EXECUTIVE SUMMARY

For CY 2008, the City Government of Cebu under the administration of Hon.
Tomas R. Osmena continued to implement programs consistent with its vision of
providing delivery of basic services on an increased level as compared to the previous
year and making the city more livable. Appropriations for Personal Services and
Maintenance and Other Expenses adhered to the traditional Skin and Bones Concept
based on the CY 2007 Annual Budget. Lump Sum Appropriation for Capital Outlay is
provided under the Local Development Fund to fund various development projects as
provided in the approved Annual Investment Plan (AIP) for the year 2008.

Management’s report of infrastructure projects accomplished during the year are

shown in Annex l. Among the many projects accomplished, ocular verification was
conducted by the Technical Services Office of COA Region VII. only on the following:

Percent of
Program/Project Cost Accomplishment

Construction of Welcome Signage-

Substructure & Retaining Wall, SRP P 9,395,718.46 100
Cluster Project – Construction of Concrete
Lined Canal with cover at Gen. Gines St.,
Phase 2; at Sto Nino St., Phase 3; at
Abellana St., Phase 4; at Concepcion
St., Phase 5; at Rallos St., Phase 6, all
at Barangay Suba, Cebu City 3,258,821.24 37.69
Construction of Pulangbato-Pit-os Bridge 12,828,302.07 42.74
Construction of Concrete Line Canal,
Phases 1 & 2 at R. Padilla St. 2,370,700.97 45.17
Construction of Guba-Adlaon Bridge 3,993,695.20 100
Improvement/Expansion of Brgy. Hall:
Construction of Multi-Purpose Building
at Brgy. Talamban 4,495,185.70 57.609

FINANCIAL PROFILE

The city government had a consolidated income for the General and Special
Education Funds of P2,938,270,222.77 for the year 2008 which is higher by 20.89%
compared to that of last year which was only P2,430,581,721.03. Total current
legislative appropriations for the two funds during the year amounted to
P3,359,025,006.94 consisting of P3,170,639,504.85 for the General Fund and
P188,385,502.09 for the Special Education Fund, as shown in Annex II - Status of
Appropriations, Allotments and Obligations. Total expenditures of the two funds for
Personal Services, Maintenance and Operating Expenses and Financial Expenses
amounted to P1,735,335,189.83 excluding subsidies to local government units and
asset acquisitions. This is also higher by 2.94% over that of the previous year which
was only P1,685,826,944.21.

FINANCIAL RATIOS

Formula 2008 2007

Liquidity Ratios:

Current Ratio = Current Assets / Current Liabilities 2.59:1 2.16:1

Quick (Acid Test) = Current Assets less Inventories 2.10:1 1.66:1

Current Liabilities

Net Working Capital = CA less CL P1,598,375,186.10

P1,188,684,888.74

Profitability Ratios:

Net Income = Net Income / Total Revenue 0.38:1 0.29:1

Return on Assets = Net Income / Total Assets 0.09:1 0.06:1

Financial Leverage:

Debt Ratio = Long Term Debt / Total Liabilities 0.814:1 0.821:1

Debt to Equity = Long Term Debt / Government Equity 0.7255:1 0.8967:1

SCOPE OF AUDIT

The audit was focused on selected areas covering the January to May 2008
transactions since records show that submission of issued official receipts, paid
disbursement vouchers and non-cash Journal Entry Vouchers and their corresponding
supporting documents to the Office of the Auditor was delayed for more than a year
from the required submission date. Please see Annex 2, Schedule Showing
Submission of Accounts. As gleaned from this Annex, transaction documents from
January to April 2007 were submitted in April 2008, more than a year later. May and
June 2007 transactions were submitted in July 2008. Likewise, transactions for three
(3) months covering the period July to September 2007 were submitted on September
8, 2008 while those for October to December 2007 were submitted on September 15,
2008. For CY 2008 transactions, only those for the months of January to May 2008
were submitted while those for June to December 2008 are still at the Office of the City
Accountant.

The delayed submission of CY 2007 and the non-submission of June to

December 2008 transaction documents and reports hindered the immediate verification
of deficiencies noted which would need further confirmation and analysis from source
documents. The delay in the preparation of the financial reports, as explained by the
OIC-City Accountant, is just an effect of the delayed submission of the CY 2007
yearend financial statements which were submitted only on September 5, 2008, coupled
by the technical problems encountered in the e-NGAS computerization system in the
budget and accounting departments.

AUDITOR’S OPINION ON THE FINANCIAL STATEMENTS

In our opinion, except for the effects of the matters discussed under Parts II and
III of this report, and of such adjustments, if any, as might have been made had
management reconciled the stated differences, the financial statements present fairly in
all material respects, the financial position of the City of Cebu as of December 31, 2008
and the results of its operations and its cash flows for the year ended in conformity with
applicable generally accepted accounting principles.

SIGNIFICANT FINDINGS AND RECOMMENDATIONS

1. The proceeds from installment and full payment of lots from the
beneficiaries of the Division for the Welfare of the Urban Poor (DWUP)
projects were fully credited to Sales Revenue, without deducting the value
of the land sold, thus overstating the reported income of the city by
P23,660,477.79.

The Accounting Department should effect adjustments in the accounting

records so that the affected accounts can be fairly presented in the
financial statements. Henceforth, amounts received as installment
payments from DWUP beneficiaries shall first be credited under account
455 – Deferred Credits. This account shall be debited as soon as the full
payment of the lots shall have been received and account 201 – Land shall
be credited. The difference shall be taken up under account 682 - Gain or
Loss on Sale of Disposed Assets.

2. The balance of Property, Plant and Equipment accounts totaling

P8,031,043,671.61 remained doubtful due to the continued inability of
management to complete the physical inventory, maintain property ledger
 cards and reconcile records of the Offices of the Accountant and General
Services, contrary to Section 119, 120 and 124 of the NGAS Manual,
Volume I.

To facilitate reconciliation of records and to establish the validity and

correctness of all assets carried per books, the City General Services
Office should effect corrections on the deficiencies in the inventory reports
and complete the conduct of physical inventory while the Accounting
Department should retrieve previous years’ documents that would provide
details of the PPEs recorded per books.

3. The reliability and accuracy of the Cash in Bank accounts aggregating

P1,743,791,525.55, as of December 31, 2008 can not be ascertained since
the bank reconciliation statements prepared for all funds were only up to
December 31, 2007, a year’s delay, contrary to Section 3.2 of COA Circular
No. 96-011 dated October 12, 1996.

The accounting department should update the preparation of the bank

reconciliation statements for all bank accounts in all funds, and effect
adjustments, as necessary, to reflect the correct balances of the Cash in
Bank Local Currency Current Accounts.

4. Disbursements totaling P 4,086,265.51 representing CY 2007 expenditures

were recorded in CY 2008 due to poor coordination between the
treasurer’s office and the accounting department while checks already
encashed by the bank in CY 2007 and prior years totaling P15,239,409.29
remained unrecorded in the books as of December 31, 2008, for lack of
basis.

Upon receipt of the duly approved vouchers and supporting documents

from the City Treasurer’s Office, the Accountant should record the
disbursements by debiting Prior Year’s Adjustment and crediting Cash in
Bank. Henceforth, the City Treasurer’s Office should submit to the
Accounting Department the paid vouchers and corresponding supporting
documents not later than the 5th day of the ensuing month for recording
pursuant to Section 100 of Presidential Decree 1445, to enable the
accounting department to achieve a timely and fairly presented financial
statements.

5. Under remittance of collections by various collectors during CY 2008

totaled P76,452.12, due to the laxity of the liquidating officers in enforcing
prompt and full remittance of collections daily as required under Sections
15, 29, 30 and 31 of the NGAS Manual, Volume I.

The City Treasurer should require her designated liquidating officers to

strictly follow the procedures in the verification of collections and
 accountable forms turned over to them by the collectors, as provided
under Section 30 of the NGAS Manual, to ensure that all collections are
turned over intact and promptly pursuant to Sections 15 and 29 of the
NGAS Manual. Meanwhile, immediate refund of the unremitted
collections by the concerned collectors should be sought, otherwise
appropriate charges may be filed against them, if warranted.

6. The accountability for accountable forms can not be easily established due
to the non-preparation by the Office of the City Treasurer of a complete
Consolidated Report of Accountability for Accountable Forms (RAAF) and
to submit the same on time together with the individual RAAF of all
collectors, contrary to Section 51 of the NGAS Manual, Volume II,
resulting in some unaccounted accountable forms with money value.

The Office of the City Treasurer should prepare and cause the prompt
submission of the monthly Consolidated Report of Accountability for
Accountable Forms in the prescribed form together with the individual
Reports of Accountability for Accountable Forms of collectors to the
Office of the Auditor not later than the 5th day of the ensuing month
pursuant to Section 51 of the NGAS Manual, Volume II. The custodian
should see to it that all accountable forms with or without money value
are properly accounted for in the report.

7. Issuance of accountable forms to the paying public were not done in strict
numerical sequence and/or chronological order, as required under
Section 73 of the Government Accounting and Auditing Manual, Volume I,
resulting in delayed remittances, missing receipts and difficulty in
establishing the accountability of concerned collectors.

The City Treasurer and her designated liquidating officers should strictly
impose upon all collectors the requirement on the issuance of
accountable forms in strict numerical sequence and/or in chronological
order in order to prevent missing and unaccounted receipts and delayed
remittances. Proper disciplinary action should be instituted against
erring collectors, if warranted.

8. Substantial amounts of cancellations of reported collections were

indicated in the reports of collections of real property tax collectors,
contrary to Section 99 of the Government Accounting and Auditing
Manual, Volume I. These cancellations remain unverified due to the non-
submission of the duplicate copies of official receipts to the Office of the
Auditor, as required under Section 6.05 of COA Circular No. 95-006.

The Offices of the Treasurer and Accountant should coordinate to update

the preparation and submission of the reports of collections together with
the supporting copies of issued official receipts to the Office of the
 Auditor in accordance with Section 6.05 of COA Circular No. 95-006, for
prompt verification in order to ensure the correctness of the reported
collections of each real property tax collector.

9. Extraordinary/discretionary expenses paid totaling P944,044.03 from

January to May 2008 cannot be assessed as to validity and propriety as
these were not adequately supported with documents and/or information
contained in the supporting documents were incomplete, in violation of
Section 4(6) of R.D. 1445.

The accounting personnel charged with pre-audit functions should

ensure that disbursement vouchers are supported with adequate
pertinent documents to prove the legality and propriety of the expenses
incurred. For reimbursement of expenses reported as financial assistance
to barangays, there should be an official receipt issued by the treasurer of
the concerned barangay, to acknowledge receipt of the funds.

10. Procurement of various supplies, materials and equipment totaling

P2,118,984.70 through the alternative mode of procurement which was
shopping is not in accordance with the conditions of Section 52.b of the
Implementing Rules and Regulations of RA 9184.

The BAC should be directed to follow strictly the conditions for the use of
Shopping under Section 52.b of the IRR-A of RA 9184 in order that
procurement of goods shall be in accordance with the Government
Procurement Reform Act (RA 9184).

11. Completed Public Infrastructure projects aggregating P95,931,216.48

were not transferred to the Registry of Public Infrastructures pursuant to
Section 50 of the Manual on the NGAS, Volume I, resulting to the
overstatement of Property, Plant and Equipment (PPE) and Government
Equity by the same amount.

The Accountant should prepare the following necessary correcting entries

to address the aforecited overstatement of the affected accounts and to
transfer said infrastructures to the Registry of Public Infrastructures.

Account Title Code Debit Credit

Government Equity 501 P95,931,216.48

Roads, Highways &
Bridges 251 P14,284,065.32
Artesian Wells,
Reservoirs, Pumping
Stations & Conduits 254 65,233,004.06
 Irrigation Canals
& Laterals 255 1,284,705.47
Flood Controls 256 6,071,109.46
Waterways, Aqueducts,
Seawalls, Riverwalls, etc.257 956,579.22
Other Public Infra-
structures 260 8,101,752.95

12. Non-payment of interests on Loan No. 2 from CY 2004 to 2007 resulted in

its conversion into Loan No. 3 totalling P169,911,449.26 . Consequently,
debt servicing exceeded the requirement of Section 324(b) of RA 7160,
which may jeopardize the provision of basic services due to high financial
costs. Further, Loan No. 3 was erroneously recorded by the accounting
department as debit to account Land instead of Financial Expenses,
resulting in the overstatement of Government Equity by the same amount.

The City Mayor should instruct the Local Finance Committee to

appropriate funds for the payment of interest expenses on all loans when
they fall due to prevent incurrence of loan out of capitalized interests and
so that basic services to the constituents may not be jeopardized due to
the payment of high financial costs. Further, the accountant should be
advised to adjust the erroneous recording of Loan No. 3 by debiting
account 684 - Prior Years’ Adjustments and crediting account 201 – Land
by P169,911,449.26.

13. Funds granted by the Philippine Amusement and Gaming Corporation

(PAGCOR) which were aimed to promote economic opportunities and to
help achieve social amelioration among the less-privileged were instead
used for other purposes, thereby defeating its intended purpose.

Prioritize the use of PAGCOR funds for projects and activities which will
redound to the social and economic welfare of the less fortunate
segments of the community, as envisioned by its grantor, so that the
much needed government assistance can reach the intended
beneficiaries.

STATUS OF PRIOR YEAR’S AUDIT RECOMMENDATIONS

Out of the thirteen audit recommendations embodied in the CY 2007 Report on

the Results of the Audit of the City of Cebu, one (1) was fully implemented, five (5) were
partially implemented while the remaining seven (7) were not implemented. As for the
CY 2006 and prior year’s recommendations, out of the nine (9) unimplemented
recommendations reported last year, four were partially implemented while the other
five remained unimplemented.