EXECUTIVE SUMMARY

Introduction

The Municipality of Ferrol was a former barangay of the Municipality of

Odiongan. It was separated from the latter and became a municipality on June 11, 1978
by virtue of Presidential Decree No. 1492.

The Municipal Government continued to pursue its commitments to their

constituents and still has its primary goal of providing basic services and facilities as
enumerated in Section 17(b) of Republic Act (R.A.) No. 7160.

The financial statements are consolidation of General Fund, Special Education

Fund and Trust Fund. The Local Government Unit (LGU) maintains different accounts
in the Trust Fund which are the PNB-Regular, DAR-ARCP2 Sub-projects, SALIN-
TUBIG Program, BUB Account, MDRRM Fund, PhilHealth – Professional Fee and
PhilHealth – HCI Charges.

The Municipality of Ferrol, Romblon is headed by Honorable Mayor Jovencio Ll.

Mayor, Jr. assisted by the Municipal Vice Mayor Hon. Antonio F. Compas and the
members of the Sangguniang Bayan, Hon. Christian Ll. Gervacio, Elma C. Fampo, Pedro
F. Gelindon, Edgar G. Forcadas, Faith S. Lota, Cezanne C. Fabila, Redante C. Prado,
Leonora A. Compas, ABC President Hon. Victor Rufon, IP Representative Hon.
Bonifacion G. Fabila, Jr., and SK Federation Chairperson Hon. Apolinario P. Jayan.

Financial Highlights

For Calendar Year (CY) 2021 the Municipality generated a total income of
P61,530,082 which is higher by P4,442,925 or 7.78 percent compared with last year’s
P57,087,157. The internal revenue allotment of P58,764,413 represents 95.51 percent of
the total income. Other major sources of income are local taxes, service and business
income.

The total assets, liabilities, government equity, income and expenses for CY 2021
compared with that of the preceding year are as follows:

Increase/
CY 2021 CY 2020
(Decrease)
Total Assets P 195,955,569 P 199,373,817 P (3,418,248)
Total Liabilities 15,965,027 24,179,665 (8,214,638)
Total Equity 179,990,542 175,194,152 4,796,390
Total Income 61,530,082 57,087,157 4,442,925
Total Expenses 57,244,245 50,494,786 6,749,459

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Scope of Audit

Financial and Compliance Audit were conducted on the accounts and operations
of the Municipality of Ferrol for CY 2021. The objectives of the audit were to (a)
ascertain the level of assurance that may be placed on management’s assertions on the
financial statements; (b) evaluate the extent of compliance with laws, rules and
regulations as well as the propriety and validity of transactions; and (c) determine the
extent of implementation of prior years’ audit recommendations.

We conducted our audit in accordance with International Standards of Supreme

Audit Institutions (ISSAIs) and we believe that is provided a reasonable basis for the
results of the audit.

Audit Opinion on the Financial Statements

The Auditor rendered a qualified opinion on the fairness of presentation of the

financial statements of the Municipality of Ferrol, Province of Romblon due to the failure
of the collecting officers to promptly remit their collections to the ICO-Municipal
Treasurer. Also, the ICO-Municipal Treasurer incurred delay in the preparation of
Report of Collections and Deposits (RCD) which resulted in the late recording of the
transactions in the books of the Municipality. Consequently, the reported Cash Local
Treasury account as at December 31, 2021 and the corresponding income accounts were
unreliable.

Significant Observations and Recommendations

For the above exceptions, we recommended that the Municipal Mayor require (a)
all the collectors to remit their collections to the ICO-Municipal Treasurer for the day;
and (b) the ICO-Municipal Treasurer to (i) prepare the RCD at the close of the business
day or on the next working day; and (ii) strengthen the internal control in cash
management by observing the proper cut-off in the reporting of collections, particularly
the preparation of RCD.

The other significant observations and recommendations in the audit of the

accounts and operations of the Municipal Government of Ferrol for the year 2021 are
summarized as follows:

1. Several lapses were noted in the collections and deposits of the Municipality such as
(a) failure of the ICO - Municipal Treasurer to deposit intact all her collections; (b)
failure to establish proper cut off in the remittance of collections by the collectors and
reporting thereof; (c) incurrence of over-deposits by the ICO-Municipal Treasurer; (d)
failure to submit the monthly Report on the Accountability for Accountable Forms
(RAAF); (e) deficiencies in accomplishing the accountable forms and Reports of
Collections and Deposits (RCD); and (f) incorrect recording of transactions which are
contrary to Section 307 of Republic Act (R.A.) No. 7160, Section 69 of Presidential
Decree (P.D.) No. 1445, Section 29, Volumes I and II of the Manual on the New

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 Government Accounting System (NGAS) for Local Government Units (LGUs) and
Annex B of Commission on Audit (COA) Circular No. 2015-009 dated December 1,
2015 exposing the government funds to possible loss and/or misuse. Moreover, the
Municipality still collects additional fee of P3.00 per head on the registration of large
cattle for Livestock Development Fund contrary to Batas Pambansa Blg. 226.

We recommended that the Municipal Mayor:

a. direct the ICO - Municipal Treasurer (i) to deposit intact all collections remitted to
her by the collecting officers; (ii) not to issue new sets of accountable forms until
all collections were remitted in full by the collectors; ; (iii) to instruct all the
collecting officers to (1) ensure completeness and accuracy of information on the
accountable forms and RCDs such as signatures and dates; and (2) prepare and
submit the monthly Report on Accountability for Accountable Forms (RAAF); (iv)
to prepare and submit the monthly Consolidated Report on Accountability for
Accountable Forms (CRAAF) pursuant to Sections 50 and 51 of the Manual on the
NGAS for LGUs; (v) to demand the collecting officers for the immediate
remittance of all collections from previous months which were not yet turned over
to her, if there are any; and (vi) not to collect additional fees for Livestock
Development Fund; and

b. instruct the Municipal Accountant to prepare the necessary adjusting entries to

correct the errors mentioned above and always be guided by the description of
accounts provided in Annex B of COA Circular No. 2015-009 in recording the
transactions of the Municipality.

2. The balance of the Inventory and Property, Plant and Equipment (PPE) (net of
accumulated depreciation and excluding Construction in Progress) accounts as at
December 31, 2021 amounting to P1,099,214 and P162,949,866, respectively,
remained unreliable due to various deficiencies noted such as the: (a) failure of the
Inventory Committee to submit a complete and accurate Report on the Physical Count
of Inventories (RPCI) and Report on the Physical Count of PPE (RPCPPE); (b) failure
to maintain the required property and accounting records for inventories and PPEs; (c)
existence of dormant and unreconciled balances of Inventories and PPEs, respectively;
(d) non-provision of depreciation on the PPEs in the Special Education Fund (SEF)
and Trust Fund; and (e) incorrect derecognition of unserviceable PPEs prior to
disposal contrary to the provisions of the Manual on the New Government Accounting
System (NGAS) for Local Government Units (LGUs), Volumes I and II and paragraph
82 of International Public Sector Accounting Standard (IPSAS) 17 hence, the
reliability of the amounts reflected in the financial statements could not be ascertained
and the balances of the affected accounts by the derecognition made were misstated.

We recommended that the Municipal Mayor:

a. require the Inventory Committee to submit the inventory reports to the Audit Team
in accordance with Section 124 of the MNGAS for LGUs, Volume I;

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 b. instruct the Municipal Accountant and Inventory Committee to fast track the
reconciliation of the resulting balance of the physical count with the accounting
records. In the event that deficiencies/discrepancies exist between the Inventory
Report and accounting records, the necessary adjustments/corrections should be
made and should be supported with complete documentation;

c. instruct the Supply Officer and Municipal Accountant to maintain the required
property and accounting records, respectively, to provide check and balance
between the two separate but related records;

d. instruct the Municipal Accountant to (i) recognize monthly depreciation expenses

to properly reflect the correct carrying amount of the PPE; (ii) ensure that all PPE
subject for depreciation have been provided with depreciation expenses; and (iii)
prepare the appropriate adjusting entry to restore the cost and the related
accumulated depreciation of the derecognized PPE prior to disposal; and

e. create a Disposal Committee who will take charge of the disposal of the
unserviceable properties in accordance with the policies and procedures prescribed
under Section 79 of Presidential Decree No. 1445 and Section 502 of Government
Accounting and Auditing Manual, Volume I to prevent further deterioration and
realize additional income from sale thereof.

3. Lapses were noted in the implementation of projects charged against the 20 percent
Development Fund (DF) and in the recording thereof such as: (a) projects
implemented by administration were not incorporated in the Annual Procurement Plan
(APP) contrary to Appendix 1 of the 2016 Revised Implementing Rules and
Regulation (IRR) of Republic Act (R.A.) No. 9184; (b) deficiencies in the
documentation of transactions were noted contrary to Commission on Audit (COA)
Circular No. 2012-001 dated June 14, 2012 rendering the propriety of the
disbursements doubtful; and (c) erroneous recording of transactions contrary to Annex
B of COA Circular No. 2015-009 dated December 1, 2015, rendering the balances of
affected accounts in the financial statements unreliable.

We recommended that the Municipal Mayor instruct the:

a. Municipal Engineer to (i) properly prepare/review with extra care the documents
prepared/originated from that office to avoid errors which could mislead readers
and users of the documents; (ii) ensure that variation/change orders are supported
with the necessary documents as required under Item 9.1.1.2 of COA Circular No.
2012-001 and Annex B of COA Circular No. 2009-001;and (iii) be guided by the
provisions of COA Circular No. 2013-004 on the information and publicity of
PPAs of the Municipality; and

b. Municipal Accountant to (i) be guided by the requirements of Section 4(6) of P.D.

No. 1445, COA Circular No. 2012-001 and Section 474(b)(5) of R.A. No. 7160 for

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 proper documentation of every claim against government funds; (ii) properly record
each transaction of the Municipality in accordance with Annex B of COA Circular
No. 2015-009; and (iii) prepare the necessary adjusting entries to properly account
the incorrect recording mentioned above.

4. Lapses and deficiencies were noted in the utilization, accounting and reporting on the
five percent Local Disaster Risk Reduction and Management Fund (LDRRMF) of the
Municipality as follows: (a) failure to incorporate in the Annual Investment Plan (AIP)
the projects, programs and activities (PPAs) charged against the LDRRMF contrary to
National Disaster Risk Reduction and Management Council, Department of Budget
and Management and Department of the Interior and Local Government (NDRRMC -
DBM - DILG) Joint Memorandum Circular (JMC) No. 2013-1 dated March 25, 2013;
(b) failure to prepare and submit the monthly Report on Sources and Utilization of
DRRMF contrary to Item 5.1.5 of COA Circular No. 2012-002 dated September 12,
2012; (c) lapses and deficiencies in the disclosure of LDRRMF in the Notes to
Financial Statements (FS) contrary to Item 5.1.16 of COA Circular No. 2012-002 and
Item No. VII.2 of COA Circular No. 2014-020 dated April 15, 2014; and (d) lapses
and deficiencies in the procurement, documentation and recording of transactions
charged to LDRRMF contrary to the provisions of the 2016 Revised Implementing
Rules and Regulations (IRR) of Republic Act (R.A.) No. 9184, Section 4(6) of
Presidential Decree (P.D.) No. 1445, and Annex B of COA Circular No. 2015-009
dated December 1, 2015. Accordingly, prompt verification of the utilization report
could not be made and users of the financial statements were misled of the unreliable
information in the Notes to FS. Moreover, these casted doubt on the propriety of the
transactions and rendered the affected accounts in the financial statements unreliable.

We recommended that the Municipal Mayor direct the:

a. MPDC to properly integrate the list of PPAs per LDRRMFIP in the AIP;

b. Municipal Accountant and MDRRMO to prepare and submit, respectively, the

monthly Report on Sources and Utilization of DRRM to the Audit Team in
accordance with Item 5.1.5 of COA Circular No. 2012-002;

c. Municipal Accountant to strictly adhere with the guidelines set forth by (i) COA
Circular No. 2012-002 and COA Circular No. 2014-002 for proper accounting and
recording of the utilization of the LDRRM Fund; (ii) Section 4(6) of P.D. No. 1445
and COA Circular No. 2012-001 for proper documentation of transactions; and (iii)
Annex B of COA Circular No. 2015-009 for proper recording of transactions;

d. Bids and Awards Committee (BAC) to (i) strictly adhere to the requirements of the
2016 Revised IRR of R.A. No. 9184 on the procurement of goods and services; (ii)
furnish the Audit Team with a copy of the Purchase Order/Contract of Agreement
and its attachments within five (5) working days from the execution of the contract
as required under Item 3.1.1 of COA Circular No. 2009-001 dated February 23,

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 2009; and (iii) make sure that Purchase Orders contain basic data/information as
prescribed by COA Circular No. 96-010 dated August 15, 1996; and

e. Municipal Budget Officer to reflect in the Certification on Appropriation, Funds

and Obligation of Allotment (CAFOA) the specific LDRRM PPAs from which
each disbursement was charged for proper evaluation of the amount expended per
PPA.

5. The Municipality incurred various lapses in the Gender and Development (GAD)
budgeting, and implementation for CY 2021 which includes (a)incorrect presentation
of budgets for the GAD mandated project, programs and activities (PPAs) in the
Annual Budget; (b) lapses in the preparation and submission of GAD Plan and Budget
(GPB) and GAD Accomplishment Report (AR); and (c) lapses and deficiencies in the
procurement, charging, documentation and recording of disbursements contrary to the
provisions of the Philippine Commission on Women, Department of the Interior and
Local Government, Department of Budget and Management and National Economic
and Development Authority (PCW-DILG-DBM-NEDA) Joint Memorandum Circular
(JMC) No. 2016-01dated January 12, 2016, Commission on Audit (COA) Circular No.
2014-001 dated March 18, 2014, Section 4(6) of Presidential Decree (P.D.) No. 1445,
Annex B of COA Circular No. 2015-009 dated December 1, 2015 and other relevant
rules and regulations, exposing the Municipality to various risks in the implementation
of the GAD PPAs.

We recommended and the management agreed that the Municipal Mayor instruct the:

a. Municipal Planning and Development Coordinator (MPDC) and Municipal Budget

Officer to properly incorporate and identify the budget of GAD mandated PPAs in
the Annual Investment Plan and Annual Budget in accordance with the budgeting
per GAD Plan and Budget;

b. GAD Focal Person to (i) ensure that project proposal/brief of each PPAs in the
GPB and the accomplished HGDG of attributed programs are attached to the GBP;
and (ii) submit to the Audit Team the endorsed Annual GPB and GAD AR within
the prescribed period under Item V of COA Circular No. 2014-001;

c. Bids and Awards Committee to be guided by COA Circular No. 2009-001 dated
February 12, 2009 in the submission of contract/purchase order and the provisions
of the 2016 Revised IRR of R.A. No. 9184 in the procurement of goods and
services;

d. Municipal Accountant to (i) see to it that supporting documents attached to

disbursement vouchers are accurate and complete before processing claims
pursuant to Section 474(b)(5) of R.A. No. 7160 and Section 4(6) of PD No. 1445;
and (ii) record the transactions of the Municipality in accordance with the Chart of
Accounts provided in Annex B of COA Circular No. 2015-009; and

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 e. Municipal Budget Officer to reflect in the Certification on Appropriation, Funds
and Obligation of Allotment (CAFOA) the specific GAD PPAs from which each
disbursement was charged for proper evaluation of the amount expended per PPA.

6. Procedural lapses were noted in the procurement activities on the three infrastructure
projects of the Municipality totaling P5,196,506 contrary to the provisions of the 2016
Revised Implementing Rules and Regulations (IRR) of Republic Act (R.A.) No. 9184,
thus, affecting the regularity of the contracts.

We recommended that the Municipal Mayor instruct the BAC to:

a. ensure the consistency of information provided in various documents;

b. conduct the post-qualification process properly, if necessary, conduct further

investigation to validate the claims of the bidder, and

c. ensure compliance with the requirements and procedures prescribed under the 2016
Revised IRR of R.A. No. 9184 to prevent the same lapses in future procurements.

Other observations are presented in Part II of the report. Management’s views

and reactions were considered in the report, where appropriate.

Summary of Audit Suspensions, Disallowances and Charges

Below is the summary of suspensions, disallowances and charges as at December

31, 2021:

Beginning Balance This period Ending Balance

(As at December January 1 to December 31, 2021 (As at December
31, 2020) NS/ND/NC NSSDC 31, 2021)
Notice of P 0.00 P 0.00 P 0.00 P 0.00
Suspension
Notice of 217,083.35 0.00 22,983.50 194,099.85
Disallowance
Notice of Charge 0.00 0.00 0.00 0.00
Total P 217,083.35 P 0.00 P 22,983.50 P 194,099.85

Status of Implementation of Prior Years’ Audit Recommendations

Of the 59 audit recommendations contained in CYs 2015-2020 Annual Audit

Report of the Municipality of Ferrol, Province of Romblon, 18 were fully implemented,
19 were partially implemented and 22 were not implemented.

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