EXECUTIVE SUMMARY

A. Introduction

The City of Malolos was created in 1580. Initially, it was composed of three towns namely
Malolos, Barasoain and Sta. Isabel. Effective 1584, Malolos finally emerged as a town
while the two became barangays under its political jurisdiction. During the Spanish
revolution, it became the seat of the first Philippine Republic. This particular event gave
the City a special niche in Philippine history.

Malolos has a land area of 7,725 hectares consisting of agricultural, commercial, industrial,
water bodies, fishponds and marshes while the rest are roads.

It was classified as a third-class city comprising of 51 barangays. Despite the difficulties

posed by a failing economic order, Malolos still remains as one of Bulacan’s pride and
shall ever be called the “Heritage Town” of the Province.

Republic Act No. 7160 otherwise known as the Local Government Code of 1991 which
became effective on January 1, 1992, ushered in a new era of genuine meaningful local
autonomy and enabled Malolos and other local government units to attain their fullest
development as self-reliant communities and make them effective partners in the
attainment of national goals.

On November 8, 2002, Malolos was converted into a component city pursuant to Republic
Act No. 8754.

The City, headed by Honorable Mayor Gilbert T. Gatchalian who is ably assisted by
Honorable Vice-Mayor Noel G. Pineda, the Sangguniang Panlunsod, the City Department
Heads, and employees strive for the attainment of the City’s total development as well as
the welfare of its constituents.

For the calendar year 2019, the City of Malolos aims to continuously provide its
constituents with basic services such as social, health, and economic services,
environmental protection, tourism, peace and order, infrastructure and human resources
development.

The City maintained three separate books: General Fund, Special Education Fund, and
Trust Fund.

B. Financial Highlights

The comparative data on the financial condition, results of operations, and sources and
application of funds of the City of Malolos for CY 2019, with comparative figures for CY
2018 are presented on the next page.

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 Increase (Decrease)
2019 2018
Amount %
Financial Condition
Total Assets ₱1,596,088,617.80 ₱1,242,910,577.79 ₱353,178,040.01 28.42%
Total Liabilities 889,317,454.13 775,389,724.57 113,927,729.56 14.69%
Total Equity 706,771,163.67 467,520,853.22 239,250,310.45 51.17%
Results of Operations
Total Revenues 1,216,655,843.94 1,107,473,684.31 109,182,159.63 9.86%
Total Expenses 930,000,582.35 961,318,008.87 (31,317,426.52) (3.26%)
Excess of Income
286,655,261.59 146,155,675.44 140,499,586.15 96.13%
Over Expense
Sources and Application of Funds- General Fund and Special Education Fund
Budget Actual Difference Percentage
Revenue and
1,747,774,369.72 1,216,655,843.94 (531,118,525.78) (30.39%)
Receipts
Appropriations 1,757,303,396.04 1,027,527,212.92 (729,776,183.12) (41.53%)
Surplus/(Deficit) (9,529,026.32) 189,128,631.02 198,657,657.34 2084.76%

C. Scope of Audit

Our audit was made in accordance with International Standards of Supreme Audit
Institution (ISSAIs) and we believe that it provided a reasonable basis for the audit results.

The audit covered the financial transactions and operations of the City Government of
Malolos for the calendar year 2019, specifically the 2019 audit focus and thrusts for Local
Government Sector in compliance with their unnumbered Memorandum dated July 3, 2019
and in pursuance of COA Memorandum No. 2016-023 dated November 14, 2016, as
follows:

1. Financial Audit

Audit of Financial Statements

a. Cash and Cash equivalents

b. Due from NGO and Other LGUs
c. Inventories
d. PPE
e. Financial Liabilities

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2. Performance and Compliance Audit

a. Fund Transfers from National Government Agencies to Local Government Units

b. 20% Development Fund (DF)
c. LDRRMF
d. Solid Waste Management/Environmental Compliance

3. Audit of Revenue Generating Programs

a. Local Revenue Code

b. General Revision Property Assessment
c. Market Code

4. Inclusion of Evaluation /Audit Observation on the Following Areas:

a. Payment to casuals, job orders, contractual and consultants pursuant to COA

Memorandum NO. 2012-010 dated October 17, 2012, regardless of fund source
and account charged;
b. Enforcement of COA Disallowance and Charges as prescribed in COA
Memorandum No. 2009-084 dated November 16, 2009;
c. Compliance with tax laws;
d. Remittance of mandatory GSIS and HDMF contributions and remittance of loan
amortization; and
e. Compliance with programs and projects related to Gender and Development.

D. Independent Auditor’s Opinion

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

of the City because as discussed in detail in Part II of this report, the reported carrying
value of the Property, Plant, and Equipment (PPE) accounts aggregating to
₱948,771,531.14 could not be relied upon due to (a) discrepancy of ₱299,792,809.15
between the PPE account balances per books and per physical inventory report; (b)
understated land and road networks account balance; (c) erroneous provision of
depreciation expense; and (d) unsupported details of the derecognized PPE in the books.
Further, the City Accounting Office (CAO) did not (a) adopt the Modified Accrual Basis
in the recognition of Real Property Tax (RPT) and Special Education Tax (SET): and (b)
follow the prescribed accounting entries in the recording of RPT and SET collections and
distributions of the Basic RPT.

For the above noted exceptions, we recommended that the Local Chief Executive:

(a) For the unreliable Property, Plant and Equipment, ensure that the Offices of the
GSO and CAO are adequately manned and trained in order that they could substantially
accomplish their tasks in the recording, documentation, monitoring, inventory taking,
reporting, and reconciliation of PPE records; (b) require the GSO, CAO, City Assessors

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Officer, and City Legal Office to further exert their coordinated efforts in ensuring that the
parcels of land acquired by the City through purchase or donation are titled and recognized
in the books based on the fair value or acquisition cost to reflect the true financial condition
of the City; (c) require the City Engineering Office to forward a copy of the inspection and
acceptance documents on completed public infrastructure projects for listing at the GSO ;
and (d) require the CAO to effect the necessary adjustments on the (i) Land, Road
Networks, and depreciation accounts; and (ii) derecognition of PPE accounts; and

(b) For the non-setting up of Real Property Tax (RPT) and Special Education Tax
(SET) Receivables, require the (a) CTO and the City Assessor to combine their efforts to
cleanse the data base of the RPT System to generate a reliable assessment roll; (b) CTO to
provide a list to the CAO of active RPT taxpayers and amount collectible to serve as basis
in the setting-up of RPT/SET Receivable at the beginning of the year, pending cleansing
of Assessor’s records; and (c) CAO, based on the submitted list of RPT/SET receivables
by the CTO, recognize in the books the amount of RPT/SET collectibles for the year, and
follow the prescribed accounting entries in the distribution and payment of barangay’s RPT
share.

E. Summary of Other Significant Audit Observations and Recommendations

Summarized below are the other significant audit observations and

recommendations noted during the audit and the corresponding recommendations which
were discussed in detail in Part II of the report.

1. The grant, handling and liquidation of cash advances during CY 2019 were still not
compliant with pertinent laws, rules and regulations because (a) accountable officers (AOs)
did not settle their cash advances within the prescribed period pursuant to COA Circular
No. 97-002 dated February 10, 1997 and COA Circular No. 2009-002 dated May 18, 2009;
(b) accountable officers were granted additional cash advances despite non-liquidation of
the previous one as prescribed in Section 89 of Presidential Decree (PD) No. 1445; and
(c) transactions were not properly recorded in the cash book in accordance with Annex
21 of the New Government Accounting System (NGAS) Volume II, thus increasing the
risk of loss and misuse of public funds. (Observation No. 1)

We recommended that the Local Chief Executive (LCE) (a) require the AOs to strictly
follow the prescribed liquidation period for cash advances to prevent the accumulation of
outstanding cash advances; (b) require the City Accountant to refrain from granting of
multiple cash advances which practice exposes huge funds to possible loss; and (c)
instruct the concerned AOs to practice the proper way of recording transactions in the
cashbook.

2. Various deficiencies were noted in the keeping of trust funds (TFs) such as (a)
unreturned abandoned TFs to the Bureau of Treasury; (b) unreturned unexpended balance
of TFs to source agencies; (c) unutilized trust funds; and (d) erroneous classification of

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account contrary to pertinent provisions of the New Government Accounting System
(NGAS) for Local Government Units (LGUs), Executive Order (E.O.) No. 431, s2005,
DOF-DBM-COA Joint Circular No. 4-2012 dated September 1, 2012, COA Circular No.
94-013 dated December 13, 1994, and International Public Sector Accounting Standards
No. 1. (Observation No. 4)

We reiterated our previous year’s audit recommendation that the LCE (a) require the City
Treasurer and City Accountant to (i) facilitate the return of the abandoned NALGU funds
totaling ₱4,849,505.00 to the account of the National Treasury; and (ii) revert to the
General Fund the cash donation amounting to ₱100,000.00, and other identified supposed
income totaling ₱3,181,734.92; (b) require the City Accountant to (i) retrieve the records,
if possible, to effect the return of the unexpended balances of trust funds to source agencies;
and (ii) maintain a detailed subsidiary records for trust funds for reference and proper
identification; and (c) ensure that the 20% share from fire code fees is appropriated
exclusively for the operations and maintenance of local fire station.

3. There was low utilization rate of the 20% Development Fund (DF) for CY 2019,
while various deficiencies were noted in the implementation of development projects
aggregating to ₱56,740,958.62 or 40.76% of total appropriations of ₱137,925,063.60
contrary to the Department of Interior and Local Government (DILG) and Department of
Budget and Management (DBM) Joint Circular No. 2017-1 dated February 22, 2017, and
provisions of the 2016 Implementing Rules and Regulations (IRR) of Republic Act (RA)
No. 9184. (Observation No. 7)

We recommended that the LCE as head of the CMDC, hand in hand with the CPDO,
ensure that (a) the priority development projects are specifically identified in the AIP
through thorough and regular discussion with other sectoral members of the CMDC; (b)
the APP is prepared for infrastructure projects; (c) a realistic time-frame is set for their
implementation; and (d) public bidding as a mode of procurement is adopted for a smooth
implementation of projects according to the Plan.

We also recommended that the BAC Secretariat and City Engineering Office take note of
the deficiencies noted in the posting of signboard for information to the general public of
on-going project, and the requirements of the 2016 IRR of RA No. 9184 be religiously
complied with to ensure the promotion of transparency, competitiveness, integrity and
quality of projects implemented by the City.

4. Despite substantial delays in the completion of several development projects

aggregating to ₱22,557,798.54 funded under the Continuing Appropriations (CA) of the
20% Development Fund (DF), no legal sanction was introduced by Management to address
the negative slippage of Contractors contrary to Department of Interior and Local
Government (DILG) and Department of Budget and Management (DBM) Joint Circular
No. 2017-1 dated February 22, 2017, and the provisions of the 2016 Implementing Rules
and Regulations (IRR) of Republic Act (RA) No. 9184. Moreover, insufficiency of bidding
and contract documents, and non-posting of signboard/billboard on the project

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site, for public information were also noted contrary to the same Act and COA Circular
No. 2013-004 dated January 30, 2013. (Observation No. 8)

We recommended that the LCE (a) investigate the incurrence of negative slippage on
several development projects, and take appropriate action to hold liable the City officials
concerned, and contractors for the delay; (b) require the City Engineer to request from the
contractors concerned a Statement of Work Accomplished, furnished the Audit Team; (c)
require the BAC Secretariat (i) to forward to the Audit Team the lacking documents; and
(ii) henceforth, submit the perfected contract together with its integral parts within five
days from its signing; and (d) require the City Engineering Office (CEO) to (i) exercise
regular monitoring of on-going projects to enforce the completion of the projects on time;
(ii) strictly observe the posting of billboards on on-going projects for transparency and
public information; and (iii) seek the assistance of the officials of the barangay concerned
to keep an eye on the signboards to prevent them from being stolen. If possible, impose
penalty on takers of the signboard.
.
5. The failure of Management to establish a fully functional Material Recovery Facility
(MRF) and comply with certain provisions of Republic Act (R.A.) No. 9003 or the
Ecological Solid Waste Management Act of 2000 resulted in substantial costs for hauling
fees despite the availability of several waste processing machine and equipment for source
reduction program. (Observation No. 9)

We recommended that the LCE support the advocacies of RA No. 9003 by (a) ensuring to
make the City MRF fully functional and environmental friendly through established
concrete and long-term programs, project and activities to promote waste reduction,
recycling, composting, and waste processing in an environmentally sound manner; (b)
utilizing the available machineries and keep them intact and in good condition to avoid
manual processing of wastes; (c) continuing the education campaign on proper waste
management and disposal to all component barangays; and (d) conducting regular meetings
with component barangays, and different stakeholders to tackle the current status of the
City's compliance with RA No. 9003 and come up with coordinated projects to address the
common concerns on solid waste management.

6. Infractions were noted in the allocation, utilization and reporting of the CY 2019
Local Disaster Risk Reduction Management Fund (LDRRMF) of the City such as (a)
failure to optimize the utilization of the fund as only ₱4,417,457.25 or 7.83% of the
current year’s allocation for the 70% Preparedness and Mitigation Fund of
₱56,389,916.00 was obligated/ utilized, leaving a balance of ₱51,972,458.75; (b) non
submission of monthly report on sources and utilization of the LDRRMF by the Local
Disaster Risk Reduction and Management Council (LDRRMC); (c) failure to revert the
unutilized balance of the LDRRMF aged more than five years to the General Fund; (d)
failure to transfer the lump-sum amount of the CY2019 QRF to the Trust Fund Books;
and (e) non maintenance of separate registry of Appropriations, Allotments, Obligations
and Balances for Quick Response Fund (QRF), Maintenance and Other Operating
Expenses (MOOE) and Capital Outlay (CO) of the LDRRMF, thereby manifesting lack

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of Management’s awareness on the provisions of the law pertaining thereto. (Observation
No. 10)

We recommended that the Local Chief Executive require the (a) CDRRMC to (i) prepare
a comprehensive and detailed Local Disaster Risk Reduction Management Fund
Investment Plan (LDRRMFIP) that will address risk reduction and management system
effectively to meet the needs for prevention and mitigation, preparedness, response,
rehabilitation and recovery of the Local Government; (ii) list the PPAs specifically and
classify properly the allotment as either MOOE or CO; and (iii) comply with the
prescribed format which shall include the details of the projects charged to the previous
years’ unexpended balance of the DRRMF; (b) CDRRMO to strictly (i) comply with the
submission of monthly Report on Sources and Utilization of DRRMF to the COA Audit
Team for timely verification and (ii) prepare the report in accordance with the format
prescribed under COA Circular 2012-002 with emphasis on the inclusion of balances of
previous years’ appropriation transferred to the Special Trust Fund and the utilization
thereof; (c) City Accountant to (i)follow the reporting requirements for the DRRMF,
specifically the proper transfer of previous year’s unexpended balances of the DRRMF to
the Trust Fund; and (ii) transfer only the expended balances of DRRMF for QRF and
MOOE to the Trust Liability account and treat the DRRMF for Capital Outlay as a
continuing appropriation in the General Fund books until the projects funded therefrom
are completed; and (d) City Budget Officer to maintain separate Registry of
Appropriations, Allotments and Obligations (RAAO) for the DRRMF on the following: (i)
RAAO - for Quick Response Fund; (ii) RAAO- for Maintenance and Other Operating
Expenses; and (iii) RAAO- for Capital Outlay.

F. Summary of Total Suspensions, Disallowances and Charges

The Unsettled Disallowance at year-end totaled to ₱1,469,277.93 which included

disallowances in the prior and current year amounting to ₱820,227.93 and ₱799,000.00,
respectively and settlement of ₱150,000.00.

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

Recommendations

Of the 73 audit recommendations embodied in CY 2018 Annual Audit Report, 44

were fully implemented; eight were partially implemented while the remaining 21 were
not implemented.

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