EXECUTIVE SUMMARY

Highlights of Financial Operation

Dinagat Islands was once a part of the 1st District of the Province of
Surigao del Norte until it became a separate province on October 2, 2006 through
Republic Act No. 9355 or the Charter of the Province of Dinagat Islands. The
formal operation of the newly created LGU started only in June 2007.

Dinagat Islands is the fifth province of Caraga Region and is composed of

seven municipalities, namely: Basilisa, Cagdianao, Dinagat, Libjo, Loreto,
Tubajon, and San Jose which is the capital town. The Province is classified as
third class. All municipalities except Dinagat and Tubajon (5th class) are 4th class
municipalities. It has a total land area of 80,205 hectares and is located in the
northern part of Surigao del Norte. Politically bounded on the North, starting
from the desolation point, by Surigao Strait; on the East by Philippine Sea; on the
South-East by Dinagat Sound; on the South by Gaboc Channel and Nonoc Island;
on the South-West by Awasan Bay, Hanigad Island and Hikdop Island; and on the
West by Surigao Strait.

The Province of Dinagat Islands, being a newly created province, had its
full operation only in June 2007 after the election of the first set of local officials.
Hon. Geraldine B. Villaroman took the reign as the first Provincial Governor with
Hon. Elvis A. dela Merced as the first Vice Provincial Governor.

Just like any local government unit, the operation of the Province is
focused on proper fiscal management, promotion of government productivity and
efficiency in the delivery of basic services, peace and order, generation of
opportunities in the labor enterprise, agriculture, fishery and environmental
concerns, bolster economic activities by improving infrastructure facilities, and
strengthen various aspects of development in key areas of the Local Government
Unit agenda.

The operation of the Province, however was hampered by the petitions

against the legitimacy of its province hood when it was not released with Internal
Revenue Allotment for CYs 2011 and 2012. Thus, the Province suffered great
operational as well as financial mishap during those period.

Fortunately, on October 24, 2012, the Province won the legal battle over
its legitimacy when the Supreme Court released the Final Entry of Judgment
declaring the creation of the Province of Dinagat Islands as constitutional.

With such development, the Province was assured by the Department of

Budget and Development for the regular release of IRA starting January 2013.
This glorified the officials and employees of the Province as well all the
Dinagatnons, who altogether are hopeful for the development of the Province of
Dinagat Islands.

For CY 2013 the Province has a total income of P 361,733,086.77. Total

expenses amounted to P 222,637,374.88 and total subsidies to other funds and
other agencies of P 28,589,970.43, leaving a net income of P 110,505,741.46.

Total Assets of the Province amounted to P 316,412,395.41 as of

December 31, 2013, while Liabilities and Government Equity totaled
P 129,125,726.41 and P 187,286,669.00, respectively.

Total appropriation amounted to P 344,321,798.00 of which the amount of

P271,952,957.83 was disbursed leaving an appropriation balance of
P72,368,840.17 as of December 31, 2013.

Scope of Audit

The financial and compliance audit covered the accounts and operations of
the Province of Dinagat Islands for Calendar Year 2013. It was aimed at
determining whether the financial statements present fairly the financial position
and results of operations and cash flows of the Province for the year then ended
and at determining the extent of compliance with existing laws, rules and
regulations.

Independent Auditor’s Report

The Auditor rendered a qualified opinion on the fairness of the

presentation of the financial statements of the Province of Dinagat Islands.

Summary of Findings and Recommendations

1. Cash in bank balances per cashbook and the subsidiary ledgers maintained
by the Accountant for General Fund and Trust Fund accounts of the
Province were still not reconciled, thus the correctness, accuracy and
reliability of the account could not be ascertained in violation of Section
181 (c) of the Government Accounting and Auditing Manual, Volume I.

Require the two offices, Accounting and Treasury, to fast track the
reconciliation of the cash in bank accounts regularly to obtain correct and
reliable balances of the depository accounts in compliance with Section
181(c) of the Government Accounting and Auditing Manual, Volume I.

2. The Agency failed to submit Report on the Physical Count of Property,

Plant and Equipment (RPCPPE) of its PPE amounting P49,154,825 and
Other Assets amounting to P1,351,200.00 as of December 31, 2013 in
 violation of the provisions of 124 of the New Government Accounting
System (NGAS) Manual, Volume 1.

Require the Inventory Committee to conduct the inventory of property,

plant and equipment and submit an inventory report thereon to the Office
of the Auditor.

3. The Agency failed to undertake various programs/projects under the 20%

Development Fund (DF) as of December 30, 2013, in violation of the
provisions of Article 384 of the IRR of RA 7160 and Section 5 of the Joint
Memorandum Circular No. 2011-1 dated April 13, 2011 of the DILG and
DBM.

Re-appropriate the unused amount on the same projects and fast track the
implementation/prosecution of the projects to minimize the effect of the delay to
the provincial development agenda.

4. Expenditures amounting to P1,336,459.45 that were not covered/related to

and do not partake the nature of investment/capital expenditures were
charged to the 20% Development Fund, in violation of Joint Memorandum
Circular No. 2011-1 dated April 13, 2011 of the DBM and DILG.

• Stop the practice of charging to the 20% development fund expenses

which are not related to and do not partake the nature of
investment/capital expenditure in adherence to the guidelines set under
Joint Memorandum Circular No. 2011-1 of the DBM and DILG.

• All development projects and related expenses to be funded out of the

20% DF, as well as other charges to the fund, should be carefully
considered/reviewed during budget preparation to avoid the incurrence
of irregular expenditures.

5. Food and/or representation expenses amounting to P202,766.99 incurred in

various offices to entertain visitors were charged to Other Supplies Inventory
while food expenses amounting to P80,000.00 during SP Sessions were
charged to Other MOOE which is contrary to the provision of Section 336 of
RA 7160 and Local Budget Circular No. 103 dated May 15, 2013.

• Refrain from granting food expenses in the accommodation of guests and

during SP sessions to officials who are granted with Representation
Allowance.

• Charges to account Other MOOE should be strictly controlled/regulated

in order not to abuse the use of this account.
6. Purchase Requests (PR) on procured drugs and medicines in the total
amount of P 657,149.93 were not supported with certification from the
requisitioning officer that the drugs and medicines being requisitioned fall
within and conform with the latest edition of the PNF Manual, in violation
of the provisions of Item VII-B-3 of Administrative Order No. 2012-0023
dated October 24, 2012 or the Revised Implementing Guidelines for the
Philippine National Formulary System (PNFS).

Adhere strictly to Administrative Order No. 2012-0023 that all purchase

request shall be supported with certification from the requisitioning officer
that the drugs and medicines to be procured fall within and conform to the
latest PNF manual.

7. The LGU failed to create the Provincial Solid Waste Management Board
in violation of the provision of Rule VI Section I of the IRR of Republic
Act 9003.

Create the Provincial Solid Waste Board as mandated in the Rule VI of the
Implementing Rules and Regulations of RA 9003 in order that a
comprehensive plan on solid waste management can be developed.

8. The Province engaged the services of two (2) lawyers as legal consultants
without the written conformity and acquiescence of the Solicitor General
and the written concurrence of the Commission on Audit, in violation of
COA Circular 98-002.

Secure a written conformity and acquiescence of the Solicitor General and

the written concurrence the Commission on Audit on the hired Legal
Consultants.

9. Creditable taxes withheld on the procurement of equipment, goods and services

were not regularly remitted to the Bureau of Internal Revenue, in violation of
BIR Memorandum Circular No. 5-2006 dated November 2, 2005.

Adhere strictly to BIR Memorandum Circular No. 5-2006 by remitting the total
taxes withheld on or before the 10th day of the month following the month in
which the withholding was made.

10. General revision on real property assessment was not conducted since 2007, in
violation of the provision of Section 219 of RA 7160.

Conduct a general revision of real property assessment for CY 2014 in order to

collect the appropriate taxes on real property due to the Province and to increase
income from the real property taxes.

11. Various vouchers and payroll from January to December 2013 were not
submitted to the Office of the Auditor in violation of the provision of
Section 6.05 of COA Circular 95-006.
 Adhere strictly to the provision of Section 6.05 of COA Circular No. 95-
006. Submit vouchers to the Office of the Auditor within the prescribed
period for timely review and post audit.

12. Some purchase Orders do not reflect the dates of receipt by the supplier, in
disregard of the instructions on the proper filling out of purchase orders as
outlined in Annex 29 of the NGAS Volume II and the provision of Section
117 of NGAS Volume I.

Adhere strictly to the provisions of Section 117 of the New Government

Accounting Manual (NGAS) Volume I. Henceforth, the date of receipt by
the supplier shall be indicated clearly in purchase orders. Accomplish
purchase orders properly with all the necessary data enumerated in Annex
29 of the said manual.

13. Reimbursements of travel expenses, payments to BIR and payments for

honoraria of ALS Facilitator with an aggregate amount of P283,788.32
were charged to the Special Education Fund in violation of the provision
of Section 272 of RA 7160.

Stop the practice of paying obligations not appropriately chargeable to the

Special Education Fund as provided for in Section 272 of RA 7160.

14. Procurement of supplies and equipment revealed the following

deficiencies which were not compliant to Administrative Order No. 17
dated July 28, 2011:

a. Office supplies procured from DBM Procurement Services

amounted only to P871,105.65 or 40.82 percent out of the total
purchases of P2,334,319.33

b. Office Equipment with an aggregate amount of P2,861,464.76

were all purchased from private supplier and not from the DBM
Procurement Services.

c. Supplies and equipment were not purchased in bulk but on staggered

basis.

Follow strictly Administrative Order No. 17 dated July 28, 2011 in the
procurement of common-use office supplies and equipment.

15. Overtime services in the total amount of P126,000.00 were paid to physician
assigned in district hospitals of the Province on a flat rate basis which is
inconsistent with the provision of Item 4.0 of the Joint Circular No. 01, S.2012 of
 the Department of Budget and Management and the Department of Health and
with the pertinent provision of Budget Circular No. 10 dated March 29, 1996.

Stop the practice of paying overtime services on a flat rate basis and adhere to the
provision of Budget Circular No. 10 in the computation of said benefits.

16. Personnel of the three district hospitals were granted hazard pay with an
aggregate amount of P395,551.60 for the months of January to March 2013,
without determining whether their exposure to hazard is high risk or low risk,
which is inconsistent to pertinent provisions of the Revised IRR of RA 7305 and
with the Joint Memorandum Circular No. 1, series of 2012 of the Department of
Budget and Management and the Department of Health.

Follow strictly the provision of the Joint Memorandum Circular No. 1, series of
2012 of the DBM and DOH relative to the payment of hazard pay. Prepare a list
of positions in its plantilla with the corresponding job description that describes
the basis for justifying such positions that are exposed to high risk or low risk
hazard.

17. The grant of mobile communication allowance to officials and employees in the
total amount of P981,754.06 has the following deficiencies:

a. The Provincial Governor, Vice Governor and the Provincial

Administrator were granted unlimited load allowance for their mobile
phone which is inconsistent with the provision of Section 2 of PD 1445.

b. Load allowances were provided thru reimbursement basis.

Set a limit of load allowances granted to the Officials and department heads of
the Province to manage government funds in accordance with laws, rules and
regulations. Require the Provincial Accountant to pay the load allowances thru
payroll and not thru reimbursement on a piecemeal basis to avoid additional use
of manpower and office supplies.

18. The hiring of job order employees has the following deficiencies which
are inconsistent with the guidelines for Local Chief Executives (LCES) on
Public Personnel Administration:

a. The staffing needs or service requirements per office was not

considered;

b. Job order contracts do not disclose the specific duties and

responsibilities.
 Hire job order employees based on the actual need of service. The
organizational structure and staffing needs of each office or department
should be considered in the budget preparation in order to determine the
particular number of JOs to be hired.

Status of Implementation of Prior Year’s Audit Recommendations

Two (2) of the ten (10) audit recommendations embodied in the 2012
Annual Audit Report were implemented by management, four (4) were partially
implemented and the remaining four (4) were not implemented.