EXECUTIVE SUMMARY

A. Introduction

1. Agency Profile

Ilagan is an inversion of “Nagali” an Ibanag word for “Moved”. This derivation was
due to the transfer of the capital town from its former site in Naguilian Baculod,
barrio across the Cagayan River to its present location for economic and security
reasons.

Ilagan was founded by Father Pedro Jimenez in May 4, 1686 and became the capital
town of the Province of Isabela in May 1, 1856. With the initiative and hard work of
Honorable Mayor Josemarie L. Diaz, DMD and with the help of Congressman
Rodolfo B. Albano, the Municipality of Ilagan was converted into a component city
under Republic Act No. 10169.

In CY 2018, the City of Ilagan had a total of 2,044 personnel complement with 780
permanent employees, 16 elective officials, 9 temporary employees, 5 Co-terminus
employees, 436 contractual and 798 casuals and job orders.

2. Scope of Audit

The audit covered the examination of the accounts and financial transactions of the
City of Ilagan for the year 2018 particularly those contained in the Memorandum
dated July 9, 2018 of the Local Government Sector Assistant Commissioner relative
to the audit focus and thrust for 2018. Part II of this Report contains the audit
exceptions on the 2018 Audit Focus and Thrusts for the Local Government Sector
and other high-risk accounts.

The audit was aimed to (a) verify the level of assurance that may be placed on
management’s assertions on the financial statements; (b) determine compliance of
management with the laws, rules and regulations on the pre-identified audit
thrusts/areas and recommend agency improvement opportunities thereon; and (c)
determine the extent of implementation of prior year’s audit recommendations.

B. Financial Highlights

The highlights of the financial position, financial performance, appropriations, allotments

and obligations of the City of Ilagan for the year-ended December 31, 2018, with
comparative figures for CY 2017, are presented below:

Increase /
2018 2017
(Decrease)
Financial Position
Assets ₱2,348,867,027.46 ₱ 1,942,123,831.72 ₱406,743,195.74
Liabilities 1,725,923,033.23 1,583,625,521.49 142,297,511.74
 Net Asset s/ Equity 622,943,994.23 358,498,310.23 264,445,684.00
Financial Performance
Total Revenues ₱1,627,788,113.48 ₱ 1,380,141,649.90 ₱247,646,463.58
Total Expenses 1,384,068,924.25 1,268,850,252.08 115,218,672.17
Surplus for the Period 243,719,189.23 111,291,397.82 132,427,791.41

Appropriations, Allotments and Obligations

Appropriations - Current ₱ 1,613,180,710.40 ₱ 1,427,949,373.00 ₱185,231,337.40
Appropriation - Continuing 73,856,614.02 13,941,269.79 59,915,344.23
Allotments – Current 1,613,180,710.40 1,424,139,373.00 189,041,337.40
Allotments - Continuing 73,856,614.02 13,941,269.79 59,915,344.23
Obligations – Current 1,467,803,349.44 1,277,638,131.24 190,165,218.20
Obligations - Continuing 38,705,306.59 6,074,727.69 32,630,578.90

The City received funds from other national government agencies totaling
₱97,760,155.56 and none was transferred to other agencies during CY 2018. Below is the
Comparative Schedule of Fund Transfers to and from NGAs, LGUs and POs for CYs
2018 and 2017:

Increase /
2018 2017
(Decrease)
Funds Received from:
National Government ₱ 73,660,155.56 ₱ 28,576,972.14 ₱ 45,083,183.42
Agencies (NGAs)
Local Government Units ₱24,100,000.00 - ₱ 24,100,000.00
Non-Government
Organizations/People’s
Organizations (POs) - -
Total ₱ 97,760,155.56 ₱ 28,576,972.14 ₱ 69,183,183.42

C. Achievements and Major Accomplishments

The City of Ilagan is a recipient of several awards and recognitions, to wit:

 Corn Capital of the Philippines (conferred by Department of Agriculture)

 Certified ISO 9001:2015
 Seal of Good Local Governance (conferred by the DILG)
 Best Tourism Oriented LGU (conferred by ATOP-DOT)
 Best Tourism Event – CAVRAA 2016 (conferred by ATOP-DOT)
 Presidential Award for Child Friendly City (conferred by Commission for the
Welfare of Children-DSWD
 Most Business-Friendly City - National Finalist (conferred by the Philippine
Chamber of Commerce and Industry)
 Gawad Kalasag Award (National Finalist)
  Excellent Rating in the Civil Service Commission Survey Report Card on Customer
Satisfaction (the only LGU that garnered Excellent Rating)
 Most Outstanding City in ARTA Implementation (DILG)
 Most Outstanding City in BUB Implementation (DILG)
 Best Implementer National Greening Program (DENR)
 Consistent Regional Outstanding Winner in Nutrition – CROWN National Award
(conferred by the Department of Health)
 Most Outstanding City in Nutrition – Region 2 (DOH)
 Most Competitive City in the Philippines – Infrastructure Pillar (No. 6)
Most Competitive City in the Philippines – Resiliency Pillar (No. 5)
Most Competitive City in the Philippines – Government Efficiency (No. 8)
(conferred by the DTI)
 Most Competitive City in Region 2 (DTI)
 Award Excellence in Nutrition (CHO 1) in Region 02 (conferred by the DOH)
 Provincial Purple Ribbon Award (DOH)
 Adolescent Friendly Health Facility Level I (CHO 1)
 Most Outstanding City for its commitment to the National Voluntary Blood Services
Program (DOH)
 1st Runner-up National Sandugo Award
 Best City Mayor – National Sandugo Award
 National Gawad Saka Award in Rice, Corn and High Value Crops

D. Independent Auditor’s Report on the Financial Statements

As discussed in Part II of this report, the Auditor rendered a Modified Opinion on the
fairness of presentation of the financial statements of the City of Ilagan for the year-
ended December 31, 2018 due to the following:

1. Other Receivables account amounting to ₱14,656,738.67 was not fairly presented at

its net realizable value as at December 31, 2018 due to non-provision of Allowance
for Impairment Losses which is not consistent with the pronouncements of
International Public Sector Accounting Standards (IPSAS) 21 on Impairment of
Non-Cash Generating Assets.

2. The reported year-end net carrying value for Property, Plant and Equipment (PPE)
account at ₱1,826,434,518.23 was not reliable because (a) the different classes
composing the PPE were not adequately supported by subsidiary ledgers contrary
to Section 13, Volume II of the New Government Accounting System (NGAS); (b)
the PPE account balance does not reconcile with the balance per Report on the
Physical Count of Property, Plant, and Equipment (RPCPPE) amounting to
₱844,379,330.18 or a difference of ₱982,055,188.05; and (c) the recorded Road
Networks account amounting to ₱814,281,853.48, net of accumulated depreciation,
cannot be fully ascertained whether this already represents at least 75 percent of the
entire road networks of the City due to lack of proper disclosures and absence of
reports such as Registry of Public Infrastructures, Report on the Physical Count of
 Local Road Network (RPCLRN), Local Road Network Ledger Cards, Local Road
Inventory records with Road Map and Local Road Network Property Cards.

For the exceptions cited above, we recommended the following:

1. The City Accountant to set up provision for Allowance for Impairment in order to
present fairly the Other Receivables account in the financial statements at net
realizable amount consistent with the requirements of IPSAS 21.

2. The Local Chief Executive (a) require the Inventory Committee to fast track the
completion of physical inventory of PPE to determine the actual existence,
condition and whereabouts of all properties owned by the City; reconcile the
accounting and inventory records; adjust the PPE accounts in the books as
necessary; prepare and submit the corresponding report together with the
established subsidiary ledger for each class of PPE; (b) complete the reconciliation
of the RPCLRN and the updated Registry of Public Infrastructure through a
detailed review of prior year’s transactions in order to identify the entire road
networks of the City Government (c) make proper disclosures in the Notes to
Financial Statements as regards all road networks.

E. Summary of Significant Findings and Recommendations

The following is the summary of significant findings and recommendations in the audit
of the accounts and operations of the City of Ilagan for Calendar Year 2018:

1. Some delays were noted in clearing the deposits in transit presented as reconciling
items in the monthly Bank Reconciliation Statements which is not consistent with
existing regulations that collections should be deposited in full not later than the
following banking day.

We recommended that Management through the Office of the City Treasurer

develop mechanisms to improve its deposit schedules in order to safeguard
the funds of the City in conformity with the provisions of Section 69 (1) of PD
1445 and Section 32 of the Manual on NGAS for LGUs.

2. Employees neglected to liquidate the cash advances granted to them for travel,
special purposes/time-bound activities and other undertakings which is not in
keeping with the provisions of COA Circular No. 97-002. Furthermore, some
elected officials were granted cash advances for other special undertakings and
some with no specified purpose which is not in accord with the requirements of
the same Circular.

We recommended that Management (a) demand all concerned employees to

immediately settle all unliquidated cash advances through the submission of
necessary supporting documents; (b) discontinue the granting of cash
advance for mid-year bonus and other employee benefits, and (c) discontinue
 the granting of cash advances to elective officials for purposes other than for
travelling expenses. Moreover, stop the practice of allowing cash advances
without the specified legal purpose.

3. Irrevocable Standby Letter of Credit of equivalent value from a commercial bank

/Surety Bond Callable upon Demand/Bank Guarantee were not required for
advance payments made to contractors contrary to Paragraphs 4.1 and 4.2 of
Annex E - Contract Implementation Guidelines for the Procurement of
Infrastructure Projects of the Revised Implementing Rules and Regulation (IRR)
of RA 9184.

We recommended that Management require the contractors to submit any of

the Irrevocable Standby Letter of Credit or equivalent value from a
commercial bank /Surety Bond Callable upon Demand/Bank Guarantee as a
support to mobilization fees paid.

4. Retention of ten percent (10%) referred to as the "retention money” were not
applied against the progress payments made to contractors contrary to Paragraphs
6.1 and 6.2 Annex E - Contract Implementation Guidelines for the Procurement of
Infrastructure Projects of the Revised IRR of RA 9184.

We recommended that Management deduct the retention money from

progress billings paid for all projects conducted through competitive bidding
prescribed under the above-cited law.

5. The payments made to First Green Isabela Waste Management Inc. totaling
₱13,612,500.00 for the contract on Solid Waste Cleaning, Collection and Disposal
Project was not supported with a copy of the approved contract which is not in
keeping with the provisions of COA Circular No. 2012-001 thus the legality and
propriety of the transactions could not be genuinely proven.

We recommended that Management ensure all procurements are supported

with complete documentation to prove their legality and propriety.
Accordingly, immediate submission of the lacking documents is enjoined for
proper review and evaluation.

F. Summary of Total Suspensions, Disallowances and Charges

Presented below is the summary of suspensions, disallowances and charges as of

December 31, 2018:

Issued Settlement
Beginning Ending % of
Particulars During the During the
Balance Balance Settlement
Year Year
Suspensions
Prior Years ₱33,922,018.69 ₱ 00.00 ₱ 33,492,811.69 ₱ 429,207.00 98.73%
 Current Year 00.00 00.00 00.00 00.00 00.00
Total ₱33,922,018.69 ₱ 00.00 ₱ 33,492,811.69 ₱ 429,207.00 98.73%

Disallowances
Prior Years 00.00 00.00 00.00 00.00 00.00
Current Year 00.00 00.00 00.00 00.00 00.00
Total 00.00 00.00 00.00 00.00 00.00

Charges
Prior Years 00.00 00.00 00.00 00.00 00.00
Current Year 00.00 00.00 00.00 00.00 00.00
Total 00.00 00.00 00.00 00.00 00.00

G. Status of Implementation of Prior Year’s Audit Recommendations

Out of the 14 audit recommendations embodied in the 2017 Annual Audit Report, eleven
(11) were fully implemented and three (3) were partially implemented.