EXECUTIVE SUMMARY

HIGHLIGHTS OF FINANCIAL OPERATION

Sources of Funds The General Fund Budget for Calendar Year 2011 was sourced mainly
from Internal Revenue Allotment (IRA) and augmented by income from other sourcessuch as
local taxes, permits and licenses, business income, service income, other income such as
income from grants and donations andinterest income, and miscellaneousincome. The Special
Education Fund Budget was sourced mainly from the one percent special education tax levied
pursuant to Section 235 of the Local Government Code.
Appropriations Total appropriations under the general fund and the special education fund
for Calendar Year 2011 amounted toP619,878,284.96 and P34,406,000.00, respectively.
Obligations Total obligations under the general fund and the special education fund during
the year amounted toP579,006,857.61 and P 23,930,214.24, respectively.

SCOPE OF AUDIT
We conducted aFinancial and Compliance Audit covering calendar year 2011to
determine the fairness of the presentation of the agencys financial statements, as well as
compliance with existing laws, rules and regulations. We also conducted a Value for Money
Audit on the General Fund, Special Education Fund (SEF) and Trust Funds to determine the
efficiency of the agencys utilization of the Funds.

AUDITORS OPINION ON THE FINANCIAL STATEMENTS

We rendered anunqualified opinion on the financial statements notwithstanding
unrecorded donated properties (Audit Finding No. 1) because the matter has been sufficiently
disclosed in the notes to financial statements.
SIGNIFICANT FINDINGS AND RECOMMENDATIONS
Financial and Compliance Audit
1.0
Various donated propertiesfrom threedonors remained unrecorded in the books of
accounts of the City Government of Legazpi resulting in an understatement of assets,
liabilities, government equity and income from grants and donations by approximately
P28,952,044.45, 2,926,302.66, 8,333,581.79 and 17,692,160.00, respectively. Certain
deficiencies on these donations were likewise noted.

1.1 Donated properties from Bicol Consortium for Development Initiatives (BCDI)
remained unrecorded in the books of accounts of the City Government of
Legazpi.Deficiencies on this donation were noted.
Recommendations:
1. Designate a responsible CGL official/employee to supervise and manage the
operations of the SEDCen to ensure viability and sustainability ofSEDCen. There
is more reason now to do this in the light of the above-mentioned observations (i.e.
assumption of loan repayment by the City; doubtful viability and sustainability;
very broad objectives of the CGL; region-wide coverage of the SEDCen).
2. Harmonize CGL and BCDI mission/objectives in the new SEDCen Operating
Guidelines in order to meet the conditions of the donation (i.e. to continue the
vision and mission of the donor).
3. Amend/reform the contract for clarity and guidance of both parties.
4. Obtain a copy of the agreement pertaining to the loan assumed by the City of
Legazpi (between the BCDI, as debtor, and the SEDP-Simbag sa Pag-Asenso,
Inc.); verify validity of such loan; negotiate for waiver of interest or lower interest
terms.
5. Seek Sangguniang Panlungsod approval for the payment of P2.75M loan and
appropriate funds for the contingency of providing of additional funds in case
SEDCen earnings are not sufficient to cover its operating expenses.
6. Amend existing lease contracts to reflect the City as the Lessor. Henceforth, all
lease contracts shall be signed by Honorable City Mayor.
7. Conduct a physical count of furniture, fixtures and equipment donated by BCDI
before recording in the books of accounts of the City.
8. The City Appraisal Committee should validate the valuation of assets and
liabilities as a basis for recording these in the CGLs books of accounts. Donated
real properties should be valued at their fair market values in accordance
withPhilippine Generally Accepted Accounting Principles. Finally,
9. Record SEDCen as an Economic Enterprise in the books of accounts of the CGL.

1.2 Donated properties from ANBH Assets Development Philippine Corp remained
unrecorded in the books of accounts of the City Government of Legazpi.Deficiencies on
this donation were noted.
Recommendations:
1. The City Accountant must record the donated properties in the books of accounts
of the City of Legazpi. An appraisal of donated properties must be made by the
City Appraisal Committee as basis for its recording.
2. A plan for the eventual use of the above-mentioned donated properties for the
benefit of its constituents should be made.
3. The City Government thru its City Legal Officer should take the initiative to file
its case with the Regional Trial Court of Legazpi City for the cancellation of the
annotation of adverse claim on the donated lot.
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1.3 Donated properties from Mr. Gary T. Fernando remained unrecorded in the books of
accounts of the City Government of Legazpi.
Recommendation:The City Accountant must record the donated properties in the
books of accounts of the City of Legazpi. An appraisal of donated properties must be
made by the City Appraisal Committee as basis for its recording.

2.0 The City Government of Legazpi is maintaining depository accounts with banks other
than LBP and DBP without prior approval from the Department of Finance contrary to DOF
Department Order No. 27-05.
Recommendation:Management should seek DOF approval for the continued maintenance of
all its accounts with banks other than LBP and DBP. Otherwise, these accounts should be
closed (in accordance with Circular Letter dated March 4, 2006 of the BSP Deputy Governor,
above-mentioned) and transferred to any of the following AGDBs: LBP, DBP, Philippine
Postal Savings Bank and Philippine Veterans Bank.
3.0
The City of Legazpi invested P177,233,879.92 in a special savings account/time
deposits contrary to Sections 21, 22 and 23 of COA Circular No. 92-382 instead of
immediately using such funds for purpose/s which would immediately redound to the benefit
of its constituents.
3.1 The LGU invested P92,175,403.41 under the General Fund in special savings/time
deposits in violation of Sections 21 and 22 of COA Circular No. 92-382 instead of
immediately using such funds for purpose/s which would immediately redound to the
benefit of its constituents.
Recommendation:The P92,175,403.41 investment in special savings/time deposits should
be returned to the General Fund current account. Management should immediately
implement projects/programs in order that the needed services to the constituents may not
be delayed or sacrificed in favor of earning interest in time deposits. In the future, in cases
when there are idle funds identified, their investment should have the prior authority of
the sanggunian and approval of the local chief executive as required.
3.2 The LGU invested P10,058,476.51 under the Special Education Fund in special
savings/time deposits in violation of Sections 21 and 22 of COA Circular No. 92-382
instead of using such funds for the specific purpose/s of the SEF under Section 272 of the
Local Government Code, thus, depriving the intended SEF beneficiaries of the immediate
benefits that would have been derived therefrom.
Recommendation:The P10,058,476.51 investment in special savings/time deposits should
be returned to the Special Education Fund current account. Thereafter, the Local School
Board should facilitate the formulation of definite plans for its use and immediately
implement the same. Education is a continuing process.

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3.3 The LGU invested P75 millions of its Trust Funds in special saving/time deposits in
violation of Sections 21 and 22 of COA Circular No. 92-382 instead of using such funds
for the specific purpose/s for which the trust funds were created thus depriving the
constituents of the City of the benefits that would have been derived therefrom.
Recommendation:Management is advised to transfer back the P75 million plus interest to
the Citys current account maintained for its trust funds.Management should hasten the
implementation of programs/projects for which these trust funds were created.
3.4 Unrecorded/accrued interest on special savings account/time deposits of the City of
Legazpi as of December 31, 2011 amounted P220,026.04. Minor errors were also noted in
recording interest income.
Recommendation:The City Accountant should record the necessary adjustments in the
accounting records.
4.0 Deficiencies noted in the construction of Core Shelter Housing Project Phase IV casts
doubt on the correctness of the computed costs for the project.
Recommendation:The City Engineer should explain the variations in units, unit prices and total prices
on the above-mentioned projects. In the future, the City Engineer should carefully review the costing
of the projects.

5.0
Income and Expense trends showed decreasing income and increasing expenses
compared to previous year.
Recommendations:
1. TheCity Treasurers Office should investigate the cause of the decrease in Permits and
Licenses and intensify its collection in the future.
2. The Honorable City Mayor should take appropriate measures to reduce and control the
increasing amount of general services payroll.
3. Management should investigate the causes of the increases in Maintenance and Other
Operating Expense accounts and if the increases are found to be beyond normal, employ a
cost-cutting and/or monitoring mechanism to control unnecessary increases in expenditures
in the future.

6.0
Various deficiencies were noted in the Procurement of Textbooks and Instructional
Materials under the Special Education Fund.
6.1 In three (3) out of six (6) bidded transactions, the no warranty security was required
from the winning bidder. In the remaining three (3) instances, although a 10% retention
money was withheld, the same was returned before the expiration of the 3-month warranty
period, contrary to Section 62.1 of Republic Act 9184.

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Recommendation:Management should strictly enforce compliance with the required

warranty securities in all its procurements except those mentioned in Section 54.5 of RA
9184. Warranty securities must be released only after the lapse of the warranty period as
provided in the regulations.
6.2 Percentage tax of three percent (3%) was not withheld from five (5) out of eight (8)
transactions for the procurement of textbooks and instructional materials, contrary to RA
1051 and Revenue Regulation 2-98, as amended.
Recommendation:The Accounting Office must ensure that percentage tax and other
internal revenue taxes due the government are properly withheld from all government
money payments subject to tax as prescribed by the Bureau of Internal Revenue (BIR).
6.3 The withholding of business taxes due the LGU from the claim of the suppliers was
not properly recorded contrary to Section 111 of PD 1445. No business taxes were
withheld for five (5) out of eight (8) transactions for procurement of textbooks totaling
P3,189,386.00.
Recommendation: The City Accountant should prepare the necessary correcting journal
entry. A separate disbursement voucher must be drawn for the transfer of the collection of
business tax to General Fund. Same procedures must be observed in all transactions
involving the withholding of taxes due to the LGU, in order to accurately reflect the
nature of the transaction.
6.4 Issuance of textbooks and instructional materials are not covered by Inventory
Custodian Slips as required by COA Circular No. 2005-2.
Recommendations:
1. The City Accountant should record acquisition of textbooks as Textbook and
Instructional Materials Inventory first, and as Textbook and Instructional Materials
Expense, upon issuance.
2. The General Services Office should use the Inventory Custodian Slip (ICS) together
with the RIS for the issuance of textbooks and instructional materials and other small
tangible items enumerated in COA Circular 2005-2.
7.0 Radio communications equipment worth P341,640.00 were purchased without a Permit to
Purchase contrary to existing National Telecommunications Commission (NTC) Radio Rules
and Regulations. Some units are reportedly unused due to lack of support facilities.
Recommendation:The
CDRRMC
Action
Officer
should
facilitate
the
acquisition/establishment of the base station in order to immediately operationalize the use of
the units issued to his Office and achieve the purpose for which these were bought. The
necessary NTC requirements attendant to its purchase/possession and use should also be
obtained. The Bids and Awards Committee is likewise reminded to comply with the rules on
procurement (i.e. no reference to brand names; posting requirements, etc.).
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8.0Deficiencies were noted in the development and installation of a website

8.1 Advance payment of 50% of the contract price was paid to the service provider, in
violation of Section 338, R.A. 7160 and Section 88, P.D. 1445.
Recommendation:Management should therefore avoid giving advance payments on
contracts for goods/services not yet delivered/inspected/accepted.
8.2
The first advance payment amounting P29,500.00 was made without a valid
contractual basis.
Recommendation:Management should refrain from paying transactions which are not
supported with complete and valid documents, in the future.
8.3 The second contract amounting to P180,000.00 was merely negotiated with the
previous service provider and was not covered by a new sanggunian authority.
Recommendation:Management should consider this transaction as an isolated case and not
as a precedent. In the future, management should strictly adhere to pertinent regulations
on negotiated procurement and the proper authority to be given by the sanggunian to the
City Mayor to enter into specific contracts.
8.4 The first contract was fully paid without inspection and acceptance by the City
Government.
Recommendation:The Inspection and Acceptance report is a basic documentary
requirement for procurement of services. No voucher may be paid until the evidence of
satisfactory inspection by the agency has been attached to the voucher. (Section 467,
GAAM, Volume I).
9.0 Expenditures of the same nature were inconsistently classified/recorded under different
accounts.
Recommendation:The City Accountant should classify transactions in accordance with the
Standard Chart of Accounts.
Value for Money Audit
10.
A total amount of P51,347213.11 appropriations/allotments remained unobligated as
of December 31, 2011 under the General Fund and the Special Education Fund indicating
inefficiencies in the utilization of available funds.
Recommendation: Management should facilitate the implementation of projects/programs for
the benefit of its constituents. The bidding and/or procurement for projects/programs already
identified, as well as the preparation of project plans/documents should be facilitated by the
Bids and Awards Committee and the City Engineers Office, respectively.

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11.
Only P95,226,738.08 or 44.37% of the total PDAF for the calendar years 2009 to
2011 were utilized/spent as of December 31, 2011, leaving P119,405,261.92 or 55.63%
unutilized indicating inefficiencies in the utilization of available funds and/or delayed
implementation of programs/projects.
Recommendation: Management should hasten the implementation of projects funded out of
the PDAF.
STATUS OF IMPLEMENTATION OF PRIOR YEARS AUDIT RECOMMENDATIONS
The Agency implemented three (3) and partially implemented nine (9) out of twelve
(12) prior years audit recommendations.

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