EXECUTIVE SUMMARY

Introduction

The Municipality of Bayog, Zamboanga del Sur was created by virtue of Republic Act (RA)
No. 4872 on May 8, 1967 by then President of the Republic of the Philippines Diosdado
Macapagal. It is located in the western part of the Province under the second
congressional district and approximately 82 kilometers from the provincial capital. It is
composed of 28 barangays.

The Municipality of Bayog is bounded on the north by the Municipality of Sindangan,

Zamboanga del Norte, on the south by the Municipalities of Diplahan and Kabasalan, both
of Zamboanga Sibugay. It is a 3rd class municipality with 28 barangays and belongs to the
2nd district of Zamboanga del Sur. It has a total land area of 37,473 hectares distributed
among 28 barangays. It has two rivers traversing the Poblacion on both sides, on the west
is Dipili river and on the east Sibuguey river which was harnessed by the National Irrigation
Administration to supply water to 500 hectares of rice field in the municipality. Rich in
natural resources both metallic and non-metallic deposits.

RA No. 7160 otherwise known as Local Government Code (LGC) of 1991 which became
effective on January 1, 1992 ushered in a new era of genuine and meaningful local
autonomy and enabled the Municipality of Bayog to attain the fullest development as self-
reliant community and make us more effective partners in attainment of national goals.

With agricultural development as its major thrust, an integrated plan is set up to provide
the municipality a well – balanced ecological system of development emphasizing an agri-
industrial and social needs of the populace.

Audit Objective

The objective of the audit is to (a) ascertain the fairness of presentation of the financial
statements; (b) ascertain the propriety of financial transactions and compliance with
prescribed rules and regulations; c) recommend agency improvement opportunities; and
(d) determine the extent of implementation of prior years’ audit recommendations.
Performance audit was likewise conducted with the objective of informing management
where improvement can be instituted in the field of revenues, expenditures and
management of resources.

Audit Methodology

The Commission has been implementing risk-based audit in the conduct of its audit
services. However, to meet the evolving developments in public governance and fund
management, the results-based approach in audit was incorporated.

Scope of Audit

An audit was conducted on the accounts and operations of the Local Government of
Kumalarang for 2019. The audit consisted of review of operating procedures, evaluation
of the LGU’s programs and projects, interview of concerned government officials and
employees, verification, reconciliation, confirmation, inspection, and analysis of accounts,
and such other procedures considered necessary.

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Financial Highlights

The financial condition and results of operation of the LGU as at December 31, 2019 with
comparative figures for 2018 are summarized as follows:

(in thousand of pesos)

Accounts 2019 2018 Increase/
Decrease
Assets P339,613 P317,430 P22,183
Liabilities 157,629 149,160 8,469
Equity 181,984 168,271 13,713
Revenue 168,767 189,153 (20,386)
Personnel Services 83,714 69,889 13,825
Maintenance and Other
Operating Expense (MOOE) 67,873 83,080 (15,2070
Financial Expenses 1,864 2,229 (365)
Net Surplus/ (deficit) 15,316 33,955 (18,639)

Independent Auditor’s Report on the Financial Statements

We rendered a qualified opinion on the fairness of the presentation of the FS for the year
then ended, taking exception to the effects of the following:

 Three bank accounts totaling P3.870 million which do not have specific account
number, not substantiated with actual bank records and considered as dormant
accounts were reclassified to the Other Receivables and Due from Officers and
Employees without basis for reclassification and was not shown whether from whom
the amounts be accounted as receivable.
 Cash advances to officers and employees was not adequately controlled resulting in
the accumulation of outstanding cash advance balances totaling P1.457 million,
contrary to the provisions of Section 89 of Presidential Decree (PD) No. 1445 and
which may affect the timing recognition of the expense.
 Completeness, Existence, Rights and Obligations assertions of the reciprocal
accounts Due from Other Funds and Due to Other Funds are doubtful due to
discrepancies of P0.998 million.
 Due to Pag-IBIG and Due to GOCCs accounts showed negative balances of
P229,100.26 and P3,905.00, respectively which is contrary to the International Public
Sector Accounting Standards (IPSAS) Chart of Accounts as Assets and Liabilities
should normally have a debit and credit balance, respectively, thereby affecting the
fair presentation of the accounts in the financial statements.

Significant audit observations and recommendations

In addition to the above-noted deficiencies, below are some of the significant audit
observations and recommendations noted in the course of the audit:

1. Application of fourth tranche of compensation adjustment for officials and

employees was not in accordance with Section 10(i) of Executive Order (EO) No.
201 and Item 5.1 of Department of Budget and Management (DBM) Local Budget
Circular (LBC) No. 118 due to adoption of inaccurate LGU level and income
classification (2nd class was used instead of 3rd class) resulting to incurrence
of excessive amount of Salaries and Wages, LGUs share to GSIS premium, LGUs

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 share to PhilHealth premium, Employees Compensation Insurance and Terminal
Leave Pay totaling P5.597 million, P0.672 million, P76,959.96, P55,970.88, and
P338,441.61 respectively.

We recommended that Management:

a) Make a representation with the DOF thru the BLGF-RO IX regarding the details of
the required incomplete income data submitted previously and submit the same for
the approval of the level and income reclassification of LGU-Bayog from 3rd class to
2nd class municipality.

b) If no details as to required income data, inquire with the DOF thru the BLGF-RO IX
about the process and documentary requirements for level and income
reclassification and prepare a new request for the reclassification of LGU-Bayog
from 3rd class to 2nd class municipality and ensure completeness of the required
documentary requirements.

c) Pending approval of the reclassification from 3rd class to 2nd class municipality,
adjust monthly salary rates of officials and employees based on 3rd class level and
income reclassification of LGU-Bayog as provided in Annex “A-5” of DBM-LBC No.
118 and correspondingly adjust LGUs share of GSIS contribution, PhilHealth
contribution and Employees Compensation Insurance.

2. Goods totaling P5.193 million and infrastructure project totaling P11.731 million
were not covered with warranty security in violation of the amended Sections
62.1 and 62.2 of the 2016 Revised IRR of R.A. No. 9184, and Sections 9.1.1.4 and
9.1.3.1 of COA Circular No. 2012-001 dated June 14, 2012, thus the Municipality
is not guaranteed of indemnification in case of manufacturing defects and
structural defects.

We recommended that Management thru the Municipal Engineer and Municipal

Accountant make representation with the concerned suppliers and contractors to post
warranty securities for the purchase of goods and equipment and infrastructure projects
that had already been fully paid. Henceforth, strictly observe the mandatory posting of
warranty security to guarantee that the contractor shall perform his responsibilities as
prescribed in Section 62.1 and 62.2.3.1 of IRR of R.A. 9184 and Section 9.1.1.4 and
9.1.3.1 of COA Circular 2012-001 dated June 14, 2012.

Further for management to verify the authenticity of the Warranty Bond/Surety Bond
before releasing the retention fee to the contractor.

3. Notice of Award, Notice to Proceed and Approved Contract for procurement of

medicines, gasoline, fuel, computer, etc. totaling P21.161 million were not posted
in the PhilGEPS website in violation of Section 37.1.6, and 37.4.2 of 2016 Revised
IRR of RA No. 9184, thus defeating the principle of transparency in the
procurement process.

We recommended the following:

a. Require the BAC to observe the provisions of 2016 Revised IRR of R.A. No. 9184
in the posting of Notice of Award, Notice to Proceed and the approved contract in
the PhilGEPS website. Moreover, require the BAC Secretariat to issue certification
on the posting of the aforementioned documents in any conspicuous places in the
premises of the Procuring Entity;

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 b. Require the Municipal Accountant to refrain from processing payment to contractor
without the required posting by the BAC of the notice of award, notice to proceed
and approved contract in the PhilGEPS website and certification from the BAC on
the posting of the aforementioned documents in any conspicuous places in the
premises of the Procuring Entity; and

c. Submit evidence of posting of Notice of Award and Notice to Proceed in the

PhilGEPS website of the said procurements.

4. Fund transfer amounting to P0.962 million representing counterparts for the

implementation of projects/programs lack supporting documents contrary to
COA Circular No. 2012-001 dated June 14, 2012, thus, posing a risk that funds
transferred may not be utilized for its intended purpose.

We recommended that management ensure that fund transfers to implementing agency

are supported with complete documentation pursuant to COA Circular 2012-001 dated
June 14, 2012.

5. Current and Continuing Appropriations for the 20% Economic Development Fund
(EDF) of the Internal Revenue Allotment (IRA) were not fully utilized as required
under Item 5.0 of DILG and DBM Joint Memorandum Circular (JMC) No. 2017-1
due to over-appropriation and non-implementation of some programs, projects
and activities resulting to unutilized amount of P0.842 million.

We recommended the following:

a) The Local Chief Executive ensures the full utilization of the 20% EDF in compliance
with the responsibilities provided for in paragraph 5.0 of DILG and DBM JMC No.
2017-1 to achieve desirable socio-economic development and environmental
outcomes.
b) MPDC as head of the secretariat of the MDC ensures that the identified PPAs are
properly selected, planned and evaluated.
c) MDC requests the technical assistance of the Municipal Engineer in the preparation
of the estimated cost for each PPAs identified to avoid over-appropriation.
d) Members of the MDC coordinate, monitor and evaluate the implementation of
development programs and projects to ensure implementation of PPAs as required
in Section 109 of RA 7160.
e) Consider the reprogramming of the balances of all implemented PAPs into new
PAPs.

6. Appropriation for Personal Services (PS) for the CY 2019 exceeded the 45%
limitation for Personal Services in the total amount of P3.622 million which runs-
counter to Section 325 (a) of R.A. 7160 resulting to incurrence of forgone benefits
due to the municipal constituents through additional allocation for development
projects.

We recommended that Management ensure compliance with the budgetary PS

limitations as provided for under Sec. 325(a) of R.A. 7160:

a) Refrain from providing appropriation for unfilled positions (except for those unfilled
positions that require appropriation by law).
b) Use the accurate level and income classification of the Municipality in the
implementation of compensation adjustment.
c) Refrain from granting Year End Bonus and Cash Gift if will result to excess PS over
the limitation.

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 d) Institute a strong internal control over the preparation, enactment and approval of
the PS expenditures in the annual budget and supplemental budget to ensure that
the Municipality has a balance budget and that funds are allocated to the delivery
of basic services and development projects.

7. Projects/ Programs/ Activities (PPA) timelines were not closely observed

resulting in the delay on the completion of 16 projects totaling P24.276 million,
thus depriving the intended beneficiaries of their benefits and usage.

We recommended that management:

a) Demand from the contractor the immediate completion of the construction of the four
projects.
b) Refrain from approving extension of project completion without concrete valid
reason.
c) Direct the MEO to take overall considerations that will be needed in making plans
for the projects.
d) Require the contractor to pay liquidated damages. If the contractor has not been paid
the remaining contract price, deduct the liquidated damages from such amount.

8. Three Local Economic Enterprises (LEEs) operated at a loss during CY 2019

which are subject for review and assessment whether to continue its operations
as provided by Local Budget Circular (LBC) No. 111 to prevent incurrence of any
further losses in the ensuing years.

We recommended that the MEEO conduct review and assessment for each losing LEE
to determine which must continue to operate and which must allow exit strategies like
divestment, service shedding, and closure to maximize the earnings potential of the
municipality as well as limiting the costs such as personnel services while maintaining
the effective performance of the LEEs during operations. Moreover, management
ensure that net income is generated for each LEEs before allowing any transfer of
surplus to the General Fund-Proper.

Summary of total suspensions, disallowances and charges as of year-end

The reported audit suspensions, disallowances and charges of the LGU as at December
31, 2019 were as follows:

Beginning Ending
Balance Additions Settlement Balance
Particulars as of January January 1 - December as of
1, 2019 31, 2019 December 31, 2019
Suspensions P1,474,531.04 P0 P0 P1,474,531.04
Disallowances 10,455.22 0 0 10,455.22
Charges 0 0 0 0

Status of prior years’ audit recommendations

Of the 66 audit recommendations in the prior year's Annual Audit Reports (AARs), 37 were
fully implemented, and 29 were not implemented.