Republic of the Philippines

COMMISSION ON AUDIT
Audit Team R8-06, LGS-D – Province of Northern Samar
Provincial Satellite Auditing Office
Brgy. Dalakit, Catarman, Northern Samar

AUDIT OBSERVATION MEMORANDUM (AOM)

AOM No. 2019-01-(2016-2018)

October 16, 2019

For : Hon. MICHAEL C. MEJICA

Punong Barangay
Barangay Lapinig del Sur
Lapinig, Northern Samar

Attention: Maria S. Juliata – Barangay Treasurer

Ricky L. Gabay - Municipal Accountant

We have audited the accounts and operation of the barangay for CYs 2016-2018 and
observed the following deficiencies and/or errors:

1. Barangay Financial Statements and schedules for CYs 2016-2018 remained not
submitted contrary to Accounting Circular No. 2006-002 dated December 19, 2006,
thus, depriving management of information on its financial position and results of
operations.

Accounting Circular No. 2006-002 dated December 19, 2006 prescribed the use
of the Systems and Procedures Manual on the Management of Barangay Funds and
Property and Accounting System Manual for Barangays under the New Government
Accounting System (NGAS).

Item No. 21. – General Accounting Policies, Volume 4 or the Accounting

Systems Manual for Barangays requires the city or Municipal Accountant to prepare the
financial statements and schedules for each barangay, as follows:

a. Detailed and Condensed Balance Sheet

b. Detailed and Condensed Statement of Income and Expenses
c. Statement of Cash Flows
d. Statement of Changes in Government Equity
e. Schedule of Infrastructure Projects and Reforestation Projects (if
applicable)
f. Schedule of Accounts Receivable
g. Schedule of Accounts Payable
h. Notes to Financial Statements
i. Statement of Management Responsibility for Financial Statements
 On the other hand, Item No. 22 thereof directs the accountant to submit
consolidated financial statements and schedules of all barangays within 60 days after
December 31 of each year.

The Municipal Accountant failed to prepare the Financial Statements and

schedules for CYs 2016-2018 due to the delayed submission by the Barangay Treasurer
of the documents and records pertaining to the barangay financial transactions. Also, the
barangay bookkeeper did not submit the registries/reports that would be the basis of the
Municipal Accountant in drawing the Journal Entry Voucher to come up with accounts
balances in the Financial Statements.

Absence of financial statements hindered the audit team to render an opinion and
deprive management/stakeholders of information on the financial position and the results
of its operations for the period ended.

We recommend that the Punong Barangay make representation with the

Municipal Mayor to require the Municipal Accountant and the concerned Barangay
Bookkeeper to prepare and submit the financial statements and schedules pursuant
to Accounting Circular No. 2006-002 dated December 19, 2006.

2. Work accomplishments on infrastructure projects totaling ₱297,780.75 for CY 2018

could not be evaluated due to absence of Inspection and Accomplishment Reports,
contrary to Annex E of the Revised IRR of Republic Act No. 9184.

Annex E of the Revised IRR of Republic Act 9184 states that:

Once the project reaches an accomplishment of ninety-five (95%) of the

total contract amount, the procuring entity may create an inspectorate
team to make preliminary inspection and submit a punch-list to the
contractor in preparation for the final turnover of the project. Said
punch-list will contain, among others, the remaining works, work
deficiencies for necessary corrections, and the specific duration/time to
fully complete the project considering the approved remaining contract
time. This, however, shall not preclude the procuring entity’s claim for
damages.

On the other hand, Section 4(6) of Presidential Decree 1445 provides: “Claims
against government funds shall be supported with complete documentation.”

Audit of disbursements of the Barangay for CY 2018 showed disbursements for

the payment of construction materials, hauling/handling of materials and labor for the
implementation of the following infrastructure projects:

Period/Date of
Particulars Amount (net of tax)
Payment
REHABILITATION OF WATER SYSTEM
(replacement of jetmatic pumps & other accessories)
7/27/18 Supplies and materials 20,850.00
9/27/18 Supplies and materials 8,440.00

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 Period/Date of
Particulars Amount (net of tax)
Payment
Sub-Total 29,290.00

REHABILITATION OF BRGY. STREET LIGHTS

7/27/18 Supplies and materials 22,120.00
Sub-Total 22,120.00

IMPROVEMENT OF MULTI-PURPOSE HALL

12/18/18 Masonry & sanitary works 15,000.00
12/18/18 Installation of electrical works 3,000.00
12/18/18 Painting 27,000.00
12/18/18 Installation of steel gate 6,000.00
12/18/18 Labor: window grills 19,000.00
12/18/18 Various construction materials 176,370.75
Sub-Total 246,370.75
GRAND TOTAL ₱297,780.75

Audit of disbursements revealed that all the infrastructure projects implemented

by the barangay were supported with Detailed Engineering Estimates, Purchase Requests,
Canvass from at least 3 bonafide suppliers, Purchase Order/Contracts, Inspection and
Acceptance Reports, Delivery Receipts, and pictures evidencing accomplishment of the
project. However, these were not supported with Bids and Awards Committee (BAC)
resolutions evidencing the mode of procurement and the award of the contract to the
supplier, Inspection and Accomplishment Reports and Certificate of Inspection and
Acceptance by the agency/end user. Likewise, there was no indication that the barangay
had undertaken the inspection of these projects once the accomplishment reached 95%.

Absence of the inspection and accomplishment reports hindered the evaluation of

the scope of works as provided in the Detailed Engineering Estimates viz actual work
accomplishments.

We recommend that the Punong Barangay secure the required Inspection

and Accomplishment Report from the Municipal Engineer to establish the validity
of claims and actual project accomplishment.

3. Purchase of construction materials for the Improvement of Multi-Purpose Hall

amounting to ₱176,370.75 was not implemented thru competitive bidding, contrary
to pertinent provisions of the Republic Act No. 9184 and its Revised IRR.

Section 2. Declaration of Policy

The provisions of this IRR are in line with the commitment of the GoP to promote
good governance and its effort to adhere to the principles of transparency,
accountability, equity, efficiency, and economy in its procurement process. It is
the policy of the GoP that procurement of Goods, Infrastructure Projects and
Consulting Services shall be competitive and transparent, and therefore shall
undergo competitive bidding, except as provided in Rule XVI of this IRR.

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 RULE XVI – ALTERNATIVE METHODS OF PROCUREMENT

Section 48. Alternative Methods

48.1. Subject to the prior approval of the HoPE, and whenever justified by the
conditions provided in this Act, the Procuring Entity may, in order to
promote economy and efficiency, resort to any of the alternative methods of
procurement provided in this Rule. In all instances, the Procuring Entity
shall ensure that the most advantageous price for the Government is
obtained.

48.2. In accordance with Section 10 of this IRR, as a general rule, the Procuring
Entities shall adopt competitive bidding as the general method of
procurement and shall see to it that the procurement program allows
sufficient lead time for such competitive bidding. Alternative methods of
procurement shall be resorted to only in highly exceptional cases provided
for in this Rule.

48.3. The method of procurement to be used shall be as indicated in the approved

APP. If the original method of procurement recommended in the APP was
competitive bidding but cannot be ultimately pursued, the BAC, through a
resolution, shall justify and recommend the change in the method of
procurement to be approved by the HoPE. Such changes must be reflected
in the APP to be submitted to the GPPB, pursuant to Section 7.4 of this IRR.
(a)

Moreover, Annex H of the same IRR provides that barangays are only allowed to
resort to alternative mode of procurement (i.e. Shopping or Small Value procurement) if
the Approved Budget for the Contract (ABC) did not exceed the threshold of ₱50,000.00.

Republic Act No. 9184 states that as a general rule, all procurements shall
undergo competitive/public bidding, unless it was determined that it cannot be ultimately
pursued by the Procuring Entity. Hence, alternative modes shall be resorted to, thru a
resolution from the Bids and Awards Committee (BAC) justifying the reasons.

Also, the IRR of the same law states that a barangay can only resort to alternative
mode of procurement (i.e. Shopping or Small Value) if the Approved Budget for the
Contract (ABC) would not exceed the threshold of ₱50,000.00. Moreover, if the
Procuring Entity decides to implement the construction of the project by administration,
the materials shall still be subjected to competitive bidding, if warranted.

On CY 2018, the barangay implemented the Improvement of the Multi-Purpose

Hall by administration. The laborers for the masonry, sanitary, painting, installation of
electrical wirings and steel gate and window grills were paid on December 18, 2018.
Also, on the same day, the barangay purchased construction materials from Ricardo C.
Gabilan amounting to ₱176,370.00 under Check Number 1515580.

The payment for the construction materials was not supported with resolutions
from the Bids and Awards Committee (BAC) justifying the alternative mode of
procurement resorted to by the barangay, if such was the case.
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 Evidently, the contract amount itself already exceeded the threshold for
Alternative Mode of procurement (i.e. Shopping or Small Value) by ₱126,370.75. Thus,
the barangay should have purchased the materials thru public bidding.

Purchases that undergo proper procurement process enhances transparency and

competitiveness of the process and provides a wider array of bidders/suppliers. Not only
will the goods and services be obtained at the mostly advantageous price for the
government without sacrificing the quality, the barangay will, likewise, be assured that it
is contracting business with eligible suppliers/contractors.

We recommend the Punong Barangay ensure that the implementation of

barangay projects would strictly follow the provisions of R.A. 9184. Likewise,
ensure the membership of the barangay with PhilGEPS to be able to post the bid
opportunities.

4. The existence of Property, Plant and Equipment (PPE) purchased in CY 2018

totaling ₱53,500.00 was not ascertained due to failure of the LGU-Barangay to
conduct physical count of PPE, likewise, Inventory and Custodian Slip (ICS) or
Property Acknowledgment Receipt (PAR) were not accomplished to support the
issued properties to end users contrary to pertinent provisions of Volume I of the
Systems and Procedures Manual on Management of Barangay Funds and Property,
hence, accountability on the properties could not be determined.

Volume I of the Systems and Procedures Manual on the Management of Barangay

Funds and Property prescribed under Accounting Circular No. 2006-002 dated December
19, 2006 provides, among others the policies and procedures on Property, Plant and
Equipment, as follows:

2.a.1. For accountability purposes, the end-user or the recipient of small tangible
items shall be issued an Inventory Custodian Slip.

2.b.1. All issuances of property to end-user shall be covered by a Property

Acknowledgment Receipt (PAR) which shall be renewed at least every
three (3) years or whenever there is a change in custodianship.”

3. Physical Count of PPE

a. A physical inventory of all Barangay property shall be conducted at

least once a year;
b. A committee headed by the Punong Barangay shall conduct the
physical count of PPE owned by the Barangay;
c. The result on the physical inventory shall be reported in the Report on
the Physical Count of PPE (RPCPPE);
d. The report, approved by the PB, shall be submitted to the BRK and
the City/Municipal Accountant for reconciliation with the recorded
PPE;
e. Any unrecorded inventory shall be booked up at appraised cost; and

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 f. Any shortages shall be looked into and the AO shall be held
accountable for the loss.”

Audit of transactions covering January 1 to December 31, 2018 showed that the
Barangay purchased small tangible items totaling ₱53,500.00. The items purchased are
presented below:

Quantity Item Amount

15 units Uratex plastic chairs 6,750.00
35 pcs Flashlights 8,750.00
1 unit DVD Player
1 unit Microphone 38,000.00
1 unit Amplifier
Total ₱53,500.00

All of these items were not supported with Inventory Custodian Slip (ICS) or
Property Acknowledgment Receipt (PAR), thus, it was difficult to determine the
whereabouts of the properties and to properly identify the persons accountable thereof.

In addition to the absence of ICS or PAR, the barangay treasurer did not maintain
a property ledger card for each kind of property purchased by the barangay and the
physical count of PPE was, likewise, not conducted.

Absence of information and records hindered the application of other procedures

to determine the existence of the property, plant and equipment.

We recommend that the Punong Barangay:

a. Create an inventory committee to conduct a physical inventory of the

barangay properties, and to prepare a report thereon to be submitted to
the Barangay Record Keeper and to the Municipal Accountant for
reconciliation;

b. Require the Barangay Record Keeper to maintain Property, Plant and

Equipment Register for control and monitoring purposes;

c. ICS or PAR should be prepared for all issuances of property to end-user

as required in Item 2.a.1, Volume I of the Systems and Procedures
Manual on Management of Barangay Funds and Property; and

d. Require the Municipal Accountant to record the all the PPE owned by the
LGU-Barangay.

5. Continuous payment of regular and recurring expenditures thru the cash advance of
the barangay treasurer amounting to ₱205,777.53 is not in conformity with the
principle on the disbursements of government funds that should be directly paid to
the payees pursuant to Section 93 of Presidential Decree 1445 and COA Circular No.
97-002.

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 Section 93 of Presidential Decree 1445 provides:

Warrants chargeable to revenue or trust funds of the national

government or checks drawn against the treasury Checking Account for
Agencies maintained with any government depository shall be made
payable either directly to the creditor to whom the money is due or to a
disbursing officer for official disbursement.

Further, Item 2 of COA Circular No. 97-002 dated February 10, 1997 provide
the following:

Ideally, cash should be handled under the general principles of the

imprest system, to wit:

1. Daily receipts on collections must be deposited intact with the

proper bank.
2. All payments must be made by check.
3. Only payments in small amounts may be made through the
petty cash fund. Replenishment of the petty cash fund shall be
equal to the total amount of expenditures made therefrom.

In practice, however, there are certain instances when it may be very

difficult, impractical or impossible to make payments by check. In
such a case, payments may be made by the disbursing officer in the
form of cash through his cash advance.”

Despite the barangay officials’ commitment to comply the audit recommendation to

Item 6 in CY 2016-2017 Management Letter (ML), the audit team still observed that the
following disbursements were paid out of the cash advance of the barangay treasurer:

Reference/ DV
No. Payee Purpose Amount
101-18-03-019 NORSAMELCO Electricity expense 10,316.26
Registration fee SK Mandatory
101-18-06-033 UEP, Catarman 16,000.00
Orientation and Training
101-18-06-039 Rosalie's Tailoring Basketball uniform 11,950.00
101-18-06-044 Christian C. Gajoy Traveling expense 8,000.00
Masonry and sanitary works
101-18-12-110 Rolly A. Piandiong 15,000.00
(Improvement of Multi-Purpose Hall)
101-18-12-112 Jayson D. Briones Painting Works of Multi-Purpose Hall 27,000.00
Severa Glass and
101-18-12-114 Labor: window grills MPH 19,000.00
Aluminum Supply
101-18-12-115 BIR Remittance of taxes withheld 4,624.13
Sofia’s General
101-18-12-117 DRRM equipment – Sound system 38,000.00
Merchandise
LIGA ng mga
LIGA dues 5,000.00
Barangay

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 For CY 2018, it was disclosed that the Barangay Treasurer drew cash advances
amounting to ₱1,414,634.28 for the payment of various expenses of the LGU.
Verification revealed that out of these cash advances, ₱451,908.26 or 32% were
disbursements that should have been paid thru check directly drawn to the payees.

As shown in the table, the cash advances were used to pay the reimbursements of
traveling expenses of the barangay officials in the encashment of check and attendance to
various meetings and seminars, supplies, equipment, registration fees to trainings and
seminars, payment of electricity bills, various labor works in contract and remittance of
taxes. These are regular, recurring and not in small amount expenditures to be charged to
the Petty Cash Fund.

The practice of paying out of cash advance is not in conformity with the rules and
regulation that disbursements of government funds should be made thru check. Further, it
not only exposes the fund to loss and theft, it likewise, burdened the Barangay Treasurer
in preparing the liquidation reports.

This audit observation is without prejudice to the issuance of Notice of

Suspension/Disallowance, whichever is deemed appropriate in the circumstances.

We recommend that management refrain from paying regular and recurring

expenditures thru the cash advance of the Barangay Treasurer. All payments shall
be made thru check except those that are impractical to be paid by check.

May we have your comments on the foregoing audit observations within fifteen (15)
calendar days from receipt hereof.

JOCELYN L. MARCELINO
OIC-Audit Team Leader

MA. NINEVEH C. DUARTE

OIC-Supervising Auditor

Proof of Receipt of AOM No. 2019-01

dated October 16, 2019

Name Designation Date Received Signature

1. Michael C. Mejica Punong Barangay

2. Maria S. Juliata Brgy. Treasurer

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3. Ricky L. Gabay Mun. Accountant

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