EXECUTIVE SUMMARY I. Introduction ‘The City Government of Naga (CGN) was created by the Senate and the House of Representatives through the enactment of Republic Act No. 305 which took effect on June 18, 1948. Seventy-four years ago, Naga officially became a chartered city from being a municipality in the Province of Camarines Sur. It is an independent component city in the Bicol Region that has evolved into a vibrant city with a flourishing economy as evidenced by the numerous business establishments set up every year. It has an area of 84.48 sq. km, or 32.62 sq. mi. with a present population reported at 196,003 per 2015 census and records of the Philippine Statistics Authority, with 77,784 registered voters and a labor force of 60,772 people ‘The CGN envisions to be the recognized model of: a) good governance and responsible citizenry that asserts and accepts their roles and responsibilities in nation building; b) people-centered development anchored on quality and accessible services in health, education, and other social services, especially for the marginalized and the vulnerable; and c) abiding faith that expresses itself in social solidarity and a culture of excellence flourishing in a city that is peaceful, safe and in accord with nature where cultural values are nurtured and religious diversity respected. Audit Objectives and Scope of Audit A Financial and Compliance Audit was conducted on the accounts and operation of the CGN for CY 2022 aimed to determine the reliability of financial statements and ascertain on a test basis the validity and propriety of transactions as well as its compliance with laws, rules, and regulations. Likewise, a Project Evaluation was conducted to evaluate the economy, efficiency, and effectiveness of the implementation of funded programs/projects/activities of the CGN with emphasis on the significant audit areas identified in our Engagement Letter dated October 28, 2022. Furthermore, a review of the revenue generation system of the City Government of Naga was conducted aimed at determining the: a) collection efficiency in local tax administration; b) political will to enforce the mandates provided under RA No. 7160; ©) dependency and/or reliance mainly on the share of Intemal Revenue (IRA); and d) effectiveness of investment placements of the CGN. Operational Highlights Some of the significant accomplishments of the CGN during the year are as follows a) Construction and Rehabilitation of 14 road networks projects - Construction and rehabilitation of 14 road networks projects totaling P200,554,926.24 wereimplemented by Naga City to maximize efficiency on existing and future road infrastructure to benefit Naguefios taking into account their means of transport. b) Completion of 15 waterworks and drainage system projects ~ a total of at least 15 ‘waterworks and drainage system projects with a total cost of P32,399,033.88 located in various areas of Naga City were completed which allow effective discharge of heavy rainfall and/or stormwater, reducing property losses and expenditures on recovery, ©) Construction and repair of various buildings as assistance to barangays and schools With a total amount of at least P13,455,034.11. Naga City was able to assist its barangays by constructing and repairing various buildings and infrastructure projects. TL Finaneial Highlights A.~ Comparative Financial Position In Philippine Peso (P) he of Particulars increasey | erease/ | 2022 ae (Decrease) (Decrease) Total Assets | 6,224,553,661.02 5,558,517,214. 76 666,036,446,26 11.98 Toile 1,255,836,894.79 | 673,805,428.70 | $82,031,466.09| 86.38 Liabilities Total Equity | 4,968,716,766.23 | 4,884,711,786.06 84,004,980.17 1.72 B.— Results of Operations In Philippine Peso (P) % of Particulars Increase/ i 2022 2021 eee (Decrease) [Total Income | 1,763,527,695.05 | 1,395,487,730.03 | 368,039,963.02 | 2637 _| | Total 1,580,463,148.52 | 1,318,076,921.09 262,386,227.43 | 19.91 | | Expenses Net Surplus | _183,064,544.53 | _77,410,808.94 | _105,853,735.59 | 13648 III. _ Independent Auditor’s Report on the Financial Statements ‘The Auditor rendered a qualified opinion because accounting and property records of: (a) Property, Plant, and Equipment; and (b) Inventory did not reconcile by P1,843,080,396.27 and P122,217,364.13, respectively. iiIV. Significant Audit Observations and Recommendations For the exceptions cited above, we recommended that the City Mayor: a) Require the assigned Inventory Committee (IC) to gather and collate all tand- related records purporting to CGN’s ownership and ensure that land properties to be transferred to rightful beneficiaries by the Housing and Settlements Development Office (HSDO) be properly identified and earmarked; b) Require the IC on “Roads and Bridges” to timely perform their duties or functions in conducting an actual physical count of PPEs for a specified time, to facilitate proper accounting and reporting and correct classification of fixed properties; ©) Direct the appropriate reconciliation of records between the General Services Department (GSD) and the City Accounting Office (CAO) to present accurate property records; 4) Strictly require the department heads to submit the Report on the Physical Count of Inventories (RPCI) per type of inventory and within the period required by Section 124 of the Manual as well as their respective Summaries of Supplies and Materials sued (SSMIs) with complete documentation to GSD, for consolidation, to be submitted to CAO for necessary adjustments against inventory accounts, ©) Coordinate with the IC to establish effective policies on the timely submission of complete documentation and preparation of their respective inventory counts as of the end of every semester; and £) Monitor the development of the inventory system being developed and ensure its implementation in the planned period of CY 2023 or CY 2024. The Audit Team communicated the audit observations and recommendations with the CGN through the issuance of Audit Observation Memoranda (AOMs), ‘These were discussed on April 4, 2023, with the concemed agency officials present during the exit conference conducted and the latter’s comments were incorporated in the report, where appropriate. Likewise, significant audit observations on the evaluation of projects and assessment of the revenue system, together with the corresponding recommendations that need immediate attention and action, are presented as follows: ‘The procedures for One Time Cleansing of CGN’s PPE accounts with a net book balance of P4,146,718,221.09 were not properly observed. We recommended that the City Mayor: (a) Delineate the scope and/or coverage of the two Inventory Committees created relative to the conduct of actual physical count of PEs, iii(b) Require the IC for Roads and Bridges to fast-track the completion of the Geographic Information System (GIS) concerning their conduct of preliminary activities for the physical inventory of PPEs; (c) Direct the IC for Other PPEs to ensure that the Report on Physical Count of PPE (RPCPPE) on movable assets, once consolidated with the RPCPPE on the PPEs, remain updated and accurate; and (4) Compel the two ICs to prepare one RPCPPE for all the PPEs of CGN before the approval of the Physical Inventory Plan (PIP) and conduct inventory-taking activities for all PPEs in relation to one-time cleansing, 2. Various deficiencies were noted in the appropriation and utilization of loan proceeds under the term loan agreements totaling P700,000,000.(0 with the Development Bank of the Philippines (DBP), We recommended that the City Mayor: @) Coordinate with Sangguniang Panlungsod to issue an appropriation ordinance specifying the Urban Redevelopment Projects charged against the DBP loan agreement totaling P200.00 million; and b) Require the City Budget Office (CBO) to submit complete supporting documents to the CAO as attachments to journal entry vouchers to corroborate the recorded amounts under the Loans Payable-Domestic account. 3. Receipt and dispensation of COVID-19 vaccines totaling at least P98,181,467.16 and P96,413,823.82, respectively, were not recorded in the books and other property- related records as of yearend. We recommended that the City Mayor instruct the City Health Office (CHO) and CAO to coordinate the recording of the correct ending balance of unused COVID-19 vaccines for proper presentation of the financial statements and ensure that all donations received by CGN be properly accounted and recorded for. 4. 18 out of 59 developmental projects amounting to P37,594,200.00 were not yet implemented by CGN as of year-end, indicative of unsound planning and monitoring of priority Projects, Programs and Activities (PPAs). We recommended that the City Mayor: a) Instruct the Naga City Development Council to adopt strategies to maximize the utilization of the Local Development Fund (LDF) and implement the development projects within the targeted timeframe such as developing a concrete plan that will articulate the development projects, timeline, expected deliverables for each phase, a key milestone, ete.b) Evaluate thoroughly the proposed priority development projects to be funded under the LDF as to their readiness for implementation or procurement to avoid delays or non-implementation thereof, c) Direct the City Engineer and the Planning and Development Coordinator to monitor periodically the implementation of development projects funded under LDF; and d) Direct the CBO, City Engineer's Office (CEO), and City Planning and Development Office (CPDO) to collaborate and communicate regularly on the status or any significant changes or updates regarding LDF. V. Summary of Total Suspensions, Disallowances, and Charges as of Year-End ‘The status of suspensions, disallowances, and charges as of December 31, 2022, is summarized as follows’ a Balance asof | Cy 2022 (P) | Balance as of | Particulars January 1, | December 31, _|_ 2022 (P) Issued Settled 2022 (P) Suspensions 39,905,177.05 0.00 0.00 | _39,905,177.05 Disallowances 1,990,965.41 0.00 (0.00 | 1,990,965.41 Charges 0.00 0.00 0.00 0.00 Total Sots: Jit Appeal ated Tan 29,2018 ov he ND No. 1-00-2000) lal a OP, 794,756.00 Was ed at COA RO V. Lega City Most of the Notices of Suspension were comprised of unsubmitted Disbursement Vouchers and supporting documents since CY 2009. The Audit Team has not issued yet Notices of Disallowance due to the ongoing retrieval of the accounts and transmittal files. VI. Status of Implementation of Prior Years’ Audit Recommendations Out of the 113 audit recommendations embodied in the previous years’ Annual Audit Reports, 36 or 32 percent was fully implemented, 66 or 58 percent were partially implemented and 11 or 10 percent was not implemented as of April 4, 2023, date of audit exit conference.