EXECUTIVE SUMMARY

I. INTRODUCTION

a. Name of the Auditee – Municipality of Oas

The Municipality of Oas was founded during the early Spanish colonization
of the Bicol Peninsula. In 1605, Father Baltazar de los Reyes converted 12 leading
natives of the area to Christianity in one day, forming the foundation of the
community now known as Oas.

Oas in the Province of Albay is classified as a First Class Municipality and

politically subdivided into 53 barangays in a total land area of 26,727.8 hectares
bounded on the north by the Masaraga Mountains; on the East by the City of Ligao;
on the South by a long range of hills and mountains running zigzag line facing the
Municipality of Pioduran; and on the West and Northwest by a part of the
Municipality of Libon and the Municipality of Polangui, respectively. The land area
is both disposable and alienable with 16,340.48 hectares and a forest land with
10,386.30 hectares. Primary products grown in the Municipality are rice, coconuts,
corn and high value crops.

The Municipality derives its mandate from Republic Act No. 7160, known as
Local Government Code of 1991, which became effective on January 01, 1992,
giving the municipality total independence and empowering them to exercise
efficient and effective governance essential to the promotion of the welfare and the
provision of basic services and facilities to its constituents.

b. Audit Methodology

Our audit included analysis of accounts, review of certain transactions and

test of compliance with applicable laws, rules and regulations, aimed to ascertain the
fairness and reliability of the Agency’s financial statements.

c. Scope of Audit

A financial and compliance audit was conducted on the financial statements

and operations of the Municipality for the Calendar Year (CY) 2022. Value-for-
Money Audit (VFM) was also conducted on selected areas of the Municipality’s
operations.

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II - FINANCIAL HIGHLIGHTS

The following shows the financial condition, results of operations and the
appropriations, allotments and balances of the Municipality as of December 31, 2022 as
compared to CY 2021:

a. Financial Condition

Increase/(Decrease)
Particular CY 2022 CY 2021 Amount %
Assets ₱ 987,251,646.64 ₱ 820,028,961.48 ₱ 167,222,685.16 20.39
Liabilities 136,688,940.23 116,309,867.62 20,379,072.61 17.52
Government Equity 850,562,706.41 703,719,093.86 146,843,612.55 20.87

b. Results of Operations

Increase/(Decrease)
Particular CY 2022 CY 2021 Amount %
Total Revenue ₱ 342,336,980.54 ₱ 261,022,335.63 ₱ 81,314,644.91 31.15
Expenses:
Personal Services 79,934,839.50 55,790,984.03 24,143,855.47 43.27%
MOOE 105,041,957.94 68,483,340.55 36,558,617.39 53.38%

Non-Cash 16,884,693.14 16,111,634.22 773,058.92 4.80%

Expenses
Transfers 10,567,424.76 4,214,420.83 6,353,003.93
150.74%
Financial 125,681.65 360,106.49 -234,424.84 (65.10) %
Expenses
Total Expenses 212,554,596.99 144,960,486.12 67,594,110.87 46.63%

Net Income ₱ 129,782,383.55 ₱ 116,061,849.51 ₱ 13,720,534.04 11.82%

c. Appropriations, Allotments and Obligations

CY 2022
Particular Unobligated
Appropriations Allotment Obligation Allotments
Current Year
₱ 476,229,644.34 ₱ 476,229,644.34 ₱ 225,619,440.07 ₱ 250,610,204.27
Appropriations
Continuing 16,447,639.60 16,447,639.60 2,612,379.44 13,835,260.16
Appropriations
SEF 2,000,000.00 2,000,000.00 1,990,155.76 9,844.24
TOTAL ₱ 494,677,283.94 ₱ 494,677,283.94 ₱ 230,221,975.27 ₱ 264,455,308.67

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III -INDEPENDENT AUDITOR’S REPORT ON THE FINANCIAL STATEMENTS

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

financial statements of the Municipality of Oas as of December 31, 2022 due to the
following:

a. The validity, accuracy and existence of the reported balances of Property, Plant
and Equipment (PPE) accounts (excluding Construction in Progress) as of
December 31, 2022 per financial statements, amounting to ₱545,416,716.87 could
not be relied upon due to the continuous existence of unreconciled difference
between the accounting records and the Report on the Physical Count of PPE
(RPCPPE) amounting to ₱41,716,237.79, non-completion of physical count on
all items of PPE and existing deficiencies noted in the submitted Report on the
Physical Count of PPE (RPCPPE) which resulted from lapses in the conduct of
inventory of PPE and in its accounting, control and record-keeping;
b. The reported balances of Construction in Progress (CIP), PPE, Accumulated
Depreciation and Government Equity accounts are doubtful due to the existence
of long outstanding balances of projects in the Subsidiary Ledger (SL) for CIP,
delayed reclassification of completed projects’ CIP balances to the proper asset
accounts, and erroneous debits to the CIP accounts;
c. Various semi-expendable properties with undetermined value are still recorded as
PPE in the books of accounts, hence, overstating PPE the PPE accounts as well as
Government Equity account and understating expense accounts in the financial
statements as at December 31, 2022;
d. Terminal leave benefits payable amounting to ₱8,213,392.23 as of December 31,
2022 were erroneously recorded in the Accounts Payable instead of Leave
Benefits Payable account, thereby overstating the Accounts Payable and
understating the Leave Benefits Payable account; and
e. The Municipal Accountant was not able to set up the Real Property Tax/Special
Education Tax (RPT/SET) Receivable for CY 2022 at the beginning of the year,
due to the absence of required reports from MTO and the Office of the Municipal
Assessor as basis for recording, thereby casting doubts on the validity, accuracy
and fair presentation of the affected accounts in the financial statements.
To address the above-cited observations, we recommended the following:

a. For the unreconciled difference between the accounting records and the Report on
the Physical Count of Property, Plant and Equipment (RPCPPE), non-completion
of physical count on all items of PPE (excluding Construction in Progress) and
existing deficiencies noted in the submitted Report on the Physical Count of PPE
(RPCPPE):

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 ▪ The Management expedite the recruitment and hiring of a full-time and
qualified GSO;

▪ The Management reconstitute the Inventory Committee that will take charge
in the conduct of a thorough and complete physical inventory of the
Municipality’s properties, thereafter, prepare the RPCPPE in the prescribed
form as shown in Annex 49 of the NGAS Manual for LGUs, Volume II, and
submit the same to the Auditor not later than January 31 of each year;

▪ The Inventory Committee to determine and indicate in the RPCPPE the actual
quantity on hand and the physical condition of the properties for proper
measurement of its carrying amount in the financial statements; and

▪ The Property Officer to assign the corresponding Property Name and Number
for all PPE items for proper identification.

▪ The Management implement the “One-Time Cleansing of PPE accounts” as

provided under COA Circular No. 2020-006 to establish PPE balances that
are verifiable as to existence, condition and accountability.

b. For the long outstanding balances of projects in the Subsidiary Ledger (SL) for
CIP, delayed reclassification of completed projects’ CIP balances to the proper
asset accounts, and erroneous debits to the CIP accounts:

▪ The Municipal Accountant to make the necessary correcting entries for the
erroneous entries made in recording the 15% advance payment for
mobilization by recognizing it in the Advances to Contractors account.
Moreover, the retention money for each progress payments shall be recorded
under Guaranty/Security Deposits Payable;

▪ The Municipal Accountant to record the balance of the unpaid billing of the
completed project (Municipal Slaughterhouse) as Accounts Payable to
complete the recorded cost of the Construction in Progress. Henceforth,
reclassify the cost of the said completed project from CIP account to the
appropriate PPE account and thereafter record the journal entry for the
transfer of the said PPE from the TF account to the GF account. Accordingly,
provide for the annual depreciation thereof from CYs 2018 to 2022 for the
fair presentation of the pertinent accounts in the financial statements;

▪ The Municipal Engineer to follow up the release of the remaining fund from
the Source Agency (SA) for the said project and facilitate the processing of
the final payment to the contractor. Thereafter, he shall prepare the necessary
documents and submit the final Liquidation Report to the SA.

▪ The Municipal Engineer to provide the Municipal Accountant with copy of

the Certificate of Project Completion of the completed projects, to serve as

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 their basis in recording completed projects as PPE. Periodic depreciation
shall likewise be provided to allow fair presentation of the affected accounts
in the year-end financial statements; and

▪ The Municipal Accountant to disclose in the notes to financial statements

under the Construction in Progress account the balance of the projects which
were not completed and discontinued

c. For the various semi-expendable properties with undetermined value are still
recorded as PPE in the books of accounts:

▪ The Municipal Accountant to further analyze the SL for PPE and determine
the semi-expendable items acquired and issued on CY 2022 and prior years.
Thereafter, the carrying amount shall be charged to expense or Prior Period
or expense, as the case may be, in the books of accounts; and

▪ The Municipal Accountant and Property Officer to, henceforth, follow the
new capitalization threshold of newly acquired PPE and other guidelines set
forth in COA Circular No. 2022-004 in the issuance of semi-expendable
items and its recording in the books of accounts and other records.

d. For the Terminal Leave Benefits Payable amounting to ₱8,213,392.23 as of

December 31, 2022 that were erroneously recorded in the Accounts Payable
instead of Leave Benefits Payable account:

▪ The Municipal Accountant to henceforth, record unpaid terminal leave

benefits as at year-end in the Leave Benefits Payable account instead of
Accounts Payable account and correct the error in recording terminal leave
benefits as Accounts Payable as of December 31, 2022.

e. Real Property Tax/Special Education Tax (RPT/SET) Receivable for CY 2022

at the beginning of the year:

▪ The Municipal Treasurer to furnish the Municipal Accountant a duly certified

list extracted from her RPTAR showing names of the taxpayers and the
amount due and collectible for the year to support the RPT/SET receivables
recorded at the beginning of the year;

▪ The Municipal Accountant shall establish the Real Property/Special Education

Tax Receivable accounts based on the said certified lists at the beginning of
the year drawing a JEV to record the debit to Real Property Tax
Receivable/Special Education Tax Receivable and crediting the Deferred Real
Property Tax Income and Deferred Special Education Tax Income.

▪ The Municipal Accountant and Treasurer must reconcile their records with the
Municipal Assessor to come up with an accurate real property tax receivable.

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IV – SUMMARY OF OTHER SIGNIFICANT AUDIT OBSERVATIONS AND
RECOMMENDATIONS

For the current audit period, other significant audit observations noted which need to
be addressed together with the recommendations are the following:

1. The Municipality exceeded the targeted revenues for Real Property Taxes set by
the Bureau of Local Government Finance (BLGF) by ₱7,106,139.15 in CY 2022
thus, ensuring adequate funding for the implementation of various programs,
projects and activities (PPAs) essential in the delivery of public service.
We commended Management’s effort in generating 246.56 per cent of its targeted
revenues set by the Bureau of Local Government Finance (BLGF) in CY 2022 for the
real property taxes, ensuring adequate funding for the implementation of various PPAs
essential in the delivery of public service.

2. The accuracy and validity of the recorded carrying amount of the Infrastructure
Assets – Road Networks account amounting to ₱92,176,357.24 as at December 31,
2022 could not be ascertained due to the lapses in the conduct of the inventory of
road network and its accounting; and lack of pertinent documents/reports to
substantiate the same.

We recommended that Management:

a. Create a Road Inventory Committee together with the Municipal Assessor and
Municipal Accountant to ascertain the cost of each road component including its lot
component, if readily available. Otherwise, the fair market value (assessed value) of
the lot component and replacement cost of the other components shall be specified;

b. Direct the Municipal Accountant to properly recognize the value of the lot component
in the books of accounts and provide the depreciation cost for each depreciable road
component in accordance to COA Circular No. 2015-008;

c. Direct the Inventory Committee to use the proper format of the RPCLRN with
complete details such as road ID, components, cost, and condition; and

d. Direct the MEO to provide the Inventory Committee and the GSO to be designated
relevant data on the road network inventory and local road map of the Municipality.

We further recommended that the LCE enjoin all the Department Heads concerned
(Municipal Accountant, GSO and Municipal Engineer) to adopt the relevant guidelines
in the LRAMM by the DILG and attend trainings relative to it if there’s any, to be able
to adopt and follow the procedures set forth therein and eventual compliance with the
requirements thereof on reporting as prescribed under COA Circular 2015-008.

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3. Collections on hand as of December 31, 2022 amounting ₱253,106.45 were
erroneously recorded as deposits as of year-end, resulting in the misstatement of
the Cash in Bank and the Cash in Treasury accounts.

Further, the Cash in Bank Balance as of December 31, 2022 is unreliable due to
unsupported reconciling items amounting to ₱113,848.96.

We recommended that the Management instruct the Municipal Accountant to:

a. Properly record the collections and deposits to reflect the correct balances of Cash in
Local Treasury and Cash in Bank account in the financial statements; and

b. Have a thorough analysis of the total reconciling item amounting to ₱113,848.96 and
to prepare JEV to take up reconciling items already determined as book error.

4. Lapses in the internal control for the grant and liquidation of cash advances of the
Municipality were noted, thus, exposing the government to risks that cash advances
are improperly granted and handled and are not fully liquidated on time.

We reiterated our previous year’s recommendation that Management instruct the

Municipal Accountant to indicate the date of all the transactions in the SL of the
disbursing officer. Additionally, instruct the Municipal Accountant to ensure complete
supporting documents in accordance with COA Circular No. 2012-001 before the
issuance of cash advance to the disbursing officer.

5. Due to National Government Agencies (NGAs) amounting to ₱192,970.01

pertaining to unexpended balance or cost of unimplemented projects has remained
dormant for two years or more and has not been refunded/returned to the Source
Agencies (SAs).

We recommended that Management:

a. Require the concerned Implementing Offices (IOs) of the unimplemented projects to

determine if the same will still be implemented. Otherwise, refund/return the
unutilized funds to the respective SAs.

b. Instruct the Municipal Accountant to conduct cash analysis of the trust accounts this
CY 2022 to determine which of these trust receipts no longer have cash back-up and
need to be adjusted. The LGU may request for the write-off of these accounts from
the Government Accountancy and Financial Management Information System
(GAFMIS), Commission on Audit Central Office, with the working papers and
analysis of the accounts, as supporting documents before they can be dropped from
the books.

6. The Municipal Government of Oas was unable to comply with the pertinent
guidelines in the Grant, Utilization and Liquidation of Transferred Funds.

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 We recommended that Management require:

a. The Municipal Accountant to provide the Audit Team the JEV, together with the
complete supporting document for the receipt of the LGSF-FA for verification; and

b. The IOs to coordinate with the Municipal Accountant and the Municipal Treasurer
to ensure that all fund transfers from different SAs are properly recorded in the books
of the Agency in accordance with Sections 4.2 and 4.4 of COA Circular 94-013 to
reflect the correct balances of the liability accounts in the financial statements.

7. The inadequate Post-Qualification of the Lowest Calculated Bidders (LCB) for the
infrastructure projects of the Municipality of Oas due to lack of verification and
validation by the BAC and BAC-TWG to ascertain the veracity of all statements
made and documents submitted by the bidders with LCB resulted in the award of
contracts to contractors with the same key personnel and equipment pledged to
other on-going projects, thus, exposes the LGU to the risks of substandard quality
of work and delay in project completion.
We recommended that Management direct the BAC and the BAC-TWG:

a. To include in their post-qualification a comparative evaluation showing the number

of projects with the same equipment and key personnel pledged and assigned by the
same lowest calculated bidder for different projects with simultaneous or overlapping
implementation period; and

b. To consider formulating a policy on the sufficiency and availability of equipment

pledged by the contractors with regard to projects with simultaneous or overlapping
implementation period awarded to the same contractors to avoid delay in project
implementation and setting the limit for the number of contracts handled by key
personnel, to still reasonably perform its duties and functions, without affecting the
quality and timeliness of the project implementation.

8. Thirty-nine (39) projects under the 20 per cent Economic Development Fund (EDF)
totalling ₱75,747,428.40 scheduled for implementation during CY 2022, equivalent
to 54.42 percent of the total EDF annual budget amounting to ₱139,197,428.40,
were not implemented during the year due to the delay in the approval of the
Annual Budget of the LGU, thus, depriving the constituents of the benefits that
could have been derived from the projects’ implementation.
We recommended that Management exert its best effort to implement all programmed
projects under the 20 per cent EDF during the current year, to ensure that its objectives
of desirable socio-economic and environmental outcomes will be achieved.

Further, we recommended that Management expedite the implementation/completion of

the 41 on-going projects and the 39 unimplemented CY 2022 EDF projects for calendar
year 2023.

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9. The LGU failed to incorporate in their Local Disaster Risk Reduction Management
Investment Plan (LDRRMFIP) for CY 2022 the unexpended balance of the Local
Disaster Risk Reduction Management (LDRRMF) of prior years, thus,
transparency on the utilization of the said fund is not achieved and there is a risk
that the expenditures may not be the priority PPAs of the LGU for their disaster
mitigation, prevention and preparedness activities/projects.

We recommended that Management instruct the LDDRMO to incorporate in the

LDRRMFIP the unspent prior years DRRM fund, and henceforth update the said plan as
necessary so that transparency in the utilization of the said fund is achieved and to ensure
that the expenditures charged to the said fund are included in the priority PPAs of the
LGU for their disaster mitigation, prevention and preparedness activities/projects
pursuant to the pertinent provisions of COA Circular No. 2012-002.

10. The amount appropriated for Gender and Development (GAD) programs and
activities in CY 2022 totaling ₱15,774,452.70 was not substantially utilized, leaving
an unexpended balance of ₱5,046,886.10 at year end or 32 per cent of the
appropriated amount, thus, potential benefits therefrom were not fully maximized
by its intended beneficiaries.

We recommended that Management thru the GFPS maximize the utilization of the
identified GAD program, projects and activities for realization of intended result and
extending the expected benefits to beneficiaries.

11. The hiring of Job Order (JO) personnel by the Municipality of Oas could not be
easily evaluated due to the absence of Staffing Pattern Plan and policy guidelines in
the hiring of JO.

We recommended that Management:

a. Require the MHRMO to formulate a Human Resource Plan and issue a uniform
policy guideline on the hiring of JO personnel to appropriately determine the
necessity of the hiring thereof and as well as to strengthen the internal controls
pertaining thereto;

b. Prioritize filling up the vacant plantilla positions instead of hiring of JOs; and

c. Evaluate and determine the appropriate personnel complement of each

office/department in the Municipal Government and effect the necessary
amendments in their respective plantilla, if warranted.

12. Wages of the JO workers hired in CY 2022 were below the daily minimum wage
prescribed in the Regional Tripartite Wages and Productivity Board per Wage
Order No. RBV-20 contrary to Section 99 of PD No. 442, as amended by Section 3
of RA 6727.

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 We recommended that Management observe the above-cited regulation pertaining to the
wages of the JO as prescribed by the RTWPB for Region 5. Henceforth, Management
come up with a workable solution in complying with the mandated daily minimum wage
rate prescribed by the RTWPB for Region 5 given the limited resources of the LGU such
as reviewing the propriety of the number of JOs being hired.

13. The COVID-19 vaccines and ancillary supplies received from Albay Provincial
Health Office (PHO) were not recorded in the books inconsistent with the IPSAS
12 and 23 , thus understating the inventory and revenue accounts in the financial
statements.

We recommended that Management:

a. Require the MHO to render a report to the Accountant on the receipt, issuance, and
balances of vaccines and other inventories directly received from outside sources;
and

b. For the Accountant, in coordination with the MHO and various outside sources of
COVID-19 vaccines (i.e. DOH, PHO, etc.) to determine the full cost of ending
inventory of vaccines and ancillary supplies as at year end and henceforth recognize
and record future receipts and issuance of the same.

V - SUMMARY OF TOTAL SUSPENSIONS, DISALLOWANCES AND CHARGES

AS OF YEAR-END

The suspensions, disallowances and charges issued during CY 2022 and the balances
thereof as of December 31, 2022 are summarized as follows:

Balance as of CY 2022 Balance as of

January 1, 2022 Issued Settled December 31, 2022
Suspension ₱ 1,243,750.00 ₱ 0.00 ₱ 0.00 ₱ 1,243,750.00
Disallowance 1,032,569.81 0.00 0.00 1,032,569.81
Charges 0.00 0.00 0.00 0.00
TOTAL ₱ 2,276,319.81 ₱ 0.00 ₱ 0.00 ₱ 2,276,319.81

The disallowances are under appeal by the persons liable, while the suspensions are
for follow-up from the Municipal Accountant for the submission of the required documents.

VI - STATUS OF IMPLEMENTATION OF PRIOR YEARS’ AUDIT

RECOMMENDATIONS

Of the 97 prior years’ audit recommendations contained in the CY 2021 Annual

Audit Report, 22 or 22.68 per cent were fully implemented, 53 or 54.64 per cent were
partially implemented and 22 or 22.68 per cent were not implemented by management.