EXECUTIVE SUMMARY

A. Introduction

1. The Municipality of Malimono is a fifth class municipality in the province of

Surigao del Norte. It commences its existence as one of the municipalities of the
province of Surigao del Norte on July 31, 1956 when then President Ramon Del
Fierro Magsaysay issued an executive order creating the municipality. Its territory
has a total land area of 8,013 hectares with a population of 18,054 people as of CY
2015. Marine and Agricultural resources are the people’s primary source of
livelihood.

2. The audit was conducted in accordance with applicable legal and regulatory
requirements, and with the International Standards of Supreme Audit Institutions
(ISSAIs). Those standards require that we plan and perform the audit to obtain a
reasonable basis for our conclusions.

3. The audit covered the accounts and operations of the municipal government for
the year 2018 and was aimed at ascertaining the propriety of financial transactions,
management’s compliance to prescribed rules and regulations and the fairness of the
presentation of the financial statements. Value for money was also conducted on the
selection and implementation of projects funded out of the 20% development fund,
LDRRMF, Solid Waste Management, BUB, ADM, PAMANA, SALINTUBIG and
Trust Fund, with the objective to determine whether the purposes of the projects were
attained in the most efficient, effective and economical manner.

B. Financial Highlights

a) Financial Position and Results of Operations

Particulars 2018 2017
Assets 242,292,634.84 203,241,122.25
Liabilities 117,490,631.11 114,231,530.96
Government Equity 124,802,003.73 89,009,591.29
Income 75,507,196.04 70,059,246.99
Expenses 55,930,113.42 56,494,344.11
Net Income 19,577,082.62 13,564,902.88

b) Sources and Applications of Funds

Particulars 2018 2017

Appropriations 80,187,313.08 69,747,400.00
Allotment 78,371,902.44 69,747,400.00
Obligations 67,639,573.60 64,147,882.68
Funds received from other agencies 34,405,689.80 37,565.93
Funds received from NGOs/POs -
Funds transferred to other agencies 143,000.00 76,910.00
Funds transferred to NGOs/POs -
C. Audit Opinion

4. The Auditor rendered a qualified opinion on the fairness of presentation of the

financial statements of the Municipality of Malimono for CY 2018 because of:

i. Non-reconciliation of the cash balances between the cashbooks and

ledgers posting a variance of P526,033.92, rendering the Cash and Cash
Equivalents account which is stated in the statement of financial position at
P38,634,023.65 as of December 31, 2018, doubtful as to accuracy and
reliability;

ii. Receivable and Payable Accounts amounting to P33,816,514.62 and

P91,944,426.76, respectively, or a total of P125,760,941.38 are of doubtful
existence, accuracy and reliability due to the absence of supporting schedules
and other specific information;

iii. Failure of the Municipality to keep records and conduct physical count of
its Inventories, Property, Plant and Equipment (PPE) and Biological Assets in
CY 2018 in the amount of P852,057.06, P163,337,827.47 and P51,100.00,
respectively, rendering the amounts reflected in the financial statements as of
December 31, 2018 doubtful as to validity, accuracy and existence; and

iv. Non-reclassification and failure to present in the financial statements the

current portion of the Loans Payable – Domestic Account as current liabilities
in the amount of P1,084,575.02 and failure to capitalize and disclose the
borrowing costs directly attributable to the construction of a qualifying asset
totaling P7,542,492.36 thus the financial statements were not fairly presented.

D. Summary of Significant Observations and Recommendations

5. For the above-mentioned audit observations which have caused the issuance of
a qualified opinion, we recommended the following:

i. Direct the Municipal Accountant and Treasurer to reconcile their books of

accounts at least quarterly as prescribed in Section 181(c) of the GAAM,
Volume I; instruct the Accountant and Treasurer to continue exerting effort in
identifying the reconciling items to resolve the variance noted between the two
(2) books; advise the Treasurer to ensure that all cash accounts must be covered
with a cashbook to monitor the deposits and withdrawals thereof; and adhere to
Section 111 of P.D. No. 1445, Section 181(c) of the GAAM, and Item 3.4 of
COA Circular No. 96-011 to present reliable cash balances in the financial
statements;
ii. Direct the Municipal Accountant to submit to the Auditor, without delay,
the schedules and other pertinent documents to support the balances of the 11
receivable and 10 payable accounts in the FS. Strictly adhere to the provisions
of Sections 4.8, 111.1, 114 and 112 of P.D. No. 1445 in the preparation of
schedules and other supporting documents so that the accounts in the FS can be
readily verified to its existence, accuracy and reliability;

iii. Direct the Inventory Committee Chairperson to initiate the planning and
conduct periodic physical inventory of the supplies and property of the LGU as
mandated in Section 124 of the NGAS Manual. Continue the initially acted
activity of issuing inventory forms to every office of the LGU and collate the
information to make a list of supplies and properties. These inventory forms
should be randomly checked/verified by the Committee from the LGU offices to
establish existence and correctness of the supplies and properties and other
information written therein. The list prepared by the Committee shall be
reconciled with the accounting records. The Report on the Physical Count of
Inventories (RPCI) and the Report on Physical Count of PPE and other
properties, as the result from the physical inventory conducted, shall be
submitted to COA pursuant to Section 124 of NGAS Manual for LGU; Advise
the Municipal Accountant to maintain Supplies, PPEs and other properties
Ledger Cards. Reconcile the accounting records with the list/reports being kept
by the Property Custodian at least quarterly; Instruct the Property Custodian to
property tag every PPE including the breeding stocks; prescribe the Property
Custodian to provide Property Acknowledgement Receipt (PAR) to every PPE
without the covering acknowledgement receipt; and adhere to Sections 119, 120
and 124 of the NGAS Manual, Volume 1 and other pertinent laws, rules and
regulations governing the conduct of physical count of properties, maintenance
of records and submission of reports thereof to the Auditor; and

iv. Direct the Municipal Accountant to reclassify the current portion or the
balance of the Non-Current Liabilities account which is due for settlement
within twelve months after the reporting period, into Current Liabilities in the
amount of P1,084,575.02; instruct the Municipal Accountant to make a
necessary adjustments in the books for the total borrowing cost as of December
31, 2018 in the amount of P7,542,492.36 which should be capitalized and will
form part of the asset by debiting CIP and crediting Prior Period Errors. This
amount should likewise be presented or disclosed in the Notes to Financial
Statements as borrowing costs capitalized during the period and the
capitalization rate used to determine the same; and adhere to Section 112 of
P.D. No. 1445 and the provisions of Item 80 of PPSAS No. 1 and Items 18 and
40 of PPSAS No.5 on the proper presentation of the current and non-current
portion of liabilities and the correct recognition and disclosure of the borrowing
costs in the financial statements.
6. The other significant audit observations and recommendations are as follows:

i. The Municipality did not observe pertinent provisions governing the

budgeting and utilization of the 20% Development Fund (DF) defeating the
purpose for which the fund was created.

We recommended that Management instruct the Municipal Treasurer to

transfer to the 20% DF bank account the amount of P131,312.80 which
represents the remaining budget of the CY 2018 20% DF that was left
unallocated to the DF bank account. Advise further the Treasurer to transfer to
the 20% DF bank account all the appropriation thereof to have ample cash back
up to fund its PAPs; Stop charging non-developmental expenses against the
20% DF. Submit to COA the legal basis on the payment of materials and labor
for the completion of the FM radio station in the total amount of P499,320.26.
Non-compliance hereof, or after evaluation by this end of the submitted
justification and the same was found wanting of merit, this may result to
suspension or disallowance of the amount as circumstances may warrant;
include only in the AIP the PAPs that contribute to the attainment of desirable
socio-economic development as provided in Section 3 of DILG-DBM JMC No.
2017-1; Fast track the purchase of land for the Barangay Tinago resettlement
site. Pay the buyer earnest money, if necessary, to ensure the purchase;
Communicate with the concerned contractor as regards the unclaimed retention
fee to free the LGU from any obligations that may arise soon from non-
settlement of financial commitments; Remind the MENRO to implement the
reforestation and greening program as budgeted and as planned. The activity
was included in the AIP which justified that it was important and urgent. As
such, there will be no reason that this may be overlooked; Recheck the
memorandum of agreement (MOA) and the program of work (POW) covering
the Slaughter House Site Development project. Identify the reason why, at its
present completion rate, the LGU equity has still not being utilized. Use the
amount in accordance with the provisions in the MOA and POW; and Adhere
faithfully to Section 2 of P.D. No. 1445 and DILG-DBM JMC No. 2017-1 in
the budgeting and utilization of the 20% DF.

ii. The Municipality still did not observe pertinent provisions governing the
budgeting and utilization of the Local Disaster Risk Reduction and Management
Fund (LDRRMF) defeating the purpose for which the fund was created.

We recommended that Management refrain from augmenting funds in the

approved annual budget without complying completely the requirements
mentioned in Section 336 of R.A. No. 7160. Submit to COA the documents as
legal basis or written justification on the augmentation made without an SB
Ordinance in the total amount of P338,697.00. Non-compliance hereof, or after
evaluation by this end of the submitted legal basis or justification and the same
was found wanting of merit, this may result to suspension or disallowance of the
amount as circumstances may warrant; stop charging administrative/operating
as well as capital outlay expenditures against the LDRRMF. Submit to COA the
legal basis or justification on the payments thereof in the total amount of
P247,077.48. Again, non-compliance hereof, or after evaluation by this end of
the submitted legal basis or justification and the same was found wanting of
merit, this may result to suspension or disallowance of the amount as
circumstances may warrant; direct the MDRRMO to exclude from the
LDRRMFIP the illegitimate PAPs as mentioned in Item 4.3 of NDRRMC-
DILG-DBM-CSC JMC No. 2014-1; ensure compliance to the provisions of
Section 336 of R.A. No. 7160, Section 4(1) of P.D. No. 1445, Section 2 of R.A.
No. 10121, Item 4.3 of NDRRMC-DBM-DILG-CSC JMC No. 2014-1 and Item
4 of NDRRMC-DBM-DILG JMC No. 2013-1 on the budgeting and utilization
of the LDRRMF.

iii. The Municipality did not observe pertinent provisions covering the
utilization of the Local Council for Protection of Children (LCPC) Fund
defeating the purpose for which the fund was created.

We recommended that Management direct the MSWDO and the SWO to

implement ALL the LCPC PAPs; Remind the Accountant, Treasurer, Budget
Officer and the Local Chief Executive to review and sign all the DVs and
supporting document, especially those for the implementation of PAPs, with
consideration that these are extremely necessary and have corresponding time
plan. The MSWDO should also consistently follow-up from the foregoing-
mentioned offices the status of its requests for payment. This will avoid
unnecessary delays in the realization of PAPs; Instruct the MSWDO and/or the
Finance Committee that in making a budget for the LGU’s PAPs, refrain from
duplication of allocation for a certain program or activity. A program should be
sufficiently sourced from a particular fund. A fund should be utilized to realize
its PAPs in consonance with its objectives or mandate. This is a well-
established principle under the Fund Theory; Remind the MSWDO to always
recheck and monitor each of the PAPs vis-à-vis the corresponding target
beneficiaries to avoid mislooked realization of the objectives; Stop the charging
from the LCPC fund the expenditures that do not directly benefit the children
and the youth and which are not included in the LCPC budget. This is a
cardinal rule espoused in Section 4(1) of P.D. No. 1445 and Section II of DILG
Memorandum Circular (MC) No. 2012-120. Submit to COA the legal
basis/justification on the payments of non-LCPC expenses amounting to
P22,352.00 and the expenditures totaling P21,606.00 which are not included in
the LCPC budget. Non-compliance hereof, or after evaluation by this end of the
submitted legal basis/justification and the same was found wanting of merit, this
may result to suspension or disallowance of the amount as circumstances may
warrant; and Adhere faithfully to Sections 2 and 15 of R.A. No. 9344, Section II
of DILG MC No. 2012-120 and Section 4(1) of P.D. No. 1445 on the budgeting
and utilization of the LCPC fund.
iv. Pertinent provisions governing the creation, utilization and reporting of the
Gender and Development (GAD) fund were not complied by the Municipality
of Malimono defeating the purpose for which the program was created.

We recommended that Management appropriate an amount for GAD

PAPs at least 5% of the total annual budget. The allocation thereof should not
be made conservatively; Direct the GFPS to always formulate the LGU GPB
based on the GAD Agenda or identified priority gender issues which were
derived from the information gathered from the sources mentioned in Sections
4.1.C.2.1 and 4.1.C.1.4 of JMC No. 2013-01 and to complete and update the
information provided in the LGU’s GAD database; Submit to the COA Audit
Team a copy of the GPB and AR in a manner prescribed in Item V of COA
Circular No. 2014-001. A copy of which shall be furnished by the Team to the
MSWDO for her information and guidance; and Strictly adhere to the governing
provisions set forth in the PCW-DILG-DBM-NEDA JMC No. 2013-01 and
COA Circular No. 2014-001 in the creation, utilization and reporting of GAD
fund.

v. Six disbursement vouchers (DVs) for CY 2018 financial transactions with

subject amount of P645,071.14 remained unsubmitted to the Auditor for
examination and audit contrary to Section 100 of Presidential Decree (P.D.) No.
1445, Section 7.2.1 of COA Circular No. 2009-006 and Section 44 of NGAS
Manual for LGU, Volume I precluding the Audit Team to ascertain their
validity, propriety and completeness.

We recommended that Management direct the accounting and treasury

office to submit to the Auditor the lacking/missing DVs without delay. Failure
to comply may warrant the automatic withholding of the salaries of the
personnel accountable thereof pursuant to Section 122 (2) of P.D. No. 1445
and/or a ground for the filing of an administrative disciplinary action under
Section 127 of the Decree; Instruct the treasury office to strictly avoid lending
to the payee the DV when the latter will receive its check. The former must
have the custody of the voucher right after the latter will affix its signature in
the receipt portion; and Strictly adhere to Section 100 of P.D. No. 1445, Section
7.2.1 of COA Circular No. 2009-006 and Section 44 of NGAS Manual for
LGU, Volume I, in the reporting and submission of the accounts to the Auditor.

vi. The contract documents submitted for the Agency’s infrastructure projects
Construction of Fish Processing Hub (Community Fish Landing Center),
Construction of Evacuation Center, Site Development and Construction of
Access Road for the Propose Slaughter House, and Construction of Local Road
Opening – Barangay Binocaran, with contract costs of P2,989,457.49,
P1,194,829.00, P646,816.45, and P6,090,006.00, respectively, or a total of
P10,921,108.94, were deficient in integral documents as enumerated in COA
Circular Nos. 2009-001 and 2012-001 and did not conform to the pertinent
provisions of the Implementing Rules and Regulations (IRR) of Republic Act
(R.A.) No. 9184.

We recommended that Management require the BAC, including the BAC

Secretariat and the TWG, to submit to the Audit Team the lacking documents
and to explain to the latter the presence of procurement
deficiencies/irregularities. Non-compliance hereof may cause the suspension of
the transactions as evidence may warrant and adhere strictly with the provisions
of R.A. 9184 and its IRR, COA Circular Nos. 2009-001 and 2012-001 on the
procurement of goods, infrastructures and services.

vii. The slow implementation of the projects Support Shared Service Facility
(SSSF) – Fish Processing – Barangay Cantapoy and SSSF – Meat Processing –
Barangay Masgad which were funded from Department of Trade and Industry
DTI under the Bottom-up Budgeting (BuB) Program and implemented by the
LGU-Malimono at a cost of P550,000.00 each or a total of P1,100,000.00 was
in contrary to Item B.4 of the covering Memorandum of Agreement (MOA) in
relation to Section 2 of Presidential Decree (P.D.) No. 1445 depriving the
people from the prompt availment of the benefits therefrom defeating the
purpose of the creation of the programs.

We recommended that Management advise the organizations, through the

MAO, to fast track the improvement of the production area in the case of the
fish processing, and the search for dependable supplier in the case of meat
processing, so that production of goods will ensued immediately. Incurring
additional delay in operation would adversely affect the projects and the
organization through lost opportunities, affecting the effectiveness of the
program and instruct the MAO to regularly monitor the condition and
performance of the projects and other BuB programs and activities of the LGU.
Monitoring includes ocular inspection, confirming compliance thereof to the
provisions in the MOA and other laws, rules and regulations covering the
projects. This ensures achievement of the projects objectives as well as
guarantee profitability and sustainability of the same.

viii. Out of six (6) CY 2017 unimplemented livelihood projects of the

Department of Trade and Industry (DTI) under its Bottom-up Budgeting (BuB)
Program and which shall be executed by the LGU-Malimono at a cost of
P550,000.00 each or a total of P3,300,000.00, three (3) remained
unimplemented in CY 2018 in spite the availability of the funds to accomplish
the same contrary to Item B.4 of the covering Memorandum of Agreement
(MOA) in relation to Section 2 of Presidential Decree (P.D.) No. 1445 depriving
the people from the prompt availment of the benefits therefrom defeating the
purpose of the creation of the programs.

We recommended that Management exert more effort to find qualified

organization which will execute the remaining three (3) unimplemented projects
without losing sight from its primary requirements of project feasibility and
sustainability; revisit often the Project Briefs and the MOA covering each of
the three (3) livelihood programs; demand from DTI compliance to Item I.4 of
the MOA which states that the Department will assist in the provision of
technical assistance to the partner LGU and in the implementation, monitoring
and evaluation of the projects; request from DTI or any partnered government
agencies that projects to be implemented in partnership with the LGU should
firstly be studied intensively, giving consideration to the latter’s needs,
capability/capacity to execute and other factors such as weather, economic
activities (supply and demand), peace and order, etc. This will avoid loss and
wastage of government resources when the projects would not be implemented
due to either lack of technical knowledge and skills of the labor, insufficiency of
resources, and unworkable environment to operate the same; and adhere to
Section 2 of P.D. No. 1445 and Item B.4 of the covering MOA in the
implementation of DTI programs, projects and activities.

ix. The general and specific objectives of the Construction of Fish Processing
Hub (Community Fish Landing Center) located at Barangay San Isidro, a
project funded from the Bureau of Fisheries and Aquatic Resources (BFAR)
with an appropriation of P3,000,000.00 and a construction cost of
P2,989,457.49.00 were not achieved contrary to Item I of the Operation and
Management Guide (OMG) in relation to Section 2 of Presidential Decree
(P.D.) No. 1445, affecting effectiveness of the program.

We recommended that Management utilize the project as intended and as

planned. Revisit the provisions in the MOA and OMG. Study and examine
carefully the ways and procedures on how to operate the project as provided
therein. Ask assistance from the DA RFU. Apply the learnings without delay.
Always be mindful that the government’s resources are scarce and these should
be utilized to answer the immediate needs of its people; find measures to
preserve and protect the facility from destruction just like appointing one (1) or
two (2) job orders who will secure the building from children and other
individuals who may cause damage to the facility; and advise the MPDC,
Engineer and the MAO or other concerned personnel to regularly check the
condition of the project as well as the other PAPs of the LGU. Checking
includes occasional visit thereof. This ensures efficient, economic and effective
application of government resources.

x. The Construction of National Child Development Center located inside

the Malimono Central Elementary School, Barangay San Isidro, a project
funded from the Early Childhood Care and Development (ECCD) Council with
an appropriation of P2,600,000.00 and a construction cost of P2,499,467.86.00
remained un-operational despite being completed contrary to the intent of
Section 2 of Presidential Decree (P.D.) No. 1445, depriving the people of the
prompt availment of the benefits therefrom defeating the purpose of the
program.
 We recommended that Management revisit the MOA. Verify carefully the
obligations to comply by each party to the Agreement in order to efficiently and
effectively implement/operate the project. This way, the LGU will know which
party to the MOA will procure the equipment and other supplies which will be
used in the operation of the program. If such obligation is of the ECCDC,
follow up the matter with the Council for compliance. Otherwise, the LGU
shall procure the equipment and supplies for immediate use; detain one (1) or
two (2) job orders who will secure the building from children and other
individuals who may cause destruction to the facility; and advise the MPDC,
Engineer and the MSWDO or other concerned personnel to regularly check the
condition of the project as well as the other PAPs of the LGU. Checking
includes occasional visit thereof. This ensures efficient, economic and effective
application of government resources.

xi. The Construction of Disaster Risk Reduction & Climate Change

Adaptation Operation Center located in the municipal compound, Barangay San
Isidro, a project funded from the proceeds as recipient of the CY 2018 Seal of
Good Local Governance, a program of the Department of Interior and Local
Government (DILG), with an appropriation of P3,000,000.00 and a construction
cost of P2,999,477.62.00 remained un-operational despite being completed
contrary to the intent of Section 2 of Presidential Decree (P.D.) No. 1445,
depriving the people of the prompt availment of the benefits therefrom defeating
the purpose of the program.

We recommended that Management instruct the MDRRMO to utilize the

building as intended and as planned. He should be explained that the structure
is finished and already complete and that, at the onset, the noted irregularities
surrounding the project should have been communicated right a way to the
management so that immediate action to rectify the same should have been
made; advise the MDRRMO to communicate to the Management his bases for
his statement that the building is not suitable for a MDRRM Office. Evaluation
whether these bases may compel course of action to rectify the same subject to
availability of resources; and ensure compliance to the intent of Section 2 of
P.D. No. 1445 in the implementation and utilization of various projects of the
LGU.

xii. Pertinent provisions covering the implementation of the projects

Construction of two (2)-Storey Malimono Governing Center Multi-Purpose
Building and Construction of two (2)-Storey Tourism Promotion Center, both
located at Barangay San Isidro, with a construction cost of P17,091,586.00 and
P1,998,709.49, respectively, were not complied by the LGU-Malimono
depriving the people of the prompt availment of the benefits therefrom incurring
possible loss in the part of the government.
 We recommended that Management instruct the Municipal Engineer to
submit to COA all the supporting documents to justify the suspension orders;
Direct the Municipal Engineer to fast track the completion of the projects and
enhance monitoring activities through often and constant follow up with the
contractor. He should talk with the latter and identify the factors which have
caused the delay in finishing the projects. Give recommendations, if possible
and necessary, to solve, correct or rectify thereof like improvement of
performance rates of the workers or drawing up implementation timeliness to
serve as guide in monitoring its accomplishments; enforce the provisions of the
Contract between parties therein. Impose liquidated damages against the
Contractor if surrounding circumstances will warrant pursuant to Section 68 of
the IRR of R.A. No. 9184; Enjoin the MPDC to monitor the implementation of
various projects of the LGU; and Strictly adhere to Sections 2 and 4(6) of P.D.
No. 1445, Section 68 of the IRR of R.A. No. 9184 and the covering Contract
Agreement in the implementation of infrastructure projects to avoid unnecessary
delays in the completion thereof and to establish validity and propriety of the
transactions.

E. Summary of total Suspensions, Disallowances, and Charges

7. Audit suspensions and disallowances amounting to P4,690,364.43 and

P2,022,874.48, respectively, remained unsettled as of December 31, 2018, contrary to
Sections 5.4 and 7.1.1 of COA Circular No. 2009-006 dated September 15, 2009.

F. Statement on the quantity/number of recommendations implemented, partially

implemented and not implemented for the current year.

8. Out of 22 recommendations contained in CY 2017 Annual Audit Report (AAR)

revealed that 11 were fully implemented, nine were partially implemented and two
were not implemented. Further, of the 10 partially and two unimplemented
recommendations from CY 2016 AAR five were fully implemented, five were
partially implemented and two recommendations remained unimplemented to date.