annual audit report on the marikina city for cy 2010 · web viewsection 36 of ra 7160 states that,...

EXECUTIVE SUMMARY

A. Highlights of Financial Operation

For the CY 2010, the appropriations of the City Government of Marikina for the General and the Special Education Funds totaled P 1.76 billion. Obligations charged against these appropriations amounted to P 1.39 billion.

Fund Appropriation Obligation

General Fund P 1,565,179,677 P 1,216,526,588Special Education Fund 194,197,129 171,911,424Total P 1,759,376,806 P 1,388,438,012

The operating income of P 1.52 billion collected during the year was sourced from the following:

Particulars General FundSpecial

Education Fund Total

Local Taxes P 569,820,960 P 137,747,650 P 707,568,610Internal Revenue Allotment 538,719,829 538,719,829Permit & Licenses 20,375,504 20,375,504Service Income 81,062,034 81,062,034Business Income 101,988,081 101,988,081Other Income 69,699,362 4,360,010 74,059,372Total Operating Income P 1,381,665,770 P 142,107,660 P 1,523,773,430

B. Scope of the Audit

The audit covered the accounts and operations of the City for the year 2010 and was aimed at determining whether management presented fairly the financial statements of the City in adherence to generally accepted accounting principles; whether prevailing laws, rules and regulations have been complied with and whether funds were utilized in the most efficient, effective and economical manner. Financial, compliance, and value for money (VFM) audits were conducted to achieve these audit objectives.

C. Auditor’s Opinion on the Financial Statements

The Supervising Auditor rendered a qualified opinion on the fairness of the presentation of the financial statements due to the significant effects of the findings on the balances of some accounts, as discussed in Part II of the report.

D. Significant Audit Findings and Recommendations

The following are the significant findings and recommendations in the audit of the City Government of Marikina for the year 2010:

1. There was a difference of P691.09 million between the Property, Plant and Equipments (PPE) balance per books and the physical inventory, thus rendering the said amount doubtful. This was due to the failure of the General Services Office (GSO) and the Accounting Office to reconcile the Inventory Report with the accounting and property records, contrary to Section C.3, Chapter V of the Manual on Property Custodianship. (Finding No. 1.1, page 26)

We strongly recommend that the City Accountant, in coordination with the GSO, fast-track the reconciliation of the Inventory Report with the accounting and property records. It is also recommended that for those properties whose values cannot be determined, their estimated values as well as their remaining useful life may be assigned by an appraisal committee.

2. The Construction in Progress (CIP) accounts were overstated by P328.72 million because the completed projects of prior years were not fully transferred to their appropriate PPE account. (Finding No. 2.1, page 28)

We recommend the review of the CIP accounts so that all completed projects could be transferred to PPE. Further, it is recommended that the Status Report of Projects Undertaken by the Engineering Office be submitted quarterly to the City Accountant so that there will be a basis for the preparation of the Journal Entry Voucher (JEV) that will record the transfer.

3. Unpaid obligations in CY 2007 and prior years amounting to P6.78 million, which did not have any supporting documents to prove validity and existence, were still recorded under Accounts Payable (401), contrary to Section 4(s), Volume I of the New Government Accounting System (NGAS) Manual. (Finding No. 1.2, page 27)

We advise the City Accountant to immediately revert these undocumented accounts payable to the Government Equity account as required under Section 98 of PD 1445.

4. Wages, allowances and benefits of volunteers and non-regular employees totaling P20.50 million were erroneously charged against the allotment for Personal Services (PS), thereby overstating PS and understating Maintenance and Other Operating Expenses (MOOE). On the other hand, various expenses such as, traveling/training, intelligence/confidential expenses and Other MOOE amounting to P8.66 million were erroneously recorded as Extraordinary Expenses (883), contrary to COA Circular No. 2004-008 dated September 20, 2004, thus

overstating said account by the same amount and understating the appropriate expense accounts. (Finding No. 3.1, page 30)

We recommend that the practice of utilizing the allotment for Personal Services for payment of expenses other than those for personal services be discontinued. It is further recommended that the City Accountant and the City Budget Officer should be extra careful in the budget utilization and in recording and classifying expenses.

5. Supplemental budgets were not supported by new revenue sources contrary to Section 321 of RA 7160. Likewise, the budget for Continuing Appropriations were realigned to other projects and to MOOE in violation of Section 336 of the same Act. (Finding No. 4.1, page 31)

We recommend that supplemental budgets be backed-up with new revenue source/s, and duly certified as such by the City Treasurer. On the other hand, realignments should only be made within the same allotment class.

6. Of the P 135.63 million appropriation for the 20% Development Fund, P20.63 million or 15.21% was utilized for purposes other than those provided under Department of Budget and Management (DBM) and Department of the Interior and Local Government (DILG) Joint Memorandum Circular No. 1, series of 2005, dated September 20, 2005. (Finding No. 4.2, page 34)

We reiterate our recommendation that the 20% Development Fund be utilized only for the purposes for which it was intended and for the City Development Council to prepare an Annual Development Plan that is in line with the above-mentioned Joint Circular.

7. The Annual Procurement Plan (APP) that supported the approved Annual Budget for the procurement of goods and infrastructure projects did not contain the detailed list of goods and infrastructure projects to be procured during the year, contrary to Section 7 of RA 9184. (Finding No. 4.3, page 35)

It is recommended that department heads be required to submit to the Bids and Awards Committee (BAC) Secretariat their individual Project Procurement Management Plans (PPMPs) showing the detailed list of goods and infrastructure projects to be procured during the year. These PPMPs shall be consolidated by the BAC Secretariat into an Annual Procurement Plan to support the appropriated amount in the approved Annual Budget.

8. The City has yet to come up with a clear-cut policy and detailed guidelines in the grant of financial assistance to qualified constituents and to People’s and Non-governmental organizations in accordance with Sections 36 and 458(5)(xi) and (xiv) of RA 7160. (Finding No. 4.4, page 36)

It is recommended that policy guidelines in the grant of financial assistance conform with the above-stated sections of RA 7160.

9. The Marikina Revenue Code of 1995 has yet to be updated to conform with the Local Government Code, hence, the City’s revenue raising power has not been maximized. (Finding No. 4.5, page 38)

We reiterate our previous recommendation that the City Mayor coordinate with the Sangguniang Panlungsod for the codification of all revenue ordinances. Existing ordinances should likewise be reviewed to determine conformity with the Local Government Code. In the review and in subsequent enactments, due consideration should be given to legislation that would maximize revenues.

10. Submission of copies of contracts, job orders, and purchase orders were delayed by a period ranging from 12 to 100 days, while copies of delivery documents were likewise delayed by a period ranging from 35 to 64 days, contrary to COA Circular No. 2009-002 dated May 18, 2009. Hence, timely review and inspection could not be undertaken and any defects/deficiencies noted could not be communicated immediately to the management. (Finding No. 4.6, page 40)

We recommend that the General Services Office be required to submit to the City Auditor’s Office copies of purchase orders, job orders, letter orders and contracts within five days from perfection and for notices of deliveries to be submitted within twenty-four hours from acceptance.

11. The City’s continuous failure to establish a written, comprehensive, and tested disaster recovery and business continuity plan; and formal policies and procedures to perform backup and to provide offsite servers/storage of data files, databases, programs and documentation, may result in Information Technology (IT) losses. (Finding No. 4.7, page 41)

We recommend that management prioritize and carefully study the contingency plan presented to them by the Office of the Marikina Information System and Call Center (MISCC) in order to prevent the risks of loss of or damage to data files, hence, ensuring the continuous operation of the management information system.

12. Other Receivables representing dishonored checks for the years 1981 to 1987 totaling P1.03 million remained in the books for 23 to 29 years despite the absence of documents to enforce collection. (Finding No. 5.1, page 41)

We advise the City Accountant to follow-up with the Office of the City Mayor the request for authority to write-off the dishonored checks based on the verification made by the City Treasurer’s Office. The request for write-off shall

be filed with the Commission Proper of the Commission on Audit, thru the City Auditor’s Office.

E. Status of Implementation of Prior Year’s Audit Recommendations

Of the 17 audit recommendations contained in the previous year’s Annual Audit Report, nine (9) were fully implemented, four (4) were partially implemented and four (4) were not acted upon by the agency.

TABLE OF CONTENTS

PART SUBJECTPAGE

NO.

I

AUDITED FINANCIAL STATEMENTS

Audit Certificate1

Statement of Management Responsibility for Financial Statements

3

Consolidated Balance Sheet 4 Consolidated Statement of Income and Expenses 8 Consolidated Statement of Cash Flows 13 Notes to Consolidated Financial Statements 14

II DETAILED AUDIT FINDINGS AND RECOMMENDATIONS

Financial and Compliance Audit 26

III STATUS OF IMPLEMENTATION OF PRIOR YEAR’S AUDIT RECOMMENDATIONS

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IV ANNEXES

Annex A Consolidated Balance Sheet (By Fund) 49Annex B Consolidated Statement of Income and Expenses (By Fund) 52Annex C Consolidated Statement of Cash Flows (By Fund) 57Annex D Statement of Appropriations, Allotments, Obligations and

Balances58

Annex E Comparison of the Balances of Property, Plant and Equipment (PPE)Account per Books and per Report on Physical Count of PPE

65

Annex F Schedule of Expenses Charged Against Other Personnel Benefits (749)

67

Annex G Sample of Late Submitted Contracts/Notice of Delivery 68

PART I

AUDITED FINANCIAL STATEMENTS

Republic of the PhilippinesCOMMISSION ON AUDIT

City Auditor’s OfficeMarikina City, Metropolitan Manila

AUDIT CERTIFICATE

HON. DEL R. DE GUZMANCity MayorCity of Marikina

We have audited the accompanying financial statements of the City of Marikina, which comprise the Balance Sheet as of December 31, 2010, and the Statements of Income and Expenses and Cash Flows for the year then ended, and the summary of significant policies and other explanatory notes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Generally Accepted Accounting Principles. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Generally Accepted Auditing Standards. These standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatements.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes assessing the accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

1

Marikina CityConsolidated Balance Sheet

As of December 31, 2010

(Pages 4-7)

4

Marikina CityConsolidated Statement of Income and Expenses

For the Year Ended December 31, 2010

(Pages 8-12)

8

Marikina CityConsolidated Statement of Cash FlowsFor the Year Ended December 31, 2010

(Page 13)

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NOTES TO FINANCIAL STATEMENTS(With Comparative Figures for CY 2009)

Note 1. General/Agency Profile

The City of Marikina was created on July 20, l996 by virtue of Republic Act No. 8223. The City is now comprised of sixteen (16) barangays and two (2) Congressional Districts with the passage of Republic Act No. 9364.

The City’s development momentum was temporarily disrupted by the onslaught of “Ondoy” in September 2009. While the calamity resulted in an unprecedented loss of lives and property, it significantly revealed a priceless gem: Marikeños’ competence to rise above any challenge and their capacity to unite and help one another in times of need. While full recovery takes time and entails precise programs and undertakings, the City Officials and employees did not allow the tragedy to get in the way of the city’s development, a positive mindset has once again played a pivotal role, cementing Marikina’s reputation as a courageous and resilient community.

For Calendar Year 2010, the City of Marikina is poised to roll out a number of important projects, to include the following:

Continuing relocation of residents in flood-prone areas to safer grounds within or outside Marikina

Purchase of calamity-related rescue operations equipment Improvement of citywide calamity alarm system Updating of the Disaster Management handbook to be disseminated to all

households in the city Upgrading of existing parks to include the provision of playground amenities Expansion of the beneficiaries of Philhealth Establishment of the Marikina Control Facility (a central monitoring and

dispatch center to include the installation of a surveillance system in major intersections and at the River Park for improved monitoring, crime prevention, and crime solution)

Installation of two or more sewage treatment plant facilities in partnership with the Manila Water Company

Continuing advocacy for discipline as a platform for growth and transformation

Marikina City continually thrives because of political leadership. The transition from Mayor Maria Lourdes C. Fernando to Mayor Del R. de Guzman has been pivotal in sustaining the gains of collective hard toil. The City Government has to live up to the expectations not only for its constituents but also of Filipinos in general who hold the City in high esteem and are benchmarking with Marikenian practices. Change has become not a campaign phrase in Marikina - but a reality.

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The focal point of Mayor de Guzman’s governance is people, the status of living of people, particularly the vulnerable members of society, efforts are geared toward human upliftment. The present administration has adopted its governance philosophy, “Tunay na Kaunlaran, Tao Naman”. Simply put, Marikina residents will feel secure because they know and feel that the city government is working with them in mind and their interests at heart.

The 7K program of the city translates this philosophy into concrete action and results in the areas of Health (Kalusugan), Education (Karunungan), Peace and Order (Kapayapaan at Kaayusan), Livelihood (Kabuhayan), Environment (Kalikasan), Housing (Katiyakan sa Paninirahan), and Good Governance (Katapatan at Makataong Paglilingkod).

The City maintains three funds: the General, Special Education and Trust Funds. Likewise, special accounts are maintained under the General Fund books for the 20% Development Fund and the operation of economic enterprises, namely: Marikina Hotel, Pamantasan ng Lungsod ng Marikina (PLMAR), and Marikina Sports Park (MSP).

Note 2. Basis of Financial Statement Presentation

2.1 The consolidated financial statements have been prepared in accordance with the Generally Accepted State Accounting Principles and Standards.

Note 3. Summary of Significant Accounting Policies

3.1 The agency uses accrual basis of accounting for expenses. Under this method, all expenses are recognized when incurred and reported in the period to which they relate. The agency adopts the modified accrual method of accounting for Real Property Taxes. Other taxes, fees and charges and other revenues, as well as Internal Revenue Allotments, are accounted on cash basis.

3.2 Separate registries are maintained to monitor appropriations, allotments and obligations.

3.3 Infrastructures under construction are valued following the construction period theory.

3.4 The costs of public infrastructures, such as roads, bridges and other infrastructures for general public use are excluded from the Property, Plant and Equipment account and recorded in the Registry of Public Infrastructures.

3.5 Property, plant and equipment are carried at cost less accumulated depreciation.

3.6 The straight-line method of depreciation is used in depreciating property, plant and equipment with estimated useful lives ranging from five to fifty years. A

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residual value equivalent to ten percent of the cost of asset is set and depreciation starts on the following month after purchase/construction.

3.7 Payable accounts are recognized and recorded in the books of accounts only upon acceptance of the goods/inventory and rendition of services to the agency.

3.8 Financial expenses such as interest expense are separately classified from maintenance and other operating expenses.

Note 4. Cash

This account is broken down as follows:

The Cash in Vault account consists of collections from real property taxes, fees, charges and other revenues at year end which were deposited from January 3 to February 7, 2011.

Cash-Disbursing Officers account consists of the cash advances of Ricardo L. Castro in the amount of P2,080 granted on June 25, 2010, for the renewal of permit to carry firearms, Evelina Elen for the renewal of permit to carry and surety bond of firearms amounting to P40,639 and the amount of P987 from Analiza Valdemoro is due for refund.

Cash in Bank-Local Currency, Current Account represents bank deposits under interest-bearing current account for the General, Special Education and Trust Funds.

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Cash in Bank-Local Currency, Time Deposit account consists of idle funds and funds withdrawn from the Treasury Bills account and placed with the Philippine Veterans Bank and Land Bank of the Philippines-Marcos Highway Branch.

Note 5. Receivables

This account includes the following

Other Receivables include dishonored checks in the amount of P1,027,806 from payment of real property taxes in prior years which are uncollectible due to the absence of documents. The increase of P1,188,732 represents amounts due from interest free loan, business property taxes and bidders bond in the amount of P803,892, P 60,840 and P324,000, respectively.

The account Loans Receivable - Others represents loan assistance to the community under the Community Mortgage Program, as per Sangguniang Panlungsod Resolution No. 2000, series of 2003. The assistance is extended to qualified borrowers who are residents of the City, payable in six months with an interest of 5% per annum. Also included in this account is the Livelihood Loan assistance under the “Isang Bayan, Isang Produkto, Isang Milyong Piso Programa” of former Pres. Gloria M. Arroyo.

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The Due from Officers and Employees account consists of bike loans under the Bike Loan Program for City employees payable in six months as salary deduction amounting to P91,987, cash advances for training and seminars of various employees in the amount of P66,864 and amounts due from employees for lost PPE under their accountability totaling P42,616.

Included in the account Due from NGAs is the Internal Revenue Allotment (IRA) differential from the Department of Budget and Management (DBM) for CY 2000 and 2001 and for CY 2001 and 2004 in the amount of P20,448,450 and P23,417,843 respectively, and the over-remittance to the Bureau of Internal Revenue amounting to P175,716 which will be deducted from the January 2011 remittance and undelivered supplies by DBM procurement service amounting to P104,465.

Note 6. Inventories

This account consists of the following:

Office Supplies inventory amounting P6,425,654 represents supplies and materials in stock for use in various offices.

Accountable Forms Inventory includes official receipts and other accountable forms for use by the City Treasurer’s Office.

Drugs and Medicines Inventory amounting to P2,772,056 represents drugs and medicines for use in government operations.

Medical, Dental and Laboratory Supplies Inventory amounting to P1,807,528 represents medical dental and laboratory supplies for distribution to the different barangays in the City for use in government operations/projects.

The Construction Materials Inventory consists of construction materials for use in the repair and maintenance, and the construction of agency assets by administration.

Inventories increased by 37.73% or P14,306,860 over last year’s balance due to acquisition of inventories in the last quarter of the year.

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Note 7. Prepayments

The account consists of the following:

The Prepaid Insurance represents the unexpired portion of prepaid insurance for property, plant and equipment of the City.

Advances to Contractors account represents the 15% mobilization fee granted to Square Meter Trading and Construction for the construction of Marikina Sports Park Building and Upgrading of Jogging/Bicycle Lane at Park Creek of Simeona Creek, Construction of Three Storey School Building at Rainbow St., SSS Village; to Nippon Formworks & Construction Corp for the Construction of 16 classroom and Four-Storey School Building at St. Mary School, Nangka and to Juan Sajid for the installation of the Lady Sculpture Artwork at the DOJ Building.

Note 8. Investments in Securities


Investments in Stocks represent the 151,614 preferred shares with Meralco at P10.00/share.

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Investment in Securities decreased by 99.08% or P164,045,498 over last year’s balance due to maturity of Treasury Bills on General Fund and SEF dated October 13, 2010 and December 8, 2010, respectively.

Note 9. Property, Plant and Equipment


Most of the property, plant and equipment were acquired prior to CY 2002. The depreciation reflected in the books pertains to assets which were acquired by the City from CY 2002 to present. For assets acquired prior to CY 2002, appraisal of PPEs will be undertaken to serve as basis for the computation of depreciation. The amount of

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P56,168,005 representing property, plant and equipment damaged by Typhoon Ondoy was deducted from the books as per COA Decision Number 2010-006 dated July 06, 2010, approving the relief from property accountability.

Land represents the value of lot located at Barangay Sta. Elena, Marikina City where the City Hall is located and other lots acquired by the agency.

The decrease of P809,304,744 in the balance of the Construction in Progress account represents finished projects reclassified to Public Infrastructures account.

Note 10. Other Assets

CY PY

General Fund P 49,506,209 P 57,661,205

This account consists of obsolete and unserviceable property of the agency. The decrease of P8,154,996 pertains to the sale of Other Assets.

Note 11. Current Liabilities

This account is broken down as follows:

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The Accounts Payable represents the amount due to suppliers and contractors for the delivery of goods and services for the year 2010 and prior years.

The Due to Officers and Employees account represents unclaimed salaries and terminal leave pay of city employees.

The Due to BIR, GSIS, PAG-IBIG and PHILHEALTH are the amounts payable for withheld taxes, premiums and loan payments. Of the amounts due to national government agencies and government-owned and/or controlled corporations, the following remittances were made in January 10, 12, 18 and 26, 2011:

The Due to Other NGAs represents the 5% contribution of the City to the Metro Manila Development Authority and Priority Development Assistance Fund of various senators and congressmen.

The Due to LGUs represents payable to various barangays as part of their Real Property Tax and Community Tax shares for CY 2010, counterpart share for various projects to be implemented by the City and payment of streetlights and interest earned from savings/current and special savings deposit.

The Guaranty Deposits Payable pertains to the 10% retention fee from contractors for various projects implemented by the City.

The Performance/Bidders/Bail Bonds Payable are liabilities arising from the receipt of cash to guarantee the performance of contract/court order.

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The Other Payables account includes collection for the account of housing beneficiaries under the Emergency Relocation Center and account of private entities or institutions as bond for existing projects of contractors, supervision and restoration deposits of the Philippine Long Distance Telephone (PLDT), Manila Water Sewerage System (MWSS) and other contractors. Included in the Other Payables are the interest free loan granted to employees and employees welfare fund amounting to P258,668.

Note 12. Long-Term Liabilities

This account consists of the balance of loan availments/drawdowns from the Philippine Veterans Bank (PVB). The loan was approved thru Sangguniang Resolution No. 59 dated April 5, 2006 for various infrastructure projects of the City.

Long-Term Liabilities decreased by 45.55% or P145,054,546 over last year’s balance due to payment of loan for the year.

Note 13. Deferred Credits

This account consists of:

Other Deferred Credits account consists of real property tax payments which are under protest due to the increase in real property taxes that took effect in Calendar Year 2002, interest free loan and advance payment of real property taxes for 2011 in the amounts of P20,996,886; P803,892 and P11,630,975, respectively.

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Note 14. Government Equity

The change in the balance of Government Equity is as follows:

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Note 15. Operating Income P 1,523,773,430

The City realized an aggregate income of P1.52 billion or a decrease of P109.92 million or 6.73 percent from last years income of P1.63 billion.

Operating Income consisted of Tax Revenue of P707.57 million and General Income of P816.20 million. Both showed decreases in the amount of P51.73 million or 6.81 percent and P58.19 million or 3.56 percent, respectively. Share in the Internal Revenue Allotment rose by P28.65 million or 5.61 percent.

Note 16. Expenses P 1,192,186,212

Total operating and financial expenses of P1.19 billion registered an increase of P46.47 million or 4.06 percent from last years P1.14 billion.

The expenses were classified as follows: Current Operating Expenses, P1.18 billion, Financial expenses, P11.24 million, Subsidies, donations and Extraordinary Expenses, P28.66 million.

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PART II

DETAILED AUDIT FINDINGSAND RECOMMENDATIONS

DETAILED AUDIT FINDINGS AND RECOMMENDATIONS

I. Financial and Compliance Audit

1. Doubtful validity of account balances

1.1 There was a difference of P691.09 million between the Property, Plant and Equipment (PPE) balance per books and physical inventory, thus rendering the said amount doubtful. This was due to the failure of the General Services Office (GSO) and the Accounting Office to reconcile the Inventory Report with the accounting and property records.

Section 124, Volume I of the New Government Accounting System (NGAS) Manual provides that:

“Physical count of property, plant and equipment by type shall be made annually and reported on the Report on the Physical Count of Property, Plant and Equipment (RPCPPE). This shall be submitted to the Auditor concerned not later than January 31 of each year.”

Moreover, Section C.3, Chapter V of the Manual on Property Custodianship states that:

“After the physical inventory taking, the Inventory Committee shall reconcile the results of the count with the property and accounting records. The inventory listing of the supplies and materials shall be checked against the stock cards maintained by the Property and supply ledger cards maintained by the Accounting and finally against the control accounts. On the other hand, the inventory listing of equipment shall be checked with the property card maintained by the Property as against the equipment ledger cards maintained by the Accounting and the total thereof shall be compared with those in the general ledger.”

As of year end, the balances of the accounts Land and Land Improvements, Buildings, Office Equipment, Furniture and Fixtures, Machineries and Equipment, Transportation Equipment and Other Property, Plant and Equipment per books totaled P3,472,173,126 while the Inventory Report presented a total of only P2,781,085,190 or a difference of P691,087,936 (Annex E). Although the Inventory Report submitted by General Services Department (GSD) was as of June 30, 2010 only, this was adjusted by adding purchases from July to December to make the period of the two records comparable.

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The existence, validity and accuracy of PPE (201-250) accounts amounting to P691,087,936 could not be validated and verified due to the failure of the management to reconcile the physical inventory report with the balance per books and property records, contrary to the above-mentioned provisions. Moreover, absence of pertinent records to determine the value of a property hinders the necessary reconciliation of PPE.

Physical inventory taking is necessary to check the existence, condition and accuracy of the balance of the PPE. It will also aid the Property Officer in identifying obsolete and unserviceable PPE that should be dropped from the books of accounts and thereby present the true value of the PPE account in the financial statement. The reliability of the ledger balance for the PPE account can only be established after the actual inventory taking and reconciliation with property records. Physical inventory taking also attests to the integrity of property custodianship and accountability.

The General Services Officer (GSO) informed this Office that they are presently conducting physical count of properties, however, they are encountering some problems in the valuation of properties due to the absence of records brought about by typhoon “Ondoy”.

However, a copy of the year-end physical inventory report was submitted by the GSO after the exit conference in March 2011. Although assurance to update the records has always been made, strict implementation thereof is not being monitored.

We strongly recommend that the City Accountant, in coordination with the GSO, fast-track the reconciliation of the Inventory Report with the balance per books and property records. It is also recommended that for those properties whose values cannot be determined, their estimated values as well as their remaining useful life may be assigned by an appraisal committee.

1.2 Unpaid obligations in CY 2007 and prior years amounting to P6.78 million, which did not have any supporting documents to prove validity and existence, were still recorded under Accounts Payable (401).

Section 4(s), Volume I of the NGAS Manual states that liability shall be recognized at the time goods and services are accepted or rendered and supplier/creditor bills are received. Any unliquidated balance of accounts payable in the books maybe reverted to the unappropriated surplus of the General Fund, provided that these have been outstanding for two years or more and no claim has been filed for the payment of the account pursuant to Section 98 of PD 1445.

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As of December 31, 2010, Accounts Payable (401) under the General Fund (GF) and Special Education Fund (SEF) presented a balance of P178,428,886.

Our review of the subsidiary records revealed the following deficiencies:

a) The account balances included financial assistance pertaining to CYs 2006 to 2009 amounting to P478,239 and the named claimants were the Office of the City Mayor, the Office of the City Vice-Mayor and the Social Welfare Development Office. Financial assistance refers to “support” or “aid” to indigent constituents, thus, claimants should not be the City offices. Moreover, financial assistance should not be considered as a liability because it does not in any way involve services rendered, as referred to under Section 4(s), Volume I of the NGAS Manual.

b) Unpaid claims for CYs 2004 to 2007 totaling P6,279,229 lacks the necessary documents to support the claim and are due for reversion to the government equity as they remained outstanding for more than two years and no claim for payment has been filed. Aging of account payables was not undertaken as monitoring control particularly to determine claims that have been outstanding for two or more years, and the basis for reversion.

The City Accountant manifested that the recommendation is duly noted and that the accounts payable which remained outstanding for more than two years will be analyzed and those found without valid claims or without any available supporting documents shall be appropriately adjusted or reverted.

We advise the City Accountant to immediately revert these undocumented accounts payable to the Government Equity account as required under Section 98 of PD 1445.

2. Overstatement/Understatement of account balances

2.1 The Construction in Progress (CIP) accounts were overstated by P328.72 million because the completed projects of prior years were not fully transferred to their appropriate PPE account.

Accuracy in the financial reports and records is essential in the management and implementation of the agency programs and projects. For infrastructure projects, there is a need for the record to be accurate and updated as this serves as an essential source of information for government managers and a tool in the discharge of their functions as implementors and

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decision-makers, particularly in the development of a locality. Inaccurate financial reports and records will consequently result in inaccurate decision.

As of December 31, 2010, Construction in Progress accounts presented the following balances in the General Ledger of the General Fund:

Construction in Progress – Agency Assets -264 P 237,760,792 -do- Roads, Highways, Bridges -266 49,241,072 -do- Parks, Plazas, Monuments -267 547,623 -do- Irrigation, Canals and Laterals-270 20,210,130 -do- Waterways, Aqueducts, etc -272 15,807,896 -do- Other Public Infrastructures -273 31,573,579 Total P 355,141,092

Verification of samples of the projects reported as in-progress revealed that the balances appearing in the subsidiary ledgers pertained mostly to the first payments made on the prior years’ projects. Apparently, these remaining amount in the CIP accounts were part of the project cost of the previously booked-up completed projects.

On the other hand, the Status Report of Projects as of December 31, 2010 submitted by the City Engineer’s Office showed that on-going projects amounted only to P 26,424,534, as follows:

The failure of the Accounting Office to transfer the entire cost of the completed projects to the appropriate PPE account and the inability of the Engineering Office to regularly submit project status report and to reconcile the same with that of the records maintained by the Accounting Office resulted in the overstatement of the Construction in Progress account and the understatement of the corresponding Property, Plant and Equipment accounts both by P328,716,558.

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The City Engineer assured that monthly accomplishment/project status report will be submitted to the Accounting Office for proper recording and reconciliation with the accounting records.

We recommend the review of the CIP accounts so that all completed projects could be transferred to PPE. Further, it is recommended that the Status Report of Projects Undertaken by the Engineering Office be submitted quarterly to the City Accountant so that there will be a basis for the preparation of the Journal Entry Voucher (JEV) that will record the transfer.

3. Erroneous classification of accounts

3.1 Wages, allowances and benefits of volunteers and non-regular employees totaling P20.50 million were erroneously charged against the allotment for Personal Services (PS), thereby overstating the PS and understating the Maintenance and Other Operating Expenses (MOOE). On the other hand, various expenses such as traveling/training, intelligence/confidential expenses and Other MOOE amounting to P8.66 million were erroneously recorded as Extraordinary Expenses (883), thus overstating said account by the same amount and understating the appropriate expense accounts.

COA Circular No. 2004-008 dated September 20, 2004, provides the updated description of accounts under the NGAS to facilitate identification of transactions which fall under the specific accounts.

Audit of the Other Personnel Benefits (749) account under the allotment for Personal Services disclosed total charges of P24,630,058 as of December 31, 2010. Of this amount, P20,504,665 or 83.25% were salaries and benefits of non-regular employees, RATA of Rural Health Workers of the City government and health insurance of 204 indigent families (Annex F).

The recipients/payee of the salaries and benefits were not regular employees of the City Government, thus, these expenses should not be charged against the account, Other Personnel Benefits as provided under Section 7(a), Volume III of the NGAS Manual which provides that:

“Personal Services (PS) – This account classification includes basic pay, allowances, bonus, cash gifts, incentives and benefits and other personnel benefits of officers and employees of the government.”

The payments for the salaries and benefits of non-regular employees should have been charged to the Other Maintenance and Operating Expenses (969) account, the RATA of the Rural Health Physicians to the

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Representation Allowance (713) and Transportation Allowance (714) accounts, and the health insurance of 204 indigent families to the Extraordinary Expenses (883) account.

Moreover, analysis of the Extraordinary Expenses (883) account disclosed that the amount of P3,009,680 representing expenses for Lakbay Aral travel/seminar, P654,512 for financial assistance and P5 million cash advance for intelligence/confidential operation, for a total of P8,664,292, were erroneously charged against the said account, contrary to the provisions of COA Circular No. 2004-008 dated September 20, 2004.

Accordingly, the erroneous charging to the Extraordinary Expenses account overstated the said account by P8,664,292 and understated the Traveling/Training Expenses, Intelligence/Confidential Expenses and Other MOOE accounts by P3,009,680, P5,000,000 and P654,512, respectively. Further, employees of the city maybe deprived of other benefits that may be due them if the appropriation for Personal Services will be used for MOOE.

The City Budget Officer informed us that the budget for Other Personnel Benefits includes the appropriations for the above-cited expenses, however, she assured us that necessary and proper classification and charging of accounts will be considered in the preparation of the ensuing year’s annual budget.

Management gave the assurance that the recommended courses of action to correct the deficiencies will be implemented immediately.

We recommend that the practice of utilizing the allotment for Personal Services for payment of expenses other than those for personal services be discontinued. It is further recommended that the City Accountant and the City Budget Officer should be extra careful in the budget utilization and in recording and classifying expenses.

4. Compliance with laws, rules and regulations

4.1 Supplemental Budgets were not supported by new revenue sources. Likewise, the budget for Continuing Appropriations were realigned to other projects and to MOOE.

Section 321 of RA 7160 states that, no ordinance providing for a supplemental budget shall be enacted, except when supported by funds actually available as certified by the local treasurer or by new revenue sources.

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Section 336 of RA 7160, on the use of appropriated funds and savings, states that, funds shall be available exclusively for the specific purposes for which they have been appropriated. No ordinance shall be passed authorizing any transfer of appropriation from one item to another. However, the Local Chief Executive (LCE) or the presiding officer of the Sanggunian concerned may by ordinance, be authorized to augment any item in the approved annual budget for their respective offices from savings in other items within the same expense class of their appropriation.

During CY 2010, the approved Annual Budget amounted to P1,495,901,195. During same period changes in the approved budget were made as follows:

In the review of the budget, we noted the following deficiencies:

4.1.1 Supplemental Budgets under City Ordinance Nos. 44, 49, 75, 76 and 77 were passed without the required Certification by the City Treasurer that funds are actually available.

Despite our written and verbal requests to the City Budget Officer to furnish us a list of the sources of fund that has been the basis for the enactment of the supplemental budget, still the same has not been submitted to date. As such this is contrary to the provisions set under Section 321 of RA 7160

4.1.2 Supplemental budgets passed under City Ordinance Nos. 44, 49 and 103 indicated the funding source as from “savings”, “surplus”, “general fund for 2010” and “Trust Fund Account”. There were no specifics given on where these savings/surplus came from. Likewise, the “general fund for 2010” could not be considered a valid funding source for the supplemental budgets under City Ordinance Nos. 75, 76 and 77 because the “general

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fund for 2010” is part of the approved Annual Budget, and not a new revenue source as provided under Section 321 of RA 7160.

4.1.3 Funds from Continuing Appropriations for Capital Outlay – Infrastructure projects totaling P70,690,887 were realigned/transferred under City Ordinance No. 63 dated May 30, 2010, to the following:

Land acquisition for the City Employees’ Housing Project P 65,000,000

Garbage Hauling 4,000,000DSWD Social Services __ 1,690,887Total P 70,690,887

Said ordinance was based on a certification, dated March 26, 2010, issued by the City Engineer, that the following programmed/proposed projects were no longer the priority of the City Government, to wit:

Reference No. Particulars Obligations

EA-2010-04-005 Proposed Multi-Purpose Covered Court at Calumpang Elem. School P 12,996,110

EA-2010-04-0034 Proposed Multi-Purpose Covered Court at Calumpang Elem. School 4,901,866

EA-2010-04-0037 Proposed Quonset Roofing at Calumpang Elem. School 1,814,296

EA-2010-04-0038 Legislative Building-Sta. Elena 17,396,023EA-2010-04-0045 Legislative Building-Sta. Elena 19,603,977EA-2010-04-0052 Proposed CHB Wall Fence Road

Dike/Patrol Road, Malanday 9,579,572EA-2010-04-0056 Proposed Quonset Roofing at

Laredo St., Rancho Estate Ph3 1,407,000EA-2010-04-0057 Proposed Completion of Multi-Purpose

Covered Gym, Laredo St. Rancho Estate, Ph3 3,022,043

Total P 70,720,887

It could be gleaned that the transfer included garbage hauling and DSWD social services which are both current operating expenditures, thus, not in conformity with Section 336 of RA 7160 which allows realignment within the same expense class. Further, this transfer was not submitted to the Department of Budget and Management (DBM) for review, as required.

This realignment was resorted to in order to finance the purchase of 30 parcels of land amounting to P64,149,000 at

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Provident Village for the housing project for city employees. The Deed of Sale is dated May 31, 2010, was signed by the former City Mayor, on the basis of the authority granted her under City Ordinance No. 45 dated March 17, 2010.

Moreover, it has been noted that Continuing Appropriations reported at the end every year were not supported with the list of projects/activities for which these were intended, thus, changes can easily effected and the priorities that were set at the time of budgeting were disregarded.

The City Budget Officer and the City Treasurer gave the assurance that the recommended courses of action will be taken into consideration to correct the deficiencies noted.

We recommend that supplemental budgets be backed-up with new revenue source/s, and duly certified as such by the City Treasurer. On the other hand, realignments should only be made within the same allotment class and Continuing Appropriations should be supported with the list of projects for implementation to ensure that it is utilized for the purpose for which it was intended.

4.2 Of the P 135.63 million appropriation for the 20% Development Fund, P20.63 million or 15.21% was utilized for purposes other than those provided under Department of Budget and Management (DBM) and Department of the Interior and Local Government (DILG) Joint Memorandum Circular No. 1, series of 2005, dated September 20, 2005.

Programs, projects or activities that are to be funded out of the 20% Development Fund were enumerated in Section 3.0 of the DBM and the DILG Joint Memorandum Circular No. 1 dated September 20, 2005. These include social and economic development and environmental management.

For the year 2010, the City Government, in its annual budget, appropriated the amount of P 135,633,298 for the 20% Development Fund. Of this amount P20,632,198 or 15.21% was utilized for purposes other than those provided in the said Joint Circular, as follows:

Maintenance and Other Operating Expenses P 16,626,198Capital Outlay 4,006,000Total P 20,632,198

The failure of the City to prepare an Annual Development Plan precluded the proper utilization of the fund, thus, intended beneficiaries were deprived of the benefits that could have been derived therefrom.

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The City Planning Officer and the Budget Officer have taken note of our observation and assured us of the immediate compliance with the audit recommendation.

We reiterate our recommendation that the 20% Development Fund be utilized only for the purposes for which it was intended and for the City Development Council to prepare an Annual Development Plan that is in line with the above-mentioned Joint Circular.

4.3 The Annual Procurement Plan (APP) that supported the approved Annual Budget for the procurement of goods and infrastructure projects did not contain the detailed list of goods and infrastructure projects to be procured during the year, contrary to Section 7 of RA 9184.

Section 7 of RA 9184 states that, all procurement should be within the approved budget of the procuring entity and should be meticulously and judiciously planned by the procuring entity concerned. No government procurement shall be undertaken unless it is in accordance with an approved Annual Procurement Plan. In case of projects funded from lump-sum appropriations, the head of the procuring entity shall immediately update the APP to include such projects or contracts.

We have reviewed the procurement of goods and infrastructure project by the City of Marikina for the year 2010. As of December 31, 2010, the reported amount of obligations incurred for capital outlay amounted to P112,792,456, however, we noted that the required APP that should serve as basis in the procurement of the items had not been correctly prepared. Transaction documents, particularly those submitted for pre-audit, included either the Project Procurement Management Plan (PPMP) or the APP which only contained the item/s purchased per Disbursement Voucher. The APP as used by the City was prepared on a per transaction basis, contrary to the requirement of Section 7, RA 9184. Further, the contents of the submitted APP were not in conformity with the said provision of RA 9184. The APP was presented on a per Department/Office and erroneously included items, such as, Travel Expense, Donations, Rent, Subscription Fee, etc., including Intelligence/Confidential Expenses, with no particular items stated to be procured. Moreover, these expense items are not within the coverage of RA 9184. The amount presented for each Department did not match the approved Annual Budget. For instance, in the Annual Budget the amount appropriated for the 20% Development Fund is P135,633,298. However, the amount presented in the submitted APP for the said Fund is P151,900,615, or a discrepancy of P16,267,317.

Our interview with the GSO staff revealed that, the APP was not prepared during the annual budget preparation period. We were informed that the Planning and Management Office (PMO) instructed all department heads

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to submit their respective PPMP in the 1st quarter of CY 2010, when the Annual Budget has already been approved. Despite the delay however, not all the department heads submitted their PPMPs for consolidation by the BAC Secretariat. As required under Section 7 of RA 9184, the approved Annual Budget for infrastructure, supplies and equipment and services should be supported by an approved APP, showing the breakdown of the projects, supplies, materials, equipment and services to be procured during the year.

It is recommended that department heads be required to submit to the Bids and Awards Committee (BAC) Secretariat their individual Project Procurement Management Plans (PPMPs) showing the detailed list of goods and infrastructure projects to be procured during the year. These PPMPs shall be consolidated by the BAC Secretariat into an Annual Procurement Plan to support the appropriated amount in the approved Annual Budget.

4.4 The City has yet to come up with a clear-cut policy and detailed guidelines in the grant of financial assistance to qualified constituents and to People’s and Non-governmental organizations.

The City Government of Marikina appropriated in CY 2010 the amount of P17,005,000 for Donations. During the year, the supplemental budget amounting to P 67,946,482, for educational assistance and donation was passed. As of December 31, 2010, Donations released amounted to P21,253,145. The grant of these financial assistance/donations, however, was undertaken without specific guidelines. These were granted to community organizations and individuals including those who were not indigents. Further verification disclosed the following deficiencies:

a) The policy and appropriate mechanism on the grant of financial assistance were not in conformity with Section 36 and pertinent portions of Section 458(5) of RA 7160. Section 36 of RA 7160 states that, “A local government unit may through its local chief executive and with the concurrence of the sanggunian concerned, provide assistance, financial or otherwise, to such people’s and non-governmental organizations for economic, socially oriented, environmental, or cultural projects to be implemented within its jurisdiction”. Section 458(5) states that the Sangguniang Panglungsod shall “approve ordinances which shall ensure the efficient and effective delivery of the basic services and facilities as provided for under Section 17 of this Code and in addition to said services and facilities shall:

“(i) x x x

(xi) Establish a scholarship fund for poor but deserving students in schools located within its jurisdiction or for students residing within the city;

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(xii) x x x

(xiv) Provide for the care of disabled persons, paupers, the aged, the sick, persons of unsound mind, abandoned minors, juvenile delinquents, drug dependents, abused children and other needy and disadvantaged persons, particularly children and youth below 18 years of age; and, subject to availability of funds, establish and provide for the operation of centers and facilities for said needy and disadvantaged persons;

(xv) x x x “ among others.

Disbursement documents for the financial assistance granted in CY 2010 showed that these were given to private organizations and individuals who were not indigent. Likewise, these were granted without having passed the appropriate review and evaluation by the Social Welfare and Development Office (SWDO), which is the office tasked to undertake the financial assistance activities, as stated in the Executive Budget.

Other deficiencies noted on the grant of financial assistance in the first semester disbursements, were as follows:

These were made thru reimbursements.

These were granted in the form of goods and appliances to various community organizations/neighborhood associations for purposes of raffle prizes;

In February 2010, five months after typhoon Ondoy happened in September 2009, a cash advance for financial assistance amounting to P418,000 was granted thru the Office of the Vice-Mayor reportedly for the victims of the typhoon in Barangay Fortune and Nangka. However, there were no relocation centers at that time for victims of typhoon Ondoy in Marikina to justify the need for said cash donations.

In June 2010, payment amounting to P1,900,000 was made for the purchase of 10,000 pcs. of basketballs reportedly for donation to various organizations. The 10,000 pcs. of basketball were reportedly given to the 10,000 target participants of the planned sports fest mentioned in the letter-request dated February 20, 2010 signed by 12 organizations.

Our interview with some basketball players revealed that the required number of players in a basketball team is 12, and the

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needed number of basketballs for a team in the entire period of practice is 3 at the most. Hence, if there are 10,000 participants, the number of teams would be 833. For these number of teams with 3 required basketballs per team, the total requirement would only be 2,500 basketballs. The purchase therefore of 10,000 basketballs for the 10,000 target participants, or one for each participant is not justifiable. Had the donation been made judiciously, the City Government could have only purchased 2,500 basketballs and expended P475,000, instead of P1,900,000. The items purchased were not included in the final APP.

b) A payment of P1,000,000 was made in June 2010 for the purchase of 10,000 leadership medals, reportedly for donation. In the evaluation of the disbursement, the following deficiencies were noted:

There were no documents attached to the voucher to serve as basis for the purchase of the medals. Likewise, there were no leadership medals listed in the Annual Procurement Plan.

The item specifications were not stated in the Purchase Request and Purchase Order. This is necessary to ensure correctness of the delivered items and for use in the evaluation of price reasonableness.

The purpose of extending financial assistance to the less privileged constituents of the City is primarily to alleviate the burden and difficulties encountered in life. However, the assistance extended and granted did not pass through a screening and no controls were in place to ensure that only the deserving are benefited.

During the last quarter of the year, the City government formulated guidelines in the grant of financial assistance, however, it lacked some policies that will ensure that the recipients will be those who are really in need of assistance.

Management manifested that the recommendation is duly noted and necessary revisions on the guidelines in the grant of financial assistance will be made to ensure that only the qualified indigent families will be benefited.

It is recommended that policy guidelines in the grant of financial assistance conform with the above-stated sections of RA 7160.

4.5 The Marikina Revenue Code of 1995 has yet to be updated to conform with the Local Government Code, hence, the City’s revenue raising power has not been maximized.

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Section 151 of RA 7160 provides that the city may levy the taxes, fees and charges which the province or municipality may impose. The rates of taxes that the city may levy may exceed the maximum rates allowed for the province and municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes.

The following deficiencies that were noted last year in the City’s revenue generation still existed:

The Ordinances are in loose forms and not consolidated or codified to come up with the Revenue Code of the City Government that would be readily available for reference and guidance, and fit for its present status as a highly urbanized city.

The real property taxes imposed in CYs 2009 and 2010 were based on the rates provided under Ordinance 223 of CY 2001 while business taxes were still based on rates under the Marikina Revenue Code of 1995 when Marikina was still a municipality, which rates are no longer attuned to the present financial and economic development of the City.

Ordinance No. 223 adopting a new schedule of Fair Market Value for Land, Buildings and Other Structures was passed in CY 2001. However, the corresponding Ordinance fixing the rate of assessment levels to be applied to the new schedule of Fair Market Value to determine the assessed valued has not been issued, contrary to Section 218 of RA 7160. The absence of an enabling Ordinance results in the risk that the determination of assessed value may not be uniform for each property classification, and would consequently result in financial losses.

Miscellaneous fees and charges such as Permit Fees, Certification Fees and some others were still based on ordinances of 1995.

Management through its present Sanggunian informed that, “… the enactment of a new Marikina City Revenue Code will be part of the legislative agenda of this 6th City Council for Calendar Year 2011. The City Council, specifically the Council Committee on Ways and Means and the Committee on Appropriation, will be handling this matter immediately upon completion of the Council’s CY 2011 internal reorganization”.

We reiterate our previous recommendation that the City Mayor coordinate with the Sangguniang Panlungsod for the codification of all revenue ordinances. Existing ordinances should likewise be reviewed to determine conformity with the Local Government Code. In the review and in

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subsequent enactments, due consideration should be given to legislation that would maximize revenues.

4.6 Submission of copies of contracts, job orders, and purchase orders were delayed by a period ranging from 12 to 100 days, while copies of delivery documents were likewise delayed by a period ranging from 35 to 64 days.

Section 6 of COA Circular No. 2009-002 dated May 18, 2009 provides the following duties and responsibilities of agency officials:

“Section 6.6 Submit to the SA/TL concerned copies of contracts, purchase/letter orders, loan agreements, bond floatation/certificates of indebtedness, whether domestic or foreign and appraisal of property for disposal including all supporting documents required in COA Circular No. 2009-001 dated February 12, 2009 and its annexes, for review, within five (5) days from their perfection.”

“Section 6.9 Furnish the auditor copies of delivery documents within twenty-four hours after acceptance of deliveries of goods and services regardless of whether or not the transaction is subject to pre-audit.”

It has been observed that copies of purchase orders, job orders, and contracts and notice of deliveries were submitted to the City Auditor’s Office only when the contractors/suppliers were about to file their claims for payment, thus, submission was delayed for a period ranging from 12 to 100 days after the perfection of contract and from 12 to 100 days after the delivery (Annex G), contrary to the provisions of the above-cited circular.

This practice hindered the conduct of timely review, evaluation and determination of reasonableness of price and inspection of projects at the most opportune time, thus, any defects/deficiencies noted thereon could not be communicated immediately to the management. Also, claims that are presented for pre-audit could not be immediately acted upon due to the absence of contract/price evaluation and review report as well as the corresponding inspection report.

The City General Services Officer informed us that he has already instructed and reiterated the previous memorandum he issued to the Procurement Division relative to the compliance to the said COA Circular.

We recommend that the General Services Office be required to submit to the City Auditor’s Office copies of purchase orders, job orders, letter orders

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and contracts within five days from perfection and for notices of deliveries to be submitted within twenty-four hours from acceptance.

4.7 The City’s continuous failure to establish a written, comprehensive, and tested disaster recovery and business continuity plan; and formal policies and procedures to perform backup and to provide offsite servers/storage of data files, databases, programs and documentation, may result in Information Technology (IT) losses.

The need for providing continuous IT services requires developing, maintaining and testing IT continuity plans, utilizing offsite backup storage and providing periodic continuity plan training. An effective service process minimizes the probability and impact of a major IT service interruption on key business functions and processes.

This is a reiteration of our previous year’s audit observation and recommendation since the city has not yet established a written, comprehensive and tested disaster IT recovery program.

The handbook developed by the Office of the Marikina Information System and Call Center (MISCC) which provides for the contingency plan in case disaster occurs and the immediate realization of the Remote Contingency Servers to be located at the 6th Floor of the new Marikina Sports Center has been presented by the said Office to the management but it has not yet been approved.

The City Administrator during the exit conference gave the assurance that the recommended action will be taken into consideration.

We recommend that management prioritize and carefully study the contingency plan presented to them by the MISCC in order to prevent the risks of loss of or damage to data files, hence, ensuring the continuous operation of the management information system.

5. Dormant Account

5.1 Other Receivables representing dishonored checks for the years 1981 to 1987 totaling P1.03 million remained in the books for 23 to 29 years despite the absence of documents to enforce collection.

COA Resolution No. 2003-002 dated January 30, 2003 provides that:

“x x x

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WHEREAS, this Commission in the exercise of this authority has authorized the writing-off of unliquidated cash advances, dormant and uncollectible accounts of government agencies the existence of which in the books continue to affect the true financial condition of the government;

WHEREAS, the New Civil Code provides that the right of action upon a written contract, upon an obligation created by law, or upon a judgment prescribes in ten (10) years (Article 114).”

The Other Receivables account in the total amount of P9,155,312 as of December 31, 2010, pertains to claims for dishonored checks representing payment of real property taxes for the years 1981 to present.

Of the said amount, P1,027,806 or 11.23% have been outstanding for a period ranging from 23 to 29 years. The account is merely supported by a list of dishonored checks. Per verification made, the names of the payees no longer exist in the tax roll. Documents, such as dishonored checks, cancelled official receipts and debit memoranda that would support the claim are no longer available since there was no proper turnover from the previous treasurer. Considering that the transactions occurred over twenty years ago, management finds the recovery/settlement of the accounts improbable.

The request for authority to write-off was submitted to the Office of the City Mayor as per recommendation by the City Treasurer, however, the City Mayor, who is newly elected, still has to study the matter.

We advise the City Accountant to follow-up with the Office of the City Mayor the request for authority to write-off dishonored checks based on the verification made by the City Treasurer’s Office. The request for write-off shall be filed with the Commission Proper of the Commission on Audit, thru the City Auditor’s Office.

III. Settlement of Audit Suspensions, Disallowances and Charges

As reported in the Statement of Audit Suspensions, Disallowances and Charges (SASDC) as of the last quarter of CY 2010, there were no suspensions, disallowances and charges as of December 2010.

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PART III

STATUS OF IMPLEMENTATION OFPRIOR YEAR’S AUDIT RECOMMENDATIONS

STATUS OF IMPLEMENTATION OF PRIOR YEAR’SAUDIT RECOMMENDATIONS

Of the 17 audit recommendations contained in the previous year’s Annual Audit Report, nine (9) were fully implemented, four (4) were partially implemented and four (4) were not acted upon by the agency.

Audit Observation Recommendation Ref.

ManagementAction

Status of Implementation

Reason for Partial/Non

Implementation

1. The Construction in Progress account was overstated by P1.11 billion, while the related Expenses and Agency Assets/Public Infrastructures accounts were understated by P3.17million and P1.10 billion, respectively, due to the failure of the Engineering Office to

furnish the Accounting Office with the Report on the Status of the Projects.

We recommend that the Engineering Office be required to submit monthly to the Accounting Office the Report on the Status of the Projects undertaken. This will serve as the basis of the latter in preparing the necessary adjusting entries to the Construction in Progress account. Further, the Accounting Office should conduct periodic review of the same to ensure fair presentation of its balance.

CY 2009 AAR

Not implemented

Reiterated in Finding No. 2.1

The necessary adjusting entries regarding the construction-in-progress account was not prepared due to the failure of the Engineering Office to submit necessary reports to the Accounting Office.

2. Receipts of Priority Development Assistance Fund (PDAF) were inconsistently treated in the books of accounts either as trust liability under the General Fund or as liability to Other NGAs under the Trust Fund, contrary to National Budget Circular No. 476 dated September 20, 2001.

Require the Accounting Office to prepare a JEV to reclassify the PDAF erroneously recorded under the General Fund to the Trust Fund books. The City Accountant should closely supervise and require the person responsible to consistently record all PDAF under the Trust Fund in compliance with the provisions of the National Budget Circular.

CY 2009 AAR

All PDAF recorded as Trust Liabilities under the General Fund were already transferred to the Trust Fund as per JEV Nos. 2010-06-004015 and 2010-06-005001.

Fully Implemented

3. The failure of the City to establish a written, comprehensive, and tested disaster recovery and business continuity plan, and formal policies and procedures to perform backup and provide offsite servers/storage of data files, databases, programs and documentation, resulted in Information Technology (IT) losses and financial

statements of doubtful reliability.

The City should formulate written policies and procedures on Disaster Recovery and Contingency Plan to prevent the risks of loss or damage of data files and for the continuous operation of information systems processing. Likewise, we suggest that management should provide funds for an offsite location to house a backup remote server.

CY 2009 AAR

A Handbook on the said Plan has been submitted by the MISCC to the management for approval.

Not Implemented


The new administration has not yet approved the submitted proposal.

4. Contract agreements with El Cielito Tourist Inn, Inc. and with Rosario Brothers Company, Inc. were entered into without observing the processes, procedures and requirements provided under Section 2, Rule 1 of the Revised Implementing Rules and Regulations of Republic Act No. 9184.

Require that contracts entered into be in accordance with the aforementioned provisions of the Revised IRR of RA No. 9184. Further, the bidding and contract/project documents should be submitted as required under COA Circular No. 2009-001.

CY 2009 AAR

Contract agreement with El Cielito Tourist Inn, Inc. has already been terminated. The required documents have already been submitted by Rosario Brothers Company, Inc.

Fully Implemented

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ManagementAction



Implementation

5. The Construction Materials Inventory as of December 31, 2009 which amounted to P 29.12 million exceeded the materials required for the completion of the reported on-going projects implemented by administration as of the same period due to the non-preparation of programs of work for all construction and repair of infrastructure projects.

It is required that purchases of construction materials be controlled. Those submitted for bidding should be reviewed and checked against those in the warehouse, and that only those not available shall be purchased. Require that the detailed report of inventory of construction materials be kept updated and always available for the guidance of the concerned city officials, particularly the BAC and Engineering personnel.

In addition, purchase of construction materials should only be made on the basis of programs of work of all construction and repair of infrastructure projects that is duly approved by the City Engineer.

CY 2009 AAR

The agency in their letter dated December 18, 2009, informed us that the stocks in the warehouse were savings from elimination of pilferage and wastage via centralized warehousing.

Materials for the up coming projects that are available in stock are no longer included in the materials to be procured.

Partially Implemented

Program of Work for the repairs and maintenance works were not approved by the City Engineer.

6. The shares of the 16 barangays from the Real Property Tax (RPT) and Community Tax (CT) collections were not automatically released to them, contrary to Section 271(d) of RA 7160.

We recommend that the share of barangays from RPT and CT collections be automatically released to them on a quarterly basis in compliance with Section 271 (d) of RA 7160.

CY 2009 AAR

The shares due to all barangays have been transferred last May 2010.

Fully Implemented

7. The Marikina Revenue Code of 1995 was no longer reflective of its being a highly urbanized City hence, its revenue raising power has not been maximized.

We recommend that the City Mayor coordinate with the Sangguniang Panlungsod for the codification of the revenue legislations as ready reference for the tax collectors, users, and taxpayers. Likewise, the existing ordinances should be reviewed to determine conformity with the Local Government Code. In the review of ordinances and in subsequent enactments, due consideration should be given to legislations that would maximize the collection/generation of revenues.

CY 2009 AAR

Not Implemented


The enactment of a new Marikina City Revenue Code will be part of the legislative agenda of the 6th City Council for Calendar Year 2011.

8. Of the P109.54 million appropriated for the 20% Development Fund, P49.436,815.58 or 45.13 percent was utilized for purposes other than those provided under DILG Circular No. 97-30 dated February 10, 2007, because the City Government overlooked the preparation of an Annual Development Plan (APP), hence, intended beneficiaries were deprived of the benefits that could have been derived therefrom.

We recommend that the City Development Council prepare an Annual Development Plan that is in line with DILG Circular No. 97-30 to ensure that the objectives of the 20% Development Fund is served.

CY 2009 AAR

Not Implemented


The City Development Council has not yet come up with an annual development plan that is in line with the objectives of the fund as embodied in the DILG Circular.

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ManagementAction



Implementation

9. Taxes totaling P7.35 million which were withheld from the claims of contractors and suppliers in prior years have not been fully remitted to the Bureau of Internal Revenue (BIR) in violation of Section 2.5 of Revenue Regulations No. 2-98 due to poor monitoring in the remittance of the same.

Require the City Accountant to see to it that taxes withheld are fully remitted to the BIR within the prescribed period.

CY 2009 AAR

Withheld taxes that were retained were already remitted under Check Nos. 57971 to 57973 all dated July 7, 2010.

Fully Implemented

10. Other Receivables representing dishonored checks for the years 1981 to 1987 totaling P1.03 million remained in the books for 20 to 27 years due to the absence of documents to enforce collection.

We advise the City Accountant to follow-up with the Office of the City Mayor the request for authority to write-off dishonored checks amounting to P1,03 million based on the verification made by the City Treasurer’s Office. The request for write-off should be filed with the Commission Proper of the Commission on Audit, thru the City Auditor’s Office.

CY 2009 AAR

Resolution No. 39, Series of 2010 (authorizing the Mayor to write-off dishonored checks from CY 1981-1987) was passed last 04 November 2010.


Reiterated in finding 5.1

The agency failed to submit to the Commission Proper thru the City Auditor’s Office the pertinent documents relative to the request for write-off.

11. Unpaid obligations in Calendar Year 2004 and earlier which were not supported with sales invoices/creditors’ bills amounting to P3.94 million in the Special Education Fund (SEF) and an undeterminable amount in the General Fund (GF) were still recorded under Accounts Payable. As a result, Accounts Payable was overstated and Government Equity was understated by at least P3.94 million.

We recommend that the City Accountant review and analyze the details of the payable accounts and effect adjustments to revert all prior years’ Accounts Payable with no actual administrative or judicial claim on file. Henceforth, the City Accountant is advised to recognize liability only when goods and services are accepted and rendered and supplier/creditor bills are received in compliance with Section 4(s), Volume I of the NGAS Manual.

CY 2009 AAR

JEV No. 2010-01-00028 dated January 29, 2010 was prepared to revert the payables in the amount of P3.94 million under the SEF.

Fully Implemented

12. Bank debit/credit discrepancies made by the Philippine Veterans Bank (PVB), and the failure of the Accountable Officer to undertake regular review and monitoring of cash with the depository banks exposed funds to the risk of financial loss. Further, the City maintained deposit accounts with the PVB, in spite of the nearby branches of the Land Bank of the Philippines and the Development Bank of the Philippines, contrary to Department Order No. 27-05 dated December 9, 2005 of the Department of Finance.

Considering the significance of the deficiencies noted, it is required that the PVB be made to immediately effect the necessary corrections. Require the Cashier/Accountable Officer and the City Treasurer to conduct prompt/timely review and monitoring of all accounts maintained with the bank to avoid the occurrence of bank errors which remain uncorrected for a long time.

We advise the City Accountant to update the preparation of the Bank Reconciliation Statements and make the necessary adjustments and to communicate to the City Treasurer the differences/discrepancies noted. The City Treasurer should secure Department of Finance

CY 2009 AAR

A Letter seeking approval to maintain depository account with PVB has been sent to the Department of Finance by the Local Chief Executive, pursuant to Department Order No. 27-05 dated December 9, 2005.

Necessary adjustments have been made by the bank on the discrepancies noted.


The City Accountant has yet to update the preparation of Bank Reconciliation.

45


ManagementAction



Implementationapproval if the City chooses to maintain depository accounts with the PVB.

The City Accountant exerted effort to come up with an updated bank reconciliation statement.

13. The City has no clear-cut policy for the granting of financial assistance to its constituents thus, reimbursements of various amounts, nature and purposes were all accommodated by the officials of the City.

We recommend the following remedial measures to regulate the giving of financial assistance by the City:

Management should formulate a policy for the granting of financial assistance to its constituents and the various organizations/neighborhood associations taking into consideration the need and budget for the year. Beneficiaries should be properly screened giving priority to the less privileged constituents and assistance should be extended only once to the same persons/organizations, neighborhood associations.

The City Budget Office should refrain from charging financial assistance against Other Maintenance and Operating Expenses account because this practice depletes the budget for the intended activities.

The City Officials should coordinate with the City Social Welfare and Development Office to assess requests for medical and hospitalization assistance by way of Social Case Study Reports so that only the deserving indigents are assisted and served. Adhere strictly to Sections 335 and 343 of RA 7160.

Procurement of appliances and other supplies for donation to private individuals, neighborhood associations should be stopped.

Traveling expenses

CY 2009 AAR

Reimbursements of various amounts for financial assistance have been stopped.

An Executive Order itemizing the requirements and procedures in the granting of financial assistance was issued by the Office of the Mayor, however, it still lacks some conditions that are necessary for the proper granting of financial assistance.



The agency has yet to come up with a clear cut policy for the granting of financial assistance.

46


ManagementAction



Implementationof personnel of the National Government Agencies assigned in the City should be granted strictly in the form of cash advance to establish accountability. A certification from the proper official of their respective head office should be required to ensure that a single claim of travel allowance and other incidental expenses is paid.

14.The Priority Development Assistance Fund (PDAF) granted by the national government as financial assistance to LGUs purposely for specific development programs and projects has not been fully utilized for the intended purpose due to poor monitoring. Moreover, disbursements were made through reimbursement for expenses not related to specific priority development projects.

Require that PDAF be fully utilized for the pro-poor programs of government, as required by RA 9498, the National Budget Appropriations Law. Likewise, management should monitor the utilization of the fund to ensure that programs/projects as indicated in the Special Allotment Release Order (SARO) are implemented. Disbursement procedures should be done thru direct payment to the intended parties or thru cash advances to the disbursing officer of the implementing agency.

CY 2009 AAR

The agency sees to it that the expenses incurred under the said fund are in accordance with that stated in the SARO. Likewise, proper monitoring has also been observed.

Fully Implemented

15. Efficiency in implementation and effectiveness of the completed projects/activities under Gender and Development could not be determined due to the absence of specific gender-responsive plans, policies and strategies.

Require that the gender issues and concerns prevailing among the women constituency be identified. Map out the GAD projects/activities for the year and the corresponding specific strategies to address the issues. The Accomplishment Report should be prepared using the required form, to document the extent of implementation, the efficiency and the effectiveness of the GAD projects and activities.

CY 2009 AAR

The GAD Accomplishment Report has been submitted.

Projects and activities for the year and the corresponding strategies has been defined to address the GAD issues identified.

Fully Implemented

16. The City government availed of credit financing in spite of the availability of funds placed in time deposits thus, the city unnecessarily incurred interest expense totaling P25.65 million.

In order not to incur additional expenses that tend to deplete the resources of the City, it is suggested that management should maximize the use of its available resources in the implementation of its programs and projects before availing of credit financing.

CY 2009 AAR

The management informed us that the loans has been almost paid up and the funds placed in time deposits that served as collateral, are funds allocated for trust liabilities like barangay share on RPT and amount due to BIR which has already been remitted

Fully Implemented

47


ManagementAction



Implementationaccordingly.

17. The amount of P3.29 million could have been saved from the construction of the project, Concreting of Parking/Terminal (Phase I), had this been undertaken “by Contract” instead of “by Administration”.

Projects “by Administration” should conform with the conditions/requirements set under RA 9184 and GPBB Resolution No. 018-2006- Revised Guidelines For the Implementation of Infrastructure Projects By Administration.

CY 2009 AAR

The conditions set under RA 9184 for the implementation of Infrastructure projects by administration are now being observed.

Fully Implemented

48

PART IV

ANNEXES

Marikina City

Part IV – Annexes A - G

(Pages 49 – 68)