EXECUTIVE SUMMARY

A. Introduction

1. Butuan City is the capital city of the Province of Agusan del Norte. Prior to its
proclamation as a city on August 2, 1950 by virtue of Republic Act No. 523, Butuan
existed as a military district until 1901, when it was then converted into a sub-
province. In 1907, with the merging of the sub-provinces of Butuan and Bukidnon,
the Province of Agusan was created. After several political reorganizations, the
Province of Agusan was subdivided in 1968 to what are now the Provinces of Agusan
del Norte and Agusan del Sur.

2. Butuan City is situated on the Northwestern part of Region XIII, bounded on the
north by Butuan Bay and the Municipality of RTR, on the south by the Municipality
of Las Nieves, Agusan del Norte, on the east and northeast by the Municipality of
Sibagat, Agusan del Sur and on the west by the Municipality of Buenavista, Agusan
del Norte. It has an aggregate land area of 81,728 hectares and is subdivided into
eighty-six (86) barangays; 27 urban barangays and 59 rural barangays. It has an
estimated population of almost 31,000 inhabitants (2007 census). It is the seat of the
regional government and serves as the trading center of the Region. It is also the
home of the “Balanghais” or Butuan Boats, the famous pre-historic native boat in
Southeast Asia.

3. Butuan City is accessible by land, air, and sea transportation routes. Land
transportation is greatly facilitated the concretely paved road arteries traversing
through the City from Surigao City, Cagayan de Oro City and the reconstructed road
of the Province of Agusan del Sur. By plane, it is one hour and 45 minutes ride from
Manila and 35 minutes from Cebu. By vessel, it takes 36 hours and 12 hours ride
from Manila and Cebu, respectively.

B. Financial Highlights

a) Comparative Financial Position and Results of Operations

Increase/
Particulars 2014 2013
(Decrease)
Assets 4,208,345,863.25 3,960,135,440.03 248,210,423.22
Liabilities 995,751,416.63 1,020,958,191.25 (25,206,774.62)
Government Equity 3,212,594,446.62 2,939,177,248.78 273,417,197.84
Total Income 1,303,629,279.45 1,172,989,754.32 130,639,525.13
Expenses 824,391,884.12 857,204,169.86 (32,812,285.74)
Net Operating Income 479,237,395.33 315,785,584.46 163,451,810.87
 b) Comparative Applications of Funds

Increase/
Particulars 2014 2013
(Decrease)
Appropriations 2,227,665,045.17 1,655,794,783.00 571,870,262.17
Allotment 1,310,063,221.26 1,505,682,445.83 (195,619,224.57)
Obligations 1,240,413,009.93 1,448,471,890.85 (208,058,880.92)

C. Audit Opinion

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

presentation of the financial statements of the City Government of Butuan for CY
2014 because of the following reasons:

i. The balances for CY 2014 of the Office Equipment, Furniture and Fixtures,
Machineries, Motor Vehicles and other Property, Plant and Equipment (PPE)
accounts amounting to P794.8 million are unreliable due to the (a) failure to
conduct actual/physical count of property, plant and equipment; (b)
inappropriate classification of the PPE accounts; (c) failure to update Property
Cards and non-maintenance of property, plant and equipment ledger cards.

ii. Unreconciled balance of reciprocal accounts Due from Other Funds and Due to
Other Funds, and Subsidy from Other Funds and Subsidy to Other Funds
aggregating ₱17,032,967.23 and P70,650,711.89, respectively, rendering the
year-end balances of the accounts and affected accounts unreliable.

iii. The City Government's financial assistance totaling P6,730,000.00 were not
supported with documentation proving the qualification of the NGOs/POs, thus
casted doubt on the validity of the transactions and accuracy of the account
balance “Due from NGOs/POs” in the amount of P28,191,810.20 as of
December 31, 2014.

iv. Accuracy of the ending balances of Construction Materials, Drugs and

Medicines Inventory accounts in the amount of P9,700,887.01 and
P14,157,725.61, respectively, could not be reasonably relied upon due to the
inconsistent application of the perpetual inventory method of recording receipts
and issuance of purchases of materials carried in stock.

v. Deductions from the monthly payrolls of the personnel for payments of loans
granted by financial lending institutions and other creditors in the total amount
of ₱9,896,533.31 were paid through the cash advance of the Accountable
Officer and liquidated as “Payroll Fund”.
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 GSO, City Accounting Office and the Inventory Committee, as the
case maybe, to a) conduct physical count and reconciliation of records of all
PPE items; b) classify properly PPE items; c) prepare and maintain PPE
Ledger Cards and Property Ledger;

ii. Direct the City Accountant to exert extra effort to reconcile the
aforementioned reciprocal accounts for all funds and effect immediate
adjustment in the books of accounts;

iii. Submit all other requisites for entitlement to government funds as prescribed
under Section 4.4 of COA Circular N0. 2007-001 and require the Accountant
to review the documents out of the disbursements and effect the necessary
adjustments to present fairly the balances of the affected accounts;

iv. Direct the Accounting Office to consistently apply the perpetual inventory
method pertinent to Section 114, Vol. I, of the Manual of the New
Government Accounting System for LGUs; and

v. Stop the practice of paying loan instalments and other contributions of

personnel through cash advances and submit complete liquidation reports of
the amount ₱9,896,533.31.

6. The other significant audit observations and recommendations are as follows:

i. The cash balance as of December 31, 2014 amounting to ₱306,165,897.47 is

not sufficient to cover trust and current liabilities totaling ₱119,768,163.14
and ₱222,941,707.53, respectively, thus, resulting in negative cash
precautionary reserves.

We recommended that management (a) exercise prudence in the use of limited

cash resources; (b) make certain that Cash Precautionary Reserves is strictly
maintained and monitored; (c) present in the current liability section of the
Balance Sheet a separate line item for the current portion of long-term debt;
(d) prioritize the payment of mandatory trust obligations of the City to avoid
penalties.

ii. Bookkeeping Maintenance Funds of the Barangays in the amount of

P2,296,998.71 were released to the Liga ng mga Punong Barangay as
financial assistance and utilized for the purpose other than as intended in the
enacted budget of the component Barangays.
 We recommended that Management stop the releases/uses of BMF for
purposes other than as intended by the Sangguniang Barangay; trust funds
should be spent only for the specific purpose for which the trust was created
or the funds received.

iii. The approved appropriations totaling P174,943,801.00 for 20% Development

Fund was not optimally utilized due to the non-implementation of various
projects and erroneous charges to the 20% Development Fund (DF) in the
amount of P17,949,246.25 of which amount, P6,971,520.65 were not
supported with appropriation ordinance, thus constituents were deprived of the
desired socio-economic development and environmental outcomes that could
be derived therefrom.

We recommended that Management (a) fast track the implementation of the

20% DF projects/programs and prioritize those projects with high socio-
economic development and environmental outcomes, (b) strictly comply with
Section 3 of the DILG-DBM Joint Memorandum Circular No. 2011-1 and (c)
submit a copy of an appropriation ordinance for projects implemented that are
not listed in the Annual Investment Plan.

iv. The allocation of Special Education Fund (SEF) for the Construction of
School Buildings and Operational Support to Extension Classes in the total
amount of P14,990,868.00 was not optimally utilized, thus depriving the
schools of the infrastructure and other school-based development that could
have been derived from the use of such funds.

We recommended that Management (a) submit the School Board Resolution

affirming the approval of the SEF Annual and supplemental Budget; (b) fast
track the implementation of projects/programs/activities and (c) require the
LSB to develop and implement measures/guidelines to make the processes of
prioritization, budgeting and disbursements more transparent by instituting
regular consultative meetings with stakeholders.

v. Disbursements totaling ₱1,294,322.79 were made through reimbursements by

the officials of the City for the grant of financial assistance to its constituents
and the same were not supported with complete documentation thus, propriety
and regularity of the transaction could not be ascertained.

We recommended that Management formulate a policy for the granting of

financial assistance to its constituents and beneficiaries should be properly
screened giving priority to the less privileged; and financial assistance should
be made by check payable and not by reimbursement basis.
 vi. The City Accountant failed to submit disbursement vouchers and supporting
documents of transactions aggregating P328,948,042.25 affecting the
timeliness of the audit of the transactions and deficiencies discovered, if any,
could not be communicated to the Management within the audit period.

We recommended that Management adhere to the provisions of Section 7.2.1

of COA Circular No. 2009-006 and require the Accountant and other
concerned personnel to submit the transaction documents aggregating
P328,948,042.25 as soon as possible.

vii. Completed infrastructure projects undertaken thru contract and by-

administration totaling P107,344,734.43 and P16,224,645.72, respectively,
could not be reviewed/evaluated and inspected by the COA Technical and
Information Technology Services (TITS), due to non-submission of the
required documents, thus reasonableness of the cost and regularity of the
transaction could not be ascertained as at year-end.
We recommended that Management submit the required supporting
documents to effect the necessary review/evaluation of contracts and
inspection of the completed infrastructure projects to ascertain the
reasonability of the project costs and regularity of the transactions as required
in COA Circular No. 2009-001 dated February 12, 2009.

E. Summary of Total Suspensions, Disallowances and Charges as of year-end

7. Audit suspensions and disallowances amounting to P950,556.02 and

P39,053,045.15, respectively, remained unsettled contrary to Sections 5.4 and 7.1.1
of COA Circular No. 2009-006 dated September 15, 2009.

F. Statement of the Quantity/Number of Recommendations Implemented, Partially

Implemented and Not Implemented.

8. Of the twenty four (24) audit recommendations embodied in the 2013 Annual
Audit Report, two (2) were reiterated, fourteen (14) were fully implemented, four (4)
were partially implemented and four (4) were not implemented.