Republic of the Philippines COMMISSION ON AUDIT Audit Group -LGS-D, Cebu-II, Team R7-03 City Government of Naga ‘Naga City CONFIDENTIAL AOMNo — : 2020-013 (2019) Date : February 19, 2020 AUDIT OBSERVATION MEMORANDUM (AOM) For: HONORABLE VALDEMAR M. CHIONG City Mayor City of Naga, Cebu Attention: Kelvin Ray Ababa City Accountant We have reviewed the bank reconciliation statements (BRS) pf 18 accounts of LGU — City of Naga City as of December 31, 2019 and found the following/deficiencies: Reconciling items, such as unrecorded collections, interest income earned and taxes withheld, and bank charges, were not immediately effected in the Accounting Records due to the delay in the preparation of Bank Reconciliation Statements (BRS) thus causing understatement of the affected accounts by various amounts, as of December 31, 2019, contrary to Section 74 of PD 1445, COA Circular No. 96-011 and IPSAS I on the ‘fair presentation of the financial statements. Section 74 of the Presidential Decree No. 1445, otherwise known as the Government Auditing Code of the Philippines states that: “Ar the close of each month, depositories shall report 10 the agency head, in such form as he may direct, the condition of the agency account standing on their books. The head of the agency shall see to it that a reconciliation is made between the balance shown in the reports and the balance found in the books of the agency.” COA Circular No. 96-011 dated October 2, 1996 further provides for the following general/policy guidelines on the preparation of BRS: I°~ The depository/servicing banks shall furnish the Local Accountant with the Bank Statements including debit/credit memos, paid checks, etc., within five (5) days after the end of each month which shall be the basis for the preparation of the monthly BRS.3.2 The Local Accountants shall within ten (10) days from receipt of the Bank Statements, reconcile the same with the General Ledgers (GL) and prepare the BRS in five (5) copies... 3.3 The accountant shall draw journal vouchers to record all valid reconciling items that require correction in the GL. Furthermore, International Public Sector Accounting Standards (IPSAS) 1 provides that; “Financial statements shall present fairly the financial position, financial performance, and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events, and conditions in accordance with the definition and recognition criteria for assets, liabilities, revenue, and expenses set out in IPSASs. ‘The City of Naga has 18 accounts maintained with the Development Bank of the Philippines (DBP) and Land Bank of the Philippines (LBP) with the following details and their corresponding Bank Reconciliation Statements submitted to COA office as of date: Fund Type | Bank ‘Account No. ee (ae F DBP 30081-7140 Dec 2019 T-Feb-2020 GF DBP | _0735-032890-160, Dee 2619 17-Feb-2020 GF DBP | 0735-028954-160 SSD Dee 2019 F7-Feb-2020 SEF LBP 4312-1000-08 Jun 2019 17-Feb-2020 SEF DBP | _0735-021565-030 Dec 2019 17-Feb-2020 ig LBP. (0143-1048.06 ‘Oct 2019 TE LBP. 4312-1000-40 Dee 2019, T7-Feb-2020, TF LBP. 4312-1000-32 Dec 2019 17-Feb-2020 TF LBP 4312-1000-16 Jun 2019 17-Feb-2020 TF DBP 50083-714-2 Nov 2019 17-Feb-2020 TF DBP 50082-714-6 Dec 2019 17-Feb-2020 TF LBP, 14521055-58 Jun 2019 17-Sep-2019) TF DBP | 0135-024375-10 Dee 2019 17-Feb-2020 TF LBP. (0452=1055-66 Jun 2019 17-Sep-2019) TF DBP | _0735-021566-160 Dec 2019 17-Feb-2020 TF DBP__| _ 0735-033125.030 Dee 2019 17-Feb-2020 TF DBP | 0735.041919-030 Nov 2019 17-Feb-2020 TF ‘DBP __[ 0735-021566-030 Dee 2019 17-Feb-2020 Review of the BRS of 18 accounts mentioned above showed the following reconciling items not yet effected in the accounting records as of December 31, 2019, thus causing under and overstatements of the affected accounts: 1. Collections totaling 1,096,324.51 already credited in the depository banks were not yet taken up in the books resulting to understatement of Cash in Bank - Local Curreney, Current Account (1-01-02-010) and the Trust Liabilities (2-04-01-010) as of said period, as follows: 5 Fund Transactio Corresponding | Fart [ eam | sccountno, | Tatas Deseition Amount | Compendia | TET LaRTRHEAOGOAD | OT Nov 10 | Urethane | — 350,552.00 SF LaP | eae TOO SE | TNS | eas aloe PAC oom] — TOO g8a.00 ctuges fps es TF [LBP | 52105558 | ZEcun-10 | Uretesie wcsos PrC Sa TOT [B00] Trust Libis hayes pesca TE] TSP | OSEAOSESS | PE Tan-18 | Une re cops PRC a oT T0000 tages pesca esx rs a Deron ‘mount | Comenponda ui ‘DBP | 0735-021566- | 28-Sep-18 | Credit from RC{remittance JPNC 2018- 5,040.70 030 0928-00000-1) _ TF DBP | 0735-021566- | 26-Sep-18 | Inward Non-Swif (00M) BNP-EPCS 10,060.35 Pending 30 venieaon of TF DBP | 0785-021566- | 01-Oct-18 | CFR(Ref. No. BPI c-2018-092-9-000-60) 9,583.46 ‘sources 0 t TOTAL 7,0096,524.51 2. Interest income totaling # 1,174,015.72 remained unrecorded as of December 31, 2019 thereby understating Interest Income (4-02-0220) and Cash in Bank - Local Currency, Current Account (1-01-02-010) for the said period. Furthermore, withholding tax amounting to 2 30,911.61 associated with the said interest income ‘was also not taken into Taxes, Duties and Licenses (5-02-16-010) account. Details are attached in Annex A of this report. 3. Cost of checkbooks totaling B 77,610.00 which were debited from the City’s accounts were still unrecorded as of December 31, 2019, thus, overstating Cash in Bank - Local Currency, Current Account (1-01-02-010) and understating Bank Charges (5- 03-01-040) expense accounts, as follows: Fund | Bank ‘Recount No. “Transaction Date Description ‘Amount GF _|_ DBP. 50081-714-0 Oe Jut9 Checkbook 510.00 GF | DBP) 50081-714-0 0-00-18 ‘Checkbook 76,500.00 SEF [Uap 4312-1000-08 o-May-19 ‘Checkbook 600.00 Total 77,810.00 4, LBP Account No. 0142-1048-06 was deducted by Php 3,600.00 as bank service charge for the period May 2018 - October 2019 due to remaining balance below the maintaining amount required. Service charge shall be the personal liability of the accountable officer that is the City Treasurer, thereby understating the Due from Officers and Employees (1-03-06-020) and Cash in Bank - Local Currency, Current Account (1-01-02-010). The above-mentioned reconciling items were not immediately effected in the accounting records due to the delay in the preparation of BRS contrary to Section 74 of PD No. 1445 and COA Circular No. 96-011 which impairs the fair presentation of the balances of affected accounts in the financial statements as of December 31, 2019, contrary to IPSAS 1 May we have your comments on the foregoing audit observation within fifteen (15) calendar days from receipt hereof. To reflect the correct balances of the affected accounts in the Financial Statements as of December 31, 2019, we recommend the following adjusting entries to the management: Ref. No. ‘Account Title Debit Amount | Credit Amount 1 Cash in Bank - LCCA 1,096,324.51 Trust Liabilities 1,071,640.00 ‘Trust Liabilities (pending veriication) 24,684.51Ref. No. Account Title Debit Amount | Credit Amount 2 Cash in Bank - LCCA 1,143,104.11 Taxes, Duties & Licenses 30,911.61 Interest Income 1,174,015.72 3 Bank Charges 77,610.00 Cash in Bank - LCCA 77,610.00 4 | Due from Officers & Employees 3,600.00 Cash in Bank - LCCA 3,600.00 LUZ Y. MENDOZA ite Auditor IV OIC-Audit Team Leader MARIA £05 el State Auditor V Supervising Auditor Proof of Receipt of AOM No. 2020-013 (2019) City of Naga: Designation Printed Name & Signature Date City Mayor Honorable Valdemar M. Chiong City Accountant Kelvin Ray AbabaSummary of Interest Income not taken up in the Accounting Books City of Naga, Cebu For the period from January 1 to December 31, 2019 ANNEX A Fund | Bank [Account No. | Transaction Date | Description [Amount | Witaxes GF _|-0BP 5008-7140 28-iyn-19 | Tterest Inco 2,500.00, 300.00 GF [BP | —S0o81-714-0 ‘36-Sep-19 [interest income 4287550 | __0575.12 GF _[ BBP 50081-7140 Z1-Deo-19 | interest Income 4422444 | 0,964.89 ‘GF _[ DBP | 0736-032690-160 26-Dec-18 | Interest income 6219.10 ‘GF_| DBP {| 0736-037890-160 25-Jan-19 | Interest Income 5,658.91 ‘GF _|beP_|—0735-032890-160 26-Feb-19 | Interest income 6,041.21 Gr_| bee | 0736-032800-160. 2@Mar-18 | Inerest Income 5,668.66 GF _|-bBP | —0736-032800-160. 29-Apr-19 | inlerest income 6,051.62 GFT Dap | 0736-032800-160 ‘26-May-19 | interest income BTBAS GF_{-0Be | 0735-032800-160 2eunt9 | inleest income 5,683.17 GF | DBP ‘0735-032800-160_ 25-Jul-19, Interest income 5,877.50, GF_[ bBP_|0736-032800.160 2é-Aug-19 | interest income 5,692.80, ‘GF | DBP | 0735-032880-160 27-Sep-19 Tnterest income. 5,697.54 ‘GFT DBP] 0735-052890-160 28-Oct-19 Interest income. 5,802.37 GF_| BP | 0735-032800-160 2rNov-19 | Interest ncome 5,707.20 GF | bap | 0736-032600-160 HT-Dec-19 Interest income 5,711.96 (GF_[ BP | 0736.026054-160 SSD | 26-0e018 | intrest income 77,443.90 GF_|-DaP | 0735-028964-160 SSO_[ 25-Jan-19 | interest Income 70,468.08. GF bae | 0735-028964-160 SSO_[26-Feb-18 | inerest Income 75,228.59 GF_| bab [ 0735-028064-160 SSO_[28-Mar19—| interest Income 70,589.50 GF _| “ar | 0735-028954-160 SSD 26-Apr-19 | Interest income 75,368.21 | (GF DBP | 0735-0268954-160 SSO_[ 29-May-18 | Inerest Income TOTM.12, (GF_|_OBP | 0735-026854-160 SSO_[ 28-Jun-19 | Inerest income TO,TTO04 GF | OBP | 0735-028954-160 S80. urio interest income, 73,169.96. GF] DBP 0736-028954-160 SSD_ 26-Aug-19 ‘Interest income. 70,890.04 ‘GF _| DBP | 0735-008064.160 SSD_[ 27-Sep-19 | Inlerest income 70,349.09 GF [DBP | 0736-028064-160 $SD_[ 28-0c-19 | interest Income 73,375.15 (GF_|_DBP_| 0735-028054-160 SSD | 77-Now-19 | intrest income 71,080.35 GF_| DeP | 0735-028954-160 SSD_[_27-Deo18 | interest Income 71,128.58 seF | tap_[4342-1000.08 28-Jun-19 | intrest income 4412001 | 622400 Te_| tap | _4312-1000-40 27-Dec-19 | Interest income 21106 4221 Te_| ep [~~ 4342-1000-32 27-0208 | interest income 389.16 7783 TF | ee 4312-1000-16, 2B Jun-19, Tinerest income, 77.00 15.40 TF | BP. '50082-714-6 ‘Z-Dec-15 | Interest income 7325.99 4,465.20 Te UP: 14521085-58 8-Jun-t9 | Interest income. 442885 285.77 TF_| bap | 0735-024375-160 76-Deo9 | interest Income 41627 58 Te] 16P 0452-1085-66 26-Jun-19, Inierest Income 465.36, 81.27 TF | OBP, 0735-021566-160_ 06-Dec-19 interest Income, 1,078.53 TF [BP | 0735-033125-090 27-Deot8—_| inerest Income 50.60 7042 TF _| DaP | —0736-021568.030 Z7-De0-19 | Interest income 73,248.99 | 7649.00 TOTAL 7174015.72 | __ 30,911.61 Prepared by: Rechel S. Pabellon ‘Audit Team Member