EXECUTIVE SUMMARY

1. INTRODUCTION

Municipality of Makato is one of the seventeen municipalities that comprise the Province of
Aklan. It is a 4th class municipality and situated 9 kilometers northwest of the capital town of
Kalibo.

A comprehensive audit was conducted on the accounts and operations of the Municipality of
Makato for CY 2015. The audit consisted of review of operating procedures, inspection of the
Municipal’s programs and projects on a test basis, interviews of concerned government officials and
employees, verification, reconciliation, and analysis of accounts, and such other procedures
considered necessary under the circumstances. The audit aimed to ascertain the fairness and
reliability of the Municipality’s financial position and results of operation. Further, it aimed to
check on the validity and propriety of transactions.

2. FINANCIAL HIGHLIGHTS

a. Financial Profile

a.1 Assets, Liabilities & Equity

Increase/
2015 2014 (Decrease) %

Assets 150,214,280.75 113,768,549.47 36,445,731.28 32.03%

Liabilities 35,234,236.05 31,710,160.44 3,524,075.61 11.11%

Government
Equity 114,980,044.70 82,058,389.03 32,921,655.67 40.12%

a.2 Income and Expenses

Increase/
2015 2014 (Decrease) %
INCOME:

General Fund 65,320,978.65 58,652,626.80 6,668,351.85 11.37%

Special Education
Fund 574,689.70 1,329,975.32 (755,285.62) -56.79%

Total 65,895,668.35 59,982,602.12 5,913,066.23 9.86%

 EXPENSES:

General Fund 48,759,402.32 45,408,577.88 3,350,824.44 7.38%

Special Education
Fund 925,855.14 830,466.02 95,389.12 11.49%

Total 49,685,257.46 46,239,043.90 3,446,213.56 7.45%

b.1 Appropriations/Allotment/Obligations

2015 2014 Inc/Dec %

Appropriations 84,762,412.82 75,097,835.77 9,664,577.05 12.87%

Allotments 65,942,480.52 56,118,618.76 9,823,861.76 17.51%

Obligations 53,915,725.14 47,754,733.92 6,160,991.22 12.90%

b.2 Fund Transfers From

Received from 2015 2014 Increase/

Decrease
National Government
Agencies
69,659,231.67 12,128,175.00 57,531,056.67
Local Government
Units 1,210,000.00 2,650,500.00 (1,440,500.00)
GOCCs 561,875.00 2,114,880.00 (1,553,005.00)
NGOs/POs/Private 0.00 0.00 -

3. AUDITOR’S OPINION ON THE FINANCIAL STATEMENTS

The Auditor rendered a qualified opinion on the financial statements of the Municipality of
Makato, Aklan as of December 31, 2015 due to the failure of the management to prepare and
reconcile the Report on the Physical Count of Property, Plant and Equipment (RPCPPE). Due to
time constraints, the Auditor was not able to perform alternative procedures to determine the
correctness of the amount presented in the financial statements. Likewise, the accounts in the
financial statements did not conform with the New Chart of Accounts and the presentation
requirements of the Philippine Public Sector Accounting Standards.
4. SIGNIFICANT FINDINGS AND RECOMMENDATIONS

Findings and recommendations on the audit conducted for the year ended December 31,
2015 are summarized as follows:

1. The Municipality of Makato submitted the Financial Statements (FS) using the old Chart of
Accounts contrary to COA Circular No. 2015-009 dated December 1, 2015, hence, the FS
are not compliant with the Revised Chart of Accounts and the Philippine Public Sector
Accounting Standards.

We recommend that the Municipal Accountant submits the year-end financial statements
that are compliant with the New Chart of Accounts and the PPSAS.
2. Delayed submission of year-end trial balances and Financial Statements contrary to Section
41 (2) and (3) of Presidential Decree (PD) No. 1445 precluded the Office of the Audit Team
Leader to conduct the timely audit of the accounts.

We recommend that the Municipal Accountant strictly follow the rules and regulations in
submission of year end trial balances and financial statements as prescribed under Section
41 (2) of PD 1445.

3. Loans Receivable amounting to P465,681.30 for the interest bearing loans granted to
farmers under the Maunlad Supervised Organic Farming Program remained uncollected as
of December 31, 2015 and accomplishment/monitoring reports were not available at the
office of the Municipal Agriculturist, contrary to the pertinent provisions of the
Memorandum of Agreement (MOA), thus the success or failure of the program could not be
established.

We recommend that:

a. The Local Chief Executive issue Office Order to the Municipal Agriculturist to
conduct inspection/investigation in order to validate the existence of the borrowers
based on the list submitted.
b. Submit report on the result of the inspection/investigation conducted, to the Local
Chief Executive, copy furnish the office of the auditor.
c. Exert effort to collect the receivable.
d. The Municipal Accountant should maintain subsidiary ledgers for the receivable
accounts in order to facilitate its confirmation and validation.

4. The actual PS Cost of P30,082,098.85 has exceeded the PS cap limitation by P2,464,233.94
contrary to Sections 325 (a) of the Local Government Code of the Philippines which may
have affected the implementation of programs/projects and activities for development and
the delivery of basic services.
 We recommend that Management submit the legal basis for the exemptions, if any so that
the excess expenditure in PS Cost may be passed in audit. Also, submit justification why
such were incurred despite the declaration of the SP of the approved budget to be
“inoperative in part”.

5. The Bidder’s Net Financial Contracting Capacity (NFCC) is less than the Approved Budget
of the Contract (ABC), contrary to the regulations prescribed under Clause 5.5 of the
Instruction to Bidders of the Philippine Bidding Documents (PBDs) as amended, hence,
there is no basis for assurance that the bidder can deliver the goods on time.

We recommend that the BAC verify, validate and ascertain all statements made and
documents including the NFCC submitted by the bidders to ensure compliance with the
procurement laws and regulations and the timely delivery of procured goods.
6. Subsidiary Ledgers (SL) were not maintained by the Municipal Accountant as required
under Sec. 10 of the New Government Accounting System (NGAS) Manual for LGUs Vol.
II, thus, rendering the validity and existence of the accounts doubtful.

We recommend that the Municipal Accountant maintain subsidiary ledgers in all accounts as
required under Sec. 10 of NGAs, for LGUs, Vol. II.

7. The total amount of P307,187.75 cash advances to officers and employees, remained
unliquidated contrary to Section 89 of PD 1445, and pertinent sections of COA Circular No.
97-002 dated February 10, 1997, resulting to accumulation of cash in the hands of
accountable officers, and understatement of expenses and overstatement of assets on the
municipal financial statements.

We recommend the following:

a. Demand from the AO with outstanding cash advances as of December 31, 2015 the
immediate liquidation of such cash advances with the provision that if not liquidated
within 30 days upon receipt of the demand letter, the same shall be deducted from
their salaries;
b. Require the Municipal Accountant to certify on the face of the voucher for cash
advances that the AO has no previous outstanding or unliquidated cash advances;
c. Require the Municipal Accountant to maintain subsidiary ledger for each AO with
cash advances complete with details: purpose, date granted, Check No.; date of
check, JEV No. date of liquidation etc. to ensure proper monitoring of the liquidation
on cash advances granted as required by existing regulation.

8. The existence and correctness of Property, Plant and Equipment (PPE) amounting to
P76,618,899.08 could not be ascertained due to non-compliance with rules and regulations
on property and supply management.
 a. Annual physical count of PPE was not made and Report on the Physical Count of PPE
which should be reconciled with the accounting records, was not prepared and submitted
to the auditor contrary to Section 124 of the Manual on the New Government
Accounting System (MNGAS) for Local Government Unit (LGUs), Vol. 1.

b. Property Cards per category of PPE were not maintained by the General Services
Officer, and PPE Ledger Cards for each category of assets and Real Property Ledger
Cards for land were not prepared by the Chief Accountant, contrary to Section 119 and
120 respectively of the MNGAS for LGUs, Vol 1.

c. Public Infrastructures, assets for use of the general public, such as roads, bridges,
waterways, railways, plazas, monuments, etc., amounting to P22,201,752.57 were not
transferred to the respective registry, contrary to the provision of Section 4(n) of
MNGAS for LGUs Vol. 1.

d. Construction in Progress – Agency Assets, Roads, Highways, Bridges, Irrigation, Canals

& Laterals amounting to P22,865,177.73 were not monitored, thus, completed projects
were not closed to the appropriate asset account contrary to Section 50 of MNGAS for
LGUs, Vol 1.

We recommend that a committee shall be created to conduct physical count of PPE in CY

2015, and every year thereafter; and prepare a RPCPPE; and require the General Services
Officer and the Municipal Accountant to maintain Property Cards and PPE Ledger Cards for
each category of PPE, respectively, to facilitate reconciliation of records.

Further, we recommend that the municipal accountant transfer the public infrastructures -
Roads and Bridges (251) amounting to P22,201,752.57 to the respective RPI, except for
completed public infrastructures funded out of a loan which shall be retained in the books
of accounts until the loan is fully paid. Also, monitor the Construction in Progress account
and close the completed projects to the appropriate asset accounts.

9. Republic Act No. 9003 known as the Ecological Solid Waste Management Act of 2000 was
not implemented by the Municipality of Makato, thus goals and objectives and the intent of
the subject Act were not achieved.

We recommend that the Municipality should enact a new municipal ordinance to address the
problems on Solid Waste in accordance with the mandates of RA 9003. Moreover, we
recommend that the penal sanctions be included in the said municipal ordinance that will be
enacted to ensure cleanliness within the Municipality and could provide additional income.
10. The accounts Due from National Government Agencies (NGAs), Due from Local
Government Units (LGUs), and Other Prepaid Expenses, aggregating P4,022,909.36 and
Other Investments and Marketable Securities amounting to P990,000.00, remained dormant
since CY 1996. These are not supported by aging schedules, records or documents, thus
rendering the account balance doubtful as to existence and validity.

We recommend that the Accounting Unit refile request for the write-off upon completion of
documentary requirements and procedures. Pending the approval of the said request, the said
accounts shall be transferred to the Registry of Dormant Account following the guidelines
and procedures in dropping of accounts prescribed under COA Circular No. 97-001 dated
February 5, 2007.

11. The agency’s unserviceable properties were not reclassified, disposed or dropped from the
books contrary to the provisions of Section 502 of the Government Accounting and Auditing
Manual (GAAM) Vol. I resulting to overstatement of Property, Plant and Equipment (PPE),
thus affecting the reliability of the Fixed Asset account.

We recommend that the Municipal Mayor create an Inspection and Appraisal Committee to
facilitate the immediate disposal of unserviceable properties in accordance with the
procedures provided under Section 379 of RA 7160 and Section 125 of MNGAS Vol. 1
Annex 51 on the use of Inventory and Inspection Report of Unserviceable Property (IIRUP)

12. Programs and projects of the 20% Development Fund amounting to P19,152,708.70 were
not fully implemented, hence, delaying in part the flow of development benefits to the
beneficiaries.

We recommend that the Management:

a. Cause the immediate implementation of the development projects in accordance

with the guidelines set forth in the DILG-DBM Joint MC 2011-1 dated April 13,
2011;
b. The Municipal Mayor require the Municipal Planning and Development Council
(MPDC) to regularly monitor all the programs and projects of the municipality and
submit a monitoring report as basis for the former to issue memorandum to the
implementing office to ensure full implementation of the development projects.
c. Re-align funds of prior year’s continuing appropriation that have not been
implemented for over two years to identified priority projects duly approved by the
Municipal Development Council.
 13. A total of P1,333,452.74 or 4.9% of the total Development Fund was appropriated/utilized
for programs and projects that do not directly contribute to the attainment of desirable socio-
economic development and environmental management contrary to the provisions under the
Joint Memorandum Circular No. 2011-1 dated April 13, 2011 of the Department of Interior
and Local Government (DILG) and Department of Budget and Management (DBM).

We recommend that:

a. The projects totaling P1,333,452.74 should be re-aligned to projects allowable under

JMC No. 2011-1 dated April 13, 2011.
b. For the ensuing year the Municipality plan for the 20% Development Fund projects
that reflect the priorities in the Annual Investment Program and other local
development plans and yet at the same time are eligible under the Joint
Memorandum Circular No. 2011-1 dated April 13, 2011. Other projects not
otherwise eligible should be funded from the regular budget of the Municipality.

5. SUMMARY OF TOTAL SUSPENSIONS, DISALLOWANCES AND CHARGES AS OF

YEAR-END

Beginning January 1 – December 31, 2015 Ending Balance

Balance
(As of NS/ND/NC NSSDC (As of December
December 31, 31, 2015)
2014)
Notice of 0.00 3,473,215.21 1,964,946.43 1,508,268.78
Suspension
Notice of 0.00 0.00 0.00 0.00
Disallowance
Notice of 0.00 0.00 0.00 0.00
Charge
Total 0.00 3,473,215.21 1,964,946.43 1,508,268.78

6. STATUS OF IMPLEMENTATION OF PRIOR YEAR’S AUDIT

RECOMMENDATIONS

Out of the eight (8) recommendations embodied in the 2014 Annual Audit Report, two (2)
were fully implemented, five (5) were partially implemented and one (1) was unimplemented.