EXECUTIVE SUMMARY

A. Introduction

Nested at the foot of the Caraballo Mountain Range is San Jose City – one of the busiest
business centers in the province of Nueva Ecija. Its strategic location gained its title of
being a “Gateway of the North” as the city’s central business district provides easy access
to the province of Nueva Vizcaya and the Cagayan Valley Region (55kms), to Pangasinan,
and the Ilocos Regions (38kms), to the country summer capital – Baguio City (116kms)
and likewise to the Dingalan Port (70kms) in Aurora Province.

The total land area of 18,725 hectares is divided into 38 barangays with the rural barangays
occupying 89% of total land area, which shows significant potential for urban
development. Road network has an inventory of 289 kilometers consisting of concrete,
asphalt and gravel pavement types.

Farming is the primary source of livelihood and rice milling is one of the most developed
business activities with at least 28 rice millers in the city producing quality rice supplied
locally and for export. The City of San Jose caters 12 banking institutions, 14 private
elementary schools, 16 public and private high schools, two college institutions and six
technical schools within the City of San Jose. The Economic Enterprises operating are (1)
Public Market that houses the Wet Market, Dry Goods, Grocery Stores and SMEs; (2)
Slaughterhouse; (3) Lying-In Maternity Hospital; (4) Cemetery; and (5) Central Terminal.

The City of San Jose is under the able leadership of Mayor Mario O. Salvador and assisted
by Vice-Mayor Alexis G. Salvador, City Administrator Alexander Glen Bautista and the
rest of the City officials.

B. Financial Highlights

The following data show the financial position, financial performance and the sources and
application of funds of the City of San Jose for the years 2022 and 2021 are shown below:

Accounts 2022 2021 Increase/ Decrease Percentage

Financial Position
Total Assets ₱3,277,638,017.42 ₱3,006,974,511.29 ₱270,663,506.13 9.00%
Total Liabilities 485,643,626.23 394,711,631.00 90,931,995.23 23.04%
Total Equity 2,791,994,391.19 2,612,262,880.29 179,731,510.90 6.88%
Financial Performance
Total Income 1,314,381,736.42 1,176,288,205.41 138,093,531.01 11.74%
Total Expenses 1,045,645,696.25 875,184,920.54 170,460,775.71 19.48%
Surplus (Deficit) 268,736,040.17 301,103,284.87 -32,367,244.70 -10.75%
for the Period

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C. Scope of Audit

Our audit was conducted in accordance with the International Standards of Supreme Audit
Institutions (ISSAIs) and we believe that it provides reasonable bases for the results of
audit.

The objectives of the audit were to (a) ascertain the level of assurance that may be placed
on Management’s assertions on the financial statements; (b) recommend agency
improvement opportunities; and (c) determine the extent of implementation of prior year’s
unimplemented audit recommendations.

In compliance with COA Unnumbered Memorandum dated September 14, 2022, which
identifies the CY 2022 audit foci, we audited the Cash and Cash Equivalents, Property
Plant and Equipment, Financial Liabilities, Covid-19 Vaccination Program, Fund
Transfers, Utilization of 20% Development Fund and DRRM Fund, Payment to JOs,
Contractuals and Consultants, audit of revenues, compliance to tax laws, remittance of
mandatory contributions (Government Service Insurance System, Philippine Health
Insurance Corporation, and Pag-IBIG), programs and projects related to Gender and
Development, and Status of Audit Suspensions, Disallowances and Charges. Results of
audit with significant observations were discussed in Part II of this Report.

D. Independent Auditor’s Report

The Auditor rendered a qualified opinion on the fairness of the presentation of the financial
statements of the City for the following reasons: (a) Inventory accounts were misstated due
to: (i) items already issued but still carried in the books, amounting to ₱1,871,941.64; and
(ii) unrecorded ending inventory of Covid-19 Vaccines amounting to at least
₱6,248,676.40; and (b) RPT/ SET Receivable accounts were misstated due to: (i)
overstatement by ₱162,555.57 of the amount set-up for RPT Receivable; (ii)
understatement by ₱31,876,363.01 of the amount set-up for SET Receivable; (iii)
unrecorded prior year collection of SET Receivable amounting to ₱36,590,392.49; and (iv)
non-derecognition of RPT/SET Receivable for cancelled properties amounting to
₱51,010.80.

E. Summary of Other Significant Audit Observations and Recommendations

The audit of the accounts and operations of the City of San Jose disclosed the following
observations:

1. The reliability of the balances of Property, Plant and Equipment (PPE) with a
carrying value of ₱2,801,073,182.32 or 85.46% of the City’s total assets of
₱3,277,638,017.42 as at December 31, 2022, was doubtful due to (a) a variance of
₱299,612,410.04 between the Report of Physical Count of PPE (RPCPPE) and
General Ledgers (GLs); and (b) differences amounting to ₱15,780,107.98 and
₱43,123,665.66 in the totals of acquisition cost and accumulated depreciation,
respectively, as shown in the lapsing schedules and subsidiary ledgers (SLs).

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 Moreover, lapses in the implementation of COA Circular No. 2020-002 dated
January 31, 2020 on the one-time cleansing of PPEs further cast doubt on the
reliability of the reported balances of PPE as at year-end. Meanwhile, lapses in the
management of PPEs expose said assets to risks of loss or misuse, inconsistent with
Section 2 of Presidential Decree No. 1445. (Observation No. 01)

We recommended that the Local Chief Executive (LCE) require the (a) GSO to (i)
find ways on how to facilitate the uploading of data in the PIAS; (ii) ensure that the
demand letter issued to the accountable officers are in official form; (iii) prepare
IIRUP for the identified unserviceable, obsolete or idle items that are no longer
needed in operation and recommend for their disposal in accordance with the
prescribed guidelines; (iii) update or establish accountability on PPEs through the
issuance or renewal of PARs; (b) Accounting Unit and the GSO to (i) reconcile the
differences in their records as to the valuation and re-classification of PPE items; and
(ii) ensure that the procedures required under COA Circular No. 2020-006 dated
January 31, 2020 on the one-time PPE cleansing are completed within the ensuing
year.

2. The City was found compliant with the guidelines on the appropriation and utilization
of the 20% Development Fund under DBM-DOF-DILG JMC No. 1 dated November
4, 2020 which translated the use of ₱202,195,282.02 or 89.5% of the
₱225,859,187.36 total appropriations for CY 2022 into socio-economic and
environmental gains. However, lapses in planning and implementation of some
programs, projects and activities (PPAs) left idle an allocation of ₱1,250,000.00 for
a project that was already undertaken by the Department of Education and hindered
the timely attainment of the optimal results from ten other projects. Moreover,
Management did not fully adhere to the provisions of Republic Act No. 9184 or the
Government Procurement Reform Act that cast doubt on the regularity and did not
promote accountability and transparency of procurements. (Observation No. 03)

We recommended that the LCE require the (a) City Engineer to be attentive to the
reasons given by the contractor on their request for extension; (b) City Development
Council Executive Committee to strengthen the planning of the PPAs to ensure their
timely implementation; (c) Bids and Awards Committee, BAC Secretariat, and
Technical Working Group to (i) submit copies of Performance Security of the
winning bidders for the 12 infrastructure projects; otherwise, provide satisfactory
explanation of the non-submission thereof; and (ii) strictly comply with pertinent
provisions of R.A. No. 9184 and its IRR in all procurements; and (c) City Accountant
to strengthen her review function on the requisite documentation of procurements.

3. A disparity of ₱112,610,851.21 was established between the combined balances of

Real Property Tax (RPT) and Special Education Tax (SET) Receivables as reflected
in the records of Accounting and Treasury Offices, which rendered unreliable the
aggregate balance of ₱23,743,092.17 of the said accounts in the financial statements
as of December 31, 2022. Meanwhile, reckoned against the respective collection

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 targets set by the City and the Bureau of Local Government Finance for the last three
years, the City achieved an average satisfactory collection efficiency rates of 77%
and 170%, respectively. Nonetheless, increasing collection arrearages, which
accumulated to ₱136,353,943.38 as of December 31, 2022 may prevent the City from
maximizing its public service potentials due to uncollected revenues. (Observation
No. 06)

We recommended that the LCE instruct the: (a) City Accountant to draw the
necessary adjusting/ correcting entries for the following errors: (i) misstatement of
amounts set up for RPT and SET Receivables for CY 2022; (ii) unrecorded collection
of prior year’s SET Receivable; and (iii) non-recognition of receivables from
cancelled properties; (b) City Accountant and City Treasurer to regularly reconcile
their reciprocal data on RPT and SET Receivables, and (c) City Treasurer to (i)
sustain its effective revenue collection efforts; and (ii) strategize specifically on how
to collect from delinquent taxpayers and, if warranted, enforce the provision of
Section 254(b) of the RA 7160 in the collection of delinquent taxes.

4. The necessity and reasonableness of payment of ₱87,791,148.23 for wages of 2,136

Job Orders and Contract of Service personnel, or 76% of the total work force of the
City Government, could not be properly assessed due to the failure to articulate in
the contract their duties and responsibilities, inconsistent with generally accepted
practices. Moreover, copies of said contracts were not submitted to the Audit Team
within five days from their perfection, thus, preventing the timely introduction of
interventions for any deficiencies that may be noted during review, which was not
harmonized with COA Circular No. 2009-001 dated February 12, 2009.
(Observation No. 07)

We recommended that the LCE instruct the HRMO and heads of the offices
concerned to (a) identify the specific needs for JOs, Casuals and CoS; (b) define in
the contract the service contractors’ duties and responsibilities; and (c) submit a copy
of said contract to the Office of the Auditor within the prescribed period.

5. In CY 2022, the City was able to fully implement eight of its 15 regular disaster risk
reduction and mitigation programs, projects and activities (PPAs) and utilized
₱25,492,045.00 or 63% of the allocated Local Disaster Risk Reduction Management
Fund (LDRRMF) as at year-end, pursuant to Republic Act (R.A.) No. 10121, also
known as Philippine Disaster Risk Reduction and Management Act of 2010 and COA
Circular No. 2012-002 dated September 12, 2012. However, due to lapses in planning
and implementation, four PPAs though completed, were not fully utilized while three
remained unimplemented as at year-end, thus depriving the City of opportunities to
further improve the people’s resilience towards the effects of calamities. Meanwhile,
incomplete documentation of disbursements totaling ₱26,155,120.70 and other noted
lapses in procurement cast doubt on the efficiency and regularity of fund use while
failing to promote transparency of the procurement processes. (Observation No. 08)

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 We recommended that the LCE direct the (a) CDRRMC to ensure the
optimal utilization of LDRRMF through a more realistic project planning and
budgeting; (b) BAC and City Accountant to submit all the requisite documents, and
henceforth ensure full compliance with R.A. No. 9184 and COA Circular No. 2012-
001 dated June 14, 2012; and (c) concerned offices to continue complying with RA
No. 10121 and COA Circular No. 2012-002 dated September 12, 2012 with the end
view of building disaster-resilient communities.

F. Status of Audit Suspensions, Disallowances and Charges

The Statement of Audit Suspensions, Disallowances and Charges (SASDC) as at

December 31, 2022 showed unsettled disallowance of ₱70,000.00 and none for any
unsettled suspensions and charges.

G. Status of Implementation of Prior Years’ Unimplemented Audit

Recommendations

Out of the 35 audit recommendations embodied in the prior years’ audit reports, 17 were
fully implemented, 14 were partially implemented and four were not implemented which
were reiterated in the current year’s audit report.