EXECUTIVE SUMMARY

A. INTRODUCTION

The Municipality of Subic was founded in 1542 by Juan de Salcedo, the Spanish conquistor
during the colonization of the Eastern Hemisphere. The legend tells that the town’s name
was a derivative of “Hubek” (Head of Plows), which the religious missionaries
mispronounced as “Subic”.

Today, Subic is a first-class municipality with sixteen barangays separate and distinct from
the United States Naval Base, now Subic Bay Metropolitan Authority (SBMA) and from
its former barrio, Olongapo City.

As a highly urbanized municipality, the local administration is faced with the challenges
of policy formulation and program implementation to create an environment that is
conducive to the development and growth of the local enterprise.

The Municipality of Subic is headed by Hon. Jonathan John F. Khonghun, who is on his
first term, ably supported by Vice Mayor Lauro B. Simbol, eight regular Sangguniang
Bayan Members and the Association of Barangay Captains (ABC) President, as ex officio
member.

As of December 31, 2022, the Municipality had total personnel complement of 805
employees distributed as follows: 100 permanent employees, 2 coterminous, 12 electives,
81 casual employees, and 610 job orders/contract of service employees.

The Municipality of Subic has a total land area of 25,506.01 hectares. Based on the 2020
census on population conducted by the National Statistics Office (NSO), the Municipality
had a total population of 111,912 and posted a population growth rate of 1.40 percent for
the last five years.

B. FINANCIAL HIGHLIGHTS

The following comparative data show the financial condition and results of operations of
the Municipality of Subic for the calendar years (CYs) 2021 and 2022:

Increase/ (Decrease)
Particulars 2022 2021
Amount %
Financial Condition
Assets ₱840,159,232.53 ₱793,863,489.80 ₱46,295,742.73 5.83%
Liabilities 471,655,397.13 449,953,817.11 21,701,580.02 4.82%
Net Assets/ Equity 368,503,835.40 343,909,672.69 24,594,162.71 7.15%
Results of Operations
Revenues 595,753,472.22 449,974,511.98 145,778,960.24 32.40%
Expenses 572,604,350.17 450,884,552.06 121,719,798.11 27.00%
Surplus (Deficit) 23,149,122.05 (910,040.08) 24,059,162.13 -2643.75%

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C. SCOPE OF AUDIT

We conducted our audit in accordance with the International Standards of Supreme Audit
Institutions (ISSAIs) and we believe that it provided a reasonable basis for the audit results.
The audit covered the financial transactions and operations of the Municipality of Subic,
Zambales for CY 2022. The audit included the examination of supporting documents, on a
sampling basis, of pre-selected accounts and thrust areas based on the audit instructions
under Unnumbered Memoranda dated September 14, 2022, January 26 and February 27,
2023. Audit procedures and techniques were employed such as analysis of accounts and
such other procedures considered necessary. All exceptions noted in the audit are discussed
in Part II of the report.

The audit was aimed to (a) ascertain the level of assurance that may be placed on
management’s assertions on the financial statements; (b) recommend agency improvement
opportunities; and (c) determine the extent of implementation of prior year’s audit
recommendations.

D. INDEPENDENT AUDITOR’S REPORT

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

of the Municipality of Subic, Zambales for CY 2022 owing to the following deficiencies
noted; viz:

a) The existence, accuracy, and completeness of Property, Plant and Equipment (PPE)
accounts with a carrying value of ₱542,950,140.81 were uncertain due to (i)
unreconciled discrepancies between accounting records and the result of physical
inventory amounting to ₱237,171,313.03; and (ii) unsubstantiated PPE accounts
totaling ₱198,304,167.99; contrary to the pertinent provisions of COA Circular No.
2020-006 dated January 31, 2020, and Presidential Decree (P.D.) No. 1445.

b) The existence, validity, and accuracy of the year-end balance of Accounts Payable (AP)
reported at ₱48,037,781.02 were doubtful due to (i) unsubstantiated long outstanding
accounts totaling ₱12,368,367.46; and (ii) unreconciled discrepancies between
accounting and creditors’ records amounting to ₱3,718,545.97; inconsistent with the
pertinent provisions of P.D. No. 1445, Manual on the New Government Accounting
System (MNGAS) for Local Government Units (LGUs), Volume I, and International
Public Sector Accounting Standard (IPSAS) 1.

In view of the foregoing, we recommended that Management:

For PPE account

• advise the OIC-Municipal Accountant to (i) prepare and maintain PPE Ledger Cards
or subsidiary records and ensure that the total balances tally with the balances of
controlling PPE accounts in the General Ledger (GL); and (ii) coordinate with the

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 General Services Office and the Inventory Committee to strategize the conduct of
activities relative to the one-time cleansing of PPE account balances pursuant to COA
Circular No. 2020-006; instruct the General Services Officer to prepare and update
property cards to establish reliable records and property accountability; and direct the
OIC-Municipal Accountant to trace back and complete the necessary details of all
unsubstantiated PPE accounts.

For AP account

• instruct the OIC-Municipal Accountant to (a) locate and maintain copies of the relative
disbursement vouchers (DVs) and supporting documents of all outstanding accounts in
order to substantiate the AP balances, especially those that are long outstanding; and
perform regular review and analysis of the AP account to ensure that only valid
payables are recorded; and (b) coordinate with the creditors to reconcile differences in
the account balances; and record the amounts due to James L. Gordon Memorial
Hospital under the Due to LGUs account instead of the AP account.

E. SUMMARY OF SIGNIFICANT AUDIT OBSERVATIONS AND

RECOMMENDATIONS

1. Despite adequate funding, only eight out of the 24 planned development projects for
CY 2022 were fully implemented by the Municipal Government due to inadequate
planning and monitoring as manifested by non-implementation and delayed completion
of projects contrary to the pertinent provisions of the Department of Budget and
Management (DBM) – Department of Finance (DOF) – Department of the Interior and
Local Government (DILG) Joint Memorandum Circular (JMC) No. 1 dated November
4, 2020, and Updated 2016 Revised Implementing Rules and Regulations (RIRR) of
Republic Act (R.A.) No. 9184. As a result, the attainment of desired developmental
outcomes and performance targets was compromised. In addition, the legality and
propriety of the 23 projects were doubtful due to the failure to submit the complete set
of contracts in accordance with Sections 3.1 and 3.2 of COA Circular 2009-001 dated
February 12, 2009. (Observation No. 7)

We recommended that Management:

a. direct the Municipal Budget Officer to carefully review the 20% Development Fund
Utilization Report to ensure accurate and transparent reporting;

b. instruct the Municipal Engineer and Municipal Planning and Development Officer
to ensure the effective and efficient implementation of the proposed development
projects through adequate planning and close monitoring; and

c. require the OIC-Municipal Accountant, in coordination with the Bids and Awards
Committee, to immediately complete the submission of all the supporting
documents forming part of the contracts relative to the 23 projects cited above; and

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 comply with Sections 3.1 and 3.2 COA Circular 2009-001 in the succeeding
procurements.

2. Deficiencies were noted in the recording and reporting of fund transfers received from
various National Government Agencies (NGAs) and Government-Owned and
Controlled Corporations (GOCCs) such as (a) dormant/long outstanding and
unsubstantiated balances; and (b) non-compliance with the reporting and posting
requirements, contrary to COA Circular Nos. 2016-005 dated December 19, 2016,
DBM Local Budget Circulars (LBC) Nos. 130 and 134 dated November 19, 2020, and
January 20, 2021, respectively. As a result, the validity and accuracy of Due to NGAs
and GOCCs accounts could not be ascertained. (Observation No. 4)

We recommended that Management direct the:

a. OIC-Municipal Accountant to (i) file a request for authority to write off the dormant
fund transfers under the Due to GOCCs account with COA after the conditions and
requirements pursuant to COA Circular No. 2016-005 have been fully satisfied; (ii)
trace and confirm with the concerned government agency the records/documents
relative to the long outstanding and unsubstantiated balances including the
necessary reconciliation thereto; and

b. Local Finance Committee (LFC) to ensure that the reporting and posting
requirements for fund transfers from NGAs, particularly on the utilization of the
Local Government Support Fund (LGSF) to LGUs, will be strictly adhered to.

3. Several deficiencies in the setting up, assessment, record-keeping, collection,

adjustment and year-end balance of the Real Property Tax (RPT)/Special Education
Tax (SET) Receivable accounts were noted, thus, casting doubt on the reliability of the
Receivable accounts inconsistent with Section 20 of the MNGAS for LGUs, Section
1(c) of the Manual on Real Property Appraisal and Assessment Operations
(MRPAAO), Section 174 of the R.A. No. 7160, Section 111 of P.D. No. 1445, and
IPSAS 27. (Observation No. 1)

We recommended that Management:

a. direct the OIC-Municipal Accountant to (i) ensure compliance with Section 20,
Volume 1 of the MNGAS for LGUs in the setting up of RPT/SET Receivables; (ii)
reconcile the RPT/SET Receivable accounts with the Municipal Treasurer’s
Certified List of Delinquent Real Property Taxpayers and make the necessary
adjustments, if any, to present the financial statements fairly; (iii) require the
Municipal Treasurer’s Office (MTO) to provide the Certified List of Delinquent
Real Property Taxpayers to the Municipal Accountant’s Office (MAO) at the
beginning of the year for setting up the RPT/SET Receivable and at the end of the
year for reconciliation; and (iv) provide the details of the adjustments for RPT/SET
Receivables and make sure that every adjusting entry made are supported by an
explanation, computation, and/or documentation;

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 b. instruct the Municipal Assessor to strictly comply with the MRPAAO in the
conduct of frequent physical surveys and maintaining records such as Assessment
Roll; and consider implementing a computerized system to streamline the
assessment and collection processes, reduce errors, and increase efficiency;

c. through the MTO, to exert additional effort to improve collection of fees relative to
RPT and SET.

4. The validity, propriety, and legality of the payment of services of Casuals, Contract of
Service (CoS), and Job Orders (JOs) hired by the Municipality could not be established
due to deficiencies in the documentation contrary to Section 4(6) of P.D. No. 1445 and
Item 4.1.3 of COA Circular No. 2012-001 dated June 14, 2012, thus, casting doubts on
the necessity of their services and the regularity of the payment of wages/salaries
attached thereto. (Observation No. 9)

We recommended that Management instruct the Human Resource Management Officer

to (i) submit immediately the copies of the contract agreements of all temporary
employees; and (ii) in coordination with the OIC-Municipal Accountant, ensure that all
liquidation reports were duly supported with the accomplishment reports and daily time
records (DTRs) of the named employees in the payroll.

5. The Municipal Government of had not utilized the Local Disaster Risk Reduction and
Management Fund (LDRRMF) for CY 2022 strictly in accordance with the LDRRMF
Investment Plan (LDRRMFIP) which led to the non-implementation of some PPAs.
Further, other lapses such as (a) failure to properly monitor procured Coronavirus
Disease (COVID-19) and Dengue Rapid Antigen Test Kits and Insecticides totaling
₱15,413,625.28; (b) incomplete documentation on the repair and maintenance of Subic
Public Order and Safety Office (SPOSO) vehicles; (c) failure to adopt public bidding
as the mode of procurement on the purchase of goods for Food for Work Program; (d)
deficiencies in the inventory management and recording of procured medical supplies;
and (e) infractions in the distribution and reporting of stockpiled disaster goods,
contrary to Section 5.1.3 of COA Circular No. 2012-002 dated September 12, 2012,
Section 12 of R.A. No. 10121, Section 4 of P.D. No. 1445, COA Circular No. 81-131-
A dated January 29, 1981, Section 9.1.3.4 of COA Circular No. 2012-001 dated June
14, 2012, Sections 48.2 and 54.1 of the Updated 2016 RIRR of R.A. No. 9184 Section
114 of the MNGAS for LGUs, and Items IV and V of COA Circular No. 2014-002
dated April 14, 2014; thus, the desired goals and objectives of reducing disaster risk
and enhancing disaster preparedness including proper reporting may not be fully
achieved. (Observation No. 8)

We recommended that the Municipal Mayor:

a. direct the LDRRM Officer and Head of SPOSO to optimize the utilization of the
LDRRMF in accordance with the programmed projects in the LDRRMFIP;

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 b. instruct the (i) Municipal Health Officer and General Services Officer to submit the
distribution lists for COVID-19 and Dengue Rapid Antigen Test Kits; and (ii)
establish stronger protocols for inventory management, distribution tracking, and
reporting of supplies/PPEs charged against the LDRRMF to enhance transparency
and facilitate better decision-making;

c. instruct the Head of SPOSO to maintain a repair and maintenance/history of each

LDRRM vehicle to avoid unnecessary repair and maintenance expenses. A repair
history form may be devised, indicating the type of repair undertaken, the date when
it was made, and other pertinent data necessary for the information and guidance of
the COA, Agency and others concerned and attached the same to the DVs for
repairs and maintenance expenses as supporting documents;

d. require the BAC to (i) adopt public bidding as the primary mode of procurement
and proceed to alternative methods only when the required conditions are met; and
(ii) stop the practice of splitting purchase requisitions and purchase orders/contracts
and adhere to the rules and regulations in the procurement of capital assets, goods,
and services as provided under the Updated 2016 RIRR of R.A. No. 9184;

e. (i) consider hiring additional staff dedicated to medical supply inventory

management and provide them with computers/laptops for faster updating of
medical supplies records to improve efficiency, effectiveness, and response time in
managing medical supplies, ensuring optimal care for the community during
emergencies; and (ii) require the Municipal Accountant to record purchased
supplies to its respective inventory account following the perpetual inventory
method; and

f. instruct the (i) Municipal Social Welfare and Development Officer to provide the
list of recipients with their signature and other documents supporting the
distribution of relief goods; and (ii) OIC-Municipal Accountant and General
Services Officer to diligently prepare/maintain inventory records such as SLCs,
SCs, RIS, Monthly RSMI for relief goods and Inventory List of all procured and
donated items for LDRRM.

6. Management had not relinquished to the MAO the duty and responsibility to submit
the monthly financial transaction documents of the Municipal Government which led
to unwarranted delay and non-submission thereof contrary to the pertinent provisions
of P.D. No. 1445 and COA Circular No. 2009-006 dated September 15, 2006.
Consequently, the timely verification of financial transactions and early detection of
deficiencies by the Audit Team were hindered. (Observation No. 5)

We reiterated that the Municipal Mayor (a) instruct the Municipal Administrator to
relinquish the authority/responsibility to submit the monthly accounts and reports to
the MAO; (b) transfer/reassign the personnel in charge of the so-called “Accounting
Office Extension” under the Mayor’s Office to the MAO to augment the workforce
thereat; and (c) direct the OIC-Municipal Accountant to adhere strictly to the

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 timeframes on the submission of accounts and preparation of financial reports pursuant
to COA Circular No. 2009-006; otherwise, withhold the salaries of officials/employees
who continually neglected to abide by the rules and regulations of Section 122 of P.D.
No. 1445.

7. DVs were processed without proper approval of the Municipal Mayor in violation of
Sections 4(5) and 4(6) of P.D. No. 1445, Sections 39 and 40 of the MNGAS for LGUs,
Volume I and COA Circular 2012-003 dated October 29, 2012. (Observation No. 6)

We recommended that the Municipal Mayor (i) sign/approve the DVs and all
supporting documents before payments be drawn, including the DVs/supporting
documents already submitted to the Audit Team; and (ii) limit the delegation of
authority to approve payments to the Municipal Administrator on transactions related
to regularly recurring administrative expenses only.

The details of these and other observations noted are included in Part II of this report.

F. SUMMARY OF AUDIT SUSPENSIONS, DISALLOWANCES AND CHARGES

The audit suspensions totaling ₱30,151,479.45 as shown in the Statement of Audit

Suspensions, Disallowances and Charges as of December 31, 2022, were not settled at the
end of the year.

G. STATUS OF IMPLEMENTATION OF PRIOR YEAR’S UNIMPLEMENTED

AUDIT RECOMMENDATIONS

Out of the 55 audit recommendations embodied in the 2021 Annual Audit Report (AAR),
ten or 18.18% were fully implemented, 27 or 49.09% were partially implemented and 18
or 32.73% were not implemented at all.

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