PART II

AUDIT OBSERVATIONS AND RECOMMENDATIONS

1. Disbursements amounting to P75,730.00 for the purchase of construction

materials for the Repair of Social Center were split into two requisitions to keep
the transactions within the threshold for shopping and small value procurement
contrary to Section 54.1 of the Revised Implementing Rules and Regulations of
Republic Act No. 9184, or the Government Procurement Law thus, there was
no assurance that prices obtained were advantageous to the barangay.

1.1 Section 54.1 of the Revised IRR of R.A. 9184, provides:

Section 54. Terms and Conditions for the use of Alternative Methods

54.1 Splitting of Government Contracts is not allowed. Splitting of

Government Contracts means the division or breaking up of GOP
contracts into smaller quantities and amounts, or dividing contract
implementation into artificial phases or sub-contracts for the purpose
of evading or circumventing the requirements of law and this IRR,
specially the necessity of public bidding and the requirements for the
alternative methods of procurement.
1.2 Audit of disbursements disclosed that the barangay disbursed the amount of
P75,730.00 as payment for construction materials for the repair of Social Center,
Phases 1 and 2. The details are presented in Table 1.

Check Date Check No. Payee Particulars Amount

12/19/18 1539142 Ma. Althea Gen Purchase of 37,865.00
Merchandise construction
materials for
repair of Social
Center Phase 1-
concrete
pavement
12/19/18 1539143 Chris Gen Purchase of 37,865.00
Merchandise construction
materials for
repair of Social
Center Phase 2-
concrete
pavement
Total 75,730.00

1.3 The concept of splitting of government (procurement) contracts as defined in Section

54.1 of the IRR-A presupposes singularity of a procurement project but which, by
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 any act of the procuring entity or its personnel, was divided or broken into smaller
quantities and/or amount, or was divided into artificial implementation phase or
stages.
1.4 The two procurements, which are of materials that are of exactly the same description
and quantity, could have been consolidated in one Purchase Request and one
contract such that the mode of procurement was through public bidding, instead of
shopping. Splitting the items into two procurement activities evaded public bidding.
Thus, there was no assurance that the prices obtained were beneficial to the
barangay.

1.5 We recommended that the Punong Barangay stop the practice of splitting
requisitions or contracts to promote competition and transparency in the
procurement process and obtain a fair and equitable price for the best interest
of the barangay.

2. Annual Dues paid by barangay to the Liga Ng Mga Barangay exceeded

P2,000.00 contrary to Section 2 of Article XIII of the New Constitution and by
Laws of Liga ng mga Barangay sa Pilipinas, thus, considered irregular for lack
of legal basis.

2.1 Section 2 of Article XIII of the New Constitution and by Laws of Liga ng mga
Barangay sa Pilipinas provides that the annual membership dues in the amount of
two thousand pesos (P2,000.00) shall be collected from each Sangguniang Barangay
throughout the country every first (1st) quarter of the year, xxx.”

2.2 COA Circular No. 2012-003 dated October 29, 2012 defines “irregular” expenditures
as follows:

The term “irregular expenditures” signifies an expenditure incurred

without adhering to establish rules, regulations, procedural guidelines,
policies, principles or practices that have gained recognition in law.
Irregular expenditures are incurred without conforming with prescribed
usages and rules of discipline. There is no observance of an established
pattern, course, mode of action, behavior, or conduct in the incurrence of
an irregular expenditure. A transaction conducted in a manner that
deviates or parts from, or which does not comply with standards set is
deemed irregular.

2.3 Audit of disbursements showed that additional annual dues amounting P2,000.00 was
paid on December 12, 2018, aside from the P2,000.00 which was already paid on
April 27, 2018. Said additional payment of Annual Dues to the Liga ng mga
Barangay is contrary to the abovementioned Constitution and by Laws of Liga ng
mga Barangay, thus, to e disallowed in audit.

2.4 We recommended that the Punong Barangay disburse only the amount of
P2,000.00 as payment of annual dues to the Liga ng Barangay to avoid the

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 incurrence of irregular and excessive expenditures. We recommended further
for the refund of the excess amount by the concerned payees and barangay
officials.

3. Appropriations and actual expenditures on Personal Services (PS) in CY 2016 to

CY 2018 exceeded the 55% PS limitation contrary to Section 331 (b) of Republic
Act No. 7160, thereby incurring illegal disbursements and reducing the funds
that could have been allocated for other beneficial programs and development
projects.

3.1 Section 331 (b) of Republic Act (RA) No. 7160 otherwise known as the Local
Government Code of 1991, states that “The total annual appropriations for personal
services of a barangay for one (1) fiscal year shall not exceed fifty-five percent
(55%) of the total annual income actually realized from local sources during the
next preceding fiscal year.”
3.2 DBM Local Budget Circular No. 98 issued on October 14, 2011, prescribed the
guidelines in determining compliance to the personal services (PS) limitation on
local government budgets. Section 4.2 thereof defines Personal Services (PS)
Limitation as the prohibition under Section 331 (b) of the Local Government Code
against appropriating funds for PS in excess of the limits set therein. It provides
further that PS Limitation refers to the amount beyond which no additional
appropriation for PS items is allowed.

3.3 Section 4.6 of the same Circular defines next preceding fiscal year as the fiscal year
that is two (2) years before a budget year. For example, if FY 2011 is the budget
year, the next preceding fiscal year is FY 2009.
3.4 Section 4.3 of the same Circular on the other hand provides items which are waived
in the determination of compliance to the PS limitation in LGU PS budgets which
includes payment of minimum Year-end Bonus of ₱1,000.00 for the Punong
Barangay and P600.00 for other mandatory barangay officials, and their Cash Gifts.
3.5 Review of the annual budget of the barangay disclosed that appropriations for
Personal Services in CY 2018, CY 2017 and CY 2016 exceeded fifty-five percent
(55%) of the total annual income actually realized from local sources during the next
preceding fiscal year. The excess amount is computed in Table 2.
Table 2. Excess of Appropriation over PS Limitation
2018 2017 2016
Total Actual Income
(Next Preceding Year)
2016/2015/2014 1,242,849.63 1,136,138.07 987,613.31
PS Limitation - 55% 683,567.30 624,875.94 543,187.32
Appropriation 856,860.00 823,260.00 674,240.00
Excess (173,292.70) (198,384.06) (131,052.68)

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3.6 Actual expenditures (see Table 3) on personal services exceed the ceiling for the
reason that the budget itself for CY 2016 to CY 2018 provided a greater PS
appropriation than what was required.

Table 3. Excess of Actual PS Expenditure over PS Limitation

2018 2017 2016
PS Limitation - 55% 683,567.30 624,875.94 543,187.32
Supplemental 40,400.00 49,000.00 67,941.82
Total Appropriations 723,967.30 673,875.94 611,129.14
Actual PS Expenditures 876,000.00 852,400.00 709,940.00
Difference (152,032.70) (178,524.06) (98,810.86)
Total PS cost for waived
items 62,000.00 56,400.00 56,400.00
Excess (90,032.70) (122,124.06) (42,410.86)

3.7 The Barangay officials were under the notion that since the budget of the barangay
was already reviewed by the Budget Officer and approved by the Sangguniang
Bayan, their budget was already in consonance with the regulations.
3.8 Failure to observe the mandatory limit on PS resulted in illegal disbursements totaling
₱254,567.62 and impaired the delivery of some basic services of the barangay
because the excess funds spent for Personal Services could have been allocated for
other beneficial programs and development projects.
3.9 We recommended that the Punong Barangay and Committee Chairman on
Appropriation limit the appropriations and expenditures for Personal Services
of the barangay strictly in accordance with Section 331 (b) of RA 7160 to avoid
disallowances on irregular and excessive PS disbursements.
3.10 We further recommended that the barangay council should strive to find ways
to improve collection of revenues from local sources so that the Personal
Services ceiling will correspondingly increase.

4. The 20% Development Fund in CY 2016 to CY 2018 was appropriated and

utilized for barangay road maintenance, contrary to DILG-DBM JMC 2017-1
dated February 22, 2017, thus, the attainment of socio-economic and
environmental benefits for the citizens of the barangay were not maximized.

4.1 DILG-DBM Joint Memorandum Circular No. 2017-01 dated February 22, 2017
provides the specific guidelines on the appropriation and utilization of the 20% of
the annual internal revenue allotment for development projects. Pertinent sections of
the subject Memorandum Circular are as follows:

Item 2.3 All development projects to be funded under the 20% DF shall
contribute to the attainment of desirable socio-economic
development and environmental management outcomes of the

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 LGU, and shall partake the nature of investment or capital
expenditures.

Item 4 The expense items that are not related to and/or not connected
with the implementation of development projects, programs and
activities shall not be paid out of the 20% development fund.
These are:
 Administrative expenses such as cash gifts, bonuses, food
allowance, medical assistance, uniforms, supplies, meetings,
communication, water and light, petroleum products and the
like;
 Salaries, wages or overtime pay;
 Travelling expenses, whether domestic or foreign;
 Registration or participation fees in training, seminars,
conferences or conventions;
 Construction, repair or refinishing of administrative offices;
 Purchase of administrative office' furniture, fixtures,
equipment or appliances; and
 Purchase, maintenance or repair of motor vehicles or motor
cycles.

Item 5 It is the responsibility of every Provincial Governor, City and

Municipal Mayor and Punong Barangay to ensure that the 20%
of the IRA is optimally utilized to help achieve desirable socio-
economic development and environmental outcomes.

542 Review of the barangay’s development fund appropriations and disbursements in CY

2016 to CY 2018 revealed that the fund was utilized for labor expenses for cleaning
or maintenance of barangay road which is not investment or capital in nature and
should not have been appropriated from the 20% DF, as shown in Table 1.

Table 1. Programs/activities Not Eligible To Be Appropriated in the 20% DF

Calendar
Project Appropriation Disbursements Balance
Year
Maintenance of
2016
government road 75,000.00 82,000.00 (7,000.00)
Maintenance of
2017
government road 67,000.00 30,000.00 37,000.00
Maintenance of
2018
government road 52,000.00 48,000.00 4,000.00
Total 194,000.00 160,000.00 34,000.00

4.3 It was also noted that in CY 2016, disbursements for barangay road maintenance
exceeded P7,000.00 from the total appropriation of P75,000.00.

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4.4 Appropriating the 20% Development Fund for projects that do not satisfy the criteria
for social-economic and environmental development and do not partake the nature of
investment or capital expenditures is not only contrary to regulations but also defeats
the purpose of the fund. Moreover, disbursements in excess of appropriations are
illegal, thus, subject to disallowance.

4.5 We recommended that the Punong Barangay and Sangguniang Barangay

include only in the Annual Investment Plan to be funded by the 20%
development fund, projects which are investment or capital in nature. This
recommendation is without prejudice to the issuance of Notice of Disallowance
resulting from post-audit of transactions.
5. The barangay officials did not strive to increase collection of revenues thru
enactment of ordinances using their revenue raising powers as mandated in the
Republic Act No. 7160, thus funds to finance various activities/programs for
development of the barangay and its operational needs were not enhanced.

5.1 Republic Act 7160, otherwise known as the Local Government Code of the
Philippines, mandates and grants all local government units, including barangays,
the authority and powers to increase their finances through collections and revenues
of their own. With this, they are also given the responsibility to manage these
resources for the attainment of their objectives for a developed and self-reliant
barangay.

5.2 The code provides specific provisions on the taxing and other revenue raising powers
of the barangay, however, thru enactment of tax ordinances to legalize actions.
Article 4.3 240 of the Rules and Regulations Implementing the Local Government
Code of 1991 specifies the sources of income to which the barangay can collect to
enhance its financial resources. There are four ($) major sources of income for the
barangays to collect, namely:
a. Taxes on stores or retailers with fixed business establishments;
b. Service fees or charges for services rendered in connection with the regulation
or the use of barangay-owned properties or facilities;
c. Fees for the issuance of a barangay clearance for any business or activity
located or conducted within the territorial jurisdiction of the barangay; and
d. Other fees and charges on amusement, commercial breeding of fighting cocks,
billboards and signboards.

5.3 Review of the Statement of Financial Performance for the years 2016, 2017 and 2018
revealed that the Barangay has actually collected meager income from local sources,
as indicated in Table 4.

Source CY 2016 CY 2017 CY 2018

of
Income Collection % Collection % Collection %
IRA 1,215,936.00 98% 1,350,120.00 98% 1,447,253.00 98%

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 Source CY 2016 CY 2017 CY 2018
of Collection % Collection % Collection %
Income
Local
12,554.63 1.01% 12,910.42 0.94% 12,831.96 0.87%
Taxes
Grants,
Aids and - - - - - -
Subsidies
Other
14,209.00 1.14% 12,800.00 0.93% 11,550.00 0.78%
Income
Total 1,242,699.63 100% 1,375,830.42 100% 1,471,634.96 100%

5.4 The above table reveals that the barangay mainly depends on the Internal Revenue
Allotment (IRA). The collection of income from other sources were very minimal
and were on a decreasing trend. This further shows that the barangay officials were
not able to act on the revenue raising powers as mandated in Republic Act No. 7160.
5.5 Laxity in the collection of government taxes and fees deprived the barangay of
additional funds to augment its financial sources for the implementation of projects,
programs and activities.
5.6 We recommended the Punong Barangay and other barangay officials to discuss,
plan and design activities/programs that will increase barangay revenues, enact
appropriate ordinances and monitor its implementation in order to collect more
funds for the barangay.

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