Republic of the Philippines

COMMISSION ON AUDIT
Office of the Auditor
Audit Group C, Team 22, Province of Zamboanga del Sur
Provincial Capitol, Pagadian City

AOM No. 2013-06-01

Date: June 28, 2013

AUDIT OBSERVATION MEMORANDUM (AOM)

TO: Hon. BENJAMEN M. POMICPIC

Punong Barangay
Barangay Bag-ong Gutlang
Molave, Zamboanga del Sur

ATTENTION: Ms. ALMA M. BELEVESTRE

Barangay Treasurer

MR. MARTIN D. BLANCO, JR.

Municipal Accountant

Sir,

We have audited the accounts and operations of Barangay Bag-ong Gutlang, Molave, Zamboanga
del Sur for the calendar years 2010, 2011 and 2012 and observed the following deficiencies, among
others:

1. The correctness and validity of Cash in Bank account totaling to P154,524.82 as of

December 31, 2012 cannot be ascertained since bank reconciling items were long
outstanding in the books rendering the correctness of the Cash In Bank account
doubtful.

Definition of terms in Chapter VI, Trainee’s Manual on Local Government Accounting

states that:

“Reconciliation from the accounting point of view is the process of

bringing into agreement two separate but related set of books.

Bank Reconciliation Statement is a statement which brings into agreement

the cash balance per books of the agency and cash balance per bank statement
issued by the bank.”

Further, it also states:

“… differences between the balances shown in the bank statement and

those in the LGUs books may not necessarily be caused by irregularities but by
items which need to be adjusted, …

Xxx

The adjustments are necessary to bring the cash in bank to its correct
balance.”

. Verification of bank reconciliation statements for CY 2010, 2011 and 2012 showed the
following reconciling items that are long outstanding and/or not adjusted/recorded in the books:

Additions to book balance:

1. Unidentified prior years’ reconciling items P 1,077.83

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 Deductions to book balance:
1. Unrecorded checks issued P 33,250.00

The following check of P33,250.00 were issued but the corresponding Disbursement Voucher
was not recorded in the books of accounts and tantamount to payment without duly approved voucher:

Check No. Date Payee Amount

572690 12/7/2012 Alma M. Belevestre P 33,250.00

If the duly approved disbursement voucher will be submitted, a JEV should be drawn to record
the transaction in the current year. A copy of the JEV should be submitted to COA. If not submitted,
subject checks will be disallowed and concerned persons especially the check signatories, who are the
Punong Barangay and the barangay Treasurer, would be liable for the transaction.

Recommendation

Make a representation with the Municipal Accountant for the accounting personnel in-
charge in the books of the barangay to exert extra effort to look into the status of the reconciling
items, both in the book and bank accounts and prepare the necessary analysis so as to have a
correct basis for the correction and/or adjustment of accounts.

Consider helping in augmenting the personnel requirement in the Accounting Office to

help in the preparation of the bank reconciliation statements for the barangay accounts.

2. The existence, condition and validity of the Property, Plant and Equipment totaling to
P753,093.90 cannot be ascertained due to the failure of the barangay to conduct physical
inventory of properties as required under the pertinent provisions of the Systems and
Procedures Manual on the Management of Barangay Funds and Property.

Pertinent provisions of the Systems and Procedures Manual on the Management of Barangay
Funds and property provides that-

“a. A physical inventory of all barangay property shall be conducted at least once a year
and the result on the physical inventory shall be reported in the Report on the
Physical Count of Property, Plant and Equipment (RPCPPE);

b. A Committee headed by the BT or his authorized representative shall conduct the

physical count of PPE owned by the barangay;

c. The report, approved by the PB, shall be submitted to the BRK and the City/Municipal
Accountant for reconciliation with the recorded PPE;

d. Any unrecorded PPE shall be booked up at appraised cost; and

e. Any unaccounted PPE shall be verified and in case of loss, the AO shall be held
accountable.”

For the past three years, the barangay officials failed to conduct the required physical inventory
of the following barangay’s assets totaling to P753,093.90 as of December 31, 2012, net of depreciation,
causing unreconciled records between the barangay and the accounting and an unrealistic financial
statements considering that the existence, condition and accuracy of the property, plant and equipment
cannot be ascertained:

Name of Property, Plant and Equipment Amount

Land P 0.00
Land Improvements 77,500.04
Electrification, Power and Energy Structures 18,670.40
Office Buildings 136,746.52
School Buildings 9,555.00
Hospitals and Health Centers 42,312.60
Other Structures 268,840.63

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 Office Equipment 34,070.00
IT Equipment and Software 36,360.00
Communication Equipment 960.60
Construction and Heavy Equipment 35,017.82
Medical, Dental and Laboratory Equipment 250.00
Sports Equipment 46,071.98
Other Machineries and Equipment 14,959.31
Artesian Wells, Reservoirs, Pumping Stations and Conduits 31,779.00
Total P 753,093.90

Recommendation

Require the conduct of an annual physical count of the properties of the barangay. A committee
shall be created for that purpose. Upon completion of the physical inventory taking, the required Report
on the Physical Count of Property, Plant and Equipment shall be prepared and submitted to the Municipal
Accountant for reconciliation with accounting records. Any difference noted in the process shall be
recorded and/or accounted for to come up with a realistic financial statement.

On the Utilization of 20% Local Development Fund

3. The Barangay implemented P56,826.29 out of the programmed P175,720.80 or only 32.33%
of the projects/programs/activities under its 20% Local Development Fund depriving the
barangay constituents of the benefits for which the fund is intended.

DILG-DBM Joint Memorandum Circular No. 2011-1 dated April 11, 2011 amending DILG-
DBM Joint Memorandum Circular No. 1 dated September 20, 2005 provide guidelines on the
appropriation and utilization of no less than twenty percent (20%) of the Internal Revenue Allotment
(IRA) for development projects to enhance transparency and accountability of local government units in
undertaking development projects and include projects in addressing and responding to natural and
manmade disasters and calamities.

The following schedule shows that only P56,826.29 or only 32.33% out of the programmed
P175,720.80 was implemented during the year, depriving the barangay constituents the desirable socio-
economic development and environmental outcomes for which the 20% of the IRA is intended for:

Particulars Amount
Available Utilized Balance
Projects for Implementation:
1. Maintenance of Barangay Road 90,000.00 48,400.00 41,600.00
2. Improvement of Multi-Purpose Hall 25,720.80 8,426.29 17,294.51
3. Improvement of School Stage 10,000.00 10,000.00
4. Counterpart Fund for Drying Pavement 10,000.00 10,000.00
5. Construction of Water System 30,000.00 30,000.00
6. Improvement of Purok Center 10,000.00 10,000.00
Subtotal P 175,720.80 P 56,826.29 P 118,894.51
Percentage of Implementation/Non-
implementation 32.33% 67.66%

Recommendation

It is required that all projects funded out of the 20% Local Development Fund should be
implemented to so that the purpose of contributing to the attainment of desirable socio-economic
development and environmental outcomes of the barangay will be attained. The guidelines as provided
under DILG-DBM Joint Memorandum Circular No. 2011-1 dated April 11, 2011 amending DILG-DBM
Joint Memorandum Circular No. 1 dated September 20, 2005 should be followed.

On the Implementation of the SK Fund

4. The Sangguniang Kabataan implemented P69,451.80 out of the programmed P88,192.90 or

78.75% of the projects/programs/activities under its fund giving the barangay youths the
benefits for which the fund is intended.

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 Section 329 of the Local Government Code of 1991 partly provides:

“x x x. Ten percent (10%) of the general fund of the barangay shall be set aside
for the sangguniang kabataan.”

Records showed that P69,451.80 out of the programmed P88,192.90 or 78.75% of the
projects/programs/activities under the Sangguniang Kabataan fund was implemented giving the barangay
youths the benefits for which the fund is intended:

Particulars Amount
Available Utilized Balance
2012 Current Appropriations
Construction of Lighting of Basketball Court 16,785.60
Travelling Expenses 6,260.00
Sports Activities 11,400.00
Registration Fee – Seminars/Trainings 6,800.00
2% Due to SK Federation 1,757.20
Financial Assistance to Provincial Liga Ng 1,500.00
Mga Barangay
Office Supplies 3,800.00
Other MOOE 21,149.00

Total P 88,192.90 P 69,451.80 P 18,741.10

Percentage of Implementation/Non-
implementation 78.75% 21.25%

Implementing the projects as programmed annually gaved the members of the Sangguniang
Kabataan the benefits the law is intended for, that is, providing funds to be used for programs designed to
enhance the social, political, economic, cultural, intellectual, moral, spiritual, and physical development
of the youth.

Recommendation

The Barangay should continue implementing the projects appropriated out of the 10% SK Funds
intended for the welfare of the young inhabitants of the barangay so as to train the future leaders of the
Barangay and fulfill the mandate of the Philippine Constitution to “inculcate in the youth patriotism and
nationalism, and encourage their involvement in public and civic affairs.” (Section 13, Article 11, 1987
Constitution)

Compliance on 55% PS Limitation

5. Expenditures for Personal Services did not exceed the 55% limitations for Personal
Services as required under Section 331 (b) of R.A. 7160, which is to ensure that
LGUs shall have a balance budget and reasonable amounts/funds are allocated to
the delivery of basic services and development projects, as shown in the
computation below:

Actual income for 2010 P 840,028.07

Budgetary Limitation x 55%
Amount of Allowable PS P 462,015.43
CY 2012 Expenses for Personal Services 452,870.00
Allowable (Excess) PS Expense P 9,145.42

Compliance With Tax Laws

6. Withheld taxes in the total amount of P15,840.17 were not remitted to the Bureau of
Internal Revenue, in violation of Executive Order No. 651 as implemented by BIR
Regulation No. 1-87 dated April 2, 1987, depriving the National Government of the amount
of taxes due it.

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 Sec. 1 of Revenue Regulation No. 1-87, implementing Executive Order No. 651 requires
Government Offices, Agencies and Instrumentalities to comply strictly with the Law and Regulations on
withholding taxes on the following items, among others: (1) Compensation Income; and (2) Government
Money Payments. Further, Sections 2 and 3 provides:

“ Section 2. Officer Required to deduct and withhold -

The provincial treasurer in the provinces, the city treasurer in the cities, the Municipal Treasurer
in the municipalities, the chief accountant in ministries, bureaus, agencies, instrumentalities,
government-owned or controlled corporations and other government officers are personally charged
with the duty to withhold and remit the taxes due from said payees (underscoring ours) on account of
such money. xxx”

Section 3, Liabilities of Designated Officers –

Xxx Every officer or employee of the government of the Republic of the Philippines or any of its
agencies and instrumentalities, its political subdivisions as well as government-owned and controlled
corporations including the Central Bank, who under the provisions of the Tax Code or regulations
promulgated thereunder, is charged with the duty to deduct and withhold any internal revenue tax and to
remit the same in accordance with the provisions of the Tax Code.

Record shows that balances of taxes withheld increased per year as follows:

As of December 31, 2008 4,362.98

As of December 31, 2009 11,688.12
As of December 31, 2010 15,840.17

Failure to remit these taxes deprived the National Government the taxes due it. Compliance with
existing tax law is one means of helping our National Government to generate taxes, which will
eventually go back to the Local Government Units in form of their shares of revenues from Internal
Revenue Collections, as a source of income. Also, failure to remit the said taxes as required might result
to loss and/or misuse of funds and may be subject to the imposition of penalties, which are also personal
in nature, and thus, are personal liability of the accountable officer concerned.

Recommendation

Require the accountable officer concerned to comply strictly with existing regulation on the
withholding and remittance of taxes to avoid penalties as provided under Section 3, of the BIR Revenue
Regulation No. 1-87.

On the Implementation of the Local Disaster Risk Reduction Management Fund (LDRRMF)

7. The LDRRMF represents the amount set aside by the LGU to support its disaster
risk management activities pursuant to RA No. 10121 otherwise known as the
“Philippine Disaster Risk Reduction and management Act of 2010.” The amount
available and utilized during the year totaled P34,642.75 and P7,200.00,
respectively, broken down as follows:

Particulars Amount
Available Utilized Balance
Current Year Appropriation
Quick Response Fund (QRF) 13,227.43 1,500.00 11,727.43
Mitigation Fund (MF) 30,864.02
MOOE 37,070.00 (6,205.98)
Capital Outlay
Total 44,091.45 37,070.00
Continuing Appropriation
Special Trust Fund
Total 44,091.45 37,070.00 5,521.45

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On the Review of Financial Statements

8. Review of year-end financial reports showed the following deficiencies, which need to be
adjusted/corrected and/or supporting documents/reports submitted to facilitate disposition of the
propriety and validity of the respective accounts:

1. There are no schedules for the following accounts:

Due From LGU (138) P 10,128.01

We require the Barangay Treasurer and the Municipal Accountant to reconcile their respective
books as presented above, to facilitate verification and determine correct balances, thereof, respectively.

May we have your comment/s on the following audit observation within fifteen (15)
calendar days from receipt hereof.

MADELINE J. MAJESTRADO

State Auditor III

Audit Team Leader

FERMO T. AVILA
State Auditor V
Supervising Auditor

Proof of Receipt of AOM:

Name Designation Signature Date
Hon. Benjamen M. Pomicpic Punong Barangay
Ms. Alma M. Belevestre Barangay Treasurer

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Ms. Hilda L. Remocaldo Barangay Record Keeper
Hon. Jocelyn A. Mapait Chairman, Committee on Appropriation
Mr. Martin D. Blanco, Jr. Municipal Accountant

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