EXECUTIVE SUMMARY

INTRODUCTION

The Municipality of Lugait is formerly a part of Manticao but on March 16, 1961,
Executive Order No. 425 was signed into law by then President Carlos P. Garcia giving
birth to the municipality.

The municipality has a total area of 36,425.6721 hectares which is divided into
eight (8) barangays, namely: Aya-aya, Betahon, Biga, Calangahan, Lower Talacogon,
Kaluknayan, Poblacion and Upper Talacogon. It has 20,100 population and 4,102
households based from the BNS survey. It bounded on the west northwest by Iligan Bay,
northwest by the Municipality of Manticao and west southwest south by Iligan City.

In addition to the provisions provided in Section 17 of R.A. 7160, Lugait also

endeavors to uplift the social economic well-being of the population through provision of
effective and quality services and facilities.

FINANCIAL HIGHLIGHTS

The comparative analysis of the agency’s financial condition, resources and

application of funds for CY 2018 and 2017 are as follows:

I. Comparative Status of Financial Condition

Particulars 2018 2017

Assets ₱ 483,390,547 ₱ 420,030,608
Liabilities 120,471,530 92,903,642
Equity 362,919,017 327,126,966

II. Comparative Status of Financial Operation

Particulars 2018 2017

Income ₱ 113,709,813 ₱ 115,741,318
Expenses 83,824,565 71,670,784
Net Income 28,988,248 43,562,534

INDEPENDENT AUDITOR’S OPINION ON THE FINANCIAL STATEMENTS

We rendered qualified opinion on the fairness of presentation of the financial

statements as of December 31, 2018 since the accuracy and existence of the Property, Plant
and Equipment (PPE) amounting to P270,436,966 could not be ascertained due to a)
absence of physical inventory and non-maintenance of Property Cards and PPE Ledger
Cards; the Construction in Progress Accounts were not closed to the appropriate asset
accounts for the completed projects costing P8,313,364, the reliability and accuracy of the
cash in bank balances could not be ascertained due to non-submission of Monthly Bank
Reconciliation Statements (BRS) from December 2017 to September 2018; and dormant
Other Receivables amounting to P15,230,671 were not acted upon to facilitate the proper
write-off, resulting in the overstatement of agency assets due to the inclusion of accounts
with doubtful existence.

SIGNIFICANT AUDIT OBSERVATIONS & RECOMMENDATIONS

The following are the significant findings and recommendations in the audit of the
Municipality of Lugait, Misamis Oriental for the Calendar Year 2018:

1. Non-disposal and inclusion of the unserviceable properties procured out of

the 5% Disaster Risk Reduction and Management Fund (DRRMF)
amounting to P139,000 under the PPE, run contrary to Section 379 of R.A.
No. 7160 and Paragraph 18 of PPSAS No. 17, thus depriving the
Municipality of additional income from the sale of subject properties while
giving unwarranted burden in the safekeeping thereof.

We recommended Management the following remedial measures:

a. Require the General Service Officer/Municipal Treasurer to prepare the

Inventory and Inspection Report of Unserviceable Property (IIRUP) and
facilitate the disposal of the unserviceable equipment in accordance with
Section 379 of RA No. 7160 to avoid further deterioration and to generate
additional income from their disposal;

b. Direct the Municipal Accountant to prepare an adjusting entry to

derecognize the unserviceable equipment as prescribed under PPSAS No.
17 after IIRUP is duly approved and evaluated by COA; and

c. Procure new search and rescue equipment as replacement for the above-
mentioned unserviceable items.

2. The Municipal Accountant was unable to set-up subsidiary ledgers for the
collections of individual collectors by fund, as required under Section 10,
Volume II of the Manual on New Government Accounting System (NGAS),
thus casting doubt as to the accuracy and validity of the cash accounts.

We recommended Management to require the Municipal Accountant to set-up

subsidiary ledgers for the collections of the individual accountable officers by
fund, to ascertain the accuracy and validity of the collections made and to
determine his/her correct accountability for the given period, in accordance to
Section 10, Volume II of the Manual on NGAS.
 3. The Municipality paid Collective Negotiation Agreement (C.N.A.)
Incentive for CY 2018 in excess of the allowable P25,000 limit, totaling to
P599,080, contrary to DBM Budget Circular Nos. 2006-1 and 2018-5, thus
deprived the Municipality of the savings that could have been generated.

We recommended Management to submit an accomplishment as of

September 30, 2018 and an explanation, and to observe the strict compliance of
the allowable limit of P25,000 in the payment of C.N.A Incentives for CY 2018
in accordance with DBM Budget Circular Nos. 2018-5 and 2006-1. Refund of
the disallowable amount is required.

4. The LGU continued the use of the manual payroll system instead of the
Automated Teller Machine (ATM) payroll accounts as required under
DBM National Payroll System (NPS), thus economy, efficiency and
effectiveness of the system could not be attained.

We recommended Management to establish and adopt the ATM payroll system

account for all their employees in conformity with the DBM NPS to ensure
greater efficiency, transparency, and accountability in the government’s human
resource processes.

5. Contract documents of five infrastructure projects, amounting to

P33,921,969.09, were not furnished to the Auditor within five (5) working
days from the perfection of the contract, as required under Section 3.1.1 of
COA Circular No. 2009-001, thus hindered the timely review and
appropriate evaluation by the Auditor.

We recommended Management to submit for contract review the contract

documents of the above-mentioned projects, programs and activities and
employ means to ensure timely submission to COA of any contract entered into
by the Municipality, consistent with COA Circular 2009-001 dated
February 12, 2009.

Deficiencies observed in the course of the audit were earlier communicated through
Audit Observation Memoranda (AOM) and discussed in the exit conference with
concerned LGU-Lugait officials and employees on February 18, 2019. Their comments
were incorporated in this report where appropriate.

Other deficiencies found in the audit are discussed in Part II of this Report.
SUMMARY OF TOTAL SUSPENSIONS, DISALLOWANCES, AND CHARGES

The municipality has total outstanding balances of notices of suspension (NS),

notices of disallowances (NDs) of P 181,720.39 and P 1,016,100.96, respectively, viz:

Particulars NS ND NC Total
Balance, Jan. 1, 2018 282,995.39 629,300.96 0.00 912,296.35
Add: Issuances during 0.00 386,800.00 0.00 386,800.00
2018
Less: Settlement 101,275.00 0.00 0.00 101,275.00
Balance, Dec. 31, 181,720.39 1,016,100.96 0.00 1,197,821.35
2018

STATUS OF IMPLEMENTATION OF PRIOR YEARS’ AUDIT

RECOMMENDATIONS

Monitoring and evaluation of the actions taken by management relative to the

implementation of prior year’s recommendations disclosed that out of the Thirteen (13)
audit recommendations embodied in the CY 2017 Annual Audit Report, four (4) were fully
implemented, three (3) were partially implemented, and six (6) were not implemented