Republic of the Philippines

COMMISSION ON AUDIT
Commonwealth Avenue, Quezon City

MANAGEMENT LETTER

on the

COMPLIANCE AUDIT
on the UTILIZATION of
20% DEVELOPMENT FUND

MUNICIPALITY OF APALIT
Province of Pampanga

As of December 31, 2022

 REGIONAL OFFICE NO. III
PROVINCE OF PAMPANGA
PROVINCIAL SATELLITE AUDITING OFFICE

13 February 2023

Honorable Oscar D. Tetangco, Jr.

Municipal Mayor
Municipality of Apalit
Province of Pampanga

Management Letter on the Compliance Audit

on the Utilization of 20% Development Fund of the Municipality of Apalit, Pampanga
For the Period from 01 January to 31 December 2022

Dear Honorable Municipal Mayor:

1) We have audited the utilization of the 20% Development Fund (DF) particularly on
the allowable expenditures funded out of the said fund of the Municipality of Apalit,
Province of Pampanga covering the period 01 January to 31 December 2022.

2) We conducted our compliance audit in accordance with the International Standards

of Supreme Audit Institutions on compliance auditing (ISSAI 4000). Those standards
require that we plan and perform the audit to obtain a reasonable basis for our
conclusions.

3) The audit was conducted to ascertain compliance with Department of Budget and
Management (DBM), Department of Finance (DOF) and Department of the Interior
and Local Government (DILG) Joint Memorandum Circular (JMC) No. 1 dated
November 4, 2020, specifically Section 3.2.5 on the expenditure items not allowed
to be charged against the fund.

4) Section 287 of Republic Act No. 7160, also known as “The Local Government Code
of the Philippines” requires that every Local Government Unit (LGU) appropriate
in its annual budget no less than twenty percent (20%) of its annual internal revenue
allotment for development projects.

5) Corollary thereto, the DBM, DOF and DILG previously issued Joint Memorandum
Circulars (JMCs) to provide guidelines and policies on the appropriation and
utilization of the 20% DF.
6) However, these oversight agencies believed that it is critical to revise the guidelines
and policies to enable the LGUs to better address the constantly changing
development needs of their respective constituents in light of the observed practices
in the utilization of the 20% DF, the current situation in the development sector and
the prevailing demands for the delivery of public services.

7) As a result, JMC No. 1, dated November 4, 2020, was issued and has repealed all
prior issuances on the Revised Guidelines on the Appropriation and Utilization of
the Twenty Percent (20%) Internal Revenue Allotment for Development Projects.

8) On the other hand, the Commission on Audit, in view of the adoption of International
Standard of Supreme Audit Institutions (ISSAI) 4000 (Compliance Audit Standards)
under COA Resolution No. 2018-012 dated February 1, 2018, requires the conduct
of compliance audit.

9) Specifically, COA Memoranda dated September 14 and 19, 2022, and January 26,
2023 identified the 20% DF as the compliance audit focus with Section 3.2.5 DBM-
DOF-DILG JMC No. 1 as the criterion.

10) Item 3.2.5 of the above-mentioned JMC listed the following ineligible expenditure
items, to wit:

3.2.5.1 Personal Services expenditures, such as salaries, wages, overtime

pay, and other personnel benefits;

3.2.5.2 Administrative expenses, such as supplies, meals, representation,

communication, water and electricity, petroleum products, and
the like;

3.2.5.3 Traveling expenses, whether domestic or foreign;

3.2.5.4 Registration fees and other expenses related to the conduct of and
participation to trainings, seminars, conferences or conventions;

3.2.5.5 Purchase, maintenance or repair of administrative office' furniture,

fixtures, equipment or appliances; and

3.2.5.6 Purchase, maintenance or repair of motor vehicles used for

administrative purposes.

11) The Municipality of Apalit has a Municipal Development Council (MDC) created by
virtue of Executive Order (EO) No. 08, Series of 2019, composed of the Municipal
Mayor as the Chairperson, 22 members from the Punong Barangays, Sangguniang
Bayan, Congressman of 4th District of Pampanga and accredited Civil Society
Organizations with the Municipal Planning and Development Coordinator as the
Secretariat. Executive Committee and various Sectoral or Functional Committees
 were also created thru the EO. However, the MDC was reorganized thru EO No. 14,
Series of 2022.

12) With the assistance of the MDC, the Municipality formulated the Local
Development Plan (LDP) and Annual Investment Program (AIP) for CY 2022 for
the 20% DF and appropriated the amount of ₱73,603,021.20. Other sources of the
20% DF include continuing appropriation from the previous year amounting to
₱10,366,906.80.

13) We have inspected the LDP and AIP, post audited transactions, conducted ocular
inspection of the projects and interviewed members and representatives of the LDC,
municipal key officials, and other concerned individuals to ascertain whether all
Programs, Projects and Activities (PPAs) charged against the fund are eligible and
do not partake the nature of expenditure items such as (a) personal services; (b)
administrative expenses; (c) traveling expenses; (d) seminar and training expenses;
(e) purchase, maintenance or repair of administrative office' furniture, fixtures,
equipment or appliances; and (f) purchase, maintenance or repair of motor vehicles
for administrative purposes.

14) We wish to bring your attention to our audit observation and recommendation which
were communicated through Audit Observation Memorandum (AOM) to the
concerned officials of the Municipality of Apalit. Their responses were incorporated
in this Management Letter (ML), where appropriate.

Basis for the Conclusion

15) All programs, projects and activities funded and implemented by the Municipality
for the 20% DF do not partake the nature of the specific ineligible expenditure items
enumerated under Section 3.2.5 of the Joint Memorandum Circular No. 1 of the
DBM, DOF, DILG dated November 4, 2020.

Conclusion on the Subject Matter

16) Based on the audit work performed, we found that, as stated in the Basis for the
Conclusion paragraph, the utilization of the 20% DF of the Municipality of Apalit, is
in compliance, in all material respects, with the provisions of Item 3.2.5 of DBM-
DOF-DILG JMC No. 1 dated November 4, 2020.

Detailed Observations and Recommendations

All programs, projects and activities funded and implemented by the Municipality for the
20% DF amounting to ₱83,969,928.00 do not fall under the list of specific expenditure
items not allowed to be charged against the fund; thus, the LGU is considerably
compliant with Section 3.2.5 of the Joint Memorandum Circular No. 1 of the Department
of Budget and Management (DBM), Department of Finance (DOF), Department of the
Interior and Local Government (DILG) dated November 4, 2020.

17) Pursuant to Section 287 of Republic Act No. 7160 which requires every Local
Government Unit (LGU) to appropriate in its annual budget no less than twenty
percent (20%) of its annual internal revenue allotment for development projects, the
Municipality of Apalit complied with the appropriation requirement of at least 20%
of the Internal Revenue Allotment (IRA) for CY 2022 equivalent to ₱73,603,021.20.
Other sources of the 20% DF include continuing appropriation from the previous year
amounting to ₱10,366,906.80. The details contained in its 2022 Annual Investment
Plan (AIP) are presented below under Columns A and B.
Re-programming
Program/Project/Activities Appropriation under Resolution
(PPAs) (per AIP) No. 36, s. 2022 Utilization Balance
A B C D E
Current Appropriation
Operation and
maintenance of Municipal
1 ₱14,000,000.00 ₱(2,112,728.00) ₱11,887,272.00 100.00% ₱0.00
Solid Waste Management
Program (MSWMP)
Purchase of construction
2 2,103,021.20 (25,126.20) 1,949,355.00 93.81% 128,540.00
materials
Restoration/Preservation
3 of Cultural Site (St.Peter 1,000,000.00 0.00 1,000,000.00 100.00% 0.00
and Paul Parish Church)
Water sanitation and
4 1,700,000.00 (1,700,000.00) 0.00 0.00% 0.00
hygiene program
Purchase of 12 units Elf
5 9,000,000.00 4,188,000.00 13,188,000.00 100.00% 0.00
Trucks
Upgrading and concreting
of Road F.Y. Manalo with
6 11,500,000.00 0.00 2,844,732.31 24.74% 8,655,267.69
drainage canal @
Barangay San Vicente
Site development of
7 Municipal Property at 33,000,000.00 (340,875.70) 32,659,124.30 100.00% 0.00
Sapang Are (Phase 3)
Construction of Multi-
Purpose Hall at Sitio
8 1,300,000.00 (9,270.10) 1,287,315.00 99.74% 3,414.90
Alauli, Barangay San
Vicente
Sub-Total 73,603,021.20 0.00 64,815,798.61 88.06% 8,787,222.59
Continuing Appropriation
Operation and
maintenance of Municipal
9 1,137,060.00 0.00 1,040,000.00 91.46% 97,060.00
Solid Waste Management
Program (MSWMP)
Site Development
10 (Government Hub @ 1,391,429.80 0.00 1,239,010.00 89.05% 152,419.80
Sampaloc)
Purchase of 2 units elf-
11 1,600,000.00 0.00 1,600,000.00 100.00% 0.00
mini-dump trucks
Purchase of 1 unit
12 1,917,617.00 0.00 0.00 0.00% 1,917,617.00
Bulldozer
 Re-programming
Program/Project/Activities Appropriation under Resolution
(PPAs) (per AIP) No. 36, s. 2022 Utilization Balance
A B C D E
Concreting of Road -
13 1,900,000.00 0.00 1,872,360.00 98.55% 27,640.00
Sampaloc
Concreting of Road -
14 1,010,800.00 0.00 812,745.00 80.41% 198,055.00
BANAG Balucuc
Upgrading and Concreting
of Road @ Apricot Road
15 830,000.00 0.00 798,935.00 96.26% 31,065.00
& Grape Road @ Bagong
Pag-asa
Upgrading and Concreting
16 of road at CANDIDA 580,000.00 0.00 548,529.00 94.57% 31,471.00
Barangay San Vicente
Sub-Total 10,366,906.80 0.00 7,911,579.00 76.32% 2,455,327.80
Grand Total ₱83,969,928.00 ₱0.00 ₱72,727,377.61 86.61% ₱11,242,550.39

18) In order to allocate additional funds for the project deemed appropriate by the
Management, the Municipal Development Council recommended to the Sangguniang
Bayan the realignment of funds from various projects funded from 2022 DF to the
purchase of 12 units of truck totaling ₱4,188,000.00, which was adopted by the latter
thru SB Resolution No. 36 series of 2022, as shown in column C.

19) For the year ended December 31, 2022, the Registry of Allotments and Obligations
(RAO) of the 20% DF showed that the Municipality utilized the total amount of
₱72,727,377.61 out of the ₱83,969,928.00 current appropriation for DF, or a
utilization rate of 86.61%.

20) Based on the identified projects under the 20% DF, the Audit Team was able to obtain
brief descriptions of the projects from the Comprehensive Development Plan of the
Municipality coupled with inquiries from members and/or representatives of the
Municipal Development Council, to wit:

Programs/Projects/Activities Brief Description

Operation and maintenance of MSWMP Collection, Transport and Disposal of Waste to sanitary landfill
Purchase of construction materials Construction materials for various projects in various
barangays
Restoration/Preservation of Cultural Site Restoration/Preservation of St. Peter and Paul Parish Church,
(St.Peter and Paul Parish Church) declared National Cultural Treasures under Museum
Declaration No. 15-2020. The fund is intended to be used for
electrical works in the renovation of the Cultural Site.
Water sanitation and hygiene program Provision of septic tanks to various families within the
municipality
Purchase of 12 units Elf Trucks Purchase of garbage trucks for Collection, Transport and
Purchase of 2 units elf-mini-dump trucks Disposal of Wastes from barangays to the Municipal Materials
Purchase of 1 unit Bulldozer Recovery Facility
Upgrading and concreting of Road F.Y. Upgrading and concreting of roads for people’s convenience
Manalo with drainage canal at Barangay and vehicle accessibility. Other roads give alternative routes
San Vicente for the fastest way to one’s destination as well as fewer traffic
Concreting of Road - Sampaloc management problems.
Concreting of Road - Banag Balucuc
 Programs/Projects/Activities Brief Description
Upgrading and Concreting of Road at
Apricot Road and Grape Road and
Bagong Pag-asa
Upgrading and Concreting of road at
Candida Barangay San Vicente
Site development of Municipal Property Development of municipal property intended to establish a hub
at Sapang Are (Phase 3) of different government agencies such as Apalit Development
Offices, Evacuation Center, etc.
Construction of Multi-Purpose Hall at Construction of Multi-Purpose Hall to be used by Sitio Alauli,
Sitio Alauli, Barangay San Vicente Barangay San Vicente
Site Development (Government Hub at The appropriations were intended for the preparation of site for
Sampaloc) Don Honorio Ventura State University (DHVSU) – Apalit
Campus

21) Using the foregoing descriptions alone, individual evaluation of the projects showed
that none of these fall under the list of ineligible expenditure items enumerated in the
sub-items of Section 3.2.5 of the JMC. The result of the evaluation is presented as
follows:

Ineligible Expenditures under Sec. 3.2.5 of the JMC

Programs/Projects/Activities
A B C D E F
Current Appropriation
1. Operation and maintenance of MSWMP No No No No No No
2. Purchase of construction materials No No No No No No
3. Restoration/Preservation of Cultural No No No No No No
Site (St.Peter and Paul Parish Church)
4. Water sanitation and hygiene program No No No No No No
5. Purchase of 12 units Elf Trucks No No No No No No
6. Upgrading and concreting of Road F.Y. No No No No No No
Manalo with drainage canal @ Barangay
San Vicente
7. Site development of Municipal Property No No No No No No
at Sapang Are (Phase 3)
8. Construction of Multi-Purpose Hall at No No No No No No
Sitio Alauli, Barangay San Vicente
Continuing Appropriation
9. Operation and maintenance of No No No No No No
Municipal Solid Waste Management
Program (MSWMP)
10. Site Development (Government Hub at No No No No No No
Sampaloc)
11. Purchase of 2 units elf-mini-dump No No No No No No
trucks
12. Purchase of 1 unit Bulldozer No No No No No No
13. Concreting of Road - Sampaloc No No No No No No
14. Concreting of Road - Banag Balucuc No No No No No No
15. Upgrading and Concreting of Road at No No No No No No
Apricot Road and Grape Road at Bagong
Pag-asa
16. Upgrading and Concreting of road at No No No No No No
Candida Barangay San Vicente
Legend:
A – Personal Services Expenditures (3.2.5.1)
B – Administrative Expenses (3.2.5.2)
C – Travelling Expenses (3.2.5.3)
D – Expenses related to training, seminars, conferences or conventions (3.2.5.4)
E – Purchase/maintenance of administrative office’ furniture, fixtures, equipment and the like (3.2.5.5)
F – Purchase/maintenance/repair of motor vehicle for administrative purposes (3.2.5.6)

22) Ocular inspection conducted by the Audit Team together with the representatives of
the Municipality further corroborated that the forgoing projects, except for the
reprogrammed project under Item Nos. 4 and 12, were indeed the same projects
previously identified in the AIP of the Municipality. Sample photographs are shown
below:

Item
Sample Photographs
No.
1 and
9

Operation and Maintenance of Municipal Solid Waste Management

Purchase of Construction Materials (Filling Materials)

Restoration of Cultural Heritage

Item
Sample Photographs
No.
5

Purchase of 12 units Trucks for Solid Waste Management

Upgrading and concreting of Road F.Y. Manalo with drainage canal – Brgy. San Vicente

Site development of Municipal Property at Sapang Are (Phase 3)

Construction of Multi-Purpose Hall at Sitio Alauli, Barangay San Vicente

Item
Sample Photographs
No.
10

Site Development (Government Hub at Sampaloc)

11

Purchase of 2 units elf-mini-dump trucks

13

Concreting of Road - Sampaloc

14

Concreting of Road - Banag Balucuc

 Item
Sample Photographs
No.
15

Upgrading and Concreting of Road at Apricot Road and Grape

Road at Bagong Pag-asa
16

Upgrading and Concreting of road at Candida Barangay San Vicente Road at Bagong Pag-asa

23) Conclusively, considering the foregoing observations, the Municipality is in

compliance, in all material respects, with Item 3.2.5 of the DBM-DOF-DILG Joint
Memorandum Circular No. 1 dated November 4, 2020 in the utilization of the 20%
DF which may ultimately contribute to the attainment of desirable socio-economic
targets and outcomes of the LGU.

24) We commended the Municipality for (a) adhering to the rules on the appropriation
and utilization of the 20% DF for projects that are necessary and essential to the
promotion of the general welfare of its constituents and ensuring that PPAs do not
fall within the purview of ineligible expenditures enumerated in Item 3.2.5 of DBM-
DOF-DILG JMC No. 1.

Status of Implementation of Prior Year’s

Audit Recommendations

25) As no compliance audit was conducted in the prior year, hence no data for this
section.
 Acknowledgment

26) We wish to express our appreciation to the Management and staff of the Municipality
of Apalit for the cooperation and assistance extended to our Audit Team during the
audit.

Very truly yours,

COMMISSION ON AUDIT

By:

Copy furnished:

- The Regional Director

Department of the Interior and Local Government, Region 3

- The Regional Director

Department of Budget and Management, Region 3

- The Regional Director

Bureau of Local Government Finance, Region 3

- The Secretary
Sangguniang Bayan, Municipality of Apalit, Pampanga