EXECUTIVE SUMMARY

A. Introduction

1. Loreto is a first-class municipality of the province of Agusan del Sur. It is one of

the river towns located in the southwestern part of the province. Loreto occupies a
land area of 185,054 hectares comprising of 17 regular barangays and 7 special
barangays. The municipality is also strategically situated as a junction point to
various destinations within Agusan del Sur and nearby provinces.

2. The audit was conducted in accordance with applicable legal and regulatory
requirements, and the International Standards of Supreme Audit Institutions
(ISSAI). These standards require that we plan and perform the audit to obtain a
reasonable basis for our conclusions.

3. The audit covered the accounts and operations of the Municipal Government for
the year 2021 and was aimed at ascertaining the propriety of financial
transactions, management’s compliance to prescribed rules and regulations and
the fairness of the presentation of the financial statements. Value for money audit
was also conducted on the selection and implementation of projects funded out of
the 20% development fund and other programs and projects to determine whether
the objectives of the projects were attained in the most efficient, effective and
economical manner.

B. Financial Highlights

a) Comparative Financial Position and Financial Performance

Particulars 2021 2020 Increase/ (Decrease)

Assets 1,064,276,585.72 934,522,033.83 129,754,551.89
Liabilities 393,123,252.04 351,006,415.11 42,116,836.93
Net Assets/Equity 671,153,333.68 583,515,618.72 87,637,714.96
Income 418,948,363.67 392,857,312.19 26,091,051.48
Expenses 371,333,462.84 367,691,861.29 3,641,601.55
Net Income 47,614,900.83 25,165,450.90 22,449,449.93

b) Comparative Sources and Applications of Funds

Particulars 2021 2020 Increase/ (Decrease)

Appropriations 610,321,710.01 627,139,030.48 (16,817,320.47)
Allotment 610,321,710.01 613,175,139.34 (2,853,429.33)
Obligations 424,635,856.44 556,111,511.88 (131,475,655.44)
C. Audit Opinion

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

financial statements of the Municipality of Loreto for CY 2021 because:

i. The accuracy, reliability and existence of the reported balances of the

inventory and the related expense accounts totaling ₱22.5 million and
₱50.7 million, respectively, as of December 31, 2021 could not be ascertained
due to the absence of report of Summary of Supplies and Materials Issued
(SSMI), non-maintenance of stock cards, and the failure to conduct periodic
physical inventory contrary to Sections 114, 121, and 124 of the New
Government Accounting System (NGAS) Manual for LGUs Volume I,
thereby affecting the fairness of the presentation of accounts in the financial
statements; and

ii. The balances of Property, Plant and Equipment (PPE) accounts reported in the
Financial Statements and the Report of Physical Count of Property Plant and
Equipment (RPCPPE) amounting ₱1 billion and ₱39 million, respectively,
resulted a variance of ₱1 billion due to the incomplete conduct of physical
inventory taking, non-submission of complete inventory reports of all PPEs
and non-conduct of periodic reconciliation between the recorded
accountability and the existing assets inconsistent with Sections 114 and 124
of the New Government Accounting System (NGAS) Manual for LGUs
Volume I and Sections 13 and 45 of Volume II of the same manual, thus
valuation, reliability and existence of PPE accounts could not be ascertained.

D. Summary of Significant Observations and Recommendations

5. For the above-mentioned audit observations which have caused the issuance of a
qualified opinion, we recommended that:

i. The Inventory Committee conduct periodic physical inventory of supplies and

materials semestrally, and prepare and submit Report of the Physical Count of
Inventories (RCPI) to the Auditor not later than July 31 and January 31 for
the first and second semesters, respectively, of each year;

The GSO practice the use of Request and Issue Slip (RIS) in every issuance
of inventory item to the end-users and submit the monthly Summary of
Supplies and Materials Issued (SSMI) to MAO. Also, the GSO should
maintain stock cards for inventories and conduct periodic reconciliation of
their records with the ledger cards of the MAO; and

The Municipal Accountant to use the perpetual inventory system in the

recording of inventories.

ii. The Local Chief Executive shall issue an Executive Order creating and
reconstituting the Inventory Committee of the Municipality and providing
therein their duties and responsibilities to conduct the physical count and do it
earlier to give enough time to prepare the RPCPPE, so that any discrepancy
 found in the accounting and property records may be reconciled as soon as
possible; and

The Municipal Accountant and the GSO – Designate exert efforts to compare
their respective records and verify/trace the unreconciled balances and
prepare the necessary adjusting entries for any unrecorded/ erroneous
recording of PPEs to come up with the correct balances of the accounts.

6. The other significant audit observations and recommendations are as follows:

i. The accuracy and propriety of the Cash in Bank – Local Currency, Current
Account is doubtful due to the failure of the Municipal Accounting Office to
validate and record various reconciling items in violation of Section 74 of
Presidential Decree 1445 and Section 3.3 of COA Circular 96-011.

We recommended that the Municipal Accountant coordinate with the AGDBs

in verifying the bank errors and initiating reconciliation in order for these
errors to be corrected in the banks’ records. Additionally, request for copies
of the credit and debit memoranda to facilitate the validation of these
reconciling items and immediate recording of the required adjustments in the
books. Further, exhaust all the possible ways to gather the unsubmitted paid
vouchers in order to book-up the appropriate entries for these disbursements.

ii. The balances of Road Networks account amounting to ₱39.5 million, net of
accumulated depreciation, could not be relied upon due to non-preparation of
Inventory of Local Roads and Road Map and Report on the Physical Count of
Local Road Networks, non-disclosure and recording of valid and existing
road components, and erroneous computation of the depreciation expenses, all
of which are not in accordance with the provisions of COA Circular No.
2015-008, thereby valuation, reliability and existence of the account could not
be ascertained.

We recommended that:

The Chairman of the Inventory Committee, in coordination with the

Municipal Engineer, prepare and maintain an Inventory of all Local Roads
and a Road Map. Likewise, the preparation of thoroughly accomplished
RLRN and RPCLRN must be observed yearly; and

The Municipal Accountant, in coordination with the Municipal Engineer,

identify the components of each completed projects and compute the accurate
depreciation expense accordingly. Moreover, make the necessary adjusting
journal entries to recognize any differences in the reconciliation of accounting
records and the required inventory reports.

iii. Disbursements for various projects implemented under the 20% Local
Development Fund amounting to ₱1,578,617.00 were directly debited to
Road Networks account instead of recording it initially as Construction in
Progress – Infrastructure Assets prior to its completion contrary to Paragraph
2 of Item N, Section 4 of the New Government Accounting System (NGAS)
 Manual for Local Government Sector (LGU) Volume I. Moreover,
expenditures amounting to ₱726,550.67 were not capitalized, instead were
recorded as Fuel, Oil and Lubricants Expenses contrary to paragraph 14 of
International Public Sector Accounting Standards (IPSAS) 17 and item 2.3 of
DILG-DBM Joint Memorandum Circular No. 2017-01 dated February 22,
2017, thus misstating the appropriate asset and expense accounts reported as
of December 31, 2021.

We recommended that the Accounting Office observe paragraph 2 of Item N,

Section 4 of the NGAS Manual for LGU - Volume I in recording cost of on-
going infrastructure projects as Construction in Progress – Infrastructure
Assets and paragraph 14 of IPSAS 17 in recognizing the cost of an item of
property, plant, and equipment as an asset and classifying expenditures as
capital expenditures in accordance with item 2.3 of DILG-DBM JMC No.
2017-1 dated February 22, 2017. Further, make the necessary adjustments to
correct the erroneous entry and recognize the appropriate asset accounts.

iv. Dormant funds and unutilized balance of completed projects funded by the
National Government Agencies totaling ₱339,212.69 were not returned back
to the Bureau of Treasury contrary to Item 4.9 and 6.7 of COA Circular
No. 94-013 and Executive Order (EO) No. 431, thereby caused delay in the
liquidation of the fund and deprived the National Government of its use.

We recommended for the Management to require the Municipal Accountant

to verify with the source agency on the existence of the dormant accounts in
their books and subsequently remit the correct amount to the Bureau of
Treasury. Likewise, immediately return the remaining balances of the
completed projects and submit the necessary liquidation reports to the source
agencies.

v. Disbursement vouchers and paid payrolls with its supporting documents

totaling to ₱292,200.27 remained unsubmitted contrary to Section 4 of
PD 1445 and Section 7.2.1 of COA Circular No. 2009-006 dated
September 15, 2009, thus precluding the audit team from conducting timely
audit of these transactions.

We recommended that the Municipal Accountant cause the immediate

submission of all unsubmitted disbursement vouchers and paid payrolls with
its supporting documents for the judicious audit and verification thereof.

vi. Four projects/programs totaling ₱9,300,000.00 financed by National

Government Agencies were not fully implemented, thus depriving the
community of the benefits that could have been derived therefrom. Further,
the Municipality failed to observe the imposition of liquidated damages for
the delivery of procured items beyond the agreed delivery schedule pursuant
to Item 8.1 of Annex E of the Revised IRR of RA 9184.

We recommended that the Local Poverty Reduction Action Team reassess the
feasibility of implementation of these programs/projects, and if found
feasible, expedite its completion in order to reap the benefits that could be
 derived therefrom. Moreover, the Municipality should observe the imposition
of liquidated damages to supplier for deliveries made beyond the agreed
delivery schedule rather than rejecting deliveries, in order to avoid hampering
the implementation of projects.

E. Summary of total Suspensions, Disallowance and Charges

7. Audit suspensions and audit disallowances amounting to ₱231,378.08 and

₱55,250.00, respectively, remained unsettled as of December 31, 2021 contrary to
Sections 5.4 and 7.1.1 of COA Circular No. 2009-006 dated September 15, 2009.

F. Statement on the quantity/number of recommendations implemented, partially

implemented and not implemented for the current year.

8. Of the sixteen (16) recommendations contained in the CY 2020 Annual Audit

Report, ten (10) were implemented, two (2) were partially implemented and four
(4) were not implemented.