EXECUTIVE SUMMARY

A. Introduction

We conducted an audit on the Municipality of San Ildefonso, a first class municipality

located at the northern part of Bulacan.

Our audit was made in accordance with Philippine Public Sector Standards on Auditing
and we believe that it provided a reasonable basis of the audit results.

The audit covered the financial transactions and operations of the Municipality of San
Ildefonso, Bulacan for the calendar year 2014. The objectives of the audit were (a) to
ascertain the level of assurance that may be placed on management’s assertions on the
financial statements; (b) recommend agency improvement opportunities; and (c)
determine the extent of implementation of prior year’s audit recommendations.

B. Financial Highlights

The comparative data on the financial condition and results of operation for the years
2014 and 2013 are presented below:

Amounts in million
Increase(Decrease)
Particulars 2014 2013
Amount %
Financial Condition
Total Assets 666.10 423.80 242.30 57.17
Total Liabilities 565.63 349.55 216.08 61.81
Total Equity 100.47 74.25 26.22 35.31
Results of Operations
Total Revenues 226.76 187.67 39.09 20.83
Total Expenses 199.73 167.85 31.88 18.99
Excess of Income Over Expense 27.03 16.82 10.21 60.70
Sources and Applications of Funds
Appropriations
Allotments 271.90 249.15 22.75 9.13%
Obligations 214.75 170.73 44.02 25.78%

C. Auditors Opinion

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

statements owing to accounting deficiencies which could result in possible
misstatements, as enumerated below, together with the recommended courses of action to
address the audit exceptions:

i
1. Supplies and materials costing P3,902,468.6 were recorded as outright expense
upon acquisition, contrary to the perpetual inventory method prescribed under Sections
51 and 114 of Vol. I of the Manual on NGAS for LGUs, resulting in inaccurate balances
of the inventory and related expense accounts in the financial statements.

We recommended that management direct the Accounting Office and Supplies Custodian
to ensure that (a) the perpetual inventory method is observed in the accounting for
inventories; (b) the required forms, subsidiary records and periodic reports are prepared,
maintained and submitted for the recognition of the expense portion of supplies
inventories; and (c) periodic physical count of inventory on hand is conducted to pave the
way for any necessary adjustment in the books and/or inventory records for proper
valuation.

2. The set-up of Real property Tax (RPT) and Special Education Tax (SET
receivables totaling to P173,310,963.55 was still based on the list of real property tax
delinquencies per barangay instead of using the certified list showing the names of the
taxpayers and the collectible amount therefrom, contrary to Section 20, Volume I of the
Manual on NGAS for LGUs, rendering doubt on the inaccuracy of the said account
balances.

We recommended that management (a) direct the Municipal Treasurer to coordinate with
the Municipal Assessor’s Office to prepare a reliable list of taxpayers with the amount
due and collectible from each in the list; and (b) instruct the Municipal Treasurer to
furnish the said certified list of taxpayers to the Municipal Accountant as basis of the
latter in setting up the RPT and SET receivables for the
j

D. Summary of Significant Observations and Recommendations

Summarized below are the significant audit findings noted during the audit, including
accounting errors and deficiencies, and the corresponding recommendations which are
discussed in detail in Part II of the report. Management views and comments including
those given during the exit conference were incorporated in the report, where appropriate:

1. The continuous incurrence of obligations by the municipality despite insufficient

cash available resulted in cash overdraft of P68,823,611.96 as of December 31, 2014,
indicating that trust collections were misapplied and that the municipality is unable to
meet its current obligations, in violation of Sections 305 (e) and 337 of RA 7160 and
Section 4 (3) of PD 1445, thereby adversely affecting the cash flow of the ensuing year.

We reiterated our recommendation that management (a) advise the Local Finance
Committee and other officials concerned to regularly monitor the Municipality’s cash
position; (b) ensure that trust liabilities are used solely for their intended purpose; (b)
incur expenditures only for projects, programs, and activities that are highly necessary
and cannot be dispensed with; and (d) undertake revenue-enhancing strategies and cost-
cutting measures to eliminate totally the cash deficit.

ii
2. Cash advances totaling P6,639,996.00 remained unliquidated as of December 31,
2014 in violation of COA Circular 97-002 dated February 10, 1997 and Section 4.1.3 of
COA Circular 2009-002, thus delaying the recognition of related expenses thereto.

We recommended that management (a) require the Accountable Officers from whom
cash advances were granted to speed up the processing of liquidation reports; (b) instruct
the Municipal Treasurer to withhold the salaries of accountable officers whose cash
advances remained unliquidated as of January 20, 2015; (c) refrain from granting
additional cash advances to accountable officers with unsettled balances; and (4) instruct
the Municipal Accountant to monitor and advise the officials concerned that settlement
be made within the prescribed period for proper accounting thereof in the books and to
prevent misuse of funds.

3. Disbursements out of the Petty Cash Fund – AICS were made without complete
and proper documentation, contrary to Section 4(6) of P.D. 1445; thus, the validity and
regularity of the expenditures amounting to at least P640,860.00 were not fully
established.

We recommended that management (a) submit explanations and documentary evidence

to establish the validity and regularity of the payments made out of the Petty Cash Fund
for AICS; (b) require the Municipal Accountant to perform a diligent review on the
regularity of liquidation reports and supporting documents on cash advances before
considering them as fully liquidated; and (d) establish adequate controls, including the
adoption of clear cut policies, to ensure that payments from cash advances are only for
valid claims supported with adequate documentation to establish their propriety and
regularity.

4. Payments for non-petty expenses totaling at least P2,322,432.17 were made in the
form of reimbursements in the name of agency personnel, contrary to the basic principles
of the imprest system under COA Circular No. 97-002 and Section 7.2 of the Revised
IRR of R.A. 9184, thus depriving the government of the appropriate withholding taxes
due therefrom.

We recommended that management (a) require the Accounting and the Treasury offices
to ensure that payments of non-petty expenditures be made directly in the name of the
suppliers/creditors; (b) make use of the petty cash fund in payment of petty operating
pursuant to COA Circular No. 97-002 on the proper utilization thereof; and (c) require
the BAC Secretariat to properly plan and schedule the procurement of goods and services
to prevent the frequent resort to emergency purchases.

5. Cash Advances for Intelligence Fund amounting to P1,907,126.00 remained

unliquidated as of December 31, 2014 as liquidation reports were not submitted to the
COA Chairman’s Office, contrary to the provisions of COA Circular No. 2003-003, thus
preventing the COA from reviewing the validity and regularity of the expenditures made.

iii
We recommended that management (a) comply with COA Circular No. 2003-003, as
amended by COA/DBM/DILG/GCG/DND Joint Circular No. 2015-01 dated January 8,
2015 on the submission to the COA Chairman of the liquidation reports for expenditures
against intelligence funds; (b) prepare a liquidation report with supporting documents as
enumerated in the said COA Circular for submission to the COA Chairman; and (c) allow
the grant of additional cash advance only after the issuance of Credit Notice from the
COA Chairman for the previous cash advance or after transmittal of the liquidation
vouchers/reports of the previous cash advance to the Chairman’s Office.

7. Management failed to submit disbursement vouchers, official receipts and their

corresponding monthly reports within the prescribed period, contrary to Section 100 of
PD 1445, thereby causing delay in the audit /review of transactions.

We recommended that management (a) strictly comply with the provisions of Section
100 of P.D. 1445 on the prompt submission of accounts to the audit team; and (b) enjoin
all department heads concerned (Accounting and Treasury) to commit and render extra
time to complete and submit all financial reports and transaction records within the
prescribed time, otherwise, withhold monies due the official/employee concerned until
they have complied with the submission of the required reports, pursuant to Section 122
of PD 1445.

8. The Municipality has failed to comply with the regulations on the remittance of
withholding taxes due from government transactions contrary to the provisions of BIR
Revenue Memorandum Circular No. 23-2007 dated March 23, 2007 and BIR Tax
Revenue Regulation No. 10-2008 dated July 8, 2008.

We recommended that management (a) invariably remit in full to the BIR taxes withheld
for the month within the period mandated by law in order to avoid fines and penalties; (b)
create an internal subsidiary record for the current year to keep track of all transactions
for the Due to BIR account with a clean slate and another internal subsidiary record for
those without records to facilitate monitoring and reconciliation of the correct balances of
the two; and (c) exert efforts to retrieve documents to reduce the balance of the
undocumented Due to BIR account, otherwise, refer the matter to the BIR office for
appropriate action.

9. Management failed to transfer the unutilized balance of LDRRMF amounting to

P8.26 million to a Special Trust Fund for the purpose of supporting disaster risk
reduction within the next five years, contrary to Section 4.4 of COA Circular No. 2012-
002 dated September 12, 2012.

We recommended that management direct the Accounting and Treasury Departments to

comply with Section 4.4 of COA Circular No. 2012-002 by transferring the unexpended
balance of P8.26 million to the special trust fund created solely to support risk reduction
and management activities of the Municipality for the next five years.

iv
10. Out of the 17 projects appropriated at the total cost of P26,216,578.20 under the
20% Development Fund, eight were completed, four were partially implemented while
five were still for implementation. However, approved projects per AIP totaling
P25,291,578.00 were either amended or not implemented, thus, the Municipality failed to
maximize the attainment of the desired socio-economic development and environmental
management outcomes as envisioned in its Annual Investment Plan.

We recommended that management (a) include only eligible, doable high-priority

projects that partake the nature of capital expenditures in the Annual Investment Plan and
provide realistic budget thereon; (b) instruct the officials in-charge of the development
projects to supervise and monitor closely the timely and effective implementation of the
development projects under their respective offices; and (c) ensure that any amendments
or revisions in the AIP and/or budget are covered with the proper documentation and
authority.

11. The Municipality has failed to prepare a Gender and Development (GAD) Plan as
well as an annual GAD accomplishment report, contrary to Section 28 of Republic Act
10352; resulting in the absence of a yardstick to monitor and evaluate the performance on
GAD-related activities.

We recommended that management (a) instruct the Municipal Planning and Development
Officer to prepare a comprehensive GAD Plan and Budget for all GAD activities to be
undertaken by municipality as mainstreamed in its local budget; (b) direct the MNHO
and the MSWDO to monitor the implementation of GAD PPAs, and submit a report of
the activities in accordance with Joint Memorandum Circular No. 2001-01 of the DILG,
DBM, and NCRFW dated December 19, 2001; and (c) initiate capacity building on GAD
planning and budgeting among its key personnel to pave the way for gender
mainstreaming in its budget.

E. Summary of Total Suspensions, Disallowances and Charges at year-end

Suspensions, disallowances and charges as of December 31, 2014 stood at P0.00, P0.00,
P0.00, respectively.

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

Out of the 14 unimplemented recommendations embodied in the previous years’ Annual

Audit Reports, four were fully implemented, eight were partially implemented, and two
were not implemented. Those not implemented were accordingly reiterated in this report
to draw attention for their implementation.