AOM No.

: 23-0___ ()
Date : March 9, 2023

AUDIT OBSERVATION MEMORANDUM (AOM)

For : Hon.
Provincial Governor
Provincial Government of

Attention:
Provincial Accountant

We have reviewed the financial statements of the provincial government and observed
the following:

1. The balance of Due from Local Government Units (LGUs) did not reconcile with the
reciprocal account Due to LGUs in the books of the Provincial Government due to the non-
recording by the Province of the Real Property Taxes (RPT) Receivables and Special
Education Taxes (SEF) Receivables collected but not yet remitted by some municipalities
thereby showing discrepancy of P4,010,255.36.

The Local Government Code provides the following among others:

Section 232 - “A province or city or a municipality within the Metropolitan Manila Area
my levy an annual ad valorem tax on real property such as land, building, machinery,
and other improvement not hereinafter specifically exempted”.

Section 235 – “A province or city, or a municipality within the Metropolitan Manila

Area, may levy and collect an annual tax of one percent (1%) on the assessed value of
real property which shall be in addition to the basic real property tax. The proceeds
thereof shall exclusively accrue to the Special Education Fund (SEF).”

Section 247 - “The collection of the real property tax 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 city or municipal treasurer concerned.”

Section 271 – “The proceeds of the basic real property tax, including interest thereon,
and proceeds from the use, lease or disposition, sale or redemption of property acquired
at a public auction in accordance with the provisions of this Title by the province or city
or a municipality within the Metropolitan Manila Area shall be distributed as follows:

(a) In the case of provinces:

 (1) Province - Thirty-five percent (35%) shall accrue to the general fund;

(2) Municipality - Forty percent (40%) to the general fund of the municipality
where the property is located; and

(3) Barangay - Twenty-five percent (25%) shall accrue to the barangay where the
property is located.

Section 272 - The proceeds from the additional one percent (1%) tax on real property
accruing to the Special Education Fund (SEF) shall be automatically released to the
local school boards: Provided, That, in case of provinces, the proceeds shall be divided
equally between the provincial and municipal school boards: Provided, however, That
the proceeds shall be allocated for the operation and maintenance of public schools,
construction and repair of school buildings, facilities and equipment, educational
research, purchase of books and periodicals, and sports development as determined and
approved by the Local School Board.

Further, Section 30 of the New Government Accounting System for Local Government
provides that “Due from LGUs (131) - This account is used to record the amount due from
provinces, cities, municipalities, barangays and other local government units.

Debit this account for:

Advances granted to LGUs

Share of LGUs from Real Property Tax (Basic and additional)
Overpayment to LGUs

Credit this account for:

Collections of receivables from LGUs

Authorized write-off of accounts”

In addition, the Government Accounting Manual (GAM) for LGUs, Volume III,
prescribes, among others, the use of the account Due from LGUs to record the share of an LGU
from income of other LGUs as well as other inter-agency receivables.

To attain fairness in the presentation of accounts in the financial statements, the

information that each account carries should be reliable, accurate and valid. Reconciliation of
one account to its contra account is one accounting procedure that should be carried out by the
Accounting Unit to attain such objective. When receivables (Due from LGUs) are recorded in
Province’s books of account, there shall be corresponding payable (Due to LGUs) accounts of
the same amount in the books of the municipalities to ensure the validity and correctness of the
claim.

The Due from LGUs account as of year-end showed a balance of 4,608,871.00

representing counterparts of the provincial government for the implementation of infrastructure
 projects by the recipient LGUs. However, verification with the financial statements as of
December 31, 2022 of the 10 municipalities of the province revealed the following
discrepancies:

General Fund Special Education Fund

Municipalities Due from LGUs Due to LGUs Due from LGUs Due to LGUs Total Difference
(Province's (Municipalities' Difference (Province's (Municipalities' Difference
Books) Books Books) Books

Bontoc - - - - - - -
Paracelis - - - - 231,987.79 - 231,987.79 - 231,987.79
Sagada - 180,309.50 - 180,309.50 - 190,253.01 - 190,253.01 - 370,562.51
Besao - 121,853.87 - 121,853.87 - 103,760.39 - 103,760.39 - 225,614.26
Tadian - - - - - - -
Bauko - - - - - - -
Sabangan - 24,154.63 - 24,154.63 - 3,090,901.78 - 3,090,901.78 - 3,115,056.41
Sadanga - 67,034.39 - 67,034.39 - - - - 67,034.39
Barlig - - - - - - -
Natonin - - - - - - -
Total - 393,352.39 - 393,352.39 - 3,616,902.97 - 3,616,902.97 - 4,010,255.36

From the above table, five municipalities show difference totaling 4,010,255.36. The
difference represent provincial share from the collections by the municipalities of RPT and SEF
for CY 2022 but were not yet remitted as of year-end.

A provincial accounting office personnel explained that they only record collections
which were only remitted to the provincial treasury.

The above condition indicates a need for the Provincial Accounting Office to require
Municipal Accounting Offices to furnish copies of Monthly Abstract of Real Property
Collections as basis for reconciliation.

Non-reconciliation of the Due from LGUs and the counterpart Due to LGUs in the books
casts doubt on the correctness of the balance in the financial statements of the province.

We recommend that the Provincial Accountant require the Municipal Accountants

to submit Monthly Abstract of Real Property Collection to be used in the reconciliation of
the Due from LGUs and its reciprocal account.

2. Despite dormancy for 10 to 19 years of Due from LGUs account amounting to 290,200.00,
the province had not initiated the filing of request for authority to write-off the amount
with the Commission on Audit pursuant to COA Circular No. 2016-005.

COA Circular no. 2016-005 dated December 19, 2016 which provides the guidelines and
procedures on the write-off of Dormant Receivable Account, Unliquidated Cash Advances and
Fund Transfers, defines write-off of dormant accounts as the process of derecognizing the asset
account and corresponding allowances for impairment from the books of accounts and
transferring the same to the registry of Accounts Written off (RAWO). It requires that the Head
of the government entity shall file the request for authority to write-off dormant receivable
accounts, unliquidated cash advances, and fund transfers to the COA Audit Team Leader (ATL)
and/or Supervising Auditor (SA).

Further, Section 7 of the same circular provides, among others, the applicable conditions
that may warrant the request for write-off, to wit:

a. Absence of records or documents to validate/support the claim and/or unreconciled

reciprocal accounts.
b. Death of the accountable officer/employee/debtor
c. Unknown whereabouts of the accountable officer/employee/debtor, and that he/she
could not be located despite diligent efforts to find him/her
d. Incapacity to pay or insolvency
e. Exhaustion of all possible remedies by the Management to collect the receivables and
to demand liquidation of cash advances and fund transfers
f. No pending case in court involving the subject dormant accounts.

Analysis of the province’s schedule of the Due from LGUs revealed that receivables from
six barangays totaling 290,200.00 had been dormant for 10 to 19 years. Details are as follows:

Barangay Aging Amount

15 years 30,000.00
10 years 40,000.00
19 years 10,200.00
N/A 120,000.00
10 years 60,000.00
15 years 30,000.00
Total 290,200.00

A personnel from the accounting office explained that current officials of the barangays
concerned could not submit the required liquidation reports due to the changes of officials and
employees assigned with the custody of documents of the barangays. The financial statements of
the six barangays as of December 31, 2021 did not also show that they have long outstanding
payables to the Province.

The inclusion of the of the 290,200.00 receivable in the Due from LGUs account of the
provincial government overstates the assets of the LGU by the same amount.

We recommend that the Provincial Accountant complete the required documents

and ensure that the conditions for write-off are met to facilitate the submission to the COA
of the request for authority to write-off of the 290,200.00 Due from LGUs together with the
necessary documents prescribed under COA Circular No. 2016-005, for evaluation of the
COA.
 May we have your comments on the foregoing audit observations within (15) calendar days
from receipt hereof.

Audit Team Leader

Supervising Auditor