Republic of the Philippines

COMMISSION ON AUDIT
Team R8-06, LGS-C Leyte II and Biliran Province
New City Hall, Ormoc City, Leyte

AOM No : 2021-01
Date : July 8, 2021

AUDIT OBSERVATION MEMORANDUM (AOM)

Hon. ROBERTO N. LLAMES

Punong Barangay
Barangay Libas
Leyte, Leyte

Attention:
Barangay Treasurer

JOSELITO E. CABANGAL
Municipal Accountant

We have audited the transactions of Brgy. Libas covering January 1, 2018 to De-
cember 31, 2020 and observed the following deficiencies:

No Physical Count of Barangay Properties

1. The existence and accuracy of properties under Property, Plant and

Equipment (PPE) valued at ₱5,431,088.36 or 67% of the total assets of Libas as
of December 31, 2020, continued to be unconfirmed due to the failure of the
officials to conduct physical count of Barangay properties since CY 2011, or
for the past ten years, to maintain property records and reconcile with
accounting records, contrary to Item 7.1.18 and 7.1.19 of the Manual on the
Financial Management of Barangays, thus the account balances remain
unreliable and possible losses were not detected.

1.1. Chapter 7 of the Manual on the Financial Management of Barangays prescribes the
specific Policies and Procedures on Investment Property, Property, Plant and Equip-
ment, and Biological Asset. Items 7.1.18 and 7.1.19 of the Manual provides that:

7.1 Specific Policies

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 Property, Plant and Equipment/Infrastructure Assets
7.1.18 The barangay shall conduct an annual physical inventory of
all supplies, property and equipment of the barangay.
7.1.19 Report on the results of physical inventory of
property/equipment shall be reconciled with the accounting
records
1.2. Item 7.2.5, Inventory Taking and Reconciliation, of Chapter 7 of the same Manual
also stated that:
1.3.
a. The Inventory Committee headed by the PB or his authorized representative
and the BT as his member shall conduct a physical count of all property and
equipment of the barangay at least once a year.
b. The Inventory Committee, upon the completion of the physical count, shall
prepare three copies of Report on Inventory of Property and Equipment
(RIPE), as shown in Annex 30 and shall be approved by the PB. Xxx
c. The RIPE shall be the basis of the C/M Accountant for reconciling the results
of inventory with the PPE accounts.
d. The RIPE shall be the basis of the BT for reconciling the equipment that
should be covered by ICS with the actual file of ICS.

1.3 The Statement of Financial Position of Barangay Libas reflected that Property,
Plant and Equipment (PPE) account balance of ₱5,431,088.36 as of December 31,
2020. The Notes to the Financial Statements disclosed that the acquisition cost of
the properties amounted to ₱6,278,887.90 with accumulated depreciation of
₱813,749.54 as of December 31, 2020.

1.4. Verification made from the Barangay Treasurer revealed that no physical count or
properties was conducted by the barangay officials concerned for CY 2018 to CY
2020. Consequently, no Report on Inventory of Property and Equipment (RIPE)
was prepared and submitted by the Barangay. This is despite the continued increase
in the properties of the Barangay due to its acquisitions in CY 2018 to CY 2020.

1.5. In addition, the designated Barangay Property Custodian has not maintained Prop-
erty/Equipment Cards (PECs) of all properties of the Barangay which will indicate
the data on the quantity, date of acquisition, acquisition cost and cost of improve-
ment/repairs.

1.6. It was noted that this audit observation has been included in Audit Reports on
Barangay Libas since CY 2011. The continued failure of the Barangay officials to
implement the audit recommendations are blatant defiance of the rules on property
management and other relevant laws and regulations.

1.7. The importance of conducting the annual physical inventory is to make sure that all
properties which were recorded in the books of the barangay actually exist and in
the custody of the barangay officials concerned. Officials and employees who are
custodians of properties which could no longer be found at the time of the physical

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 count, should be held accountable thereof. The physical count also determines
whether there are properties that are yet to be recorded in the barangay’s books of
accounts. In both instances, the accounting records and the inventory report pre-
pared by the inventory committee of the barangay should be reconciled.

1.8. Since the barangay did not conduct the annual physical inventory of all its proper-
ties since CY 2011, the accuracy and existence of its Property, Plant and Equipment
(PPE) account continued to be unconfirmed. The account comprises 55% of the to-
tal assets as reflected in the Statement of Financial Position as of December 31,
2020, thus its accuracy will have a material effect on the fair presentation of the fi-
nancial statements. Also, the continued failure of the Barangay officials to prepare
the RIPE may result to possible sanctions for non-rendition of reports.

1.9. We recommend that the Punong Barangay shall:

1.9.1 create an Inventory Committee and instruct its members to conduct a

complete physical count of all properties of the barangay every year, to-
gether with the Barangay Treasurer, and marking each item as govern-
ment property;

1.9.2 prepare and accomplish the Report on Inventory of Property and

Equipment completely when the physical count is concluded and submit
to COA and the Municipal Accountant;

1.10. We also recommend that the Municipal Accountant shall recognize the assets
recorded as outright expenses with provision for the unrecorded depreciation
from the date of acquisition. Also, reconcile the PPE Ledger Cards with the
RIPE. Differences noted should be verified and the corrections be made,
where necessary.

1.11. Finally, we recommend that the Barangay Treasurer shall prepare and main-
tain the Property/Equipment Card (PEC) for all properties of the Barangay.

Misstatement in the Cash in Bank Account Balance

2. Difference between the yearend balance of Cash in Bank per books and per
bank statement as of December 30, 2020 amounting to ₱149,710.74 was not
verified and identified due to the non-preparation of monthly Bank
Reconciliation Statements for CY 2018 and prior years contrary to Section 74
of PD 1445 and Section 347 of Republic Act No. 7160, thus the book balance of
the Cash in Bank account is not reliable.

2.1. Section 74 of PD 1445 requires that “at the close of each month, depositories shall
report to the agency head, in such form as he may direct, the condition of the
agency account standing on their books. Accordingly, the head of the agency shall

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 see to it that reconciliation is made between the balance shown in the reports and
the balance found in the books of the agency”.

2.2. Relative to the said regulation, Volume IV of the Accounting System Manual for
Barangay enumerates the duties and responsibilities of the Municipal Accountant,
one of which is to prepare the Bank Reconciliation Statement (BRS) for each
barangay in order to reconcile the cash balance per books and per banks. The BRS
shall be prepared in three copies to be distributed as follows: a) original copy –
COA Auditor; b) 2nd copy – Municipal Accountant; c) 3rd copy – Punong Barangay /
Barangay Treasurer. The copy for COA shall be submitted on or before the 20 th of
the following month.

2.3. Sec. 347 of RA 7160, otherwise known as the Local Government Code of 1991,
states that “local treasurers, accountants and other local accountable officers shall
render their accounts within such time, in such form, style and content, and such
other regulations as the Commission on Audit may prescribe”.

2.4. The Cash in Bank – Local Currency, Current Account of Brgy. Libas reflected a
balance ₱2,507,724.77 in the CY 2020 financial statements. However, as of De-
cember 31, 2020, the most recent bank statement from the Land Bank of the Philip-
pines - Sagkahan Branch, the Barangay had a Cash in Bank balance of only
₱2,647,787.12.

2.5. The discrepancy between the Cash in Bank account balance per book and per bank
was due to the non-preparation of the monthly Bank Reconciliation Statements
(BRS) in CY 2018 and prior years. The Barangay Bookkeeper had already pre-
pared the monthly BRS for CY 2019 and CY 2020, except for the month of Decem-
ber 2020 because the Bank Statement was not furnished to the Barangay Book-
keeper by the Barangay Treasurer.

2.6. Due to the unreconciled balances from CY 2018 and prior years, the monthly Bank
Reconciliation Statements for the months of January 2019 to November 2020 con-
sistently showed a discrepancy of ₱149,710.74. The reconciliation of the Cash in
Bank account balance per book and per bank is shown in Table 1.

Table 1. Unreconciled CIB Balance as of December 30, 2020

Cash in Bank 2020
Per Bank Statement (LBP Account),
December 31, 2020 ₱ 2,647,787.12

Per Books, December 31, 2020 2,497,275.77

Book Errors 2,955.50
(2,154.89)
Adjusted CIB Balance per Book 2,498,076.38 2,498,076.38

Unreconciled Cash in Bank Balance (₱149,710.74)

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2.7. Due to these deficiencies, errors and omissions in recording transactions in the
books and in the bank were not verified nor identified and material discrepancies
could not be readily corrected. This condition rendered the book balance unreliable
and will adversely affect the fair presentation of the cash account in the financial
statements, more so if such discrepancies remain undetected or unadjusted for a
longer period.

2.8. We recommend that the Municipal Accountant shall review and investigate the
existing discrepancy of ₱149,710.74 in the book and bank balances of the Cash
in Bank account of the barangay and prepare adjusting entries on errors noted
and, prepare the monthly Bank Reconciliation Statements for submission to
the Audit Team.

Unsubstantiated Balances

3. The Other Payables accounts amounting ₱91,392.18 cannot be confirmed due

to the absence of valid documents to support the claims and subsidiary records
to identify the source and purpose of the funds from other LGUs, contrary to
Sections 4(6) and 114 of PD 1445 and COA Circular 94-013.

3.1. Section 4(6) of PD 1445 provides that claims against government funds shall be
supported with complete documentations.

3.2. Section 114 of the same Presidential Decree also states that subsidiary records shall
be kept where necessary.

3.3. Verification of the liabilities accounts of the barangay disclosed that the Other
Payables account with a balance of ₱91,392.18 from CY 2017 and prior years,
were not supported with supporting documents and subsidiary records. It was con-
firmed that the previous bookkeeper did not maintain subsidiary records pertaining
to these accounts. While, the Barangay Treasurer cannot provide information why
these accounts existed in the books.

3.4. Hence, the Other Payables account balance of ₱91,392.18 could not be confirmed
due to absence of valid documents to support the claims and subsidiary records to
identify the transactions to which they pertain.

3.5. We recommend that the Municipal Accountant shall verify accounting records
to substantiate the balance of Other Payables account in the financial state-
ments and make the appropriate journal entry to write off payables not sup-
ported with complete documentations.

BDRRMF Irregularly Utilized and Not Recorded as Trust Liabilities

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4. BDRRM Funds in CY 2018 and CY 2019 and CY 2020, amounting to
₱117,15.70, ₱129,665.05 and ₱147,638.60 were not utilized during the budget
year and were not recorded under Trust Liability after not having been
expended during the year, but were later used in the ensuing years for projects
which were not reflected in the BDRRM Plan contrary to Section 6.5 of the
NDRRMC-DBM-DILG Joint Memorandum Circular No. 2013-1 dated March
25, 2013.

4.1. Section 6.5 of NDRRMC-DBM-DILG JMC No. 2013-1 states that:

6.0 Policies and Procedures on the Utilization of the LDRRMF

Xxx

6.5 The unexpended balances of the LDRRMF may be released and

utilized for new expenditure items upon submission of a revised AIP
as approved by the local sanggunian and Local Chief Executive
(LCE) upon recommendation of the LDRRMC in accordance with
the approved LDRRMP.

Xxx

4.2. In the Annual Budget for 2018, 2019 and 2020, Barangay Libas appropriated the
amount of ₱117,15.70, ₱129,665.05 and ₱147,638.60, respectively, or representing
5% of its total estimated revenue from regular sources as its Barangay Disaster Risk
Reduction and Management Fund (BDRRMF) to support
programs/projects/activities (PPAs) on disaster risk management. These totaled to
P395,058.35 for the 3-year period. The review of disbursements showed that the
annual fund was not utilized in the year of appropriation but only in the succeeding
years as shown in Table 2. However, the PPAs for which the BDRRMF were later
used were not in the BDRRM Plan as shown in Tables 3 and 4.

4.3. Table 2 shows the amount of appropriations and the corresponding utilization of the
5% BDRRMF for each year under audit.

Table 2. Appropriations and Utilization of 5% BDRRMF

Appropriations Utilization
Year 30% 70% TOTAL 30% 70% Balance
2018 35,326.41 82,428.29 117,754.70 0.00 0.00 117,754.70
2019 38,899.52 90,765.54 129,665.05 0.00 0.00 129,665.05
2020 44,291.58 103,347.02 147,638.60 0.00 0.00 147,638.60
TOTAL ₱ 395,058.35 0.00 0.00 ₱ 395,058.35

4.4. The purchase made by the Barangay from the available BDRRMF in CY 2018 to
CY 2020 were composed only of the following:
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 Table 3. Unexpended Balances Utilized for PPAs not in the Plan
Budget Unexpended Bal- Utilization in
Remaining Balance
Year ance Succeeding Year
2017 ₱ 241,668.96 ₱ 97,673.00 ₱ 143,995.96 as of 12/31/2018
2018 117,754.70 30,000.00 ₱ 231,750.66 as of 12/31/2019
2019 129,665.05 253,656.00 ₱ 107,759.71 as of 12/31/2020

Table 3. Utilization of Unexpended BDRRM Fund

Date Check No. Amount Particulars
Charged to 2017 Unexpended Balance
10/22/18 3977245 ₱ 49,673.00 Payment for 7 units of portable ra-
dio & accessories
10/22/18 3977246 48,000.00 Payment for uniform of
emergency rescue team
Charged to 2018 Unexpended Balance
2/28/19 3977286 30,000.00 Labor for excavation of open
canals
Charged to 2019 Unexpended Balance
1/13/2020 4192096 110,000.00 Purchase of relief goods
4/15/2020 4316516 44,000.00 Purchase of relief goods
 4/15/2020 4316518 49,656.00 Purchase of relief goods
6/22/2020 4316524 50,000.00 Purchase of relief goods

TOTAL ₱ 381,329.00

4.5. As shown in Table 3, the BDRRMF was not utilized, hence, no projects were
implemented by the Barangay to strengthen its capability to respond to disasters
despite the available funds. The unexpended BDRRMFs were later used for PPAs
but said PPAs were not reflected in the BDRRM Plan in the year they were
implemented. It was also noted that the unexpended balances were not recorded
under Trust Liability, thus exposing said funds to misuse for non-disaster related
PPAs.

4.6. It should be noted that the BDRRMF, if remained unutilized at yearend, shall form
part of the special trust fund that will be available for disaster-related PPAs within
the next five years. However, the same cannot be used without an approved Plan.

4.7. We recommend that the Punong Barangay utilize the BDRRM Fund by
identifying programs and projects that will improve the Barangay’s capability
to prepare and respond to occurrence of disasters.

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4.8. We also recommend that the Punong Barangay include in their BDRRMF In-
vestment Plan the PPAs that are to be undertaken using the LDRRMF prior
years’ unexpended balances to legally use the unexpended balances and to
avoid disallowance of the transactions in audit.

Utilization of 20% BDF

5. Projects to be funded by the 20% Barangay Development Fund of CY 2020

amounting to ₱582,489.20 were not implemented, even when said fund and the
continuing appropriations totaling ₱601,183.93 were not realigned and utilized
for COVID-19 related expenses pursuant to DILG-DBM Joint Memorandum
Circular No. 01 dated March 27, 2020, thus, maximizing the barangay’s avail-
able funds to help mitigate the adverse risks and effects brought about by the
pandemic was not ensured.

5.1. Item 2.2 of DILG-DBM JMC dated February 22, 2017 provides for the general
policy for the utilization of the 20% Development Fund, to wit;

The 20% DF shall be utilized to finance the LGU’s priority development

projects, as embodied in its duly approved local development plans and
Annual Investment Program (AIP), which should be directly supportive of the
Philippine Development Plan and Public Investment Program.

5.2. Item 2.3 of the same circular also provides;

All development projects to be funded under the 20% DF shall contribute to

the attainment of desirable socio-economic development and environmental
management outcomes of the LGU, shall partake the nature of investment or
capital expenditures.

5.3. DILG-DBM JMC No. 01 dated March 27, 2020 was issued to enable LGUs
(including barangays) to undertake critical, urgent and appropriate disaster response
aid and measures to curtail and eliminate the threat of COVID-19. It lists down
COVID-19 related expenses which are allowed to be charged against the 20% BDF
including the procurement of medicines, disinfectants, relief goods for affected
households and other necessary COVID-19 related PPAs and expenses.

5.4. The Barangay has an appropriation of ₱582,489.20 from its 20% Development
Fund in CY 2020. The continuing appropriations, on the other hand, has a total
amount of ₱601,183.93. Review of disbursements revealed that the current
appropriation was not utilized for the PPAs for which the CY 2020 BDF was
appropriated.

5.5. On the same year, the barangay along with the other LGUs in the country was
placed under community lockdowns and quarantines due to the impending threat of

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 COVID-19. The 20% BDF is one of the funds available for programs, projects and
activities (PAPs) necessary to respond to crisis brought about by the pandemic
pursuant to the aforementioned DILG-DBM JMC No. 01. The JMC authorizes the
barangay to realign their existing PPAs under 20% BDF, including the continuing
appropriations from previous years’ 20% BDF, for COVID-19 related expenses.

5.6. However, the barangay did not bother to realign their PPAs if only to help mitigate
the adverse risks and effects brought about by the pandemic despite the fact that not
even the current year’s appropriation for 20% BDF was utilized in CY 2020.
Considering the amount of the funds available including from the continuing
appropriations, the same could have been used for expenses to best cater the needs
of the barangay and its constituents during the pandemic.

5.7. On the other hand, the CY 2019 20% BDF was utilized for the procurement of
materials used in the construction of perimeter fence of the barangay’s Day Care
Center amounting to ₱46,814.00 under check number 4192036 dated August 15,
2019. It should be noted that the construction of Day Care Center or its perimeter
fence is not among the PPAs allowed to be charged to the 20% BDF as per JMC
No. 2017-1.

5.8. The irregular disbursement and non-utilization of the 20% BDF for COVID-19
related expenses due to poor planning by Barangay Officials and the Barangay
Development Council concerned deprived the Barangay Tinocdugan constituents
the benefits that should have accrued to them on time.

5.9. We recommend that the Punong Barangay, the Barangay Development

Council and Sangguniang Barangay shall adhere strictly to the provisions of
DILG-DBM JMC dated February 22, 2017 on the utilization of the Barangay’s
20% Development Fund.

5.10. We also recommend that the Punong Barangay maximize their available funds
to mitigate the risks and effects of the pandemic.

Unliquidated Funds Transferred from Other LGU

6. Financial Assistance from other LGUs received in previous years amounting to

₱94,552.96 as of December 31, 2020 remain in the books because the barangay
officials concerned did not submit Utilization Reports to the source LGU even
if the projects were already completed, contrary to COA Circular Nos. 94-013,
thus, the related assets and income were not recognized in the books and the
Barangay may not be granted subsequent financial assistance.

6.1 Pertinent provisions in COA Circular 94-013 dated December 13, 2014 or the Rules
and Regulations in the Grant, Utilization and Liquidation of Funds Transferred to
Implementing Agencies(IA) include as follows- “The transfer is properly taken up

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 in the books of both agencies, the transferred funds are used only for the intended
purpose, and that proper accounting and reporting is made of the utilization of the
funds.” and “Within ten (10) days after the end of each month/end of the agreed
period for the Project, the IA shall submit the Report of Checks Issued (RCI) and
the Report of Disbursement (RD) to report the utilization of the funds. Only actual
project expenses shall be reported. The reports shall be approved by the Head of
the IA.

6.2 The Due to Other LGUs account in the yearend Financial Statements showed a
balance of ₱94,552.96. Review of the account’s Subsidiary Ledger revealed that the
unliquidated fund transfers were granted in CY 2017 and prior years but remained
unliquidated as of December 31, 2020.

6.3 Barangay Treasurer explained that this was already in the FS prior to his
assumption and that he is not aware as to its source/s. According to the Municipal
Accountant, these are unliquidated fund transfers the source of which remains
unknown.

6.4 Laxity in the enforcement of the immediate liquidation of the funds transfers from
other LGUs is contrary to existing regulations and may deprive the Barangay to
receive additional funds from the funding agencies.

6.5 Also, unliquidated fund transfers which were already utilized but still recorded as
Due to LGUs in the books will impair the fair presentation of the related asset and
income account in the financial statements.

6.6 We recommend that the Punong Barangay and the Barangay Treasurer shall
submit immediately all Utilization Reports pertaining to funds received in
prior years. In the lieu of the DVs and the supporting documents, the officials
may attach the following to prove utilization of the financial assistance for the
projects or programs for which these were intended:

a) the certification of the existence of the project, with pictures, or

b) the certification of the completion of the program, and
c) the Affidavit of Loss for the missing documents.

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

REINA TERESITA P. JUNTILLA

State Auditor IV
Audit Team Leader

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