EXECUTIVE SUMMARY

A. Introduction

The Municipality of San Manuel was created on June 23, 1957 by virtue of
Republic Act No. 2040. It is located at the western part of the Province of Isabela.
It is bounded on the north by the Municipality of Roxas, on the south by Aurora,
on the east by Burgos, and on the west by the Province of Ifugao with an area of
approximately 12,317 hectares and composed of 19 barangays. Our local
government of San Manuel started as 7th class municipality, had been reclassified
as 4th class on January 28, 2002 per Memo Circular No. 01-M (37) issued by the
Bureau of Local Government Finance.

Scope of the Audit

A financial, compliance and performance audit were conducted on the

accounts and transactions/operations of the Municipality of San Manuel, Isabela
for the year 2017. The audit aimed at ascertaining the fairness of presentation of
the financial statements, propriety of disbursements, and adequacy of accounting
records. The audit focused on a test basis, the review of operating procedures,
interview with concerned municipal officials and employees, verification and
analysis of accounts, and such other procedures considered necessary under the
circumstances.

The 2017 audit trusts/focus for the Local Government Sector was
prioritized consistent with unnumbered memorandum dated October 12, 2017
issued by the Commission on Audit.

B. Financial Highlights

B.1. Projects, Programs and Activities Completed and Paid in 2017

Bottom-up Budgeting (BuB), National Child Development Center,

Department of Health (DOH) and 20% Development Fund

Period
Projects, Programs
Location Project Cost Fund Completed
and Activities
and Paid
Municipal 963,661.12 DOH As of May
Construction of RHU Compound San 12, 2017
Extension Building Manuel, Isabela
Construction of Child Municipal 2,505,965.54 NCDC As of
Development Center Compound San December 8,
Building Manuel, Isabela 2017
Construction/Rehabilitati San Manuel, 1,790,371.03 BUB As of May
on of School Fence Isabela 10, 2017
 Period
Projects, Programs
Location Project Cost Fund Completed
and Activities
and Paid
Public Market 1,149,542.98 LGU As of June 2,
Construction of two (2)
San Manuel, 2017
Stall Market Building
Isabela
Repair of LGU Municipal 315,154.33 LGU As of March
Community Center Compound San 31, 2017
Roofing Manuel, Isabela
Municipal 148,176.81 LDRRMF As of June
Construction of DA
Compound San 22, 2017
Extension
Manuel, Isabela
Gravelling of Sitio Mararigue San 200,000.00 LGU As of
Mananao Sta. Cruz- Manuel, Isabela November 2,
Mararigue Farm to 2017
Market Road
Likewise, it is worthy to note that the Municipality of San Manuel is a
recipient of the following awards and citations for CY 2017:

1. 2017 8th Most Improved Municipality awarded on December 12, 2017

given by National Competitiveness Council of the Philippines;

2. 2017 12th Most Competitive Municipality of the Philippines

(Government Efficiency Pillar) awarded on December 12, 2017 given
by National Competitiveness Council of the Philippines;

3. 2017 Best BUB Implementer awarded on December 21, 2017 given by

Department of Interior and Local Government and

4. 2017 Most Cooperative Friendly Local Government awarded on

October 18, 2017 given by Cooperative Development Authority.

B.2. Financial Information

The highlights of the financial condition, financial performance,

appropriations, allotments and obligations of the Municipality of San Manuel,
Isabela for the year ended December 31, 2017, with comparative figures for CY
2016 are as follows:

Increase
Accounts 2017 2016
(Decrease)
Financial Condition
Total Assets 275,048,431.62 189,745,391.11 85,303,040.51

Total Liabilities 108,117,492.1 83,065,864.82 25,051,627.28

Total Government Equity 166,930,939.12 106,679,526.29 60,251,412.83

 Increase
Accounts 2017 2016
(Decrease)
Financial Performance
Total Revenue 99,256,831.06 88,479,624.18 10,777,206.88
Total Expenses 91,332,454.99 83,010,325.45 8,322,129.54

Increase
Accounts 2017 2016
(Decrease)
Appropriations, Allotments and Obligations
Appropriations - Current 97,284,306.00 86,551,997.00 10,732,309.00
Appropriations - Continuing
Allotments - Current 111,099,293.95 86,551,997.00 24,547,296.95
Allotments - Continuing
Obligations - Current 93,610,356.45 75,598,551.24 18,011,805.21
Obligations - Continuing

Comparative Statement of fund transfer to and from LGUs, NGAs, and

GOCCs are as follows:

Increase
Accounts 2017 2016
(Decrease)
Fund transferred to Other Agencies
Due from LGUs 7,389,366.23 600,366.23 6,789,000.00
TOTAL 7,389,366.23 600,366.23 6,789,000.00
Fund received from Other Agencies
Due to LGUs 2,628,522.77 3,122,373.30 (493,850.53)
Due to NGAs 21,539,684.69 11,364,685.69 10,174,999.00
Due to GOCCs 360,057.21 1,126,036.54 (765,979.33)
TOTAL 24,528,264.67 15,613,095.53 8,915,169.14

C. Independent Auditor’s Report on the Financial Statements

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

the financial statements due to the following reasons:

1. Reciprocal accounts-Due from LGU and Due to LGU as appearing in the

books of the Provincial Government of Isabela and the Municipality of
San Manuel, Isabela, respectively, were not fully reconciled hence,
disclosed a discrepancy amounting to ₱68,003,524.60.
 2. Various unbooked reconciling items in the Bank Reconciliation
Statements amounting to ₱3,506,016.80 rendered the Cash in Bank
account balances uncertain.

For the exception mentioned, the Auditor recommended the following:

1. The Municipal Accountant reconcile the LGU’s records with that of the
Provincial Government of Isabela to establish the correct balances of the
reciprocal accounts. Likewise, provide the audit team a statement of
reconciliation showing that the two books have reconciled as of given
date.

2. The Management require the Municipal Accountant and Municipal

Treasurer to coordinate and effect reconciling items of the cash balances.
Assign personnel in each office to make monthly reconciliation of
accounts prior to the preparation of the financial statements and bank
reconciliation statements on a regular basis to refrain from submission of
the required reports beyond the deadline period.

Further, avoid long overdue reconciling items, it is also recommended to

establish a cut-off period for the “reconciling items” so that
reconciliation for the subsequent months will be facilitated. Likewise,
the reconciling items shall be taken up in the books immediately. Also,
furnish the Municipal Treasurer and the Office of the Audit Team Leader
copies of the journal entry vouchers and Reconciliation Statements for all
adjustments affecting cash balances regularly.

D. Summary of Significant Audit Observations and Recommendations

Presented hereunder are the significant audit observations and

recommendations which were discussed with the Management officials and staff
in an exit conference held on April 17, 2018. Management’s comments were
incorporated in the report, where appropriate.

1. Cash collections were not deposited intact, thus causing the existence of cash
in the possession of the Municipal Treasurer amounting to ₱80,370.60 as of
December 31, 2017 which is not in accord with Section 28 of COA Circular
No. 92-382 dated July 3, 1992.
We recommended that the Municipal Treasurer deposit her collections regularly
and intact as prescribed under Section 28 of COA Circular No. 92-382 to avoid
the accumulation of cash on hand and the exposure of the same to possible risk of
loss and misappropriation. Likewise, the Municipal Accountant ensure the
monthly conduct of reconciliation of her Cash-Local Treasury Ledger balances
with that of the Cashbook-Collections of the Municipal Treasurer and submit a
Statement of Reconciliation to the Audit Team every given date.
2. A total increase of 64% or amounting to ₱5,951,096.71 was noted in
Advances for Officers and Employees, Advances to Special Disbursing
Officer, Advances for Operating Expenses, Due from Local Government
Agencies and Other Receivable as of December 31, 2017, due to the failure of
the officials, employees and recipients to liquidate the amount granted within
the prescribed periods and not firmly imposing the sanctions provided under
COA Circular Nos. 97-002 and 2012-004 against officials and employees with
unsettled cash advances.
We recommended that the Local Chief Executive instruct the Municipal
Accountant to do the following:

For Unliquidated Cash Advances and Other Receivables:

1. Avail all remedies in the identification of the Accountable Officers

and demand immediate settlement of all unliquidated cash
advances from officials and employees concerned following the
above cited regulations.

2. If warranted, withhold the salaries of those who persistently fail or

refuse to comply despite repeated demand for liquidation and/or
file appropriate administrative and criminal charges against them
to compel liquidation.

3. Ensure that the officers and employees with outstanding or

unliquidated cash advances should not be granted additional cash
advances, until the previous ones are settled, to preclude
accumulation of unliquidated cash advances.

4. Ensure that all regulations pertaining to cash advances should be

strictly enforced.

5. Monitor the outstanding cash advances of officials and employees

and demand immediate settlement after its purpose has been served.

For Fund Transfers to Other Government/Implementing Agencies (IAs), exhaust

all remedies to liquidate the fund transfer made to the Barangay under Due from
Local Government Agencies of which the amount of ₱6,789,000.00 was granted.
Further make a reconciliation of the reported balance in Annex B and that of the
Statement of Financial Position to reflect the correct balance of Due from Local
Government Agencies account.
3. The year-end balance of the account Due from Other Funds of
₱12,539,128.06 does not reconcile with its reciprocal account of Due to Other
Funds of ₱12,538,552.86 or a difference of ₱575.20.
 We recommended that the Municipal Accountant do the following:

1. Make a detailed review of the Due from Other Funds and Due to
Other Funds accounts and determine the cause of the unreconciled
amounts.
2. Make the necessary adjustments/corrections in the books of
accounts to present the correct balances of the affected accounts.

3. Exercise due care in recording and classifying the Municipality’s

financial transactions to ensure that the balances of reciprocal
accounts are at all times be the same. Likewise, submit a
reconciliation statement showing the two accounts arrived at the
same balances.
4. The Municipality was not able to conduct comprehensive physical inventory
of its Property, Plant and Equipment (PPE) amounting to ₱127,877,839.78 as
required under Section 156 of COA Circular No. 92-386 and Section 124 of
NGAs Manual Vol. 1, thus existence, valuation and accuracy of the PPE
account in the financial statements could not be ascertained as of December
31, 2017.
We recommended that the Local Chief Executive instruct the Inventory
Committee to fast track the comprehensive physical count of all properties of the
Municipality and submit the Report of the Physical Inventory of PPE to
Commission on Audit pursuant to Sec. 124 of the NGAs Manual to establish the
correct value of its assets.

5. The Municipality recognized ₱77,075,262.18 of Road Networks in the books

of account in compliance with Item IX of COA Circular No. 2015-008.
However, the recognition and existence was not supported with Registry of
Public Infrastructures, Report on the Physical Count of Local Road Network
(RPCLRN), Local Road Network Ledger Card, Local Road Inventory
records with Road Map and Local Road Network Property Cards, thus the
balance presented in the financial statements as of December 31, 2017 could
not be relied upon.
We recommended that the Management do the following:

1. Require the Inventory Committee to conduct an inventory of local

roads under their jurisdiction and prepare the Report on the
Physical Count of the Local Road Network at the end of every
accounting period.

2. Pursue complete reconciliation of the RPCLRN and the updated

Registry of Public Infrastructures in coordination with the General
Services Officer and the Accountant through detailed review of
prior year’s transactions in order to identify any unrecorded road
networks.
 3. Direct the Municipal Accountant to:

(a) Maintain Local Road Network Ledger Card and maintain

separate subsidiary ledgers for the road and its components
namely: road lot, road pavement, drainage and slope protection
structures, and other miscellaneous structures;

(b) Support the beginning balance of Road Networks and its

components amounting to ₱45,217,052.84 in the GL and
Ledger Cards with working papers;
(c) Make details of the recorded road, highways and bridges which
were closed to government equity in the prior years and
subsequently support the recording in its books of accounts the
amount of road works equivalent to the required transition
provision for CY 2017, and

(d) Make disclose in the Notes to the Financial Statements as

illustrated in Annex B of said circular.

4. Instruct the General Services Officer to (a) complete Local Road

Inventory records with Road Map and Local Road Network
Property Cards; and (b) submit the Report on Local Road Network
of the LGU prepared by the Inventory Committee as shown in
Annex A of the circular.
6. Despite the declaration on the unconstitutionality of the fund per Supreme
Court Decision in GR Nos. 208566, 208493 and 209251 (Greco Antonious
Beda B. Belgica, et al., vs. Executive Secretary et al.) dated November 19,
2013, the unutilized balances of Priority Development Assistance Fund
(PDAF) amounting to ₱9,780.14 remained unremitted to the Bureau of
Treasury as of December 31, 2017.
We recommended that the Local Chief Executive require the Municipal
Accountant and Municipal Treasurer to facilitate the remittance of the unutilized
balance of PDAF to the Bureau of Treasury immediately in compliance with the
declaration on the unconstitutionality of the fund per Supreme Court Decision in
GR Nos. 208566, 208493 and 209251 all dated November 19, 2013.
7. Unused balances of fund transfers in the total amount of ₱69,877.72 from the
ECCD, DOLE, Local Government Support Fund (LGSF), DILG, DOH and
DA after the completion of its intended programs/projects remained
unremitted to the Bureau of Treasury (BTr)/source agencies.
We recommended that the Municipality refund the unused or excess balances of
the funds received to the source agencies by drawing a check payable to
BTr/concerned agency/ies especially those which are already undertaken pursuant
to Items 4.9 and 6.7 of COA Circular No. 94-013 dated December 13, 1994 in
 order the amount to be refunded could be used for other projects/programs of the
National Government and to relieve the Municipality from any
accountability/liability for the said unused funds.
8. Transactions supposedly charged to the account Due to Officers and
Employees and Other Payables amounting to ₱1,432,690.69 were classified as
Accounts Payable due to non-adherence on the usage of appropriate account
titles as prescribed in the Revised Chart of Accounts of LGUs of COA
Circular 2015-009 dated December 21, 2015.
We recommended that the Municipal Accountant strictly observe the proper
account classification in recording transactions with reference to the prescribed
Revised Chart of Accounts of LGUs of COA Circular 2015-009 dated December
21, 2015 for fair presentation in the financial statements.
9. Payment of meals and snacks on regular meeting, registration fees, and fuel,
oil, and lubricants totalling to ₱143,873.50 were charged against 20%
Development Fund which is not in accord with the guidelines prescribed
under Items 2.3, 4.2 and 4.4 of the DILG and DBM Joint Memorandum
Circular (JMC) No. 2017-1 dated February 22, 2017.
We recommended that Management stop the practice of utilizing the fund for
purposes beyond those expressly prescribed by the above cited regulations.
Management should ensure that only development projects that contribute to the
attainment of desirable socio-economic development and environmental outcomes
of the LGU be undertaken, and shall essentially partake the nature of investment
or capital expenditures be charged against 20% Development. Furthermore, stop
paying meals and snacks, registration fees and fuel consumption in adherence to
the rules set in the Joint Circular, otherwise disallowed in audit as this is irregular.
10. Expenditures charged against the Special Education Fund (SEF) totalling
₱187,003.02 for the gasoline consumption, repair and maintenance of motor
vehicle and financial assistances were not in accord with Section 272 of RA
7160 and DEPED-DBM-DILG Joint Memorandum Circular No. 1, s. 2017.
We recommended that the total amount of ₱187,003.02 that was improperly
charged against SEF be transferred to General Fund in order to adhere with the
provisions of Section 272 of RA 7160 and DEPED-DBM-DILG Joint
Memorandum Circular No. 1, s. 2017. Furthermore, stop paying fuel consumption,
repair and maintenance of motor vehicle and financial assistances in compliance
to the cited laws and rules, otherwise disallowed in audit as this is considered
irregular expenditures.
11. Essential documents pertaining to the payments of Social Pensions of 1,276
Indigent Senior Citizens for the period of October to December 2017 were
not attached to the Liquidation Report which is not in line with Section 4 (6)
of Presidential Decree No. 1445.
 We recommended that the Municipal Accountant, the Municipal Treasurer, and
the Municipal Social Welfare Development Officer submit the lacking supporting
documents as elaborated in items 1 to 3 on the liquidation of Social Pension to
beneficiaries amounting to ₱1,914,500.00 without prejudice to the issuance of
Notice of Suspension (NS). Likewise, ensure completeness of supporting
documents in all payments of Social Pension as emphasized in items 4 and 5
above in compliance with Section 4(6) of Presidential Decree No. 1445 otherwise
known as the Government Auditing Code of the Philippines.

E. Summary of total suspensions, disallowances and charges

Balance as of Balance as of
Issued in Settled in
Particulars January 1, December 31,
2017 2017
2017 2017
Suspensions 0.00 0.00 0.00 0.00
Disallowances 950,815.80 38,080.00 988,895.80 0.00
Charges 0.00 0.00 0.00 0.00
Total 950,815.80 38,080.00 988,895.80 0.00

F. Status of Implementation of Prior Year’s Audit Recommendation

Out of the fourteen (14) audit recommendations in the CY 2016 Annual

Audit Report including prior years, two (2) were implemented, eight (8) partially
implemented and four (4) were not implemented. Those which were partially, and
not implemented were reiterated in this report, if warranted.