EXECUTIVE SUMMARY

A. Introduction

By virtue of Republic Act No. 526 dated February 3, 1950, the City of Cabanatuan was created
and became a chartered city on June 16, 1950. It began to officially function as a city on July 14,
1950 but the official inauguration was held on February 3, 1951. The city is 14 kilometers
southwest of Nueva Ecija’s provincial capital, Palayan City, and 120 kilometers north of Manila.
It comprises 89 barangays and has a total land area of approximately 190.67 square kilometers,
which encompasses urban commercial areas, residential and agricultural lands. About 127.15
square kilometers of the land area are agricultural with rice, corn, mango, and citrus as major crops.

The City of Cabanatuan is the economic heart of Nueva Ecija, with an estimated population of
337,037 at the end of 2021. As a metropolis, many people in Nueva Ecija commute to the city
during the day, which causes its daytime population to swell to around 1 million. Although the
City does not have significant manufacturing industries, its dynamic service and agricultural
sectors drive the economy forward.

The City Government is geared towards making Cabanatuan the premier model for economic and
infrastructure development. Through the good stewardship of Honorable City Mayor Myca
Elizabeth R. Vergara and other incumbent officials from the Sangguniang Panlungsod, the City is
an ideal locale that provides its citizens with better quality of living and a peaceful environment
where economic and social growth, public health and safety, cultural and environmental
preservation are the focal concerns of the administration. The plans, programs, and objectives of
the City Government during the year were attained with the assistance of 2,480 personnel broken
down as follows:

Status No. of Personnel

Elected 14
Permanent 932
Temporary 17
Co-Terminus 83
Casual 102
Contract of Service 93
Job-Order 1,239
Total 2,480

B. Financial Highlights

The City Government’s financial condition, results of operations and sources and application of
funds for CY 2021 with comparative figures for CY 2020 are as follows:

Increase (Decrease)
2021 2020
Amount %
Financial Condition
Assets ₱7,214,309,218.35 ₱6,977,652,220.43 ₱236,656,997.92 3.39%
Liabilities 3,383,331,027.99 3,472,966,981.78 (89,635,953.79) (2.58%)
Equity 3,830,978,190.36 3,504,685,238.65 ₱326,292,951.71 9.31%
 Increase (Decrease)
2021 2020
Amount %
Results of Operations
Income 1,847,784,728.81 1,893,515,963.62 (45,731,234.81) (2.42%)
Expenses 1,567,832,932.62 2,004,888,046.97 (437,055,114.35) (21.80%)
Surplus (Deficit for the
₱279,951,796.19 ₱(111,372,083.35) ₱391,323,879.54 351.37%
Period)

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 Cabanatuan,
Nueva Ecija, for CY 2021 particularly on the audit focus areas contained in the Memorandum
dated October 13, 2021 of the COA Local Government Sector Assistant Commissioner. It included
the examination of 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 laws, rules and regulations on the pre-identified audit thrust/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 presentation of the financial statements
of the City for the year ended December 31, 2021 due to the deficiencies and errors noted in the
audit of the accounts thereby affecting the fair presentation of the financial statements, as follows:
(a) the Construction-in-Progress (CIP) account was overstated owing to non-transfer to appropriate
asset accounts of the completed and operational projects totaling ₱15,649,530.42; and (b) the City
did not make a complete count and physical inventory for its Property, Plant, and Equipment (PPE)
and Inventory accounts stated in the accompanying financial statements at ₱2,852,947,053.95 and
₱120,812,402.64, respectively as of December 31, 2021.

For the exceptions cited above we recommended that the Local Chief Executive direct the (a)
Inventory Committee in coordination with the City General Services Office (CGSO) and the
concerned department heads and offices to (i) expedite the completion of the physical inventory
of all PPE of the City on or before January 31 of each year; (ii) reconcile the resultant report with
the accounting records; (b) CGSO to strictly comply with the required maintenance of complete
and updated property records; (c) City Accountant to (i) coordinate with the CGSO and Inventory
Committee for the reconciliation of respective records and effect the necessary
corrections/adjustments, if warranted, in the books of accounts; and (ii) transfer the completed
projects from the Construction in Progress (CIP) account to the appropriate asset accounts.

E. Summary of Significant Audit Observations and Recommendations

1. While there had been noted improvements on the recording and reporting of cash advances
relative to the City’s current operations, four officers remained incompliant for the timely
 liquidation of their cash advances amounting to ₽1,320,133.50 as of year-end contrary to
Section 89 of PD No. 1445 and COA Circular No. 97-002 dated February 10, 1997.
Moreover, the City has yet to impose appropriate measures to demand from the accountable
officers the settlement of their past due accounts and/or sort out the state of dormancy of the
recorded receivable balances in the amount of ₽6,161,528.21 that remained misstated due to
non-reporting thereof. (Observation No. 2)

We recommended that the City Mayor require the (a) accountable officers to improve further
their compliance on the reporting/liquidation of cash advances; and (b) City Accountant, in
collaboration with the City Legal Officer, to intensify collection measures or institute
appropriate remedy that would require accountable officers to settle or liquidate their past
due accounts; and (c) if conditions and circumstances on writing off the accounts would be
present, direct the City Accountant and the Legal officer to initiate the procedures for the
application of the request under COA Circular 2016-005.

2. The reported balances of Real Property Taxes (RPT) and Special Education Tax (SET)
receivables as of December 31, 2021 totaling ₱1,023,003,160.12 remained unreliable due to:
(a) incorrect basis of setting-up of RPT/SET receivables at the beginning of the year; and (b)
discrepancies of ₱39,589,548.36 between the balances of the past due RPT/SET receivables
per book and the Certified List of Tax Delinquencies. Moreover, the City has to intensify
collection measures or institute legal actions in order to abate the accumulation of delinquent
RPT and SET which had accumulated to ₱1,498,038,603.31 as of year-end. (Observation
No. 3)

We reiterated that the Local Chief Executive instruct the (a) City Treasurer to (i) strictly
enforce the remedies for the collection of delinquent RPT as expressly provided in Section
256 of R.A. No. 7160; (ii) on a timely basis, prepare an accurate and updated Certified List
of Taxpayers and Taxes Due (CLTTD) and submit the same to the Accounting Office as the
basis in setting-up of RPT/SET receivables in the beginning of the year; (ii) intensify
collection efforts and/or institute the available legal remedies to improve the tax collection
efficiency of the City; (b) City Accountant and City Treasurer to reconcile their records of
RPT/SET receivables for reliable account balances in the financial statements; (c) City
Accountant use the Certified List of Taxpayers and Taxes Due prepared by the CTO as the
basis in recording the receivables at the beginning of the year; and (d) City Assessor to
coordinate and on a timely basis, provide the CTO with the needed assessment reports to
facilitate the preparation of Certified List of Taxpayers by the latter within the prescribed
period. We likewise recommend that City Treasurer subject the CLTTD system to
Information Technology (IT) audit for enhancement and updating.

3. The existence and accuracy of the reported balances of inventories as of December 31, 2021
aggregating to ₱120,812,402.64 could not be established due to (a) failure of the Inventory
Committee to conduct a complete physical count of all unconsumed goods, supplies and
materials; (b) non-maintenance of complete property records by the City Accounting Office
and the City General Services Office (CGSO), therefore, bypassing the reconciliation
process, inconsistent with the provisions of Section 124 of the Manual on the New
Government Accounting System (NGAS) for LGUs, Volume 1. (Observation No. 4)
 We reiterated that the LCE instruct the (a) Inventory Committee in coordination with the
CGSO, in collaboration with all the department heads and offices, to (i) expedite the
completion of the physical count of stocks of all supplies and materials of the City on or
before July 31 and January 31 of each year; (ii) reconcile the resultant report with the
accounting records; (b) CGSO to strictly adhere with the required maintenance of complete
and updated inventory records; (c) City Accountant to (i) maintain SLCs for each
commodity/stock; and (ii) coordinate with the CGSO and Inventory Committee to settle the
variances of Inventory records.

4. The reported balances of Property, Plant and Equipment (PPE) accounts as of December
31, 2021 totaling ₱2,852,947,053.95, excluding the Construction in Progress (CIP) accounts
could not be relied upon due to the (a) partial or incomplete physical inventory count by the
Inventory Committee for CY 2021, reports of which were irreconcilable with the accounting
records hence, a discrepancy of ₱853,359,202.31; and (b) incomplete maintenance of
property records by the City General Services Office (CGSO) and City Accounting Office
(CAO), inconsistent with the pertinent provisions of the New Government Accounting
System (NGAS) for Local Government Units and Government Accounting Manual (GAM)
for Local Government Units (LGUs), Volume 1. Moreover, Construction-in-Progress (CIP)
account was overstated owing to non-transfer to appropriate assets accounts of the completed
and operational projects totaling ₱15,649,530.42, contrary to the pertinent sections of said
Manual. (Observation No. 5)

We reiterated that the Local Chief Executive direct the (a) Inventory Committee in
coordination with City General Services Office (CGSO) and all the department heads and
offices to (i) expedite the completion of the physical inventory of all PPE of the City on or
before January 31 of each year; (ii) reconcile the resultant report with the accounting records;
(b) CGSO to strictly comply with the required maintenance of complete and updated
property records; (c) City Accountant to (i) coordinate with the CGSO and Inventory
Committee for the reconciliation of respective records and effect the necessary
corrections/adjustments, if warranted, in the books of accounts; and (ii) transfer the
completed projects from the Construction in Progress (CIP) account to appropriate asset
accounts.

5. The imprudent record management of prior years’ trust funds, the skeptical compliance on
the stipulated fund utilization and reporting, and the lack of efforts to utilize the funds within
reasonable time resulted in dormancy of the account balance totaling of ₱1,393,348.11.
Moreover, the execution or completion of 12 PPAs with allotted funding of ₱45,597,082.30
remained pending rendering the said fund idle and demonstrating inefficiency of the City in
treating the grants from various sources. Finally, the unutilized funds in the amount of
₽3,756,128.00 for unimplemented project funded by Local Government Support Fund
(LGSF) were not reverted back to the Bureau of Treasury, inconsistent with the instructions
of DBM Local Budget Circular (LBC) No. 122 dated January 31, 2020. (Observation No.
6)
 We reiterated our prior year’s recommendation to the City Mayor to (a) direct the City
Accountant to (i) initiate thorough review and exert extra efforts to trace the original
documents and recording of non-moving Due to National Government Agencies (NGAs)
account balances in order to determine the details such as the name of the source agency for
eventual reconciliation; (ii) trace the payees of the stale checks for possible replacement ;
and (b) instruct the Heads of the Offices concerned to strictly observe the time frame of
scheduled implementation of the projects to ensure efficient delivery of public services to
the intended beneficiaries and to avoid the recurrence of similar lapses in the future.
Furthermore, the City Treasurer should remit to the Bureau of Treasury the unexpended
balance of the LGSF.

6. Despite the absence of appropriate ordinance, the City imposed fees and charges upon
taxpayers, collected the amount of ₽48,483,078.19 for CY 2021, and accumulated the sum
of ₽52,638,593.75 as of December 31, 2021, hence, the exaction was deemed unauthorized
contrary to the pertinent provisions of RA No. 7160. Consequently, the related expenditures
totaling ₽28,926,255.50 that were charged against the accumulated funds were of doubtful
validity as there was no legal premise to rely on. (Observation No. 7)

We recommended that the Local Chief Executive instruct the (a) City Treasurer to (i)
discontinue the imposition upon taxpayers of unauthorized fees and charges unless proven
that the act of collection is supported by an ordinance enacted by the Sanggunian
Panlungsod; and (ii) responsible Department Heads to submit justification on the disputed
charges against the set-aside trust fund and henceforth, to consider the similar expenditures
in their regular budgeting and programming.

7. Owing to the underperformance of the City in the budget execution and implementation of
the 20% Development Fund, it failed to timely achieve the desired socio-economic
development and environmental outcomes envisioned under DBM-DOF-DILG Joint
Memorandum Circular No. 1 dated November 4, 2020 and the expecting public was
deprived of the ultimate benefits to be derived therefrom. At December 31, 2021, the amount
₽26,530,672.74 of the total budget of ₱230,047,512.8 was incurred or only 11%
implementation rate was noted. Moreover, disbursement vouchers for the DF were not yet
submitted to the Auditor as of December 31, 2021 contrary to Section 43 of PD No. 1445
and Section 7.2.1 (a) of COA Circular No. 2009-006 thus, hampering the timely audit and
reporting of the transactions. (Observation No. 8)

We recommended that the City Mayor (i) ensure the full or optimum utilization of the 20%
Development during the budget year; (ii) instruct the City Engineer to conduct through
feasibility or preliminary engineering study and thresh out imminent or possible problems in
the implementation of infrastructure projects that are to be included in the 20% Development
Fund priority list; (iii) require the concerned officers to be prudent in overseeing the timely
implementation of PPAs under their respective responsibility and impose appropriate
sanctions upon the contractors who incur breach of the contract or agreement; and (iv)
instruct the City Accountant to submit immediately to the Auditor the disbursement vouchers
that are due for transmittal.
8. The City has substantially complied with the provisions of the Department of Budget and
Management (DBM) and Department of Interior and Local Government (DILG) Joint
Memorandum Circular No. 2013-1 on budgeting and utilization for its Local Disaster Risk
Reduction and Management Fund (LDRRMF). For CY 2021, it earmarked the amount
₱87,537,503.00 for disaster management and response activities and spent the amount of
₱65,151,117.41 or 74.43% of the total budget allocation. However, in the accounting of
purchased equipment, misclassification was noted that has to be corrected to bring the
balances of the affected accounts accurate. (Observation No. 9)

We recommended that the management continue to comply with the guidelines on LDRRMF
as prescribed under DBM-DILG Joint Memorandum Circular No. 2013-1 dated March 25,
2013 and instruct the City Accountant to make an accounting adjustment on the misstatement
of affected accounts.

9. The City has substantially complied with the provisions of the PCW-DILG-DBM-NEDA
Joint Memorandum Circular (JMC) Nos. 2013-01 and 2016-01 on local planning and
budgeting for its Gender and Development. For CY 2021, it earmarked the amount of
₱88,746,003.00 for GAD activities and spent ₱80,624,772.62 or 91% of the total budget
allocation. However, the appropriate cost attribution of related programs, projects and
activities (PPAs) remained disregarded, thus, the gender-responsiveness of identified major
programs and projects was not properly analysed or assessed. Moreover, the City realigned
or took changes of its GAD Plan and Budget (GPB) in the absence of proper endorsement
by the DILG which was inconsistent with Section 6 of PCW-DILG-NEDA-DBM JC No.
2016-01. (Observation No. 10)

We reiterated our recommendations that the GAD Focal Point System through the GAD
Focal Person (a) continue its efforts to improve gender mainstreaming to achieve full
compliance with the provisions of relevant laws and regulations; (b) employ the Harmonized
Gender and Development Guidelines (HGDG) in the conduct of gender analysis and cost
attribution of City’s PPAs to GAD; and (c) inform the concerned DILG Office, in writing,
of changes introduced in the DILG-endorsed GPB

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

F. Summary of Total Suspensions, Disallowances and Charges as of December 31, 2021.

Of the total balance of disallowance amounting to ₱9,216,704.48, ₱8,929,071.43 pertained to audit

disallowance issued by the Fraud Audit and Investigation Office (FAIO), COA Legal Services
Sector, in May 2012. The remaining amount of ₱287,633.05 covered the balance of overpayment
of Productivity Enhancement Incentive (PEI) to City employees amounting to ₱3,538,000.00 of
which the appeal for the disallowance was denied by COA Regional Office (RO) No. 3 under COA
RO3 Decision No. 2016-025 dated May 13, 2016.
G. Status of Implementation of Prior Year’s Unimplemented Audit Recommendations

Of the 66 audit recommendations contained in the Annual Audit Report for CY 2020, 19 were
fully implemented, 31 were partially implemented, and 16 were not implemented. Those that
were partially implemented and not implemented with material impact on the financial statements
were reiterated in the CY 2021 report.