EXECUTIVE SUMMARY

I. Introduction

Municipality of Isabela is a second class municipality in central Negros Occidental

approximately 75 kilometers from Bacolod City and is easily accessible thru land transport.
It is bounded on the north by the Municipalities of La Castellana and Moises Padilla; on the
south by Municipality of Binalbagan; on the west by Municipality of Hinigaran and on the
east by Municipality of Guihulngan, Negros Oriental. Land area is about 17,859 hectares
covering 30 barangays.

The town was originally known as Manacup. It was later named Isabela by a Recollect
Friar in honor of the Queen Isabela II of Spain.

Known landmarks of the Municipality included Glory Hill; St. Nicolas de Tolentino
Church and Lima lima Falls (www.negrosocc.gov.ph).

It earned the Seal of Good Local Governance (SGLG) for Municipalities for CY 2015.

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II. Highlights of Financial Operations

a. Sources and Application of Funds

For Calendar Year 2016, total income (including subsidies) generated amounted to
P152,935,081.94 showing an increase of P23,947,190.27 or 18.57% from last year’s income
of P128,987,891.67.

Details are as follows:

Amounts (In PhP) 2016 2015 Difference %

Operating Income 139,009,453.37 128,278,639.99 10,730,813.38
Subsidies from 13,925,628.57 709,251.68 13,216,376.89
152,935,081.94 128,987,891.67 23,947,190.27 18.57%

Total operating expenses (including financial expenses and subsidies) amounting to

P122,577,949.07 has increased by P7,947,515.14 or 6.93% from last year’s total
expenditures (including financial expenses and subsidies) of P114,630,433.62. Details are
follows:

Amounts (In PhP) 2016 2015 Difference %

Expenses 135,643,043.36 113,819,845.01 21,823,198.35
Financial 1,523,061.66 1,712,985.18 (189,923.52)
Subsidies to 11,442,961.18 10,965,787.10 7,045,118.88
148,131,892.12 122,577,949.07 25,553,943.05 20.85%

b. Appropriations

For the year, total appropriations (including continuing appropriations) amounting to

P154,064,592.30 has increased in the amount of P 19,759,046.42 or 14.71% as compared to
the previous year’s appropriation of P134,305,545.88.

c. Obligations

Total obligations for the year amounted to P127,552,556.07 showing an increase of

P16,934,929.82 or 15.31% as compared to prior year’s obligations of P110,617,626.25.

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d. Financial ratios for CY 2016 are as follows:

Increase
2016 2015 (Decrease)
Cash Ratio 1.57 1.43 (0.14)

Current Ratio 1.88 1.63 0.25

Quick (Acid
Test) Ratio 1.88 1.63 0.25

Debt Ratio 0.16 0.17 (0.01)

Debt-to-Equity
Ratio 0.18 0.21 (0.03)

LT Debt-to-Equity
Ratio 0.01 0.06 (0.05)

Interest
Coverage Ratio 4.15 4.74 (0.59)

Net working capital 43,754,065.24 35,213,375.44 8,540,689.80

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III. Scope of the Audit

A financial and compliance audit on the accounts and operations of the Municipality
of Isabela was conducted for the year ended December 31, 2016. The audit was conducted to
ascertain the propriety of financial transactions and compliance of the local government unit
(LGU) to prescribed rules and regulations. It was also made to ascertain the accuracy of
financial records and reports, as well as the fairness of the presentation of the financial
statements. A verification of the implementation of prior years’ audit recommendations was
also undertaken.

A value for money audit was likewise conducted to determine whether the agency’s
programs/projects/activities and/or the management of its resources had been carried out
economically, efficiently and effectively.

The following audit thrusts were included in this year’s report:

1. BUB Fund Transfers 8. Insurance with GSIS

2. 20% Development Fund 9. Complete submission of financial
3. LDRRMF reports
4. Solid Waste Management 10. Cash in bank
Fund/Environmental Compliance 11. Cash Advances
5. SEF 12. Property, Plant and Equipment
6. Procurement accounts
7. GAD Funds 13. Compliance with Tax Laws

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IV. Auditor’s Opinion of the Financial Statements

The auditor rendered a qualified opinion on the presentation in material respects

of financial statements of the Municipality of Isabela as of December 31, 2016 due to the
failure to conduct the annual physical count of property, plant and equipment and
inventories; thus, physical existence of inventory items and PPE and the reliability of the
balances of said accounts could not be ascertained.

V. Significant Findings and Recommendations

1. Disbursements totaling to P6,306,214.35 for implementation of projects funded

by Bottom Up Budgeting (BUB) were not completely documented.

We recommended that the Municipal Accountant and other concerned officials

should immediately submit the required documents in compliance with prescribed
rules and regulations and to prevent possible suspension of transactions concerned.

2. Utilization of the 20% Development Fund appropriation of P43,613,327.78

(current and continuing) only amounted to P23,728,625.14 as of December 31,
2016 which is equivalent only to 54.41%.

We recommended that funds appropriated for the 20% Development Fund be

fully utilized in the implementation of projects to serve the purpose/s provided for so
that the service and benefits expected from these projects are delivered to the
constituents without unnecessary delay.

We also recommended that the Municipal Planning and Development

Coordinator in accordance with Section 476 of Republic Act No. 7160 shall (1)
Formulate integrated economic, social, physical and other development plans and
policies for consideration of the local government development council and (4)
Monitor and evaluate the implementation of the different development programs,
projects and activities in the local government unit concerned in accordance with the
approved development plan. Representation shall be made from time to time with the
Local Chief Executive on the status of implementation of the 20% Development
Fund.

We further recommended that the Municipal Budget Officer thoroughly

examine projects in the continuing appropriations at year-end, especially those that
remained unobligated. Representation to the Municipal Mayor shall be made that
appropriations no longer needed will be recommended for immediate reversion to the
unappropriated surplus of the General Fund for appropriation to programs and
projects that conform with the guidelines set in DILG-DBM Joint Memorandum
Circular No. 2011-1.
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3. Reports of Sources and Utilization of Disaster and Risk Reduction Management
Fund (DRRMF) for CY 2016 were not submitted to the office of the Auditor
monthly contrary to Section 5.1.5 of COA Circular No. 2012-002 dated
September 12, 2012.

We recommended that the Municipal DRRM Officer coordinate with the

Municipal Accountant in the preparation of the said Report. The Municipal
Accountant shall facilitate the submission to concerned offices within the prescribed
period to comply with aforementioned COA Circular.

4. The Municipality did not convert its partially closed dumpsite to a sanitary land
fill as final disposal facility for residual wastes contrary to the provisions in
Republic Act No. 9003.

We recommended that the Municipality thru its Solid Waste Management

Board prepare plans for safe closure and rehabilitation of the existing controlled
dumpsite and its eventual conversion to a sanitary landfill within a reasonable period
to conform with provisions of RA 9003.

5. Disbursements from SEF amounting to P316,368.37 were paid thru five (5)
checks without corresponding disbursement vouchers and supporting
documents is in violation of Section 4 of Presidential Decree No. 1445 and
Section 40 of Manual of New Government Accounting System (NGAS), Volume
I; thus, the legality and validity of these disbursements could not be established.

We recommended that the Municipal Accountant make representation with the

Office of the Municipal Treasurer that the corresponding disbursement vouchers and
supporting documents of the five (5) checks issued totaling P316,368.37 shall be
immediately submitted to her Office which in turn shall be submitted for audit in
compliance to Section 4 of Presidential Decree No. 1445 to avoid possible suspension
or disallowance of the said transactions.

We further recommended that the Municipal Treasurer draw checks only on

duly approved disbursement vouchers. Emphasis added.

6. Government buildings and equipment totaling P92,240,104.79 were not

insured with the Government Service Insurance System (GSIS) contrary to
Section 5 pf Republic Act No. 656, otherwise known as the Property Insurance
Law, thus uninsured properties are not protected from risk in case of loss or
damage.

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 We recommend that concerned officials ensure that all properties of the
Municipality are insured with the General Insurance Fund of the GSIS to protect the
same against loss or damage and in case of loss or destruction, the Municipality can
at least recover the costs of these assets.

7. The Municipality failed to submit the year-end financial reports and supporting
schedules for Calendar Year 2016 within the prescribed period contrary to the
provisions of Section 4 of COA Circular No. 2010-001 dated March 2, 2010.

We recommended that the Municipal Accountant monitor the monthly

preparation and submission of the Financial Statements pursuant to Section 4 of COA
Circular No. 2010-001 dated March 2, 2010.

8. The Municipality still failed to prepare and submit the monthly Bank
Reconciliation Statements for all funds for all accounts for CY 2016 to the Office
of the Auditor in violation of Section 74 of Presidential Decree No. 1445 and
Commission on Audit Circular (COA) No. 96-011 dated October 2, 1996.

We recommended that the Municipal Mayor appoint or assign a permanent

personnel in the Accounting Office to assist in the preparation of the bank
reconciliation statements for all depository banks so that the reports could be
submitted to all concerned offices on time pursuant to COA Circular No. 96-011 and
Section 74 of PD 1445 and also to assure that cash in bank balances are presented
fairly in the financial statements.

9. Advances amounting to P8,448,080.04 were not fully liquidated at the end of the
year in violation of provisions of Commission on Audit (COA) Circular No. 97-
002 dated February 10, 1997.

We recommended that the Municipal Mayor and the Municipal Accountant

immediately send demand letters to officials and employees who have unliquidated
cash advances by requiring them to settle the amount advanced within a specific
period. Otherwise, recommend for the withholding of their salaries pursuant to
second paragraph of 5.1.3 of COA Circular No. 97-002 until such time that the cash
advances are fully settled.

The Municipal Mayor and the Municipal Accountant strictly require officials
and employees to settle their cash advances within the prescribed periods pursuant to
5.1 of COA Circular No. 97-002.

Consequently, complete settlement of cash advances will redound to the correct

presentation of balances of cash and government equity accounts at year end.

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10. Accuracy of Property, Plant and Equipment (PPE) Accounts totaling
P138,273,303.12 could not be ascertained due to the failure of the agency to
complete the inventory taking, maintain and reconcile PPE ledger cards and
property cards.

We recommended that the Inventory Committee completes its physical

inventory taking, render a report thereon and update and reconcile the related
subsidiary records to have assurance that the PPE accounts totaling P138,273,303.12
are fairly presented in the Statement of Financial Position as of December 31, 2016.

We further recommend that for all existing properties, as well as for subsequent
procurements, the Municipal Treasurer, in her capacity as Property Custodian,
prepare Property Cards while the Municipal Accountant shall prepare the PPE Ledger
Card as basis for inventory taking.

Henceforth, inventory taking and reconciliation of related subsidiary records

should be regularly undertaken and regarded with utmost importance.

11. Due to BIR (account 2-02-01-010) for all funds totaling to P1,104,686.66 as of
December 31, 2016 was not immediately remitted within the required period as
provided under Sec. 1 of Republic Act No. 7649 thereby overstating the
payables.

We recommended that the concerned officials monitor remittances of taxes

withheld and facilitate the immediate remittance of Due to BIR balance of
P1,104,686.66 as of December 31, 2016 in conformity with pertinent provisions of
RA 7649.

VI. Summary of Suspension/Disallowance and Charges

As of December 31, 2016, the balance for the Notice of Suspension amounted to
P3,241,766.60.

VII. Status of Implementation of Prior Year’s Audit Recommendations

Of the 28 recommendations embodied in the previous year’s report, none had

been fully implemented; 21, partially implemented; and 7 were not implemented.
Some findings were reiterated in this year’s report.

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