EXECUTIVE SUMMARY

A. Introduction

The City of Olongapo was created by virtue of Republic Act (R.A.) No. 4645 dated
June 1, 1966. It was elevated to the status of 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 2020, 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; area on Economic Governance, such as
support to agriculture, support to 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, 2020, the City had a total personnel complement of 2,215
composed of 1,088 permanent employees, 354 casual employees, 718 job order/contract of
service employees and 55 consultants.

The City of Olongapo has a total land area of 18,500 hectares with about 2,279.28
hectares or 12.32% as built-up area. Based on the May 1, 2010 census on population
conducted by the National Statistics Office (NSO), Olongapo had a total population of
221,178 excluding transients with an annual growth of 2.19%.

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 Calendar Year 2020 with comparative
figures in CY 2019:

Increase/
2020 2019
(Decrease)
Financial Position
Assets ₱10,148,961,318.01 ₱9,880,393,952.78 ₱268,567,365.23
Liabilities 7,291,344,036.97 7,194,364,625.40 96,979,411.57
Government Equity 2,857,617,281.04 2,686,029,327.38 171,587,953.66
Financial Performance
Revenue 2,095,700,108.38 1,800,584,317.68 295,115,790.70
Expenses 1,594,244,858.34 1,296,590,778.45 297,654,079.89

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 Increase/
2020 2019
(Decrease)
Excess of Income Over
Expenses 501,455,250.04 503,993,539.23 (2,538,289.19)
Sources and Application of Funds - General and Special Education Fund 2020
Budget Actual Difference
Revenue and Receipts 1,949,606,610.00 2,042,338,490.69 (92,731,880.69)
Appropriation/ 1,975,823,660.00 1,879,393,629.89 96,430,030.11
Expenditures
Surplus (Deficit) (₱ 26,217,050.00) ₱ 162,944,860.80 (₱189,161,910.80)

C. Scope of Audit

We conducted our audit in accordance with the International Standards of Supreme

Audit Institutions and we believe that it provided a reasonable basis for the audit results.
The audit covered the financial transactions and operations of the City of Olongapo for CY
2020. The audit included the examination of supporting documents, on a sampling basis,
of pre-selected accounts and thrust areas based on the audit instructions of the COA-Local
Government Sector (LGS) under Unnumbered Memorandum dated October 15, 2020 and
Memorandum No. 2020-019 dated November 09, 2020. Audit procedures and techniques
were employed such as analysis of accounts and such other procedures considered
necessary. All exceptions noted in audit are discussed in Part II of the report. The audit was
aimed to (a) ascertain the level of assurance that may be placed on management’s assertion
on the financial statements; (b) recommend agency improvement opportunities; and (c)
determine the extent of implementation of prior year’s audit recommendations.

D. Independent Auditor’s Report

A qualified opinion was rendered by the Auditor on the fairness of the presentation
of the financial statements of the City Government of Olongapo for the year ended
December 31, 2020 due to accounting errors/omissions and deficiencies which resulted to
misstatements of various accounts, thereby affecting the fair presentation of the financial
statements summarized as follows:

a. The existence and accuracy of the reported inventories aggregating to

₱52,087,639.44 as at year-end could not be established due (a) failure to conduct a
complete physical count of all unused supplies and materials; (b) non-maintenance
of Supplies Ledger Cards thus, reconciliation with property records was not done;
and (c) deviations from prescribed accounting procedures and policies on
pricing/costing of goods, recognition of the issuances of supplies/materials and
adequate disclosure in the Notes to Financial Statements relative to donated
inventories and supplies;

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 b. The existence, accuracy and reliability of Property, Plant and Equipment (PPE)
accounts balances with the net carrying value of ₱5,480,985,946.01 were uncertain
due to unrecorded depreciation on PPE acquired out of the General Fund (GF) in
the net amount of ₱395,806,266.27; and

c. The validity and accuracy of the recorded liabilities to the National Government
Agencies (NGAs) account amounting to ₱42,786,748.48 as at year-end could not
be ascertained due to (a) non-maintenance of subsidiary ledgers and non-
availability of source documents for dormant and long outstanding accounts
aggregating to ₱8,982,593.93; and (b) non-reconciliation of records with the Source
Agencies which resulted to overstatement of ₱3,733,281.70.

In sum, the Asset, Liability and Government Equity accounts were overstated by
₱395,806,266.27, ₱3,733,281.70 and ₱399,539,547.97, respectively.

For the above audit observations, we recommended that the Local Chief Executive
advise the:

For Inventory

a. City Accountant to (i) maintain SLCs for each commodity/stock; (ii) record all
purchases of inventory supplies in the books of accounts using the Perpetual Inventory
System; (iii) use the moving average method in costing inventories in the monthly reports;
(iv) recognize existing unused supplies based on the result of physical count; and (v)
provide adequate disclosure in the Notes to Financial Statements on the information
relative to donated inventories and supplies; and (b) General Services Officer (i) maintain
SCs for each item of inventory; (ii) regularly reconcile the SCs with the SLCs of the CAO;
(iii) report the issuances of supplies thru the SSMI which shall be the basis of the City
Accountant in recording to appropriate Expenses accounts; (iv) maintain the Registry of
Donated Relief Goods for DRRM in the prescribed format and with complete information;
and (v) conduct physical count of stocks of all supplies and materials and submit relative
reports to the Audit Team and other offices concerned on a semi-annual basis.

For Property, Plant and Equipment

b. City Accountant to (i) prepare and maintain PPELCs for each type of property; and
(ii) re-evaluate the computation and recording of depreciation expenses and effect
recommended adjustments, if warranted; (b) General Service Officer to (i) exert
collaborative effort with the CAO in conducting the activities relative to the one-time
cleansing of PPE account balances pursuant to COA Circular No. 2020-006; and (ii)
conduct periodic reconciliation of their records with those of the CAO to immediately
detect errors/irregularities for appropriate action; and (c) City Planning Development
Officer to secure proofs of ownership for untitled lands claimed by the City Government
to avoid future third-party claims.

For Due to NGAs

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c. City Accountant (i) ensure that the reporting and posting requirements for fund
transfers from National Government Agencies, particularly on the utilization of the LGSF-
FA to LGUs, will be strictly adhered to; (b) direct the City Accountant to (i) conduct a
thorough review and analysis of the Due to NGAs account; (ii) reconcile and coordinate
with the SAs to arrive at the appropriate accounting treatment for each outstanding balance
and resolve the differences in the account balances, if any; (iii) file a request for authority
to write-off dormant fund transfers with COA after the conditions and requirements
pursuant to COA Circular No. 2016-005 have been fully satisfied; (iv) submit the copy of
the MOA or its equivalent relative to the fund transfers received from the DOH to the Audit
Team; and (v) remit to the Bureau of Treasury the unutilized balance of PDAF amounting
to ₱1,031,444.06.

E. Summary of Significant Observations and Recommendations

Summarized below are the significant observations and corresponding

recommendations that are discussed in detail in Part II of this report.

1. Cash advances granted to officers and employees totaling to ₱2,544,398.10

remained unliquidated as of December 31, 2020 contrary to the provisions of COA Circular
No. 97-002 dated February 10, 1997 and Section 89 of P.D. No. 1445. (Observation No.
3)

We recommended and the LCE concurred to instruct the City Accountant to (a) require the
accountable officers concerned to liquidate/submit their liquidation reports as soon as the
purpose thereof had been accomplished; (b) implement the withholding of salaries and/or
filing of legal actions for non-compliance with the demand letters issued; and (c) continue
the good practice of monitoring the liquidation of cash advances and regular sending of
demand letters to accountable officers.

2. In CY 2020, the City registered a utilization rate of 99.96% of the Bayanihan Grant
to Cities and Municipalities (BGCM) received totaling ₱71,218,460.00. However, the City
Government failed to comply with the reporting and posting requirements on the utilization
of the BGCM as required by the DBM LBC No. 125 dated April 7, 2020 thus, defeating
the purpose of transparency and full disclosure. (Observation No. 5)

We recommended that the LCE (a) ensure that the reporting and posting requirements of
the succeeding grants and fund transfers will be strictly adhered to by assigning the task to
a specific personnel/office from the LFC; and (b) direct the City Budget Officer to closely
monitor the utilization of funds to avoid incurrence of overdraft.

3. The LGU successfully implemented 13 out of 14 planned development projects

with an overall utilization rate of 96.73% for CY 2020. However, lapses were noted as
manifested by inclusion of ineligible PPAs amounting to ₱15,968,714.67 coupled with
incomplete documentations hence, the achievement of the desired socio-economic
development and environmental management outcomes may not be attained contrary to the
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provisions of the DILG-DBM Joint Memorandum Circular (JMC) No. 2017-1 dated
February 22, 2017 and COA Circular No. 2015-008 dated November 25, 2015.
(Observation No. 8)

We recommended and the LCE concurred to direct the: (a) City Engineer to coordinate
with the CPDO, to undertake a thorough evaluation of the PPAs to be funded under the
20% DF and stop charging expenditures which do not partake the nature of investment or
capital expenditures including rendition of general services; and (b) City Accountant to
coordinate with the members of 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.

4. The desired goals and objectives of reducing disaster risk and enhancing disaster
preparedness and response capabilities may not be optimally achieved by the City due to
(a) unimplemented PPAs amounting to ₱39,156,022.98 for CY 2020; (b) weak internal
control over relief goods for COVID-19 pandemic; and (c) failure to transfer unexpended
balances of the QRF and the DRRMF-MOOE to Special Trust Fund (STF) amounting to
₱9,898,199.42 at year-end. Further, the mandatory reporting requirements of Section 4 of
the Government Procurement Policy Board (GPPB) Circular No. 01-2020 dated April 6,
2020 and R.A. No. 10121 or Philippine Disaster Reduction and Management Act, and
Section 4(6) of P.D. No. 1445, were not complied with while the Local Disaster Risk
Reduction and Management Fund Investment Plan (LDRRMFIP) for CY 2020 was not
prepared in the format prescribed under COA Circular No. 2012-002 dated September 12,
2012 thus, affecting the reliability of financial information on disaster funds. Moreover,
the Accountable Officer for DRRM Property and Equipment was not duly bonded contrary
to Treasury Circular No. 02-2009 dated August 6, 2009. (Observation No. 9)

We recommended and the LCE is amenable to: (a) instruct the LDRRMC to (i) monitor
and evaluate the use of the Fund and strive for the timely and full implementation of
LDRRM-related PPAs to achieved the goals and objective of the fund and the desired
benefits; (ii) revise the LDRRMFIP and use the format prescribed in the COA Circular No.
2012-002 which shall include under a separate caption the list of projects and activities
charged to the unexpended LDRRMF of previous years; and (iii) regularly update the
LDRRMFIP whenever there are new expenditure items or as the need for revision arises;
(b) instruct the City Accountant (i) to ensure that all unexpended/unobligated balance of
the QRF and the DRRMF-MOOE be transferred to the STF under the account “Trust
Liability – DRRM” at the end of the year; (ii) in coordination with the BAC, to submit the
aforementioned required documents immediately to the Audit Team for proper/further
evaluation of the transactions; and (iii) prepare and maintain PPELCs and SLCs for all PPE
and relief goods, respectively, procured out of LDRRMF; (c) require the Property Officer
to diligently prepare/maintain the Inventory List of All Procured and Donated Items for
DRRM and coordinate with the Accounting Office for the periodic reconciliation of both
inventory records; and (d) instruct the Accountable Officers accountable for DRRM PPE
to apply for the necessary fidelity bond.

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5. The City of Olongapo failed to strictly comply on the complete documentation of
the procurement of COVID-19 related goods aggregating to ₱80,569,009.56 in violation
of Section 3.5 of GPPB Circular No. 01-2020, GPPB Circular No. 04-2016 dated
December 20, 2016, and Sections 4(5) and 4(6) of PD No. 1445 which rendered doubts on
the validity and propriety of the transactions. In addition, the City failed to submit to the
Audit Team the DVs and their supporting documents aggregating to ₱25,462,750.00 in
violation of COA Circular No. 2009-001. (Observation No. 11)

We recommended and the LCE agreed to (a) require the BAC to include warranty
provisions in executing the Contract/PO with suppliers in the succeeding emergency
procurements for the full protection of the interest of the City Government given that
posting of warranty security may be dispensed with during emergency situations; and (b)
instruct the City Accountant to (i) 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; and (ii) submit the DVs as
discussed above together with their complete supporting documents for audit.

6. Various deficiencies were observed in the granting of COVID-19 Hazard Pay by

the City Government assigned in the hospital, healthcare facilities and other offices totaling
₱24,666,112.20 such as (a) absence of a SP Resolution authorizing and adopting the
guidelines on the grant of COVID-19 Hazard Pay to employees; (b) insufficient
appropriation resulting in an overdraft amounting to ₱1,377,450.00; and (c) use of different
COVID-19 Hazard Pay rates contrary to DBM Budget Circular No. 2020-1 dated March
24, 2020. (Observation No. 13)

We recommended and the LCE concurred to: advice the SP Office to provide a written
justification on the non-enactment of any resolution for the adoption/approval of Ordinance
Nos. 11, 12, 13 and 14 regarding the payment of COVID-19 Hazard Pay to employees; (b)
direct the Head of Local Finance Committee (LFC) to submit a written satisfactory
explanation on the payment of COVID-19 Hazard Pay at different daily rates contrary to
DBM Budget Circular No. 2020-1 dated March 24, 2020; (c) instruct the City Budget
Officer to prepare a schedule of savings from funds allotted to Other MOOE to facilitate
augmentation for the payment of COVID-19 Hazard Pay and endorse the same to the LCE
for the passage of an EO effecting the transfer of funds amounting to ₱1,675,000.00; and
(d) require the City Accountant to draw JEV to record/adjust errors in recording the said
expenses.

7. Various deficiencies were observed in the granting of COVID-19 Special Risk

Allowance (SRA) by the City Government to personnel assigned at the hospital and
healthcare facilities in CY 2020 such as (a) absence of a SP Resolution authorizing and
adopting the guidelines on the grant of COVID-19 SRA to employees; and (b) payment
beyond maximum amount prescribed under AO No. 28 dated April 6, 2020 and DBM
Budget Circular No. 2020-2 dated April 7, 2020 resulting in overpayment totaling to
₱250,807.69. (Observation No. 14)

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We recommended that the LCE: (a) advice the SP Office to provide a written justification
on the non-enactment of any resolution for the adoption/authorization regarding the
payment of COVID-19 SRA to employees; (b) require the concerned employees to refund
excess amount claimed totaling to ₱250,807.69; and (c) instruct the City Accountant to
draw JEVs to record/adjust errors in recording SRA transactions.

8. The implementation of Social Amelioration Program (SAP) in CY 2020 was

successfully implemented in the 17 Barangays of Olongapo by the City Government,
registering distribution of ₱186,654,000.00 to 28,716 beneficiaries. However, several
lapses were noted in the implantation thereof such as (a) grant to 170 ineligible
beneficiaries totaling ₱1,105,000.00; (b) SAP Assistance claimed twice/thrice by 17
beneficiaries amounting to ₱130,000.00; (c) several lapses in the Social Amelioration
Cards; and (d) unfavorable results of confirmation receipts of the SAP by beneficiaries
contrary to the provisions of the Department of Social Welfare and Development (DSWD)
Memorandum Circular (MC) No. 2020-09 dated April 09, 2020. Furthermore, the absence
of adequate documentation in the payment of the 1st tranche of Emergency Subsidy
Program (ESP) hindered the Audit Team from conducting extensive evaluation of the
eligibility of beneficiaries. (Observation No. 15)

We recommended that the LCE instruct the: (a) CSWD Officer to (i) perform complete
validation of SAC Forms of 360 beneficiaries to establish their qualifications and submit
to the Audit Team the result thereof, (ii) locate, validate and cause the refund of those
person who were noted to received SAP assistance more than once; and the bearer of Bar
Code Number PH-COVID-037107000-00028919; and (b) City Accountant, in
coordination with the CSWDO, to ensure (i) that all supporting documents particularly the
photos/pictures are properly organized and labeled for easy cross-matching and validation
of the beneficiaries during actual receipt of the assistance; and (ii) all DVs are properly
supported with complete documentation and duly approved by all concerned officials
before making any payment.

9. The City failed to comply with the recording, reporting and posting requirements
prescribed under COA Circulars No. 2014-02 and 2020-009 dated April 14, 2014 and April
21, 2020, respectively, for cash and in-kind aids/donations received from various donors
in CY 2020 totaling ₱5,124,249.69 and ₱53,361,617.69, respectively, due to (a) erroneous
recording of cash donations; (b) non-preparation/non-submission of the Cash Donation
Utilization Report, Registry of Cash Donations and Utilization, Report on the Receipt and
Utilization of Cash Donations, Report on the Receipt and Distribution/Issuance of Donated
Relief Goods and Registry of Donated Relief Goods for DRRM; and (c) failure to post the
required reports in the Agency website and disclosed in the Notes to Financial Statements
thus, casting doubt on the reliability of the recorded donations and hindered the promotion
of transparency and accountability on the received cash and in-kind donations.
(Observation No. 16)
We recommended and the LCE is amenable to direct the: (a) City Accountant to (i) record
the receipt of cash donations for DRRM programs/projects to “Trust Fund – DRRMF” and
prepare and maintain separate SL for “Trust Fund – DRRMF” using the prescribed format

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in COA Circular No. 2014-002; (ii) prepare and maintain PPE LCs and SLCs for all
donated and procured PPE and relief goods funded from cash donations; (iii) for in-kind
donations, include an additional disclosure in the Notes to Financial Statements of
information pertaining to DRRM particularly the quantity received, issued and balance of
donated relief goods as well as the receipt of donated PPE and their disposal/transfer; and
(iv) prepare monthly/quarterly Report on the Receipt and Utilization of Cash Donations in
cooperation with the City Budget Officer; (b) City Budget Officer to prepare Registry of
Cash Donations and Utilization; (c) General Service Officer to (a) maintain the Registry
of Donated Relief Goods for DRRM, Inventory List of All Procured from GAA; Cash
Donations for DRRM and Inventory List of All Donated Items for DRRM; and (b) prepare
monthly/quarterly the Report on the Receipt and Distribution/Utilization/Issuance of
Donated Relief Goods and PPE; and (d) CDRRM Officer, City Health Officer, CSWD
Officer and officials and employees from other concerned departments/offices to ensure
that the provisions in COA Circular No. 2014-002 are strictly observed in the receipt and
issuance of donated items and the items procured out of cash donations.

10. The lack of concrete guidelines and specific procedures in executing the relief and
financial assistance program in CY 2020, of the City Government in the nine Barangays of
Olongapo in response to COVID-19 crisis resulted in (i) inefficiency in program
implementation; (ii) inequitable distribution of aid; (iii) inadequate documentation; and (iv)
non-observance of transparency and accountability contrary to Sections 2 and 4(6) of P.D.
No. 1445. (Observation No. 17)

We recommended that the LCE to: (a) develop and execute policies and standards, subject
to concurrence of the Sanggunian, relative to the granting of financial and relief assistance
which shall include but not limited to (i) fund source; (ii) thresholds of entitlement; (iii)
criteria of eligibility; (iv) implementing guidelines; and (v) documentary and reporting
requirements. The implementing guidelines will govern the specific procedures on
assessment, evaluation, grant and release of financial and relief assistance thus, the exercise
of judicious and prudent judgement is ensured; (b) direct the Head of the CSWDO to
submit a written explanation on the unaccounted 1,727 sacks of rice; and (c) instruct the
City Accountant to coordinate with the MO-SED and CSWDO for the completion and
submission of the noted documentary deficiencies and ensure that only DVs with complete
documentation are processed and presented for payment.

11. The COVID-19 Testing Laboratory Building established by the City in CY 2020
did not conform with the standard design plans prescribed by the DOH under AO No.
2020–0014A dated May 20, 2020 thereby, additional cost of ₱160,036.24 was incurred by
the City. Likewise, the supporting documents prescribed for emergency procurement were
not submitted to the Audit Team as required under GPPB Circular No. 01-2020 thus,
transparency of the procurement made could not be determined. (Observation No. 18)

We recommended that the LCE direct the (a) City Health Officer and City Engineer to
comply with the guidelines set by the DOH in establishing COVID-19 Testing Laboratory
Building and Isolation Room/Facility; and (b) City Accountant, in coordination with the

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BAC members, to submit all the required supporting documents required by GPPB Circular
No. 01-2020.

12. Non-compliance with the format and details of projects for CY 2019 but paid in
CY 2020 signboards posted in the location sites were noted in the 11 infrastructure projects
of the City costing ₱40,394,934.72 contrary to COA Circular No. 2013-004 dated January
30, 2013, which may deprive the public, stakeholders, and decision-makers of reliable data
and information on the status of PPAs being undertaken by the City thus, defeating the
principle of transparency and wastage of government funds. (Observation No. 19)

We recommended and the LCE agreed to (a) direct the City Engineer to coordinate with
the contractors to comply with the required posting of information and publicity on PPAs
and to inform the Audit Team within ten (10) days after the award of the project or before
the start of the PPA that the appropriate project signboards and/or public notices are already
posted at the project site.

Our observations and recommendations were discussed with the concerned agency
officials and their comments were incorporated in the report, where appropriate.

F. Status of Audit Suspensions, Disallowances and Charges

As of December 31, 2020, the City had unsettled audit suspensions and
disallowances totaling to ₱638,642,678.96, detailed as follows:

Beginning This period January 01 to Ending Balance

Balance December 31, 2020 (As of
Notices (As of December December 31,
NS/ND/NC NSSDC
31, 2019) 2020)
Notice of ₱599,522,111.03 ₱10,716,386.36 ₱328,500.00 ₱609,909,997.39
Suspension (NS)
Notice of 28,732,681.57 0.00 0.00 28,732,681.57
Disallowance (ND)
Notice of Charge 0.00 0.00 0.00 0.00
(NC)
Total ₱628,254,792.60 ₱10,716,386.36 ₱328,500.00 ₱638,642,678.96

G. Status of Implementation of Prior Year’s Unimplemented Audit

Recommendations

Out of the 138 unimplemented recommendations embodied in the CY 2019

Annual Audit Report (AAR), 27 or 19.57% were fully implemented, 48 or 34.78% were
partially implemented and 63 or 45.65% were not implemented at all.

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