magnitude earthquake.

We recommend that management explain the failure to insure the properties. Further,
we recommend that the management allocate funds for insurance with the GSIS
General Insurance Fund of all the existing and future insurable assets of the
municipality pursuant to Section 489 of GAAM, Volume I to secure the properties for
whatever loss due to fire, earthquake, storm or other casualty.

8. The use of the motor vehicles were not supported with trip tickets, monthly reports of
official travels and monthly reports of fuel consumption to substantiate the validity of
the use of gasoline for official travels undertaken during the year, contrary to COA
Circular No. 77-61 dated September 26, 1977, thereby the reasonableness and
propriety of the total gasoline expenses recorded in the books amounting to
P1,199,424.59 as of September 30, 2013 is doubtful.

We recommend that management:

a.) Require the Municipal Accountant to verify and ascertain that payments for
gasoline, oil and lubricants are duly supported with completely filled up driver’s
trip tickets for proper evaluation on the propriety and reasonableness of fuel
consumption.

b.) Immediately adopt the official and required format of the Trip Tickets as
prescribed by COA Circular 77-61.

c.) Direct the vehicle drivers concerned to completely fill up or indicate all the data
or information on the prescribed Driver’s Trip Tickets.

d.) Direct the vehicle drivers concerned to prepare and submit to the Auditor, on a
monthly basis, the Monthly Report of Official Travels and the Monthly Report of
Fuel Consumption for proper analysis, verification and the necessary audit action
on fuel consumption.

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9. Minimal balances of Due to Other NGAs (416) and Due to LGUs (418) remained in
the books of municipality despite the full implementation and completion of
programs and projects contrary to COA Circular No. 2004-008 and Sections 98 and
99 of PD 1445 thereby resulting to the misstatement of the liability accounts.

We recommend that management:

a. Verify the Memorandum of Understanding or Memorandum of Agreement

entered into with the donor-agencies to ascertain on the disposition/treatment of
the balances of the Financial Assistance received.

b. Transfer the unexpended balances in accordance with Sections 98 and 99 of PD

1445.

10. Reciprocal accounts Due From Other Funds (144) and Due To Other Funds (424) had
an unreconciled amount or difference of P100,168.93 as of September 30, 2013
which rendered doubtful accuracy and correctness of accounts contrary to COA
Circular 2004-008.

We recommend that management instruct the Municipal Accountant to review and

reconcile the transactions recorded in both accounts and make the necessary
corrections/adjustments. Further, management should settle the accounts to allow the
creditor-fund to utilize the amounts for their intended purpose, if any.

11. The Municipal Accountant failed to submit paid disbursement vouchers and official
receipts together with the related financial reports of all funds to the Office of the
Auditor within the prescribed period contrary to Section 107 of PD 1445, COA
Circulars 95-006 and 96-011, and Volumes I and II of the NGAS Manual, resulting to
the delay in the review and verification on the propriety and validity of the
transactions recorded in the books and in rendering the necessary audit decisions on
these transactions.

It is suggested that management undertake the following:

a. Adhere to the prescribed time frame for the submission of the monthly and
financial reports to the Office of the Auditor pursuant to Section 107 of the
Government Auditing Code of the Philippines and the pertinent provisions of
COA Circular Nos. 95-006, 96-007 and 96-011 as well as the pertinent provisions
of Volumes I and II of the NGAS Manual.

b. Direct the Municipal Accountant to immediately submit the disbursement

vouchers, official receipts and other the related Report of Disbursements/Reports
of Checks Issued/Report of Collections and Deposits as well as Bank
Reconciliation Statements so that the Auditor could conduct the required review
and verification of the transactions recorded in the books and render the necessary

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 audit decisions on these transactions as well as validate the propriety of the
account balances per books at any particular month or period.

12. The Local Government Unit exceeded the 55% limitation for Personal Services in
violation to Section 325 of RA 7160 while the uncontrolled hiring of casual and
contractual/job order employees resulted in the incurrence of wages which were
inappropriately charged as Repairs and Maintenance under the 20% Development
Fund contrary to DILG and DBM Joint Memorandum Circular 2011-1, depriving the
constituents of benefits which should have been enjoyed had there been proper usage
of government funds for the implementation of government projects.

We recommend Management the following:

a. Direct the Municipal Budget Officer to charge its appropriate expense item in the
annual budget and the Municipal Accountant to record the wages of casual
employees to its appropriate accounts.

b. Maximize the services of permanent employees so as not to exceed the 55%

Personal Services Limitation and to minimize the hiring of casual employees as to
necessity.

c. Adopt and always observe the proper utilization of the 20% Development Fund in
accordance with DILG and DBM Memorandum Circular 2011-001 dated April
13, 2011.

13. Laxity in the monitoring of obligations resulted to negative allotment balances in

various offices of the municipalities with a total amount of P384,304.24 in violation
to Section 158 of Government Accounting and Auditing Manual (GAAM) Volume I,
thereby, defeating the purpose of the preparation of the Annual Budget.

Require the Municipal Budget Officer and the Municipal Accountant to avoid passing
payment of transactions without appropriation and complete documentation. Further,
require the Municipal Budget Officer to always maintain and update registries of
Appropriation, Allotment and Obligations (SAAO) in order to easily monitor
balances and avoid incurrence of overdraft. If indeed the expense involved is
inevitable, make use of Section 336 of RA 7160.

14. The management failed to implement the accounting, monitoring and reporting
requirements promulgated by COA Circular 2012-002, thus, funds and disbursements
for the purpose of risk reduction and management activities of the Local Disaster
Risk Reduction and Management Council (LDRRMC) could not be properly verified.

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 We recommend that management:

a. Activate the Local Risk Reduction Management Council to mop out plans,
projects and programs to address and respond risk reduction in times of calamities
based on the actual calamities experienced by the LGU.

b. Instruct the Municipal Accountant and Local Finance Committee to strictly

comply with the accounting and reporting guidelines for the Disaster Risk
Reduction Management Fund (LDRRMF) of the LGU as set forth in COA
Circular No. 2012-002 to properly provide management with accurate financial
data on available resources of Calamity Fund and its utilization to serve as guide
in decision-making, and to prevent the incurrence of irregular, unnecessary and
illegal disbursements of the Fund.

c. Instruct the Municipal accountant to properly analyze the accounting entries

involved in taking up the receipts and transfers of the Calamity Fund and to
prepare and effect the necessary adjusting /correcting journal entries to reflect
accurate financial data and reports.

d. Advise the Accountant to follow the illustrative entries for accounting of

LDRRMF provided in COA Circular No. 2012-002.

e. Instruct the Municipal Accountant transfer the unexpended balance of the Local
Disaster Risk Reduction and Management Fund for the Quick Response and
Mitigation Funds-MOOE to the special trust fund solely for the purpose of
supporting disaster risk reduction and management activities of the LDRRMCs
within the next five (5) years pursuant to Section 21 of Republic Act 10121.

STATUS OF IMPLEMENTATION BY MANAGEMENT OF PRIOR YEARS’

AUDIT RECOMMENDATIONS

Twenty-nine (29) audit recommendations were embodied in the 2012 and Prior
Years’ Annual Audit Report. Seven recommendations eight (8) were fully implemented,
six (6) were partially implemented and fifteen recommendations (15) were not
implemented, hence reiterated for implementation.

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