Executive Summary

A. Introduction

The Municipality of San Felipe, Zambales was created on March 1, 1908. It is

comprised of 11 barangays and has a land area of 11,159.59 hectares.

Through the leadership of Mayor Leo John M. Farrales, and the support of Vice
Mayor Mary Ann R. Quiba, Sangguniang Bayan Members, and the different department
heads, the Municipality continued to deliver public services and improved facilities to its
constituents.

B. Financial Highlights

The following data summarize the financial position, results of operation, and
sources and application of funds of the Municipality of San Felipe, Zambales for calendar
year 2020 with comparative figures for calendar year 2019:

Increase/
2020 2019
(Decrease)
Financial Condition
Assets ₱289,643,340.67 ₱254,380,637.59 ₱35,262,703.08
Liabilities 87,720,924.97 69,557,970.11 18,162,954.86
Government Equity 201,922,415.70 184,822,667.48 17,099,748.22
Results of Operations
Income 119,813,912.76 109,453,674.22 10,360,238.54
Expenses 97,978,057.25 98,445,233.41 (467,176.16)
Surplus 21,835,855.51 11,008,440.81 10,827,414.70
Sources and Applications of Funds-General and Special Education Fund
Budget Actual Difference
Revenues/Receipt 125,811,112.00 119,813,912.76 5,997,199.24
Appropriations/ 134,217,988.00 120,080,847.96 14,137,140.04
Expenditures
Surplus (Deficit) (₱8,406,876.00) (₱266,935.20) (₱8,139,940.80)

C. Scope of Audit

The audit covered the accounts and operations of the Municipality of San Felipe
for the year 2020 which were identified as thrusts/priority audit areas pursuant to the audit
instructions laid down by the COA – Local Government Sector (LGS) as per Unnumbered
Memorandum dated October 15, 2020. It included the examination of supporting
documents of selected accounts and transactions on a sampling basis, application of audit
techniques and procedures, such as analytical review of the financial statements, and other
audit procedures considered necessary to attain the audit objectives.

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 The objectives of the audit were to (a) ascertain the level of assurance that may be
placed on management’s assertion 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

A qualified opinion was rendered on the fairness of presentation of the financial

statements of the Municipality of San Felipe, Zambales as of December 31, 2020 due to
accounting errors and omissions such as (a) non-transfer of completed projects in the Trust
Fund to the General Fund amounting to ₱10,924,037.68; (b) non-provision of depreciation
of ₱3,054,588.56 on depreciable PPEs; and (b) improper recording of assets with a net
amount of ₱4,015.40 as of December 31, 2020 which overstated the year-end balances of
the Asset and Liability accounts by ₱3,050,573.16 and ₱10,924,037.68, respectively, and
understated the Government Equity account by ₱7,873,464.52.

We recommended that the Municipal Accountant analyze and draw the appropriate
journal entries to (a) reclassify the completed projects in the Trust Fund from the
Construction in Progress accounts to appropriate asset accounts; and transfer the same to
the General Fund; (b) locate pertinent records and closely monitor the Construction in
Progress account thru the maintenance of subsidiary records and other accounting record;
(c) provide depreciation expense amounting to ₱3,054,588.56 to various depreciable assets
mentioned above; and (d) reclassify the improperly recorded PPEs for accurate and fair
presentation of the PPE accounts in the financial statements.

E. Summary of Other Significant Audit Observations and Recommendations

The other significant observations and recommendations that need immediate

action are as follows:

1. The existence and accuracy of the reported inventories aggregating to ₱678,727.80

as at year-end could not be established due to (a) non-maintenance of basic inventory
records and reports; (b) recording of procured supplies and materials outright as Expenses;
and (c) inappropriate recording of Welfare Goods and Medical Supplies to Other
Maintenance and Operating Expenses amounting to ₱1,908,005.64 contrary to the
pertinent provisions of the Manual on the New Government Accounting System (MNGAS)
for Local Government Units (LGUs), Volume 1, Commission on Audit (COA) Circular
No. 2015-009 dated December 1, 2015 and International Public Sector Accounting
Standard (IPSAS) No. 2. (Observation No. 1)

We recommended that the Local Chief Executive instruct the:

a. Municipal Accountant to (i) maintain SLCs for each commodity/stock; (ii) record
all procurement of inventory supplies in the books of accounts using the Perpetual
Inventory System; (iii) draw the necessary journal entries to recognize the

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 expenditures based on the SSMI; and (iv) be more vigilant to ensure that issued
supplies and materials were recorded to appropriate expense accounts; and

b. Municipal Treasurer to (i) maintain stock cards for each item of inventory; (ii)
regularly reconcile the stock cards with the SLCs of the Accounting Office; (iii)
report the issuances of supplies thru the SSMI which shall be the basis of the
Municipal Accountant in recording to appropriate Expenses accounts; and (iv)
conduct physical count of stocks of all supplies and materials and submit relative
reports to the Office of the Auditor and other offices concerned on a semi-annual
basis.

2. The Municipality duly received, properly recorded in the books and distributed to
2,340 beneficiaries the fund transfer for the 1st tranche of Emergency Subsidy Program
(ESP) amounting to ₱15,210,000.00 and had substantially complied with the deadlines of
submission of liquidation reports to the Source Agency. However, the Office of the
Municipal Social Welfare and Development (MSWD) failed to fully comply with the
pertinent provisions of the Department of Social Welfare and Development (DSWD)
Memorandum Circular (MC) No. 2020-09 in the implementation of ESP as manifested by
(a) absence of adequate documentations; (b) inconsistencies of information indicated in the
payrolls, IDs, pictures, SAC forms and master list of beneficiaries; and (c) unfavorable
results of confirmation, thus, hindered the Audit Team from conducting extensive
evaluation of the eligibility of beneficiaries. (Observation No. 3)

We recommended that the LCE instruct the:

a. Municipal Accountant, in coordination with the MSWDO, to (i) submit the

accomplished SAC Forms, printed copy of properly labeled pictures of the
beneficiaries during actual receipt of the assistance and valid IDs of SAP-ESP
recipients in Barangay Maloma and Sto. Niño; and (ii) ensure that all disbursement
vouchers are properly supported with complete documentation before making any
payment; and

b. MSWDO to submit written explanation on the (i) inconsistencies observed in the

submitted paid payrolls, photocopy of IDs, pictures during actual receipt of
assistance, accomplished SAC forms and Master List of Beneficiaries; and (ii)
deficiencies noted as a result of confirmation by the Audit Team such as non-
payment of one beneficiary, inclusion of beneficiaries whose family member is also
recipient of 4Ps and received similar financial assistance.

3. The Municipality granted COVID-19 Special Risk Allowance (SRA) to Municipal

officials and employees beyond the maximum amount prescribed under Administrative
Order (AO) No. 28 dated April 6, 2020 and DBM Budget Circular (BC) No. 2020-2 dated
April 7, 2020 resulting to overpayment totaling to ₱33,813.38. Moreover, the absence of
complete documentation casted doubt on the validity and legality of the claim contrary to
Section 4(6) of PD No. 1445. (Observation No. 4)

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We recommended that the Local Chief Executive:

a. advise the Human Resource Management Office to submit, if any, the required
order authorizing the employees to physically report for work during ECQ;

b. instruct the Municipal Accountant to submit the DTRs, Accomplishment Reports

of the aforementioned employees and proof that the RHU personnel directly catered
or in contact with COVID 19 patients, persons under investigation and persons
under monitoring; and

c. require the employee to refund the excess amount claimed totaling to ₱33,813.38.

4. The Municipality has not fully complied with the rules and regulations on the
planning, utilization and reporting of the Local Disaster Risk Reduction and Management
Fund (LDRRMF) as demonstrated by (a) unimplemented PPAs under Disaster Prevention
and Mitigation and Disaster Preparedness; (b) unplanned Local Disaster Risk Reduction
Management Fund under Special Trust Fund (STF); (c) partial compliance with mandatory
requirements and non-compliance with reporting requirements; and (d) weak internal
control over relief goods during COVID-19 pandemic; thus, the desired goals and
objectives of reducing disaster risk and enhancing disaster preparedness, prevention and
mitigation capabilities may not be optimally achieved by the LGU contrary to RA No.
10121, COA Circular Nos. 2012-002 and 2014-002, GPPB Circular No. 01-2020 and P.D.
No. 1445. (Observation No. 7)

We recommended that the Local Chief Executive:

a. direct the LDRRM Officer to (i) strive for the timely and full implementation of
LDRRM-related PPAs to achieve the goals and objective of the fund and the desired
benefits; (ii) include in the LDRRMFIP the list of programs, projects and activities
to be undertaken out of the unexpended LDRRMF of previous years; and (iii)
furnish the Office of the Auditor with Report on Sources and Utilization of DRRMF
in the required format through the LDRRMC and Local Development Council on
or before the 15th day after the end of each month;

b. consider the hiring of additional staff for LDRRM Office to comply with the
required three (3) technical staff responsible for administration and training;
research and planning; and operations and warning;

c. instruct the Municipal Accountant and BAC to (i) submit the aforementioned
required documents immediately to the Office of the Auditor for proper/further
evaluation of the transactions pursuant to Sections 4(5) and 4(6) of PD No. 1445;
(ii) perform a thorough review of all disbursement claims to ensure that these are
properly supported with complete documentation and proper approval by
authorized officials/representatives; and (iii) comply with the required posting
requirements of GPPB Circular 2020-001 for information purposes; and

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 d. require the Property Officer to diligently prepare/maintain inventory records such
as SCs and PCs, Monthly RSMI, RIS and Inventory List of all procured and donated
items and coordinate with the Accounting Office for the periodic reconciliation of
both inventory records.

Our observations and recommendations were discussed with the concerned

management officials and staffs of the Municipality. Their comments were incorporated in
the report, where appropriate.

F. Summary of Total Audit Suspensions, Disallowances and Charges

The summary of the total audit suspensions, disallowances, and charges as of year-
end is provided below; to wit:

Beginning This Period Settlement Ending

Balance (As of (January 1 to this Period Balance (As of
December 31, December 31, (January 1 to December 31,
2019) 2020) December 31, 2020)
2020)
NS/ ND/ NC NSSDC
Notice of ₱2,673,660.71 ₱8,206,740.13 ₱ 0.00 ₱10,880,400.84
Suspension
Notice of 43,953.13 0.00 43,953.13 0.00
Disallowance
Notice of Charge 0.00 0.00 0.00 0.00

Total ₱2,717,613.84 ₱8,206,740.13 ₱43,953.13 ₱10,880,400.84

G. Status of Implementation of Prior Years’ Unimplemented Audit

Recommendations

Out of the 58 unimplemented recommendations contained in the previous years’

Annual Audit Reports (AARs), 19 or 32.76% were fully implemented, 28 or 48.28% were
partially implemented and 11 or 18.96% were not implemented at all.