EXECUTIVE SUMMARY

A. INTRODUCTION

The City of Isabela was created by virtue of Republic Act No. 9023 on March 5,
2001. It has 45 barangays.

The City Government is headed by Honorable Sitti Djalia “Dadah” T. Hataman, as

the City Mayor, and Honorable Jhul Kifli L. Salliman, as the City Vice Mayor. Mayor
Hataman is assisted by Joel L. Zanoria, City Administrator; Abdel Azizs S. Edris, City
Accountant; Mary Jane F. Abenojar, Acting City Treasurer; and Amelita M. Dumdum,
Acting City Budget Officer. The City has ten (10) elected City Councilors and three (3)
Appointed (Ex-Officio) City Councilors.

As of December 31, 2020, it had a personnel complement of 929. Broken down as

follows – Permanent: 668; Temporary: 234; Elective: 15; and Coterminous 12.

B. HIGHLIGHTS OF FINANCIAL INFORMATION

In its 2020 Annual Budget, the management estimated to generate revenue

amounting to ₱739,293490.90 (distribution by type of revenue is shown in Figure 1),
which was programmed under various sectors (distribution by sector is shown in Figure 2).

P62,847,498.00 676,322,855.00 P123,137.9

Figure 1: Distribution by Type of Revenue (Budget Year)

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 P405,163,564.93

P71,723,969.99

P76,106,540.53

P224,385,377.19

Figure 2: Expenditure Program, Distribution by Sector (Budget Year)

The financial highlights of the City of Isabela for CY2020 with comparative figures for
CY 2019 are as follows:

Types of Account 2020 2019 Increase Percentage

Assets 1,599,108,721.98 1,260,482,739.60 338,625,982.38 21%

Liabilities 364,382,005.06 200,851,400.42 163,530,604.64 45%
Government Equity 1,234,726,716.92 1,059,631,339.18 175,095,377.74 14%
Income 707,902,236.39 637,219,362.09 70,662,984.30 10%
Expenses 513,119,026.18 485,076,958.90 40,919,177.84 8%

C. SCOPE OF AUDIT

The audit was aimed to (a) verify the level of assurance that may be placed on
management’s assertions on the financial statements; (b) determine compliance of
management with the laws, rules and regulations on the pre-identified audit thrusts/areas
and recommend agency improvement opportunities thereon; and (c) determine the extent
of implementation of prior year’s audit recommendation.

The audit consisted of review of operating procedures, interview of the concerned

officials and employees, verification, reconciliation, analysis of accounts, and such other
procedures considered necessary.

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D. AUDITOR’S OPINION ON THE FINANCIAL STATEMENTS

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

statements of the City of Isabela due to the effects of the deficiencies noted on the balances
of some accounts.

E. SIGNIFICANT OBSERVATIONS AND RECOMMENDATIONS

1. The LGU failed to submit Statement of Comparison Budget and Actual Amounts
(SCBAA) as part of financial statements to the Auditor, contrary to COA
Circular No. 2016-004 dated September 30, 2016 and Philippine Public Sector
Accounting Standard (PPSAS) 24.

We recommended that the City Budget Officer be directed to comply with the
provisions of the COA 2016-004 pertaining to the timely submission of appropriate
registries and records to the Accounting Office to facilitate preparation of the SCBAA.
Also, we recommend both the Accounting and Budget Offices to reconcile their
records regularly (monthly, if possible) so that any discrepancies with the records, if
cannot be avoided, detected early and the necessary and timely review and examination
can be made immediately.

2. Purchases of drugs and medicines and relief goods, totaling P29,730,660.00 and
P3,189,200.00 respectively, were recorded as outright expense contrary to the
Perpetual Inventory Method required in government accounting, thereby
misstating the balance of Inventory and Government Equity accounts. Also,
Supplies Ledger Cards (SLC) and Stock Cards were not maintained.

We recommended that City Accountant apply the perpetual inventory method

and the accounting standards of recording purchases of drugs, medicines, and relief
goods (welfare goods) as Inventories, recognize the corresponding expenses for actual
issuances to the units, and maintain supplies ledger cards. On the other hand, the
General Services Officer maintain Stock Cards and regularly reconcile with the SLC of
the accounting unit.

3. Guidelines and procedures on the disposition of non-existing or missing Property,

Plant and Equipment (PPE) items without available record of accountability were
not heeded, limiting the LGU to establish reliable PPE balances that are verifiable
as to existence, condition and accountability.

We recommended that the non-existing or missing PPE items without available

record of accountability be identified and be derecognized from the books of accounts
in accordance with COA Circular No. 2020-006 for the one-time cleansing of PPE
accounts of government agencies to establish PPE balances that are verifiable as to
existence, condition and accountability.

4. The deliveries of procured goods, materials and equipment during the year were
not made known to the Auditor within 24 hours from acceptance, which is not in
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 accord with Section 6.9 of COA Circular No. 2009-002, hence precluding the
Auditor to conduct timely inspection, and the detection of lapses that may require
immediate action.

We recommended that the management inform the Auditor for the deliveries of
procured equipment, goods, materials and equipment for proper inspection of the items
within 24 hours upon acceptance.

5. Copies of perfected contracts or Purchase Orders together with the supporting

documents were not submitted within the prescribed period contrary to COA
Circular No 96-001 dated August 15, 1996, and COA Circular No. 2009-001 dated
February 12, 2009.

We recommended that a copy of contract or PO, irrespective of amount, and

together with each and every supporting documents, be submitted to the auditor within
5 days upon issuance thereof for the auditorial, legal and technical review.

6. The Bids and Awards Committee does not remit to the City Treasurer the
proceeds arising from sale of bidding documents (bid docs) contrary to the PD No.
1445. The proceeds were kept by the BAC and disbursed for various expenses
without going to the proper procedure of recording, depositing and disbursement.
Hence, there was non-recording of said collections.

We recommended that the Local Chief Executive (LCE) direct:

(a) the appropriate collecting officer of the LGU, not the BAC, to receive the
collection arising from sale of bidding documents, issuing the corresponding
Official Receipt and properly transmit the same to the City Treasurer’s Office.
(b) the City Treasurer to record the collections in the RCD and deposit such
collections intact in the bank.
(c) the City Accountant to make the necessary Journal Entry to record the said
collection and post the same to the Ledger.

7. The City accepts collection receipts in place of sales invoices or official receipts as
evidence of payment of goods or services to the suppliers, contrary to BIR
Revenue Regulations No. 18-2012, BIR Revenue Memorandum Order no. 12-
2013, and COA Circular No. 2012-001.

We recommended that the management discontinue accepting collection

receipts in place of the sales invoice or official receipts as proof of payment. On the
other hand, we recommend that the City Treasurer demand from the supplier for the
sales invoices or official receipts to obtain principal evidence on the payment of goods.

8. Ninety-seven (97) cancelled checks were not attached to the Report of Checks
Issued (RCI) contrary to Section 59 of the Manual on the New Government
Accounting System (MNGAS), Volume I. Thus, the validation and monitoring of
cancelled checks could not be properly made.

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 We recommended that the LCE direct the City Treasurer through the City
Accountant to submit to the COA the 97 cancelled checks for validation and
henceforth, ensure that all cancelled checks are attached to the RCI and reported
chronologically with the other checks issued with the word “Cancelled” clearly
indicated therein.

9. Gender and Development (GAD) Focal Person was not bonded contrary to Item
4.2 of the Treasury Circular No. 02-2009 and Section 101 of PD No. 1445 thus
exposing the City to possible risk of loss in case of theft, misuse or
misappropriation of collection.

We recommended that the LCE direct the City Accountant and City Treasurer:
a. Not to grant cash advances to accountable officers (AOs) who are not yet
bonded;
b. Require its AOs to apply for bond;
c. Not to allow reimbursements of representation expenses, like payment of meals
and snacks, to Officers who are already granted RATA.

10. Disclosures of information in the Notes to Financial Statements for the COVID-19
related expenditures were not made, contrary to the International Public Sector
Accounting Standards No. 42 – Social Benefits (IPSAS 42).

We recommended that the LCE direct the City Accountant to revisit the
provisions of the IPSAS 42 and to properly disclose the needed disclosures in the
Financial Statements.

11. Completeness and proper monitoring of the implementation of the Emergency

Subsidy Program (ESP) as implemented through the Social Amelioration
Program (SAP) cannot be ascertained due to non-adherence to the prescribed
processes and requirements under DSWD Memorandum Circular No. 2020-009.

We recommended that the LGU, particularly, the CSWD comply with the
pertinent requirements and regulations concerning the ESP and SAP and submit the
lacking documents to the audit team.

12. The accumulated Reports on Fund Utilization and Status of

Program/Project/Activity Implementation amounting to P56,095,135.00 was not
prepared on a monthly basis and was not posted on the LGU’s website and in at
least three (3) conspicuous public places at the end of every month, contrary to
Item 4 of Local Budget Circular No. 125 dated April 7, 2020.

We recommended that the City comply with the requirements prescribed under
LBC 125 and submit the monthly report using the prescribed format (Annex C) to the
auditor.

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 Moreover, we recommended that Management: (a) direct the City Budget
Officer in coordination with the City Accountant to prepare the required reports on a
monthly basis starting from the receipt of the BGCM until the same will be fully
disbursed and furnish copies to the Public Information Officer and Information and
Communication Technology Officer; and (b) instruct the latter two officers to post the
reports in at least three conspicuous places and in the official website under the
transparency seal, respectively and immediately inform the LCE of such posting so that
the latter can send a written notice to the appropriate government agencies that said
reports have been posted in the official website of the LGU.

13. Relevant provisions of GPPB Circular No. 01-2020, GPPB Advisory No. 05-
2020, GPPB NPM No. 004-2020, and RA No. 9184 were not fully observed by the
LGU under the emergency procurement of the Bayanihan Act which may affect
the strategic and efficient utilization of the BGCM amounting to P56,095,135.00
and deviates from the principle of transparency and accountability in the
allocation and utilization of the BGCM.

We recommended that management, specifically the BAC, observe the GPPB

Circular No. 01-2020, GPPB Advisory No. 05-2020, GPPB NPM No. 004-2020 and
RIRR of RA No. 9184 in the emergency procurement under the Bayanihan Act.
Moreover, submit the lacking documents to the Audit Team.

Moreover, the City Accountant examine the completeness of the supporting

documents for each disbursement to ensure compliance with the basic and mandatory
documentary requirements.

14. The documentary requirements for the payment of first salary to some employees
were not complied with which is not in accord with Section 4 (6) of PD No. 1445
and COA Circular No. 2012-001.

We recommended that the Management:

a) instruct the Accounting Processor that before effecting payments of claims,

disbursement vouchers should be adequately supported with the required
documents; and
b) comply faithfully with Section 4 of PD No. 1445 and COA Circular No.
2012-001.

15. The City Government did not fully comply with the disclosure requirements of
the Philippine Public Sector Accounting Standards (PPSAS) 1 on Presentation of
FS thus the presentation of the FS and the accompanying Notes did not
adequately provide the users of the FS with relevant information in
understanding the City Government’s financial position, performance and cash
flows.

We recommended that the LCE require the City Accountant to:

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 a. Comply with the disclosure requirements of the pertinent PPSAS provisions to
have fair presentation of the account balances in the FS;
b. faithfully observe the accounting, reporting and full disclosure requirements
of DRRMF in the NFS as prescribed under Annex D of COA Circular 2012-002
dated September 12, 2012.
c. Provide disclosures as to the Financial Expenses of the Agency.
d. Account for the cause of the abnormal balance in inventory and thereafter,
prepare adjusting entries;

This is a reiteration of Prior Year Findings.

16. The City Accountant failed to prepare and/or submit the monthly Bank
Reconciliation Statements (BRS) contrary to Section 3.2 of COA Circular No. 96-
011 dated October 2, 1996, thereby casting doubt on the accuracy of the Cash in
Bank Accounts as of December 31, 2020 amounting to ₱553,005,014.39

We reiterated our previous years’ recommendation that the City Accountant

require all the depository banks to strictly comply with the submission of the mandated
bank statements (BS) and supporting documents for all depository accounts maintained
by the City Government within five days after the end of each month. In turn, within
ten days from the receipt of such BS, the same should be reconciled with the General
Ledgers which shall be the basis for preparation of BRS; and henceforth, the BRS must
be regularly submitted to the Auditor within ten days after the end of each month
together with the paid checks and debit/credit memos. Likewise, prepare the necessary
journal entry vouchers (JEVs) to record the reconciling items affecting the accounts.

17. The accuracy and reliability of Cash in bank – Local Currency, Current Account
(LCCA) totaling ₱553,005,014.39 for all funds as of December 31, 2020 cannot be
ascertained due to the net variance of ₱65,580,140.61 between the accounting and
the treasury records.

We reiterated our prior year recommendation that the Management direct the
City Accountant to reconcile with the City Treasurer the Cash Accounts records on a
quarterly basis to reflect an accurate and reliable balance at any particular period.

18. Unliquidated cash advances for all funds amounted to ₱64,307,510.37 at year-end
violating the general instructions provided for under COA Circular No. 97-002
dated February 10, 1997 and Section 89 of PD 1445 despite the purpose for which
they were granted have already been served. Further, the amounts presented in
the FS do not coincide with the amount per schedule of the unliquidated cash
advance as of December 31, 2020. Dormant receivable accounts although existing
in the books for years, some of which belongs to the deceased and separated
employees and for which constitutes the material amounts presented in the
schedule of unliquidated cash advances, were not requested by the City
Government for write off in accordance COA Circular 2016-005 dated December
19, 2016.

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 We reiterated the following recommendations:

a. Ensure that a cash advance shall be reported on and liquidated as soon as the
purpose for which it was given has been served, or within the periods required
for its settlement;
b. Closely monitor the submission of the liquidation reports by sending:
1. Written reminders (demand letters) to the officers and employees
concerned enjoining them to liquidate their cash advances within the
prescribed periods, or as soon as the purpose for which these were given
have been served, and demand letters in case of failure to comply with
the written reminders.
2. Send tracers to follow-up demand letters sent.
c. Apply requests for write-off of dormant account to COA on a quarterly basis.
This shall help in reducing the balances of unliquidated cash advances
presented in the books.
d. Exert all possible efforts to reconcile the balances presented in the books and
schedule of cash advances to produce a more accurate presentation of balances.
e. Consider instituting sanctions against the officials or employees concerned such
as withholding or suspending payment of their salaries, or other appropriate
legal sanction provided for under the regulation.

19. The accuracy, validity and existence of Property, Plant and Equipment (PPE)
stated at ₱904,370,548.58 representing 56.55% of total assets remained unreliable
and could not be ascertained due to (a) non-conduct of physical count for CY 2020
(b) inadequacies of property ledger cards (c) wrong valuation of PPE accounts
which are not in conformity with the existing rules and regulations and (d)
erroneous recording (misclassification) of ongoing infrastructure projects in the
specific PPE accounts instead of the Construction in Progress (CIP) accounts.

We recommended the LCE direct:

a. The Inventory and Disposal Committee to conduct a complete physical count of

PPE, annually, and to submit the Report on the Physical Count of Property,
Plant and Equipment (RCPPE) and Inventory and Inspection Report of
Unserviceable Property (IIRUP) to the auditor.
b. The CGSO to furnish the CAO the electronic and hard copies of the RPCPPE
for their reconciliation with the accounting records;
c. The CAO to determine any discrepancies between the RPCPPE and accounting
records and prepare the necessary Subsidiary Ledgers to record all unaccounted
PPE items. Upon determination of all the City’s unserviceable assets, the
Accountant reclassify them to Other Assets account or dropped them from the
books once disposed, whichever is applicable.
d. Intensify efforts to maintain and prepare PPELC with the required format as
shown in Annex 9 on the MNGAS for LGUs.

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 e. The City Accountant and Other Officers concerned to provide depreciation on
the depreciable assets.
f. The Property Supply Officer to ensure that the Property Custodian keeps and
maintains updated Property Card for each PPE account to readily provide
pertinent data, thus facilitate the preparation of the Schedule of Depreciation
which shall be the basis of recording in the books of accounts the appropriate
depreciation expenses pertaining to the current year which should be charged
against its appropriate depreciation expense accounts. These are necessary in
order to present fairly the PPE accounts with its corresponding Accumulated
Depreciation Expense Accounts in the FS.

g. The CAO and CGSO to ensure the conduct of the required annual and semestral
physical count of PPE and inventories, respectively, and timely reconciliation
with the Accounting and Supply records against the related PPELC and
Property Cards, and SLC and Stock Cards to facilitate timely verification and
adjustment of any discrepancies noted.
h. The CAO to adhere to the prescribed accounting rules relative to the asset
recognition under the Construction in Progress account and to provide
necessary adjusting entries to reclassify the misclassified PPE accounts (CIP
and specific PPE accounts).

20. Inventories totaling ₱66,346,606.43 purchased during the year were directly
issued to end users and treated as outright expenses without coursing through the
inventory accounts as prescribed under Section 114 of the MNGAS, Volume I,
thus accuracy and correctness of Inventory and Expense accounts are unreliable.
Moreover, despite the existence drugs and medicines inventories during the year,
there has been no movement of this account and no related expense account was
shown in the books and in the financial statements. The non-recording of this
account has resulted in the understatement of both inventory and expense
accounts making the accounts unreliable.

We recommended that the management:

a. Require the coordination between the City Accountant and the GSO towards the
implementation of the perpetual inventory method in the recording of supplies and
materials to ensure proper accounting and promote better control in the receipt and
issuance of supplies and materials;
b. Determine causes of non-recording of drugs and medicines in the inventory and its
related expense account;
c. Make proper adjustments in the inventory accounts most especially if the items do
no longer exist. Inventories already issued must be expensed already;
d. Instruct the GSO and the City Accountant to maintain updated Stock Cards and
Supply Ledger Cards and regularly reconcile records to detect discrepancies and
effect immediate corrections.
e. Establish relevant inventory account cited above.

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21. The City Government failed to submit the DILG approved GAD Plan and Budget
(GPB) and the Accomplishment Report (AR) for CY 2020 to the Auditor within
the prescribed period provided in Item V of COA Circular No. 2014-001 dated
March 18, 2014, hence, resulting to the delay in the conduct of audit and
rendering the validity and propriety of disbursements doubtful. Moreover, the
GPB as part of Annual 2020 Budget of the City Government was approved
despite that the GPB was not yet reviewed and approved by the DILG. There
were also revisions made on the amounts and line items in the GPB were not also
effected and additional, and the same were not part of the original budget.

We recommended that the LCE:

a) Require the GAD Focal Person to prepare on time the annual GPB for review and
approval by DILG and submit the approved copy and the corresponding AR to the
COA Audit Team within the prescribed period.
b) Approve charges and disbursements on GAD Fund only if supported with DILG
reviewed and approved GPB to ascertain validity and propriety of disbursements.
c) In case of revised GPB, revisions should be made and effected prior to the passing
of the annual budget, otherwise, realignment of expenditure items should be made.
Any changes pertaining to the GPB should be informed to the Audit Team.

F. SUMMARY OF SUSPENSIONS, DISALLOWANCES AND CHARGES

The cumulative result of the Statement of Audit Suspensions, Disallowances and Charges
(SASDC) as of December 31, 2020 is summarized below:

Ending
Beginning Balance This Period Balance as of
NS/ND/NC as of January 1,
December 31,
2020
NS/ND/NC NSSDC 2020
Notice of Suspension 15,594.00 4,249,464.30 4,265,058.30 -
Notice of Disallowance 41,569.30 17,843.61 9,594.30 49,818.61
Notice of Charge 64,778.84 60,000.00 4,778.84
Total 121,942.14 4,267,307.91 4,334,652.6 54,597.45

G. STATUS OF IMPLEMENTATION OF PRIOR YEARS’ UNIMPLEMENTED

AUDIT RECOMMENDATIONS

Out of the 20 unimplemented recommendations contained in our previous years’ Annual

Audit Report (AAR), eight (8) were fully implemented, three (3) were partially
implemented, and nine (9) remained unimplemented.