EXECUTIVE SUMMARY

A. Introduction

The Municipality of Dipaculao is a Local Government Unit created thru Executive Order
No. 375, dated November 27, 1950. It has a total land area of 40,496.94 km2 located in
the Mid-Eastern Coast of Aurora Province along Coastline of Pacific Ocean. It is
composed of 25 barangays with a total households and population of 5,420 and 25,948,
respectively. The Municipality is classified as 3rd class municipality. Potential resources
within the Municipality are bangus fry, agricultural and forest products.

The Municipality of Dipaculao is envisioned as a haven of sustained growth with equity

and stability, a decent and productive employment, a culture of tourism accelerating
infrastructure support, food security, advancing social security, enhanced health care and
sustained management and uses natural resources.

B. Scope of Audit

The audit covered the financial transactions and operations of the Municipality of
Dipaculao for the year ended December 31, 2017. The objectives of the audit were to (a)
ascertain the degree of reliance on the management’s assertions on the financial
statements; (b) recommend agency improvement opportunities; and (c) determine the
extent of implementation of prior year’s audit recommendations.

In compliance with the Unnumbered Memorandum dated October 12, 2017 by the
Commission on Audit Assistant Commissioner for Local Government Sector (LGS) and
in pursuance of COA Memorandum No. 2016-023 dated November 14, 2016, which
identify the CY 2017 audit foci, we covered in audit the Cash and Cash Equivalents,
Financial Liabilities, Fund Transfers (Due from/Due to NGOs/POs, NGAs, GOCCs and
LGUs), Funds Directly Released by the DBM to LGUs From the Appropriations for
Local Government Support Fund (LGSF, Local Disaster Risk Reduction Management
Fund, Compliance with RA 9184, Compliance and Performance Audit of 20%
Development Fund, Revenue-Generating Program, Enforcement of COA Disallowances
and Charges, Compliance to Tax Laws, Remittance of Mandatory Contributions (GSIS,
Philhealth and Pag-IBIG), Compliance with Programs and Projects related to Gender and
Development, and Statement of Audit Suspensions, Disallowances and Charges. Result
of audit with significant observations were discussed in Part II of this Report.

C. Financial Highlights

The following comparative data shows the financial condition, results of operation, and
sources and application of funds for the calendar years 2017 and 2016.

i
 Increase/
2017 2016
(Decrease)
Financial Position
Assets ₱208,137,325.33 ₱148,814,373.35 ₱59,322,951.98
Liabilities 38,661,738.11 20,327,166.81 18,334,571.30
Government Equity 169,475,587.22 128,487,206.54 40,988,380.68
Results of Operation
Income ₱129,825,762.38 ₱122,331,144.86 ₱7,494,617.52
Expenses 96,182,159.81 94,592,594.95 1,589,564.86
Surplus (Deficit) from
current operations 33,643,602.57 27,738,549.91 5,905,052.66
Sources and Application of Funds
Appropriations ₱134,533,447.36 ₱119,029,343.47 ₱15,504,103.89
Obligations 105,165,632.87 105,772,755.55 (607,122.68)
Balances 29,367,814.49 13,256,587.92 16,111,226.57

D. Independent Auditor’s Report

We rendered a qualified opinion on the fairness of presentation of the financial

statements of the Municipality of Dipaculao for the year ended December 31, 2017
because of the following: (a) unreliable carrying value of Property, Plant and Equipment
(PPE) accounts amounting to ₱133,742,838.84 due to incomplete/un-updated property
records and incomplete physical count of property; and (b) unreliable balances of Real
Property Tax (RPT) and Special Education Tax (SET) Receivables totaling ₱274,911.20
due to the non-maintenance of subsidiary ledgers of real property taxpayers by the
Municipal Accountant and understatement by at least ₱6,757,123.36 of the year-end
balances which pertain to unrecorded delinquencies as at said year end.

For the above mentioned deficiencies on PPE, we reiterated our previous

recommendation that the Local Chief Executive (a) instruct the Inventory Committee to
(i) conduct a comprehensive physical count of PPE and (ii) submit the Report on the
Physical Count of Property, Plant and Equipment (RPCPPE) to the Office of the Auditor
within the prescribed period; b) direct the General Service Office and the Municipal
Accountant to complete/update the Property Cards and Property Ledger Cards and
perform regular reconciliation thereof.

As to the unreliable RPT/SET Receivables balances, we recommended that the Local

Chief Executive instruct the Municipal Accountant and Municipal Treasurer to (a)
determine the correct amount of RPT and SET collectibles from prior years; (b)
Municipal Treasurer to henceforth furnish the Municipal Accountant at the beginning of
the year a certified list of taxpayer and the amount due and collectible for the year; and
(c) Municipal Accountant to (i) recognize the RPT and SET Receivables in the books
based on the said certified list and the list of delinquencies; and (ii) maintain subsidiary
records for RPT and SET receivables.

ii
E. Summary of Other Significant Observations and Recommendations

Commendably, we found the Municipality of Dipaculao to be compliant with the

withholding and remittance of (a) taxes to the Bureau of Internal Revenue, and (b)
contributions and loan amortizations to the Government Service Insurance System and
the Home Development and Mutual Fund.

On the other hand, the observations which need management action are briefly
summarized as follows:

1. The approved amount of fidelity bonds of eight accountable officers (AOs) were
inadequate to cover their cash accountabilities showing non-compliance with the revised
schedule of premium rates presented in Annex C of Treasury Circular No. 02-2009 dated
August 6, 2009, thus, the Municipality may not be adequately indemnified in the event of
loss of cash under the accountability of said AOs. (Observation No. 3)

We recommended that the Local Chief Executive cause the provision of adequate budget
for the bonding of all accountable officers of the LGU in amounts that are commensurate
to the AOs’ accountabilities, in accordance with Treasury Circular No. 02-2009 in order
to provide adequate protection on the Municipality’s resources.

2 Due to inadequate planning, coordination, monitoring and control, only

₱12,210,652.37 out of ₱23,937,727.60 or 51.01% current appropriation of 20%
Development Fund were utilized during the year showing non-compliance with the
provisions of Department of Interior and Local Government (DILG) and Department of
Budget and Management (DBM) Joint Memorandum Circular No. 2017-1 dated February
22, 2017, thus, intended beneficiaries were deprived of the benefits that are expected to
be derived therefrom. (Observation No. 4)

We recommended that the Local Chief Executive (a) instruct the (i) Municipal Planning
and Development Officer (MPDO) to indicate in the 20% Development Plan timelines
for the implementation of development projects/programs/activities; (ii) BAC to align the
timing of procurement processes with the timelines set in the 20% DF Plan; (iii) heads of
concerned offices to expedite the implementation and completion of development
projects that were not yet started/completed as at December 31, 2017; (b) create a project
monitoring committee that will (i) closely monitor the implementation of the
development projects; and (ii) report to the Local Chief Executive any deviations noted;
and (c) henceforth, strictly comply with the provisions of Section 5 of the DILG and
DBM Joint Memorandum Circular No. 2017-1 dated February 22, 2017

3 Management has substantially complied with the requirements of Section 21 of

R.A. No. 10121, the Philippines Disaster Risk Reduction and Management Act of 2010
on the 5% allocation of the Local Disaster Risk Reduction and Management Fund
(LDRRMF) and the transfer of unexpended balance to a special trust fund. However,
organization and composition of the Municipal Disaster Risk Reduction Office as

iii
required in Sections 5 of National Disaster Risk Reduction and Management Council
(NDRRMC), Department of Interior and Local Government (DILG), Department of
Budget and Management (DBM) and Civil Service Commission (CSC) Joint
Memorandum Circular (JMC) No. 2014-1 dated April 4, 2014 were not properly
observed , thus functions and responsibilities may not be properly performed and could
compromise the efficient and effective delivery of disaster management-related services.
(Observation No. 5)

We recommended that the Local Chief Executive assign LDRRMO Positions to the
Office of the MDRRM and ensure that other personnel assign thereto has the
competence/skills in disaster-related activities to ensure an effective and efficient
delivery of disaster management-related services.

4 The Municipality failed to substantially complied with the provisions of

Republic Act 9003, otherwise known as the Philippine Ecological Solid Waste
Management Act of 2000 on (a) mandatory segregation of wastes at source; (b)
establishment of functional and properly maintained Materials Recovery Facility (MRF);
and (c) formulation of ordinances that would impose fines and penalties for acts in
violation of any provisions of R.A. No. 9003 hence, the total protection of public health
and environment was not fully achieved. (Observation No. 6)

We recommended that the Local Chief Executive and the Solid Waste Management
Board a) strictly impose the “no segregation, no collection” policy particularly at the
Barangay level; and (b) facilitate the establishment of functional MRF.

We also advised the Sangguniang Bayan to pass ordinances on environment protection

and preservation in accordance with provisions of R.A. No. 9003.

5 The programs/projects/activities (PPAs) for CY 2017 pipelined under the Special

Education Fund amounting to ₱2,338,525.51 were not judiciously planned for and
prioritized thereby leaving unattended the more critical and compelling needs of the
public education sector. Moreover, the budget was not fully utilized which resulted in
idle funds of ₱282,876.19 or 12.10% as at December 31, 2017. (Observation No. 7)

We recommended that the Local Chief Executive and the Local School Board (a) prepare
a comprehensive annual plan and budget for SEF with adequate consideration of the
actual, realistic and more pressing needs of the public school sector; and (b) monitor the
implementation of PPAs vis-à-vis the milestones and timelines set to ensure optimum use
of the fund.

6 The Certificates of Acceptance were issued contemporaneously with the

Certificates of Completion for completed infrastructure projects of the Municipality for
CY 2017 totaling ₱11,101,374.98, which was not in line with Section 62.2.2 of the
Revised Implementing Rules and Regulations of RA 9184 thus, the Municipality
practically waived its right of warranty on the completed projects relative to the one-year

iv
defects liability period and may not be adequately indemnified in case damages/defects
occur during the warranty year. (Observation No. 8)

We recommended that the Local Chief Executive instruct the Municipal Engineer to (a)
issue Certificate of Final Acceptance after one year from the date of Certificate of
Completion or after the lapse of the defects liability period; (b) ensure that repair works
are undertaken by the contractor on the defects/damages noted before the said certificate
is issued; and (c) ensure that adequate stipulations for warranty on any liability or defects
noted are provided in the contract.

7 Payments of Representation and Transportation Allowance (RATA) totaling

₱3,439,200.00 were made at an earlier date even if services were not yet rendered which
is not in compliance with the provision of Department of Budget and Management
Local Budget Circular No. 103 dated May 15, 2013, casting doubt on the regularity and
propriety of the disbursements. Moreover, payments were not supported with complete
documentation, contrary to Section 5.2 of COA Circular 2012-001 dated June 14, 2012.
(Observation No. 9)

We recommended that the Local Chief Executive ensure observance of the rules and
regulations regarding the timely payment of representation and transportation allowances,
and that in no time shall the allowances be given in advance or when services are not yet
rendered. Accordingly, payments should be supported with complete documentation.

8. In CY 2017, although Gender issues and the corresponding activities were

identified, the Municipality failed to provide budget which resulted in the non-attainment
of GAD objectives as identified in the Plan. Moreover, the attribution of MHO Program
worth P6,478,305.65 which account for 76.52% of the total GAD Accomplishment for
the year was doubtful due to absence of specific projects and activities that were
reportedly undertaken. (Observation No. 10)

We recommended that the Local Chief Executive (a) comply with the minimum
requirement on the allocation of the prescribed budget for GAD; and (b) instruct the
GAD Focal Point/Person to provide details for the reported 6,478,305.65 GAD
Accomplishment.

9. Due to inability to dispose and replace antiquated motor vehicles, frequent repairs
were incurred by the Municipality for the for CY 2017 contrary to Section 5.1 of COA
Circular 2012-003 dated October 29, 2012, thus, were no longer effective and unduly
taxed the funds of the Municipality. Moreover, deficiencies were noted in the post audit
of disbursements amounting to ₱462,938.39 thus, casting doubt on the regularity of
transactions. (Observation No. 11)

We recommended that the Local Chief Executive instruct the (a) GSO to (i) evaluate
operational efficiency of the vehicles; (ii) determine whether disposal of these properties
would be more cost-efficient than to maintain the same, with appropriate consideration of
its impact on the flow or disruption of operation; and (iii) establish or prove the necessity

v
and reasonableness of spare parts of motor vehicles that will be procured; and (iv) ensure
that parts replaced for various motor vehicles are supported with Waste Materials Report;
(b) instruct the Municipal Budget Officer in coordination with the Heads of Office to
gradually impose savings for the funding of acquisition of new vehicles; and (c) instruct
the Municipal Accountant to ensure that all the basic data or information are supplied in
the Purchase Order.

F. Summary of Total Suspensions and Disallowances as of December 31, 2017

Beg.Balance This period January 1 to Ending Balance

(As of Dec. December 31, 2017 (As of Dec. 31,
31, 2016) NS/ND/NC NSSDS 2017)
Notice of Suspension ₱ 0.00 ₱ 0.00 ₱ 0.00 ₱ 0.00
Notice of 0.00 3,050,000.00 0.00 3,050,000.00
Disallowance
Notice of Charge 0.00 0.00 0.00 0.00
Total ₱ 0.00 ₱ 3,050,000.00 ₱ 0.00 ₱ 3,050,000.00

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

Recommendations

Of the 37 audit recommendations embodied in our previous years’ audit report, 17 or

46% was fully implemented, 11 or 30% were partially implemented and nine or 24%
were not implemented, some of which were reiterated in this report.

vi