Executive Summary

EXECUTIVE SUMMARY

A. Background

1. Legal Basis

Historically, the town of Palapag is one of the oldest towns in the island of Samar, having been established as a pueblo in the year 1585 by the Spaniards during the incumbency of the then Spanish Governor, Don Santiago de Vera. The Tinadyao, leader of the first settlers composed of ten families who resided at Mapno, a coastal barangay, founded the town.

Being the oldest town, Palapag is the mother town of the towns of Laoang whose parish was separated from Palapag in 1768 and became Spanish pueblo in 1835; Gamay created by RA No. 90; Lapinig created in June 14, 1956 by RA 1428; and Mapanas became a new town in June 18, 1966 by RA 4762. Its vast and wide territory decreased when its four (4) former barrios became new municipalities themselves.

Palapag became the historical site of the first organized rebellion against the Spaniards in 1649-1650 and encouraged another one in 1884-1886. The incident is known to Philippine history as Sumoroy Revolt. Juan Agustin Sumoroy was the leader of this revolt.

It is geographically located in the Northeastern part of Northern Samar bounded on the North by the Pacific Ocean, on the East by the Municipality of Mapanas, on the West by the Municipality of Laoang and on the South by the Municipality of Catubig. It has a total land area of 223.72 SQ. KM (22,372 hectares). There are 32 barangays in the Municipality of Palapag. Half of which or 16 are located along the seaside.

The Municipality of Palapag is under the stewardship of Hon. Florencio A. Batula, Jr., who was elected last May 2010 election. He is in his first term of office after ten (10) years in the private sector.

Agency Vision

A Municipality with safe and clean environment, socially developed, economically stable, administered by good governance, sustained by peoples’ empowerment, enjoying a better quality of life under a God centered community. Fund Composition

Funds are composed of the following: General Fund (100), Special Education Fund (200) and Trust Fund (300).

2. Organizational Set-up

a. Key Officials

Municipal Mayor Florencio A. Batula, Jr. Municipal Vice-Mayor Noli B. Moslares Municipal Treasurer Precila B. Ongsotto Municipal Accountant Grace B. Calvo Municipal Budget Officer Epifania T. Aoyang Municipal Assessor Romeo Ongsotto Municipal Planning & Development Officer Jaime G. Balading Municipal Engineer Gerald I. Pinca Municipal Civil Registrar Jesus C. Cui Municipal Health Officer Dr. Delia C. Chy Municipal Social Welfare & Development Officer Sol D. Drio Municipal Agriculturist Gil Laoreno b. Personnel Complement

Permanent Employees 84 Temporary/Casual/Contractual 22 Elective Officials 12 Total Personnel Complement 118

3. Number of Barangays

The municipality is composed of 32 barangays.

B. FINANCIAL PROFILE

Financial Conditions

2011 2010 Variance Assets 108,556,971.35 116,598,240.38 (8,041,269.03) Liabilities 47,026,292.86 47,031,734.24 (5,441.38) Government Equity 61,530,678.49 69,566,506.14 (8,035,827.65)

Financial Position

2011 2010 Variance Income 61,984,500.80 57,508,477.86 4,476,022.94 Expenses 58,078,186.78 49,741,578.37 8,336,608.41 Net Income 3,906,314.02 7,766,899.49 (3,860,585.47)

Cash Flows

2011 2010 Variance Cash from Operating Activities 3,037,386.46 12,812,724.40 (9,775,337.94) Cash from Investing Activities (6,270,483.69) (22,202,819.50) (15,932,335.81) Cash from Financing Activities (3,039,161.86) 6,747,270.02 (9,786,431.88) Net Cash Provided (6,272,259.09) (2,642,825.08) (3,629,434.01) Cash Balance Beginning 24,069,729.86 26,712,554.94 (2,642,825.08) Cash Balance End 17,797,470.77 24,069,729.86 (6,272259.09)

The audit includes financial and compliance audit, which involves examination on a test basis, of identified thrust areas/accounts, and applying random sampling on evidences that support the amount and disclosures in the financial statements. It includes assessing the accounting principles used and significant estimates made by management, and evaluating the overall presentation of financial statements of the LGU for calendar year 2011.

C. RESULTS OF AUDIT

I. Auditor’s Report on the Financial Statements

The auditor rendered an unqualified opinion on the fairness of the presentation of the financial statements of the Municipality of Palapag for the year ended December 31, 2011.

II. Significant Audit Findings and Recommendations

Financial and Compliance Audit

1. Remittances to BIR, GSIS, PHILHEALTH and PAG-IBIG as well as Due to LGUs and Other Liabilities were made even without the necessary supporting documents to prove the legality and propriety of the disbursements in violation of Section 39 of PD 1445 or the Government Auditing Code of the Philippines, thus resulting to a total audit suspension of P3,767,466.50

Documents which are necessary to every transaction pursuant to Section 39 of PD 1445, otherwise known as the Government Auditing Code of the Philippines, to prove the propriety and legality of the transactions should be attached to the disbursement voucher covering the claim, before the same shall be paid to avoid the suspensions of these transactions in audit.

2. Purchase Orders for the procurement of office supplies, gasoline, oil and lubricants, other supplies, office equipment and machineries; and contracts for the implementation of infrastructure projects as well as consultancy services involving an amount of P1,420,978.84 and P308,700.00, respectively, were not submitted to the Commission on Audit as mandated under Section 3 of COA Circular No. 2009-001 dated February 12, 2009 preventing the Auditor from a timely evaluation on the reasonableness and propriety of the contracts entered into by the Municipality.

The agency through its Local Chief Executive should ensure the timely submission of purchase orders and contracts to the Auditor as mandated by Section 3 of COA Circular No. 2009-001 dated February 12, 2009 to allow the auditor to evaluate the contracts as to its reasonableness and propriety, and prevent the suspension or disallowance of transactions for the procurement of goods and services.

3. Purchases of gasoline, oil and lubricants amounting to P668,569.76 were not accounted due to the absence of trip tickets as required under Section V (1) of COA Circular No. 75-6 dated November 7, 1975 to show proof of its utilization that resulted in the suspension of these transaction in audit.

Trip tickets should support all fuel consumption as required under Section IV(1) of COA Circular No. 75-6 dated November 7, 1975 to account for the utilization of gasoline, oil and lubricants and avoid suspension of these transactions in audit.

In addition, trip tickets should be fully accomplished, particularly on the plate number and/or name of the vehicle to provide the auditor with the basis for the evaluation on the reasonableness of the fuel consumption.

4. Cash advances for intelligence fund in the total amount of P500,000.00 were already credited prior to the issuance of a credit notice from the Chairman, Commission on Audit thereby extinguishing the liability of the official granted with the cash advance before it was settled by the Commission on Audit, in violation of COA Circular No. 2003-003 dated July 30, 2003, thus affecting the proper presentation of the financial statements.

Restore in the LGU’s books the cash advance granted to the Municipal Mayor for intelligence network and other related activities to reflect the correct financial position of the Municipality until the receipt of the Credit Notice from the Chairman of the Commission on Audit pursuant to the provision of COA Circular No 2003-003 dated July 30, 2003.

5. Purchase of office, food and other supplies amounting to P286,460.35 were reimbursed instead of being paid directly to supplier contrary to the provision of Sections 2 and 4 (2) of COA Circular No. 81-168 s 1981, circumventing the procurement process and creating doubt on the propriety of the transactions.

Payment of office, food and other supplies should be made directly to supplier pursuant to Sections 2 and 4 (2) of COA Circular 81-168 s 1981, so as not to circumvent the procurement process and encourage transparency in the procurement system.

Limit reimbursement of purchases for office, food and other supplies to extreme necessities and in small amounts only.

6. Allocation for Personal Services amounting to P25,524,930.00 exceeded the personal Services (PS) Limitation by P1,526,721.00 contrary to the provision of Section 325(a) and 331(b) of Republic Act 7160 and LBC No. 74 and 75 thus, implementation of other priority programs/projects/activities and delivery of basic services were not undertaken.

We recommend that the local government unit should ensure that their budget should comply with the requirements on the personal services cap/limitation in accordance with the provision of Section 325 of Republic Act 7160 otherwise known as the Local Government Code of 1991 and LBC No 74 and 75. It should make sure that a balance budget will be attained in its operation for every fiscal year so as not to hamper the implementation of other priority programs/project/activities and delivery of basic services.

Value for Money Audit

7. The Municipality could have implemented more development projects had the funds from the 20% Economic Development Fund been used to implement projects specifically mentioned in DILG-DBM Joint Circular No. 2011-1 dated April 13, 2011, instead of utilizing the funds to pay the wages of job order personnel and for electric bill, in the amount of P1,589,712.10 and P200,100.00, respectively.

The allocation of funds out of the 20% Economic Development Fund should be made in accordance with the provision of DILG-DBM Joint Memorandum Circular No. 2011-1 dated April 13, 2011 to be able to provide the constituents of the municipality with more development projects.

Statement of Audit Suspensions, Disallowances and Charges

As of December 31, 2011, the unsettled audit suspensions amounted to P18,422.64. There were no unsettled audit disallowance.

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

Of the seven (7) audit recommendations contained in our CY 2010 annual audit report, three (3) were implemented, one (1) was partially implemented, and three (3) were not implemented.