EXECUTIVE SUMMARY

Introduction

Magsaysay is 414 kilometers south of the Philippine capital Manila. It has a total
area of 49.47 square kilometers including islets and is 284 kilometers east-northeast of the
provincial capital Puerto Princesa City and is classified as a fifth class municipality.

It is composed of eleven barangays. The eight mainland barangays are: Balaguen,

Danawan, Emilod, Igabas, Lacaren, Los Angeles, Lucbuan and Rizal. The three island
barangays are: Alcoba, Canipo and Cocoro. Lucbuan is one of the oldest barangays where
the airport, public market and the Saint Michael Parish church are located. A yearly town
fiesta “Pangalipay Festival” is also celebrated at this barangay every September of the year.
The Bantayanan wharf is a small port in barangay Lucbuan, where travelers take a boat
ride of about 30-45 minutes going to Cocoro island.

Magsaysay is composed largely of lowlands and some rolling hills and partly rocky
terrain.

Financial Highlights

For calendar year (CY) 2020, the Municipality generated a total income of
₱78,091,948.63 from local taxes, permits and licenses, service and business income and
Internal Revenue Allotment (IRA) with an increase of 22.08% compared with last year’s
₱63,968,171.01. Total expenses, subsidies and donations amounted to ₱79,527,578.44,
resulting in a net loss of ₱1,165,629.81.

The Municipality’s financial condition and results of operations for CY 2020

compared with that of the preceding year are summarized below.

Increase
2020 2019 (Decrease)

Total Assets ₱187,791,885.15 ₱178,555,508.49 ₱9,236,376.66

Total Liabilities 60,626,562.50 38,654,960.72 21,971,601.78
Government Equity 127,165,322.65 139,900,547.77 (12,735,225.12)
Gross Income 78,091,948.63 63,968,171.01 14,123,777.62
Expenses/Subsidy/Transfers 79,257,578.44 49,569,337.63 29,958,240.81

Scope of Audit

Financial and compliance audits were conducted on the accounts, transactions and
operations of the Municipality for CY 2020. The audit consisted of review of operational
procedures, interview with concerned municipal officials, verifications, reconciliation and
analysis of accounts and such other procedures necessary under the circumstances.

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 The objectives of the audit are to (a) ascertain the level of assurance that may be
placed on Management’s assertions in the financial statements; (b) evaluate the extent of
compliance with laws and regulations as well as the propriety and validity of transactions;
(c) recommend measures to improve the efficiency and effectiveness of the agency’s
operations; and (d) determine the extent of implementation of prior years’
recommendations.

Audit Opinion on the Financial Statements

The Auditor did not express an opinion on the accompanying financial statements
because the Municipal Accountant failed to maintain the General Ledgers (GLs) and
Subsidiary Ledgers (SLs) for CYs 2017 to 2020, thus the correctness of all asset, liability,
equity, revenue and expense accounts as of December 31, 2020 totaling ₱187,791,885.15,
₱60,626,562.5, ₱127,165,322.65, ₱78,091,948.63 and ₱81,364,329.79, respectively, could
not be ascertained. As a result of this matter, we were not able to obtain sufficient
appropriate audit evidence and perform alternative audit procedures to confirm or verify
the account balances and determine whether any adjustments were necessary in respect to
the statement of financial position, statement of financial performance, statement of
changes in net assets/equity, statement of cash flows and statement of comparison of
budget and actual amounts for the year then ended, and the notes to the financial statements.

Significant Audit Findings and Recommendations

For the exception cited above, the Audit Team recommended that the Municipal
Mayor: (a) augment the work force in the Accounting Office to aid the Municipal
Accountant in the preparation and regular updating of accounting journals and ledgers; and
(b) consider issuing a memorandum order requiring the Municipal Accountant to prepare
the GLs and SLs for CYs 2017, 2018, 2019 and 2020 pursuant to Section 114 of PD No.
1445, within a set deadline and make the same available to the Audit Team for audit
purposes.

Other deficiencies noted in the audit of the accounts and transactions of the
Municipal Government of Magsaysay for the year 2020:

1. The Municipal Accountant failed to disclose, neither on the face of the Financial
Statements nor in the Notes, the sub-classifications of revenue and expense accounts
as of December 31, 2020 totaling ₱78,091,948.63 and ₱81,364,329.79, respectively,
contrary to Paragraphs 108, 109 and 127 of the International Public Sector Accounting
Standards (IPSAS) No. 1, thus affected the fair presentation of the financial
performance of the Municipality in CY 2020.

We recommended that the:

a. Municipal Accountant submit a satisfactory written explanation/justification for

non-compliance with the prescribed rules and standards in the presentation of

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 revenue and expense accounts in the Statement of Financial Performance and in
the Notes to FS for CY 2020; and

b. Municipal Mayor, consider initiating the proceedings for administrative

disciplinary action against the Municipal Accountant in accordance with the
provisions of the 2017 Rules on Administrative Cases in the Civil Service.

2. The completeness and accuracy of Cash in Bank account balances totaling

₱63,096,100.67 as of December 31, 2020 could not be ascertained due to lack of
monthly Bank Reconciliation Statements (BRS) for CY 2020 contrary to Section 3.4
of COA Circular No. 96-011.

We recommended that the Municipal Mayor (a) designate additional support staff for
the Municipal Accountant to aid her in the preparation of monthly reports and
statements, including the BRS; and (b) pursuant to Section 74 of Presidential Decree
(PD) No. 1445, issue a memorandum order requiring the Accountant to prepare the
monthly BRS for all bank accounts for CY 2020 within a set deadline and submit them
to the Audit Team together with the bank statements, paid checks and debit/credit
memoranda in accordance with Section 3.4 of COA Circular No. 96-011.

3. Cash advances totaling ₱3,013,021.65 were not liquidated as of December 31, 2020
contrary to Section 5.8 of COA Circular No. 97-002 dated February 10, 1997 and were
not supported with subsidiary schedules, updated status reports and general and
subsidiary ledgers, thereby casting doubt on the correctness of the reported year-end
balances of Advances accounts.

We recommended that the Municipal Accountant:

a. prepare the general and subsidiary ledgers for all accounts pertaining to cash
advances and submit a summary schedule of subsidiary ledger balances and the
Status of Unliquidated Cash Advances (SUCA) as of December 31, 2020;

b. impose strictly the provision requiring all accountable officers to liquidate their
cash advances fully and promptly as soon as the purpose for which it was given
has been served or at the end of each year, whichever comes first; and

c. cause the issuance of demand letters to all accountable officers with unliquidated
cash advances as of December 31, 2020.

4. Supplies and materials totaling ₱13,899,328.89 were recorded as outright expenses

upon payment thereof regardless of actual consumption or distribution contrary to
Paragraphs 9 and 44 of the IPSAS No. 12, thereby exposing government assets to risk
of misuse and casting doubt on the correctness of the reported amount of current assets
and expenses in the year-end financial statements. Moreover, the Inventory account
balance was not adequately disclosed in the Notes to the Financial Statements
notwithstanding Paragraph 47 of IPSAS No. 12.

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 We recommended that the:

a. Municipal Accountant strictly apply the prescribed recording standards on

receipts and consumption/distribution of inventories including the adequate
disclosures in the Notes to Financial Statements as provided under Paragraphs 9,
44 and 47 of IPSAS No. 12;

b. Acting Municipal Treasurer, in the absence of a duly appointed General Services

Officer (GSO), take charge in setting up and updating of stock cards for proper
monitoring of purchases and issuances of supplies and materials; and

c. Municipal Mayor initiate the creation of an Inventory Committee who shall be

primarily responsible for the annual physical count of supplies and materials
inventory and the preparation of the corresponding reports.

5. Fishing gears amounting to ₱1,499,250.00 were reported as Agricultural and Marine

Supplies for Distribution as of December 31, 2020, despite its distribution to fishermen
in CY 2019 contrary to Paragraph 44 of the IPSAS No. 12, thereby overstating the
reported amount of total assets in the year-end financial statements.

We recommended that the:

a. Municipal Accountant take the initiative in securing the distribution report and
supporting documents for the fishing gears amounting to ₱1,499,250.00 and
record the necessary adjustment in the books of accounts while strictly adhering
to the prescribed recording standards on receipts and distribution of inventories;
and

b. Municipal Mayor, (i) establish a sound property and supply management system
that imposes the proper use of prescribed accounting forms to enable timely and
effective monitoring of supplies and materials; and (ii) designate a Supply Officer
who shall be responsible for overseeing the property and supply management
system of the Municipality and observing the proper use of forms such as
Inspection and Acceptance Report (IAR), Requisition and Issue Slip (RIS),
Summary of Supplies and Materials Issued (SSMI) and Stock Cards.

6. The existence, completeness and accuracy of valuation of properties and equipment

totaling ₱14,664,675.23 with carrying amount of ₱9,677,468.16 as of December 31,
2020 could not be ascertained due to failure of the Management to create an Inventory
Committee for the required annual physical count of properties and lack of a complete
and updated record for properties and equipment, contrary to Section 490 of the
GAAM, Volume I, and Chapter 5 of the COA Handbook on Property and Supply
Management System for lack of personnel designated to oversee supply and property
management.

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 We recommended that the:

a. Municipal Mayor (i) initiate the creation of an Inventory Committee who shall
take charge of the annual physical count of all properties and equipment of the
Municipality; (ii) require all the Department Heads to conduct a complete physical
count of all PPE under their respective offices and submit a report thereon to the
Inventory Committee for verification and reconciliation with the accounting
records; (iii) designate a specific officer who shall take charge of property and
supply management, application of property tags and reference numbers,
consolidation of reports on physical count and maintaining a centralized record
for properties and equipment; and (iv) consider the creation of a plantilla position
for and hiring of a General Services Officer pursuant to Section 490, Article 20 of
RA No. 7160 to ensure efficient administration of all property and equipment of
the Municipality; and

b. The Municipal Accountant and the Municipal Treasurer, in coordination with the
other department heads, exert efforts to reconstruct the property records and setup
property cards and ledger cards for each type of PPE, and henceforth ensure that
such property and accounting records are complete and regularly updated.

7. The Municipal Accountant disregarded several accounting rules and standards in

recording financial transactions and in preparing the financial statements contrary to
Sections 112 and 121 of PD No. 1445, resulting in material misstatements on the
Statement of Financial Position and the Statement of Financial Performance for CY
2020.

We recommended that the:

a. Municipal Accountant submit a valid justification for disregarding pertinent

accounting rules and standards in recording financial transactions and in the
preparation of financial statements that resulted in material misstatements on the
Statement of Financial Position and the Statement of Financial Performance for
CY 2020; and

b. Municipal Mayor, consider initiating the proceedings for administrative

disciplinary action against the Municipal Accountant in accordance with the
provisions of the 2017 Rules on Administrative Cases in the Civil Service.

8. Several deficiencies were observed in the cash assistance payrolls totaling

₱6,937,150.00 under the Assistance to Individuals in Crisis Situation (AICS) Program
contrary to the provisions of DSWD Memorandum Circular No. 2020-004 dated
March 30, 2020 and Section 4(6) of PD No. 1445, thereby causing doubt on the
propriety of distribution of cash assistance to the rightful beneficiaries.

We recommended that the Municipal Social Welfare and Development Officer submit
to the Audit Team a copy of the following documents:

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 a. Memorandum of Agreement (MOA) between the Municipality and the DSWD
pursuant to Section III.A.1 of DSWD MC No. 2020-006;

b. Photocopy of valid IDs with specimen signatures of the 43 beneficiaries which were
lacking in the cash assistance payrolls;

c. For each beneficiary, a copy of updated Social Amelioration Card (SAC) Form,
photo taken during actual receipt, and specific documentary requirements as
enumerated under Section VII.A.1 of DSWD MC No. 2020-009 or a certification
from the barangay that the beneficiary is in need of assistance from DSWD, as the
case may be; and

d. Reasonable explanation why the lacking documents were not submitted to the Audit
Team and why some claimants were allowed to receive the cash assistance even
without a proper authorization letter.

We also recommended that the Municipal Accountant henceforth, ensure that cash
assistance payrolls under all social amelioration programs are duly supported with
complete documentation in accordance with pertinent DSWD Circulars and other
related issuances.

9. Various expenditures totaling ₱3,514,724.80 were paid out of the prior years’
unexpended balances of Local Disaster Risk Reduction and Management Fund
(LDRRMF) despite lack of a duly approved investment program authorizing its release
and utilization contrary to Section 6.5 of NDRRMC-DBM-DILG JMC No. 2013-1
dated March 25, 2013 and Section 5.1.3 of COA Circular No. 2012-002 dated
September 12, 2012, thus the propriety of the said expenditures is questionable.
Moreover, the unexpended balance of prior years’ LDRRMF was not transferred to
the Special Trust Fund (STF) contrary to Section 5.1.10 of COA Circular 2012-002.

We recommended that the:

a. Municipal Disaster Risk Reduction and Management Officer (MDRRMO), in

coordination with the Municipal Disaster Risk Reduction and Management
Council (MDRRMC), (i) prepare the required investment plan for the prior years’
unexpended LDRRMF amounting to ₱7,912,862.00 that should correspond to the
actual expenditures incurred in CY 2020 totaling ₱3,514,724.80 and should be
accompanied by a written justification on why it was not formulated prior to actual
disbursement of the fund; and (ii) henceforth, ensure that all the proposed
programs, projects and activities to be charged against the unexpended balance of
prior years’ LDRRMF are duly incorporated in the annual LDRRMFIP and
integrated in the approved Annual Investment Program (AIP) of the Municipality;

b. Municipal Planning and Development Coordinator (MPDC), in coordination with

the Local Development Council (LDC) and upon preparation of the required
investment plan by the MDRRMO, prepare a Supplemental AIP therefor and

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 submit it along with the MDRRMO’s justification to the Sangguniang Bayan for
their consideration and approval should they find it reasonable based on the
current circumstances; and

c. Municipal Accountant prepare an analysis of the LDRRMF and initiate the

transfer of any unexpended balance of prior years’ LDRRMF to the STF pursuant
to Section 5.1.10 of COA Circular 2012-002.

10. The Management failed to regularly remit intact within the prescribed period the
monthly withholding taxes due to the Bureau of Internal Revenue (BIR) resulting in
an unremitted balance of ₱2,047,089.01 as of December 31, 2020 contrary to the
provisions of Revenue Regulation No. 2-98 dated April 17, 1998, as amended, and
BIR Memorandum Order No. 8-2003 dated March 3, 2003, thus exposing the
unremitted funds to the risk of misuse and possible incurrence of unnecessary interests,
penalties and surcharges.

We recommended that the Municipal Accountant and the Acting Municipal Treasurer:
(a) submit a written explanation on why taxes withheld were not regularly remitted
intact to the BIR; (b) upon careful review and reconciliation of their records, determine
the correct amount of taxes due for remittance and remit the full amount thereof to the
BIR at the soonest time possible; and (c) henceforth, ensure that taxes withheld on
contractors and suppliers and compensation of municipal officials and employees are
remitted intact within the prescribed period pursuant to BIR Revenue Regulation No.
2-98 dated April 17, 1998, as amended.

11. The Management failed to remit intact within the prescribed period the monthly
premium contributions to the Philippine Health Insurance Corporation (PhilHealth)
contrary to Sections 18(b) of the Implementing Rules and Regulations (IRR) of RA
No. 10606 or the National Health Insurance Act of 2013, resulting in unremitted
contributions totaling ₱84,957.05 and penalties amounting to ₱2,149.31.

We recommended that the:

a. Municipal Mayor determine the local officials and/or employees who are
responsible for the unnecessary delays in the remittance of PhilHealth premium
contributions and cause the refund of interest and surcharges totaling ₱2,149.31;

b. Municipal Accountant prepare an analysis of unremitted PhilHealth premium

contributions including the unremitted PhilHealth contributions in the Trust Fund
books, reconcile billings and remittances, and effect necessary adjustment and
corrections, as appropriate; and

c. Acting Municipal Treasurer, henceforth, ensure prompt remittance of PhilHealth

contributions within the period prescribed by PhilHealth to avoid incurrence of
unnecessary interest and penalties.

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12. The approved budget for identified Gender and Development (GAD) programs,
projects and activities amounted to only ₱1,673,600.00 or 2.23% instead of at least 5%
of the total municipal budget for CY 2020 due to lapses on the part of the GAD Focal
Point System (GFPS) and the Local Finance Committee (LFC) in the formulation and
integration of budget proposals, contrary to Section 36(a) of RA No. 9710, Section 31
of the General Provisions of RA No. 11465 and Section 4.1.C.3.1 of PCW-DILG-
DBM-NEDA JMC No. 2013-01, thus reducing the Municipality’s responsiveness to
locally identified gender issues and concerns.

We recommended that the GFPS and the LFC (a) exert due diligence in the
formulation and integration of budget proposals to ensure that the identified GAD
programs, projects and activities in the GPB are adequately provided with a budget
allocation which is at least 5% of the total annual budget; and (b) see that the GPB
reviewed and endorsed by the DILG is duly incorporated in the annual budget.

13. The Management failed to setup a GAD database containing gender statistics and sex-
disaggregated data as required under Section 37(D), Rule VI of the Implementing
Rules and Regulations (IRR) of RA No. 9710 and Section 4.1.B. of PCW-DILG-
DBM-NEDA Joint Memorandum Circular (JMC) No. 2013-01 dated July 18, 2013,
thus depriving the Municipality of a reliable basis for gender-responsive planning,
programming and policy formulation.

We recommended that the MPDC, in coordination with the GFPS-TWG, initiate the
setting up of a GAD database containing the gender statistics and sex-disaggregated
data of the Municipality in accordance with Section 37-D, Rule VI of the IRR of RA
No. 9710 and henceforth keep it updated to serve as a reliable basis in addressing
gender issues and concern in GAD planning and budgeting for the ensuing years.

14. The Management failed to submit within the prescribed period the financial statements
for CY 2020 and other required reports and documents, contrary to Section 347 of RA
No. 7160 and Section 4.1 of COA Circular No. 2010-001 dated March 2, 2010, thus
precluded the timely audit of the municipal accounts and transactions including the
preparation and transmittal of the annual audit report.

We recommended that the Municipal Mayor instruct all concerned department heads
to observe timely submission of reports and documents, especially those requested by
the Audit Team, to allow timely review of municipal accounts and transactions
including the preparation and transmittal of the annual audit report.

15. The Management failed to submit the Agency Action Plan and Status of
Implementation (AAPSI) on the observations and recommendations included in the
CY 2019 Annual Audit Report in violation of Section 89 of the General Provisions of
RA No. 11465, the General Appropriations Act (GAA) of Fiscal Year (FY) 2020, thus
the status and actions taken relative to the implementation of prior year’s audit
recommendations could not be evaluated.

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 We recommended that the Municipal Mayor (a) direct the Department Heads
concerned to immediately prepare a consolidated report on all management actions
taken relative to the audit observations and recommendations included in the Annual
Audit Report for CY 2019 using the prescribed AAPSI Form; and (b) henceforth,
strictly adhere to the prescribed period for the submission of the AAPSI as provided
under the GAA.

16. Audit suspensions and disallowances totaling ₱6,080,181.54 were not settled within
the reglementary period contrary to Sections 7.1, 9.4 and 10.4 of the Revised Rules on
Settlement of Accounts (RRSA) prescribed under COA Circular No. 2009-006 dated
September 15, 2009 thereby preventing further review and evaluation of the suspended
transactions and delaying the refund of the disallowed expenditures.

We recommended that the (a) Municipal Mayor issue a memorandum order enjoining
the persons responsible for the six audit suspensions issued on October 29, 2018 and
August 5, 2019 to immediately settle them within a reasonable time, otherwise the
transactions covered shall be disallowed in audit pursuant to Section 9.4 of the RRSA;
and (b) Municipal Mayor and the Acting Municipal Treasurer enforce the COEs issued
on January 22, 2013 and January 5, 2018 by withholding the salaries and other
compensation due to the persons liable in satisfaction of the audit disallowances
pursuant to Section 7.1.3 of the RRSA. Payment of salaries or any money due them in
violation of the instruction in the said COEs will be disallowed in audit and the
Municipal Mayor and the Acting Municipal Treasurer shall be held liable therefor.

Status of Implementation of Prior Year’s Audit Recommendation

Of the 14 audit recommendations embodied in the Annual Audit Report for CY

2019, one was partially implemented while 13 were not implemented by the Management
as of December 31, 2020.

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