FAQ: Municipality of Basey COA audit report (CY 2023)

The Municipality of Basey was founded and created by virtue of a Royal Spanish proclamation. It is a 1st class municipality in the Province of Samar, Region VIII (Eastern Visayas), Philippines, and is administratively subdivided into fifty-one (51) barangays. The Municipality serves primarily as a general-purpose local government unit responsible for delivering basic, regular, and direct public services and maintaining effective local governance within its territorial jurisdiction.

The Commission on Audit (COA) rendered a Qualified Opinion on the combined financial statements of the Municipality of Basey for the year ended December 31, 2023.

The qualification was based on the following material exceptions:

1. 1.Cash in Bank, Local Currency Current Account (CIB-LCCA) Misstatement: The accuracy of the reported balance of ₱222,979,149.84 could not be ascertained due to the non-preparation of monthly Bank Reconciliation Statements (BRS), resulting in an understatement of ₱532,437.81 due to unadjusted recording of 30 cancelled checks.
2. 2.Property, Plant and Equipment (PPE) Account Discrepancy & Unrecognized Depreciation: A net book value of ₱622,563,261.85 (excluding Construction in Progress) showed an unreconciled variance of ₱620,948,128.99 between the physical inventory report (RPCPPE: ₱1,615,132.86) and accounting general ledgers (₱622,563,261.85), alongside non-provision of depreciation on depreciable assets totaling ₱31,028,905.38.
3. 3.Un-transferred Completed Projects & Equipment in Trust Fund (TF): Completed projects and equipment totaling ₱58,796,474.24 remained recorded under the Trust Fund instead of being transferred to the General Fund (GF) upon project completion/liquidation, and were not depreciated.
4. 4.Non-reclassification of Construction in Progress (CIP): Eighteen (18) fully completed projects totaling ₱53,943,142.70 were not reclassified from CIP to their respective asset accounts, overstating CIP by ₱53,943,142.70, understating specific PPE asset accounts by ₱53,943,142.70, and understating Depreciation Expense by ₱799,290.24.

Key Municipal Officials:

• Municipal Mayor: Hon. Luz Chu-Ponferrada (signatory to Statement of Management Responsibility for Financial Statements)
• Municipal Accountant: Ivan Kim T. Talbo, CPA (signatory to Statement of Management Responsibility for Financial Statements)
• Sangguniang Bayan: Presiding Officer and Members of the Sangguniang Bayan, Municipality of Basey, Samar

COA Audit Leadership:

• OIC - Supervising Auditor: Atty. Joselita M. Poticano, Attorney V, Provincial Satellite Auditing Office, Catbalogan City, Samar
• OIC - Audit Team Leader: Vanessa Ann Cristin C. Gabutin, State Auditor II, LGS E - Samar Province
• Transmittal Date: March 25, 2024 (Received by the Office of the Mayor on May 9, 2024, and by Sangguniang Bayan on March 26, 2024).

As of December 31, 2023, the Municipality of Basey reported the following combined financial position:

A comparative evaluation of financial position balances shows an across-the-board increase in assets, liabilities, and equity:

Note on driver: The expansion in the Asset and Equity accounts was primarily driven by the increase in the procurement and implementation of capital outlays (infrastructure and equipment).

As of December 31, 2023, the major asset accounts reflected the following balances:

• Cash and Cash Equivalents: ₱222,979,149.84 (comprising Cash Local Treasury: ₱219,734.60; Petty Cash: ₱9,000.00; Cash in Bank - LCCA: ₱222,750,415.24).
• Receivables: ₱117,914,374.66 (comprising Loans and Receivables: ₱64,675,266.80; Inter-Agency Receivables: ₱775,483.12; Intra-Agency Receivables: ₱10,369,309.50; Advances: ₱40,263,758.74; Other Receivables: ₱1,830,556.50).
• Inventories: ₱11,742,442.39 (comprising Food Supplies for Distribution: ₱6,144,235.80; Welfare Goods for Distribution: ₱648,223.00; Drugs and Medicines for Distribution: ₱4,628,621.09; Accountable Forms, Plates & Stickers: ₱18,380.00; Drugs and Medicines Inventory: ₱68,252.50; Medical, Dental & Laboratory Supplies: ₱234,730.00).
• Property, Plant and Equipment (Net Book Value): ₱739,859,351.64

  • Land & Land Improvements: ₱21,272,997.87
  • Infrastructure Assets: ₱351,282,249.42
  • Buildings & Other Structures: ₱175,118,270.49
  • Machinery & Equipment: ₱24,381,939.14
  • Transportation Equipment: ₱34,538,608.26
  • Furniture, Fixtures & Books: ₱4,920,805.70
  • Construction in Progress (CIP): ₱117,296,089.79
  • Other Property, Plant and Equipment: ₱11,048,390.97

In CY 2023, the Municipality of Basey realized total revenue of ₱299,055,159.15 (a decrease from the ₱349,188,781.33 collected in CY 2022). The composition was as follows:

Breakdown of Tax Revenue (₱3,440,115.01): Community Tax: ₱399,078.81; Real Property Tax - Basic (Net of Discount): ₱377,912.50; Business Tax: ₱1,887,818.30; Special Education Tax (Net of Discount): ₱472,390.62; Fines and Penalties on Taxes: ₱302,914.78.

Total current operating expenses incurred in CY 2023 amounted to ₱250,036,312.80, detailed as follows:

MOOE includes: Travelling Expenses: ₱5,909,341.96; Training & Scholarships: ₱6,934,953.76; Supplies & Materials: ₱33,905,199.37; Utilities: ₱3,941,418.57; Communication: ₱1,348,567.08; Contracted General Services: ₱30,238,718.81; Repairs & Maintenance: ₱3,077,681.89; Transfers of unspent DRRM funds: ₱17,047,714.74; Taxes, Insurance & Premiums: ₱2,335,061.22; Other MOOE & Donations: ₱34,738,596.95.

• Surplus from Operations: ₱49,018,846.35 (Total Revenue of ₱299,055,159.15 minus Operating Expenses of ₱250,036,312.80).
• Net Transfers, Assistance and Subsidy (From): ₱9,750,141.43 (Note 15).
• Surplus for the Period (Net Income): ₱58,768,987.78 (compared to ₱100,721,933.10 in CY 2022).

• Original Budget / Appropriation: ₱297,432,649.00
• Final Budget / Appropriation: ₱426,358,966.00
• Net Supplemental / Adjustment Additions: ₱128,926,317.00

Total actual obligations incurred by the Municipality in CY 2023 amounted to ₱287,088,155.14, leaving an unexpended/unobligated balance against final appropriations of ₱139,270,810.86.

The breakdown of final appropriations, obligations, and balances by expense classification is detailed as follows:

The unexpended Capital Outlay appropriation totaling ₱126,990,324.34 (Final CO Appropriation of ₱181,416,165.84 less CO Obligations of ₱54,425,841.50) from uncompleted or ongoing Programs, Projects, and Activities (PPAs) will form part of the Municipality’s continuing appropriations in CY 2024.

Budget & Utilization:

• Total 20% Development Fund Appropriation: ₱57,836,529.80 (Capital Outlay: ₱56,836,529.80; MOOE: ₱1,000,000.00).
• Total Actual Obligation: ₱45,302,683.01 (CO: ₱44,302,683.01; MOOE: ₱1,000,000.00).

Project Accomplishments & Delays:

• Out of 55 programmed projects for CY 2023, 43 were completed, 7 were ongoing, and 5 projects totaling ₱7,800,000.00 were completely unimplemented at year-end.
• In addition, 13 continuing appropriation projects from CY 2021 and 2022 amounting to ₱18,318,250.34 remained unimplemented.

Audit Observations & Deficiencies:

• Exceeded Project Budgets: Five (5) PPAs exceeded their allocated appropriations by a total of ₱1,388,245.36 without approved budget augmentations or supplemental budgets.
• Ineligible Expense Charges: ₱446,777.95 was charged to the fund as honoraria for the Municipal Project Monitoring Committee (MPMC), which is an ineligible Personal Services cost under DBM-DOF-DILG JMC No. 1.
• Livelihood Assistance Inadequacies: ₱1,000,000.00 was distributed in cash (₱20,000.00 each) to 50 associations without the documentary requirements mandated under COA Circular No. 2007-001.
• Cemetery Lot Purchase Irregularities: ₱650,000.00 (net payment ₱601,250.00) was disbursed to a co-heir for a public cemetery lot at Brgy. Guirang without required title registration, Certificate Authorizing Registration (CAR), capital gains/transfer tax proof, or deed annotation.
• Delayed Contract Submissions: Perfected contracts for 37 infrastructure projects (contract value: ₱163,555,770.22) were either delayed (24 contracts delayed by an average of 223.05 working days) or unsubmitted (13 contracts totaling ₱64,755,221.93).

• Total Funds Available: ₱31,956,847.19 (composed of CY 2023 Current Appropriation: ₱14,909,132.45 [30% Quick Response Fund: ₱4,472,739.74; 70% Mitigation Fund: ₱10,436,392.72] plus Special Trust Fund from prior years CY 2018-2022: ₱17,047,714.74).
• Total Utilization: ₱10,340,771.31 per audit analysis (₱2,769,055.00 QRF + ₱7,281,836.31 MF regular + ₱289,880.00 additional MF charges).
• Unexpended Balance: ₱21,568,361.14 at year-end.

Audit Deficiencies Noted:

1. 1.Personal Services (PS) Improperly Budgeted: ₱2,050,000.00 was appropriated under PS in the LDRRMFIP instead of General Fund / MOOE.
2. 2.Ineligible Charges: ₱289,880.00 in non-DRRM expenses (e.g., project monitoring honoraria, vehicle/grasscutter repairs) were charged to the fund.
3. 3.Absence of Separate Registries: The Budget Officer failed to maintain separate RAAOs for QRF, MOOE, and CO.
4. 4.Inaccurate Utilization Reporting: The year-end DRRMF report had accounting errors resulting in an overstatement of QRF by ₱49,207.95 and an understatement of MF by ₱767,625.00.
5. 5.Un-transferred Unexpended Balance: Unexpended CY 2023 balances of QRF and MOOE totaling ₱2,992,433.67 were not transferred to the Special Trust Fund at year-end.

The Municipality received ₱68,000,000.00 from the DBM under the FY 2022 GAA for 27 socio-economic development projects across 17 cleared barangays, supplemented by ₱170,000.00 in LGU counterpart funds.

The audit revealed the following deficiencies:

1. 1.Privately-Owned Project Sites & No Building Permits: Projects were constructed on private lands supported only by verbal concurrences or barangay resolutions rather than formal Deeds of Donation or transferred titles, and lacked approved building permits.
2. 2.Projects Excluded from Local Plans: 20 implemented SBDP projects with an Approved Budget for the Contract (ABC) totaling ₱48,120,000.00 were not included in the approved 2022 Annual Investment Plan (AIP) or 2020-2022 Local Development Investment Plan (LDIP).
3. 3.Undisbursed Funds Beyond Validity Period: As of December 31, 2023 (the fund validity expiry date), only ₱56,371,241.86 was disbursed, leaving an unexpended balance of ₱11,618,096.44 (due to 6 incomplete projects) which is subject to reversion to the National Treasury pursuant to DBM LBC No. 144.
4. 4.Prohibited Honoraria Payments: ₱36,623.79 was unlawfully paid out of SBDP trust funds as honoraria for the project monitoring committee, in direct contravention of Section 4.9 of DBM LBC No. 144.

The CY 2023 Annual Audit Report and Financial Statements of the Municipality of Basey contain no specific findings, budget disclosures, or financial line items regarding Gender and Development (GAD).

1. 1.Unreconciled Variance of ₱620,948,128.99: The physical inventory report (RPCPPE) submitted by the Inventory Committee covered only newly acquired equipment totaling ₱1,615,132.86, omitting Land, Land Improvements, Infrastructure Assets, Buildings, and Vehicles, whereas accounting records reflected ₱622,563,261.85 (excluding CIP).
2. 2.Unrecognized Depreciation on ₱31,028,905.38 Net Book Value: Depreciable assets - including Agricultural and Forestry Equipment (₱7,530,683.69), Medical Equipment (₱548,317.03), Other Machinery (₱466,570.85), and Motor Vehicles (₱22,483,333.81) - had identical costs and accumulated depreciation in CY 2022 and CY 2023, reflecting zero depreciation recognized during 2023.
3. 3.Understated Accumulated Depreciation on Additions (₱57,925.47): Depreciation computed on CY 2023 acquisitions used an erroneous 5% residual value instead of the mandated 10%, and failed to observe mid-month cut-off rules.
4. 4.Non-Disclosure of Asset Useful Lives: The Notes to the Combined Financial Statements failed to disclose the estimated useful lives or depreciation rates used per asset class.

• Absence of Bank Reconciliation Statements (BRS): The Municipal Accountant failed to prepare monthly BRS for 12 bank accounts (2 General Fund, 1 SEF, and 9 Trust Fund), which had a combined bank snapshot balance of ₱227,794,295.91 versus a book balance of ₱222,750,415.24, creating an unreconciled discrepancy of ₱5,043,880.67.
• Unadjusted Cancelled Checks: Thirty (30) stale/cancelled checks totaling ₱532,437.81 were not restored/reverted to Cash in Bank - LCCA, causing an understatement of Cash in Bank by ₱532,437.81 and overstatements of Accounts Payable (₱329,621.96), Office Supplies Expense (₱102,692.69), Donations (₱33,875.00), Membership Dues (₱30,000.00), Advances for Payroll (₱14,408.53), and other operational accounts.

Yes, significant discrepancies and backlogs in remittances were documented:

1. 1.
   Mandatory Employee Contributions and Loan Amortizations (Observation No. 10):

   • Beginning Unremitted Prior Years’ Balance: ₱4,272,959.34
   • CY 2023 Withholdings vs. Remittances: Net over-remittance of (₱617,585.78) during CY 2023.
   • Ending Unremitted Balance (as of Dec 31, 2023): ₱3,655,373.56, broken down into: Due to GSIS: ₱2,016,907.37; Due to PhilHealth: (₱121,062.52); Due to Pag-IBIG: ₱555,900.13; Due to GOCC (DBP loan amortizations): ₱1,203,628.58.
2. 2.
   Withholding Taxes Due to BIR (Observation No. 11):

   • Taxes Withheld in CY 2023: ₱18,773,283.54; Taxes Remitted in CY 2023: ₱18,749,168.78; Unremitted CY 2023 Balance: ₱24,114.76.
   • Prior Year Unremitted Balance Remaining: ₱44,536.52.
   • Total Unremitted Taxes as of Dec 31, 2023: ₱68,651.28 (General Fund: ₱35,567.28; Trust Fund: ₱18,468.52; SEF: ₱14,615.48).

The COA recommended, and Management agreed, that the Local Chief Executive direct:

• For Cash in Bank (Obs. 1): The Municipal Accountant to draw adjusting entries reverting the 30 cancelled checks to CIB-LCCA and regularly prepare monthly BRS within 10 days of receiving bank statements.
• For PPE & Cleansing (Obs. 2): (a) The Inventory Committee and Property Custodian to formulate a Physical Inventory Plan (PIP), perform a complete physical count of all PPE within 3 months, submit the RPCPPE by January 31, and implement COA Circular No. 2020-006 (“One-time cleansing”); (b) The Municipal Accountant to compute and record depreciation on the ₱31,028,905.38 un-depreciated PPE, apply the 10% residual value, and correct accumulated depreciation misstatements.
• For Trust Fund PPE Transfers (Obs. 3): The Municipal Accountant to effect the transfer of completed PPEs totaling ₱58,796,474.24 from Trust Fund books to General Fund and recognize depreciation.
• For CIP Reclassifications (Obs. 4): The Municipal Accountant to reclassify the 18 completed projects totaling ₱53,943,142.70 from CIP to specific PPE asset titles and take up ₱799,290.24 in depreciation expense.
• For LGSF-SBDP (Obs. 5): (a) Process formal Deeds of Donation / transfer of land titles and obtain standard building permits; (b) Prioritize AIP/LDIP-listed PPAs; (c) Remit the undisbursed balance of ₱11,618,096.44 to the National Treasury; (d) Stop paying honoraria from SBDP funds and compel recipients to refund the ₱36,623.79.
• For 20% Development Fund (Obs. 6-8): (a) The BAC to submit perfected contracts within 5 working days; (b) The Municipal Engineer to submit justifications for delayed/unimplemented projects; (c) The Budget Officer and Engineer to stop charging ineligible PS/honoraria (₱446,777.95) and prevent spending beyond appropriations; (d) Stop granting livelihood assistance without complete NGO/PO accreditation and documentation (COA Circular 2007-001); (e) Expedite title transfer and CAR registration for the ₱650,000.00 cemetery lot.
• For LDRRMF (Obs. 9): (a) MDRRMO to eliminate PS items from the LDRRMFIP; (b) Budget Officer to maintain separate RAAOs for QRF, MOOE, and CO; (c) Municipal Accountant to correct DRRMF utilization reporting errors; (d) Municipal Treasurer to transfer the ₱2,992,433.67 unexpended balances to the Special Trust Fund.
• For Remittances (Obs. 10 & 11): The Municipal Accountant and Treasurer to reconcile employee deductions against billings/remittances, remit the ₱3,655,373.56 balance to GSIS, PhilHealth, Pag-IBIG, and DBP, and promptly remit the ₱68,651.28 tax balance to the BIR.

The status of audit suspensions, disallowances, and charges as of December 31, 2023, was as follows:

The entire unsettled balance of ₱14,726,562.97 pertained entirely to prior years/administrations, as there were zero (₱0.00) new Notices of Suspension, Disallowance, or Charge issued, and zero (₱0.00) settlements effected during CY 2023.

Of the 48 audit recommendations embodied in the CY 2022 and prior years’ Annual Audit Reports:

• Fully Implemented: 16 recommendations (33.33%)
• Partially Implemented: 0 recommendations (0.00%)
• Not Implemented / Not Acted Upon: 32 recommendations (66.67%)

The primary operational and administrative reasons documented for the 32 unimplemented recommendations include:

1. 1.Absence and Non-Maintenance of Subsidiary Ledgers (SLs): Failure by the Accounting Office to maintain and submit detailed SLs for controlling accounts such as Due from Other Funds (InFRES I & II, ARCP II funds totaling ₱176,048,660.89), Loans Payable, and other payables (AAR 2018-1, 2017-1).
2. 2.Lack of Property Ledger Cards & Inventory Cleansing: Failure to establish and maintain Property, Plant, and Equipment Ledger Cards (PPELC) in Accounting and Property Cards in the Supply Office, leading to recurring non-reconciliation of road networks, equipment, and inventories (AAR 2022-3, 2019-1).
3. 3.Personnel & Training Constraints: Lack of designated and trained personnel to update Supplies Ledger Cards and prepare Summary of Supplies and Materials Issued (RSMI) / Requisition and Issue Slips (RIS) (AAR 2022-5, 2020-1).
4. 4.Lacking Supporting Documents: Recurring non-submission of required disbursement vouchers, procurement documents, and liquidation reports from municipal departments to COA on a timely basis (AAR 2021-8, 2020-6).
5. 5.Reiterated Accounting Deficiencies: Repeated failure to prepare monthly Bank Reconciliation Statements (AAR 2019-2), unadjusted accounts payable aged over two years (AAR 2022-4), and non-compliance with reporting guidelines on the LDRRMF (AAR 2022-12).