We have reviewed the bank reconciliation statements of the Municipality of Libagon and

observed the following deficiencies/errors:

Stale Checks amounting to P43,932.78 were not cancelled, contrary to Section 104 of the
Government Accounting Manual for Local Government Units Volume I and Section 97,
Presidential Decree No. 1445, thus understating the Cash in Bank-Local Currency, Current
Account, as well as the liability and equity balances in the Financial Statements

Section 97 of PD No. 1445, states:

“Section 97. Disposition of Stale warrants or checks.-(1) A treasury

warrant or check which remains outstanding after two years from the date of issue
shall not be paid by the Treasurer of the Philippines or by any duly authorized
depository. The issuing agency shall take up in its books of accounts the amount
of this warrant or check as surplus adjustment of the fund against which it was
previously charged. Upon presentation of a stale warrant or check, the issuing
agency shall cancel it and issue to the payee a substitute warrant or check in lieu
thereof.

Likewise, Section 104 of the Government Accounting Manual for local government units
provides:

Section 104. Spoiled and Stale Checks. Checks may be cancelled when
they become spoiled or stale. A check is considered spoil when, it is torn,
mutilated, defaced or with erasures/errors affecting the genuineness of any
material information contained therein.

It is stale, if it has been outstanding for over six months from date of issue
or as prescribed by the depository bank. At least one month before a check
becomes stale, the Treasurer shall send a written notice to the payee of the
existence of the check.

A spoiled or stale check shall be marked cancelled on its face and reported
as follows:

1. For spoiled checks which are immediately cancelled and for which the Report
of Checks Issued (RCI) has not yet been prepared, the cancelled check shall
be attached to the RCI and reported chronologically with the other checks
issued and the word “Cancelled” shall be indicated on the report. 56

2. For stale checks which have been unclaimed and thus, the original DV and
supporting documents are still with the Treasurer, the cancelled check shall be
presented in the RCI after the last check issued for the period indicated in the
report. The original DV and supporting documents shall be returned to the
 Accountant who shall prepare a JV to record the transaction as Accounts
Payable.

3. For checks which became spoiled or stale in the hands of the payee and which
require replacement, a new check may be issued upon submission of the
spoiled or stale check to the Treasurer. A certified copy of the DV shall be
requested from the Auditor for presentation to the Administrator/Local Chief
Executive who shall countersign the check. The cancelled check shall be
reported and attached to the RCI prepared at the period of cancellation. The
replacement check shall also be reported chronologically in the RCI.

Review of the bank reconciliation statement as of December 31, 2020, disclosed that stale
checks amopunting to P43,932.78 (Annex “A”) remained outsanding and presented as part of the
reconciling items for a period of over 6 months to 2 years, summarized in Table I:

Table: Summary of Oustanding checks for six months to two years

Fund Account No. Checks Checks Total

oustanding for outstanding for
more than two six months to two
(2) years years
General Fund 003322-1001-40 - 43,091.02 43,091.02
Special Education 003322-1034-91 - 11.76 11.76
Fund
Trust Fund 003322-1034-83 - 830.00 830.00
Total - 43,932.78 43,932.78
A stale check could no longer be accepted by the treasury or authorized depository hence
it must be cancelled and booked up as accounts payable in the issuing agency’s books of
accounts.

A stale checks that remained issued and outstanding for over 6 months to over 2 years in
the books, understates the Cash in Bank-Local Currency, Current Account, as well as the liability
and equity balances in the Financial Statements. This also renders the balance of Cash in Bank
accounts doubtful and unreliable.

We recommend that:

1. The Municipal Treasurer should send a written notices to the payees one month
before the checks become stale. Stale checks shall be reported and attached to the
RCI prepared at the period of cancellation.

2. For improperly reported stale checks, the Office of the Municipal Treasurer and the
Office of the Municipal Accountant, provide evidence that the checls are not
outsatnding that they have been voided and no obligation exist.
 3. The Municipal Accountant should make the necessary adjusting entries for stale-
dated checks as follows:

a. For stale checks over 6 months but not over 2 years:

DR: Cash in Bank-LCCA P xxx

CR: Accounts Payable P xxx

b. For checks over 2 years:

DR: Cash in Bank – LCCA P xxx

CR: Prior Years Adjustment* P xxx
(*to represent surplus adjustment)

May we have your comments on the foregoing audit observations within fifteen (15)
calendar days from receipt hereof.