EXECUTIVE SUMMARY

A. Introduction

The BLGF was established on January 30, 1987 by virtue of Section 43, Executive
Order (EO) No. 127, wherein the Department of Finance (DOF) was reorganized
and the Office of the Local Government was elevated to a Bureau. It is the DOF’s
arm principally responsible for the enhancement and supervision of Local
Government Unit (LGU) financial operations for local economic growth leading the
way towards national development.

It is mandated to perform the following functions:

a. Assist in the formulation and implementation of policies on local government

revenue administration and fund management;
b. Exercise administrative, technical supervision and coordination over the
treasury and assessment operation of local government;
c. Develop or implement plans and programs for the improvement of resource
management system, collection enforcement mechanisms and credit utilization
schemes at the local levels;
d. Provide consultative services and technical assistance to the local government
and the general public on local taxation, real property assessment and other
related matters; and
e. Exercise line supervision over its Regional Offices and the local treasury and
assessment and other related matters.

The Bureau has an authorized total personnel complement of 425 with 217 filled up
permanent positions and 45 co-terminous incumbents that assist in the different
responsibility centers comprising of five major services with 15 ROs nationwide as
of December 31, 2016.

B. Financial Highlights

The financial position, financial performance and the sources and utilization of
funds for CY 2016, with corresponding figures for CY 2015, are summarized
below:

Particulars 2016 2015

Financial Position
Assets P83,993,317.32 P73,762,594.11
Liabilities 4,482,861.30 4,743,453.58
Net Assets/Equity 79,150,456.02 69,019,140.53

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 Particulars 2016 2015
Financial Performance
Revenue P231,845,805.65 P225,469,580.66
Expenses 218,334,142.18 209,063,592.68
Surplus/(Deficit) 13,511,663.47 16,405,987.98

Sources and Utilization of Funds

Appropriations P247,424,192.00 P227,511,026.00
Allotment Received 241,310,750.00 227,511,026.00
Obligations Incurred 224,018,843.30 211,864,535.27
Disbursements 217,708,828.83 206,567,862.07
Unexpended Balance 17,291,906.70 8,896,348.57

The Statement of Appropriations, Allotments, Obligations, Disbursements and

Balances (SAAODB) as of December 31, 2016 is shown in Annex A.

C. Operational Highlights

For the past year, BLGF’s strategies were focused on continuing good governance
reforms through resource mobilization programs, good governance and
transparency initiatives, implementation of special projects, enhancement of
existing systems, networking and linking with international partners and capacity
development programs for BLGF and LGUs. The following are the reported
accomplishments of the BLGF:

a. Resource Mobilization and Revenue Generation

 The Bureau provided LGUs with technical assistance in implementing tax

collection enforcement programs and strategies aimed at improving their
performances in generating locally sourced income which includes updating
of Local Revenue Codes, Schedule of Market Values, credit financing
schemes, improved financial reporting system, among others.

b. Governance and Transparency Initiatives

 In line with the President’s instruction to streamline government

requirements, Department Order No. 54-2016 dated October 25, 2016, was
issued to streamline the certification of Net Debt Service Ceiling and
Borrowing Capacity (NDSC BC) of Local Government Units. The Order
simplified and reduced the number of documentary requirements from 12 to
4. The Certification is effective up to 1-year and for disaster-stricken LGUs,
up to 2-years after issuance. The BLGF has also delegated the review and
certification of the completeness of loan documents to the Regional Offices
for easier coordination.

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c. Special Projects

 Under the European Union funded LGU PFM 2 Project, the DOF thru the
BLGF joined the DILG, DBM and NEDA in signing the Joint Memorandum
Circular No. 1-2016 setting the framework and policy for a more
coordinated approach towards improving local government units’ public
financial management in ensuring harmonized and synchronized policies,
systems and procedures in planning, budgeting, investment programming,
and resource mobilization coordination in fiscal oversight pursuant to the
mandated functions under the Local Government Code (LGC) of 1991.

 The Secretary, thru the BLGF, issued Department Order No. 49-2016 dated
September 5, 2016 for the inclusion of Environment and Natural Resources
Data in the Electronic Statement of Receipts and Expenditures System for
Local Treasurers in the commitment to promote transparency and good
governance in managing the country’s natural resources.

 The Bureau received the Philippine Extractive Industries Transparency

Initiative (PH-EITI) Transparency Award in recognition for significant
contribution in the inclusion of Environment and Natural Resources Data
Management Tool (ENRDMT) data in the Electronic Statement of Receipts
and Expenditures System for Local Treasurers (eSRE).

d. Capacity Development

 The BLGF in coordination with the Department of Finance (DOF) and Civil
Service Commission (CSC) submitted to the Secretary the results of the
Basic Competency of Local Treasury Examination (BCLTE) conducted in
December of 2015. The BCLTE was mandatory for all permanent and
designated treasurers and assistant treasurers including the BLGF Central
and Regional employees assigned with local treasury supervision functions.

 The BLGF offers Continuing Professional Development (CPD) programs

accredited by the Professional Regulation Commission (PRC) on (1)
Philippine Valuation Standards (PVS); (2) Basic Course on Mass Appraisal
(BCMA); and (3) Skills Development in SMV Updating and Conduct of
General Revision. For CY 2016, two trainings on the PVS were conducted
in Manila and Baguio City. A total of 123 participants from the local
assessment offices including private practitioners attended.

 In strengthening the capabilities of local treasury officials and achieving the

Bureau’s goals on a sustainable basis, the BLGF conducted various trainings
on Leadership and Management, Facilitation and Presentation Skills and
Statistical Analysis and Financial Tools.

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  The BLGF, in cooperation with the Asian Development Bank (ADB)
conducted three Cluster Trainings for the Provincial Roll-out of LGU
Integrated Financial Tools (LIFT) to Regions II, III, V, VII, VIII and IX in
November 2016 at the Baywiew Park Hotel, Manila.

 Conducted a Writeshop on Administrative Discipline and Non-Disciplinary

Proceedings (WADNP) last November 28 to December 2, 2016 at the Hotel
Kimberly, Tagaytay City. The main objective is to design a Manual on
Administrative Proceedings, and institutionalize relevant uniform
procedures and standard forms, both for Disciplinary and Non-Disciplinary
Proceedings.

e. Administrative Supervision of Local Treasurers

 In 2016, there were a total of 342 appointments and 113 designations for
Treasurers and Assistant Treasurer issued from 16 BLGF Regions.

 The Bureau investigates, resolves complaints/cases and implements

Decisions/Orders/Resolutions against erring Treasurers and Assistant
Treasurers, summary of cases promulgated by the Ombudsman, penalties for
violations range from suspension of one month to a year, fine of basic
salary, on to dismissal from the service. For the past year, a total of 71 cases
were filed against provincial treasurers, municipal treasurers, assistant
municipal treasurers, city treasurers and OICs.

f. Inter-Agency Cooperation and International Partnership

 As part of networking with local and international partners, the Bureau has
been sharing the efforts of the government on local governance. Recently,
the impact of business tax administration at the National LGU Information
and Communication Technology (ICT) forum has been shared with other
national government agencies and offered expertise at the ARMM LGU
Forum to capacitate local treasurers on local fiscal management.

 The Resource Administration and Modernization Program (RAMP) was

approved by MDF-Policy Governing Board (PGB) on November 2016. The
RAMP is funded by the Municipal Development Fund Office (MDFO) and
will be jointly implemented by the BLGF and MDFO.

 The Bureau continuously push for sustainability in local governance, geared

in emphasizing proper observance of LGC provisions, through revenue
generation efforts and programs such as continuous capacity building
interventions, good governance initiatives in heightening the performance
standards of the local treasury service, further intensifying local and
international partnership along with various stakeholders.

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D. Scope of Audit

The audit covered the financial transactions and operations of the BLGF for CY
2016 to determine the reliability of the accounting data; propriety of the financial
transactions; fairness of the presentation of financial statements; and ascertain
compliance with laws, rules and regulations. The audit was made through the
conduct of selective tests and, accordingly, included other audit techniques and
procedures deemed necessary under the circumstances.

E. Independent Auditor’s Report on the Financial Statements

The auditor rendered a qualified opinion on the fairness of presentation of the

BLGF’s financial statements as of December 31, 2016 due to the following:

1. In CO and RO V, the Due from NGAs account was overstated due to the
unrecorded deliveries from Procurement Service (PS) and unliquidated funds
transferred to the Department of Public Works and Highways (DPWH) totaling
P1,910,000.00 and P15,000,000.00, respectively, thereby, understating the
Computer Software and Construction in Progress – Buildings and Other
Structures accounts by the same amounts.

We recommended that Management require the:

a. Property/Supply Officer of BLGF-CO to ensure the timely submission of

DRs, IARs and other documents relative to deliveries of inventories and/or
PPEs to the Accounting Unit to serve as basis of recording in the books of
accounts and the Accountant to regularly coordinate or request documents
with the Property/Supply Officer pertaining to deliveries; and

b. Accountant of RO V to request from DPWH-RO V for the immediate

submission of the liquidation report pertaining to the fund transferred for the
project.

2. The reported balance of the PPE accounts could not be relied upon due to the
following deficiencies: (a) the conduct of annual physical count of PPE was not
undertaken or delayed, thus reconciliation between Accounting and Property
records was not done; (b) inclusion of PPEs below the capitalization threshold
of P15,000.00 totaling P7,594,688.86; (c) properties donated to various entities
with a net book value of P572,194.85 were still not derecognized; (d) properties
received from various entities could not be recognized in the books for lack of
pertinent documents; (e) Land and Office Building recognized without proof of
ownership; (f) non-maintenance of PPE Ledger Cards (PPELC) and Property
Cards (PC); (g) inclusion of unserviceable properties in the amount of
P547,227.44; and (h) misclassified Other Machineries and Equipment and
Other PPE accounts to Communication Equipment account totaling P83,789.00.

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 We recommended that the concerned BLGF Managements to:

a. Create an Inventory Committee to conduct the required physical count in

accordance with the provisions of Section 38, Chapter 10 of the GAM for
NGAs, Volume I, prepare inventory report and reconcile the result with the
recorded accountabilities;

b. Require the concerned Property Officers to:

o review the PAR issued to the end-users of PPEs;

o determine those below the capitalization threshold;
o issue the required ICS for proper tracking of accountability; and
o furnish the respective Accountants for him/her to prepare the necessary
adjusting entry;

c. Require the concerned Property Officers to secure all the necessary

documents to support the derecognition of the donated properties; and the
respective Accountants to effect the necessary adjustments in all affected
accounts;

d. Request from the donor agencies copy of the documents transferring the
subject PPEs as basis in the recognition;

e. Make representation with the concerned Department of Finance officials for

the immediate transfer of the subject property to BLGF Region X;

f. Require the Property Officer and the Accountant to maintain/update PCs

and PPELCs;

g. Dispose immediately the unserviceable properties pursuant to Section 79 of

PD 1445; and

h. Instruct the Accountant to prepare a JEV to reclassify the accounts for

proper presentation in the financial statements.

3. In ROs IV-A and VIII, the Office Supplies Inventory account amounting to
P141,923.13 and P145,571.64, respectively, could not be relied upon due to the
following deficiencies: (a) non-maintenance of Supplies Ledger Cards (SLCs)
and Stock Cards (SCs) to monitor the acquisitions and issuances of supplies; (b)
the non-preparation of the Report on Supplies and Materials Issued (RSMI) for
the issuances; and (c) the conduct of actual physical inventory was not done,
hence difficulty in the reconciliation of accounting and property records.

We recommended that Managements:

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 a. Require the Accountant and the Supply Officer to prepare and fully update
the SLCs and SCs, respectively, and reconcile these with the RPCI;

b. Require the Supply Officer to prepare the RSMI to record the issuances; and

c. Create an Inventory Committee to conduct a complete inventory of Office

Supplies and prepare the RPCI.

4. In RO IV-B, error in the recording of transactions resulted in an abnormal

balance of P167,132.08 for the Due from NGAs account which has affected the
accuracy of the presentation of the financial statement.

We recommended and Management agreed to direct the Accountant to review

the transactions pertaining to the Due from NGAs account and make necessary
adjusting entries to correct the errors.

5. In CO, the accounts Semi-Expendable Communication Equipment and Semi-

Expendable Machinery and Equipment Expenses – Communication Equipment
were overstated and understated, respectively, by P283,244.80 due to non-
recognition of its issuances to the respective end-users.

We recommended that Management require:

a. The Supply Officer to submit to the Accountant a report on the issuance of

the semi-expendable properties; and

b. The Accountant to prepare a Journal Entry Voucher (JEV) to record the

issuance of the semi-expendable equipment for proper presentation of the
accounts in the financial statements.

6. In CO and RO VII, properties reclassified under the Other Assets account such
as three vehicles which were already transferred to the regional offices; and
various unserviceable properties with a net book value of P111,541.92 and
P28,141.76, respectively, remained recorded in the books, thereby overstating
the Other Assets and the Accumulated Surplus accounts.

We recommended that concerned Managements require:

a. The Property Officer in CO to prepare the formal turnover and

documentation of the Motor Vehicles to the concerned Regional Offices to
serve as basis for the derecognition; and

b. The Property Custodian in RO VII to dispose the unserviceable properties

and the Accountant to prepare the necessary adjustment in the books.

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F. Other Significant Observations and Recommendations

1. In CO and RO IX, the excess training fees and the dormant account amounting
to P495,251.21 and P16,030.41, respectively, remained unremitted to the
Bureau of the Treasury (BTr) contrary to Section 13 of the General Provisions
of the GAA for FY 2016 and COA Circular No. 97-001.

We recommended and Management agreed to remit immediately the

unutilized/dormant cash balance to the National Treasury as required under the
General Provisions of the GAA for FY 2016 and COA Circular No. 97-001.

2. In RO I, the Agency paid CNA Incentive for CY 2015 amounting to

P160,177.00 to its officials and employees out of the Personnel Services
allotment for CY 2016 contrary to Items 3.2 and 3.3 of DBM Budget Circular
No. 2011-5 and Section 74 of the GAA for FY 2015 (R.A. No. 10651), resulting
in an unauthorized expenditure, hence, disallowable in audit.

We recommended that Management refund immediately the CNA Incentive

paid to its officials and employees in the total amount of P160,177.00.

3. In CO and ROs III and VI, the required consolidated and year-end financial
reports, respectively, were not submitted to the Office of the Auditor within the
prescribed period pursuant to Section 60 (c), Chapter 19 of the Government
Accounting Manual (GAM), Volume I, thus causing delay in the examination
and audit of transactions and communicating the results thereof.

We recommended that concerned BLGF Directors:

a. Require their respective Accountants to submit all the year-end financial

statements and its supporting schedules in accordance with the provision of
Section 60 (c), Chapter 19 of the GAM, Volume 1; and

b. Enforce appropriate action or cause the suspension of payment of salaries as

prescribed under Section 41 (3) of PD No. 1445.

The aforementioned observations together with the corresponding recommendations

were discussed with Management officials concerned during the exit conference on
April 25, 2017. Management views and comments were incorporated in the report,
where appropriate.

G. Implementation of Prior Year’s Audit Recommendations

Of the 26 prior year’s audit recommendations embodied in the CY 2015

Consolidated Annual Audit Report, 17 were implemented, six were partially

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implemented, and three were not implemented. Details are discussed in Part III of
this report.

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