Republic of the Philippines COMMISSION ON AUDIT Regional Office No. TV-A Capitol Building, Lucena City June 20,2018 Honorable Jose Stevenson M. Sangalang Municipal Mayor General Luna, Quezon Dear Mayor Sangalang: We are pleased to transmit the report on the results of the audit on the accounts and operations of the Municipality of General Luna, Quezon for the Calendar Year (CY) ended December 31, 2017, pursuant to Section 43 of Presidential Decree (PD) No. 1445, otherwise known as the Government Auditing Code of the Philippines. and in line with the Commission's effort towards informing Management on how fiscal responsibility has been discharged. ‘Our audit was conducted in accordance with Philippine Public Sector Standards on Auditing, and we believe that it provided reasonable bases, for the results of the audit. The audit report, which was prepared by Ms. Vivian N. Cavida, Audit Team Leader, and assisted by Ms. Marita M. Jalbuena and Mr. Aniceto P, Bautista, both Audit Team Members under the supervision of the undersigned, consists of the Independent Auditor's Report, the Audited Financial Statements, the Observations and Recommendations, the Status of Implementation of Prior Year's Audit Recommendations and the Annexes. We rendered a qualified opinion on the fairness of the presentation of the financial statements of the Municipality of General Luna, Quezon, in view of the exceptions noted in audit as stated in the Independents Auditor's Report in Part I of this report. ‘The significant observations and recommendations that need immediate action among, others, are as follows: 1. Theexistence and valuation of the Property. Plant and Equipment (PPE) accounts with a net book value totaling 230,556,626.13 could not be ascertained due to the failure of the Inventory Committee to complete the physical inventory during the year as well as to prepare and maintain property cards and subsidiary ledgers for each category of PPE, contrary to Sections 124, 114 and 119 of the Manual on the New Government ‘Accounting System (MNGAS) for Local Government Unit (1.GU), Volume 1,v We reiterated our recommendation that the Municipal Mayor require the: ‘+ Inventory committee to complete the physical count of PPE of the Municipality and submit the RPCPPE to the Audit Team for validation pursuant to Section 124 of the MNGAS for LGU; ‘* Municipal Treasurer to prepare and maintain complete and updated Property, Plant and Equipment Ledger Cards and Property Cards, and reconcile their records regularly with the Accounting Office. + Municipal Treasurer and the Municipal Accountant to reconcile their records regularly. . Five parcels of land recorded in the books at P3,091,310.00 remain untitled in the name of the Municipality, contrary to Section 148 of Commission on Audit (COA) Circular No. 92-386. thus exposes the subject lots to third party claims. We reiterated our recommendation that the Municipal Mayor instruct the Municipal Assessor to facilitate the titling of the five parcels of land in compliance with Section 148 of COA Circular No. 92-386. . Failure of the Municipal Treasurer's Office to exercise fully the statutory remedies as provided under Sections 247, 256, 258 and 260 of Republic Act (R.A.) No. 7160 to enforce collection of delinquent accounts resulted in the accumulation of real property tax delinquencies to P19,573,940.92 as of December 31, 2017, thus the Municipality stands to lose potential revenues which could have been utilized for its development programs and projects. We reiterated our recommendation that the Municipal Mayor require the Munieipal ‘Treasurer to exert extra effort and adopt the remedies to enforce collection of delinquent real property taxes in accordance with RA No. 7160. |. Cash advances granted to Municipal Officers and Employees totaling P94,439.98 recorded under the Advances to Officers and Employees account of P37.940.00 and Advances to Payroll account of P56,499.98 remain unliquidated at year-end, contrary to COA Circular No, 97-002 dated February 10, 1997, resulted to overstatement of the respective assei accounts and understatement of related expenses equivalent to the amount of unreported disbursements. We recommended that the Municipal Mayor instruct the Municipal Accountant to: ‘© ensure the proper granting, utilization and liquidetion of all cash advances within the prescribed period in accordance with the above-cited rules and regulation; and * send written notice or demand to the Accountable Officers to immediately settle their cash advances, otherwise, implement the withholding of their salary to be applied to their accounts5. The aon-reconding in the books of the Municipality of the donated ambulance from ‘the Pillippine Charity Sweepstakes Office (PCSO) is a violation of Section 63 of Presidential Decree (P-D.) No. 1445, thus resulted to understatement of the Property, Plant and Equipinent (PPE) account at year-end. Moreover, the donated ambulance was not provided with depreciation, contrary to Pemgraphs 43,44, 66, 69 ond 71 of the Philippine Puiblic Sector Accounting Standarés (PPSAS) 17, resulting in, the ‘understaicment of the related expense account and overstatement of the equity and asset accounts. We recommended that the Municipal Mayos instruct the Municipal Accountant to: © take-up in the books ofthe Municipality the donated ambulance for fair presemation of PPE account in the financial statements. © compute, secord and present the sccumulated depreciation in the finencial sietements Dursuani t Paragraphs 43, 66, 69 and 71 of PPSAS 17 for proper valuation. ‘The other audit observations. ‘ogether with the recommended courses of action which were discussed by the Audit Team with the concemed Municipal officials and suff during the ‘exit conférence conducted on June 19, 2017 are discussed in detail in Part Il of the report. We respectfully sequest that the recommendations contained in Past I of the report be implemented and that this Commission be informed of the actions tken thereon by eccomplishing the Agency Action Pian and Status of Implementation (copy attached) and retuming the samte within 60 days fom the date of receipt hereof. We acknowledge the support end cooperation that you and your staff extended to the Audit ‘Team, thus facilitating the submission of thie report. Very muly yours, COMMISSION ON AUDIT(Cony Furnished ‘Te Regional Director Department of te Interior and Loes! Governmest, Region 1V-A “The Regional Pieetor ‘Department of Budget and Management, Region IVA “Te Regional Drestor ‘Burew of Local Goverment Finarce, Region IV-A ‘The Regional Director CCammision on Aut Region V-A ‘The Seortary Sangguniang Bayan, General Luna, Quezon(q) paxejaq (9) 10 d) paruonuayduuy Aijered (p) (IN) pawauajduy on (9) (O) FmeFug (q) ({.) pawaurajduyy Ayng (0) 9q soy Kew voMUDWo|du Jo sMeIS :710N ard 4A91 YQ Kousy Jo uoNIsog pur aE, ayqoydde oy | wor 3 - 4 aiqysuodso uy SMA fu | PREEUOKT | oommaman | wocrwosng | vomny | seoNRpUUUDDY | suORAREEO | i : : : " a wonoy Repaying | OSS pire, upay upny Joy uoseaY, ub] uonoy Aousy psy LOZ ADA A TepUDTED aIp 304 suonupudULUCoD Y PUe SUOAEALDSGQ }IPnY NOLLV.LNAWA TANI dO SALLV.LS PUC NV Td NOLLOV ADNAOV (Kouady Jo auen)EXECUTIVE SUMMARY Introduction The Municipality of General Luna, formerly a sitio of Macalelon, Quezon was created into a municipality on November 1, 1929 under Executive Order No. 207. It is located along the coast of Tayabas Bay in the southwestem portion of Quezon Province and is one of the 12 municipalities covered by Bondoc Peninsula with a total land area of 10,215,5857 hectares subdivided into 27 barangays. It is currently classified as a 4" class municipality with farming and fishing as the two major economic activities and is considered one of the food bowls of the Province due to its abundant supply of farm and fishery products. Its most featured celebration is the Centurion Festival held during the Lenten Season which has been a tourist attraction. I maintains General, Special Education and Trust Fund books. ‘The Organizational Structure of the Municipality is as follows: Key Officials ‘Municipal Mayor = Jose Stevenson M. Sangalang Municipal Vice Mayor ~ Jevito P. Red Members of the Sangguniang Bayan 1. Melaica M. Batariano 2, Kristine Chemobyl V. Florida 3. Rolando P, Atienza 4, Manvel G. Suarez 5. Jose Stenlee M. Sangalang 6. Remegio R. Agoncillo 7. Tomas P.Odiame 8, Miguel R. Salvo 9, William Pelotos Municipal Accountant = Madonna A. Suarez Municipal Treasurer ~ Monaliza L. Plata r TL was complemented with a total workforce of 143 personnel in Calendar Year (CY) 2017, with the following details: Elected -u Permanent = 70 Coterminous - 2 Job Order = Total Bis.Financial Highlights For CY 2017, the Municipality generated a total income of P84,937,843 from tex revenue, service and business income, share from Internal Revenue Collections and other income, The total funds utilized for the year amounted to 277,517,658 out of the total appropriations of 99,193,083 leaving an unexpended balance of P21,675,42S. The unutilized Capital Outlay appropriation amounting to P8,782,025 will be continued in CY 2018, The Municipality's comparative financial position and results of operations for CYs 2016 and 2017 are summarized below and shown in detail in the attached audited financial statements. Increase/ 2017 2016 Decrease Total Assets P 100,127,643 PR 96,045,038 P 4,082,605 Total Liabilities 46496875 48,244,142 (1,747,267) Total Net Assets/Equity ‘53,630,768 47,800,896 5,829,872 Total Income 84,937,843 75,550,266 9,387,577 Total Expenses 79815637 60,795,588 19,020,039 Scope of Audit Financial and compliance audit was conducted on the accounts and operations of the Municipality for CY 2017 to ascertain the fairness of the presentation of the financial statements and compliance of the Municipality with laws, rules and regulations as well as the economical, efficient and effective utilization of resources. Auditor’s Opinion on the Financial Statements The Auditor rendered a qualified opinion on the faimess of the presentation of the financial statements of the Municipality due to the following: 1, The existence and valuation of the Property, Plant and Equipment (PPE) accounts With @ net book value totaling B30,556,626.13 could not be ascertained due to the failure of the Inventory Committee to complete the physical inventory during the year as well as to prepare and maintain property cards and subsidiary ledgers for each category of PPE. » Cash advances granted to Municipal Officers and Employees totaling P94,439.98 recorded under the Advances to Officers and Employees account of 37,940.00 and Advances to Payroll account of P56,499,98 remain unliquidated at year-end, resulted to overstatement of the respective asset accounts and understatement of related expenses equivalent to the amount of unreported disbursements,3, The non-recording in the books of the Municipality of the donated ambulance from the Philippine Charity Sweepstakes Office (PCSO) resulted to understatement of the Property, Plant and Equipment (PPE) account at year-end. Moreover, the donated ambulance was not provided with depreciation, resulting in the understatement of the related expense account and overstatement of the equity and asset accounts For the exceptions cited above, the Auditor recommended the Municipal Mayor the following courses of action: * create Inventory committee to complete the physical count of PPE of the Municipality and submit the RPCPPE to the Audit Team for validation pursuant to Section 124 of the MNGAS for LGU; + require the Municipal Treasurer to prepare and maintain complete and updated Property, Plant and Equipment Ledger Cards (PPELC) and Property Cards, and reconcile their records regularly with the Accounting Office; and ‘* instruct the Municipal Treasurer and the Municipal Accountant to reconcile their records regularly. ‘* instruct the Municipal Accountant to ensure the proper granting. utilization and liquidation of all cash advances within the prescribed period in accordance with the above-cited rules and regulation; and © instruct the Municipal Accountant to send written notice or demand to the Accountable Officers to immediately settle their cash advances, otherwise, implement the withholding of their salary to be applied to their accounts * instruct the Municipal Accountant to take up in the books of the Municipality the donated ambulance for fair presentation of PPE account in the financial statements; and * instruct the Municipal Accountant to compute, record and present the accumulated depreciation in the financial statements pursuant to Paragraphs 43, 66, 69 and 71 of PPSAS 17 for proper valuation. Significant Observations and Recommendations ‘The following are the other significant audit observations and recommendations in the audit of the Municipality for CY 2017; 1. Five parcels of land recorded in the books at P3,091,310.00 remain untitled in the name of the Municipality, thus exposes the subject lots to third party claims.v We reiterate our recommendation that the Municipal Mayor instruct the Municipal Assessor to facilitate the titling of the five parcels of land in compliance with Section 148 of Commission on Audit (COA) Circular No, 92-386. Failure of the Municipal Treasurer's Office to exercise fully the statutory remedies 10 enforce collection of delinquent accounts resulted in the accumulation of real property tax delinquencies to P19,573,940.92 taxes as of December 31, 2017, thus the Municipality stands to lose potential revenues which could have been utilized for its development programs and projects. ‘We reiterated our recommendation that the Municipal Mayor require the Municipal Treasurer to exert extra effort and adopt the remedies to enforce collection of delinquent real property taxes in accordance with R.A, No, 7160, Fully depreciated and unserviceable properties totaling P183,734,50 were not disposed of due to failure of the designated Property Custodian to prepare the Inventory and inspection Report of Unserviceable Property (TIRUP) as required under Section 79 of Presidential Decree (P.D.) 1445 and Section 125 of the MNGAS for LGU, thereby depriving the Municipality of the possible additional income that cen be derived therefrom. We reiterated our recommendation that the Municipal Mayor instruct the Municipal ‘Treasurer to: * conduct the physical inventory of the unserviceable properties of the Municipality; ‘© prepare and submit the ITRUP as part of the disposal procedures; and + dispose the unserviceable properties in accordance with the steps and procedures ‘enumerated under Section 79 of P.D. No. 1445 to generate additional income out of the proceeds from sale thereof Guaranty/Security Deposits totalingP212,414,84which have been outstanding for two ‘years or more, were still not reverted to the Uneppropriated Surplus of the General Fund, contrary to Section 98 of Presidential Decree (P.D,) No. 1445, thus existence and correctness of the balance of the account cannot be relied upon, We recommended that the Municipal Mayor instruct the Municipal Accountant to confirm with the contractor and to request him to submit documents pertaining to his claims, revert the account to the Unappropriated Surplus of the General Fund, subject to an authority from the Sangguniang Bayan through a Resolution with the condition that appropriation shall be made in the event that claim arises in the future pursuant to the provisions of Section 98 of P.D, No. 1445.. The Municipality failed to revert back to the unappropriated surplus of the General Fund the unexpended balance of Local Disaster Risk Reduction Management (LDRRM) Fund after 5 years amounting to P916,106.93, contrary to Section 21 of Republic Act (R.A.) No. 10121, hence depriving the Municipality of funds which could be used for other social services. Moreover, the Report on Sources and Utilization of DRRMF for various months of CY 2017 were not prepared by the Municipal Accountant and submitted by the LDRRM Officer to the COA Auditor, contrary to Section 5.1.5 of Commission on Audit (COA) Circular No. 2012-002, hhence monthly monitoring and evaluation on the utilization of DRRM fund for various projects and activities could not be made, We recommended that the Municipal Mayor require the: © Municipal Accountant to revert back to the General Fund the unexpended balance of LDRRM Fund for CYs 2011-2012 totalingP916,106.93 and to prepare the Report on Sources and Utilization of DRRMF using the prescribed format as provided in Section 5.1.5 of COA Circular No, 2012-002; and * LDRRMO to submit the monthly Report on Sources and Utilization of DRRMF to the COA Auditor for monitoring and evaluation. |. Immediate and full settlement of the short-term loans (micro-financing benefits) and the disallowed Representation Allawance and Transportation Allowance (RATA) in 2006-2007 with balances of P22,524.70 and P4,861.00, respectively, were not fully settled at year-end, contrary to Section 2 of P.D. No. 1445 and Section 7.1 of the 2009 Rules and Regulations on the Settlement of Accounts (RRSA). We recommended that the Municipal Mayor instruct the: Municipal Accountant to take up in the books under the Other Receivables account the balance of P22,524.70 which pertains to the unsettled balance of short-term loans for fair presentation of PPE account in the financial statements; * MT to pursue the immediate refund of the total amount of 222,524.70, otherwise deduct it from the salary or from whatever money due the concemed Municipal officials/employees; and © MT to refund the overpayment made by borrowers/employees as presented in ‘Annex 8 and adopt measures to properly monitor balances of the account. . ‘The Water Supply System of the Municipality of 211,230,972.11 was erroneously recorded under Other Property, Plant and Equipment (PPE) sccount, contrary to COA Circular No. 2015-009, resulting in the overstatement of the said account and understatement of Water Supply System account by the same amount.We recommended thet the Municipal Mayor require the Municipal Accountant to take up the necessary accounting entries to adjust the account to ensure fair presentation of the affected accounts in the financial statements. The above observations and recommendations contained in the report were communicated to the Municipal Mayor and other key officials under various Audit Observation Memoranda and discussed in the exit conference conducted on June 19, 2017. Management’s views and comments were considered in the report, where appropriate. Status of Implementation of Prior Year’s Audit Recommendations Of the 19 prior year's audit recommendations embodied in the 2016 Annual Audit Report, eight were fully implemented, four were partially implemented and seven ‘were not implemented by the Municipality,TABLE OF CONTENTS PART SUBJECT PAGE 1 Audited Financial Statements ‘© Independent Auditor's Report 1 ‘® Statement of Management's Responsibility for Financial Statements 4 © Comparative Statement of Financial Position 5 * Comparative Statement of Financial Performance 6 © Comparative Statement of Changes in Net Assets/Equity 7 Comparative Statement of Cash Flows 8 © Statement of Comparison of Budget and Actual Amounts 9 * Notes to Financial Statements 10 11 Detailed Observations and Recommendations A. Financial and Compliance Audit 44 B. Unsettled Suspensions, Disallowances and Charges 59 C. Compliance with Tax Laws 539 D. Compliance with GSIS Rules and Regulations 39 E. Official Development Assistance 60 Til Status of Implementation of Prior Year's Audit Recommendations 61 IV Annexes Statement of Financial Position (By Fund) Statement of Financial Performance (By Fund) Statement of Changes in Net Assets/Equity (By Fund) Statement of Cash Flows (By Fund) Schedule of RPT Delinquencies Schedule of Fully Depreciated and Unserviceable Properties. Schedule of Guaranty/Security Deposits Schedule of Other Receivables enaRepublic of the Philippines COMMISSION ON AUDIT Commonwealth Avenue, Quezon City INDEPENDENT AUDITOR'S REPORT Hon. Jose Stevenson M. Sangalang Municipal Mayor General Luna, Quezon We have audited the accompanying combined financial statements of the Municipality of General Luna, Province of Quezon which comprise the Statement of Financial Position as of December 31, 2017 and the Statements of Financial Performance, Changes in Net Assets/Equity, Comparison of Budget and Actual Amounts and Cash Flows for the year then ended and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the Philippine Public Sector Accounting Standards (PPSAS) and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Philippine Public Sector Standards on Auditing Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from materiel misstatement, An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's intemal control. An audit also includes evaluating the sppropriateness of accounting policies used and the reasonableness of accounting estimates made by ‘management, as well as evaluating the overall presentation of the financial statements,We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion, Basis for Qualified Opinion As discussed in Part Il, Observations and Recommendations portion of this report, the following matters were noted: 1. The existence and valuation of the Property, Plant and Equipment (PPE) accounts with a net book value totaling 230,556,626.13 could rot be ascertained due to the failure of the Inventory Committee to complete the physical inventory during the year ‘as well as to prepare and maintain property cards and subsidiary ledgers for each category of PPE. 2 Cash advances granted to Municipal Officers and Employees totaling P94,439.98 recorded under the Advances to Officers and Employees account of P37,940.00 and Advances to Payroll account of P56,499.98 remain unliquidated at year-end. resulted to overstatement of the respective asset accounts and understaiement of related expenses equivalent to the amount of unreported disbursements. The non-recording in the books of the Municipality of the donated ambulance from the Philippine Charity Sweepstakes Office (PCSO), resulted to understatement of the Property, Plant and Equipment (PPE) account at year-end. Moreover, the donated ambulance was not provided with depreciation, resulting in the understatement of the related expense account and overstatement of the equity and asset accounts Qualified Opinion In our opinion, except for the possible effects on the financial statements of the matters described in the Basis for Qualified Opinion paragraph, the combined financial statements present fairly, in all material respects, the financial position of the Municipality of General Luna, Quezon as of December 31, 2017 and its financial performance and its cash flows for the year then ended in accordance with the Philippine Public Sector Accounting Standards, Other Matters 1. Five parcels of land recorded in the books at P3,091,310.00 remain untitled in the name of the Municipality, thus exposes the subject lots to third party claims. 2. Failure of the Municipal Treasurer's Office to exercise fully the statutory remedies to enforce collection of delinquent accounts resulted in the accumulation of real property tax delinquencies to P19,573,940.92 as of December 31. 2017. thus the Municipality stands to lose potential revenues which could have been utilized for its development programs and projee's.COMMISSION ON AUDIT By: PG CAVIDA (OIC) Audit Team Leader June 19, 2018Republic of the Philipines PROVINCE OF QUEZON Municipality of General Luna —v00000— ‘STATEMENT OF MANAGEIIENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS ‘The management of the Municipal Government of General Luna Is responsible for all information and representations contained in the accomparying Statement of Financial Position as of December 32, 2017 and the related Statement of Financial Performance, Statement of Cash Flows, Statement of comparison of Budget and Actual Amounts, Statement of Changes In Net Assets/ Equity and the Notes to Financial ‘Statements forthe year then ended. The financial statements have been prepared in conformity with the Philippine Public Sector Accounting Standards and generally accepted state accounting principles, and ‘reflect amounts that are based on the best estimates and Informed judgment of management with an appropriate consideration to materiality, In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are property austharized sry tes sofeguarded against unauthorized use or disposition and liabilities are ed. A, SUAREZ JOSESTEVENSONGt-SANGALANG luricipal Accountant Date Signed Date SignedMunicipality of General Luna, Quezon STATEMENT OF FINANCIAL POSITION Asat December 31, 2017 (With Comparative Figures for CY 2016) Note 2017 2016 ASSETS Current Assets Cash and Cash Equivalents 4 RB $1555,774,78 P 44,087247.96 Receivables 5 17,130,371,76 24,468,612.2: Inventories 6 - 1,491,353.29 Prepayments and Deferred Charges 7 138,244.27 Total Current Assets (68,824,390,81 Non- Current Assets Property, Plant and Equipment 8 31,303,252.61 28.71 Total Non-Current Assets 31,303,252.61 Total Assets 100,127,643.42 LIABILITIES Curent Ligbilities Financial Liabilities 9 783,621.65, 1,781,099.44 Inter-Agency Payables 10 17,859,838.16 14,186,735.83 Intra-A gency Payables - 3,959,107.25 ‘Trust Liabilities Nt 10,453,573.20 8,587,831.67 Deferred Credits/Uneamed Income 12 17,035,931.78 19,495,594.11 Total Current Lisbilities 46,132,968.79 48,010,368.30 ‘Non-Curreat Liabilities Other Payables B 363,910.31 233,774.18 Total Non-Curreat Liabilit 363,910.31 ‘Total Liabilities 46,496,875.10 NET ASSETS/EQUITY Government Equity 53,630,768.32 47,800,89639 ‘Total Liabilities and Net Assets/Equity P _100,127.643.42 P _ 96,045,038.87 (See accompanying Notes to Financial Statements)Municipality of General Luna, Quezon STATEMENT OF FINANCIAL PERFORMANCE For the Year Ended December 31, 2017 (With Comparative Figures for CY 2016) Nowe 2017 2016 Revenue Vax Revenue 14 P 24s7S8V.ID B14695,15632 Share fom Internal Revenue Collections 15 78.915,525.00 70,811,111.00 Service and Business Income 16 2,009,684.99 1,910,890,75, ‘Other Income 7 1,555, 1,133,108.40 Total Revenue 84,937.843.15, 75,550,266,47 ‘Less: Current Uperating Expenses Personncl Services 18 3620342193 31,442,243.21 Maintenance and Other Operating Expenses 19 32,160,191.03 21,935,849.45 Financial Expenses 20 496057 7822.50 Non-Cash Expenses 21 2 Current Operating Expenses 35.492,579.41 ‘Surpius rom Current Uperation 1380237270 1¥,097,087.06 Add(Deduct): Transfers, Assistance and Subsidy To 2 (8,680,366.50) __(4,903,008.77) Surplus for the Period P 510220610 P 1475457829 (See accompanying Notes 10 Financial Statements)‘Municipauity oF General Luna, Quezon STATEMENT OF CHANGES IN NET ASSETS/EQUITY For the Year Ended December 31, 2017 (With Comparative Figures for CY 2016) ‘Note 2017 2016 Balance at January 1,2017 PB 47,800,896.39 BP 33,452,910.84 Add (Dedued) Prioe Period Errors a 107,665.83, (386,692.74) Restated Balance 98,508,552.20 35,076218.10 Add Deduet) Changes in Net Assets/Equity During the Year ‘Surplus forthe Period 3.122,206.10 14,754,678.29 Total Recognized Revenue and Expenses forthe Period 14,754,678.29 Balance at December 31, 2017 P 47,800,896.39 (See accompanying Notes to Financial Statements)‘Mantexpaiity of General Luna, (Quezon STATEMENT OF CASH FLOWS For the Year Ended December 31, 2017 (With Comparative Figures for CY 2016) Note 2017 2016 Cash Flows from Operating Activites Cash Inflows Collection from Taxpayers P 2.497,58910 PB _2194,883.41 ‘Share from Internal Revenue Collections 78,915.525.00 7011.11.00 Receipt from Business/Serviee Income 1,936,402.71 183143850 {terest Income 73,202.28 452.25 Other Receipts 32,704,386.42 20,159,583} “Total Cash Inflows 116,087.185.51 Cash Outflows Payments of Expenses 60,711,229.30 21.443.142.00 Peymentsto Suppliers and Creditors 180,835.84 18,336.988.66 Payments to Employees 36,203,421.93 20.453,112.24 Interest Expenies 4,960.57 7.4822:50 Other Expenses 3.776.444.00 {otal Cash Outlows 100.476,391.68 67.202.106.90 Net Cash Flows from Operating Activities 24 15.210.283.87 2787423657 Cash Flows front Investing Activitics Cash Outflow Purchase/Construction of Property, Plant and Equipment [Net Cash Flows from Investing Activities ‘Cash blows trom Hinaneing Activites (Cash Outflow Paymentof Lom Amortization - 348,624.13 Net Cash Flow from Financing Activities (48,624.15) ‘Total Cash Provided by Operating, investing and Financing Activities 7,508,526.82 25,002,407.44 ‘Add: Cash atthe Bexinning ofthe Year 44,087.247.96 19.044.440.52 Cash Balance af the End ofthe Year P _S1S55.7478_ B __44047 287.96 (See accompanying Notes to Financial Statements)‘Municipality of General Luna, Quezon ‘Stetemest of Comparison of Budget and Actual Amounts For the Yeer Ended December 31,2017 iter Dire Original Fal Pancolae Badeted Amount sd Fiat ‘Act ‘ig ant Ogial ial ‘Bader Anca ‘Acta ‘GENERALEUND Rrowe ‘Allow Sours 1. Tax Reverie ‘2 Tax Rewer Property P — sa0000% ® — st04000 =P @azs9s2 a cm2s9s2 1. Otter ton Taxes 23000 0 2592874 _G142874) “Toul Tax Reverie exo Tes soo 616836 1615825) 2 NoniexRevome - 1 Service come 12830000 1.213,00000 = 1sm0570—_aaansv0) bs Pani iceme sto.00000 “sto.0000 = YSeietss — os.taass) Otter lane at Resets 142.5000 _1162.50000 = g2.s1401) Teal NooTax Revenve Sass Tasss0000" ia - (6. Exerml Somes 1 Shar fromthe Nato! tera Revecue Taxes (RA) 7SUSSW _ 7491552500 7851352500, Teal Reveve and Resins REISS ADAG “aos TS 2 apenas (Carzat Appropriations ‘Gavel Fue Services Teron! Sertcee 2spun2027 251220027 = asasnziz0—_agg8to7 Maiseoune wad Other Opwaing yews 23,157994)7 2307893307 CMOSHIO) —«1SSTOAKLT 730863139 Capi Oty ‘m.oon0 — «tn00.10 . pisacoso —313,53920 ath, Nation an Ppt Cont Tenanel Services Ses13 3904515 = sgengas so - Manieunce an Otier Opening epemex 110500000 1,106 00000 : ‘wostto: —-usaise7 Sov Secs ma Snel Ware ersonel Serves, 25020130 25622130 = tro tea ess Materce Oe Opeaing pene 1150000010000, ‘ 10671960, 938000 eonomie Series Fersoael Series A2oq715)9—42okrisAe = kammasaio 126108 Maintence an Oe Opeaing pene VAI00000 181400000, + ‘iss7303 697 LERRME Mantnnce wo Oe Opening pens SIDTIGIS SAMMI wey? 2.4383 Capit Out oio0e0 —.010,00000 : 4229000 '57,71000 20 Developme und Capt Outy 15765,10500 —13,79,1080 = weeangas99—1asgaeiio ‘Abeaton fo Sie Cizensand PWD) = “Mainersoce nl Other Opeaing xpeoms 65.0000 ——620,00000 . eis.44000 asco tes Naisterance af Oiter Opeating opens 42500000 4.48.00 + amuses anus Contig Appropritioes = ‘General Pale Services 1.60, 71940 __1o,601, 71940 weiss _anssisi ‘Tous Apprpriaies SRT “98681830 ETT) LT bass Lama riagr > 7301450 in.11430) 1369893830301 Fesesy 3821561 z, suena __magon 3.15396Notes to Financial Statements (All amounts in Philippine Peso unless otherwise stated) Note 1 - Profile General Luna was formerly a sitio of Macalelon town, It was created into a ‘municipality on November 1, 1929 under Executive Order No. 207. Located along the coast of Tayabas Bay in the southwestem portion of Quezon Province, itis one of the 12 municipalities covered by Bondoc Peninsula with a total lard area of 10,215,5857 hectares subdivided into 27 barangays. It is currently classified as a 4" class municipality with farming and fishing as the two major economic activities, and is considered one of the food bowls of the province due to its abundant supply of farm and fishery products. The most featured celebration here is the Centurion Festival held during the Lenten Season which has been a tourism attraction. For Calendar Year (CY) 2017. it is still headed by Hon, Jose Stevenson M. Sangalang, Municipal Mayor and assisted by Vice Mayor Jovito P. Red. Note 2 - The combined financial statements of the Municipal Government of General Luna have been prepared in accordance with and comply with the Philippine Public Sector Accounting Standards (PPSAS), These are presented in pesos, which is the functional and reporting currency of the Municipality. The accounting policies have been applied starting CY 2015. Note 3 ~Summary of Significant Accounting Policies 3.1 Basis of Accounting ‘The Municipality uses accrual basis of accounting in accordance with PPSAS. 3.2 Consolidation The controlled funds are all those over which the Municipality has the power to govern the financial and operating policies. Inter-group transaction, balances and unrealized gains and losses on transactions between funds are eliminated in full. 3.3 Interest in Joint Venture ‘The Municipality has no interest in a joint venture which is a jointly controlled entity, whereby the venturers have a binding arrangement that establishes joint control over the economic activities of the entity. The Municipality will recognize its interest in the joint venture using the proportionate consolidation method, The Municipality will combine its proportionate share of each of theassets, liabilities, income and expenses of the joint Venture with similar items, line by line, in its consolidated financial statements, The financial statements of the joint venture are prepared for the same reporting period as that of the conirolled entity. Adjustments are to be made where necessary to bring the accounting policies in line with those of the Municipality. The joint venture is proportionately consolidated until the date on which the Municipality ceases to have joint contro! over the joint venture, Upon loss of Joint control, and provided that the former jointly controlled entity does not become a subsidiary or an associate, the Municipality discontinues proportionate consolidation and recognizes its remaining investment at the carrying amount. 3.4 Revenue Recognition Revenue from non-exchange transactions Taxes, Fees and Hines The Municipality recognizes revenue from taxes and fines when the event ‘occurs and the asset recognition criteria are met. To the extent that there is a related condition attached that would give rise to a liability to repey the amount, liability is recognized instead of revenue. Transfers from Other Government Entities Revenues from non-exchange transactions with other goverment entities are measured at fair value and recognized on obtaining control of the asset (cash, goods, services and property) if the transfer is free from conditions and it is probable that the economic benefits or service potential related to the asset will flow to the Municipality and can be measured reliably. The Municipality availed of the S-year transitional provision for the recognition of Tax Revenue-Real Property and Special Education Tax, For the first year, there will be no change in policy for the recognition of the aforementioned tax revenue. Revenue from exchange transactions Rendering of Services ‘The Municipality recognizes revenue trom rendering of services by reference to the stage of completion when the outcome of the transaction can be estimated reliably. The stage of completion is measured by reference to labor hours incurred to date as « percentage of total estimated labor hours. Where thecontract outcome cannot be measured reliably, revenue is recognized only to the extent that the expenses are incurred. Sale of Goods Revenue from the sale of goods is recognized when the significant risks and rewards of ownership have been transferred to the buyer, usually on delivery of the goods and when the amount of revenue can be measured reliably and it is probable that the economic benefits or service potential associated with the transaction will flow to the Municipality. Interest Income Interest income is accrued using the effective yield method. The ettective yield discounts estimated future cash receipts through the expected life of the financial asset to that assets net carrying amount. The method applies this ‘yield to the principal outstanding to determine interest income each period. Dividends Dividends or similar distributions must be recognized when the shareholder's or the Municipality's right to receive payment is established, Rental Income Rental income arising from opersting leeses on investment properties is accounted for on 2 straight-line basis over the lease terms and included in revenue. 3.5 Investment Property Investment properties are measured initially at cost, including transaction costs. ‘The carrying amount includes the replacement cost of components of an existing investment property at the time that cost is incurred if the recognition criteria are met and excludes the costs of day-to-day maintenance of an investment property. Investment property acquired through a non-exchange transaction is measured at its fair value at the date of acquisition. Subsequent to initial recognition, investment properties are measured using the cost model and are depreciated cover a 30-year period. Investment properties are derecognized either when they have been disposed of’ or When the investment property is permanently withdrawn from use and no future economic benefit or service potential is expected from its disposal. Thedifference between the net disposal proceeds and the carrying amount of the asset is recognized in the surplus or deficit in the period of derecognition. Transfers are made to or from investment property only when there is a change in use. 3.6 Property, Plant and Equipment All property, plant and equipment are stated at cost less accumulated depreciation. Cost includes expenditure that is directly attributable to the acquisition of the items. When significant parts of property, plant and equipment are required to be replaced at intervals, the Municipality recognizes such parts as individual assets with specific usefull lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in surplus or deficit as incurred. When an asset is acquired in a non-exchange transaction for nil or nominal consideration the asset is initially measured at its fair value. Depreciation on assets is charged on a straight-line basis over the useful life of the asset. Depreciation is charged at rates calculated to allocate cost or valuation of the asset less any estimated residual value over its remaining useful life. Leased assets may consist of vehicles and machinery. The assets’ residual values and useful lives are reviewed, and adjusted prospectively, it appropriate, at the end of each reporting period. An asset's carrying amount is written down immediately to its recoverable amount, or recoverable service amount, if the asset's carrying amount is greater than its estimated recoverable amount or recoverable service amount. The Municipality derecognizes items of property, plant and equipment and/or any significant part of an asset upon disposal or When no future economic benefits or service potential is expected from its continuing use, Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying, amount of the asset) is included in the surplus or deficit when the asset is derecognized Public Infrastructures were recognized in the books in compliance with ‘Commission on Audit (COA) Circular No. 2015-008 dated November 25, 2015. Public Infrastructures are depreciated for 20 years as their useful life sing straight line method of depreciation.3.7 Leases Municipality as a Lessee Finance leases are leases thal transfer substantially all the risks and benetits incidental to ownership of the leased item to the Municipality. Assets held under finance lease are capitalized at the commencement of the lease at the ‘fair value of the leased property or, if lower, at the present value of the fisture minimum lease payments, The Municipality also recognizes the associated lease liability at the inception of the lease. The liability recognized is measured as the present value of the future minimum lease payments at initial recognition. Subsequent to initial recognition, lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized as finance costs in surplus or deficit. An asset held under a finance lease is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the LGU will obtain ownership of the asset by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Operating leases are leases that do not transfer substantially all the risks and benefits incidental to ownership of the leased item to the Municipality. Operating lease payments are recognized as an operating expense in surplus or deficit on a straight-line basis over the lease term. Municipality as a Lessor Leases in which the Municipality does not transfer substantially all the risks and benefits of ownership of an asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term. Rent received from an operating lease is recognized as income on a straight- line basis over the lease term. Contingent rents are recognized as revenue in the period in which they are eared. 3.8 Intangible Assets Intangible assets acquired separately are initially recognized at cost, The cost of intangible assets acquired in a non-exchange transaction is their fair value at the date of the exchange. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. Internally generated intangible assets, excluding development cost, are not capitalized and expenditure is reflected in surplus ‘or deficit in the pericd in which the expenditure is incured.The useful life of the intangible assets is assessed as cither finite or indefinite. Intangible assets with a finite life are amortized on a straight line method over its useful life. Software is amortized for 10-20 years. Imangible asset with a finite useful life are assessed for impairment whenever there is an indication that the asset may be impaired. The ‘amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as appropriate, and treated as changes in accounting estimates, The amortization expense on an intangible asset with a finite life is recognized in surplus or deficit as the expense category that is consistent with the nature of the intangible asset. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the surplus or deficit when the asset is derecognized. Research and Development Cost Research costs when incurred are treated as expenses by the Municipality. Development costs on an individual project are recognized as intangible assets when the Municipality can demonstrate: a) The technical feasibility of completing the asset so that the asset will be available for use or sale; b) Its intention to complete and its ability to use or sell the asset; ©) How the asset will generate future economic benefits or service potential: 4) The availability of resources to complete the asset; end ) The ability to measure reliably the expenditure during development. Following initial recognition of an asset, the asset is carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete and the asset is available for use. It is amortized over the period of expected future benefit. During the period of development, the asset is tested for impairment annually with any impairment losses recognized immediately in surplus or deficit.3.9 Impairment of Non-Financial Assets Impairment of Cash-Generating Assets At each reporting date, the Municipality assesses whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Municipality estimates the asset's recoverable amount. An assets’ recoverable amount is the higher of an asset’s or cash-generating unit's fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or the cash-generating unit (CGU) exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available, If no such transactions can be identified, an appropriate valuation model is used. Impairment losses of continuing operations, including impairment on inventories, are recognized in the statement of financial performance in those expense categories consistent with the nature of the impaired asset, For assets, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Municipality estimates the asset’s or cash-generating unit's recoverable amount. A previously recognized impairment loss is reversed only if there has been @ change in the assumptions used to determine the asset’s recoverable amount, since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the camying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in surplus or deficit. Impairment of Non-Cash-Generating Assets ‘The Municipality assesses at each reporting date whether there is an indication that a non-cash-generating asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Municipality estimates the asset's recoverable service amount, An asset'srecoverable service amount is the higher of the non-cash generating asset's fair value less costs to sell and its value in use. Where the carrying amount of an asset exceeds its recoverable service amount, the asset ts considered impaired and is written down to its recoverable service amount. In assessing value in use, the Municipality has adopted the depreciation replacement cost approach. Under this approach, the present value of the remaining service potential of an asset is determined as the depreciated replacement cost of the asset. The depreciated replacement cost is measured as the reproduction or replacement cost of the asset, Whichever is lower, less accumulated depreciation calculated on the basis of such cost, to reflect the already consumed or expired service potential of the asset. In determining fair Value less costs to sell, the price of the asseis in a binding agreement in an am's length transaction, adjusted for incremental costs that would be directly attributed to the disposal of the asset is used. If there is no binding agreement, but the asset is traded on an active market, fair value less cost t0 sell is the asset's market price less cost of disposal. If there is no binding sale agreement or active market for an asset, the Municipality determines fair ‘value less cost to sell based on the best available information. For each asset, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, management estimates the asset's recoverable service amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable service amount since the last impairment loss was recognized, The reversal is limited so that the carrying amount of the asset does not exceed its recoverable service amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years, Such reversal is recognized in surplus or deficit, 3.10 Financial Instruments Financial Assets Initial Recognition and Measurement Financial assets are classified as financial assets at fair value through surplus or deficit, loans and receivables, held-to-maturity investments or available- for-sale financial assets, as appropriate, The Municipality determines the classification of its financial assets at initial recognition.Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, the date that the Municipality commits to purchase or sell the asset. ‘The Municipality's financial assets include: cash and short-term deposits; trade and other receivables; loans and other receivables and quoted and lunquoted financial instruments. Subsequent Measurement ‘The subsequent measurement of financial assets depends on their classification, Financial Assets at Fair Value through Surplus or Deficit Financial assets at fair value through surplus or deficit include financial assets held for trading and financial assets designated upon initial recognition at fair value through surplus and deficit. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term, Financial assets at fair value through surplus or deficits are carried in the statement of financial position at fair value with changes in fair value recognized in surplus or deficit. Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Losses arising from impairment are recognized in the surplus or deficit. Heldcto-Maturity Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity when the Municipality has the positive intention and ability to hold it to maturity. After initial measurement, held-to-maturity investments are measured at amortized cost using the effective interest method, less impairment, Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate, The losses arising from impairment are recognized in surplus or deficitDerecognition ‘The Municipality derccognizes a financial asset or, where applicable, a part of financial asset or part or group of similar financial assets when: 48) The rights to receive cash flows from the asset have expired or is waived; b) The Municipality has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party; and either: (a) the Municipality has transferred substantially all the risks and rewards of the asset; or (b) the Municipality has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred. control of the asset, Impairment of Financiat Assets The Municipality assesses at each reporting date whether there is objective evidence that 2 financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, there is objective evidence of impairment as a result of one or more events that has occurred atter the initial recognition of the asset (an incurred “loss event") and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated, ‘Evidence of impairment may include the following indicators: a) The debtors or a group of debtors are experiencing significant financial difficulty: ’) Default or delinquency in interest or principal payments; ©) The probability that debtors will enter bankruptcy or other financial reorganization; and d) Observable data indicates a measurable decrease in estimated future cash flows (e.g. changes in arrears or economic conditions that correlate with defaults) Financial Assels Carried at Amortized Cost For financial assets carried at amortized cost, the Municipality first assesses whether objective evidence of impairment exists individually for financial ‘assets that are individually significant, or collectively for financial assets that are not individually significant. If the Municipality determines that noobjective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment, Assets that are individually assessed for impairment end for Which an impairment loss is, or continued to be, recognized are not included in a collective assessment of impairment. If there is an objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset's original effective interest rete, [fa loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate, ‘The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in surplus or deficit. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account, If a future write-off is later recovered, the recovery is credited to finance costs in surplus or deficit. Financial Liabilities Initial Recognition and Measurement Financial liabilities within the scope of IPSAS 29 are classified as financial liabilities at fair value through surplus or deficit or loans and borrowings. as appropriate. The Municipality determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings, plus directly attributable transaction costs, ‘The Municipality's financial liabilities include trade and other payables. Subsequent Measurement ‘The measurement of financial liabilities depends on their classification,Financial Liabilities at Fair Value through Surplus or Deficit Financial liabilities at fair value through surplus or deficit include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through surplus or deficit. Loans and Borrowings After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using effective imerest method, Gains and losses are recognized in surplus or deficit when the liabilities are derecognized as well as through the effective interest method amortization process. Amortized cost is calculated by taking into account any discount or premium ‘on acquisition and fees or costs that are an integral part of the effective interest rate. Derecognition A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. ‘When an existing financial liability is replaced by another from the same lender on substantially diferent terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. Offsetting of Financial Instruments Financial assets and financial lisbilities are offset and the net amount reported in the consolidated statement of financial position if, there is a currently enforceable Jegal right to offset the recognized amount and there is ‘an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. Fair Value of Financial Instruments ‘The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs,3.11 Cash and Cash Equivalents Cash and cash equivalents comprise cash on hand and cash in bank, deposits on call and highly liquid investments with an original maturity of three months or less, which are readily convertible to known amounts of cash and are subject to insignificant risk of changes in value. For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short-term deposits as defined above, net of outstanding bank overdrafts, 3.12 Inventories Inventory is measured at cost upon initial recognition. To the extent that inventory was received through non-exchange transactions (for no cost or for a nominal cost), the cost is its fair value at the date of acquisition, Costs incurred in bringing each product to its present location and conditions are accounted for, as follows: a) Raw materials: purchase cost using the weighted average cost method; b) Finished goods and work in progress: cost of direct materials and labor and a proportion of manufacturing overheads based on the normal operating capacity, but excluding borrowing costs, After initial recognition, inventory is measured at the lower of cost and net realizable value. However, to the extent that a class of inventory is distributed or deployed at no charge or for a nominal charge, that class of inventory is measured at the lower of cost and current replacement cost. Net realizable value is the estimated selling price in the ordinary course of operations, less the estimated costs of completion and the estimated costs necessary to make the sale, exchange, or distribution, Inventories are recognized as an expense when deployed for utilization or consumption in the ordinary course of operations of the Municipality. 3.13 Provisions Provisions are recognized when the Municipality has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic henefits or service potential will be required to settle the obligation and a reliable estimate can be made on the amount of the obligation.Where the Municipality expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognized as ‘a separate asset only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of financial performance net of any reimbursement. Kehabilitation Liability Rehabilitation costs are provided at the present value of expected casts 10 seitle the obligation using estimated cash flows and are recognized as part of the cost of that particular asset. The cash flows are discounted at a current rate that reflects the risks specific to the rehabilitation liability. The unwinding of the discount is expensed as incurred and recognized in the ‘statement of financial performance as a finance cost. The estimated future costs of decommissioning are reviewed annually and adjusted as appropriate. Changes in the estimated future costs or in the discount rate applied are added to or deducted from the cost of the asset. Contingeni Liabilities The Municipality does not recognize a contingent liability, but discloses details of any contingencies in the notes to the tinancial statements, unless the possibility of an outflow of resources embodying economic benefits or service potential is remote. Contingent Assets ‘The Municipality does not recognize a contingent asset, but discloses details of a possible asset whose existence is contingent on the occurrence or non- occurrence of one or more uncertain future events not wholly within the control of the Municipality in the notes to the financial statements. Contingent assets are assessed continually to ensure that developments are appropriately reflected in the financial statements. If it has become virtually certain that an inflow of economic benefits or service potential will arise and the asset's value can be measured reliably, the asset and the related revenue ‘are recognized in the financial statements of the period in which the change occurs. 3.14 Nature and Purpose of Reserves The Municipality creates and maintains reserves in terms of specific requirements.3.15 Changes in Accounting Policies and Estimates ‘The Municipality recognizes the effects of changes in accounting policy retrospectively. The effects of changes in accounting policy are applied prospectively if retrospective application is impractical. ‘The Municipality recognizes the effects of changes in accounting estimates prospectively by including in sumplus or deficit, 3.16 Foreign Currency Transactions ‘Transactions in foreign currencies are initially accounted for at the ruling rate of exchange on the date of the transaction. Trade creditors or debtors denominated in foreign currency are reported at the statement of financial position reporting date by applying the exchange rate on that date. Exchange differences arising from the settlement of creditors, or from the reporting of creditors at rates different from those at which they were initially recorded during the period, are recognized as income or expenses in the period in which they arise, 3.17 Borrowing Costs Borrowing costs are capitalized against qualitying assets as part of property, plant and equipment. Such borrowing costs are capitalized over the period during which the asset is being acquired or constructed and borrowings have been incurred. Capitalization ceases when construction of the asset is complete. Further, borrowing costs are charged to the statement of financial performance. 3.18 Related Parties ‘The Municipality regards a releted party as a person or an entity with the ability to exert control individually or jointly, or to exercise significant influence over the Municipality, or vice versa, Members of key management are regarded as related parties and comprise the Municipal Mayor, Vice- Mayor, Sanggunian Members, Committee Officials and Members, Municipal Accountant, Municipal Treasurer, Municipal Budget Officer, General Services Officer and all Chiefs of Departments/Divisions. 3.19 Service Concession Arrangements ‘The Municipality analyses all aspects of service concession arrangements that it enters into in determining the appropriate accounting treatment and disclosure requirements. In particular, where a private party contributes an asset to the arrangement, the Municipality recognizes that asset when, andonly when, it controls or regulates the services the operator must provide iogether with the asset, to whom it must provide them, and at what price, In the case of assets other than ‘whole-of-life’ assets, it controls, through ownership, beneficial entitlement or otherwise — any significant residual interest in the asset at the end of the arrangement. Any assets so recognized fare measured at their fair value. To the extent that an asset has been recognized, the Municipality also recognizes a corresponding liability, adjusted by a cash consideration paid or received, 3.20 Budget Information ‘The annual budget is prepared on the modified cash basis, that is, all planned costs and income are presented in a single statement to determine the needs of the Municipality. As a result of the adoption of the Modified cash basis for budgeting purposes, there are basis, timing or entity differences that would require reconciliation between the actual comparable amounts and the amounts presented as a separate additional financial statement in the statement of comparison of budget and actual amounts, Explanatory ‘comments are provided in the notes to the annual financial statements; first, the reasons for overall growth or decline in the budget are stated, followed by details of overspending or under spending on line items. 3.21 Significant Judgments and Sources of Estimation Uncertainty Judgments In the process of applying the Municipality's accounting policies, manayement has made judgments, which have the most significant effect on the amounts recognized in the consolidated financial statements. Operating Lease Commitments — Municipality as Lessor ‘The Municipality determines based on an evaluation of the terms and conditions of the arrangements, (such as the lease term not constituting a substantial portion of the economic life of the commercial property) that it retains all the significant risks and rewards of ownership of the properties and accounts for the contracts as operating leases. Estimates and Assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below, The Municipality based its assumptions and estimates on parameters available when the consolidatedfinancial statements were prepared, However, existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the contol of the Municipality. Such changes are reflected in the assumptions when they occur, Usefull Lives and Residual Values The useful lives and residual values of assets are assessed using the following indicators to inform potential future use and value from disposel: a) The condition of the asset based on the assessment of experts employed by the Municipality; b) The nature of the asset, its susceptibility and adaptability to changes in technology and processes; ) The nature of the processes in which the asset is deployed; and 4) Changes in the market in relation to the asset. Impairment of Non-Financial Assets — Cosh-Generating Assets ‘The recoverable amounts of cash-generating units and individual assets have been determined based on the higher of value-in-use calculations and fair values less costs to sell. These calculations require the use of estimates and assumptions. It is reasonably possible that the assumplions may change, which may then impact management's estimations and require a material adjustment to the carrying value of tangible assets, ‘The Municipality reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carrying amount may not be recoverable. Cash-generating assets are grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liebilities. If there are indications that impairment may have occurred, estimates of expected future cash flows are prepared for each group of assets. Expected future cash flows used to determine the value in use of tangible assets are inherently uncertain and could materially change over time, Impairment of Non-Financial Assets — Non- Cash Generating Assets ‘The Municipality reviews and tests the carrying value of non-cash-generating assets when events or changes in circumstances suggest that there may be a reduction in the future service potential that can reasonably be expected to be derived from the asset, Where indicators of possible impairment are present, the Municipality undertakes impairment tests, which require thedetermination of the fair value of the asset and its recoverable service amount. The estimation of these inputs info the calculation relies on the use ofestimates and assumptions. Amy subsequent changes to the factors supporting these estimates and assumptions may have an impact on the reported carrying amount of the related asset. Fair Value Estimation — Financial Instruments Where the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived trom active markets, their fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, judgments are required in establishing fair values. Judgment includes the consideration of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments, Provisions Provisions were raised and management determined an estimate based on the information available. Provisions are measured at the management's best estimate of the expenditure required to settle the obligation at the reporting date, and are discounted to present value where the effect is material. Held-to-Maturity Investments and Loans and Receivables The Municipality assesses its loans and receivables (including trade receivables) and its held-to-maturity investments at the end of each reporting Period. In determining whether an impairment loss should be recorded in surplus or deficit, the Municipality evaluates the indicators present in the market to determine if those indicators are indicative of impairment in its loans and receivables or held-to-maturity investments. Where specitic impairments have not been identified the impairment for ade receivables, held-to-maturity investments and loans and receivables is calculated on a portfolio basis, based on historical loss ratios, adjusted for national and industry-specific economic conditions and other indicators present at the reporting date that correlate with defaults on the portfolio. ‘These annual loss ratios are applied to loan balances in the portfolio and scaled to the estimated loss emergence period,3.22 Financial Instruments — Financial Risk Management Exposure to currency, commodity, interest rate, liquidity and credit risks arises in the normal course of the Municipality’s operations. This note presents information about the Municipality’s exposure to each of the mentioned risks, policies and processes for measuring and managing risk, and the Municipality’s management ot capital, Further quantitative disclosures are included throughout these financial statements. Fair values set out below, are a comparison by class of the carrying amounts and fair value of the Municipality's financial instruments. ‘The fair value of the financial assets and liabilities are included in the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, ‘The following methods and assumptions were used to estimate the fair values: a) Cash and short-term deposits, trade receivables, trade payables and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments; b) Long-term fixed rate and variable-rate receivables/borrowings are evaluated by the Municipality based on parameters such as interest rates, individual creditworthiness of the customer and the risk characteristics of the financed projects, Based on this evaluation, allowances arc taken to account for the incurred losses of these receivables and market related interest rates. As at December 31. 2016, the carrying amounts of such receivables, net of allowances, are not materially different from their calculated fair values; ¢) Fair value of quoted notes and bonds is based on price quotations at the reporting date. The fair value of unquoted instruments, loans from banks and other financial liabilities, obligations under finance leases, as well as other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities; d) Fair value of financial assets is derived from quoted market prices in active markets, if available; e) Fair value of unquoted evailable-for-sale financial assets is estimated using appropriate valuation techniques.Fair Value Hierarchy ‘The Municipality uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1; Quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or lisbility, either directly (ie...as price) or indirectly (ie., derived from prices); Level 3: Techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data. Credit Risk Credit risk is the risk of financial loss to the Municipality if customers of counterparties to financial instruments fail to meet their contractual obligations, and it arises principally from the Municipality's investments, loans, receivables and cash and cash equivalents. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk as at 31 December was: 2017 2016 Other Receivables - 39,889.86 Cash and Cash Equivalent 51,555,774.78 44,047.247.96 Maximum exposure to credit risk SLSS5,774.78 44,087,137.82 Credit Quality Credit quality is assessed risk of default attached to counterparties to which the Municipality extends credit and also those parties with whom the Municipality invests. As such, the credit quality assessed extends to the ‘customers, investments and banks servicing the Municipality, For financial statement purposes, the investments and balances with banks are limited to the investments, loans receivable and cash and cash equivalents line items in the stetement of financial position. The Municipality follows Department Order No. 27-05 of the Department of Finance (DOF) in the maintenance of depository accounts. It also determines credit quality of the investments and banks using information obtained from extemal rating agencies. The Municipality has not yet adopted financial risk management policy.The customer base of the Municipality is diverse and consists of individuals, companies, non-profit organizations and govemment entities. Credit ratings, from external rating agencies, are not readily available for all customers. Also, it is not financially viable to obtain extemal credit ratings for all customers due to the nature of the customer base. Furthermore, the ‘Municipality, as a local government authority, is mandated under RA No. 7160 or the Local Government Code to provide basic services to all its constituents imespective of their financial standing. As such, the Municipality is required, by legislation, to extend services and extended payment terms to all customers irrespective of their financial standing. For the purpose of determining the credit quality of customers, the Municipality applies its past experience with customers in determining the risk of default posed by customers. In line with the methodology applied, customers are classified into the following credit quality groups: 1) High- Those customers who heve no history of defaulting on payments to the Municipality and only includes customers who settle their accounts in full and within the prescribed minimum period; ) Medium — Those customers with a history of late payments only. These customers usually arrange ahead of time with the Municipality in settling balances in arrears and when payments are made, the outstanding amounts (including interest) are settled in full; and c) Low — Those customers with a significant history of defaults. The balances of these customers are rarely settled in full. The recovery of outstanding balances from these customers is problematic. Investments The Municipality limits its exposure to credit risk by investing with only reputable financial institutions that have a sound credit rating (rated BB and above), which are within the specific guidelines set in accordance with the Municipality Finance Committee and the Sanggunian approved investment policy. Consequently, the Municipality does not consider there to be any significant exposure to credit risk. Receivables Receivables are amounts owed by consumers, and are presented net of impairment losses. The Municipality has a credit risk policy in place, and the exposure to credit risk is monitored on an ongoing basis. The Municipality is compelled, by its constitutional mandate, to provide all of its residents with basic minimum services, without recourse to an assessment ofcreditworthiness. There wete no material changes in the exposure to credit risk and its objectives, policies and processes for managing and megsuring the risk during the year under review. The Municipality's moximum exposure to credit risk is represented by the carrying value of each financial asset in the statement of financial position. The Municipality has no significant concentration of credit risk, with exposure spread over a large number of consumers, and is not concentrated in any particular sector or geographic area, ‘The Municipality establishes an allowance for impairment that represents its estimate of anticipated losses in respect of receivables. The Municipality provided fully for all receivables outstanding aver 365 days where there was no evidence of expected recovery. Receivables up to 365 days are provided for based on estimated unrecoverable amotints, determined by reference to ‘past default experience. Cash and Cash Equivatents ‘The Municipality limits its exposure to credit risk by investing cash and cash equivalents with only reputable financial institutions that have a sound credit ating, and within specific guidelines set in accordance with the Sanggunian’s approved investment policy. Consequently, the Municipality does not consider here to be any significant exposure to eredit risk, Liguidity Risk Liquidity risk is the risk of the Municipality not being able to meet its obligations as they fall due. The Municipality's approach to managing ity risk is to ensure that sufficient liquidity is available to meet its liabilities when due, without incurring unacceptable losses or risking damage to the Municipality's reputation, The Municipality ensures that it has sufficient cash on demand to meet expected operating expenses through the use of cash flow forecasts, Capital Management ‘The primary objective of managing che Municipatity’s capital is to ensure that there is sufficient cash available to support the Municipality's funding requirements, including capital expenditure, to ensure that the Municipality remains financially sound. The Municipality monitors capital using a gearing ratio which is aet debt, divided by total capital, plus net debt. In a capital intensive industry, a gearing ratio of 54% or less can be consideredreasonable. Included in net debt are interests bearing loans and borrowings, payables, less investments Currency Risk ‘The Municipality is exposed to foreign-currency risk through the importation of goods and services, either directly or indirectly, through the award of contracts to local importers. The Municipality manages any material direct exposure to foreign-currency risk by entering into forward exchange contracts, The Municipality manages its indirect exposure by requiring the local importer to take out a forward exchange contract at the time of ‘procurement, in order to predetermine the peso value of the contracted goods ‘or services. The Municipality was not a direct party to any outstanding forward exchange contracts at the reporting date. The movement in the currency was not material to the Municipality's procurement, Market Risk Market risk is the risk of changes in market prices, such as foreign-exchange rates and interest rates, affecting the Municipality's income or the value of its financial instrument holdings. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return on the risk. Note 4~ Cash and Cash Equivalents 2017 2016 Cash on Hand ~ Local Treasury Cash — Local Treasury 36,15035 289,096.07 Cash in Bank — Local Curreney Cash in Bank — Local Currency, Current Account ‘S1,519,624.43 43,758,151.89 Total Cash and Cash Equivalents SUSSS.77478 — 44,047,247.96 Cash-Local Treasury represents collections during the last working days of the year and was deposited to the bank on January 5, 2018. Cash in Bank — Local Currency, Current Account are deposits maintained at the Land Bank of the Philippines (LBP), Gumaca Branch and Development Bank of the Philippines (DBP), Lucena Branch. LBP is maintained wherein collections from all sources such as Internal Revenue Allotment (IRA), funds trom National Government Agencies (NGAs) and local collections are deposited intact and releases/transfers are originated, while DBP current account is being maintained for loan payment and other transactions, both for General Fund.Cash in Bank earns interest based on the prevailing bank deposit rates, Short-term deposits are made for varying periods, depending on the immediate cash requirements of the Municipality and earn interest at the respective short-term deposit rate. Note $—Receivables Real Property Tax Receivable Special Education Tax Receivable Due from Other Funds Other Receivables ‘Advances to Officers and Employees ‘Advances for Payroll Other Receivables Total Receivables Aging of the abovementioned accounts are as follows: Receivables OnDemand 32 Real Property ‘Tax mnths Receivables 8,517,965.89 Special Edvcation Tax. Receivables 8,517,965.89 ‘Advances for payroll 56,499.98 == Tol aie 2017 2016 8,517,965.89 9,747,797.05 8,517,965.89 _9,747,797.06 ~~ 3,953,107.25 37,940.00 975,160.00 56,499.98 - et 44.750.36 ‘11303776 — 24,468,612.22 ESveors 28 yeas Total f = 8517,955.89 ~ = 8,517,965.89 * = 37,910.00 $6,499.98 ‘12,130,371.76 Real Property Tax Receivable and Special Education Tax Receivable represent uncollected RPT and SET as of December 31, 2017. ‘Note 6-Inyentories Inventory Held for Consumption Office Supplies Inventory Accountable Forms, Plates and Stickers Fuel, Oil and Lubricants Medical, Dental and Laboratory Supplies Agricultural and Marine Supplies Other Supplies and Materials Property and Equipment for Distribution “Total ‘Note 7 -Prepayments and Deferred Charges Advances to Contractors 2016 956,990.30 193,270.00 3 11,672.99 - 117,500.00 - 9,120,00 202,800.00This represents advances to CJ Construction for mobilization fee for the concreting of Municipal road. Note 8 -Property, Plant and Equipment The following Property, Plant and Equipment are presented at gross less Accumulated Depreciation: 2 Balance Balance December 31, Addition/ December 31, 2016 Reduction 2017 General Fund Land 10,560,240.00 - 10,560,240,00 Road Networks ~ —-3,073,104.80 — 3,073,104.80 Other Infrastructure = Assets ~ — 3,488,549.85 — 3,488,549.85 Buildings 4,375,984.59 - — 4,575,984,59 School Buildings 447,347.86 - 447,347.86 - Hospitals and Health Centers 55,211.50 ~ 55,211.50 Markets 2,348,259.10 ~ 2,348259.10 Other Suuctures 522,703.96 - 522,703.96 Machinery’ 173,287.00 = 173287.00 Office Equipment 1,427,134,39 505,511.75 1,932,646.14 Information and Communication L ‘Technology Equipment 2,730,110,93 479,922.80 3,210,033.73 Communication Equipment 317,206.00 ~ 317,206.00 Construction and Heavy Equipment 6,419,755.00 ~ 6419,755.00 Disaster Response and Rescue Equipment 459,350.00 - 459,350.00 Military, Police and Security Equipment 73,300.00 = 73,300.00 Medical Equipment 463,735.00 = 463,735.00 - Other Machinery and Equipment 818,850.00 = 818'850.00 Motor Vehicles 2,199,500,00 = — 2,199,500.00 Watererafts ‘902,000.00 = 902,000.00 Furniture and Fixtures 201,510.00 154,677.85 2,166,187.85 Books 62,284.30 = 62,284.30, Other Property, Plant and Equipment 11,358,321, 1.35832L.01 Total 47,926,260.74 —_7,.701,767,05 _55,628,027.79 Accumulated Depreciation (22.627.432,89) (04.718.169,21) Net Book Value 25,298,827.92 30,909,858,58 Special Education Fund Land 325,000.00 - 325,000.00 Office Equipment 75,800.00 = 75,800.00 ~ Information and Communication ‘Technology Equipment 218,063.08 = 218,063.08 Furniture and Fixtures 31,122.08 31,122.08 Total 649,985.16 $49,985.16 Accumulated Depreciation (232.733.10 (256,591.13) Net Book Value “AN.252,08 3Road Networks, Flood Control, Water Supply Systems and Other Infrastructure Assets accounts are now recognized in the books of accounts in compliance with COA Circular No, 2015-008, ‘Increase in Office Equipment account represents purchase of air conditioning unit, industrial fans, LED TV and telescopic ladder. ‘* Increase in Information and Communication Technology Equipment account pertains (o acquisition of desktop computers and laptops. ‘Increase in Furniture and Fixtures account represents purchase of swing doors, panel divider, office table, computer chair and water dispenser. Note 9 -Liabilities Current Liabilities Financial Liabilities 2017 2016 ‘Accounts Payable 78362165 1,781,099.44 Accounts Payable represents cost of goods, services and contracts received/entered into but were not yet paid as of December 31, 2017. Note 10 - Inter-Agency Payables 2017 2016 Due to BIR 1,340,818,84 358,069.39 Due to PAG-IBIG 12,830.04 2,536,230.57 Due to PHILHEALTH 2,242,316.92 - Due toNGAs 12,999,687.60 _8,557,783.60 Due to GOCCs - 8,519.81 Due to LGUs 1,264.184.76 _2,526.132.46 Total 17,859,838.16 — 14,186,735.83 The first three accounts represent the amount deducted from the salaries of’ officials and employees and is remitted to the respective government agencies immediately on the following month for which these were deducted, * Due to NGAs represents balances of fund received by the Municipality for specific purposes such as: Purpose Amount DTL-BUB 189,078.90 BUB-DA 758,055.59 ‘Supplemental Feeding Program 723,155.80DSWD Livelihood Program 592,416.00 BFAR Fish Landing 478,414.85 SALIN-TUBIG 10,024,000.00 LGSF-FMR 233,966.46 Total 12,299.687,60 * Due to LGUs account includes barangay share on Community Tax and Real Property Tax for the 4" quarter of CY 2017, Note 11 - Trust Liabilities 2017 2016 rust Liabilities 78,120.81 - Trust Lizbilities ~DRRM 9,986,546.02 _7,504,826.79 Guaranty/Security Deposits Payable — 388,905.77 1.083,004.88 Votal 10453,573.20 _-4,587,831,67 + Trust Liabilities represent collections with specific purposes which include the following: Congressional 20,568.50 Fish Cage tee 20,000.00 20% Fire Code 37,552.31 Total 78s120.81 + Trust Liability-DRRMF represents balances of calamity fund as of December 31, 2017, broken down as follows: Year Particulars Amount 2017 Pre-Disaster Preparedness Fund 2,624,093.84 2016 — Pre-Disaster Preparedness Fund 3,676,883.83 201S — Pre-Disaster Preparedness Fund 2,480,011.83 2014 Pre-Disaster Preparedness Fund 10,701.80 2013 Pre-Disaster Preparedness Fund 278,748.39 2012 — Pre-Disaster Preparedness Fund 873.233.86 2011 — Pre-Disaster Preparedness Fund 42,873.07 otal 20986,546,62 ‘* Guaranty/Security Deposits Payable includes bidders bond, performance tond and retention money collected from various suppliers and contractors to guaranty the deficiency after sale/completion of good/services/projects. Note 12 - Deferred Credits/Unearned Income 2017 2016 Deferred Real Property Tax 8,517,965.89 _9,747,797.06Deferred Special Education Tax 8,517,965.89 9,747,197.05 7 ‘Total 1L055,93178 — 19,495,594.12 Note 13 - Other Payables . 2017 2016 Other Payables 368.91031 233,774.18 Other Payables represent Municipality's share in STL Lottery, UCPB salary loan deductions from employees, proceeds from the sale of bid documents, Note 14-Tax Revenue 2017 2016 Tax Revenue-Inclividsual amd Corporations = Professional Tax 1,900.00 3,200.00 Community Tax 255,368.49 253,650.05 257,268.49 256.850,05 Tax Revenue-Property Real Property Tax - Basic 537,783.69 386,398.09 Discount on Real Property Tax - Basic (17,866.28) (14,850.62) Special Education Tax 638,722.93, 482,997.59 Discount on Special Education Tax (21,366.27) (18,564.64) Real Property Transfer Tax S 7,150.00 1,137,274.07 843,730.42 Tax Kevenue — Goods and Services Business Tax 699,522.00 309,258.00 Franchise Tax $4,910.15 55,700.00 784,432.15 364,958.00 Tax Revemes-Fines and Penalties Tax Revenue-Fines and Penalties- 308,61439 229,617.85 Property ~ Total 2,457,589.10 1,695,156.32 ‘Note 15 - Share from National Taxes 5 2017 2016 Share Internal Revenue Collections 78,915,525.00 70,811,111,00 Note 16-Service and Business Income 2017 2016 Service Income Permit Fees 639,242.99 742,177.03 Registration Fees 180,175.00 137,650.00 Registration Plates, Tags 32,702.00 23,606.00 Clearance and Certification Fees 275,258.44 274,711.95Personne] Benefit Contribution Retirement and Life Insurance Premiums Pag-IBIG Contributions PhilHealth Contributions Employees Compensation Insurance Premiums Other Personnel Benefit Terminal Leave Benefits Other Personnel Benefits Total 2,276,170.84 91,300.00 211,748.50 26,678.73 321,591.69 2,806,180,34 36,203,421,93 Note 19 - Maintenance and Other Operating Expenses Travelling Expenses Traveling Expenses - Local Training and Scholarship Expenses Training Expenses Supplies and Materials Expenses Office Supplies Expenses Accountable Forms Expenses Animal/Zoological Supplies Expenses Welfare Goods Expenses Drugs and Medicines Expenses Medical, Dental and Laboratory Supplies Expenses Fuel, Oil and Lubricants Expenses Agricultural and Marine Supplies Expenses Other Supplies and Materials Expenses Utility Expenses Electricity Expenses Communication Expenses Telephone Expenses Intemet Subscription Expenses Cable, Satellite, Telegraph and Radio Expenses Awards/Rewards and Prizes Prizes Confidential, Intelligence and Extraordinary Expenses Confidential Expenses Professional Services Auditing Services Legal Services Other Professional Services 2017 1,761,149.90 2,345,536.26 1,924,913.27 197,495.00 1,138,588.27 252,328.00 146,096.00 1,464,737.34 668,579.45 207,514.82 11,275.00 163,600.00 780,000.00 32,092.00 8,100.00 897,140.00 2,093,545.20 89,700.00 185,675.00 80,029.47 1,690,112.30 428,269.00 842.245.21 2016 1,409,065,82 1,933,358.16 115,412.00 36,612.75 748,755.42 202,592.50 999.07 1,171,428.55 674,866.61 155,164.52 9,225.00 91,300.00 24,336.24General Services Other General Services Repairs and Maintenance Repairs and Maintenance-Machinery and Equipment Repairs and Maintenance — infrastructure Assets Repairs and Maintenance — Buildings and Other Structures Repairs and Maintenance— Motor Vehicles Repairs and Maintenance — Other Property Plant and Equipment Taxes, Duties and Licenses ‘Taxes, Duties and Licenses Fidelity Bond Premiums Insurance Expenses Other Maimenance and Operating Expenses Advertising Expenses Representation Expenses Printing and Publication Expenses Subscription Expenses Donations Rent/Lease Other Maintenance and Operating Expenses Total Note 20 Financial Expenses Interest Expenses 5,042,436.39 10,000.00 6,561,138.70 182.960.60 992,172.66 360,419.10 14,656.45 24,412.50 17,500.00 6,000.00 147,734.00 $030.00 10,000.00, 1,362/200,00 4,941,459,47 32,160,121,03 2017 4,960,57 3,965,200.00 478,870.00 18,300.00 15,890.45 15,000.00 21,872.28 427,800.00 10,000.00 —10,409,799,18 2L935.849.45 2016 22,822.50 Interest Expenses represent interest payment regarding Municipality's loan from Land Bank of the Philippines. Note 21 — Non-Cash Expenses Depreciation-Buildings and Structures Depreciation-Machinery and Equipment Depreciation-Transportation Equipment Depreciation-Furniture , Fixtures and Books Depreciation-Other Property. Plant and Equipment Total Note 22 - Transfers, Assistance and Subsidy To Subsidy to Local Govemment Units Subsidy to Other Funds 2017 132,670.75 1,096,509,38 2016 132,670.76 927,210.79 83,830.57 $4,438.08 1,308,514.05 2:166,696,92 — 2,506,664.25 2017 167,870.00 1,477,891.25 2016 395,070.00 2,512,885.57‘Transfers of Unspent Current Year DRRM 2,624,093.84 ‘Transfers for Project Equity Share/1LGU counterpart 4AIOSI151 —_1,995,053.20 ‘Total 8,680.366.60 —4,903,008.77 Note 23 — Prior Period Errors © This pertains to prior year’s adjustments of the following: 2017 2016 Stale Checks = 79,462.81 Collection of Disallowances - 19,210.00 Disallowance 70,560.00 - Over/Under recording of depreciation 642,823.57 (28,807.46) Adjustment of prior year expenses (5,717.74) (456,558.09) Toral WLS8S83 (385,692.74) Note 24 — Reconciliation of Net Cash Flows from Operating Activities to Surplus (Deficit) 2017 2u16 Surplus (Deficit) 5,122,206.10 14,754,678.29 Non-cash transactions Depreciation 2,766,696.92 _2,536,006.49 Increase in Payables (1,747,267.38) —12,202,513.93 Increase in Receivables 3,982,399,37 - Prior Period Errors = (386,692.74) Increase in Current Assets 5,086,258.86 1.232.269.40) Net Cash from Operating Activities 15:210,293.87 27,874,236.57 Note 25-Reconciliation between Actual Amounts on a Comparable Basis as presented in the Statement of Comparison of Budget and Actual Amounts and in the Statement of Financial Performance for the Year Ended wecember $1, 201/ Personnel Financial Income Services MOOR, Expenses Capital Outlay General Funs Comparison Stalemect of Budget and Actual 84,149,913.23 36,182.42193 21739.283.48 19.212,798,00 Entity Differences Basis Differences: Kecetpls not coasidered Income: 1363857.39“Ameruzauon) Capi Expendiures ‘Paning Ditkrences: Prepayments charged 10 comrent ppp. Unemumed "Inventories ctarged 10 cure ‘appropriations ‘Commitments (Obligated Toutnot deliverediled) Per Sutement of Fsncial ‘Petormance-Csneral Fund ,9OHSUUD2 Sb Y)_L,day.4ls 82 Special Education Fusd Comparison Statement of Budget and Actual 756884 39 333,193.98 Entity Differences ‘Basis Diffsrences: suagetary stems not ‘considered as Expenses ‘Capital Expenditures Timing Differences: ‘Comenitments (Obtytet but pot delivered/billed) Per Statement of Financial Performance-Special Education Fund wssaiz2 ___: isha 490037 (19,212,799.00) ‘= The budget of the Municipality is based on a modified acerual basis and adopted a by fund/functional classification basis in its preparation. The approved Annual Budget is for the Fiscal Year (FY) 2017 under Approp ion Ordinance No, 11 series of 2016 enacted on December 12, 2016. For FY 2017, there was one Supplemental Budget, under Appropriation Ordinance No, 02, series of 2017 dated ‘October 23, 2017. + The entities included in the approved budget are; a) all local government offices of the Municipal Government; b) National Government Agencies assigned within the Municipality under the lump sum appropriation; c) Civil Society Organizations; and d) Uther Uperating Units. '* The Municipal Government of General Luna has a Certified Statement of Receipts of #81,619,925.00. * Increase in total Business Tax Collection and other taxes was the result of a variety of factors, such as: > Concerted efforts from the Office of the Municipal Treasurer and Municipal Assessor wherein renewed focus was brought to the various aspects of the Municipality's collection procedures, and> Adoption of presumptive income levels of businesses as well as real property tax discoveries of undeclared assets, * Changes between the original and final budget can be attributed to supplemental appropriations for various programs, projects and activities (PPAs) not fully funded in the Annual Budget and included in the Annual Investment Program (AIP) and reversion of funds through an appropriation ordinance wherein the intention of the original purpose for which the fund was allocated is no longer needed in connection with the PPAs funded.PART I - DETAILED OBSERVATIONS AND RECOMMENDATIONS A. Financial and Compliance Audit 1. ‘The existence and valuation of the Property, Plant and Equipment (PPE) accounts with a net book value totaling P30,556,626.13 could not be ascertained due to the failure of the Inventory Committee to complete the physical inventory during the year as well as to prepare and maintain property cards and subsidiary ledgers for ‘each category of PPE, contrary to Sections 124, 114 and 119 of the Manual on the New Government Accounting System (MNGAS) for Local Government Units (LGU), Volume 1. The pertinent provisions of the MNGAS for LGU, Volume | for the accounting of supplies and property provide: Section 124. Inventory of Supplies or Property ~ The local chief executive shall require periodic physical inventory of supplies or property. .. Physical ‘count of property, plant and equipment by type shall be made annually and reported on the Report on the Physical Coun of Property, Plant and Equipment (RPCPPE). This shall be submitted to the Auditor concerned not later than January 31 of each year Section 114. The General Services Officer or the Municipal Treasurer (MT), as the case maybe shall likewise maintain stock cards and property cards for supplies: property, plant and equipment; and work animals in their ‘custody to account for the receipt and disposition of the same. The balance ‘per stock cardproperty cards should always reconcile with the ledger cards of the accounting unit. They should also reconcile with other property records like Acknowledgement Receipt for Equipment (ARE). Section 119. Property Records to be maintained. — The General Servic Officer or the Local Treasurer, as the case maybe, shall number each type of supplies and maintain Stock Cards per stock number. He shall likewise mainiain Property Cards per category of property, plant and equipment. Verification of the Financial Statements (FS) showed that the PPE accounts with a net book value totaling R30,556.626.13 as of year-end could not be ascertained due to the failure of the Inventory Committee to complete the physical inventory during the ‘year, Due to the non-completion of the physical inventory, the Inventory Committee failed to submit to the Auditor the RPCPPE, contrary to Section 124 of the MNGAS for LGU, Volume |, hence rendered the account balances unreliable.Details are as follows. Amount Machinery PB 173,257.00 Office Equipment 1,952,646.14 Information and Communication Technology Equipment 3,210,033.73 Communication Equipment 317,206.00 Construction and Heavy Equipment 6,419,755.00 Disaster Response and Rescue Equipment 459,350.00 Military, Police and Security Equipment 73,500.00 Medical Equipment 463,735.00 Other Machinery and Equipment 818,850.00 Motor Vehicles 2.199,500.00 Watercrafts 902,000.00 Furniture and Fixtures 2,166,187.85 Books 62,284.30 Other Property, Plant and Equipment 11,358,321.11 Total P _30,556,626.13 Moreover, Property Cards for PPE were not maintained by the Treasurer's Office, contrary to Sections 114 and 119 of the same Manual, hence reconciliation with the Accounting Office to ascertain the existence and valuation of the PPE account balances totaling P30,556,626.13 could not be made. This observation has been noted in the previous years’ Annual Audit Reports (ARs) but the recommendations were not fully implemented by the Municipality. We reiterated our recommendation that the Municipal Mayor require the: © Inventory committee to complete the physical count of PPE of the Municipality and submit the RPCPPE to the Audit Team for validation pursuant to Section 124 of the MNGAS for LGU; © Municipal Treasurer (MT) to prepare and maintain complete and updated PPELC and Property Cards, and reconcile their records regularly with the Accounting Office. * MT and the Municipal Accountant to reconcile their records regularly. ‘Management Comment: ‘The MT stated that physical inventory was already conducted this 2018 and committed to submit the RPCPPE at year-end. 452. Five parcels of land recorded in the books at P3,091,310.00 remain untitled in the name of the Municipality, contrary to Section 148 of Commission on Audit (COA) Circular No. 92-386, thus exposes the subject lots to third party claims, Section 148 of COA Circular No. 92 386 states that: Vest upon every Municipal Mayor the immediate responsibility for the proper and effective use and management of real estate owned or titled in the name of the local government unit. He shall ensure that all real estate under his responsibility are registered under the Torrens Tile System and safeguarded from squatters, unlawful occupants or the like “The following parcels of land recorded under the Land aecount remain untitled in thename ofthe Municipality es of year-end, contrary to Section 148 of COA Circular ‘No, 92-386, thus exposes the subject lots to third party claims. Lot Area sription "ax Declaration No. [sq.m.} Amount 1. Municipal Cemetery 015-10-007-0039-S, 12,000 B —2.100,000.00 at Barangay 7 2. Municipal Hall Lot at Barangay 7 015-10-007-0009-S 2,099 404,060.00 3. PUP site at Barangay 7 Lot 4-Y2B-Lot4-Y2C 869 217,250.00 4. Waterworks at Barangay San Jose - 150 45,000.00 5. School site at Barangays 4 and 7 2 3,787 Total ‘This observation has been noted in the CYs 2013-2017 AARs and the recommendation remain unimplemented as of year-end. We reiterated our recommendation that the Municipal Mayor instruct the ‘Municipal Assessor to facilitate the titling of the five parcels of land ia compliance with Section 148 of COA Cireular No. 92-386. Management Comment: ‘The Municipal Assessor explained that he is still gathering the documentary requirements needed for the titling of the land, Nevertheless, he committed to facilitate the titling once they are completed.3, Failure of the Municipal Treasurer to exercise fully the statutory remedies as provided under Sections 247, 256, 258 and 260 of Republic Act (R.A.) No- 7160 to ertares collection of delinquent accounts resulted in the accumulation of real property tax delinquencies to P19.573,940.92 taxes as of December 31,2017, thus rye Municipality stands to lose potential revenues which could have been utilized for its development programs and projects. Section 247 of R.A. No. 7160 states that the eolleetion of the real property tex “with interest thereon and related expenses, and the enforcement of the remedies provided for in this Title, or any applicable laws, shall be the responsibility of the Municipal Treasurer concerned. Sections 256, 258 and 260 of the same Act provides for the remedies for the collection of Real Property Tax (RPT), as follows: © The local government unit concerned may avail of the remedies by ‘adninistrative action thru levy on real property or by judicial action, «The real property subject to tax maxbe levied upon through issuance of a warrant with the institution of a civil action forthe collection of the delinquent tas. © Within thirty (30) days after service of the warrant of levy, the local treasurer shall proceed to publicly advertise for sale or auction the property or a usable portion thereofas may be necessary to satisfy the tax delinquency and expenses of sale. Verification of treasury reports/records disclosed that the Municipality had real property tax delinquencies totaling #19,573,940.92 (Annex 5) as of December 31-2017 soe to the failure of the MT to exercise fully the statutory remedies as provided under Seations 247,256, 258 and 260 of R.A. No. 7160, hence potential revenues which could have been utilized for its development programs and projects may stand to lose. However, it is worth mentioning thet collection of RPT increased by 589% ftom $69,395 68 in 2016 to P,15,464.16 in 2017 due to the tax campaign implemented by the Municipality on the payment of taxes. We reiterated our recommendation that the Municipal Mayor require the Municipal Treasurer to exert extra effort and adopt the remedies to enforce Collection of delinquent real property taxes in accordance with R.A. No. 7160. ‘Management Comment: The MT committed that she will adopt measures to enforce collection of delinquent real property taxes. a7|. Cash advances granted to Municipal officers and employees totaling P94,439.98 recorded under the Advances to Officers and Employees account of 237,940.00 and Advances to Payroll account of P56,499.98 remain unliquidated at year-end, contrary to COA Circular No, 97-002 dated February 10, 1997, resulted to overstatement of the respective asset accounts and understatement of related expenses equivalent to the amount of unreported disbursements. COA Circular No. 97-002 dated February 10, 1997 provides that: “All cash advances shall be fully liquidlated at the end of each year. Except for petty cash fund, the AO shall refund any unexpended balance to the Cashier/Collecting Officer who will issue the necessary official receipt. “No additional cash advances shail be allowed to any official or employee unless the previous cash advance given 10 him is first settled or a proper accounting thereof is made.” Verification of the FS disclosed that cash advances granted to Municipal officers and employees totaling 294,439.98 recorded under the Advances to Officers and Employees account of P37,940.00 and Advances to Payroll account of 256,499.98 remain unliquidated at year-end, Moreover, additional cash advance was granted to Mr. Nicolas L. Hilario on December 5, 2017 amounting to P5,520.00 even though the cash advance granted to him on November 17, 2017 amounting to P9,820.00 was not yet liquidated, contrary to COA Circular No. 97-002 dated February 10, 1997, which resulted to overstatement of the respective essetaccounts and understatement of related expenses equivalent to the amount of unreported disbursements, Details are as follows: Date Date Granted Liquidated = = Name Purpose, ‘Amount Advances to Officers and Emplovees 10/20/2016 «1/11/2018 Yolanda Nancy Seminar on B 5,700.00 L. Japor Local Shelter Plan Formation, Angeles City 12/5/2017 = Cecilia A. Seminar on the Fordeliz Local Shelter, Malabon City $20.00 12/19/2017 3/19/2018 Redemcion M. Year-end De Leon Assessment and Evaluation, Batangas City 4gNicolas L. National 1/17/2017 - Hilario Convention, Davao City 9,820.00 12/5/2017 - Nicolas L. Seminar on Hilario Housing and Urban Development Coordinating 5520.00 15,340.00 37,980.00 1/31/2018 Monalisa L. Buhay na Kubol Plata 56499.98 Total PR _ 94,430.98 We recommended that the Municipal Mayor instruct the Muni Accountant to: © ensure the proper granting, utilization and liquidation ofall cash advances within the prescribed period in accordance with the above-cited rules and regulation; and '* send written notice or demand to the Accountable Officers to immediately settle their cash advances, otherwise, implement the withholding of their salary to be applied to their accounts Management Comment: ‘The Municipal Accountant stated that only the cash advance granted to Ms. Cecilia Floredeliz remain unliquidated as of this writing because of the issue on the documents that needs to be addressed, however, the Municipal Mayor issued Demand Letter to her upon receipt ofthe Audit Observation Memorandum. . The non-recording in the books of the Municipality of the donated ambulance from the Philippine Charity Sweepstakes Office (PCSO) is a violation of Section 63 of Presider ‘Decree (P.D.) No. 1445, thus resulted to understatement of the PPE account at year-end. Moreover, the donated ambulance was not provided with depreciation, contrary to Paragraphs 43, 44, 66, 69 and 71 of the Philippine Public Sector Accounting Standards (PPSAS) 17, resulting in the understatement of the related expense account and overstatement of the equity and asset accounts. Section 63 of P.D. No, 1445 provides for the aczounting for moneys and property received by public officials, that: “Except as may otherwise be specifically provided by law or competent authority all moneys and property received by a public officer in any capacity or upon any occasion must be accounted 49foras government property. Government property shall be taken up in the books of the agency concerned at aeguisition cost or an appraised value.” ‘The following paragraphs from the PPSAS 17 provide for the standards relative to the depreciation of PPE: Paragraph 43. Afier recognition as an asset, an item of property, plant and equipment shall be carried at its cost, less any accumulated depreciation and any accumulated impairment losses, Paragraph 44. After recognition as an asset, an item of property, plant, and ‘equipment whose fair value can be measured reliably shall be carried ata revalued amount, being its fair velue at the date of the revaluation, less any’ subsequent accumulated depreciation, and subsequent accumulated impairment losses, Revaluation shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which ‘would be determined using fair value at the reporting date xx. Paragraph 66. The depreciable amount of an asset shall be allocated on a systematic basis over its useful life. Paragraph 69. The depreciable amount of an asset is determined after deducting its residual value, In practice, the residuat value of an asset is ofien insignificant, and therefore immaterial in the calculation of the depreciable amount. Paragraph 71. Depreciation of an asset begins when itis available for use, i.e, when itis in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation of an asset ceases when the asset is derecognized. Therefore, depreciation does not cease when the asset becomes idle or is retire from active use and held for disposal unless the asset is fully depreciated. However, under usage ‘methods of depreciation, the depreciation charge can be zero while there is no production. Furthermore, PPSAS 17 includes the Philippine Application Guidance (PAG) to provide supplementary guidance on the propet implementation of the standards. Pertinent guidance are as follows: FAG3, For simplicity and to avoid proportionate computation, depreciation shall be for one month if the PPE is available for use on or before the 15" of the month, However, ifthe PPE is available for use ufier the 15% of the month, depreciation shall be for the succeeding month. so.PAG4. The straight line method of depreciation shall be adopted unless another method is more appropriate for agency operation, PAGS. The estimation of the usefid life ofthe asset is a manwer of judgmem based on the experience of the agency with similar assers, PAG. A residual redlue equivalent to at least five percent (59) of the cost shall be adopted unless a more appropriate percentage is determined by the agertcy based on their operation. Records showed that the Municipality of General Luna is one of the beneficiaries of one unit of ambulance donaled by the PCSO. The ambulance with Chasis No, LVCBIDDA7FS007782 was accepted by the Municipal Mayor from the PCSO through the Deed of Donation dated September 23, 2615, Mandaluyong City. ‘The non-recording in the books of the Municipality of the donated ambulance from the PCSO is a violation of Section 63 of P.D, No. 1445, thus resulted to understatement of the PPE account, Moreover, the donated ambulance was not provided with depreciation, conirary 10 Paragraphs 43, 44, 66, 69 and 7} of the PPSAS 17, resulting in the understatement of the related expense account and overstatement of the equity and asset Accoutits, thus resulted to understatement of the Property, Plant and Equipment account at year-end. We recommended that the Municipal Mayor instruct the Municipal Accountant to: © take up in the books of the Municipality the donated ambulance for fair presentation of PPE account in the financial statements. * compute, record and present the accumulated depreciation in the financial statements pursuant to Paragraphs 43, 66, 69 and 71 of PPSAS 17 for proper valuation. Management Comment: The Municipal Accountznt committed to take up in the books the donated sess oa Will compute, record und present the accumulated depreciation in the FS is 8. '. Fully depreciated and unserviceable properties totaling P183,734.50 were not disposed of due to failure of the desigeated Property Custodian (a prepare the Inventory and Inspection Report of Unserviceable Property (IIRUP) as required under Section 79 of P.D. No. 1445 and Section 125 of the MNGAS for LGU, thereby depriving the Municipality of the possible additional income that can be derived therefrom. SI