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DETAILED AUDIT FINDINGS AND RECOMMENDATIONS

Financial and Compliance Audit 1.0 Deficiencies noted in the audit of Property and Equipment (PPE) accounts

1.1 Non-compliance with the prescribed policies and procedures in the recording, reporting and maintenance of records for PPE account.

In order to meet and satisfy the standard requirements for an efficient and effective property and supply management, the Office of the City Administrator, thru the Acting City Administrator, issued Office Order No. 345-12A dated November 5, 2012, reconstituting the Inventory Section under the Supply and Management Division and designating certain General Services Office employees as Inventory Team and authorizing them to conduct periodic inventory of supplies, property, plant and equipment. While the Report of Physical Count of PPE (RPCPPE) was prepared at the end of the year by the Inventory Team, the validity and accuracy of the PPE accounts presented in the financial statements could not be determined due to the following:

a. Unreconciled variance of P36.714 million between the RPCPPE and

accounting records for the PPE account.

Our review of the accounting and property records of the PPE of the City disclosed a net variance of P36,714,174.16 between the result of the physical inventory count amounting to P3,626,036,998.95, and the recorded PPE of the City amounting to P3,662,751,173.11 as at December 31, 2012. We also noted that the inventory items in the RPCPPE were not presented in accordance with their proper account classifications. Despite the use of the Property Management System developed by the GSO to facilitate the centralized recording of all property of the City and the adoption of the Accounting Office of the electronic New Government Accounting System (eNGAS), which facilitates the recording of PPE accounts, the Inventory Team was not able to reconcile the results of inventory count with the property and accounting records, contrary to the following provision of Section C.3, Chapter V of the Manual on Property Custodianship:

“After the physical inventory taking, the Inventory Committee shall reconcile the results of the count with the property and accounting records. The inventory listing of the supplies and materials shall be checked against the stockcards maintained by the Accounting and finally against the control accounts. On the other hand, the inventory listing of the equipment shall be checked with the property card maintained by the Property as against the equipment ledger cards maintained by the Accounting and total therefore shall be compared with those in the general ledger.”

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The non-reconciliation of the inventory count with the property and accounting records rendered the PPE account balances as of December 31, 2012 unreliable.

b. PPE totalling P692.857 million recognized in the books of accounts

under account Reconciling Items.

Verification of the accounting records disclosed that P692,856,824.40 worth of various property, plant and equipment were recorded under account Reconciling Items, which is not in conformity with the provision of Section 111 of P.D. 1445 which states that:

“The accounts of an agency shall be kept in such detail as is necessary to meet the needs of the agency and at the same time be adequate to furnish the information needed by fiscal or control agencies of the government.”

Interview with a personnel of the Accounting Office disclosed that way back 2004, these reconciling items were not recorded in their proper PPE classification due to the absence of PPE Ledger Cards, thus, their breakdown cannot be determined . The presence of these reconciling items of various PPE accounts enumerated in Table 1 contributed to the cause of the non-reconciliation of the RPCPPE and the accounting records. Table 1: Reconciling items per PPE category with corresponding

accumulated depreciation

Particulars Acquisition Cost Accumulated

Depreciation as of Dec. 31, 2012

General Fund Land 268,371,312 0.00 Land Improvements 225,105,056 0.00 Office Buildings 116,034,657 0.00 School Buildings 5,475,119 0.00 Market and Slaughterhouse 6,712,410 0.00 Other Structures 14,253,501 0.00 Office Equipment 3,281,764 0.00 Watercrafts 1,095,303 0.00

Total 640,329,122 0.00

Special Education Fund School Buildings 6,071,369 0.00 Other Structures 849,363 0.00 Office Equipment 271,835 0.00 IT Equipment and Software 92,240 0.00 Other Machineries and Equipment 267,252 0.00 Other Transportation Equipment 478,000 0.00 Other Property, Plant and Equipment 14,602,726 1,683.00 Construction in Progress-Other Public Infrastructure 29,894,917 0.00

Total 52,527,702 1,683.00

Totals 692,856,824 1,683.00

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The accumulated depreciation amounting to P1,683.00 as of December 31, 2012 for the above PPE categories are understated since the reconciling items, which are part of the PPE, were not depreciated since 2004 for the reason that their details cannot be identified. The net book value of these PPE accounts is overstated due to the unapplied amount of depreciation. The yearly income and depreciation expense is likewise overstated and understated, respectively.

c. Basis of valuation of Buildings and Land not uniformly applied by the

GSO and Accounting Office

The basis of costing of the GSO for buildings and land is the Fair Market Value (FMV) per tax declaration of property while the basis of the Accounting Office is the acquisition cost. We noted a discrepancy of P92,868,703.00 between the RPCPPE and accounting records for the sampled buildings detailed in Table 2: Table 2: Comparison of value of properties between RPCPPE and

accounting records.

Description Per Accounting

Records Per RPCPPE Difference

Office Building: Marikina Hotel Bldg – Concepcion II 65,881,847 65,684,047 197,800 School Building City Schools – Three Storey building, Nangka 30,709,318 30,559,318 150,000 City Schools – Three Storey building, Sta. Elena – Dep-Ed Building 18,816,387 33,761,896 (14,945,509) Three Storey School Building, Marikina High School, Concepcion I 7,915,050 4,666,500 3,248,550 Three Storey School Building, Concepcion High School 6,804,378 63,796,685 (56,992,307)

Sub-total 130,126,980 198,468,446 (68,341,466)

Markets Markets 85,198,742 (224,250) Three Storey Public Market, Sta. Elena 27,720,000 Sto. Nino - Market Mall 14,521,092 Sta. Elena - Market Mall @ P Dela Paz St. 19,757,994 Sta. Elena - Market Mall @ Kapt. Venciong 3,344,587 Sta. Elena - Market Mall @ E. Jacinto St., 1,097,087 Sta. Elena - Wet & Dry Section of Marikina Public Market 500,000 Sta. Elena - Market Mall @ M. Cruz St., Sto. Niño and Sta. Elena, Marikina City 12,270,471 Sta. Elena - Market Mall @ Villalon St., Sto. Niño and Sta. Elena, Marikina City 5,285,361 Sta. Elena - Function Hall Phase I @ 3rd Flr. of Market Mall 477,900

Sub-total 84,974,491 85,198,742 (224,250)

Other Structures DOJ Building 58,562,718 68,351,854 (9,789,136) One Storey Gym Building, Marikina Sports Center 7,755,600 22,269,451 (14,513,851)

Sub-total 66,318,318 90,621,305 (24,302,987)

Total 281,419,789 374,288,493 (92,868,703)

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Inquiry conducted disclosed that the GSO relied on the FMV of properties per tax declaration since they were not furnished with copies of the documents for the acquisition, renovation, major repairs/rehabilitation of buildings, as well as the acquisition of land and land improvements. The differing basis of valuation of properties and the lack of coordination between the Offices of the City also contributed to the causes of discrepancies and to the non-reconciliation of their records.

d. Tangible assets worth P.965 million with estimated serviceable life of

more than one year but small enough to be considered as PPE were classified in the books of accounts as PPE.

COA Circular No. 2005-002 dated April 14, 2005, provides the list of small tangible assets with corresponding estimated useful life which shall be recorded as inventories upon acquisition and expense upon issuance. Our audit revealed that several tangible assets totalling P965,438.75 detailed in Table 3, with estimated serviceable life of more than one year but small enough to be considered as PPE, were included in the inventory report and still classified in the books of accounts as PPE instead of the inventory/expense account. Table 3: Tangible assets with serviceable life of more than one year but

small enough to be considered as PPE

PPE Account

Total

Acquisition Cost

Inventory classification

Office supplies

Dental & laboratory supplies

Police supplies

Other supplies

Other inventory

items

Hardware & construction

supplies

Monoblock furniture

General Fund

Office Equipment 75,940.00 72,600.00 - - 470.00 - 2,870.00 - Furniture and Fixtures 630,999.96 - - - 630,999.96 IT Equipment & Software 159,223.29 159,223.29 Medical, Dental & Laboratory Equipt 4,462.50 4,462.50 Military and Police Equipment 3,900.00 - - 3,900.00 - - - -

Other PPE 73,184.00 - 1,600.00 - - 40,360.00 31,224.00 -

Total 947,709.75 72,600.00 6,062.50 3,900.00 159,693.29 40,360.00 34,094.00 630,999.96

Special Education Fund IT Equipment and Software

16,309.00

16,309.00

Other PPE 1,420.00 1,420.00

Total 17,729.00 - - - 16,309.00 1,420.00 - -

Totals 965,438.75 72,600.00 6,062.50 3,900.00 176,002.29 41,780.00 34,094.00 630,999.96

The non-reclassification to the correct account of the said items overstated the PPE account by the net book value of these items worth P965,438.75 and understated the Government Equity account by the same amount.

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We have recommended that Management: a. prioritize the reconciliation of the results of the inventory count with the

property and accounting records; b. continuously analyze the reconciling items in the PPE account and

accordingly prepare correcting journal entries to reflect the correct balances of the affected accounts;

c. adopt a uniform valuation of properties in the GSO and the Accounting

records. The basis of valuation should be the cost of acquisition, renovation, improvement, and major repairs of buildings; and cost of acquisition of land and land improvements. Likewise, the Accounting Office furnish the GSO the documents needed to update their records; and

d. reclassify to proper Inventory account tangible assets with estimated

useful life of more than one year but small enough to be considered and recorded as PPE. An Inventory Custodian Slip (ICS) shall be prepared upon issuance of small tangible items for monitoring, control and accountability.

Management commented that a continuous reconciliation is being done by the inventory team of GSO and Accounting Office regarding PPE to identify the cause of the discrepancy. The inventory team will again look into the reconciling items PPE account and see if there are still properties found existing which are not yet classified to their proper account. Management further commented that the acquisition cost will be used by the GSO for the valuation of land and building. With respect to the valuation of other real properties which were donated, the same shall be subjected to appraisal to determine the cost. The reclassification of the tangible assets will also be effected upon verification of the account. Necessary adjustments will be made by the GSO and Accounting Office.

1.2 Various Construction-in-Progress accounts totalling P98.923 million remained dormant for at least 2 years The New Government Accounting System defines Construction-in-Progress (CIP) account as the cost or accumulated value of the assets that are still under construction. Hence, projects that are not yet completed at the end of the period are reported in the books of accounts as CIP. As soon as the project is completed, the CIP for agency assets is closed to the appropriate asset account and for public infrastructures funded out of regular income, the CIP is transferred to the Public Infrastructures account which is closed to the Government Equity at the end of the year.

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Analysis of the CIP accounts showed that various projects totalling P98,922,813 had remained dormant since 2009 and 2010. Construction of some of these projects started three (3) years ago as shown in Table 4.

Table 4: Dormant Construction in Progress accounts

Sub-account Amount Year

Started Dormant

since Agency asset 67,693,087 2005-2010 2009-2010 Roads, highways & bridges 15,537,651 2004-2010 2004-2010 Irrigation, canals and laterals 15,692,075 2004-2010 2009-2010 Total 98,922,813

The absence of monitoring on the completion of these projects and the non-submission by the City Engineering Office to the Accounting Office of the documents needed in updating the status of completion caused the non-transfer of these projects from the Construction-in-Progress accounts to the affected PPE accounts and Registry of Public Infrastructures, as the case may be. This resulted in the understatement of the affected PPE and their corresponding accumulated depreciation accounts, and Registry for Public Infrastructures, while overstating the CIP and Government Equity accounts. We have recommended and Management concurred that the status of completion of these projects be verified to reflect the correct balances of the affected accounts. Likewise, the City Engineering Office is to provide the Accounting Office with copies of the report on completed projects and conduct periodic monitoring to validate the completeness of the above-subject properties.

2. Deficiencies noted in the audit of Income accounts

2.1 Inaccurate recording of collections

Under the Conceptual Framework for Financial Reporting as to qualitative characteristics of financial statements, all financial data presented shall be both relevant and faithfully represented. It shall include the ingredients of a faithful representation which pertain to the attributes of a complete and free from error financial information. For CY 2012, the total income reflected in the books of the City amounted to P1,562.007,832.90. We noted that the City records its income on a monthly basis net of the 5 per cent contribution earmarked for MMDA instead of the gross amount. As shown in Table 5, the amount of P37,724,712.63 represents the total deductions from the income accounts for the 5 per cent contribution to MMDA which is recorded in the Due to Other NGAs account.

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Table 5: Gross income collected in CY 2012- General Fund

Income Classification Per Audit Per Books Understatement

Local Taxes 795,608,677.70 763,611,863.70 31,996,814.00 Permits and Licenses

15,702,296.84 14,854,789.35 847,507.49

Service Income 88,333,593.51 84,136,238.71 4,197,354.80 Business Income 103,913,605.29 103,729,973.09 183,632.20 Other Income 596,174,372.19 595,674,968.05 499,404.14

Total 1,599,732,545.53 1,562,007,832.90 37,724,712.63

The practice of recording income net of MMDA contribution is incorrect which resulted in understated income as of December 31, 2012 by P37,724,712.63. We have recommended that the Accounting Office effect the necessary correcting entries and record the income at gross amount to effect accurate and reliable financial data. Management agreed that recording of income will be at gross.

2.2 Non-declaration of correct gross sales/receipts of taxpayers as bases for computation of Business Taxes.

Section 23, Chapter 3 of the 1995 Revenue Code of Marikina City states that:

“a. Any person who shall establish, operate or conduct any business,

trade or activity mentioned in the Code shall first obtain the necessary permit from the Business Permits and Licensing Office and shall pay the corresponding tax imposed in the Code. Xxx

b. Any person engaged in a business shall within the first twenty (20)

days of January of each year submit a sworn statement of his gross sales and/or receipts for the preceding calendar year. xxx”

Comparison between the actual payments made by the City to the 174 sampled suppliers/contractors that have transacted with the City in 2012, against the amount of gross sales/receipts declared by them revealed that the declared gross sales/receipts of 46 of these suppliers/contractors were found in order because they were in the Master list of Business Establishments for 2012 with proportionately high declared gross receipts from the previous year. The remaining 128 suppliers/contractors have zero or low gross receipts declared which resulted in the none/under payment of business taxes, as shown in Table 6.

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Table 6: Sales with No Business Tax Paid/Under Paid Business Tax categorized

per type of business

Type of Business No. of

suppliers Payments made

by the City

Declared Gross

Receipts/ Sales

Sales with No Business Tax

Paid

Sales with UnderPaid

Business Tax

Pharmaceutical 21 2,364,648 0 2,364,648 Retailer 56 18,713,021 3,045,000 8,228,605 7,439,416 Caterer/Eatery 11 4,530,632 1,752,166 1,038,107 1,740,359 Franchise 4 202,980 0 202,980 - Services 33 10,273,149 180,000 10,030,063 63,086 Contractor-Building 3 4,286,644 350,000 3,593,582 343,062

Total 128 40,371,074 5,327,166 25,457,985 9,585,923

Of the 128 suppliers/contractors, 118 did not declare their gross receipts while the remaining ten had declared low gross receipts from the payments made to them by the City. Accordingly, those who did not pay their business taxes have no business permits issued by the City for CY 2012. We also noted that despite having no business permits for CY 2012, the City still engaged or contracted the services or procured materials from these suppliers/contractors notwithstanding whether their businesses were located within or outside the City. The non-payment of business taxes and regulatory fees by suppliers/contractors conducting business with Marikina City is not in accordance with its Revenue Code. There is no assurance that these businesses without permits were regulated and controlled by the Office of the City Mayor. Also, these unpaid business taxes understated the City’s revenue that could have been used to finance more city projects. We have recommended that the City Treasurer enforce the collection of the underpayment of business taxes for the year from these suppliers/contractors including penalties and surcharges, if applicable, pursuant to the rates provided in the City’s Revenue Ordinance. Likewise, implement the review and examination of books of accounts and records of businesses operating in the City as provided for in Section 213 of the City’s Revenue Code. We also enjoined the Chief, BPLO to conduct a thorough tax mapping of all businesses operating in the City and to request from the City Accountant and City Treasurer for a List of Payments made by the City to suppliers/contractors as basis in the assessment of business taxes. Management replied that they will ensure that all contractors and suppliers will be required to pay the obligatory business tax. A close coordination between the Accounting and Treasury Offices will be required.

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3.0 Utilization of Priority Development Assistance Fund (PDAF)

National Budget Circular No. 537 dated February 20, 2012 prescribes the guidelines on the release of funds chargeable against PDAF for FY 2012. The PDAF shall be used to fund priority development programs and projects identified by the Members of Congress from the PDAF project menu in accordance with the said Circular. The receipt of PDAF allocation is taken up in the books as Due to Other NGAs under the Trust Fund with a balance of P27,358,912.95 as of December 31, 2012. We noted the following in the audit of PDAF funds:

3.1 PDAF not fully implemented and/or utilized

Various PDAF extended to the City from 2009 to 2012 with a balance of P9,637,562.02 as of year-end were not fully implemented or utilized for the programs/projects it was intended. The allocation for various intended programs/projects not fully implemented and/or utilized ranges P3,685.44 to P2,278,676.97.

3.2 Unutilized and/or unimplemented PDAF

We also noted that the City of Marikina was not able to implement/utilize at all various PDAF totalling P17,593,155.17 which were granted in 2009 to 2012. Of the P17,593,155.17, project proponents for PDAF granted in 2009 in the total amount of P112,603.99 could no longer be identified. The unimplemented programs/projects initiated by various proponents for the PDAF ranges in the amounts from P12,603.99 to P3,200,000.

More programs/projects could have been extended to the constituents of Marikina City had the PDAF been fully utilized and used as intended.

3.3 Utilization of the fund does not conform with its intended purpose.

We noted that fund releases were covered with Special Allotment Release Orders (SAROs). Review of SAROs revealed that the intended purposes of PDAF were clearly stated as follows: a. Assistance to indigents and displaced families b. Sports development program c. Scholarship program However, verification of expenses charged to PDAF disclosed that some were not among the stated purpose for the PDAF, such as printing of various tarpaulins for various activities, financial assistance for employees of national office, purchase of battery pack and charger, reimbursement of expenses for supplies for various activities, printing of t-shirts, purchase of trophies, various appliances for Christmas gifts to various communities and various services rendered for Christmas party of various organizations in the total amount of P3,759,242.67.

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We have recommended that for those PDAF received with no available data as to the purpose, the specific purpose be inquired from the proponent legislator or from DBM as basis for their implementation. We have also recommended that Management ensure and monitor the proper utilization of PDAF releases to implement the priority programs and projects in accordance with the covering SARO. Further, we have reiterated our previous year’s recommendation that Management utilize fully the PDAF granted to the City, otherwise, if the purpose of a certain PDAF is completed or is no longer needed, the City may request for realignment with the concurrence of the proponent legislator as provided for

under National Budget Circular No. 537 dated February 20, 2012. Management replied that they are compliant to the guidelines, and will continue to comply. Contrary to the allegation that some of the expenses incurred and charged to the PDAF were not among the purposes intended for the PDAF, the fact is that all the expenses identified in the audit fall under the purposes of the PDAF. Our rejoinder: The noted expenses do not conform to the intended purpose of PDAF releases stated in the SAROs.

4.0 Implementation of projects under the 20% Development Fund

4.1 Projects programmed for implementation under the City’s Local Development Plan (LDP) not initiated by the Local Development Council (LDC)

Section 106 of RA 7160 provides that each local government unit shall have a comprehensive multi-sectoral development plan to be initiated by its development council and approved by its sanggunian. For this purpose, the development council at the provincial, city, municipal, or barangay level, shall assist the corresponding sanggunian in setting the direction of economic and social development, and in coordinating development efforts within its territorial jurisdiction. Section 107 (b) of the same Act provides the composition of Local Development Councils, as follows:

“The city or municipal development council shall be headed by the mayor and shall be composed of the following members: 1. All punong barangays in the city or municipality; 2. The chairman of the committee on appropriations of the

sangguniang panlungsod or sanggunian bayan concerned;

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3. The congressman or his representative; and 4. Representatives of non-governmental organizations operating in

the city or municipality, as the case may be, who shall constitute not less than one-fourth (1/4) of the members of the fully organized council.”

Our verification, however, showed that the members of the LDC, who also compose the City Development Council (CDC) Executive Committee, is not in accordance with the above-cited provision of RA 7160. The composition of which are the City Mayor, Executive Assistant, DILG Director, Budget Officer, Former City Engineer, General Services Officer, City Treasurer, City Planning Officer and the City Accountant. There are also no available documents that would show that the Development Plan was initiated by the LDC and approved by the Sangguniang Panlungsod. As a result, the body that formulated the projects funded out of the 20% Development Fund do not represent the different sectors outlined in RA 7160.

4.2 Partial and non-compliant programmed projects

The City’s Local Development Plan for CY 2012 approved by the CDC Executive Committee under Resolution No. 01 dated February 9, 2012 shows the different projects programmed for implementation under the 20% Development Fund’s current year’s budget and continuing appropriations available for reprogramming in the amount of P109,925,687.20 and P27,372,062.29, respectively, or a total appropriation of P137,297,749.49. Section 3 of DILG and DBM Joint Memorandum Circular (JMC) No. 2011-1 dated April 13, 2011 specifically enumerates the different development projects which may be funded out of the 20% development fund, categorized namely as social, economic and environmental development. Out of the total appropriations of P137,297,749.49, projects amounting to P12,000,000 (8.74%) and P96,760,000 (70.47%)showed partial and non-compliance, respectively, with the above-cited JMC. The P12,000,000 partial compliance refers to the program for rehabilitation and repair of City Health Centers which is compliant with the said JMC. However, most of the projects under the programs listed in the City’s Local Development Plan for 2012 shown in Table 7 do not fall among the priority projects categorized per said JMC.

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Table 7: Compliance of projects funded from the 20% Development Fund to DILG-DBM JMC No. 2011-1.

DILG-DBM Joint

Memorandum Circular No. 2011-1

Local Development Plan for 2012

Full

Partial

Non-

Programs Amount Compliance Compliance Compliance

1. Kalusugan P 33,000,000 P 2,000,000 P12,000,000 P19,000,000 2. Kapayapaan 5,760,000 0 0 5,760,000 3. Kaayusan 46,537,749 26,537,749 0 20,000,000 4. Kabuhayan 36,000,000 0 0 36,000,000 5. Kalikasan 16,000,000 0 0 16,000,000 Total P137,297,749 P28,537,749 P12,000,000 P96,760,000

Equivalent % 100.00% 20.79% 8.74% 70.47%

Moreover, out of the total projects of P42,562,831.44 implemented as of December 31, 2012, P38,727,524.33 or 90.99% represents the amount utilized for projects which are not in accordance with the above-cited Circular, like office supplies, construction and heavy equipment, printing and binding expenses, training expenses and repairs and maintenance and others. The improper utilization of the said 20% Development Fund resulted in the non-achievement of the purpose for which the said Fund was established to the disadvantage of the intended beneficiaries.

4.3 20% Development Fund not optimally utilized

The responsibility of the local chief executive cited in Section 5.0 of DILG-DBM JMC No. 2011-1 dated April 13, 2011, states that:

“It is the responsibility of every Provincial Governor, City and Municipal Mayor and Punong Barangay to ensure that the 20% of the IRA is optimally utilized to help achieve desirable socio-economic development and environmental outcomes. xxx. Further, all concerned local chief executives are hereby reminded that utilizing such fund, whether willfully or through negligence, for any purpose beyond those expressly prescribed by law or public policy shall be subject to the sanctions provided under the Local Government Code and under such other applicable laws.” (Emphasis ours)

For CY 2012, the different projects programmed for implementation under the 20% Development Fund is from the current year’s budget and continuing appropriations available for reprogramming in the amount of P109,925,687.20 and P27,372,062.29, respectively, or a total of P137,297,749.49. However, notwithstanding the result discussed under the above finding no. 5.2, on the improper utilization of the said Fund, it was noted that only P42,562,831.44 or 31% was utilized during the year thereby leaving a balance of P94,734,918.05 or 69%, which remained unutilized at the end of the year. Due to the failure of the City to fully implement its projects for the 20% Development Plan, its constituents were deprived of the vital services and benefits due them had the same been fully and properly implemented.

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4.4 Non-compliance with the proposed Annual Investment Plan (AIP) Form

prescribed by DBM.

Section 3.1.2 of the Local Budget Circular (LBC) No. 70 dated March 14, 2000, issued by DBM states that:

“The AIP shall be prepared by using AIP Form No. 1 and shall be submitted to the Sanggunian for approval.”

Review of the AIP for CY 2012 of the City showed that the AIP form used is not the prescribed form and was prepared by the officers, whose offices are apparently involved with the activities and projects, instead of by the City Planning and Budget Officers. This does not conform to the above-cited LBC. As required under said LBC, the Planning and Budget Officers are authorized to prepare the AIP as one of the duties provided under Republic Act No. 7160 for the former is to integrate and coordinate all sectoral plans and studies undertaken by the different functional groups or agencies while the latter is to coordinate with the planning and development coordinator in the formulation of the local government unit development plan. As a result, the information required in the prescribed AIP was not completely presented. The programs, activities and projects with their brief description were not clearly given and the current year quarterly cost requirement was not specified. Also, the preparing officers may not be able to provide the accurate and complete information in identifying the programs, activities and projects of the City to be funded out of the 20% Development Fund. We have recommended that Management: 1. prepare a comprehensive multi-sectoral development plan that shall be

initiated by the Local Development Council and its composition shall be in accordance with Section 107 (b) of RA 7160. Said plan shall be approved by the Sangguniang Panlungsod;

2. allocate the 20% Development Fund for development projects that shall

contribute to the attainment of desirable socio-economic development and environmental management outcomes and shall partake the nature of investment or capital expenditures. Said Fund shall be utilized to finance the priority development projects and programs, as embodied in the duly approved local development plan that directly support the Philippine Development Plan, the Medium-Term Public Investment Program and the Annual Investment Program;

3. maximize the utilization of the 20% Development Fund allocated for the

implementation of various projects, programs and activities that are envisioned to help in the attainment of social, economic and environmental development and optimally utilize the 20% Development Fund to help achieve desirable socio-economic development and environmental outcomes; and

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4. prepare the AIP using the form prescribed by DBM under Section 3.1.2 of

Local Budget Circular No. 70 dated March 14, 2000, and shall be prepared by the Planning and Budget Officers.

Management agreed to undertake the following courses of actions: a. The newly completed Comprehensive Development Plan for the City will be

submitted to the City Council for its appropriate action; b. The allocation of the 20% Development Fund for 2012 will be reviewed to

ensure that it supports the AIP, and to justify the projects and programs included therein;

c. To transfer/adjust charging of transactions which are found to be non-

compliant and/or unjustifiable; and d. A supplemental budget will be prepared to provide appropriation in support of

the transfer/adjustment of funds. Our rejoinder: The preparation of a supplemental budget for the provision of an appropriation to support the transfer/adjustment of funds is no longer necessary. The appropriations for the 20% Development Fund were already provided in the Annual Budget for CY 2012 and its expenses already recognized in the books during the year. The necessary adjusting entries should, however, be effected.

5.0 Deficiencies noted in the audit of the 5% statutory contribution for the Metropolitan Manila Development Authority (MMDA)

5.1 The amount appropriated for 5% MMDA contribution was short by P8.225

million

Section 10 of RA 7924, otherwise known as An Act Creating the Metropolitan Manila Development Authority, states that:

“Five percent (5%) of the total annual gross revenue of the preceding year, net of the internal revenue allotment, of each local government unit mentioned in Section 2 hereof, shall accrue and become payable monthly to the MMDA by each city or municipality. xxx”

Review of the City Budget for CY 2012 showed that the above provision was not strictly complied with, hence, the amount appropriated for the 5% statutory contribution to MMDA was short by P8.225 million, computed as follows:

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Total Operating Income for CY 2011 P1,392,793,668

Add: Discount on Real Property Tax 132,812,695

Total Gross Revenue for CY 2011 P1,525,606,363

Less: IRA realized for CY 2011 577,071,771

Total Gross Revenue Net of IRA for CY 2011 P 948,534,592

Section 10 of RA 7924 5%

5% Subsidy to MMDA for CY 2012:

Per Audit P 47,426,730

Per Annual Budget 39,201,922

Short in Appropriation P 8,224,808

Although the five percent contribution to MMDA was already deducted by the DBM from the Internal Revenue Allotment of the City, the corresponding appropriation should be correctly applied to reflect the true budget and for the accurate allocation of the City’s resources.

5.2 Improper use of account Due to NGAs for the 5 percent MMDA contributions resulted in the overstatement of liabilities and understatement of expenses both by P45.864 million

COA Circular No. 2003-001 dated June 17, 2003 prescribing the Chart of Accounts under the New Government Accounting System described the Liability account Due to Other National Government Agencies (NGAs), with credit as its normal balance, as the amount received from other national government agencies for the implementation of specific programs/projects subject to liquidation. Also, the description provided by the same Circular to the Expense account Subsidy to National Government Agencies, with debit as its normal balance, was to record the amount transferred to NGAs pursuant to a provision of law, memorandum of agreement, etc. Our audit of the payments for the five per cent contributions to MMDA totalling P45,864,000.00 deducted by the DBM from the City’s IRA for CY 2012 showed that the same were treated by the City as a debit to Due to Other NGAs account upon collection of IRA shares. The account is credited based on the deduction from the City’s current year’s regular income computed proportionately on the five per cent monthly collection accruing to MMDA. The use of account Due to NGAs is improper as the above regulations provided the specific use of account Subsidy to NGAs. The practice resulted in the overstatement of liabilities and understatement of expenses both by P45.864 million.

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5.3 Unreconciled amount of P1.563 million for the account of MMDA deducted by DBM from IRA and appropriated amount

Section 10 of RA 7924 states that:

“xxx. In case of failure to remit the said fixed contribution, the DBM shall cause the disbursement of the same to MMDA chargeable against the IRA allotment of the city or municipality concerned, the provision of Section 286 of RA 7160 to the contrary notwithstanding.”

For CY 2012, total deductions made by DBM for the account of MMDA amounted to P45,864,000.00 while total appropriations per audit was computed at P47,426,730, as shown in finding no. 6.1. This is due to the inaccurate amount applied as basis in computing the five percent statutory contribution by MMDA/DBM hence, the difference of P1,562,730.00.

We have recommended that Management:

1. for Budget Year 2013, recompute the appropriation for the MMDA share to

ensure full compliance of RA 7924; 2. effect the necessary correcting entry and to take up the contributions to

MMDA as Subsidy to NGAs account as provided under COA Circular No. 2003-001 dated June 17, 2003;

3. close to PYA account/Government Equity account the adjusted balance of

P28,017,558.49 as of December 31, 2012 of the Due to Other NGAs subsidiary account for MMDA, after effecting the correcting entries recommended in finding no. 3.1 and 6.2; and

Particular Debit Credit

Balance as of Dec. 31, 2012 19,878,271.12 Correcting entries under- Finding No. 3.1 37,724,712.63 Finding No. 6.2 45,864,000.00

Adjusted Balance as of Dec. 31, 2012 28,017,558.49

4. reconcile total payments by the City with the books of accounts of MMDA.

Any unpaid balance should be appropriated and correspondingly remitted to MMDA.

Management replied that the proposed adjusting entries would result in totally closing Due to Other NGAs account as of December 31, 2012, whereas remittance to MMDA through IRA deduction is not being made on the actual month income is earned, the amount of P19,878,271.12 is the actual balance of Due to Other NGAS account and still due to MMDA as of December 2012. Monthly deduction from IRA, as remittance to MMDA, does not correspond to 5% of Income as MMDA share for that particular month, hence, every month there is still an amount due to them. If recommended adjusting entries will be reflected, this would mean understatement of liabilities (Due to Other NGAs account) as of December 31, 2012.

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Management decided not to reflect said adjustments for the reason that effecting the first two entries and reflecting the amount of P19,878,271.12 as remaining balance would result in zero adjustments to Prior Year Adjustments and Due to Other NGAs accounts. Nevertheless, in compliance to the recommendations, Management proposed the following entries for CY 2013 to ensure that all accounts are recorded in an accurate, reliable and truthful manner.

1. Set up of 5% share to MMDA (with OBR)

Subsidy to NGAs xxx Due to Other NGAs xxx

2. Upon receipt of NFCI from DBM

Due to Other NGAs xxx IRA xxx

Our rejoinder:

The credits to the liability account is based on the deduction from the City’s current regular income computed proportionately on the five percent monthly collection accruing to MMDA. A recomputation of the liability account balance should be made based on the actual income of the preceding year to determine the balance due as of December 31, 2012. There is a need to close the Due to Other NGAs account for the subsidiary account five percent MMDA because the contribution is considered as expense. Reflecting the proposed adjusting entries will not result in zero adjustments to PYA. It will show that after effecting the recommended adjusting entries, there will be an increase in the PYA account amounting to P19,878,271.12 which represents the following:

1. unrecorded income for CY 2012 totaling P37,724,712.63 due to the

inaccurate recording of collections;

2. unrecorded expense totaling P45,864,000.00 due to the improper use of the Due to Other NGAs account; and

3. unrecorded income of previous years, net of contribution to MMDA amounting

to P28,017,558.49. The liability account may no longer be taken up as the Obligation Request is prepared by the Budget Office once the Notice of Funding Checks Issued is received by the City. However, if Management opts to set up the liability for the said contribution, the appropriate account should be used, as the Due to Other NGAs does not apply to the said transaction.

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6.0 Audit of Overtime and Night Pay

DBM Budget Circular No. 10 dated March 29, 1996, was issued to prescribe and update the rules and regulations on the payment of authorized overtime services of government personnel. Section 4 of the Circular enumerates the government personnel who are exempted from payment of overtime services with pay and exempting among others “Other appointive officials whose equivalent rank is higher than a chief of division”. Section 8 thereof specifies the funding source of overtime which specifically states that “Agencies are hereby authorized to pay overtime services out from the following sources namely: The amounts specifically appropriated in the agency budget for overtime pay” (underscoring ours) We noted the following in our audit of the overtime and night pay of City officials and employees in CY 2012: 6.1 Officials not authorized to receive overtime pay

Payments of overtime services were granted to officials whose rank is higher than a chief of division such as the City Government Assistant Department Head (CGADH) and City Government Department Head (CGDH) or position with salary grade (SG) higher than SG 22. This practice is contrary to Section 4.1 of the aforecited Circular. The Manual on Position Classification and Compensation specifically provides the highest position below the rank of an assistant department head, which is SG 22. Hence, officials with SG higher than 22 are not entitled for overtime pay. During the year, overtime services totalled P4,776,180.94, of which P788,077.60 was paid to officials whose rank is higher than the chief of the division or higher than SG 22.

6.2 Incomplete supporting documents

The claims for payment of overtime services to personnel whose rank is below the chief of the division were not supported by overtime work program and quantified overtime accomplishment duly signed by the employee and supervisor. There were also cases wherein Daily Time Records were not attached to the Payroll.

6.3 Overtime Payment Without Appropriation

We noted that the amount of P2,390,275.96 was expended for overtime services in the absence of appropriation in the Annual Budget. The same were charged against the current appropriations for personal services and maintenance and other operating expenses (MOOE), particularly, Salaries and Wages-Casual/Contractual and Other MOOE, contrary to Section 8 of the aforecited Circular.

Overtime services with pay may be charged to savings if the following conditions provided in Section 8 of the same Circular have been met:

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“8.1.2 Savings from released allotments for current operating expenditures

subject to the following limitations:

8.1.2.1 All authorized mandatory expenses shall have been paid first; and

8.1.2.2 Total overtime payments in a given calendar year shall not exceed five percent (5%) if the total salaries authorized positions of the agency.”

We have recommended that Management:

1. stop the payment of overtime services to officials/employees of the City whose rank is higher than a chief of division without prejudice to the refund of the overtime pay given them;

2. attach the following documents to support the claims for overtime services with pay:

Overtime work program,

Quantified overtime accomplishment,

Duly signed and approved DTR/Proof of attendance or time logs

Authority to render overtime

3. refrain from paying authorized overtime services without appropriation; and

4. strictly comply with the rules and regulations on the payment of authorized overtime services of government personnel provided by DBM Budget Circular No. 10.

Management replied that while the persons mentioned in the audit observation are not entitled to overtime pay, considering that they are not covered by DBM Budget Circular No. 10 dated March 29, 1996, Management submits that the policy on overtime pay has certain exceptions in cases when unforeseen events and emergency situations will result in any of the following:

a. Cause financial loss to the government or its instrumentalities; b. Embarrass the government due to its inability to meet its commitments; or c. Negate the purposes for which the work or activity was conceived. (par.

2.0 sub.par. 2,1, Ibid) Management also commented that the overtime performed by the department heads and assistant department heads do not depart from the meaning of unnecessary expenditures as provided in COA Circular No. 2012-13 dated October 29, 2012. In fact, the work they performed beyond the regular working hours were dictated by the demands of good government in order to meet the mission and thrusts of the agency when, if not immediately acted upon, will either create financial loss or embarrassment to the City or to the City Mayor himself if his commitment will not be fulfilled or the programs of the City will fail.

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One justification is Executive Order No. 014, Series of 2012, creating the Shoe Festival Committee where the department heads concerned worked beyond the regular office hours in order to complete the project within a specific time. In sum, the department heads performed their duties beyond the regular working hours in good faith and in the exigency of service, hence, are entitled to overtime pay if not for services they have rendered which redound to the advantage and benefit of the City Government. Our rejoinder:

The exemptions presented by Management are the exemptions to the general rule of the policy on overtime prescribed in the DBM Circular, which states,

“Overtime work should be avoided by adequate planning of work activities. It should not be resorted to in the performance of regular routine work and activities. xxx”.

The said Circular on prescribing and updating the guidelines and procedures on the rendition of overtime services with pay to government personnel does not cover the subject officials. In fact, they were explicitly enumerated in 4.1 of the Circular as those government personnel who are not covered by the policy, thus, we have reiterated our recommendation that Management stop the payment of overtime services to officials/employees of the City whose rank is higher than a chief of division without prejudice to the refund of the overtime pay received by them.

7.0 Inappropriate funding and incomplete documentation for payment of Honoraria to Members of Bids and Awards Committee (BAC), BAC Secretariat and Technical Working Group (TWG)

Section 15 of the Implementing Rules and Regulations (IRR) of R.A 9184 states that, “The procuring entity may grant payment of honoraria to the BAC members in an amount not to exceed twenty five percent (25%) of their respective basic monthly salary subject to availability of funds. For this purpose, the DBM shall promulgate the necessary guidelines. The procuring entity may also grant payment of honoraria to the BAC Secretariat and the TWG members, subject to the relevant rules of the DBM.” As mandated by the above-cited law, DBM Budget Circular No. 2007-3 dated November 29, 2007, was promulgated to provide guidelines on the grant of honoraria and overtime pay to government personnel involved in the government procurement, particularly, Section 3 of the said Circular, provides that:

“3.1 The amount necessary for payment of honoraria and overtime pay

authorized under BC No. 2004-5A dated October 7, 2005 shall be sourced from the following:

3.1.1 Collections from successfully completed procurement projects limited, however, to activities prior to awarding of contracts to winning bidders: Proceeds from sale of bid documents; Fees from contractor/supplier registry; Fees charged for copies of

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minutes of bid openings, BAC resolutions and other BAC documents; Protest fees; and Proceeds from bid security forfeiture.

x x x 3.1.4 In the case of LGUs, savings from the local budget approved

by their respective Sanggunian subject to the pertinent provisions of R.A 7160 (Local Government Code of 1991).

3.2 Savings refer to portions or balances of agencies’ budgets as referred to in items 3.1.2, 3.1.3 and 3.1.4 above, free from any obligation or encumbrance which are:

3.2.1 Still available after the completion or final discontinuance or abandonment of the work, activity or purpose for which the appropriation is authorized;

3.2.2 Arising from unpaid compensation and related costs pertaining to vacant positions and leaves of absences without pay; and

3.2.3 Realized from the implementation of collective negotiation agreements which resulted in improved systems and efficiencies and thus enabled an agency to meet and deliver the required or planned targets, programs and services at lesser cost.

3.3 In the use of savings, priority shall be given to augmentation of the amount set aside for mandatory expenditure items provided under the General provisions of the General Appropriations Act (GAA). It is understood that the use of agency savings for payment shall be made only after satisfying said mandatory expenditure items. x x x

3.5 In cases of deficiency in collections from procurement activities and non-availability of agency savings, the amount of honoraria and overtime pay shall be adjusted proportionately for all those entitled thereto.”

Our audit of honoraria granted to members of the BAC, BAC Secretariat and TWG revealed that the payments of honoraria were charged against the 2012 Annual Budget (AB) of the City, which is sourced merely on estimated revenue and not on savings and collections from successfully completed procurement projects, limited however, to activities prior to awarding of contracts to winning bidders, which should have been identified and set aside for the purpose of granting honoraria to BAC, BAC Secretariat and TWG in the AB. As of December 31, 2012, the amount of P1,220,071 have been paid to members of the BAC, BAC Secretariat and TWG sourced out of the regular appropriations for 2012. It was noted that payments of honoraria were not supported with the following documents namely: Office Order creating and designating the BAC composition and authorizing the members to collect honoraria; Minutes of BAC Meeting; Notice of Award to the winning bidder of procurement activity being claimed; Certification that the procurement involves competitive bidding; and Attendance Sheet listing names of attendees to the BAC meeting.

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We have recommended that the City stop the payment of honoraria that are to be funded out from the regular appropriations of the City and should be from savings and proceeds from sale of bid documents, fees from contractor/supplier registry, fees charged for copies of minutes of bid openings, BAC resolutions and other BAC documents, protest fees and other proceeds from bid security forfeiture. Moreover, we have recommended strict compliance with the regulations provided in R.A 9184 and DBM Budget Circular No. 2007-3 on the grant of honoraria to officers/employees involved in government procurement and claims for honoraria be supported with the aforecited documents.

8.0 Grant of Honoraria to various committees of the City without legal basis

Section 95 of the R.A No. 7160 states that “No elective or appointive local official or employee shall receive additional, double or indirect, compensation, unless specifically authorized by law, nor accept without the consent of Congress, any present, emoluments, office, or title of any kind from foreign government. xxx” (Emphasis ours) Under item 2.1 of Budget Circular No. 2007-2 dated October 1, 2007, honorarium is defined as a form of compensation given as a token of appreciation of reward for gratuitous services on account of one’s broad and superior knowledge or expertise in a field for which, going by custom, tradition or propriety, no fixed price is set. Moreover, Section 2.2 of the above-cited Circular, prescribes the guidelines on the grant of honoraria due to assignment in the government special projects. A special project is a duly authorized inter-office or intra-office undertaking of a composite group of government officials and employees which is not among the regular and permanent functions of their respective agencies. Such undertaking may be locally-funded or foreign-assisted, is reform-oriented or developmental in nature, and is contributory to the improvement of service delivery and enhancement of the performance of the core functions of an agency or member agencies. In recognition of the important functions performed by the members of the committees of the City Council and other composite groups other than the committee of the City Council and as encouragement for them to become active and efficiently productive, various ordinances were enacted to authorize the grant of honoraria to the members of the 29 committees of the City Council and 8 other composite groups. The following are the standing committees of the City Council and other composite groups:

Committees of the City Council on:

1. Appropriation 20. People’s Participation 2. Barangay Affairs 21. Rules & Codification of Laws 3. Cooperatives 22. Senior Citizen & Persons with 4. Communication and Disability Affairs

Information Technology 23. Tourism 5. Culture and Arts 24. Trade, Commerce & Industry 6. Dangerous Drugs 25. Transportation & Traffic 7. Disaster Preparedness, 26. Ways & Means

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Mitigation and Management 27. Women & Family Affairs 8. Education 28. Youth & Sports Development 9. Parks and Development 29. Inter-Government Affairs

10. Footwear & Leather craft Industry

Other Composite Groups

11. Games & Amusements 1. City Appraisal Committee 12. Government Affairs, Ethics & 2. Public Auction Committee Accountabilities 3. City Peace & Order Committee 13. Health and Sanitation 4. Local Development Council 14. Housing, Zoning, Community 5. Stall and Market Awards Development & Urban Planning Committee 15. Human Rights & Justice 6. Public Utility Franchising and 16. Infrastructure Regulatory Board 17. Labor & Capital Relations 7. Complaints and Ethics Board 18. Environmental Protection 8. GAD Management Team 19. Peace and Order, Public Safety & Security

It was noted that the enactment of various Ordinances were not consistent with the above-cited provisions of the R.A. 7160 and DBM Budget Circular No. 2007-2. The programs/functions of the Committees are not special projects that have specific time frame to accomplish. These are part of the regular functions of the City, which are continuously implemented, monitored, evaluated and enhanced. Hence, the payment of honoraria to the members of various committees of the City Council and other composite groups other than the committee of the City Council is tantamount to additional compensation or double compensation. Our audit of the payments of honoraria during the year disclosed that a total of P6,847,500 were paid to the Chairmen of the various committees of the City Council and members of other composite groups, contrary to Sections 95 and 2.2 of the R.A 7160 and DBM Budget Circular No. 2007-2, respectively. In the absence of a legal basis, we have recommended that the City stop the granting of honoraria to the Chairmen of the various committees of the City Council and members of other composite groups without prejudice to the refund of the honorarium received by them in the above-mentioned period and any amounts pertaining thereto, thereafter. Further, the enactment of Ordinances should be aligned with applicable and existing laws. Management gave the following comments: 1. Pursuant to Article 170 and Section (f) of Article 405 of RA 7160, it is apparent

that the City Government of Marikina has the authority to determine the compensation of elective officials and employees whether as regards to their basic salary or the allowances they are entitled to receive, subject only to the limitation of the law, that is, in disbursing of public funds it must be based on appropriations ordinance or law.

2. When the City Government passed into law the Ordinances giving chairmen of

the various committees of the City Council and other composite groups allowances, the same are valid acts of the City for they are in accordance with the Local Government Code.

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3. Under Section 95 of RA 7160, the grant of allowances to officials and employees

is GENERALLY NOT PROHIBITED as long as there is a law, such as an ordinance, allowing the same as may be gleaned in Section 95 of R.A. 7160.

4. The listed committees of the City of Marikina are all creations of the respective

Ordinances enacted by the City Council pursuant to the exercise of its delegated legislative powers under Sec. 458 of the Local Government Code. There is, therefore, no dispute that the City Council of Marikina has the power to create and fund offices, including committees and boards mentioned in the audit report.

5. Thus, the receipt by the officials and employees concerned of the subject

allowances should not be disallowed by COA as they are disbursed to them in accordance with the law, that is, the Ordinances in question.

Our rejoinder: We maintain our finding that the grant by the City of Marikina, through Ordinances, of honoraria to all the chairmen of the various committees of the City Council and members of the composite groups violated the provisions of Section 95 of RA No. 7160 and DBM Circular No. 2007-2. The power of the Sangguniang Panlungsod to determine the positions and salaries, wages, allowances and other emoluments and benefits of officials and employees paid wholly or mainly from City funds and provide for expenditures necessary for the proper conduct of programs, projects, services, and activities of the City Government is not without limit. The pronouncement of the Supreme Court in the case of Veloso vs. Commission on Audit is enlightening, thus:

“However, as correctly held by the COA, the above power is not without limitations. These limitations are embodied in Section 81 of RA 7160, to wit: Sec. 81. Compensation of Local Officials and Employees. The compensation of local officials and personnel shall be determined by the sanggunian concerned: Provided, that the increase in compensation of elective local officials shall take effect only after the terms of office of those approving such increase shall have expired: Provided further, That the increase in compensation of the appointive officials shall take effect as provided in the ordinance authorizing such increase: Provided however, That said increase shall not exceed the limitations on budgetary allocation for personnel services provided under Title Five, Book II for this Code: Provided finally, That such compensation may be based upon the pertinent provision of Republic Act Numbered Sixty-seven fifty-eight (R.A. No. 6758), otherwise known as the “Compensation and Position Classification Act of 1989.”

Under Administrative Order No. 42 dated March 3, 1993, the President reiterated the provision of RA No. 6758 that the DBM shall be the Administrator of the Unified Position Classification and Compensation System of the government. The DBM was mandated to undertake the following:

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1. Provide guideline on the classification of local government positions and on the

specific rates of pay thereof; 2. Provide criteria and guidelines for the grant of all allowances and additional forms

of compensation to local government employees;

3. Advise and assist LGUs on matters of position classification and compensation of local government personnel; and

4. Provide technical expertise in the training of local government personnel to

enable them to administer and maintain the compensation and position classification system.

As the sole Administrator of the Unified Position Classification and Compensation System of the government, it was well within the power of the DBM to promulgate Budget Circular No. 2007-2 prescribing the guidelines on the grant of honoraria due to assignment in government special projects and to include local government units (LGU) within its coverage. These guidelines similarly constitute a limitation on the powers, duties, functions and compensation provided under Section 458 (viii) of the Local Government Code.

Honoraria represent payments for services rendered by the government personnel performing activities or discharging duties in addition to, or over and above their regular functions, and payment for services of personnel with expertise or professional standing in recognition of his broad and superior knowledge in specific fields. Thus, under item 2.1 of Budget Circular No. 2007-2, honorarium is defined as a form of compensation given as a token of appreciation of reward for gratuitous services on account of one’s broad and superior knowledge or expertise in a field for which, going by custom, tradition or propriety, no fixed price is set. Honorarium is granted to certain government officials and employees concerned precisely because they are assigned in special projects or tasks which are not included among the regular and permanent functions of their respective offices. Stated otherwise, said officials and employees may not receive honorarium for performing work which form part of their regular duties. By their own admission, “The honoraria received by the Sangguniang Panlungsod and the City officials and employees as chairman and member of their concerned committees are not due to their assignment in special projects, but honoraria for rendering services for the activities they have participated in, which are relevant to the fulfillment of their official duties as chairman of a particular committee in the City Council of Marikina or just being a member thereof.” The committee chairmanship or membership in the City Council is necessarily included in, and forms part of, the official duties of the city officials and employees concerned. As a regular duty and function, the services rendered are already paid by the regular compensation, allowances and benefits attached to their respective positions. Granting honorarium over and above the regular compensation and allowances for the same services rendered breaches the limitations, particularly DBM Budget Circular No. 2007-2, which allows the payment of honorarium only for

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special projects, the latter being considered services rendered over and above the regular functions of the officials and employees involved. Disregarding this limitation and typifying the same as an unnecessary interference in local affairs grants the Sangguniang Panlungsod the unrestricted discretion to grant compensation, allowances and benefits as it may deem convenient and gratuitously ignore compensation policies issued by the national government under the cloak of local autonomy. There is indeed nothing wrong with the local government granting additional benefits to the officials and employees. In so doing, however, the LGU must be guided by existing laws and administrative issuances regulating the grant of compensation, allowances and benefits. It being established that the services for which the honorarium was granted are in fact part of the regular duties already compensated by the emoluments attached their respective positions, the receipt of honorarium is likewise contrary to Section 95 of RA 7160, which reads:

“Sec. 95. No elective or appointive official or employee shall receive additional, double or indirect compensation, unless specifically authorized by law, nor accept without the consent of Congress, any present, emoluments, office, or title of any kind from foreign government.”

The attendance of the City officials and employees in committee meetings by reason of their chairmanship or membership therein is actually a performance or fulfillment of their regular functions as elective and appointive officials and employees of the City. These services are already paid for and covered by the compensation attached to their respective positions. Unless convincingly shown that the honorarium they receive is within the parameters outlined in Budget Circular No. 2007-2, the same constitutes additional, double or indirect compensation proscribed by Section 95 of RA No. 7160. Accordingly, we reiterate our position that the honorarium paid to members of various committees of the City is without legal basis and should be discontinued.

9.0 Hiring of consultants

As provided in Section 77 of R.A 7160, otherwise known as the Local Government Code of 1991, the local chief executive of every local government may employ emergency or casual employees or laborers paid on a daily wage or piecework basis and hire through job orders for local projects authorized by the sanggunian concerned, without need of approval or attestation by the Civil Service Commission, provided that the period of employment of emergency or casual laborers shall not exceed six (6) months. Anchored from this provision, the City hired casual employees and consultants/project based. As of December 31, 2012, the City has a total of 2,485 personnel, composed of 564 permanent employees, 1,631 casual employees, 156 project-based and 134 consultants. The hiring of casual employees and consultants

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are supported by a contract signed by the City Mayor or the Vice Mayor and the consultant himself. The following were noted in our audit of the contracts of consultants hired by the City and expenses paid to them: a. Duties and Functions not prepared by the City

The services to be rendered by the consultants are not specifically stated in the contract and the man hours to be rendered are also not indicated therein. The duties and functions of the consultants are written in separate sheets, which were attached to the contracts.

b. Duties and Functions do not require expertise

Evaluation of the duties and functions provided by the consultants revealed that their duties and functions do not require expertise in a particular field or area of specialization, contrary to the definition provided by the General Principles on Consulting Services, which states that

“Consultant is a natural or juridical person, qualified by appropriate education, training and relevant experience to render any or all of the types and fields of consulting services such as: 1) Advisory and Review Services, 2) Pre-Investment or Feasibility Studies, 3) Design, 4) Construction Supervision, 5) Management and Related Services, and 6) Other Technical Services or Special Studies.”

The duties and functions performed by the consultants employed by the City are ordinary/regular services that can be carried out by permanent and casual employees; hence, the services performed by consultants are no longer necessary considering the existence of 1,631 casual employees as support staff to the 564 regular employees of the City. The employment of casual employees, which outnumbered the regular employees, is adequate to perform the basic functions of the City.

c. Family members were hired

Since qualification as to appropriate training and experience is not considered in hiring these consultants, there were cases wherein family members of some elected officials of the City were hired. In the absence of time logs and accomplishment report, it is uncertain that these consultants had rendered their services.

d. No accomplishment reports

During the year, the City expended a total amount of P5,888,203 as salaries of the consultants. The said expenditure was not supported by accomplishment reports or even a document showing time logs as proof of actual discharge of their functions. Hence, it is uncertain that the cost of employing these consultants is equated by their actual performance.

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e. Regular renewal of employment

The salaries of consultants were paid regularly on a monthly basis for more than 6 months and were recorded in the financial reports as Salaries and Wages-Contractual. The employment of these consultants is considered regular since most of them were hired a long time ago. Had the City revisited its services and staff requirements before hiring consultants, there could have been additional funds for other relevant projects that have long-term impact for its constituents and the utilization of its permanent and casual employees could have been maximized. In view of the foregoing, we have recommended that the City: 1. specify the consultants’ duties/functions in the contracts as bases in the

enforcement of their deliverables with the end in view to maximizing the worth of hiring said consultants and minimizing monetary losses to the City.

2. consider the desired expertise, which is not available among the regular staff, in hiring consultant; and

3. avoid hiring family members or relatives within the fourth degree of civil degree of consanguinity or affinity. Evaluate and utilize the skills and talents of their regular employees to cut cost and to boost their morale;

4. require the submission of accomplishment reports as basis for payment. Utilize the services of the casual employees in discharging regular/ordinary services to compensate and maximize the costs of their employment;

5. revisit its organizational structure, staffing pattern and service requirements to assess the necessity of hiring consultants;

Management gave the following comments:

1. Hiring of consultants is a necessity and not disadvantageous to the City. 2. The duties and functions of the consultants are prepared by the City. The

separate sheet of paper wherein the duties and functions are stated is forwarded to the City Personnel Office (CPO) for entry in the contract. The CPO, perhaps, due to its voluminous tasks and duties, merely attached the same to the contract instead of having it entered into the contract. And assuming that the mechanical act of writing the duties and functions were personally prepared by the consultants, said duties and functions were determined, emanated and supplied by the Offices concerned.

3. The permanent and casual employees need to be augmented by consultants

who are experts in the field that they are assigned and that the determination of expertise and the need of consulting is a Management prerogative.

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4. No family members of the elected officials of the City were appointed as consultants, as defined in Section 79 of the Local Government Code which states that “No person shall be appointed in the career service of the local government if he is related within the fourth civil degree of consanguinity or affinity to the appointing authority or recommending authority.”

5. No instruction was received by Management from the CPO for the consultants to

submit their accomplishment report on a regular basis.

10.0 Audit of Gender and Development (GAD)

10.1 Non-reconstitution of the existing Gender and Development Focal Point System of the City

The Philippine Commission on Women (PCW) issued Memorandum Circular (MC) No. 2011-11 dated October 21, 2011 to provide the guidelines for the creation, strengthening and institutionalization of the Gender and Development Focal Point System (GDFPS). Under Section 4.2 of the same Memorandum Circular, agencies with existing GDFPS or similar mechanisms were required to reconstitute and strengthen said mechanisms based on the provision of Republic Act No. 9710, its implementing rules and regulations and said MC. Sections 5.1 and 5.3 of the same MC also define the structure and composition of the GDFPS as well as the roles and responsibilities, respectively. Executive Order No. 006 dated February 25, 2011, created the City’s Gender and Development (GAD) Management Team, as the appropriate body to orchestrate the implementation of GAD in realizing the City’s objective of making Marikina governance gender responsive. However, it was noted that the responsibilities that correspond to the role of each member of the GAD Team were not clearly defined in the said Executive Order. As such, it may not be able to function as a mechanism for catalyzing and accelerating gender mainstreaming in the agency towards the promotion of Gender Equality and Women’s Empowerment. Also, the City was not able to reconstitute its existing GDFPS, which is the GAD Management Team, as required under the above-cited Section 4.2 of PCW Memorandum Circular No. 2011-11. Table 8 shows the comparison and dissimilarities of the structure and composition of the existing GDFPS created under E.O No. 006 against PCW MC No. 2011-01.

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Table 8: Structure and composition of the existing GDFPS.

Executive Order No. 006 dated February 25, 2011

PCW Memorandum Circular No. 2011-01 dated October 21, 2011

GAD Management Team composed of the following:

GAD Focal Point System compose of the following:

1. Chairperson (City Mayor) 1. Chairperson or Head of Agency 2. Vice Chairperson (Councilor

Chair of Women and Family Affairs Committee)

2. Executive Committee (with Head either the undersecretary or its equivalent)

3. Members (Heads or alternates of each department)

3. Technical Working Group/ Secretariat (members are representatives from each division or offices, with Head outside of the executive committee or member of the executive committee)

4. Secretariat 4. Secretariat-may designated by the Technical Working Group

We had recommended and Management concurred that the City Mayor reconstitute and strengthen the existing GDFPS based on the guidelines set under PCW Memorandum Circular No. 2011-01 and clearly define the roles and responsibilities of each member of the reconstituted GDFPS.

10.2 Non-compliance with Section 36.a of Republic Act (RA) 9710, otherwise known as The Magna Carta of Women

To promote women empowerment and pursue equal opportunities for women and men, equal access to resources and development outcome, and elimination of any forms of discrimination and inequality, the City needs to develop plans, programs and mechanisms to realize these endeavours. To achieve these, there should be fund to be utilized for this purpose. Section 36.a of the Magna Carta for Women or R.A. No. 9710 authorizes government agencies and local government units to allocate at least five percent (5%) of the agency’s or the local government unit’s total budget appropriations, which reads as follows:

“xxx. The cost of implementing GAD programs shall be the agency’s or the local government unit’s GAD budget which shall be at least five percent (5%) of the agency’s or the local government unit’s total budget appropriations.”

Our audit of the GAD disclosed that the amount appropriated for CY 2012 was short by P80,743,882 or 93.63 percent as follows:

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Particulars Amount

Total Appropriations per Annual Budget for CY 2012 P1,724,803,326 Section 36.a of RA 9710 5%

Appropriations- Per Audit P 86,240,166 Per Budget 5,496,284

Difference P 80,743,882

This is due to the said City Budget Office’s non-compliance with Section 36.a of RA 9710 in the formulation of the budget for GAD. As a result, the said budget for GAD may be inadequate to address various gender issues since the resources are limited for the City to prioritize and devote for the institutionalization of the said gender issues to plans, policies and programs hence, its pursuit to gender equality and women empowerment could not be fully attained. We have recommended that the City Budget Office appropriate the correct amount to ensure that the budget for the GAD is adequate to address various gender issues. Moreover, we have recommended that strict compliance with Section 36.a of RA 9710 be observed. Management replied that the amount of P5,496,284 was included in the annual budget as a provision for Gender and Development Programs, which amount was assigned for the GAD Team to allot to its plans and programs. The various GAD programs, projects and activities were mainstreamed and/or integrated with other offices’ programs, projects and activities (PAPs). Some of these activities are the following: livelihood programs, provision of social protection service welfare, maternal and child care and nutrition classes, information dissemination, Re: Social protection among government employees, conduct of seminars to create awareness on women empowerment; free legal services for women and children who are victims of violence. Our rejoinder: We, however, noted that the above-mentioned PAPs were not incorporated in the Project Procurement Management Plan of each office and the costs allocated for each program was not specified. Hence, it is uncertain if the City Budget Office had allotted 5% of the total Budget Appropriations of the City pursuant to Section 36.a of R.A No. 9710, otherwise known as The Magna Carta for Women. Likewise, the said PAPs were not included in the City’s Annual GAD Plan and Budget. In view thereof, we have recommend that the cost allocated for each of the above-mentioned PAPs be specified and the same PAPs be incorporated in the Annual GAD Plan and Budget for CY 2012 to ensure compliance with the above-mentioned provision.

10.3 Non-inclusion of vital information in the GAD Plan and Budget for CY 2012

Section 5.1 of DBM-NEDA-NCRFW Joint Circular No. 2004-1 dated April 5, 2004 prescribed the form to be used in the preparation of the Annual GAD Plan and Budget. Said form provides vital information necessary to determine if the

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promotion of gender-responsive governance, protection and fulfilment of women’s human rights, and promotion of women’s economic empowerment were properly addressed. Review of the GAD Plan of the City duly approved by the City Mayor only showed the programs/activities and the cost to be allocated for the same. It did not include the corresponding gender issue/concern, objective, target and performance indicator of each program/activity/project, as required under Section 5.1 of the afore-mentioned Joint Circular, which are vital information necessary for proper evaluation and monitoring of projects and programs concerning gender development. We have recommended that the GAD Plan should conform with the format and procedure prescribed in Annex A of Section 5.1 of DBM-NEDA-NCRFW Joint Circular No. 2004-1 dated April 5. Management subsequently submitted a revised GAD Plan, however, it still did not comply with the prescribed format.

11.0 Audit of the Local Disaster Risk Reduction and Management

11.1 Non-submission of the Local Risk Reduction and Management Plan to the Office of the Civil Defense

One of the powers and functions vested in the Office of Civil Defense (OCD), in partnership and in coordination with member agencies and in consultation with key stakeholders, as may be applicable, as provided under Section 9 (e) of RA No. 10121 is as follows:

“Review and evaluate the local Disaster Risk Reduction and Management Plans (LDRRMPs), in coordination with concerned agencies and or instrumentalities, to facilitate the integration of disaster risk reduction measures into the local Comprehensive Development Plan (CDP) and Comprehensive Land-Use Plan (CLUP).”

Our review of the City’s LDRRMP for the period covering 2012 to 2013 showed that said Plan remained not submitted to the OCD for its review and evaluation; thus, the integration of the disaster risk reduction measures into the local Comprehensive Development Plan (CDP) and Comprehensive Land-Use Plan (CLUP) was not facilitated to comply with the above provision and to the disadvantage of the City.

11.2 Projects programmed by the Disaster Risk Reduction and Management

Council (DRRMC) totalling P7.206 million not supportive to disaster risk management activities

Section 21 of RA 10121 provides that:

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“xxx. Not less than five percent (5%) of the estimated revenue from regular sources shall be set aside as the LDRRMF to support disaster risk management activities such as, but not limited to, pre-disaster preparedness programs including training, purchasing life-saving rescue equipment, supplies and medicines, for post-disaster activities, and for the payment of premiums on calamity insurance. xxx” (Emphasis ours)

For the year 2012, the City set aside in its annual budget the amount of P76,250,000.00 representing five percent of the estimated revenue from regular sources as its LDRRMF of which the amount of P53,375,000.00 representing 70 percent thereof was allocated as its preparedness and mitigation fund. On February 21, 2012, the DRRMC passed Resolution No. 1 for the proposed programming to be funded by the said 70 percent allocation together with the continuing appropriations amounting to P70,155,046.31, or a total appropriation of P123,530,046.31, which was duly approved by the City Council under Ordinance No. 37 on July 17, 2012. Our review of the projects programmed by the DRRMC for implementation showed that out of the total appropriations of P123,530,046.31, projects totalling P7,206,046.00 or 5.83 percent are not supportive to risk management activities, hence, are not compliant with the above-cited provision as shown in Table 9. Accordingly, the purpose for which the Fund was created may be defeated insofar as the stated projects are concerned. Table 9: Projects not supportive to risk management activities

11.3 Improper utilization of the 30% Quick Response Fund (QRF) of the LDRRMF totalling P1.231 million

1. Overtime pay totalling P1.010 million during Habagat disaster

operations.

COA Circular No. 2012-002 dated September 12, 2012 provides the following:

Projects Amount

Setting up of DRRM Office (Civil Works) P 6,000,000 Kitchen Area @ MSP 670,046 For use of DRRM Office: Office Supplies 200,000 Conference Room Microphone/Speaker 150,000 Conference Table & Chairs 87,000 Executive Chair & Table 54,000 Staff Table & Chairs 45,000

Total P 7,206,046

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“3.0 Purposes of the LDRRMF

The LDRRMF shall be used to support disaster risk management activities such as, but not limited to the following:

3.1 Pre-disaster preparedness programs such as training of

personnel, and purchase of life saving and rescue equipment, and supplies and medicines;

3.2 Post-disaster activities such as repair and rehabilitation of

public infrastructures and purchase of office/school equipment damaged by calamities during the budget year;

3.3 Payment of insurance premiums on property if indemnity

includes damages or loss due to fire, earthquake, storm or other casualties and on the personnel accident insurance of Accredited Community Disaster Volunteers; and

3.4 Relief and recovery programs in communities or areas

stricken by disasters, calamities, epidemics or complex emergencies.”

During the year, the City of Marikina has been gravely affected by the constant rains and floods caused by southwest moonsoon or Habagat, which placed many areas in the City under water. The City Council has then issued Resolution No. 097 dated August 8, 2012 declaring the City of Marikina in state of calamity.

City personnel were tapped to assist in disaster operations such as relief and flood calamity response operations and were compensated with overtime pay totalling P1,010,136.51 for services rendered which were charged to the 30% QRF of the LDRRMF. While said personnel rendered their services during the relief and flood calamity response operations, payment of overtime services cannot be considered as part of the program for relief and recovery because it does not fall within the scope of application provided under the above-cited Section 3.4 of COA Circular No. 2012-002. Overtime pay should not be charged to the said Fund but to the regular budget of the City.

2. Assistance totalling P220,368 granted to the fire victims The same Circular also provides that the release and use of the LDRRMF shall be supported by Local Sanggunian Resolution and the declaration of state of calamity for the QRF. For CY 2012, assistance totalling P220,368 was granted by the City to the fire victims residing at Barangay Tumana. We noted that the QRF was released and used in the absence of City Council Resolution and the declaration of state of calamity for the said QRF, which is not in accordance with the above-cited Circular.

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We have recommended that Management: 1. submit the LDRRMP for 2012-2013 to the OCD for review and

evaluation;

2. program the projects for the 70% Preparedness and Mitigation Fund that are supportive to disaster risk management activities as provided under Section 21 of RA 10121 and Section 3.0 of COA Circular No. 2012-002 dated September 12, 2012;

3. refund the amount of P1,010,136.51 paid for overtime services from

the General Fund- Proper to the Trust Fund under the Trust Liability- DRRM account;

4. refund the assistance granted to the fire victims totalling P220,368

from the General Fund- Proper to the Trust Fund under the Trust Liability- DRRM account; and

5. be cautious in charging expenditures to the LDRRMF.

Management replied that they have already furnished the Office of Civil Defense a copy of the Local Disaster Risk Reduction and Management Plan CY 2012-2018 last April 4, 2013.

12.0 Inaccurate computation of the distribution of proceeds from Internal Revenue Allotment (IRA) for General Fund (GF)-Proper and 20% Development Fund (DF).

The DBM is the agency in charge of enforcing the release of IRA to the local government units. For CY 2012, proceeds from IRA released by the DBM to the City distributed for the GF-Proper and 20% DF amounted to P423,805,770.00 and P94,485,444.00, respectively, or a total of P518,291,214.00. Analysis of the distribution of proceeds from IRA showed that the share of 80 percent GF-Proper and 20% was computed by DBM at net of the five percent statutory contribution for MMDA. The appropriations for MMDA is under the GF-Proper, hence, distribution of proceeds from IRA for the 80 percent GF- Proper and 20% DF should have been computed at gross amount of IRA and that the five percent contribution for MMDA should be deducted from the 80 percent share of the GF –Proper. As a result, the share of the GF-Proper and 20% DF, which were deposited to the bank accounts of the said Funds, are overstated and understated, respectively, by P9,172,798.80 as presented in Table 10.

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Table 10: Analysis on the distribution of proceeds from IRA

Bank Account No.

Particulars

General Fund

Per Books Per Audit Over/(Under)

0435-

021897-030

80% for GF-Proper: ●Net of 5% for MMDA ●5% for MMDA

P337,941,770 45,864,000

P368,768,971 45,864,000

P 9,172,799

Total P423,805,770 P414,632,971 P 9,172,799

0435-021899-030

20% Development Fund

94,485,444

103,658,242

(9,172,799)

Total IRA P518,291,214 P518,291,214 P 0

Consequently, the programs/projects programmed for implementation which are funded from the 20% Development Fund are affected. We have recommended that Management: 1. adjust and transfer the amount of P9,172,798.80 from the bank accounts of the

GF-Proper to 20% Development Fund; and

2. re-compute all releases of the distribution of proceeds from IRA credited to the

respective accounts of the GF-Proper and 20% DF and discrepancies noted be accordingly adjusted.

Management referred the matter to the DBM for comment/opinion of which the Regional Director for DBM-NCR concurred with the audit recommendation for the adjustment in the recording of the IRA in the books of the City to reflect the correct amounts of the General and Development Funds. The basis in the determination of the 80 percent General Fund and 20% Development Funds should be the gross IRA allocation notwithstanding that the actual fund transferred to the City is net of the said contribution.

13.0 Review of the City’s Revenue Code

The City Council of Marikina passed in 1995, Ordinance No. 224 providing for the Marikina Revenue Code which shall govern the taxing powers of Marikina. We noticed the absence of some important information/data in the documents and reports pertaining to the assessment/collection of business taxes, which could be improved. 13.1 Non-inclusion of appropriate provisions for revisions

The exemption from Idle Lands Tax in Section 13 of the Revenue Code did not provide for the rules/regulations on how to avail of the exemption from idle land tax. Moreover, the following city ordinances adopted from RA 7160 are not yet included in the Code:

Ordinance No.19, series 2011 establishing the Marikina Trade Fair Center and prescribing rates of rental/lease for its use;

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Ordinance No. 41, series of 2011, a portion of which states that “(4) Regulate activities relative to the use of land, buildings and structures within the city in order to promote the general welfare and for said purposes shall: (i) declare, prevent or abate any nuisance”; and

Ordinance No. 72, series of 2011 providing for the classification of businesses subject to issuance of Barangay clearance and rates imposed.

13.2 Non-inclusion of appropriate revisions/amendments in the classification/tax rates for new business

The City’s Revenue Code categorized and defined fifteen business establishments and required for the imposition of tax and regulatory fees to any person who shall establish, operate or conduct any business, trade or activity within Marikina and that they shall first obtain the necessary permit from the Business Permits and Licensing Office and shall pay the corresponding tax imposed in the Code. We noted in the master list of business establishments for CY 2012 from Business Permits and Licensing Office that there were some businesses categorized as Other-Business. Inquiry revealed that peculiar businesses were classified as such because the Revenue Code does not provide for their specific classification. These business activities or operation are relatively new in the market which were unheard of at the time the Code took effect in 1995, hence, could not be identified immediately at the time of filing or processing of their business application. They were not categorized accordingly as to the common use or activity; consequently, these are encoded as Other- Business in the taxpayer’s Payment Records or until the Code could provide their specific industry classification. As a result, these businesses are not uniformly classified as to industry and levied with the appropriate rates of business tax. Also, the absence of clear and standard classification of business opened the possibility of dispute and confusion among users/taxpayers. Table 11 presents some instances wherein similar nature of business had different classification which has an effect in tax rates.

Table 11: List of business establishments with similar nature but with

different classification

Name

Classified as

Gross Sales

Amount of

Tax/Fees

1) Millenium Audit & Collection

Services Other Business

75,000

2,665

2) Actiones Credit Collection Services Inc.

Other Contractor

1,700,000

13,799

3) ATC Mktg. Other-Retailer 2,520,000 30,278 4) Celebes Mktg. Other-Wholesaler 0 1,083 5) RS Canteen & Catering Eatery-Food caterer 300,000 12,125

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6) Queen J Catering & Food Service Other Business 500,000 9,085 7) Fire Master Import & Export Other Wholesaler 124,051,022 627,050 8) Multi-Lift Sales Corp. Retailer-Import/Export 43,783,641 447,762

The computerized system of the Business Permits and Licensing Office is unable to present/segregate in the master list, the computation for business tax from regulatory fees, thus, the taxes on businesses could not be compared with the annual rates in the Revenue Code.

In our sample below, establishments with the same nature of business and gross sales show differing amounts of taxes and fees. Inquiry with the BPLO disclosed that segregation of the computation of business taxes and regulatory fees is not possible because it is already imbedded in the computerized system of business tax, hence, the master list of business establishments submitted showed the totality of these levies. Table 12 gives the detailed listings. Table 12: Detailed list of businesses with same nature and gross sales but

with different amount of taxes and fees

Business Name Nature of Business Gross Sales Taxes and Fees

GT II PROPERTY MANAGEMENT Lessor - Space for Rent P5,000,000 P 26,700

JACINTO'S SPACE FOR RENT Lessor - Space for Rent 5,000,000 101,550

CARMELLETES SHOES, INC. Manufacturer - Shoes Ladies 5,000,000 31,025

ESSENZA ENTERPRISES Manufacturer - Shoes Ladies 5,000,000 14,957

AJIE'S PANDESAL HOUSE Retailer - Bakery 144,000 3,668

BERNWIN BAKERY Retailer - Bakery 144,000 4,005

CHERRY MAY'S BAKESHOP. Retailer - Bakery 144,000 4,741

726 SKY.NET CAFÉ Amusement - Computer Rental Shop 150,000 5,239

A - SIX INTERNET CAFÉ Amusement - Computer Rental Shop 150,000 2,570

CCC ONLINE CYBER HUB Amusement - Computer Rental Shop 150,000 5,675

DEEP SEA NET CAFÉ Amusement - Computer Rental Shop 150,000 1,736

FIREMAX INTERNET ZONE Amusement - Computer Rental Shop 150,000 4,105

KEN – J Amusement - Computer Rental Shop 150,000 3,582

LEVIAN COMPUTER SHOP Amusement - Computer Rental Shop 150,000 2,300

NOTNOT (DOT NET) INTERNET CAFÉ Amusement - Computer Rental Shop 150,000 2,018

PC SURF NET Amusement - Computer Rental Shop 150,000 6,103

The uniformity of tax rates applied to similar businesses may not be consistently applied on the rest of the population/business operating in the City. We likewise noticed that the City has not codified its Revenue Ordinance No. 224, series of 1995 in order to preserve its pages and serve as handbook to all stakeholders of the City for information of rates of taxes/fees imposed and collection period.

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We have recommended that Management consider revising the Revenue Code of 1995 and possibly include the appropriate revisions/amendments in the classification/tax rates for new businesses operating in the City; and the rules and regulations adopted from pertinent sections in RA 7160 for a clear-cut responsibilities of its city officials and taxpayers and uniform implementation of the City’s Revenue Code. Likewise, we have recommended that the concerned Offices such as Treasury and BPLO provide the City Mayor and City Council with information and complete listings of all businesses operating in the City including rates of business taxes and fees being imposed by its neighboring 1st class cities as their basis in amending the Code. Moreover, a regular review/update of the businesses enumerated in the Code that would specifically identify all kinds of trade and commercial activities of businesses and applicable tax rate and regulatory fees be conducted. This could provide a uniform revenue base and update the Code for the information and benefit of its taxpayers and other users. We have also enjoined the BPLO to provide separate information on the assessment for tax due and regulatory fees for monitoring and review of business taxes. Management replied that they have submitted proposals for the revision of the Revenue Code as early as the first quarter of 2009 and started studying how to improve procedure initially through Revenue Ordinance Guidelines in the Processing of Business Permit and License (An Employee Manual).

13.3 Non-adjustment of stale checks amounting to P144,567 in the General Fund

A bank reconciliation is a process that uncovers any possible discrepancy between the bank balance shown in the bank statement prepared by the bank and the book balance recorded in the accounting records. Any reconciling item between these two separate records should be analyzed, investigated and accordingly adjusted in the books of accounts. Our review of the December 2012 Bank Reconciliation Statement (BRS) for the General Fund, Current Account showed outstanding checks amounting to P27,953,272. Of this amount, P144,567 were outstanding for more than six (6) months as shown below.

Nature of Transactions CY

2010 CY

2011 CY

2012 Total

Financial/Medical assistance P10,000 P14,000 P 2,000 P 26,000 Food & drinks served 7,000 7,000 Honorarium 28,000 5,800 33,800 Allowances 20,000 8,500 28,500 Per Diem 3,000 6,400 9,400 Cash prizes 8,900 1,000 9,900 Meals 1,000 1,000

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PLDT 4,200 4,200 Reimbursement 22,767 22,767 Publication 2,000 2,000

Total P46,000 P76,467 P22,100 P144,567

Comparison of these outstanding checks with the records from the Treasurer’s Office disclosed that these checks have already been released to its claimants and included in the pertinent Report of Checks Issued, hence, it is unusual for these checks to remain outstanding and not be presented to the bank by its claimants for a long time. The outstanding checks of more than six (6) months could no longer be classified as mere items requiring adjustments from bank as these checks will not be honored by the bank and could have already been replaced but were not adjusted and recorded in the books. We have recommended and Management agreed to exhaust all means to reconcile these outstanding checks against valid checks deducted from the City’s current account and accordingly adjust the books to reflect the correct account balance. We have also recommended that Management verify and match the particular disbursement vouchers pertaining to these checks if indeed recorded. A copy of the BRS should be given to the City Treasurer for reconciliation of all checks already issued but remained outstanding.