EXECUTIVE SUMMARY

Introduction

The Municipality of Lian was organized in the year 1915. It is located 136 southwest part of
Manila and northwest part of Batangas City. It has a total land area of 10,655.3582 hectares
mostly devoted to agricultural activities.

The organizational structure of the Municipality is as follows:

a. Key Officials

Municipal Mayor Isagani I. Bolompo, M.D.

Municipal Vice-Mayor Engr. Exequiel L. Bonuan

Members of the Sanggunian

Leo F. Malinay
Florante C. Lagus
Erwin M. Austria
Benito A. Magbago
Roland H. Magyaya
Tomas M. delos Reyes
Leopoldo A. Jonson
Jaime C. Delos Reyes
Denison P. Magahis (ABC President)
Myca M. Asumbrado (SK Federation President)

Municipal Accountant Genrisa D. Medrano

Municipal Treasurer Fredelyn J. Lapitan

b. Number of Personnel Complement

Permanent 77
Elective 12
Coterminous 4
Job Orders 192
Total 285

Scope of Audit

Financial and compliance audits were conducted on the accounts and operations of the
Municipality of Calatagan, Batangas for CY 2018. The audit was conducted to ascertain the
adequacy and reliability of the books of accounts and financial reports, fairness of the
presentation of the financial statements and Municipality’s compliance with applicable laws,
rules and regulations, as well as adherence to prescribed policies in handling its finance and
its operation in general.

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Financial Highlights (in Totals)

For the Calendar Year 2018, the Municipal Government of Lian generated revenue of
₱156,950,517.86, sourced from local taxes, Internal Revenue Allotment (IRA),service,
business and other sources of income. The total appropriations/allotments was
₱180,102,830.59 of which ₱143,448,704.27 or 79.65% was obligated during the year, thus
leaving on unexpended balance of ₱36,654,126.32 or 20.35%.

The total assets, liabilities, equity, income and expenses of the Municipality for CYs 2018
and 2017 are as follows:

2018 2017 Increase/(Decrease)

Assets ₱ 373,868,776.14 ₱ 306,314,105.50 ₱ 67,554,670.64
Liabilities 155,733,921.41 129,230,226.83 26,503,694.58
Equity 218,134,854.73 177,083,878.67 41,050,976.06
Income 156,950,517.86 144,717,191.29 12,233,326.57
Expenses 120,271,248.94 110,782,225.20 9,489,023.74

Independent Auditor’s Report on the Financial Statements

The Auditor rendered a qualified opinion on the fairness of presentation of the financial
statements of the Municipality of Lian, Batangas due to:

1. The existence, reliability and completeness of Property, Plant and Equipment worth
₱274,178,620.87, gross of accumulated depreciation, could not be ascertained due to:
a) partial physical count and incomplete Report of Physical Count of Property, Plant and
Equipment (RPCPPE) totaling ₱242,680,428.47; b)discrepancies between the RPCPPE
submitted by the General Services Office (GSO) and the Subsidiary Ledgers (SL) of the
Accounting Department totaling to ₱11,463,547.11;c)presence of beginning/unidentified
balances of PPEs in the Accounting’s SL totaling ₱2,219,224.88; d)non-recognition of
depreciation for PPEs with a total cost of ₱631,113.35; and e)PPE Ledger Card and
Property Card were not maintained while Acknowledgement Receipts for Equipment
were not updated, thereby affecting the fair presentation of the PPE accounts in the
financial statements.

2. The reliability of Real Property Tax (RPT) Receivable and Special Education Tax (SET)
Receivable totaling ₱24,456,273.62 could not be ascertained due to its discrepancies
with the Municipal Treasurer’s Office reported balance of ₱20,695,290.20 in their
delinquent real property and special education taxes as of December 31, 2018, thereby
incurring a total difference of ₱3,760,983.42, thus, affecting the fair presentation of the
financial statements.

Likewise, Report of RPT Delinquency as of December 31, 2018 showed an ending

balance of ₱20,695,290.20 implying the Municipality’s failure to enforce its collection
contrary to Section 258 and 269 of Republic Act No. (RA) 7160, thereby depriving the
local government of its supposed income.

3. The reliability, validity and correctness of the year-end balances of accounts Due from
LGUs and Due to LGUs of the Municipality amounting to ₱28,456.00 and

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 ₱6,138,159.63, respectively, could not be fully ascertained due to: (a) non reconciliation
of the said receivables and payables with the books of the Province of Batangas; (b)
presence of long outstanding unaccounted/unsupported balance of Due to LGUs of
₱33,945.00 and (c) inclusion of various items amounting to ₱4,658,248.89, the nature of
which does not primarily fall under such account, contrary to the provisions of PD 1445
and COA Circular 2015-009, thus affecting the fair presentation of the financial
statements.

4. Receivables totaling ₱509,070.78 remained outstanding in the books for more than five
years, contrary to the provisions of COA Circular Nos. 97-001; 2003-002; 2012-004 and
2016-005, casting doubt on their collectibility and rendering the accounts unreliable.

5. The reliability, validity and correctness of the year-end balance of Due to National
Government Agencies (NGAs) account of the Municipality could not be fully ascertained
due to the presence of long outstanding unaccounted/unsupported balance of Due to
NGAs of ₱97,814.39 and inclusion of various items amounting to ₱355,593.91, the
nature of which does not primarily fall under such account, thus affecting the fair
presentation of the financial statements.

Likewise, the balance of ₱70,914,272.47 from fund transfers to various national

government agencies were not fully utilized as of year-end, leaving ₱45,057,533.50
unexpended and/or unimplemented and unutilized at yearend, thereby depriving
constituents of timely basic and value-added services and benefits that could have been
derived therefrom or the source agency of additional funds for its future projects.

6. Current portion of the Loans Payable - Domestic amounting to ₱6,406,292.06 was

presented as Non-current liabilities and not in accordance with Philippine Public Sector
Accounting Standards (PPSAS) 1, thereby affecting the fair presentation of the financial
position of the Municipality.

Significant Audit Observations and Recommendations

For the exceptions cited above, the Audit Team recommended that the Municipal Mayor
direct the:

1. a. The Inventory Committee headed by the General Services Officer prepare inventory
list by category and perform the actual and complete physical count of PPE in order
to determine the existence of the recorded PPE accounts and reconcile the results
of the count with the accounting records and establish the causes of discrepancies,
whether items have already been missing, donated, sold and unserviceable to arrive
at the correct balance in the financial statements. As to the infrastructure assets,
coordinate with the Municipal Engineer to verify their existence, prepare and
maintain the required Property Cards and update ARE to facilitate the reconciliation
of RPCPPE with the accounting records;

b. The Accounting Department exhaust all efforts to fully identify the PPEs included in
the beginning/unidentified balances. Secure the necessary documents to support
those PPEs to be able to reconcile with the Inventory Report of the GSO. Also, trace
those PPEs without depreciation and with negative balances to establish their correct
carrying value. Likewise, review the composition of the accounts under those PPEs
and identify the appropriate classification for those items identified in the audit,

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 including those PPEs disbursed in the Trust Fund. Secure proper documentation
before effecting the necessary adjusting entries for erroneous recording or for
inclusion to ensure that the amounts are valid and conform to the rules and
regulations that will cover such adjustments; and

c. The Municipal Accountant and the General Services Officer maintain complete and
updated PPE Ledger Cards and Property Cards, respectively, to facilitate the
reconciliation of both records.

2. We also recommended that the Municipal Mayor instruct the following:

a. Municipal Accountant and the Municipal Treasurer reconcile their records to present
reliable RPT and SET Receivables in the financial statements;

b. Municipal Treasurer exhaust all efforts and devise strategies to collect all delinquent
real property taxes and encourage the tax payer to pay their dues on time. Conduct
verification on those outstanding balances to determine the accuracy of the
receivables and its collectability; and

c. Municipal Treasurer to submit copy of the document providing the legal basis for the
0.5% assessment rate of the real property of Absolut Chemicals Inc. in Barangay
Malaruhatan that was used in the computation of levied special education tax.

3. We likewise recommended that the Municipal Mayor direct the Accountant and her staff
to:

a. Coordinate again with the Provincial Accountant and reconcile their records on
receivables/payables and their corresponding payables/receivables in the books of
the Province to establish the correct balances of the intra-agency accounts;

b. Coordinate with the concerned officials and departments heads to obtain information
on those long outstanding accounts. Secure the necessary documents to properly
identify the creditor/local government unit to whom it’s due. Once the specific local
government unit had been identified, verify the reported balances in the subsidiary
ledgers through confirmation letters and exhaust efforts to fully ascertain the validity
and legality of those obligations; and

c. Review the composition of the accounts under the Due to LGUs and identify the
appropriate classification for those items identified in the audit. Secure proper
documentation before effecting the necessary adjusting entries for erroneous
recording/inclusion in the Due to LGUs account to ensure that the amounts are valid
and conform to the rules and regulations that will cover such adjustments.

4. We recommended that the Municipal Mayor instruct the Municipal Accountant and the
Municipal Treasurer to exhaust efforts to obtain sufficient information on those dormant
accounts. Conduct regular and periodic verification, analysis, and validation of the
existence of the receivables and determine the concerned debtors or accountable
officers to notify them of their outstanding balance. Otherwise, if they can no longer be
traced, expedite the submission of the request for write-off of these dormant accounts to
the Commission on Audit supported with Sangguniang Bayan Resolution requesting the
same and certification as to extent of management validation on these accounts, aging

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 schedule and available records pertaining to these dormant accounts, if any.

5. We recommended that the Municipal Mayor instruct the following:

a. The Municipal Accountant to review the composition of the accounts under the Due
to NGAs and identify the appropriate classification for those items identified in the
audit. Secure proper documentation before effecting the necessary adjusting entries
for erroneous recording/inclusion in the Due to NGAS account to ensure that the
amounts are valid and conform to the rules and regulations that will cover such
adjustments.

b. The Municipal Accountant to immediately submit the liquidation reports if not yet
submitted and the check to the source agency for refund of the unexpended balance.
See to it that future fund transfers are fully implemented within the time frame to
avoid delay in liquidation. As to the balance of fund transfers of completed projects
with counterpart from the Municipality, identify the amounts to be remitted to the
source agency and to be reverted in the General Fund for appropriation.

c. The Head of the Municipal Planning and Development Office to coordinate with the
concerned department heads to enforce the utilization and implementation of those
projects that were not yet implemented while pursue the continuation of those
ongoing utilization. Likewise, see to it that their respective time frames and
schedules are strictly monitored and evaluated to avoid delays in its implementation.

6. We recommended that the Municipal Accountant prepare a Journal Entry Voucher to

record the adjusting entry recognizing the current liability portion of the loans payable
and reducing the long term obligations to the proper amount to fairly present the
accounts in the financial statements.

In addition, the following are other significant findings and recommendations:

1. Receivables – Disallowances/Charges in the amount of ₱405,683.68 aged 10 years and

beyond remained uncollected/unsettled contrary to Section 51 of P.D. 1445 and
provisions of COA Circular 2009-006 dated September 15, 2009, prescribing the use of
Rules and Regulations on the Settlement of Accounts, thus depriving the Municipality of
the use of the recovered funds for other worthwhile projects.

We recommended that the Municipal Mayor instruct the concerned department heads to
immediately initiate action to enforce the settlement of the disallowances in accordance
with the COA Revised Rules of Procedure on the Settlement of Accounts (RRSA).
Secure documents such as the Notice of Finality of Decision/COA order of Execution to
trace back those disallowances reflected in the Receivables – Disallowances/Charges
account. Once the persons liable and their accountability have been established issue
demand letter to notify them of their liability and to enforce collection on them.

2. Implementation of the contract agreement for infrastructure projects amounting to

₱71,638,200.00, utilization of the fund transferred by various National Government
Agencies (NGASs) therefor and the corresponding disbursements contained lapses and
inconsistencies, contrary to the provisions of RA 9184, thereby, cast doubt on the
propriety and veracity of such transactions/payments and may indicate a probable cause

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 of irregular expenditures and weaknesses in the internal control of the project
implementers.

We recommended that the Municipal Mayor instruct the Bids and Awards Committee to
strictly observe the provisions of the RIRR of RA 9184 in the prosecution of the
Municipality’s infrastructure projects.

We further recommended for a written justification from the BAC Chairman for the noted
deficiencies and inconsistencies in the procurement process such as: a) non-conduct of
pre-procurement conference; b) non-submission of contracts for review and evaluation
by the Commission on Audit; c) failure to provide proof of invitation to bid as observers to
COA and to a private group in a sector or discipline; d) non-deduction of retention not in
accordance with the provisions and e) non-submission of bid data sheet, instruction to
bidders and post-qualification reports.

3. The 20 percent development fund totaling ₱23,914,237.20 was not optimally utilized
leaving the amount of P1,176,165.89 unutilized during the period, thus, failed to achieve
the planned or desired local socio-economic development and environmental
management outcomes intended for the benefits of the constituents . Also, it was noted
that implemented development projects totaling ₱5,850,025.46 were not included in the
LGU’s Annual Investment Program for CY 2018 contrary to Sections 106 and 305(i) of
RA No. 7160 and Article 410 of Act Implementing Rules and Regulations.

We recommended that the Municipal Mayor, Municipal Engineer and the Municipal
Planning and Development Officer ensure effective utilization of the 20% Development
Fund which is primarily intended to fund projects that shall contribute to the attainment of
desirable socio-economic development and environmental management outcomes

We further recommended that the development projects/activities contained in the

Municipality’s Annual Investment Program shall be the priority for budgeting and
implementation pursuant to Sections 106 and 305(i) of RA No. 7160 and Article 410 of
Act Implementing Rules and Regulations.

4. The LGU allocated less than five (5) percent of its annual budget appropriations for its
gender and development activities with deficit amounting to ₱1,089,003.08; Gender
Development data base, has not yet been established; the implemented Annual Gender
and Development (GAD) Plan and Budget for Calendar Year 2018 was not a DILG
endorsed document and the Annual Gender and Development (GAD) Accomplishment
Report was not prepared as prescribed, contrary to the provisions of Republic Act No.
9710 or “The Magna Carta of Women”, and Joint Memorandum Circular No. 2016-01
and 2013-01 of Philippine Commission on Women, Department of the Interior and Local
Government, Department of Budget and Management and National Economic and
Development Authority.

We recommended that the Municipality strictly comply with the aforementioned

provisions of Republic Act No. 9710 or “The Magna Carta of Women” and Joint
Memorandum Circular No. 2016-01 and 2013-01 of the Philippine Commission on
Women, Department of the Interior and Local Government, Department of Budget and
Management and National Economic and Development Authority; that the LGU shall
allocate at least five (5) percent of its total budget appropriations for gender and
development; shall establish and maintain an operational GAD database which is one of

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 the institutional mechanisms for gender mainstreaming; shall implement DILG-endorsed
original or adjusted GAD plan and budget and dutifully prepare GAD Plan and Budget
and Accomplishment Report according to the prescribed format:

5. Pertinent provisions of Republic Act (RA) No. 10121 and COA Circulars No. 2012-002
and 2014-009 in the utilization, accounting and reporting of Local Disaster Risk
Reduction and Management Fund (LDRRMF) were not strictly observed by the
Municipality, thus the desired results for which the fund was created cannot be fully
achieved.

Based on the forgoing observations, we recommended that the Municipal Mayor:

• Require the Municipal Disaster Risk Reduction and Management Office (MDRRM) to
enforce the implementation of the programs and projects of the Municipality under
70% Mitigation Fund and have those programs completed within the intended time to
avoid delay in the delivery of services and benefits to the constituents;

• Require LDRRM Officer to submit the Report on Sources and Utilization of DRRMF
on or before the 15th day after the end of each month through LDRRMC and Local
Development Council (LDC) to the COA Auditor pursuant to COA Circular 2012-002.
Also, coordinate with the Municipal Budget Officer and the Municipal Accountant to
prepare the report in accordance with the prescribed format and have the amounts
reconciled with their records; and

• Require the Municipal Accountant to disclose in the Notes to the Financial

Statements the amount and details of the unexpended balance of LDRRMF as well
as the other required disclosure in order to inform the users of relevant information.

6. The Annual Budget of Special Education Fund for CY 2018 was not supported with
School Improvement Plan (SIP) and the Annual Implementation Plan (AIP) and was not
presented by program, activity and project, by allotment class and per school using SEF
Budget Preparation Form No. 1 contrary to Sections 5.1 to 5.2.2 of the Joint Circular No.
1, series of 2017 of the Department of Education, Department of Budget and
Management and Department of the Interior and Local Government.

We recommended that the Local School Board strictly comply with the provisions of
Joint Circular No. 1, series of 2017 of the Department of Education, Department of
Budget and Management and Department of the Interior and Local Government in order
to ensure that Special Education Fund (SEF) will be utilized for the intended purpose or
according to the identified priority areas listed in the Annual Implementation Plan (AIP)
culled from the DepEd-approved School Improvement Plan (SIP).

7. Disbursement vouchers amounting to ₱14,080,368.72 were not submitted to the Auditor

concerned for audit contrary to Section 39 of Presidential Decree No. 1445 and Section
7.2 of COA Circular No. 2009-006 thus, created doubts on the expenditures regularity
and propriety.

We recommended that the Municipal Accountant submit the disbursement vouchers and
supporting documents to the Auditor within the prescribed period to avoid
suspensions/disallowances in audit.

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8. The Municipality has unremitted GSIS contributions of ₱2,839.84 as of December 31,
2018. However, unreconciled in-default loan accounts and unpaid premiums in the total
amount of ₱1,150,373.84 were found per GSIS records, contrary to Section 111 (2) of
Presidential Decree No. 1445 and Section 6 (b) of Republic Act No. 8291 thereby
casting doubts on the accuracy of the ‘Due to GSIS’ account and detrimental to the
GSIS members-employees of the LGU.

We recommended that the Municipal Mayor direct the Municipal Accountant in

coordination with Municipal Human Resource Management Officer to regularly reconcile
the balances in accounting records with the records of the GSIS in order to ascertain the
accuracy and reliability of the amount Due to GSIS in the financial statements.

9. The Municipality closed its controlled dump facility in CY 2018 pursuant to Section 37 of
Article 6 of RA No. 9003 and DENR Administrative Order (DAO) No. 9, series of 2006
but physical inspection of the facility showed that the closure was implemented not
according to the rehabilitation and closure plan submitted to the Department of
Environment and Natural Resources – Environment and Management Bureau,
CALABARZON Region, thus, environmental protection measures and safeguards were
not undertaken. Likewise, its material recovery facility were not yet in place and
operational due to the lack of the required building to house the equipment affecting the
recycling activities of the facility and the ability to further reduced the residual waste of
the local government unit.

We recommended that the Municipality strictly implement the Safe Closure and
Rehabilitation Plan (SCRP) with the detailed plan and corresponding cost estimate that
was duly acknowledged by the Environment and Management Bureau (EMB),
CALABARZON Region to insure that the controlled dumpsite closure and rehabilitation
are done in a proper manner, with environmental protection measures and safeguards in
place.

10. The Municipality has not yet established the Municipal Council for the Protection of
Children (MCPC). There was neither Sangguniang Bayan resolution or ordinance nor
Local Chief Executive Administrative Order issued to organize it, contrary to Section 15
of Republic Act No. 9344 or the “Juvenile Justice and Welfare Act of 2006”.

We recommended that the LGU organize the Municipal Council for the Protection of
Children (MCPC) and activate, strengthen, and sustain it pursuant to Section 15 of
Republic Act No. 9344 or the “Juvenile Justice and Welfare Act of 2006.

11. The Municipality failed to submit the Agency Action Plan and Status of Implementation
(AAPSI) on the CY 2017 Annual Audit Report, contrary to Section 93 of the General
Provisions of Republic Act No. 10964, dated December 19, 2017, otherwise known as
General Appropriations Act of 2018 thus, the actions taken by management on prior
year’s audit recommendations were not duly monitored.

We recommended that the Municipal Mayor direct the department head/s or personnel
concerned to comply with the completion and submission to the Audit Team of the
Agency Action Plan and Status of Implementation (AAPSI) for part III of CY 2018 AAR
and on every AAR thereafter.

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12. The Municipality made various changes in its Annual Budget for Calendar Year 2018 like
augmentation of personal services and realignment of maintenance and other operating
expenses and capital outlays contrary to Sections 321 and 336 of Republic Act No. 7160
and Articles 417 and 454(b) of the Act Implementing Rules and Regulations affecting the
integrity of planning and budgeting processes of the Municipality.

We recommended that the Municipality strictly observe the provisions of Sections 321
and 336 of Republic Act No. 7160 and Article 417 454(b)of the Act Implementing Rules
and Regulations and promote the Code objectives of discouraging careless preparation
of the annual budget or any practice that undermines the integration of planning and
budgeting at the local level.

The foregoing observations and recommendations in Part II of this Report were discussed in
an exit conference conducted with the concerned Municipal officials and employees on May
24, 2019. Management’s views and comments were considered in the Report, where
appropriate.

Unsettled Suspensions, Disallowances and Charges

As of December 31, 2018, the total outstanding audit suspensions, disallowances and
charges of the Municipal Government of Lian based on the Notice of Suspensions (NS),
Notice of Disallowances (ND), Notice of Charges (NC) and Notice of Summary of
Suspensions, Disallowances and Charges (NSSDC) issued by this Commission totaled
₱7,070,200.00.

Status of Implementation of Prior Years’ Audit Recommendations

Of the 61 audit recommendations embodied in the CY 2017 and prior years’ Annual Audit
Reports, 26 were fully implemented, 12 were partially implemented and 23 were not
implemented by the Municipality.

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