EXECUTIVE SUMMARY

A. Introduction

We conducted the audit on the Municipality of Magalang, Pampanga, a first class

municipality comprising of 27 barangays.

Our audit was made in accordance with International Standards of Supreme Audit
Institutions (ISSAIs) and we believe that it provided a reasonable basis for the audit.

B. Financial Highlights

The comparative data on the financial condition and results of operation of the
Municipality for the years 2021 and 2020 are presented below:

Increase (Decrease)
Particulars CY 2021 CY 2020
Amount %
Financial Condition
Total Assets 347,533,134.03 270,859,467.93 76,673,666.10 28.31%
Total Liabilities 78,107,871.36 67,449,794.64 10,658,076.72 15.80%
Net Assets/Equity 269,425,262.67 203,409,673.29 66,015,589.38 32.45%

Results of Operations
Total Revenue 359,702,172.26 337,419,806.46 22,282,365.80 6.60%
Total Expenses 351,011,990.56 299,873,323.44 51,138,667.12 17.05%
Surplus (Deficit) 8,690,181.70 37,546,483.02 (28,856,301.32) -76.85%

C. Scope of Audit

The audit covered the examination, using risk-based approach, of the accounts and
financial transactions of the Municipality of Magalang, Pampanga for CY 2021
particularly those contained in the Memorandum dated October 13, 2021 of the COA
Local Government Sector Assistant Commissioner. Part II of this Report contains the
audit exceptions on the 2021 Audit Focus and Thrusts for the Local Government Sector
and other high-risk accounts.

The audit was aimed to (a) verify the level of assurance that may be placed on
management’s assertions on the financial statements; (b) determine compliance of
management with the laws, rules and regulations on the pre-identified audit thrusts/areas
and recommend agency improvement opportunities thereon; and (c) determine the extent
of implementation of prior year’s audit recommendations.
D. Independent Auditor’s Report

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

statements owing to the (a) misstatement in valuation of various Property, Plant and
Equipment (PPE) accounts, viz (i) understatement of Land account by ₱7,472,391.25, (ii)
under-provision of current year and prior years depreciation totaling ₱2,591,583.67, (iii)
unrecorded PPEs acquired thru Trust Fund with an aggregate cost of ₱8,195,714.04, (iv)
erroneous recording of PPE transactions as outright expenses totaling ₱8,175,006.04; (b)
understatement of the Real Property Tax Receivable and Special Education Tax
Receivable by ₱16,831,948.45.

For the above exceptions, we recommended that the Municipal Accountant (a) in
coordination with the Municipal Treasurer to exert efforts in completing the necessary
documents to facilitate the transfer of ownership of the real properties in the name of the
Municipality and come up with fair value of lands owned by the Municipality that have
not yet been recognized in the books; (b) update/reconstruct PPELC, lapsing schedule
and subsidiary records in order to facilitate reconciliation and draw the necessary
correcting entries for identified errors and omissions; and (c) prepare a subsidiary ledger
per individual account based on certified list of real property taxpayers and reconcile the
balance of RPT/SET Receivable accounts with the list of taxpayers with paid/unpaid real
property tax dues maintained by the Municipal Treasurer then draw journal entry
vouchers to adjust the balances thereof.

E. Summary of Other Significant Observations and Recommendations

Summarized below are the significant audit observations with their recommendations, the
details of which are presented in Part II of this report. Management views and comments,
including those offered during the exit conference were incorporated in the report, where
appropriate.

1. The Municipality’s COVID spending were raised to ₱9,500,000.00 in the latter

half of CY 2021 to bolster the inoculation program of the agency which hinder the timely
procurement and distribution of ancillary supplies and services necessary for the
administration of COVID-19 vaccines of the agency mostly attributed to (a) non-
preparation of Program Project Management Plans (PPMPs); (b) absence of well-defined
Annual Procurement Plan (APP); (c) non-adoption of negotiated procurement
(emergency cases) in contravention to provisions of Republic Act No. 115251 or the
COVID-19 Vaccination Program. Also, as in the previous year, the following
deficiencies were observed in the distribution of inventoriable stocks such as the (d) lack
of accounting in the inventory and distribution of welfare goods and food supplies
expenses; and (e) non-definition of the specifications or brand name in the PO. Further, it
was noted that the actual consumption for CY 2021 exceeds its appropriation by
₱1,184,791.57 or equivalent to 12% budget overrun. (Observation No. 1)

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We recommended that the Local Chief Executive (LCE) instruct the (a) Bids and Award
Committee (BAC) to require every offices/end-user units to prepare PPMP then
consolidate the same for the preparation of APP which incorporate the procurement
projects undertaken thru negotiated procurement modality during a State of Public Health
Emergency; (b) Municipal Budget Officer to maintain the required registries to prevent
incurrence of expenditures in excess of allotments or budget overrun; (c) Municipal
Accountant, in coordination with the Department Heads in-charge of procurement, to (i)
ensure that all POs and other notice of deliveries are adequately prepared and all
necessary information pertaining to purchases especially the technical description and
specifications are supplied in the POs and Sales Invoice, and furnish the Audit Team
whether printed copy or online/electronic copy of PO within five (5) working days upon
issuance thereof; and (ii) utilize a sound warehouse management system that will
streamline the receipt and distribution processes of inventoriable stocks, and prepare and
maintain the supplies ledger cards for all inventories based on the Summary of Supplies
and Materials Issued (SSMI) and prepare the necessary entry to record the expenditures
using appropriate expenditure accounts; (d) Municipal Accountant to ensure the adequate
documentation of transactions particularly those welfare goods intended for distribution
to beneficiaries and food expenses consumed during vaccination caravan; and (e) General
Services Officer (GSO) or Municipal Treasurer to accept first the deliveries of items
purchased by the local government units and then delegate to the authorized inspector/s
the inspection of delivered items for conformity with specification in the purchase order.

2. Deficiencies were noted in the procurement and payment of 100 package of cattle
feedlot fattening amounting to ₱4,585,446.43 funded under the Stimulus Package for
Agriculture Bayanihan Act II of the National Livestock Program (NLP) of the
Department of Agriculture (DA), Regional Field Office III, namely: (a) absence of
signatures of the contractor and concerned officials on various procurement documents
particularly on Post-Qualification documents to warrant the responsiveness and eligibility
of the bidder; and (b) full payment made despite the absence of required supporting
documents contrary to the Revised IRR of RA No. 9184 (Government Procurement
Reform Act) and Section 4 (6) of PD No. 1445, thus, cast doubts on the propriety and
validity of disbursement. Also, the selection and screening procedures in shortlisting of
project beneficiaries and post-implementation photos of the project to show that the
project was done accordingly as required by the project documents and in accordance
with the DA-LGU Magalang Memorandum of Agreement (MOA) were not submitted.
(Observation No. 2)

We recommended that the LCE instruct the BAC to carry out their functions with due
diligence and give utmost priority on their responsibility in order to eliminate
ambiguity/inconsistencies in the procurement proceedings of the Municipality thereby,
promote transparency, accountability, equity, efficiency, and economy in its procurement
process.

Further, we recommended that the LCE instruct the (a) Municipal Accountant, in
coordination with the Municipal Agriculturist and BAC Secretariat, to (i) submit the
lacking procurement documents; (ii) submit the selection procedures used in screening of

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eligible beneficiaries and post-implementation photos in compliance with Paragraph 21
of the agency’s MOA and Section 4 (6) of PD 1445 on complete documentation; and (iii)
henceforth, ensure that the required documents particularly for procurement of goods are
complete before payment; (b) BAC to strictly comply with the provisions of the revised
IRR of R.A No. 9184 particularly: (i) Sections 21.2 and 21.2.1 on advertising and posting
of the Invitation to Bid/Request for Expression of Interest; (ii) Sections 32 and 32.2.1,
Rule IX on Bid Evaluation, (iii) Sections 34 and 34.3, Rule X on Post-Qualification; (iv)
Section 37.1.6 on the posting of Notice of Award; and (v) Section 37.4.2 on the posting
of the Approved Contract and Notice to Proceed.

3. The Municipality has observed compliance with policies and guidelines set in
DBM-DOF-DILG Joint Memorandum Circular (JMC) No. 2020-01 dated November 4,
2020, particularly on the (i) allocation of 20% of its annual Internal Revenue Allotment
(IRA) for development projects in accordance with Section 287 of RA No. 7160; (ii)
preparation of quarterly reports on the utilization of the fund pursuant to DILG
Memorandum Circular No. 2010-83 dated August 31, 2010; and (iii) maintenance of
separate Registries of Appropriations, Allotments and Obligations (RAAO) in adherence
to COA Circular No. 2006-002. However, despite the increase responsiveness to
compliance with the fund guidelines, the following deficiencies were noted: (a) non-
implementation of three programs, projects and activities (PPAs) with aggregate budget
of ₱3,250,000.00 during the year and delayed implementation of two PPAs with total
ABC of ₱1,771,998.00; (b) three PPAs without detailed description in the Annual
Investment Plan (AIP); and (c) employment of shopping and repeat order on several
PPAs instead of competitive bidding despite the existence of approved APP hence, the
attainment of the desired socio-economic development and environmental management
outcomes from usage of Fund could not be optimally achieved. (Observation No. 7)

We reiterate our recommendation that the LCE require the Municipal Planning and
Development Officer, in coordination with the Municipal Engineer, to (i) along with the
Local Development Council (LDC), improve the optimization of the 20% Development
Fund thru in-depth planning to ensure that only programs and projects geared towards the
promotion of the general welfare of its constituents are well-planned and procurement-
and-implementation-ready; and (ii) avoid implementing generic/lump-sum projects in the
Fund without further authority from the Sanggunian and to include only 20% DF PPAs
with specific implementation schedule, and the area coverage as well as the costs of the
programs and projects.

4. The Municipality has appropriated the prescribed 5% of the estimated revenue

from regular sources to Local Disaster Risk Reduction and Management Fund
(LDRRMF) totaling ₱17,019,658.20 for CY 2021. However, because of lack of in-depth
planning and proper monitoring mechanism of the CY 2021 LDRRMF, there were noted
deficiencies such as (i) non-availability of separate Registry of Appropriations,
Allotments and Obligations (RAAOs) for LDRRMF; (ii) detailed description of
LDRRMF PPAs not contained in the AIP; (iii) incomplete Report on Sources and
Utilization of DRRMF; (iv) absence of SB Appropriation Ordinance and supporting
amended Annual LDRRM Plan on ₱950,400.00 worth of COVID-19-related

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disbursements charged to the unexpended balances of the LDRRMF which accrued to
special trust fund (STF); (v) non-monitoring of details of the unexpended balance of the
fund and non-disclosure thereof in the Notes to Financial Statements; and (vi) charging
under LDRRMF of the ₱1,729,646.92 and ₱202,650.00 worth of Maintenance and Other
Operating Expenses (MOOEs) and Personal Services (PS), respectively. (Observation
No. 8)

We recommended that the LCE require the (a) Municipal Budget Officer to maintain the
prescribed RAAO format for LDRRMF pursuant to Item 5.1.4 of COA Circular No.
2012-002 dated September 12, 2012; (b) Municipal Disaster Risk Reduction and
Management (MDRRM) Officer to (i) amend/supplement the Annual LDRRM
Investment Plan particularly in cases of public health emergencies, and ensure that SB
Appropriation Ordinance and/or resolutions were passed specifically on programming or
utilization of the said LDRRMF fund set aside within the five-year validity period of the
Special Trust Fund (STF); (ii) prepare and submit the monthly Report on Sources and
Utilization of DRRMF as prescribed in COA Circular No. 2012-002 to include the
monitoring of previous year’s appropriations transferred to the STF; and (iii) refrain from
charging ineligible expenditures classified as regular operating expenses to the LDRRMF
and ensure that funds are used in accordance with Section 21 of R.A. No. 10121 and Item
4.3 of NDRRMC-DBM-DILG JMC No. 2014-1; and (c) Municipal Accountant to fully
disclose in the Notes to Financial Statements the details of the unexpended LDRRMF
balance of previous years which accrued to the special trust fund under the account
“Trust Liability-DRRM” and maintain the subsidiary ledgers thereon.

5. The Municipality has considerably improved compliance with the provisions of

R.A. 9003 or the Ecological Solid Waste Management Act of 2000 as manifested by the
(a) significant increase in Solid Waste Management appropriations for CY 2021; (b)
passing of Executive Order (E.O.) No. 11-A, s. 2020 in creation of environmental
marshals; and (c) enactment of Municipal Ordinance No. 24, s. 2020 Chapter 4 or
ordinance regulating the use and distribution of plastic bags and prohibiting the use of
polystyrene foam. Despite said efforts, based on the Manila Bay Clean-up, Rehabilitation
and Preservation Program’s (MBCRPP’s) LGU Compliance Assessment, the
Municipality was unsuccessful in increasing its overall score rating for the 2021
assessment from Moderate Compliance to High Compliance, thus the protection of the
public health and environment was not fully achieved. (Observation No. 10)

We reiterate our recommendations that the LCE, in coordination with the MENRO (a)
intensify and sustain the current information drive and awareness campaign on solid
waste management, particularly at the household and business level, in coordination with
the Barangay officials, following the strategies identified under the approved 10-year
Solid Waste Management Plan of the LGU; (b) exercise strong political will to
implement the applicable ordinances pertaining to Solid Waste Management and impose
penalties to all violators, if necessary; (c) require Barangay officials to (i) enhance/adopt
the Municipal ordinances pertaining to the solid waste; (ii) exert effort in finding
appropriate location for the Materials Recovery Facility (MRF) or if possible, request

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other Barangays with MRF for the clustering scheme as allowed under the law, if MRF is
not yet established.

Additionally, we also recommended that the LCE allot budget or provide the required
funding for the rehabilitation of the MRF and other infrastructure and technical support in
order to fully comply with the requirements of RA 9003 and achieve the eventual volume
reduction of waste.

6. Mainly due to dearth of records, the correctness of the balance of Property, Plant
and Equipment (PPE) accounts with a reported carrying value of ₱251,767,277.75 as of
year-end were not fully establish due to the following deficiencies (a) non-presentation of
Report on the Physical Count of Property, Plant and Equipment by asset category; (b)
non-reconciliation of inventory count per RPCPPE with accounting records; (c) non-
availability of Property, Plant and Equipment Ledgers Cards (PPELC) of five PPE
accounts with book value of ₱18,061,406.24; (d) unreconciled variance of
₱39,446,156.82 on acquisition cost of 16 PPE accounts between the PPELC and ledger
balance; and (e) misstatement in valuation of various PPE accounts, viz: (i)
understatement of Land account; (ii) under-provision of depreciation expense totaling
₱2,591,583.67; (iii) non-recording of PPEs acquired thru Trust Fund in the General Fund
amounting to ₱8,195,714.04; and (iv) recognition of ₱8,175,006.04 assets as outright
expense contrary to the pertinent provisions of the MNGAS for LGUs, the International
Public Sector Accounting Standards (IPSAS) and COA Circular No. 2020-006 dated
January 31, 2020.. (Observation No. 3)

We recommended that the LCE (a) instruct the concerned department heads to review the
requirements and follow COA Circular No. 2020-006 on the one-time cleansing of PPEs
and COA Circular No. 2015-008 in order to have a verifiable data on the existence,
condition and accountability of the Municipality’s PPEs; and (b) reconstitute an
Inventory Committee with adequate number of members, to include at least one member
each from the Accounting and Property Department of the LGU pursuant to Item 5.2. of
COA Circular 2020-006 dated January 31, 2020 in order to address the perennial issues
in the establishment of the accuracy of the PPE balances particularly on the
reconstruction of property records (e.g. Property Cards) and inventory-taking of all
properties of the Municipality and henceforth, submit the Report of the Physical Count of
PPE (RPCPPE) and property records in the prescribed format;

Further, we reiterated our previous recommendations that the (a) Municipal Treasurer, in
coordination with the Municipal Assessor, (i) exert efforts in completing the necessary
documents to facilitate the transfer of ownership of the real properties in the name of the
Municipality; (ii) come up with fair value of lands owned by the Municipality that have
not yet been recognized in the books owing to lack of basis for valuation purposes; and
the (b) Municipal Accountant to (i) strengthen the controls in the handling and recording
procedures affecting PPE accounts; (ii) update/reconstruct PPELC, lapsing schedule and
subsidiary records in order to facilitate reconciliation and draw the necessary correcting
entries for identified errors and omissions; (iii) improve supervisory and review controls
in the recognition of transactions and preparation of financial statements to prevent the

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accumulation of errors and misstatements in the financial statements; (iv) effect the
necessary correcting entries in the books, if any.

F. Summary of Suspensions, Disallowances and Charges

As of year-end, suspensions, disallowances and charges stood at ₱0.00, ₱5,352,678.83

and ₱0.00, respectively.

G. Status of Prior Year’s Unimplemented Audit Recommendations

There were 20 observations contained in the 2020 Management Letter for which 66
recommendations were offered. As of report date, 26 recommendations were fully
implemented, 26 were partially implemented, while 14 were not yet implemented. The
details are discussed in Part III of this report.

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