EXECUTIVE SUMMARY

A. Introduction

The Municipality of Lobo, a third class Municipality, was founded on September 27, 1871. It
was originally composed of seven barangays namely Masaguitsit, Tayuman, Bignay,
Malapad na Parang, Mabilog na Bundok and Sabana, but at present it is composed of 26
barangays with a total land area of 19,268 hectares.

Municipality of Lobo is mainly agricultural with farming and fishing as the main source of
livelihood of its inhabitants. Blessed with rich natural resources, Lobo's forest lands comprise
4,366.8 hectares, integrated social forestry area of 2,100 hectares, and grazing area of
1,585.6 hectares.

The economic activities of Lobo include agriculture, trade, manufacturing and commerce.
These are the prime movers for the socio-economic mobility of the municipality.

It declares its Vision and Mission as follow:

A peaceful, progressive agro-tourism and ecologically balanced municipality with

God fearing, empowered and healthy citizenry working together for sustainable
socio-economic and cultural growth and development.

To effect strong community participation complemented by a system of

coordination between and among Municipality all sectors and civil society
organization to bring about the desired progress.

The Municipal Government of Lobo maintains books for the General Fund, Special Education
Fund and Trust Fund. It operates market and cemetery for its economic enterprises.

The organizational structure of the Municipality is as follows:

a. Key Officials

Municipal Mayor Hon. Gaudioso R. Manalo

Municipal Vice Mayor Hon. Virgilio R. Manalo

Members of the Sanggunian

Dean Albert D. Araja
Geronimo C. Alfiler
Nilo A. Camo
Angelito H. Abiera
Michael C. Cueto
Ridian J. Dueñas
Jan-Michael M. Anyayahan
Roberto T. Cuadro
Sany C. Ramirez
(ABC President)
Christzaldy Kim B. Manalo
(SK Federation President)

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 Municipal Accountant Ethel D. Magnaye

Municipal Treasurer Leandro M. Canuel

b. No. of Personnel Complement

Permanent 94
Elective Officials 12
Co-terminus 9
Total 115

B. Financial Highlights

For the Calendar Year (CY) 2021, the Municipal Government of Lobo, Batangas generated a
total income of P196,851,736.44 sourced from local taxes, Internal Revenue Allotment (IRA),
service business and other sources of income. Total appropriations/allotments was
P270,375,891.79 which P224,417,443.10 (83%) was obligated during the year, thus leaving
an unexpended balance of P45,958,448.69 or 17%.

The total assets, liabilities, equity, revenue and expenses of the Municipality for CY 2021 and
2020, are as follows:

2021 2020 Increase/Decrease

Assets P617,899,361.27 P586,373,114.91 P31,526,246.36

Liabilities 128,294,583.95 259,894,632.19 (131,600,048.24)
Equity 489,604,777.32 326,478,482.72 163,126,294.60
Revenue 196,851,736.44 182,600,009.21 14,251,727.23
Expenses 158,650,329.58 135,235,241.06 23,415,088.52
Surplus 38,201,406.86 47,364,768.15 (9,163,361.29)

C. Scope and Objectives of the Audit

The audit covered the accounts and operations of the Municipal Government of Lobo for the
Calendar Year (CY) ended December 31, 2021. The objectives of the audit are to (a) verify
the assurance that may be placed on Management’s assertions on the financial statements;
(b) recommend agency improvement opportunities; (c) determine compliance with existing
laws, rules and regulations; and (d) determine the extent of implementation of prior years’
audit recommendations.

D. Auditor’s Opinion on the Financial Statements

The Auditor rendered a qualified opinion on the fairness of the presentation of the financial
statements of the Municipality of Lobo as of December 31, 2021 due to the following:

1. The Municipality of Lobo was noted with the following deficiencies in the physical count
and accounting for its PPE: 1) non-reconciliation of PPE accounts in accounting records
with that of physical count resulting to a difference of P140,398,186.11 contrary to Section
C.3, Chapter V of the Manual on Property Custodianship and 2) non-disposal of

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 unserviceable properties totaling P15,852,395.96 contrary to COA Circular No. 92-836,
thus placing the PPE account with net book value of P506,558,747.87 as of December
31, 2021 doubtful of reliability and existence.

2. Expenditures and revenues arising from fulfillment of conditions for which Trust Funds
were allotted were not recognized by the Municipality of Lobo contrary to International
Public Sector Accounting Standards (IPSAS) 23, hence, understating its consolidated
assets by P24,885,407.68, income by P140,142,460.62 and expenses by P4,231,172.61
and resulted to non-preparation of Statement of Financial Performance for the Trust Fund
for CY 2021.

3. Cash in Bank of P97,861,374.69 were noted with deficiencies such as negative book
balance for bank account maintained for market operations and unreleased checks not
restored as cash as of year-end contrary to Sections 3.2 and 3.3 of COA Circular No. 96-
011 and paragraph 27 of IPSAS 1, thus the accuracy and reliability of the Cash in Bank
balance could not be ascertained.

4. The required reconciliation of actual amounts presented in SCBAA and in Statement of

Financial Performance was not submitted to the Audit Team contrary to the provisions of
IPSAS 24, hence, affecting the transparency of the financial statements and limiting its
users with pertinent information needed to evaluate how the Municipality discharge its
accountability obligations.

For the exception cited above, the Audit Team recommended the following:

1. We recommended that the Municipal Mayor:

a. instruct the GSO and Inventory Committee to consider in the succeeding PPE counts
a detailed verification and identification of the Municipality’s properties and adopt COA
Circular No. 2020-006;

b. instruct the Municipal Accountant to conduct reconciliation with GSO and review the
noted discrepancies between their records, make the necessary adjustments and
provide disclosures in the notes to financial statements for variances which cannot be
adjusted; and

c. create a Disposal and Appraisal Committee that will (i) inspect unserviceable
equipment and property; (ii) set the final appraised value of all disposable properties;
(iii) recommend the disposal to the Local Chief Executive for his approval and the
manner of disposal; and (iv) forward the approved documents to the Municipal
Accountant for the necessary adjustments in the PPE.

2. We reiterated that the Municipal Mayor require the Municipal Accountant to:

a. make the necessary entries for prior year adjustments for the understatement of assets
totaling P24,885,407.68 and for any related accumulated depreciation for the
unrecorded PPEs;

b. recognize income and expenses in the Trust Fund books upon utilization of funds
received from national agencies or any other sources, whether private or government,

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 that are considered as non-exchange transactions and record entries relevant to the
transactions; and

c. prepare and submit for succeeding years the Statement of Financial Performance for
the Trust Fund along with the other financial statements of the Municipality.

3. We recommended that the Municipal Mayor instruct the:

a. Municipal Accountant to consistently prepare and submit to the Audit Team bank
reconciliation statements of all Cash in Bank accounts of the Municipality;

b. Municipal Accountant to verify the accuracy of the negative cash in bank balance
pertaining to market operations of the Municipality and prepare the necessary
correction entries, if any; and

c. Municipal Treasurer to prepare the list of unreleased checks every year-end in time
for the closing of the books and submit to the Municipal Accountant and the latter to
restore to the Cash in Bank and proper liability accounts the amount corresponding to
the unreleased checks at year-end.

4. We recommended that the Municipal Mayor direct the Municipal Accountant, in

cooperation with the Budget Officer, to reconcile the figures in SCBAA and in the
Statement of Financial Performance, have it disclosed in the Notes to Financial
Statements as required in IPSAS 24 and ensure its prompt submission to the Commission
on Audit.

Other significant observations and recommendations in the audit of the Municipal Government
of Lobo for CY 2021 are summarized as follows:

5. Advance payment of 15% of contract cost amounting to P7,491,596.31 was recorded as

a reduction to the LGU’s liability account instead of recognizing an asset or prepayment
contrary to paragraph 27 of IPSAS 1 and to the description of accounts set forth by COA
Circular 2015-009, hence, understating both Advances to Contractors and Due to NGAs
accounts by same amount.

We recommended that the Municipal Mayor instruct the Municipal Accountant to draw, if
still necessary, journal entry voucher to correct the entries in recording advance payment
made to the contractor. Subsequently, ensure that proper entries will be taken up in the
books for future transactions involving such advance payments.

6. Utilization of the 20% Development Fund, particularly for infrastructure projects, showed
deficiencies on compliance with the provisions of COA Circular No. 2012-001, hence, the
propriety of the implementation of the projects is not adequately supported. Further, two
completed projects recorded under Construction in Progress (CIP) account totaling
P11,425,453.88 were not reclassified or adjusted to appropriate PPE accounts despite
completion, thus affecting fair presentation of PPE accounts in the financial statements.

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 We recommended that the Municipal Mayor:

a. direct the Municipal Engineer and/or MPDC to submit justification on the noted
observation and submit immediately all lacking documents to the Office of the Auditor
for verification and audit;

b. instruct the Municipal Accountant to ensure the completeness of the supporting

documents as required under Section 9.1.1 of COA Circular No. 2012-001 before
processing payments to suppliers and contractors; Henceforth, comply strictly with
Section 9.1.1 of COA Circular No. 2012-001; and

c. Lastly, Instruct the Municipal Accountant to make adjusting entries to reclassify the
completed projects.

7. The required Agency Action Plan and Status of Implementation (AAPSI) for audit
observations and recommendations for Calendar Year 2020 was not accomplished and
submitted to COA within 60 days from the date of the receipt of the Annual Audit Report
(AAR), contrary to Section 91 of General Provisions of Republic Act (RA) No. 11518 and
COA Memorandum No. 2014-002, thus hindered the timely evaluation by the Audit Team
of the actions taken by the agency on the audit recommendations.
We recommended that the Mayor require all concerned Department Heads/employees to
submit detailed action plans on the CY 2020 AAR findings and recommendations,
including that of prior years, to be incorporated in the AAPSI, and to submit the AAPSI to
the Audit Team. Likewise, assign a focal person who will prepare the AAPSI and monitor
the compliance of each concerned Department Head/employee regarding the submission
of detailed action plans.

Moreover, we recommended that the management follow strictly the above provisions of
the GAA and COA Memorandum No. 2014-002 on the submission of the AAPSI within 60
days from the receipt of the COA Annual Audit report to give enough time for the Auditor
to review, monitor and evaluate the action taken by the management on the audit
recommendations.

8. Purchase Orders amounting to P462,945.00 for disbursements of goods related to

COVID-19 response lacks the basic data required by COA Circular 96-010, thus the
Municipality could not be able to properly verify correctness of delivery, reasonableness
of cost and propriety of specification of items procured.

Hence, we recommended that the Municipal Mayor require the concerned personnel to
indicate in the PO the complete specifications of the items being requisitioned, including
brand names and all other necessary information relative to the procurement of
supplies/goods/property, to facilitate the inspection and the determination of the
reasonableness of the prices and quality of the items procured and delivered.

9. Expenditures out of the Trust Liability-DRRM Fund are not supported by Local Disaster
Risk Reduction Management Fund Investment Plan (LDRRMFIP) contrary to Sections
5.1.2 and 5.1.3 of COA Circular No. 2012-002, hence, regularity of transactions cannot be
ascertained.

Hence, we recommended that the Municipal Mayor instruct the MDRRM Officer to comply
with the required annual preparation and updating of DRRMFIP for any changes as to

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 initial disaster management plans and for allocation of unexpended previous year’s DRRM
balance accruing to the special trust fund of the Municipality.

10. Procured monoblock chairs for the COVID vaccination program totaling P86,000.00 and
equipment for use at isolation facilities totaling P51,200.00 were not properly classified in
accordance to the definitions provided by COA Circular 2015-009 and contradicting
paragraph 27 of IPSAS 1 on the required fair presentation.

Hence, we recommended that the Municipal Mayor direct the Municipal Accountant to
make the necessary journal entry to reclassify and present the correct year-end balances
of the affected accounts in the financial statements of the Municipality.

11. The monthly Report on the Sources and Utilization of the Local Disaster Risk Reduction
Management Fund (LDRRMF) was not being submitted consistently to the Audit Team,
contrary to item 5.1.5 of COA Circular No. 2012-002 dated September 12, 2012.

We recommended that the Municipal Accountant prepares and submits the Monthly
Report on the Sources and Utilization of the LDRRMF to the Audit Team to facilitate the
review and monitoring of the sources and utilization of the fund.

12. Misclassification of an investing activity of the Municipality was noted in the Statement of
Cash Flows thereby affecting its presented cash balances. Also, the disclosure
requirements in the Notes to Financial Statements under the International Public Sector
Accounting Standards (IPSAS) 1 were not fully observed, thus, affecting the fair
presentation of the financial statements.

We recommended that the Municipal Mayor direct the Municipal Accountant to verify the
accuracy of the figures presented in the Statement of Cash Flows particularly any
misclassification of cash flow activities and observe the disclosure requirements in the
preparation of the financial statements in accordance with IPSAS.

Status Implementation of Prior Years’ Audit Recommendations

Of the 34 audit recommendations embodied in the prior years’ Annual Audit Reports, 23 were
fully implemented, 4 were partially implemented, and the 7 remaining were not implemented.

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