EXECUTIVE SUMMARY

A. Introduction

The Municipality of Sta. Cruz is a first-class municipality comprising of 55

barangays. It has a total land area of 287.85 square kilometers representing 30% of the total
land area of the Province of Marinduque.

The Municipality is envisioned to be a progressive, clean and peaceful community

of healthy citizens and leaders who are God-loving, humane, and environment-friendly,
and united towards the attainment of a just social order.

The Organizational Structure of the Municipality is as follows:

a. Elected Officials

Mayor - Hon. Antonio L. Uy, Jr., MD

Vice Mayor - Hon. Geraldine M. Del Rosario.

Members of the Sangguniang Bayan

Hon. Sancho N. dela Rosa

Hon. Joam Merano-Morales
Hon. Krenessa P. Constantino
Hon. Amelia L. Aguirre
Hon. Danilo R. Red
Hon. Alejandro C. Palamos
Hon. Leonara F. Caraan
Hon. Erlando T. Nuñez
Hon. Felix Q. Dy
Hon. Dolan Kerby G. Murrillo

b. No. of Personnel Complement

Permanent - 177
Temporary - 4
Coterminous - 4
Elective Officials - 12
Total - 197

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B. Financial Highlights

The financial highlights of the Municipal Government of Sta. Cruz for CY 2021
with comparative figures for CY 2020 are as follows:

Increase/
Accounts 2021 2020 %
(Decrease)
Assets ₱686,605,415.31 ₱556,342,904.97 ₱130,262,510.34 23.41%
Liabilities 222,018,307.45 145,854,960.04 76,163,347.41 52.22%
Government Equity 464,587,107.86 410,487,944.93 54,099,162.93 13.18%
Total Revenue 245,834,745.93 240,125,917.65 5,708,828.28 2.38%
Total Expenses 186,105,556.27 185,207,289.46 898,266.81 0.49%
Surplus (Deficit) 59,729,189.66 54,918,628.19 4,810,561.47 8.76%

Increase/
Accounts 2021 2020 %
(Decrease)
Appropriations ₱341,816,285.74 ₱327,172,019.54 ₱14,644,266.20 4.48%
Allotments 341,816,285.74 327,172,019.54 14,644,266.20 4.48%
Obligations 200,995,409.70 201,386,611.44 (391,201.74) 0.19%

C. Audit Opinion on the Financial Statements

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

statements of the Municipal Government of Sta. Cruz for CY 2021 due to:

a. Cash in Bank – Local Currency Current Account (LCCA) amounting to

₱280,956,603.69 is unreliable due to a) unadjusted reconciling items totalling
₱19,574.89; b) inclusion of stale checks totalling ₱1,999.00; and c)
unclaimed/unreleased checks totalling ₱3,194,765.01 at year-end which were not
reverted to their respective Cash in Bank accounts thus, understating both the Cash
in Bank account balance and Payables/Liabilities by ₱3,216,338.90;

b. Due from LGUs and Due to LGUs amounting to ₱2,040.25 and ₱6,020,980.15
differed by net amount of ₱851,639.64 and ₱198,076.70 respectively, as compared
with their reciprocal accounts in the books of the Provincial Government of
Marinduque;

c. Inventory accounts with reported balance of ₱18,324,353.48 as of year-end were

inaccurate due to the misclassification of Property, Plant and Equipment (PPE)
accounts totalling to ₱570,700.00 which were erroneously recorded in Other
Supplies and Materials Inventory account;

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d. Doubtful accuracy and existence of the PPE with a carrying amount of
₱281,627,391.35 as of year-end due to i) inclusion of unknown PPE amounting to
₱36,245,906.90; ii) late depreciation of 21 completed projects amounting to
₱3,089,397.06 resulting to understatement of depreciation expense totalling
₱73,145.64; and iii) Road Network account with total cost of ₱88,775,540.99 was
under depreciated due to the inclusion of residual value which understated
depreciation expense by ₱295,836.27;

e. Construction in Progress (CIP) accounts totalling ₱56,417,159.17 were unreliable

and inaccurate due to inclusion of i) completed projects amounting to
₱9,953,092.52 not transferred to their corresponding PPE accounts; and ii) contract
cost of programmed projects not yet implemented as of year-end amounting to
₱4,853,154.00 thereby overstated the CIP accounts by ₱14,806,246.52; and

f. Unexpended balance of the current year DRRMF - QRF and DRRMF

Preparedness, Prevention and Mitigation Fund – MOOE with a total amount of
₱2,059,041.45 were not transferred and recorded to the Trust Fund books.

For the above cited exceptions, we recommended the following courses of actions:

Cash in Bank – LCCA –

a. the Municipal Accounting Office (MAO) to recognize in the books the reconciling
items identified in the BRS in accordance with Item 3.3 of COA Circular No. 96-
011 and Section 74 of Presidential Decree No. 1445 and make the necessary
adjusting entries for the stale checks and unreleased/unclaimed checks by debiting
the Cash in Bank – LCCA account and crediting Accounts Payable to reflect the
correct balances of the said accounts;

b. the Municipal Treasurer’s Office to i) issue written notices to the payees of the
existence of the checks at least one month before checks become stale; ii) submit
the Schedule of Unreleased Checks as of year-end to the MAO as their basis for the
preparation of Journal Voucher to record the entry for the restoration of cash in
bank and recognition of the corresponding accounts payable for the
unreleased/unclaimed checks and reversal of said entry in the ensuing year; and iii)
properly fill out the necessary information needed during the release of checks,
such as the date of release and signature of the recipient; and

c. the Municipal Accountant and Municipal Treasurer to apply all the necessary
adjustments as recognized in the Bank Reconciliation Statements to bring their cash
accounts to their correct balances.

Due from LGUs and Due to LGUs account –

a. Municipal Accountant to i) coordinate with the PAO to address the discrepancies

in the reciprocal Due from LGUs and Due to LGUs account; ii) effect the necessary

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 adjustments in the books after reconciliation to reflect the correct amounts of
receivables, payables and income accounts in the books at year-end; and iii) make
representation with the PGM for the prompt release/remittance of whatever amount
due to the Municipality.

Inventory accounts –

a. Municipal Accountant to i) prepare the necessary correcting entries to reclassify the

items which were improperly recorded as Other Supplies and Materials Inventory
to the proper PPE accounts, and setup the corresponding Accumulated Depreciation
thereto to achieve correctness and proper valuation of accounts; and ii) ensure that
assets acquired/procured that meets the PPE recognition criteria are recorded in the
books as PPE as provided in Par. 4.2 of COA Circular No. 2020-006 dated January
31, 2020.

Property, Plant and Equipment accounts –

a. Inventory Committee to: i) ensure the conduct of complete physical count of the
PPE annually and submit the RPCPPE to the Audit Team not later than January 31
of each year; and ii) fast track the disposition of the agency's reported unserviceable
property/equipment to avoid further deterioration and reduction in value;

b. Inventory Committee together with the MAO and MGSO to: i) immediately
reconcile their records to correct the reported balances of PPE at year-end. Any
discrepancies between the RPCPPE and the accounting records should be
investigated and adjusted accordingly; and ii) follow the guidelines and procedures
set forth in COA Circular No. 2020-006 for the one-time cleansing of PPE account
balances to resolve the existence of unreconciled and unknown PPE; and

c. Municipal Accountant to: i) reclassify immediately the completed projects to their

corresponding PPE accounts so that depreciation can be computed promptly; ii)
make the necessary adjustment for the completed projects which were only
reclassified from CIP accounts to PPE accounts at year end to bring the correct
balance of the depreciation expense for the year; and iii) make necessary
adjustments for the accumulated depreciation for the Infrastructure Assets provided
with residual value.

Construction in Progress accounts –

a. Municipal Accountant to i) facilitate the immediate transfer of the completed

projects to their respective PPE accounts in accordance with Section 50 of
MNGAS, Volume I; ii) refrain from booking-up as CIP accounts the programmed
cost of the projects yet to be implemented in consonance with the definition of the
said account as set forth in Annex B of COA Circular No. 2015-009; iii) make the
necessary adjustments to correct the actual balance of the CIP accounts, Property,
Plant and Equipment accounts and Construction Materials Inventory accounts

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 affected by the non-transfer of completed projects and immediate recognition of
unimplemented projects to the CIP accounts; and iv) recognize Construction in
Progress based on progress billings and other acceptable and appropriate supporting
documents which will properly substantiate its balance.

DRRMF – QRF and DRRMF Preparedness, Prevention and Mitigation Fund – MOOE

a. the Municipal Accountant make the necessary adjusting entries to transfer the
unexpended balance of DRRMF – QRF and Preparedness, Prevention and
Mitigation Fund – MOOE amounting to ₱2,059,041.45 to the Trust Fund books
under the account Trust Liability – DRRMF pursuant to COA Circular No. 2012-
002 dated September 12, 2012.

D. Significant Observations and Recommendations

In addition, the following are the significant observations and recommendations in

the audit of Municipal Government of Sta. Cruz for CY 2021:

1. The net realizable value of the Accounts Receivable account amounting to

₱6,845,794.03 cannot be relied on due to non-provision of Allowance for
Impairment Loss for the years 2019 to 2021 and/or write-off of dormant receivables
despite the existence of past due accounts for over one year to over 10 years
totalling ₱2,498,148.50 contrary to IPSAS 29 and COA Circular No. 2016-005
dated December 19, 2016, thereby affecting the reliability and fair presentation of
said account in the Financial Statements. (Observation No. 2)

We recommended the Municipal Mayor to instruct the Municipal Accountant to: a)

establish a policy in providing reliable estimate of uncollectability and impairment
so that account receivables are reported at the correct net realizable value and in
order for accounting to provide useful information on a periodic basis; b) conduct
regular and periodic verification, analysis, and validation of the existence of the
receivables; c) file a request for write-off of the dormant accounts following the
guidelines and procedures under COA Circular No. 2016-005 dated December 19,
2016; and d) prepare the Schedule/Aging of Dormant Receivables to support the
request for write-off and indicate in the remarks column the existence of the
applicable conditions.

2. The correctness of the balance of Breeding Stocks account with reported book value
of ₱559,374.00 as of year-end could not be ascertained due to: a) non-recognition
of gains/losses arising from changes in fair value less cost to sell due to price and/or
physical changes; b) non-maintenance of updated Stock Ledger Cards with
complete information on the births, deaths, transfers or dispersals of Biological
Assets; and c) non-preparation and submission of Livestock Inventory Report
contrary to paragraphs 11, 16 and 30 of IPSAS 27 and Sections 114 and 124 of the

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 NGAS Manual, thus affecting the reliability and fair presentation of the said
account in the Financial Statements. (Observation No. 9)

We reiterated our recommendations that the Management require the:

a. Municipal Agriculturist to prepare and submit a Livestock Inventory Report

with information on the births, distributions/transfers, deaths and fair market
value of the Breeding Stocks;

b. Municipal Accountant to i) book up the necessary adjustments for the costs of

the births, distributions, deaths and changes in fair market value due to price
and physical changes of the Breeding Stocks account and thereafter prudently
apply all of the accounting rules and regulations prescribed under IPSAS 27;
and ii) prepare and update regularly their Work, Other Animals and Breeding
Stocks Ledger Cards (WOABSLC) as prescribed in Section 114 of NGAS
Manual; and

c. Municipal Agriculturist and Municipal Accountant to reconcile regularly their

records for the acquisitions, births, distribution, deaths and disposal of their
Biological Assets for proper valuation as well as confirm the existence of such.

3. Lapses were noted in the implementation of infrastructure projects such as: a) five
Municipal projects totalling ₱9,607,509.60 lacks documents necessary for the
conduct of inspection, evaluation and validation of the implementation and reported
accomplishments contrary to Section 9.1.1 of COA Circular No. 2012-001; b) nine
infrastructure projects totalling ₱21,923,788.57 were found to have deficiencies
amounting to ₱3,003,870.84 contrary to Section 17(a) and 17(b)(3)(vii) of RA No.
7160; c) completed four infrastructure projects amounting to ₱20,565,880.87
incurred delays of 102 to 456 days in their completion thus, liquidated damages
should be imposed to their respective contractors as provided for under Section 8.1,
Annex E, of the Revised IRR of RA No. 9184; and d) the Contract Costs of projects
totalling ₱52,500,896.42 was found to be higher by an aggregate amount of
₱5,975,922.63 compared to the COA cost estimate in violation of Section 3, Annex
A, of the Revised IRR of RA No. 9184. (Observation No. 13)

We recommended that the Management: a) direct the Municipal Engineer and

Municipal Accountant to demand the payment of the liquidated damages totalling
₱1,236,508.31 from the concerned contractors due to the suspension orders and
contract extension time which were found not in order; and b) direct the Municipal
Engineer to ensure timely implementation of infrastructure projects by monitoring
the performance of the contractors and implement the calibrated measures
mentioned in GPPB Circular No. 03-2019 in response to the delays in the
implementation of infrastructure projects.

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 We also reiterated our recommendations that the:

a. Municipal Engineer, a) require the immediate submission of documents such as

Quality Control Program (QCP) including all Material Test Reports, Certificate
of Acceptance and Certificate of Completion to the Audit Team; b) ensure that
any variation/changes in the contracted works are covered by approved
Variation/Change Orders; and c) concerned contractors to submit an updated
Status of Work Accomplished based on the Bill of Quantities and adjustments
made in the approved Variation Order; d) require the concerned contractors to
rectify the noted defects by the COA-TAS; and e) instruct the preparer of the
ABC to show details in the cost analysis accompanied with plans and
specifications, continuously update the market prices of all construction inputs
and use only unit prices that are realistic based on valid up-to-date information;

b. Municipal Mayor require the end-user to use at all times a realistic and detailed
ABCs as the upper limit or ceiling in the evaluation of acceptable bid prices on
an equal footing to ensure fair and competitive bid comparison;

c. Municipal Engineer and Municipal Accountant require the concerned

contractors to refund the excess in contract cost of ₱5,975,922.63.

d. after the correction on the defective works, Municipal Inspectorate Committee

check compliance with the recommended corrective actions thereon; and

e. in case of failure of the contractors to satisfactory rectify the noted defects,

require them to refund the amount equivalent to the cost of deficiencies of
₱3,003,870.84 otherwise, institute appropriate legal action against the erring
contractors.

4. The MGS did not promptly remit and in full the taxes deducted and withheld for
the month of December 2021 totalling ₱3,296,039.94, contrary to Sections 2.58 and
5.116(B) of Bureau of Internal Revenue (BIR) Revenue Regulation (RR) No. 2-98,
as amended, and Section 114(C) of the National Internal Revenue Code (NIRC), as
amended, thus, depriving the National Government of the immediate use of funds
and exposing the Municipality from the risk of possible imposition of penalties by
the BIR which shall become the personal liability of the employee thereof
responsible for the withholding and remittance of the tax. Furthermore, an
unreconciled balance of ₱84,996.55 was noted in the Due to BIR account contrary
to Section 111 of PD No. 1445. (Observation No. 14)

We recommended the Management to instruct the:

a. Acting Municipal Treasurer and Municipal Accountant to strictly comply with

the prescribed period of withholding, filing, and payment of taxes deducted and
withheld in accordance with the NIRC, as amended, and BIR RR 2-98, as
amended;

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 b. Acting Municipal Treasurer to promptly file and remit the withholding taxes
due to the BIR to avoid the possible imposition of interest, surcharges, and
penalties; and

c. Municipal Accountant to: i) record any interest, surcharges and penalties that
may be subsequently imposed by the BIR; and ii) trace and reconcile the
unreconciled balance in the Due to BIR account amounting ₱84,996.55 to
achieve fair presentation of the said account in the financial statements.

5. The Municipality was not fully compliant with the guidelines relative to the
utilization, posting and reporting requirements of the Local Government Support
Fund – Disaster Rehabilitation and Reconstruction Assistance Program (LGSF-
DRRAP) amounting to ₱5,411,655.00 circumventing Sections 3.3, 4 and 6 of the
Local Budget Circular (LBC) No. 134 dated January 20, 2021 thus, the intended
beneficiaries were deprived of programs, projects and activities that will aid the
immediate recovery and reconstruction of the economy and livelihood, and were
denied of relevant information on whether the purpose of the fund was effectively
and efficiently implemented. (Observation No. 15)

We recommended the Management to:

a. convene the LDRRM Council to identify PPAs to be charged out of the LGSF-
DRRAP and ensure that they are incorporated in the approved LDRRMF
Investment Plan so that the municipality can promptly implement the same;

b. require the Municipal Accountant to: i) ensure that the charges made to LGSF-
DRRAP are in accordance with the guidelines and prohibition set forth in LBC
No. 134; and ii) include the LGSF-DRRAP received to the Local Disaster Risk
Reduction and Management Fund Utilization Report; and

c. require the Local Finance Committee to comply with the posting and reporting
requirements on the utilization and status of programs/projects relative to the
LGSF-DRRAP pursuant to Section 6 of LBC No. 134.

E. Summary of Total Suspensions, Disallowances and Charges

As of December 31. 2021, the Municipality of Sta. Cruz has no unsettled Notice of
Charge and Suspension, only Notice of Disallowances which totaled to ₱4,361,951.81.
Details are shown below:

Beginning Settlements Balance as of

Issued During
Particulars Balance During CY December 31,
the Year
January 1, 2021 2021 2021
Notice of Disallowances
₱ 4,797,496.95 ₱ - ₱ 1,724,247.94 ₱3,073,249.01
covered by Notice of

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 Beginning Settlements Balance as of
Issued During
Particulars Balance During CY December 31,
the Year
January 1, 2021 2021 2021
Finality of Decision
(NFD)/COA Order of
Execution (COE)
Notice of Disallowances
489,260.95 799,441.85 - 1,288,702.80
covered by Decisions
Total ₱ 5,286,757.90 ₱ 799,441.85 ₱ 1,724,247.94 ₱ 4,361,951.81

F. Status of Implementation of Prior Years’ Audit Recommendations

Of the 102 prior years’ audit recommendation embodied in the 2020 Annual Audit
Report, 33 were fully implemented, 53 were partially implemented and the remaining 16
were not implemented by the Municipality. The details are discussed in Part III of this
report.

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