EXECUTIVE SUMMARY Introduction The establishment of the Aroroy town dates back to the year 1852, with the arrival of the Chinese explorers. Aroroy was taken from the word “al-oroy” which means, “they are going to the gold”! Later, ‘al-oroy” became Aroroy, the name carried on up to the present. On July 18, 1949, Aroroy was created into a Municipality by virtue of Executive Order No. 244 under Republic Act No. 292. At present it was reclassified to a first class income municipality by virtue of a Department of Finance Resolution. Asa local government unit, the main concern of the municipality is to provide basic services related to agriculture, fishery, health care, social welfare and the development of infrastructure facilities to its populace. Operational Highlights For Calendar Year (CY) 2017, the Municipality of Aroroy is under the able leadership of Honorable Mayor Arturo B. Virtucio. To pursue the objectives of the Municipal Government of Aroroy in enhancing its social and economic development, reported significant programs/projects implemented by the Agency for CY 2017, among others, are the following: 1. Installation of Street Lights; 2. Improvement and Rehabilitation of Canals; 3. Integrated Water, Sanitation and Hygiene ([WASH)/Zero Open Defecation (ZOD) Program; and 4, Road Opening/Rehabilitation of Farm to Market Roads. Financial Highlights ‘The total assets, liabilities, and owner’s equity of the Municipality of Aroroy for the calendar years 2017 and 2016 as presented in Annex I-A to I-G are as follows: Particulars ‘CY 2017 C¥2016 P__996,050,545.37 | P _ 901,942,808.27 355,727, 158.31 344,978,208.41 (640,323,387.06 556,964,599.86For CY 2017, the Municipality of Aroroy projected a total income of P323,230,677.00, to be collected from various sources such as Tax and Non-Tax Revenues, Shares from Internal Revenue Allotment (IRA), PAGCOR/PCSO and National Wealth. Out of the estimated income, the LGU was able to realize/earn the amount of P377,443,929.08 derived from various sources, to wit: Source of Income General SEF Total Tax Revenue P_115,690,629.29 | P37,041,005,74 | P 152,731,635.03 Share from Internal 208,225,176.00 =| 208,225,176.00 Revenue Collections Service and Business 14 401,946.44 5 14,401,944.44 Income _ i Shares, Grants and 1,579,532.36 | = 1,579,532.36 | Donations _ Other Income _ 505,641.25 - 505,641.25, “Total ¥ 340,402,923.34 | P 37,041,005.74 | 0 377,443,929.08 The actual income realized during the year posted an increase of P26,401,514.25 or 7.52% compared with last year’s income of P351,042,414.83 while the LGU’s expenditures increased by P51,166,336.59 in CY 2017. Particulars cy20i7 CY 2016 Increase! _ @ecrease) _| Thome P377,443,929.08 | P 351,042,414.83 | P_26,401,514.25 Expenses P 297,612,513.62 | _P246,446,177.03 | P_51,166,336.59 For CY 2017, the appropriations (Annex I1) of the Municipality of Aroroy totaled P501,632,716.13 as follows: Object 2017 2016 Tnerease/ @ecrease) Current Appropriations ‘General Fund P 369,338,880,68 | P338,367,898.32 | P 30,970,982.36 SEF 41,819,743.49 | 40,924,576.00 895,167.49 Excise Tax 32,555,986.42 | 26,064,043.57 | ___6,491,942.85 ‘Sub-total P 443,714,610,59 | P 405,356,517.89 | _P 38,358,092.70 Continuing | Appropriations General Fund P_38,088,465.60 | P_75,705,028.28 | P(7,616,562.68) SEF 4.285,447.50 | 1,658,367.11|_2,627,080.39 Excise Tax ~~ _15,544,192.44 | 18,575,448.64 | _(3,031,256.20) ‘Sub-total F _57,918,103.54 | P_95,938,844.03 | P(38,020,738 49) TOTAL ¥-501,632,716.13 | F 501,295,361.92 | P__ 337,354.21 ii‘The total obligations incurred amounted to P401,224,930.90, to wit: Object 2017 2016 Tncrease/ (Decrease) Current Appropriations, [| ]CSdSSS General Fund |__| P323,711,56681 | P381,359,79591 | P_42,351,770.90 SEF 37,837,318.00 | _32,236,189.28 5,601,128.72 Excise Tax - 16,288,264.31 | (16,288,264.31) Sub-total | P 361,548,884.81 | P329,884,249.50 | P 31,664,635.31 Continuing Appropriations __ ‘General Fund 23,374,355.05 | __61,131,987.00| _G7,277,431.95) SEF _f__3,719,401.54 1,549,820.44 | 2,169,581.10 Excise Tax 12,082,089.50 12,867,035.46 (784,945.96) ‘Sub-total P_39,676,046.09 | P_75 42.5 796.81) TOTAL F401, 0.90 Scope of the Audit ‘The audit covered the accounts and operations of the Municipality of Aroroy for the year ended December 31, 2017. The objectives of the financial and compliance audit which we focused on the following accounts and transactions, among others, namely: cash, receivables, property, plant and equipment, liabilities, expenditures and fund transfers received from/given to, were to determine the reliability of the LGU’s financial statements, to determine whether or not the LGU’s transactions were made in accordance with existing laws, rules and regulations as well as whether the funds were utilized in the most efficient, effective and economical manner. Moreover, we have included compliance audit on Solid ‘Waste Management/Enyironmental Laws and the Local Couneil for Protection of Children, State Auditor’s Report on the Financial Statements The Auditor rendered a qualified opinion on the faimess of presentation of the financial statements because the reported balance of the Cash in Bank account of P213,621,130.12 may not be relied upon due to non-preparation of bank reconciliation statements for all bank accounts and existence of total unreconciled amount of P3,330,715.49. Further, the LGU was still not able to conduct a complete physical count of all its properties and reconcile the Property and Accounting records, thus, the existence and condition of property, plant and equipment with gross value of P295,684,395.92, or at least 38.82 percent of the total PPE of P761,626,415.37, cannot be readily ascertained. The inadequacy of the Agency’s records and supporting documents, time constraints and the bulk of LGU properties and transactions did not permit us to immediately apply adequate alternative procedures to verify and determine the validity, accuracy and correctness of the aforesaid unreconciled amounts. In addition, lacking Disbursement Vouchers for CY 2016 to CY 2017 totaling to #23,603,540.53 remained not submitted as of this date. iii‘Summary of Significant Observations and Recommendations For the exceptions cited above, the Auditor recommended that: (1) the Municipal Accountant must prepare and submit the required bank reconciliation statements, consider the cash books of the ICO-Municipal Treasurer in the reconciliation and adjust the books by taking up the reconciling items; (2) The concerned personnel must maintain the necessary property and ledger cards including Acknowledgement Receipt for Equipment, ‘conduct reconciliation with their respective records, coordinate with each other and work out on tracing any reconciling items; and, (3) The Municipal Accountant and the ICO- Municipal Treasurer must immediately submit the lacking Disbursement Vouchers and their respective supporting documents. ‘Moreover, hereunder are other significant observations and recommendations, to wit: 1, Cash advance from confidential funds previously granted in the amount of 264,000.00 remained unliquidated as of December 31, 2017, despite the lapse of more than one year from date of grant, placing such funds at the risk of possible loss/misappropriation. ‘We recommended that the Management: 1. Require the SDO to immediately liquidate the cash advance and submit the required documents to the Intelligence and Confidential Fund Audit Unit of COA; and 2. Ensure that cash advances are granted to the designated Special Disbursing Officer alone, within the maximum cash accountability and strictly granted and liquidated in accordance with the provisions of COA-DBM-DILG-GCG-DND Joint Circular No. 2015-001. 2. Various Receivables accounts totaling 6,282,852.82 which remained tong outstanding or dormant in the books for more than ten (10) years were not acted upon to facilitate the proper write-off thereof, resulting in the overstatement of agency assets due to the inclusion of accounts with doubtful existence. We recommended that the Management direct the Municipal Accountant 10 determine, once and for all, the collectability of these Receivable accounts together with the dortiant cash advances and to document the request for write-off from the Commission on Audit the account balances which were considered dormant and could no longer be collected pursuant to COA Circular No. 2016-005 dated December 19, 2016. ivAccordingly, request authority from the Commission on Audit to write-off the dormant accounts duly supported with the required documents. Disbursements amounting to P15,243,423.42 from fund transfers received during CY 2017 were not liquidated to various National Government Agencies and not recorded in the books, thus, overstating the liabilities by the same amount and affects the fair presentation of the financial statements at year end. We recommended that the Management require the concerned LGU personnel to immediately prepare and submit the liquidation reports with complete supporting documents relative to the utilization of trust funds received from these National Government Agencies. It must be assured thai proper reporting and accounting is made on the utilization of the fund transfers to fairly present financial transactions at year-end. Utilization reports and/or status of implementation of, programs/projects/activities were not required by the Municipality from the recipient LGUs to which cash, supplies and materials or other form of counterparts totaling P11,660,892.61 were paid or delivered during CY 2017, thus, it cannot be determined whether the same were utilized for the intended public purpose of the Municipality of Aroroy. We recommended that Management: 1. Require the recipients of counterpart cash or construction materials to submit utilization reports and/or status of implementation of the programs, projects or Activities 10 which these were intended for to ensure that these were indeed exclusively used for the intended public purpose of the Municipality and to negate the possibility of being used for personal or private purpose; 2. Strictly comply with COA Circular No. 94-013 dated December 13, 1994 on the Rules and Regulations in the Grant, Utilization and Liquidation of Funds Transferred to Implementing Agencies, particularly the responsibilities of the source agency and the implementing agency; and 3. Instruct the Accountant to make necessary adjusting entries to correct the resulting misstatement from the inconsistent and improper recording of transactions. Unserviceable assets totalling P5,393,131.39 were not disposed of and still included in the Report of Physical Count of Property, Plant and Equipment while lost assets amounting to P84,870.00 were not dropped off from the books of accounts.We recommended that Management: 1. Require the Inventory Committee to completely fill-up the information on the whereabouts and conditions of all properties physically counted to determine other unserviceable PPE items. The Inventory Committee must recommend them for disposal while the properties still carry their respective salvage value and submit a written report to the GSO of the result of the actual physical inventory conducted so the latter could undertake appropriate and feasible remedies for any deficiencies noted; 2. Require the GSO to prepare the Inventory and Inspection Report of Unserviceable Properties and file an application for disposal through the Local Chief Executive with the Office of the Audit Team Leader; and 3. Any losses of government property determined during the physical count must be reported and accountability thereaf must be determined. Future losses of properties by any accountable officer or person in custody must be properly and immediately disseminated to concerned offices. The appropriate request for relief from accountability must be requested from the Commission on Audit within the period prescribed by existing rules and regulations, together with the supporting documentary requirements, which would include the basic notice of loss, report stating the facts and circumstances of the loss, valuations and other necessary details or documents, Non-submission of copies of perfected contracts and their supporting documents of various developmental projects under the 20% Development Fund for auditorial and technical review of COA with aggregate contract costs of P10,754,552.22 hindered us in the timely determination of the legality and propriety of the financial transactions. We recommended that the Local Chief Executive: 1. Require the Municipal officials and employees concerned to strictly comply with the mandatory submission of perfected contracts and its supporting documents to COA including approved purchase orders (POs), not only for those under the 20% Development but including all contracts entered into and POs issued by the Municipality, for a timely and complete conduct of its auditorial and technical review; and 2. Submit immediately all perfected contracts with complete supporting documents for review, the results of which will be used in post-audit of disbursements, otherwise, notices of suspension will be issued to enforce compliance.Status of Audit Suspensions, Disallowances and Charges As of December 31, 2017, the total suspensions and disallowances totalled P12,880,085.33 and P2,340.00, respectively. Beg. Balance | Issued this | Settlement Ending Particulars | (January 1, Period —_| (January 1 to | Balance (As of 2017) (January 1to | December | December 31, December 31, | 31, 2017) 2017) 2017) | Notice of | P12,880,085.33[ P 0.00! P 0.00 | P12,880,085.33 Suspension _ Notice of 7,340.00 0:00 0.00 2,340.00 Disallowance _| Notice of Charge 0.00 0.00 0.00 0.00 Total P12,882,425.33, 0.00 0.00 | P12,882,425.33 ‘Status of Implementation of Prior Years’ Audit Recommendations Out of the twenty-six (26) recommended courses of action to rectify the deficiencies noted during the audit of CY 2014 to CY 2016 financial operations and transactions of the Local Government Unit of Aroroy, eleven (11) were implemented, ‘eight (8) were partially acted upon and seven (7) remained unimplemented. vii