INDEPENDENT AUDITOR’S REPORT

Mayor OSCAR G. MALAPITAN

Caloocan City

Report on the Audit of the Financial Statements

Qualified Opinion

We have audited the financial statements of the City of Caloocan, which comprise the
statement of financial position as at December 31, 2021, and the statement of financial
performance, statement of changes in net assets/equity and statement of cash flows for
the year then ended, and notes to the financial statements, including a summary of
significant accounting policies.

In our opinion, except for the effects of the matter described in the Bases for Qualified
Opinion section of our report, the accompanying financial statements present fairly, in all
material respects, the financial position of the City of Caloocan as at December 31, 2021,
and their financial performance and cash flows for the year then ended, and notes to the
financial statements, in accordance with International Public Sector Accounting
Standards (IPSAS).

Bases for Qualified Opinion

Inaccurate balances of the Cash in Bank (CIB) - Local Currency (LC), Current Account
(CA); LC, Savings Account (SA); and LC, Time Deposits (TD) affected the reliability
and existence of the CIB account balance as of December 31, 2021, in the aggregate of
P4.997 billion due to: (a) Unrecorded/unadjusted book reconciling items of total
additions of P0.201 million and total deductions of P18.784 million, or a total of P18.985
million;
(b) Negative balance of two bank accounts amounting to P0.991 million; (c) Dormant
balances of the CIB - LCCA and LCSA totaling P260.075 million; (d) Non-existing
account with the Development Bank of the Philippines (DBP) that remained recorded in
the books as LCTD amounting to P30 million; (e) Closed accounts included in the
balance of CIB – LCCA amounting to P11.757 million; and (f) Non-preparation of the
Bank Reconciliation Statements (BRS) for 21 bank accounts. Moreover, the City
continues to maintain deposits with the Philippine National Bank (PNB), which ceased to
be an Authorized Government Depository Bank (AGDB) amounting to P86.224 million,
contrary to Department of Finance (DOF) Circular No. 01-2017 dated May 11, 2017.

The City continues to record reimbursements from PhilHealth for hospital charges under
“cash basis” accounting, instead of recognizing the revenue when earned (“accrual basis”
accounting), contrary to Paragraph 7 of the International Public Sector Accounting
Standards (IPSAS) 1. This incorrect accounting practice, which was already pointed out
in prior audit but still persists, resulted in the understatement of the accounts: Due from
GOCCs by P34.909 million, Due to Officers and Employees by P9.689 million, Hospital
Fees by P47.691 million and Government Equity by P31.103 million; and overstatement
of the account Due to GOCCs by P53.573 million, as of December 31, 2021.
Collectively, using the cash basis accounting distorts the fair presentation of the City’s
financial statements as of year-end of CY 2021. This practice also deprived the City of a
valuable revenue stream available for budgeting by not recognizing claims for hospital
charges, which could have been used to provide better health care services to its
constituency.

Cash advances (CAs) granted by the present (July 1, 2013 to CY 2021) and past
(June 30, 2013 and prior years) administrations amounting to P0.106 million and
P74.275 million, respectively, or a total of P74.381 million remained outstanding as of
December 31, 2021, contrary to COA Circular No. 97-002 dated February 10, 1997.
Thus, the non-liquidation of the CAs prevented Management from ascertaining whether
the CAs were appropriately utilized for the purpose for which they were granted and
overstated the balances of the Advances accounts by P74.381 million and the
Government Equity accounts for those pertaining to prior period transactions in the
amount of P74.3 million and understated the related Expense accounts by P0.081 million.

The existence, validity, accuracy and reliability of the Property, Plant and Equipment
(PPE) account balance with a carrying value of P11.38 billion as of December 31, 2021,
could not be ascertained due to the following: a. Unreconciled discrepancy of P2.528
billion between the accounting records and the Report on the Physical Count of Property,
Plant and Equipment (RPCPPE); b. Unidentified items in 15 PPE accounts valued at
P328.477 million and four PPE accounts with negative balances totaling P62.678 million
were recorded in lump-sum amounts; c. Inaccurate computation of depreciation in the
aggregate amount of P583.865 million; d. Non-derecognition of: (i) undetermined value
of replaced/removed materials incident to the repairs, renovation and rehabilitation of
13 buildings and structures amounting to P246.52 million; (ii) assets deemed
unserviceable worth P110.427 million remained in the books at year-end; and (iii) assets
no longer needed totaling P6.337 million and already transferred without cost to other
local and national government agencies in CY 2018 were still included as PPE; and e.
Absence of physical inventory taking of PPE under SEF. Thus, contrary to Paragraph
C.3, Chapter 5 of the Manual on Property Custodianship, Paragraphs 43, 71, 82, 83 of
IPSAS 17 on PPE and Paragraphs 5.1, 5.8 and 5.12 of COA Circular No. 2020-006 dated
January 31, 2020.

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The correctness of the balance of the Construction in Progress (CIP) account in the
amount of P308.196 million could not be ascertained due to absence of record/relevant
documents to support the validity and reliability of unreconciled prior period balances
carried-forward up to December 31, 2021.

The year-end unexpended amounts of DRRMF from CYs 2017 to 2021 were incorrectly
computed, contrary to Section 21 of RA No. 10121, which resulted in the net
understatement of the recorded Trust Liabilities – DRRMF account by P94.671 million,
and misstated the related Asset, Liability, Expense and Government Equity accounts.

We conducted our audit in accordance with International Standards of Supreme Audit

Institutions (ISSAIs). Our responsibilities under those standards are described in the
Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.
We are independent of the City of Caloocan in accordance with the Revised Code of
Conduct and Ethical Standards for Commission on Audit Officials and Employees (Code
of Ethics) together with the ethical requirements that are relevant to our audit of the
financial statements, and we have fulfilled our other ethical responsibilities in accordance
with these requirements and the Code of Ethics. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter Paragraph

Without modifying our opinion, we draw attention to Note 4 of the Notes to Financial
Statements, which explains that the affected accounts of the restated financial statements
for the year ended December 31, 2020, have been restated from those which we
originally reported on June 25, 2021.

Responsibilities of Management and Those Charged with Governance for the

Financial Statements

Management is responsible for the preparation of the financial statements in accordance

with the International Public Sector Accounting Standards and for such internal control as
Management determined is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, Management’s responsibility for assessing the City
of Caloocan’s ability to continue as a going concern, disclosing as applicable, matters
related to going concern and using the going concern basis of accounting unless
Management either intend to liquidate the City of Caloocan or to cease operations, or has
no alternative but to do so.

Those charged with governance are responsible for overseeing the City of Caloocan’s
financial reporting process.

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Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in accordance with ISSAIs
will always detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of
these financial statements.

As part of an audit in accordance with ISSAIs, we exercise professional judgment and

maintain professional skepticism throughout the audit. We also:

 Identify and assess the risks of material misstatement of the financial statements,
whether due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.

 Obtain an understanding of internal control relevant to the audit 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 City of Caloocan’s internal control.

 Evaluate the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by Management.

 Conclude on the appropriateness of Management’s use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the City of
Caloocan’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the
related disclosures in the financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the
City of Caloocan to cease or continue as a going concern.

 Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures, and whether the financial statements represent the
underlying transactions and events in a manner that achieves fair presentation

We communicate with those charged with governance regarding, among other matters,
the planned scope and timing of the audit and significant audit observations, including
any significant deficiencies in internal control that we identify during our audit.

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We also provide those charged with governance with a statement that we have complied
with relevant ethical requirements regarding independence, and to communicate with
them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.