Republic of the Philippines
COMMISSION ON AUDIT
Office of the Regional Director
Regional Office No. VI
Ungka I, Pavia, Iloilo
April 28, 2011
HONORABLE ALFREDO G. MARAÑON JR.
Governor
Province of Negros Occidental
Sir:
Pursuant to Section 2, Article IX-D of the Philippine Constitution and Section 43
(2) of Presidential Decree No. 1445, otherwise known as the “Government Auditing
Code of the Philippines”, and in line with this Commission’s efforts towards informing
Management on how fiscal responsibility had been discharged, we are pleased to transmit
the interim report of our Auditor on his audit of the accounts and operations of the
Provincial Government of Negros Occidental for the year ended December 31, 2010.
The audit was conducted to ascertain the propriety of financial transactions and
compliance of the local government unit to prescribed rules and regulations. It was also
made to ascertain the accuracy of financial records and reports, as well as the fairness of
the presentation of the financial statements.
We request that the comments and observations contained in the attached report
be appropriately acted upon and would appreciate being informed through our auditor of
the action(s) taken thereon within one (1) month from receipt hereof.
We acknowledge the cooperation and support extended to our auditor and his staff
during the audit.
Very truly yours,
SALVADOR P. ISIDERIO
Director IV
Regional Director
Copy furnished:
The Sangguniang Panlalawigan, Province of Negros Occidental
The Regional Director, Department of Interior and
Local Government, Region VI
The Regional Director, Department of Budget and
Management, Region VI
The Regional Director, Bureau of Local Government
Finance, Region VI
Republic of the Philippines
COMMISSION ON AUDIT
Audit Group I – Province of Negros Occidental
OFFICE OF THE AUDIT TEAM LEADER
TEAM 1 – Province of Negros Occidental
Bacolod City
February 28, 2011
MEMORANDUM FOR:
SALVADOR P. ISIDERIO
Director IV
Regional Director
Commission on Audit
Regional Office No. VI
Ungka I, Pavia, Iloilo
Thru: Natividad R. Asentista
Supervising Auditor
Audit Group I
In compliance with Section 2, Article IX-D of the Philippine Constitution and
pertinent sections of Presidential Decree No. 1445, we conducted a financial and
compliance audit on the accounts and operations of the Province of Negros Occidental
for the year ended December 31, 2010.
The audit was conducted to ascertain the propriety of financial transactions and
compliance of the local government unit to prescribed rules and regulations. It was also
made to ascertain the accuracy of financial records and reports, as well as the fairness of
the presentation of the financial statements.
Our attached report consists of four parts. Part I contains the Audit Certificate,
the Statement of Management Responsibility for Financial Statements, Audited
Consolidated Financial Statements and Notes to Financial Statements. Part II presents
the Detailed Findings and Recommendations which were discussed with concerned
Management officials and staff, for: a) Financial and Compliance Audit and b) Value
for Money Audit. Part III contains the Status of Implementation of Prior Years’ Audit
Recommendations. Part IV presents the Annexes which include: a) Financial Statements
by Fund b) Status of Appropriations, Allotments and Obligations and c) Other
Supplementary Schedules and Related Supporting Documents.
There is a reasonable assurance that the financial statements are free of material
misstatement/s and were prepared in accordance with applicable laws, rules and
regulations and in conformity with generally accepted state accounting principles.
However, as noted in the audit findings, the Province failed to reconcile, identify,
and properly classify balances of asset accounts totaling P1,748,822,120.09, which
renders doubtful the validity of 38% of the total assets recorded in the books of accounts
of the LGU. Delayed remittances and deposits and delayed recording of receipts and
collections resulted in the understatement of the balances of cash accounts in year-end
financial statements by P7,351,392.09 in 2009 and by P9,375,194.62 in 2010. Moreover,
the Accounting Office failed to record adjustments in the books of accounts for
reconciling items requiring debit to cash amounting to P52,242,205.91 and adjustments
for credits to cash totalling P49,463,904.33; for the understatement of the consolidated
cash balance resulting from fund transfer from the General Fund to the EEDD of the
amount of P35,518,781.5 on December 30, 2010 which was not immediately
acknowledged as collection of the EEDD on the same date; and for the misstatement of
the Due to NGAs account, related expense accounts and retained earnings, as well as
unaccounted deliveries of rice mostly pertaining to previous periods which amounted to
P35,676,443.26 as at year-end. The inadequacy of related records did not permit us to
apply alternative audit procedures.
In our opinion, except for the effect of any adjustments on the deficiencies
discussed in the preceding paragraph, the accompanying consolidated financial
statements present fairly in all material respects, the financial position of the Province of
Negros Occidental as of December 31, 2010, and the results of its operations and cash
flows for the period then ended in conformity with generally accepted accounting
principles.
Our audit was conducted in accordance with generally accepted state auditing
standards and we believe that it provides reasonable basis for the results of audit.
ERNIE C. VILLA
State Auditor IV
EXECUTIVE SUMMARY
Highlights of Financial Operations
a) Sources and Application of Funds
As of December 31, 2010, the Province generated a total operating income of
P1,911,297,523.28, an increase of 7.5% compared to that of the preceding year. The bulk
of the income consists of the Internal Revenue Allotment and local taxes.
Total expenses for the period is P1,367,942,790.18, which increased by 10.7%
over that of last year and consists primarily of Personal Services and Maintenance and
Operating Expenses (MOOE).
b) Appropriations
The Province has a total appropriations for CY 2010 of P2,816,881,520.60
consisting of P2,747,117,540.03 and P69,763,980.57 for the General and Special
Education Funds, respectively, broken down as follows:
Personal Services
MOOE
Capital Outlay
Financial Expenses
Total
Gen. Fund
SEF
Total
P
710,920,411.02 P 9,356,728.00 P
720,277,139.02
1,601,146,847.11
60,407,252.57
1,661,554,099.68
376,550,281.90
376,550,281.90
58,500,000.00
58,500,000.00
P 2,747,117,540.03 P 69,763,980.57 P 2,816,881,520.60
c) Obligations
As of year-end, the total obligations for CY 2010 totaled P2,520,810,952.41
consisting of P2,472,862,583.18 and P47,948,369.23 for the General and Special
Education Funds, respectively.
Personal Services
MOOE
Capital Outlay
Financial Expenses
Total
Gen. Fund
SEF
Total
690,953,674.37 P 8,635,752.84 P
699,589,427.21
1,423,526,937.10
39,312,616.39
1,462,839,553.49
300,313,582.23
300,313,582.23
58,068,389.48
58,068,389.48
P 2,472,862,583.18 P 47,948,369.23 P 2,520,810,952.41
P
d) Financial Ratios
Increase
(Decrease)
2.47:1
2.16:1
0.31
2.12:1
1.87:1
0.25
P 931,996,685.94 P 732,168,907.85 P 199,827,778.09
2010
Current Assets Ratio
Quick Ratio
Net Working Capital
2009
Operating Income
Net Income
0.28:1
0.20:1
0.30:1
0.20:1
(0.02)
0.00
Return on Total
Assets
0.08:1
0.08:1
0.00
Debt Ratio
Debt-Equity Ratio
0.20:1
0.05:1
0.22:1
0.06:1
(0.02)
(0.01)
Scope of Audit
A financial and compliance audit on the accounts and operations of the Province
of Negros Occidental was conducted for the period ended December 31, 2010. The audit
was conducted to ascertain the propriety of financial transactions and compliance of the
Province to prescribed rules and regulations. It was also made to ascertain the accuracy
of financial records and reports, as well as the fairness of the presentation of the financial
statements.
Auditor’s Opinion on the Financial Statements
The auditor rendered a qualified opinion on the accompanying consolidated
financial statements because the fairness of presentation of assets of the Province is
doubtful primarily due to its failure to reconcile, identify, and properly classify balances
of asset accounts totaling P1,748,822,120.09, which renders doubtful the validity of 38%
of the total assets recorded in the books of accounts of the LGU. Delayed remittances and
deposits and delayed recording of receipts and collections resulted in the understatement
of the balances of cash accounts in year-end financial statements by P7,351,392.09 in
2009 and by P9,375,194.62 in 2010. Moreover, the Accounting Office failed to record
adjustments in the books of accounts for reconciling items requiring debits to cash
amounting to P52,242,205.91 and adjustments for credits to cash totalling
P49,463,904.33; for the understatement of the consolidated cash balance resulting from
fund transfer from the General Fund to the EEDD of the amount of P35,518,781.5 on
December 30, 2010 which was not immediately acknowledged as collection of the EEDD
on the same date; and for the misstatement of the Due to NGAs account, related expense
accounts and retained earnings, as well as unaccounted deliveries of rice mostly
pertaining to previous periods which amounted to P35,676,443.26 as at year-end.
Significant Findings and Recommendations
1.
The Province of Negros Occidental failed to reconcile, identify, and properly classify
balances of asset accounts totalling P1,748,822,120.09, which renders doubtful the
validity of 38% of the total assets recorded in the books of accounts of the LGU as at
year-end.
We recommend that the Provincial Accountant effect reconciliation of the balances of
the asset accounts against relevant records and record the appropriate adjustments to
reflect the correct balances.
2.
The Province failed to implement existing rules and regulations pertaining to the
granting, utilization and liquidation of cash advances of officials and employees of
the LGU, resulting in the unliquidated cash advances amounting to P43,235,285.20
as at year-end.
We recommend that the Province should comply with the provisions of COA
Circular 97-002 and ensure proper granting, utilization and liquidation of cash advances.
The Provincial Accountant should rectify errors in the recording of accounts to
ensure proper monitoring of liquidation of cash advances and implementation of existing
rules and regulations on cash advances, including the withholding of salaries of
accountable officers who fail to effect prompt liquidation in accordance with existing
rules and regulations.
3.
Extant practices and procedures of the Province pertaining to receipts and collections
resulted in delayed remittances and deposits and delayed recording of receipts and
collections, thereby weakening accounting controls over the cash transactions and
ultimately resulting in the understatement of the balances of cash, income and related
accounts in the periodic and year-end financial statements amounting to
P7,351,392.09 in 2009 and P9,375,194.62 in 2010, contrary to the accounting
policies set forth in the Manual on the New Government Accounting System.
We recommend that management should implement measures to ensure prompt
reporting, remittances and deposit of collections in order to reflect the correct cash
balances in the financial statements:
a. Collecting officers should be required to prepare RCD’s at the close of each
business day and effect remittance of their collections daily, particularly when
collections exceed P5,000.00;
b. The Province should consider the designation of additional liquidating officers
and merging their functions with the verification unit, in order to facilitate the
verification and remittance process. Procedures for verification of receipts should
be streamlined to ensure prompt recording and remittance of collections;
c. The Province should likewise consider the designation of a regular cashier and/or
collecting officers for Mambukal resort, considering the substantial volume of
cash handled by said enterprise;
d. Enterprises with assigned cashiers (regular or designated) should be required to
deposit collections in authorized depository banks (directly or through inter-bank
transfers) to reduce risk of loss in transit as well as to ensure prompt deposit of
collections. The verified RCD’s should be submitted to accounting for recording,
and the transactions of the cashiers as accountable officers of said enterprises
should be recorded in their respective cashbooks.
e. The Provincial Accountant and the Provincial Treasurer should conduct jointly a
review of the accounting and reporting policies of the Province with regard to
collection, deposit and recording of revenues, in order to ensure correctness and
accuracy of cash balances in Treasury reports and in the financial statements and
to preclude any duplication of procedures and functions.
4.
A fund transfer from the General Fund to the EEDD on December 30, 2010 was not
immediately acknowledged as collection of the EEDD on the same date, resulting in
the understatement of consolidated Cash accounts of the Province as at year-end by
P35,518,781.50.
We recommend that the appropriate adjustments be recorded in the books as at yearend to correct the understatement of the Cash accounts, and that henceforth, transactions
involving fund transfers should be simultaneously recognized in the books of accounts
maintained for the funds involved in said transactions.
5.
The lack of proper review of the validity of reconciling items in the bank
reconciliation statements and monitoring of their disposition by the Accounting
Office despite indicators of possible fraudulent transactions amounting to
P14,378,355.23 cast doubts on the validity of the reconciliation process and the
accuracy of the valuation of the cash accounts in the financial statements, in view of
unrecorded adjustments in the books of accounts for reconciling items requiring
debit to cash amounting to P52,242,205.91 and adjustments for credits to cash
totalling P49,463,904.33.
We recommend that the Provincial Accountant should implement the provisions of
COA Circular No. 96-011 and record adjustments for valid reconciling items as reflected
in the BRS prepared by the Accounting Office. The Province should likewise make
representations to the respective banks for correction of bank errors noted in the BRS.
Henceforth, the BRS submitted to the COA Auditor should be supported by copies of
the JEV recording reconciling items that require correction in the books of accounts, as
well as a copy of the letter to the respective bank informing them of errors noted in the
BRS (other than those resulting from the timing of recording of transactions). Upon
receipt of the bank statements and prior to actual reconciliation, verification of supporting
paid checks, debit memos and credit memos should be made to ensure that debits and
credits made in the bank statements are properly documented by the Bank.
The Accounting Office should require banks to submit original copies of the bank
statements, aside from the faxed advanced copies. Cash balances and transactions should
be monitored regularly to determine proper use of the accounts and prevent charges per
BSP regulations for dormant accounts.
6.
The Province failed to effect prompt liquidations of funds released to nongovernmental organizations/private organizations (NGO/PO’s) pursuant to the
provisions of COA Circular 2007-001 dated October 25, 2007, resulting in the
accumulation of unliquidated releases amounting to P180,415,866.08 as at year-end
along with the consequent understatement of expenses and overstatement of assets
and retained earnings.
We recommend that the Province should implement the provisions of COA Circular
2007-001 and ensure proper granting, utilization and liquidation of cash fund transfers.
The Provincial Accountant should review all outstanding accounts and record
adjustments for transfers that actually partake of the nature of donations rather than that
of project implementation as contemplated in the regulations.
The Province should institute action against NGO/PO’s and their officers/organizers
that failed to implement the programs and projects funded by the Provincial government
pursuant to the provisions of the Memorandum of Agreement covering these transactions.
7.
Lack of monitoring and proper accounting for deliveries of rice procured through
negotiated procurement from the National Food Administration had resulted in the
misstatement of the Due from NGAs account, related expense accounts and retained
earnings, as well as in unaccounted deliveries of rice mostly pertaining to previous
periods which amounted to P35,676,443.26 as at year-end.
We recommend that the Provincial Accountant should analyze the Due from NGAs
account and reclassify charges and credits to the appropriate accounts. NFA warehouse
stock issue forms should be compared against quantities procured per P.O., and if indeed
incomplete deliveries had been made, discrepancies should be reported to NFA along for
the demand to make good the shortfall/unserved purchase orders, if any.
Requisitioning Project implementers should in turn be made to account for all rice
withdrawn per verified NFA warehouse stock issue slips by presenting
payrolls/distribution sheets duly acknowledged by recipients. Unaccounted deliveries
should be charged to the accountability of Project implementors.
Henceforth, purchase orders should be supported by schedules of deliveries, and
project proposals should incorporate time-tables for project implementation and identify
beneficiaries, to facilitate monitoring of accountabilities as well as accomplishment of
project objectives.
8.
The Office of the Provincial Accountant failed to effect prompt submission to the
Office of the Provincial Auditor of all vouchers issued by the Province, contrary to
the provisions of Section 107 of PD 1445 and the Rules and Regulations on the
Settlement of Accounts.
We recommend that the Accounting Office should submit all the unaccounted
original vouchers and supporting documents to the Office of the Auditor. We likewise
recommend that the Provincial Treasurer release checks only to claimants and forward
the vouchers and supporting documents to the Office of the Provincial Accountant in
accordance with procedures laid out in the Manual on NGAS.
9.
The Province of Negros Occidental had effected only partial settlement of all
disallowances and suspensions issued upon the effectivity of the COA Rules and
Regulations on the Settlement of Accounts, reducing unsettled balances to P1,724.00
and P65,552,184.57, respectively, as at December 31, 2010.
We recommend that management effect full settlement of suspensions by
submitting the required documentation and explanations/justifications listed in the notices
of suspension, in order to avoid unnecessary complications arising from suspensions
lapsing into disallowances.
10. A review of transactions pertaining to trust funds granted by the Bureau of
Postharvest Research and Extension (BPRE) for the establishment of agricultural
tramline in the province of Negros Occidental reveals deficiencies in the
implementation of the project as well as in the handling, accounting and utilization
of funds, resulting in the overcharging of administrative costs amounting to
P1,004,480.50 and the failure to fully implement the project within the period of
effectivity of the covering Memorandum of Agreement (MOA) as well as to
liquidate the funds received for the purpose to date:
10.1 The Province through the Office of the Provincial Agriculturist (OPA) had
charged project funds with excessive administrative costs totalling
P1,140,740.76, most of which are not relevant to the Project, although the
MOA provided for administrative and non-direct cost of only 1% of total
project cost amounting to P136,260.26;
10.2 Only one project thus far had been completed and accepted as at year-end, well
beyond the one-year period of effectivity of the MOA; Four projects were all
awarded to only one contractor, while three projects, including two projects
supposed to have been implemented under Phase I, have not been awarded to
any contractor as of date of expiry of the MOA;
10.3 The amounts released by BPRE as trust fund were not deposited in a separate
trust liability account in an authorized government depository bank, contrary to
the provisions of the MOA;
10.4 The Accounting Office failed to properly monitor utilization of funds to ensure
that disbursements are made only for the specific purpose provided in the
MOA.
We recommend that the Province should endeavor to complete the implementation
of the projects and liquidate the funds due BPRE.
Program of works prepared by the Project implementing office should indicate
specific time-table for the projects; amendments, deviations and extensions should bear
concurrence of the funding agency and/or the project management committee, particular
when these extend beyond the effectivity of the MOA/trust agreement.
The Provincial Accountant should ensure that the program of works prepared for
Projects, particularly its financial component, are in conformity with provisions of the
budget/trust agreement (a file of which should be maintained in the Accounting Office
for guidance and reference).
The Offices of the Provincial Agriculturist and the Provincial Accountant should
properly review charges and ensure that only costs and expenses relevant to the specific
purpose of the Project are charged against trust funds, while relevant administrative
expenses should never exceed limits set under the MOA. Other unnecessary and
irrelevant costs and charges which cannot be funded under the regular budget of the OPA
should be charged to the account of persons responsible therefor.
Status of Implementation of Prior Year’s Audit Recommendations
Of the 21 audit recommendations contained in the prior years’ Audit Reports, one
(1) was fully implemented, sixteen (16) were partially implemented and four (4) were not
implemented.
TABLE OF CONTENTS
PART I
AUDIT CERTIFICATE
FINANCIAL STATEMENTS
- CONSOLIDATED BALANCE SHEET
- CONSOLIDATED STATEMENT OF INCOME
AND EXPENSES
- CONSOLIDATED STATEMENT OF CASH
FLOWS
- CONSOLIDATED STATEMENT OF
GOVERNMENT EQUITY
NOTES TO FINANCIAL STATEMENTS
Page No.
1
3
3
5
6
8
9
PART II
DETAILED FINDINGS AND
RECOMMENDATIONS - FINANCIAL AND
COMPLIANCE AUDIT
18
PART III
STATUS OF IMPLEMENTATION OF PRIOR
YEARS’ RECOMMENDATIONS
42
PART IV
ANNEXES
- FINANCIAL STATEMENTS BY FUND
- STATUS OF APPRIOPRIATIONS
ALLOTMENTS AND OBLIGATIONS
- OTHERS
57
Republic of the Philippines
COMMISSION ON AUDIT
OFFICE OF THE REGIONAL DIRECTOR
Regional Office No. VI
Ungka I, Pavia, Iloilo
AUDIT CERTIFICATE
HON. ALFREDO G. MARAÑON JR.
Governor
Province of Negros Occidental
Pursuant to Section 2, Article IX-D of the Philippine Constitution and pertinent
provisions of Presidential Decree No. 1445, we have audited the accompanying
Consolidated Balance Sheet of the Provincial Government of Negros Occidental as of
December 31, 2010 and the related consolidated statements of income and expenses and
cash flows for the year then ended. These financial statements are the responsibility of
the Negros Occidental Provincial Government’s management. Our responsibility is to
express an opinion on these financial statements based on our audit.
Except as discussed in the following paragraph, we conducted our audit in
accordance with laws, COA and INTOSAI standards and applicable Generally Accepted
Auditing Standards (GAAS). Those standards require that we plan and perform the audit
to obtain reasonable assurance whether the financial statements are free of material
misstatements. An audit includes examining on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit
provides reasonable basis for our opinion.
As discussed in our Findings, the fairness of presentation of the assets of the
Province is doubtful due to the failure of the Accounting Department to reconcile,
identify, and properly classify balances of asset accounts totaling P 1,773,248,362.93,
which renders doubtful the validity of 38% of the total assets recorded in the books of
accounts of the LGU. Delayed remittances and deposits and delayed recording of receipts
and collections resulted in the understatement of the balances of cash accounts in yearend financial statements by P7,351,392.09 in 2009 and by P9,375,194.62 in 2010.
Moreover, the Accounting Office failed to record adjustments in the books of accounts
for reconciling items requiring debit to cash amounting to P52,242,205.91 and
adjustments for credits to cash totalling P49,463,904.33; for the understatement of the
consolidated cash balance resulting from fund transfer from the General Fund to the
EEDD of the amount of P35,518,781.5 on December 30, 2010 which was not
immediately acknowledged as collection of the EEDD on the same date; and for the
misstatement of the Due to NGAs account, related expense accounts and retained
earnings, as well as unaccounted deliveries of rice mostly pertaining to previous periods
which amounted to P35,676,443.26 as at year-end.
In our opinion, except for the effect of any adjustments on the deficiencies
discussed in the preceding paragraph, the accompanying consolidated financial
statements present fairly in all material respects, the financial position of the Province of
Negros Occidental as of December 31, 2010, and the results of its operations and cash
flows for the year then ended in conformity with generally accepted accounting
principles.
COMMISSION ON AUDIT
NATIVIDAD R. ASENTISTA
Supervising Auditor
Audit Group I
February 28, 2011
CONSOLIDATED BALANCE SHEET
PROVINCE OF NEGROS OCCIDENTAL
CY 2009
CONSOLIDATED STATEMENT OF INCOME AND EXPENSES
PROVINCE OF NEGROS OCCIDENTAL
CY 2009
CONSOLIDATED STATEMENT OF CASH FLOWS
PROVINCE OF NEGROS OCCIDENTAL
CY 2009