EXECUTIVE SUMMARY

Introduction

Sablayan is a first class municipality and the largest in the Province of Occidental
Mindoro based on land area. According to the August 1, 2015 census, it has a population
of 83,169. It is politically subdivided into 22 barangays occupying a land area of 218,880
hectares. The Municipality is headed by the Municipal Mayor, Hon. Eduardo B. Gadiano
while Sangguniang Bayan is headed by Hon. Vice-Mayor Andres D. Dangeros.

We conducted the audit on the Municipality of Sablayan in accordance with the

Philippine Public Sector Standards of Auditing. A comprehensive audit was conducted
on the accounts, transactions and operations of the Municipal Government of Sablayan,
Occidental Mindoro for Calendar Year 2016. The audit was conducted to (a) ascertain
the fairness of the presentation of the financial statements; (b) determine compliance of
the agency with laws, rules and regulations as well as the economical, efficient and
effective utilization of resources; (c) recommend agency improvement opportunities; and
(d) determine the extent of implementation of prior year’s audit recommendations.

Financial Highlights

The Municipality’s financial position, financial performance and sources and

application of funds for Calendar Year 2016 compared with that of the preceding year are
summarized below and shown in detail in the attached audited financial statements.

Increase
2016 2015
(Decrease)

Financial Position
Assets P812,585,187 P577,583,682 P235,001,505
Liabilities 209,196,418 106,815,251 102,381,167
Equity 603,388,769 470,768,431 132,620,338

Financial Performance
Income 480,561,175 418,907,282 61,653,893
Expenses 351,629,605 310,746,563 40,883,042
Surplus 128,931,570 108,160,719 20,770,851

Sources and Application of Funds

Appropriations 499,558,840 397,053,872 102,504,968
Obligations 428,746,507 327,032,391 101,714,116
Balance 70,812,333 70,021,481 790,852
Audit Opinion on the Financial Statements

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

financial statements of the Municipality of Sablayan because the ledger balance of
Property, Plant and Equipment (PPE) totaling P633,932,787.11 (gross) was not
reconciled with the inventory report with a balance of P177,603,825.80, showing a
material discrepancy of P456,328,961.31. The Inventory accounts valued in the books at
P14,121,927.98 was also not reconciled with the inventory report totaling P2,502,133.16,
showing material discrepancy of P11,619,794.82.

For the exceptions cited above, we recommended that the Management (a) enjoin
the Inventory Committee to conduct actual physical count of all properties of the
Municipality including land, land improvements, buildings and others and furnish the
OIC-Municipal Accountant with copy of the RPCPPE within the prescribed timeframe to
facilitate timely verification and reconciliation of accounts with the general ledger; (b)
the GSO maintain property cards which should be regularly updated for proper upkeep
and monitoring of properties; (c) the OIC-Municipal Accountant reconcile the inventory
report and the ledger balance and adjust the affected PPE accounts for their fair
presentation in the financial statements; and (d) the Management through the GSO,
execute deeds of donation to transfer ownership of PPE issued to barangays and other
government entities.

We further recommended that the Management through the GSO, conduct a

complete physical count of inventories and submit the required Reports on the Physical
Count of Inventories to facilitate timely verification and reconciliation with accounting
records. We also recommended that the GSO and Accounting Office maintain detailed
inventory record which should be regularly updated for proper upkeep and monitoring of
inventories.

Summary of Significant Observations and Recommendations

The following are the other significant observations and recommendations in the
audit of the Municipality of Sablayan for the year 2016:

1. The concerned accountable officers failed to liquidate cash advances totaling

P7,214,784.29 as of December 31, 2016. Long outstanding cash advances amounting
to P4,839,958.26 were still presented as current assets.

We recommended that the Municipal Mayor require the concerned accountable

officers to liquidate/settle their accountabilities immediately. Moreover, the OIC-
Municipal Accountant should strictly monitor the grant, utilization and liquidation of
cash advances to ensure prompt liquidation and forestall accumulation of unsettled
balances. Presentation of long outstanding cash advances as non-current assets in the
Statement of Financial Position is also enjoined.
2. The Municipality failed to enforce collection of loans receivable totaling
P5,230,864.99 which had been dormant or non-moving for three to 16 years.
Management failed to assess possible impairment and uncollectibility of the loans
receivables.

We recommended that Management take possible steps/strategy to collect the

receivable accounts to ensure cash availability for future beneficiaries of the
livelihood programs. We also recommended that Management conduct assessment
on the existence of objective evidence that the financial asset is impaired and
recognize impairment loss, if warranted. We also recommended that Management
request for write-off of long outstanding and dormant loans receivables.

3. Ten parcels of land valued at P46,848,870.00 were not yet transferred in the name of
the Municipality.

We recommended that the Management cause the titling of lots in the name of the
Municipality in order to ensure ownership and control over the properties and to
avoid any legal impediments due to possible third party claims.

4. The Municipality implemented 13 infrastructure projects despite deficiencies in the

award of contract totaling P38,288,190.94 and the same were paid despite incomplete
and improper documentation.

We recommended that the Management strictly comply with the provisions of

Republic Act (RA) No. 9184 and its Revised Implementing Rules and Regulations
(IRR) and to submit the complete documentation prescribed under Section 9 of COA
Circular No. 2012-001 to establish legality, validity and propriety of disbursements.

We also recommended that the Bids and Awards Committee (BAC), Technical
Working Group and Secretariat be careful in preparing procurement forms to ensure
the correctness and accuracy of information and for the BAC to review the documents
before affixing their signatures thereon.

5. Deficiencies were noted in the technical review, evaluation and inspection of seven
infrastructure projects of the Municipality totaling P61,256,499.75.

We recommended that the Municipal Mayor require the Municipal Engineer and the
Municipal Project Inspectorate Team to submit the requested documents for further
evaluation. The Approved Budget Cost should be computed pursuant to the DPWH
Department Order No. 22. Further, we recommended that the Municipal Engineer
closely monitor/supervise project implementation to ensure contractor’s compliance
with the specifications of the contract.
6. The procurements of heavy equipment and other goods totaling P62,385,000.00 and
P4,080,948.75, respectively, were made not in accordance with RA No. 9184 and its
Revised IRR. The related payments were also made despite incomplete
documentation, contrary to COA Circular No. 2012-001 thereby affecting the
legality, validity and propriety of the disbursements.

We recommended that the Management strictly comply with the provisions of RA

No. 9184 and its Revised IRR and to submit the complete documentation prescribed
under Section 9 of COA Circular No. 2012-001 to establish the regularity of the
disbursements.

We also recommended that the BAC, Technical Working Group and Secretariat to be
careful in preparing procurement forms to ensure the correctness and accuracy of
information and for the BAC to review the documents before affixing their signatures
thereon.

7. The Municipality failed to maximize utilization of its Local Disaster Risk Reduction
and Management (LDRRM) Fund totaling P35,180,748.32 and registered a financial
delivery rate of 59.24% during the year.

We recommended for the optimal utilization of the LDRRMF to strengthen the

resilience of the constituents to disaster and climate change impacts. We also
recommended that purchases funded out of the LDRRM Fund be made strictly in
accordance with RA No. 9184 and its Revised IRR. Moreover, we also
recommended that Quick Response Fund (QRF) be used strictly for relief and
recovery programs as provided under Section 2, Rule 18 of the IRR of RA No. 10121.

8. The ten-year Ecological Solid Waste Management Plan of the Municipality was
conditionally approved by the National Solid Waste Management Commission.

We recommended that the Management consider the eventual closure of the

controlled dumpsite and the establishment of sanitary landfill, in compliance with the
provisions of RA No. 9003 and allocate funds therefor in order to achieve the
objectives of the ten-year Ecological Solid Waste Management Plan of the
Municipality. We also recommended that Management require the solid waste
collectors to wear the necessary clothing for protection from potential health hazards
of handling solid wastes. Require the Municipal Health Officer to provide necessary
training to the Solid Waste Management (SWM) personnel to ensure that solid wastes
are handled properly to minimize health/safety risks.

9. Funds from the National Government Agencies (NGAs) totaling P23,433,944.96

were not promptly and efficiently utilized for its intended/specific programs/projects,
thus enjoyment of benefits by the constituents was delayed. Moreover, unexpended
balances and collections in behalf of the concerned government agencies were not
promptly remitted.
 We recommended for the prompt implementation of priority projects funded out of
grants from various government agencies. We also recommended exerting effort in
identifying the source agencies of fund transfer totaling P2,376,892.73 to facilitate
use thereof for its intended purpose. Moreover, the OIC-Municipal Accountant was
advised to evaluate the need for unexpended fund balances from NGAs. Should the
funds be proven no longer needed, it should be remitted to the National Treasury as
required under existing rules and regulations. If still needed, Management should
request authority from the source agency to use the money for other related projects
of the Municipality.

We also recommended for the remittance of share from port collections totaling
P2,507,264.25 to the Philippine Ports Authority.

10. The 20% Development Fund was not efficiently utilized, registering a 46.51%
financial delivery rate, thereby affecting the attainment of socio-economic
development and environmental outcomes of the Municipality.

We recommended for the optimal utilization of the 20% Development Fund and that
the Management faithfully carry out the developmental objectives by which the fund
has been created. Projects under this fund should be geared towards the pursuance of
development objectives that would lead to the attainment of a truly developed
community.

The observations and recommendations contained in the report were discussed

with concerned Municipal officials and staff during the exit conference conducted on
May 23, 2017. Management’s views and comments thereon were considered in the
report, where appropriate.

Summary of Suspensions, Disallowances, and Charges

As of December 31, 2016, audit suspensions, disallowances and charges

amounted to P6,233,142.58, P 3,197,038.99 and P 9,523.50, respectively.

Status of Implementation of Prior Year’s Audit Recommendations

Of the 15 prior year’s audit recommendations embodied in the CY 2015 Annual

Audit Report, five were fully implemented and ten were partially implemented by the
Management.