REPUBLIC OF THE PHILIPPINES

COMMISSION ON AUDIT
REGIONAL OFFICE NO. XII
PROVINCE OF SOUTH COTABATO
PROVINCIAL SATELLITE AUDITING OFFICE
Provincial Capitol Compound, Koronadal City

Office of the Auditor – LGS-C, Audit Team No. R12-02

AOM No. 2022-001 (2019-2021)

Date: August 23, 2022

AUDIT OBSERVATION MEMORANDUM (AOM)

FOR : HON. EDGAR P. CABARDO

Punong Barangay
Barangay Esperanza
Koronadal City, South Cotabato

Attention : MINDA O. SUNGA

Chairman, Committee on Appropriation

KRISHNA B. LAVILLA
Barangay Treasurer

We have audited the financial reports and documents related to Cash account of the
Barangay Government of Esperanza as of December 31, 2021 and observed the following:

The Barangay’s cash balance in the amount of ₱129,277.93 as of December 31,

2021 was insufficient to back-up all maturing liabilities and obligations as well as
capital outlay appropriation and restricted funds balances aggregating to
₱414,106.85, resulting to a cash deficiency of ₱284,828.92, contrary to pertinent
provisions of RA No. 7160 and inconsistent with the sound fiscal administration.

Section 337 of RA No. 7160 otherwise known as The Local Government Code (LGC) of
1991 provides that disbursements in accordance with appropriations in the approved annual
budget may be made from any local fund in the custody of the treasurer, but the total
disbursements from any local fund shall in no case exceed 50 percent of the uncollected
estimated revenue accruing to such local fund in addition to the actual collections: Provided
however, that no cash overdraft in any local fund shall be incurred at the end of the fiscal year.

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 Likewise, Section 305 (a) of RA 7160 states that no money shall be paid out of the local
treasury except in pursuance of an appropriations, ordinance or law.

Also, well-stated in the Budget Operations Manual (BOM) for LGUS that in the
preparation of Local Expenditure Program (LEP), beginning cash balance shall be determined
and it should be net of amounts earmarked for specific purposes (e.g., continuing
appropriations, 20% Development Fund, payables, others {restricted funds}). Understandably,
this determined amount should be equal to or more than the restricted funds to consider the
remaining balance as unrestricted or available for operations.

Analysis of the cash accounts of the Barangay at the end of CY 2021 disclosed that the
unsettled current liabilities and other restricted fund balances, totaling more or less ₱414,106.85,
appeared not to have enough cash back-up as manifested by the total cash balance of only
₱129,277.93 as at end of CY 2021, thus resulting to a deficiency of ₱284,828.92, viz:

Table 1 – Analysis of Cash balance as of December 31, 2021

Particulars Amount
Cash Balance, December 31, 2021:
Cash- Local Treasury 10,238.50
Cash in Bank - Local Currency, Current
Account 119,039.43
Total Available Cash 129,277.93
Less: Restricted Cash Balance:
Obligations not yet settled at year end
Due to BIR 126,642.75
Due to LGUs 61,543.25 188,186.00
Other Termed Funds
TF – 5% Calamity Fund* 225,620.85
Unalloted obligations
-PS 300.00
Total Deductions 414,106.85
Available for Operations (Cash back-up deficit) (284,828.92)

In the evaluation of the submitted reports and documents to the Auditor’s Office, it was
revealed that the barangay had not prepared and maintained the Record of Appropriations and
Obligations (RAO)1 for all funds in CY 2019-2021. Due to this, monitoring and control over
appropriations and disbursements were not properly made by the Barangay. Review of the
Statement of Comparison of Budget and Actual Amounts (SCBAA) showed that disbursements

1
formerly Registry of Appropriations and Commitments (RAC)

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were made in excess of appropriations by a total of ₱379,044.95 for the MOOE and 20% DF.
Details of the amount are as follows;

Table 2 – Summary of expenditures exceeding respective appropriations based

on CY 2021 SCBAA
Fund Total Appropriation Total Utilization Balance
Scrutiny
MOOE and ev
783,335.00 798,461.95 (15,126.95)
20% DF 705,515.00 1,069,433.00 (363,918.00)
Total 1,488,850.00 1,867,894.95 (379,044.95)
Barangay Treasurer has already executed an affidavit of undertaking dated April of this year,
stating that some of the disbursements in CY 2021 were indeed fraudulently made by forging the
signatures of the Barangay Chairman and the CCA. In an interview with the barangay officials, it
was mentioned that the Barangay Treasurer already confessed on what she did during the
meeting with the City Accountant sometime in March, 2022. It was also disclosed that the
Barangay Treasurer has actually started making partial re-payments for the misappropriation.
The Barangay Chairman averred that they were taking actions with regards to this matter.

As to this end, an impending audit investigation will be conducted in the Barangay,

particularly to ascertain the total amount involved. Meanwhile, the Office of the City Accountant
is on the process of finalizing their report on the matter, including affected transactions in CY
2022, for submission to the Office of the Auditor.

Moreover, with regards to the preparation of RAO, the barangay during the interview
justified that despite the absence of the reports for CYs 2019-2021, the Barangay Record Keeper
maintained instead a certain control book where all appropriations and disbursements were
recorded and, supposedly, monitored. However, the management disclosed that payments were
processed and approved before obligations were updated/recorded in the control book, without
validation of available appropriation, thus confirming that disbursements vis-à-vis budget were
indeed not properly monitored resulting to a cash overdraft as of year-end. Also, Nonetheless,
they promised that proper budgeting, planning and utilizations will be done in the succeeding
years.

Relative thereto, it is worth noting that the Chairman on Committee on Appropriations

(CCA) should be the one responsible to monitor utilization of appropriations with the use of the
appropriate RAOs2. Consequently, being designated to ascertain the existence of appropriation
before authorizing every disbursement, the CCA should ensure that appropriation balances are
updated and that all corresponding commitments/charges do not exceed therefrom.

It has to be noted that the cash back-up deficiency discussed in the foregoing seemed not
merely a budget monitoring deficiency but substantially the result of a hardly detectible
fraudulent act, to which the Barangay Treasurer was amenable. Such act of the Barangay

2
Section 12.1.2 (b) of the Barangay Financial Management Manual

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Treasurer was a sufficient ground for her automatic suspension from office 3. However, the
Barangay LGU opted not to suspend her in as much as the latter agreed to repay the entire
amount involved, but instead relieved her as the Barangay Treasurer and re-assigned her to
different task. Furthermore, it was noted that the replacement Barangay Treasurer was not
properly designated and bonded, contrary to pertinent rules and regulations.

Moreover, it is noteworthy that such considerable deficit did not simply originate from a
single or few transactions but was in fact the result of a deliberate action whereby the gradual
accumulation of cash back-up deficit was left unresolved. The use of funds without or in excess
of appropriation did not only violate applicable regulations but adversely affected fund balances
intended for the implementation of other PPAs. Likewise, this will affect succeeding years’
operations, since collections therefrom will have to be used to pay prior year’ obligations, thus,
adversely affect the delivery of basic services and developmental projects of the Barangay.
Consequently, such practices if not mitigated, may result to the accumulation of cash deficits in
the ensuing years.

With the foregoing, we recommend the following:

1. The Barangay Development Council, as headed by the Punong Barangay, to

immediately adopt appropriate control measures to eliminate cash deficits pursuant
to Section 337 of RA No. 7160
2. The Chairman on Committee on Appropriations:
a. to closely monitor the appropriation balances and the obligations charged
thereto through the preparation and maintenance of Records of
Appropriations and Obligations (RAO) for every fund; and
b. to ensure the sufficiency of appropriation for every pertinent obligation,
before certifying as such in the corresponding Disbursement Vouchers (DV),
in accordance with the Manual on Financial Management of Barangays.
3. The Barangay Treasurer to ensure adequacy of cash back up before incurring
obligations.
4. The Punong Barangay to be steadfast in monitoring the proper observance of all
applicable laws, rules and regulations pertaining to the cash and budget
management of the barangay

We also recommend the Barangay to totally suspend the Barangay Treasurer from
any accountability and responsibility from the LGU pursuant to Section 348 of RA 7160,
and consequently take remedial and legal action against the Barangay Treasurer to
ascertain that her total indebtedness to the Barangay LGU will be recovered from her.

3
Section 348 of Republic Act 7160 (Local Government Code of 1991)

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 May we have your comments on the foregoing audit observation within five (5) calendar
days from receipt hereof. If not replied within the prescribed period, we will consider the
observation to be duly accepted by management.

ANGEL DAN G. CABIDOG

State Auditor III
Audit Team Leader

ANA MAY R. BELLA

State Auditor IV
OIC- Supervising Auditor

Proof of Receipt of AOM

Date: ____________

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