EXECUTIVE SUMMARY

A. INTRODUCTION

The City of Olongapo was created by virtue of the Republic Act (R.A.) No. 4645 dated
June 1, 1966. It was elevated to the status of a highly urbanized city on December 7, 1983.
Under its charter, the City constitutes a political body corporate and, as such, is endowed
with the powers, which pertain to a municipal corporation. Its powers and authority were
later modified by R.A. No. 7160 otherwise known as the Local Government Code of 1991.
For the year 2022, the City of Olongapo continued to fulfill its Social Contract with the
people in which the following areas of governance were accomplished, such as
transparency, good governance, people’s participation, and financial accountability. The
City’s Accomplishment Report based on the Social Contract reflected various concrete and
tangible achievements which were attained for the benefit of the general welfare of the
constituents. These include the area on Social Governance, such as health services, support
to education, support to housing and basic utilities; areas on Economic Governance, such
as support to agriculture, support fishery services, entrepreneurship, business and industry
promotion; and the area on Environmental Governance, such as urban ecosystems
management, forest ecosystems, and freshwaters ecosystems management.
As of December 31, 2022, the City had total personnel complement of 2,577 composed of
1,086 permanent employees, 358 casual employees, 1,115 job order/contract of service
employees and 18 consultants.

The City has a total land area of 18,500 hectares with about 2,441.42 hectares of built-up
area. Based on the 2020 census population, Olongapo had a total population of 260,317
with an annual growth of 1.64%.

B. FINANCIAL HIGHLIGHTS

The following data summarize the financial condition, result of operations, and the sources
and application of the funds of the City for the Calendar Year 2022 with comparative
figures in CY 2021:

Increase/ (Decrease)
Particulars 2022 2021
Amount %
Financial Condition
Assets ₱11,102,489,328.50 ₱10,697,841,686.55 ₱404,647,641.95 3.78%
Liabilities 7,014,833,512.41 7,033,688,470.01 (18,854,957.60) (0.27%)
Government Equity 4,087,655,816.09 3,664,153,216.54 423,502,599.55 11.56%
Results of Operations
Revenue 2,277,817,423.28 1,933,754,261.10 344,063,162.18 17.79%
Expenses 1,565,063,536.30 1,281,213,289.86 283,850,246.44 22.15%
Surplus (Deficit) from 712,753,886.99 652,540,971.24 60,212,915.75 9.23%
Current Operations

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C. SCOPE OF AUDIT

The audit was conducted in accordance with the International Standards of Supreme Audit
Institutions (ISSAIs). It covers the financial transactions and operations of the City of
Olongapo for CY 2022 particularly those contained in the Memorandum dated September
14, 2022, of the COA Local Government Sector Assistant Commissioner. It included the
examination and supporting documents of pre-selected accounts and areas, employing
audit procedures and techniques such as analysis of accounts and such other procedures
considered necessary. The audit was conducted to (a) ascertain the level of assurance that
may be placed on management’s assertions on the financial statements; (b) determine
compliance of management with the laws, rules and regulations on the pre-identified audit
thrusts/areas and recommend agency improvement opportunities thereon; and (c)
determine the extent of implementation of prior year’s audit recommendations.

D. INDEPENDENT AUDITOR’S REPORT

The Auditor rendered a qualified opinion on the fairness of the presentation of the financial
statements of the City of Olongapo for CY 2022 due to the deficiencies noted in the audit
that materially affected the balances/totals of certain accounts, which are discussed in detail
in Part II of the report and summarized as follows:

1. The balance of the Cash in Bank (CIB) account as of year-end of ₱1,592,014,962.25

was understated by ₱48,865,816.54 owing to (a) unadjusted reconciling items
consisting of unrecorded credit memos (CM) totaling ₱58,398,760.96 and interbranch
deposits of ₱172,918.22; (b) inclusion of released checks totaling ₱9,867,365.86
reverted back to CIB accounts; and (c) failure to correctly translate the CIB foreign
currency of US $26,118.82 at the closing year-end rate to recognize an increase in the
CIB of ₱161,503.22 contrary to International Public Sector Accounting Standards
(IPSAS) 1 and 4. (Observation No. 1)

We recommended that Management direct the City Accountant to (i) invariably

recognize in the books all valid reconciling items to present fairly the financial
statements; (ii) ensure that only those checks that are still held by the CTO at year-end
are reverted to the CIB account; and (iii) accurately record foreign currency-
denominated cash in the bank based on the closing exchange rate at year-end.

2. The existence, accuracy, and completeness of Property, Plant and Equipment (PPE)
account balances with a carrying value of ₱5,566,943,718.54 were uncertain due to (a)
unreconciled discrepancies totaling ₱1,693,042,519.16 between accounting records
and results of physical inventory; (b) misstated Accumulated Depreciation accounts by
at least ₱58,874,588.90; (c) understated provision for depreciation totaling
₱58,756,786.69; (d) weak internal control over property management resulting in the
overstatement of the recognized cost of donated PPEs of ₱40,087,996.67 (net of
Accumulated Depreciation); and (e) erroneous capitalization of repairs and
maintenance expenses totaling ₱6,258,931.56 (net of Accumulated Depreciation)
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 contrary to the pertinent provisions of COA Circular Nos. 2020-006 and 2015-008
dated January 31, 2020, and November 25, 2015, respectively, P.D. No. 1445, and
IPSASs 1, 17, and 23. (Observation No. 3)

We recommended that Management:

a. instruct the (i) Inventory Committee to assess whether there is a need to increase
its members in order to complete inventory-taking activities as scheduled; and
adequately strategize the conduct of activities relative to the one-time cleansing of PPE
account balances pursuant to COA Circular No. 2020-006, in coordination with the
CAO and the GSO; (ii) General Services Officer to ensure that property cards are
updated, and coordinate with the Inventory Committee in planning and implementing
the physical inventory of all PPEs; and (iii) City Accountant to work back and update
the PPELCs or subsidiary records and ensure that the total balances tally with the
balances of controlling PPE accounts in the GL; and exert collaborative effort with the
GSO in practicing periodic reconciliation of records to immediately detect and correct
errors/irregularities;

b. require the City Accountant to recompute for the adjusted Accumulated

Depreciation accounts taking into account the disposals, transfers and other
adjustments made, and record corrections thereof;

c. direct the City Accountant to (i) perform a thorough analysis of the financial
statements to detect abnormal balances and make adjustments when necessary; and (ii)
prepare and update lapsing schedules for all PPE accounts and ensure accurate
recognition of periodic depreciation expense;

d. instruct the (i) General Services Officer to incorporate proper handling procedures
for donated properties in the existing property management system; and (ii) City
Accountant to draw a JEV to record adjustment on the overstated cost of donated PPEs;
and (iii) analyze whether a liability should be recognized concerning the breached of
the condition on the donated PPEs; and

e. advise the City Accountant and City Budget Officer to record expenditures for
asphalt overlays as Repairs and Maintenance Expenses instead of capitalizing the cost
to Road Networks account in conformity with COA Circular No. 2015-008.

In sum, the Assets, Liabilities and Government Equity accounts were overstated by
₱56,237,898.38, ₱9,867,365.86, and ₱46,370,532.52, respectively.

E. SUMMARY OF SIGNIFICANT AUDIT OBSERVATIONS AND

RECOMMENDATIONS

1. Several deficiencies in the setting up, assessment, collection and adjustment of the
RPT/SET Receivable/Income accounts were noted, thus, casting doubt on the
reliability of the RPT-related accounts and depriving the CGO of additional income to
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 finance the regular expenses of the City contrary to Sections 20, 23 and 36 of the
Manual on the New Government Accounting System (MNGAS) for Local Government
Units (LGUs), Section 174 of the Republic Act (R.A.) No. 7160 and Section 111 of
Presidential Decree (P.D.) No. 1445. (Observation No. 2)

We recommended that Management take the following courses of action:

a. direct the City Accountant to (i) ensure compliance with Section 20, Volume 1 of
the MNGAS for LGUs in the setting-up of RPT/SET Receivables; (ii) provide for the
details of the adjustments made at year-end for RPT/SET/Interest Receivables and
make sure that every adjusting entry drawn is supported by an explanation,
computation, and/or documentation; and (iii) record Fines and Penalties collected in
accordance with Section 23, Volume 1 of the MNGAS for LGUs;

b. instruct the City Assessor to (i) strictly comply with the MRPAAO guidelines in
the provision of complete and consistent Memoranda for reassessment transactions
carried out in the PATAS and (ii) review the authority of its personnel in the approval
of cancelled assessments and reassessments within the system; and

c. through the City Treasurer, institute the civil remedies available pursuant to Section
174 of R.A. No. 7160.

2. The validity, completeness, and accuracy of the year-end balance of Accounts Payable
(AP) reported at ₱4,757,473,398.60 were uncertain due to (a) unrecorded liabilities
totaling ₱3,020,741,006.94; and (b) unsubstantiated accounts amounting to
₱85,221,384.69 inconsistent with the pertinent provisions of IPSAS 1, COA Circular
No. 2015-009 dated December 1, 2015, and P.D. No. 1445. (Observation No. 4)

We recommended that Management direct the City Accountant to (a) draw a JEV to
record in the books of accounts the full amount of liabilities to the PSALM Corporation
in order to fairly present the financial position of the agency; and (b) trace back and
complete the necessary details of all the unsubstantiated AP accounts.

3. The correctness of the recorded loans of the CGO could not be ascertained due to: (a)
unreconciled and long outstanding Loans Payable amounting to ₱7,746,000.50; and (b)
doubtful accuracy of recorded Interest Payable for various loans of the City, thus,
affecting the reliability of the financial statements contrary to IPSAS 1. (Observation
No. 5)

We recommended that Management direct the City Accountant to (a) coordinate

immediately with the Office of the President for the settlement of the overdue
outstanding loan balance; and (b) recognize in the books of accounts the Interest
Expenses and Interest Payable in conformity with accrual basis of accounting and for
a fair presentation of the financial statements.

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4. Deficiencies were noted in the recording and reporting of fund transfers received from
various National Government Agencies (NGAs) and Government-Owned and
Controlled Corporations (GOCCs) such as (a) long outstanding and unsubstantiated
balances; (b) non-reversion of unutilized balances to Source Agencies (SAs) and
delayed implementation of projects; and (c) erroneous reclassification of outstanding
Priority Development Assistance Fund (PDAF) to Due to Other Funds, contrary to
COA Circular Nos. 2016-005 dated December 19, 2016, Supreme Court Decision in
GR Nos. 208566, 208493, and 209251 dated November 19, 2013, Department of
Budget and Management (DBM) Local Budget Circulars (LBCs) Nos. 123, and 134
dated January 20, 2021, and February 17, 2020, respectively. As a result, the public is
deprived of the early benefits that could be derived from the projects. (Observation No.
6)

We recommended that Management direct the:

a. City Accountant to trace and confirm with the concerned government agency the
records/documents relative to the long outstanding and unsubstantiated balances
including the necessary reconciliation;

b. City Accountant to regularly monitor and observe the set deadline for the return of
each fund transfer received; (ii) coordinate with the City Treasurer for the return of
unused funds to the SAs or to the National Treasury; and (iii) Implementing Units to
regularly monitor the execution of projects funded under fund transfers from NGAs
and GOCCs to avoid delays in the completion thereof including possible reversion of
the fund transfers; and

c. make the necessary adjustments to correct the reclassification of PDAF to Due to

Other Funds instead of Due to NGAs unless supported with concrete evidence.

5. The CGO successfully implemented 53 out of the 55 planned development projects for
CY 2022 with an overall utilization rate of 88.38%. However, several infractions were
observed in the planning, implementation, and utilization of the 20% DF, such as (a)
delayed completion of projects from 49 to 210 days; (b) charging of prior year expenses
to current year appropriations; (c) cost of the implemented project exceeded the
approved budget; and (d) inconsistencies in the procurement and implementation of
one project; contrary to the pertinent provisions of the DBM – Department of Finance
(DOF)–DILG Joint Memorandum Circular (JMC) No. 1 dated November 4, 2020, 2016
Revised Implementing Rules and Regulations (RIRR) of R.A. No. 9184, P.D. No.
1445, and R.A. No. 7160. As a result, the attainment of desired developmental
outcomes and performance targets was compromised. (Observation No. 7)

We recommended that Management:

a. require the City Engineer and City Planning and Development Officer to (i) submit
the approved suspension/extension orders relative to the projects, namely (1) the
Proposed Construction of the Balay Silangan Building at Barangay Barretto, and (2)
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 the Construction of the Multi-Purpose Building (Phase I) at Barangay New Kalalake;
(ii) ensure the effective and efficient implementation of the proposed development
projects through adequate planning and close monitoring; and (iii) expedite the
submission of the appraisal report relative to the demolition of the existing structures
for the project “Construction of Multi-Purpose Building (Phase I) at Barangay New
Kalalake” to prevent further delays in the project implementation;

b. direct the City Accountant and City Budget Officer to (i) desist from charging the
prior year’s obligations against the current year’s appropriations, and (ii) obligate and
record all expenditures incurred against available funds of the period to which they
relate to present fairly the financial statements of the CGO;

c. instruct the City Budget Officer to closely monitor the utilization of the Fund to
avoid the incurrence of expenditures in excess of the approved appropriation; and

d. through the City Planning and Development Officer, submit a written explanation
about the circumstances that occurred relative to the implementation of the project
“Rehabilitation of Silahis Ext. at Barangay New Cabalan”.

6. The Local Disaster Risk and Reduction Management (LDRRRM) Plan of the CGO for
CY 2022 was not regularly updated by the CDRRM Office which led to the non-
implementation of some PPAs. Further, other lapses such as (a) administrative
expenses totaling ₱11,734,861.23 charged to LDRRMF; (b) various expenses reported
in the Utilization Report without valid supporting documents; (c) unexpended Capital
Outlay (CO) Balance not set up as Continuing Appropriation; and (d) proper procedure
in the receipt, recording, inventory, storage and issuance/utilization of stockpiled
disaster goods and in-kind donations were not observed, contrary to Section 21 of R.A.
No. 10121, Sections 4.3 and 4.4 of National Disaster Risk and Reduction Management
Council (NDRRMC)-DILG- DBM- Civil Service Commission (CSC) JMC No. 2014-
01 dated April 04, 2014, COA Circular Nos. 2012-002 and 2014-02, dated September
12, 2012, and April 15, 2014, respectively.

In addition, repairs of equipment of ₱110,738.09 were found to be in excess of 30

percent of its current cost contrary to the Updated 2016 RIRR of R.A. No. 9184, thus
considered to be excessive expenditures of government funds under Annex D of COA
Circular No. 2012-003 dated October 29, 2012. (Observation No. 8)

We recommended that Management:

a. direct the CDRRM Officer/CDRRMC to regularly update its LDRRMFIP to fully

optimize the utilization of the LDRRM Fund through timely implementation of all
programmed projects and inclusion of feasible PPAs in the LDRRMFIP, in order to
lessen disaster risk and enhance disaster-preparedness;

b. provide a sufficient appropriation to CDRRM Office to shoulder its administrative

expenses and unburden the LDRRM Fund and require the (i) CDRRM
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 Officer/CDRRMC to stop charging expenditures that are considered administrative
expenses; and (ii) City Accountant to include in the Utilization Report only those that
were already incurred and/or delivered;

c. instruct the City Budget Officer to set-up continuing appropriation for the
unutilized MF-CO with existing planned PPAs;

d. advise the (i) City Accountant to record inventory procured for disaster stockpiling;
(ii) CSWD Officer/SEO to (a) comply with the terms and conditions of the procurement
method resorted by the City; (b) refrain from accepting advance delivered relief goods;
(c) carefully monitor the inventory of relief goods by establishing the necessary
quantity of relief goods required to be maintained so that overstocking/stocking will be
prevented; and (d) ensure that the expiration of relief goods are properly tracked and
prioritize dispersing the old stock before distributing the new items; and (iii)
CEO/Implementing Unit to immediately take action on the container van so that further
damage could be prevented;

e. provide Acknowledgement Receipt for in-kind donations received and prepare

Issuance Form for distributed goods and instruct the General Service Officer to (i)
maintain the Registry of Donated Relief Goods for DRRM, and (ii) prepare
monthly/quarterly Report on the Receipt and Distribution/Utilization/Issuance of
Donated Relief Goods and PPE; and

f. direct the CDRRMO to monitor expenditures, particularly on the repair and

maintenance of equipment so that only those economically practical to repair are
considered to prevent incurring excessive repair costs.

7. Lapses in the implementation of the COVID-19 Vaccination Program and

disbursements of COVID-19-related procurements were noted such as: (a) Vaccines
Inspection and Acceptance Report (IAR) and Property Transfer Report (PTR) were not
properly filled out; (b) absence/non-maintenance of own COVID-19 vaccine
monitoring and inventory count; (c) inconsistencies in the records of the vaccination
database; and (d) incomplete documentation on procurements; inconsistent with the
pertinent provisions of Department of Health (DOH) Advisory No. 20 dated September
27, 2022, R.A. Nos. 11525, and 9184, and Section 4 (5) and (6) of P.D. No. 1445 which
rendered doubts on the correctness of the administered vaccines and on the validity and
propriety of the COVID-19-related transactions. (Observation No. 9)

We recommended that Management: (a) instruct the CHO to: (i) ensure that Vaccine
IAR and PTR are completely filled out; (ii) maintain its own vaccine monitoring and
inventory count to prevent the loss, wastage, and spoilage of all received vaccines; and
(iii) ensure the correctness of records of the maintained vaccine recipient profiles; and
(b) instruct the City Accountant to coordinate with the BAC for the completion and
submission of the noted documentary deficiencies and ensure that only DVs with
complete documentation are processed and presented for payment.

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8. The validity, propriety, and legality of the payment of services of Casuals, Contract of
Service (CoS), Job Orders (JOs), and Consultants hired by the CGO could not be
established due to (a) deficiencies in the documentation and non-appearance during
headcount; (b) hiring of personnel who were not physically fit; c) double compensation
of some personnel and d) consultants performing functions of regular employees;
inconsistent with Section 4(6) of P.D. No. 1445, Section 89 of R.A. No. 7160; and
Appendix B of the Updated 2016 RIRR of R.A. No. 9184, thus, casting doubts on the
necessity of their services and the regularity of the payment of wages/salaries attached
thereto. (Observation No. 10)

We recommended that Management:

a. instruct the HRM Officer and her staff to (i) regularly update, counter-check the
data/information of each hired personnel of the CGO whether permanent, job order,
casual, contractual, and consultant to ensure an updated, accurate and complete list of
manpower available, (ii) submit immediately a copy of the contract agreement of all
temporary employees; (iii) create systematic information dissemination to all hired
employees in order to quicken communication among employees; and (iv) submit a
written justification on (a) the incurrence of errors like unlisted, double entry and
misspelled name; (b) non-submission of contract agreement; and (c) unreasonable
delay/non-appearance of temporary personnel despite some are still active including
unavailability of supporting documents for those who already resigned, cancelled
contract, on leave, and declared AWOL personnel;

b. advise the HRM Officer to stop the hiring of employees who are physically unfit
due to health condition/illness;

c. require the concerned personnel receiving double compensation to choose only one
government office and consider the termination of the other as this constitutes double
compensation, otherwise, refund the lower amount of salary/wages received to the
respective office; and

d. cause the thorough review of the qualifications and functions of the consultants,
thru the HRMO if their services are necessary to the attainment of the objectives and
mission of the City; otherwise, consider the termination of the contracts of the
consultants whose services are only duplication of the functions of the regular
employees. In case there is an inevitable need for hiring them, (i) engage only experts
in their respective fields.

The details of these and the other observations noted are included in the Part II of this
report.

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F. SUMMARY OF AUDIT SUSPENSIONS, DISALLOWANCES AND CHARGES

As of December 31, 2022, the Statement of Audit Suspensions, Disallowances and Charges
(SASDC) shows the following:

Beginning Balance This period January 1 to Ending Balance

Particulars (As of December December 31, 2022 (As of December
31, 2021) NS/ND/NC NSSDC 31, 2022)
Notice of Suspension (NS) ₱609,909,997.39 ₱0.00 ₱ 0.00 ₱609,909,997.39
Notice of Disallowance (ND) 28,732,681.57 0.00 145,000.00 28,587,681.57
Notice of Charge (NC) 0.00 0.00 0.00 0.00
Total ₱638,642,678.96 ₱0.00 ₱145,000.00 ₱638,497,678.96

G. STATUS OF IMPLEMENTATION OF PRIOR YEAR’S UNIMPLEMENTED

AUDIT RECOMMENDATIONS

Out of the 73 audit recommendations embodied in the 2021 Annual Audit Report, nine
were fully implemented and 31 were partially implemented and 33 were not implemented.

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