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AOM No. 21-018-PPE

1. The Commission on Audit audited the Municipality of Pioduran's property, plant, and equipment accounts and found 332 unserviceable properties worth ₱17.7 million that were still on the books despite needing to be disposed of according to relevant laws and regulations. 2. The audit also found properties worth less than ₱15,000 that were incorrectly recorded as property, plant, and equipment instead of inventories, overstating the accounts. 3. The municipality was recommended to dispose of the unserviceable properties and reclassify the small properties according to the proper accounting guidelines.

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108 views4 pages

AOM No. 21-018-PPE

1. The Commission on Audit audited the Municipality of Pioduran's property, plant, and equipment accounts and found 332 unserviceable properties worth ₱17.7 million that were still on the books despite needing to be disposed of according to relevant laws and regulations. 2. The audit also found properties worth less than ₱15,000 that were incorrectly recorded as property, plant, and equipment instead of inventories, overstating the accounts. 3. The municipality was recommended to dispose of the unserviceable properties and reclassify the small properties according to the proper accounting guidelines.

Uploaded by

Brene Joseph Luz
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Republic of the Philippines

COMMISSION ON AUDIT
Audit Team No. R5-04 – LGS-A, Albay Province
LGUs of Daraga, Manito, Pioduran & Polangui
COA, LGU, Daraga, Albay

AUDIT OBSERVATION MEMORANDUM (AOM)

AOM No. 21-018 (20)


April 26, 2021

For: HON. ALAN R. ARANDIA


Municipal Mayor
Municipality of Pioduran
Pioduran, Albay

Attention: RACHEL AGNES L. ORDOÑA


Municipal Accountant

SIONY C. CAMBUSA
Property Officer/BAC Secretary

We have audited the Property, Plant, and Equipment account of the Municipality
for the year ending December 31, 2020 and noted the following deficiency:

1. Unserviceable properties with aggregate acquisition cost and net book value of
₱17,742,903.41 and ₱2,244,289.76, respectively, were still carried in the books and
disposal of said properties has not yet been undertaken by the Municipality contrary
to Section 79 of P.D. No. 1445, Sections 379-381 of RA 7160 and COA Circular No.
89-296 dated January 27, 1989 hence may result to further deterioration of assets and
loss of additional income had they been disposed of through sale or negotiation.

Section 79 of Presidential Decree (PD) No. 1445 otherwise known as the


Government Auditing Code of the Philippines provides that when government property has
become unserviceable for any cause, or is no longer needed, it shall, upon application of
the officer accountable therefore, be inspected by the head of the agency or his authorized
representative in the presence of the auditor concerned and, if found valueless or
unsaleable, it may be destroyed in their presence. If found to be valuable, it may be sold at
public auction to the highest bidder under the supervision of the proper committee on
award or similar body in the presence of the auditor concerned or other duly authorized
representative of the Commission.

Likewise, Section 76 of the same PD states that any government property that is no
longer serviceable or needed by the agency to which it belongs maybe transferred without
cost, or at an appraised value, to other agencies of the government upon authority of the
respective heads of agencies in the national government, or of the governing bodies of
AOM No. 21-018(20)
Page 1 of 4
government-owned or controlled corporations, other self-governing boards or commissions
of the government, legislative bodies for local government units concerned.

Also, Sections 379-381 of RA 7160 prescribe the modes of disposal of


unserviceable and no longer needed government properties. Disposal could be made
through destruction/condemnation, public auction, and private/negotiated sale. Obsolete
and unserviceable properties could also be transferred without cost to toher government
agencies subject to the approval of the Sanggunian concerned making the transfer and by
the head of the office, agency, subdivision, instrumentality or local government unit
receiving the property.

Moreover, COA Circular 89-296 dated January 27, 1989 prescribes the audit
guidelines on the divestment or disposal of government properties.

In our review of the Schedule of PPEs as of December 31, 2021 prepared by the
Property Officer, we have noted the following unserviceable properties (Please see Annex
A for details):

Type of PPE Quantity Acquisition Cost Book Value


IT Equipment 65 5,448,982.76 432,362.78
Communication 61 2,037,538.00 98,246.01
Equipment
Furnitures & Fixtures 10 315,630.98 56,974.66
Office Equipment 132 2,797,463.79 239,021.60
Land Improvements 1 46,600.00 23,300.20
Power Supply System 3 1,354,700.00 452,178.10
Other Structures 2 273,423.88 114,338.00
Books 1 48,000.00 4,800.00
Agricultural, Fishery and 6 106,400.00 5,345.33
Forestry Equipment
Disaster Response and 11 1,226,419.00 467,915.41
Rescue Equipment
Sports Equipment 5 415,448.00 26,038.49
Other Machineries and 3 261,000.00 4,346.25
Equipment
Motor Vehicles 10 2,855,918.00 285,591.80
Other PPE 22 555,379.00 33,831.13
TOTAL 332 17,742,903.41 2,244,289.76

Timely disposal of the property prevents further deterioration, obsolescence and


decline in value of the assets. Also, failure to promptly dispose the unserviceable items
deprived the Municipality of additional cash inflows from the economic value of the assets
and the continued existence of said disposable assets precluded the use of the office spaces
utilized for their storage for other purposes.

AOM No. 21-018(20)


Page 2 of 4
We recommend that Management instruct the GSO to accomplish the IIRUP for all
the unserviceable properties subject for disposal, prepare the necessary documents/reports
for the request for appraisal by the Disposal and Appraisal Committee, lastly, facilitate its
immediate disposal in accordance with Section 79 of P.D. No. 1445 and COA Circular
No. 89-296.

2. Properties costing less than ₱15,000 with an aggregate amount of ₱___ were still
recorded under the Property, Plant and Equipment (PPE) account contrary to COA
Circular No. 2020-006 dated January 30, 2020, thus overstating the PPE account and
understating the corresponding asset/expense/prior period adjustment account as of
year-end.

Section 4.2 of COA Circular No. 2020-006 enumerates the following conditions on
when the cost of an item of PPE shall be recognized as an asset:

a. it is probable that the future economic benefits or service potential associated


with the item will flow to the entity;
b. the cost or fair value of the item can be measured reliably;
c. beneficial ownership and control clearly rest with the government;
d. the asset is used to achieve government objectives; and
e. it meets the capitalization threshold of ₱15,000.

COA Circular No. 2005-002 dated April 14, 2005 was issued to prescribe the
following accounting policies on items with serviceable life of more than one year but
small enough to be considered as PPE:

2.2.1 Small tangible items with estimated useful life of more than
one year shall be recorded as inventories upon acquisition
and as expense upon issuance. Xxx

xxx

2.3 For monitoring, control and accountability, an Inventory Custodian


Slip (ICS), shall be prepared upon issuance of small tangible items
covered by approved Requisition and Issue Slip (RIS)

In our review of the submitted Schedule of PPE as of December 31, 2020, we have
noted that there are properties costing less than ₱15,000 which are still included in the list
and are recorded as PPE in the books. These properties should have been reclassified as
inventories if not yet issued or if issued already within the year, to be recorded as expense,
otherwise as prior period adjustment if issued already in previous years.

Below is a summary of properties costing less than ₱15,000 recorded as PPE (see
Annex B for details):

AOM No. 21-018(20)


Page 3 of 4
Type of PPE Acquisition Cost Accumulated Net Book Value
Depreciation

The continued recording of above properties as PPE resulted in the overstatement


of the PPE account and of understatement of the corresponding asset/expense/prior period
adjustment account.

May we have your comments on the foregoing audit observations within five (5)
calendar days from receipt hereof.

MELISSA M. DAEN
State Auditor IV
Audit Team Leader

MARIO L. AGUILAR
State Auditor V
Supervising Auditor

Proof of Receipt of AOM:

HON. ALAN R. ARANDIA


Date: _______________

RACHEL AGNES L. ORDOÑA


Date: _______________

SIONY C. CAMBUSA
Date: _______________

AOM No. 21-018(20)


Page 4 of 4

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