Annual Audit Report On The City Of Marikina City For CY 2011

Republic of the Philippines COMMISSION ON AUDIT Commonwealth Avenue, Quezon City

ANNUAL AUDIT REPORT

on the

City of Marikina

For the Year Ended December 31, 2011

EXECUTIVE SUMMARY

A. Highlights of Financial Operation

For the calendar year 2011, the appropriations of the City Government of Marikina for the General and the Special Education Funds totaled P1.857 billion. Obligations charged against these appropriations amounted to P1.401 billion.

Appropriations Obligations

Current Appropriation General Fund 1,512,295,020 1,231,098,127 Special Education Fund 130,000,000 121,976,626 Sub-total 1,642,295,020 1,353,074,753

Continuing Appropriation General Fund 205,205,848 41,694,794 Special Education Fund 9,496,632 5,855,642 Sub-total 214,702,480 47,550,436 Grand Total 1,856,997,500 1,400,625,189

The City realized an aggregate income of P1.524 billion or an increase of P533,631 from last year’s P1.523 billion.

Operating Income consists of Tax Revenue of P679.307 million from P707.567 million last year resulting to a decrease by P28.261 million or 3.99 per cent due to the reduction of Real Property Tax by 50 per cent as per Ordinance No. 88, series of 2010, and General Income of P845 million from P816.205 million last year with an increase of P28.795 million or 3.53 per cent. Share in the Internal Revenue Allotment increased by P38.352 million or 7.12 per cent.

Total operating and financial expenses of P1.340 billion registered an increase of P140.496 million or 11.71 per cent from last year’s P1.200 billion.

The expenses were classified as follows: Current Operating Expenses, P1.198 billion, Financial Expenses, P5.360 million, Subsidies, Donations and Extraordinary Expenses, P136.694 million.

B. Scope of the Audit

Financial and compliance audit were conducted on the accounts and transactions of the City Government of Marikina for Calendar Year 2011. The audit was aimed at ascertaining the fairness of the presentation of the City’s financial statements and compliance to laws, rules and regulations.

i C. Auditor’s Opinion on the Financial Statements

The Supervising Auditor rendered a qualified opinion on the fairness of the presentation of the financial statements in view of the variance of P96.252 million as of December 31, 2011 between the balance per books and balance per physical count of the City’s property and equipment which has not been reconciled. Likewise, no Physical Inventory Report of the City’s recorded inventory amounting to P63.540 million as of December 31, 2011 was submitted. Also, various property and equipment as well as liability accounts include reconciling items amounting to P732.328 million and P6.164 million, respectively. Consequently, the accumulated depreciation totalling P156.259 million of those property classifications with reconciling items is understated since depreciation was not computed on the Reconciling Items account. Reconciling Items are those balances of the accounts that cannot be identified or accounts without details. Further, the Other Receivables account includes dishonored checks amounting to P7.388 million which have been outstanding for over three years. The inadequacy of records did not permit us to apply alternative procedures to establish the validity and correctness of the balances of the mentioned accounts.

Moreover, the adjusting entry made on the cost of land with tax declaration named under the City Government of Marikina debiting the Land account and crediting the Land-Reconciling items amounting to P570.231 million using market values rather than the purchase cost of the land is erroneous because the said market value is not yet the cost of these lands at that time the balances were recorded in the Reconciling Items account in 2004 or earlier. Further, the non-reversal of the fully paid accounts of the 798 beneficiaries of the Relocation Program of the City resulted in the overstatement of the payable account and understatement of the Income account. The payable account should be debited and income should be recognized upon full settlement by the beneficiary of the contract amount.

D. Significant Audit Findings and Recommendations

The following are the significant findings and recommendations in the audit of the City Government of Marikina for the year 2011:

1. Net variance amounting to P96.252 million between the Result of Physical Inventory and balances per Books of the Property and Equipment account was not reconciled by the General Services Office (GSO) and Accounting Office; thus, rendering the account balance doubtful. (Finding No. 1.1, page 27)

We also noted that a substantial amount of balances per books of the various Property and Equipment accounts amounting to P732.328 million as of December 31, 2011 were identified as Reconciling Items. These reconciling items refer to those balances of the accounts, which cannot be identified, or those accounts without details.

We reiterated our previous years’ recommendation that the City Accountant, in coordination with the GSO, fast-track the analysis and reconciliation of the balances per books with the property records. Also, for properties whose values

ii cannot be determined, their estimated values as well as their remaining useful lives may be assigned by an appraisal committee.

We further recommended that extra effort be exerted in the analysis of the accounts in the Reconciling Items and prepare necessary adjusting journal entries to reflect the correct balances of the affected accounts at year-end. The Accounting Office may secure list/s from other departments of the City concerning the items that were possibly included in the account.

2. The adjustment made in December 2011 on cost of land with tax declaration under the name of the City Government of Marikina in the amount of P570.231 million debiting Land account and crediting the Land-Reconciling Items using the market value of the parcels of land resulted in the understatement of the Equity account by the difference between the market value (appraised cost) and the purchase cost of the said properties. On the other hand, the presence of reconciling items in the Land account in the same amount casts doubts on the accuracy/correctness of the account balance as of December 31, 2011. (Finding No. 1.2, page 29)

We recommended that Management:

a. Analyze the remaining accounts in the Land-Reconciling Items;

b. Ensure that the parcels of land included in the adjustment made are those previously included in the Land-Reconciling Items; and

c. Adjust the amount recorded in the adjustment made to effect the acquisition costs of the parcels of land with tax declaration under the name of the City.

3. Several items in the Property and Equipment accounts without acquisition costs reflected in the Property, Plant and Equipment Schedule amounting to P4.118 million still have accumulated depreciation which resulted in negative net book values for the affected accounts. (Finding No. 1.3, page 30)

We recommended that Management analyze the affected accounts and accordingly prepare the adjusting journal entries to reflect the correct balances of the accounts at year-end.

4. Ownership for parcels of land totalling 44,365.14 square meters acquired by the City for the period from 2006 to 2011 are evidenced only by either Deed of Absolute Sale, Deed of Forfeiture of Memorandum Agreement with Conveyances. (Finding No. 1.4, page 31)

We recommended that Management take steps to have the land titled in the name of the City to prove legal ownership on these parcels of land.

5. The following deficiencies were noted in the audit of the Inventory account:

5.1 Except for Office Supplies Inventory, the report on the result of physical count of the rest of the recorded inventory of supplies and materials of the City amounting to P63.540 million as of December 31, 2011 was not submitted,

iii contrary to Section 156 of COA Circular No. 92-386 dated October 20, 1992. (Finding No. 2.1, page 32)

5.2 Comparison between the Subsidiary Ledger (Accounting records) and the Stock Card (Warehouse records) of sampled inventory items as of December 31, 2011, also disclosed variances in quantity. (Finding No. 2.2, page 32)

5.3 Moreover, the unit cost of cement purchased during the year varied oddly from P195 per bag to P275 per bag while the price of cement was stable in CY 2011 per the Department of Trade and Industry price watch. We noted that the said prices varied depending on the supplier. (Finding No. 2.3, page 33)

a. Come up with an Inventory Report on the result of physical inventory. A copy of the said Report, including the reconciliation of any variance between the GSO and Accounting Records, should be furnished the Auditor’s Office at the prescribed period;

b. Reconcile variances between the balances per books and the warehouse records and make necessary adjustments to reflect the correct balances of the inventory accounts; and

c. Look into the varied prices of the same inventory items purchased from different suppliers.

6. Non-reversal of the fully paid accounts of the 798 beneficiaries of the Relocation Program of the City resulted in the overstatement of the payable account and understatement of the Income account. (Finding No. 3, page 34)

We recommended that Management require the Accounting Office and MSO to analyze the accounts concerning the Relocation Program, reconcile their records and make the necessary adjustments. To prevent the accumulation of paid/settled accounts in the payable account, we further recommended that the City Treasurer and the Officer in Charge of MSO to furnish the City Accountant with copies of the Certificates of Full Payment and the Status Report (with status of payment for each beneficiary), respectively.

7. Various payable accounts, which include Reconciling Items totalling P5.428 million, which are without details, casts doubts on the accuracy/correctness of the payable accounts as of December 31, 2011. (Finding No. 4.1, page 35)

We recommended that Management require the Accounting Office to analyze the Reconciling Items in the various payable accounts and to prepare necessary adjusting journal entries to reflect the correct balances of the accounts at year- end.

8. Guaranty Deposits Payable account totalling P1.413 million as of December 31, 2011 for which related transactions were undertaken in 2007 and earlier have been dormant for more than five years as well as abnormal (debit) balances

iv totalling P1.979 million under the Special Education Fund which have a negating effect resulting in the understatement of the account. Moreover, Reconciling Items totalling P735,319 which are without details are included in the account balance. (Finding No. 4.2, page 36)

We recommended that Management require the Accounting Office to analyze the dormant and abnormal balances and accordingly make the necessary adjustments. Reconciling Items should likewise be analyzed and broken down to names of recipients/claimants. Existence of the claims should be determined.

9. Account Other Receivables revealed that 93.65 per cent or P7.388 million of the account total represents dishonored checks in payment of real property, business and other taxes or fees as of December 31, 2011. (Finding No. 5, page 36)

We recommended that Management exert extra efforts to collect the soonest possible time, the accounts representing dishonored checks.

We also recommended that Management discontinue accepting check payments from those whose checks have been previously dishonored by the bank; thus, the City Treasury Office should maintain a master list of these taxpayers. Management should likewise adopt a policy regarding the matter.

10. Non-compliance with the full provisions of RA 10121, otherwise known as the “Philippine Disaster Risk Reduction and Management Act of 2010”, non- implementation of City Ordinance No. 32, Series of 2011, and unavailability of a Disaster Risk Reduction and Management Plan, precluded the City to effectively manage their budgeted fund for Local Disaster Risk Reduction and Management. (Finding No. 6, page 38)

We recommended that Management look into the immediate and full implementation of RA 10121 and City Ordinance No. 32, Series of 2011 in order that necessary plans for risk reduction and the proper utilization of the fund can be attained/achieved.

11. Priority Development Assistance Fund (PDAF) totalling P8.771 million granted to the City of Marikina by Congressional Representatives and Senators for specific purposes and recipients was not utilized or fully utilized, as to its purpose; thus, depriving the constituents of the maximum benefits that could be derived therefrom. (Finding No. 7, page 39)

We recommended that Management utilize fully the PDAF granted to the City. 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. 529 dated February 21, 2011.

12. Surcharge and interest imposed on late payments of business tax were not in accordance with the provisions of Sections 167 and 168 of RA 7160 resulting in financial loss. (Finding No. 8, page 41)

v a. impose and collect surcharge and interest from business establishments who pay business taxes after the January 20 deadline or of each subsequent quarter in compliance with Section 168 of RA 7160; and

b. require that related provisions of Ordinance No. 12, s. 1998 on the procedures for the payment of license fees and fixing the date of payment be amended/revised to conform to Sections 167 and 168 of RA 7160.

13. Analysis of the submitted copies of CY 2011 Purchase Orders disclosed that the City outsourced the printing of tarpaulins despite the City’s own equipment (tarpaulin printer) and personnel in charge for the printing of the same. Also, bid documents and other pertinent supporting documents were not attached to the disbursement vouchers and said deliveries of tarpaulin materials were charged directly to expense. (Finding No. 9, page 42)

We recommended that Management properly plan its purchases to ensure availability of supplies in sufficient quantities and to avoid overlapping of transactions. Bid documents should be attached to the disbursement vouchers and the purchased tarpaulin materials should be recorded to the inventory account.

14. Copies of Contracts together with all supporting documents were not submitted to the City Auditor’s Office on time contrary to Section 3.1 of COA Circular No. 2009-001 dated February 12, 2009. (Finding No. 10, page 43)

We recommended that Management require officials concerned to submit on the prescribed time as stated under COA Circular No. 2009-001, copies of contracts and to set up a mechanism in the routing of the required documents.

Other observations are discussed in detail in Part II of this Report.

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

Of the 12 audit recommendations contained in the previous year’s Annual Audit Report, six were fully implemented, five were partially implemented and one was not acted upon by the agency.

vi TABLE OF CONTENTS

PAGE PART SUBJECT NO.

I AUDITED FINANCIAL STATEMENTS

 Independent Auditor’s Report 1

 Statement of Management Responsibility for Financial Statements 3  Consolidated Balance Sheet 4  Consolidated Statement of Income and Expenses 7  Consolidated Statement of Cash Flows 12  Notes to Consolidated Financial Statements 13

II DETAILED AUDIT FINDINGS AND RECOMMENDATIONS

 Financial and Compliance Audit 27

III STATUS OF IMPLEMENTATION OF PRIOR YEAR’S AUDIT RECOMMENDATIONS 46

IV ANNEXES

Annex A Consolidated Balance Sheet (By Fund) 50 Annex B Consolidated Statement of Income and Expenses (By Fund) 53 Annex C Consolidated Statement of Cash Flows (By Fund) 57

Annex D Statement of Appropriations, Allotments, Obligations and Balances (By Fund) 58 PART I

AUDITED FINANCIAL STATEMENTS Republic of the Philippines COMMISSION ON AUDIT Commonwealth Avenue, Quezon City

INDEPENDENT AUDITOR’S REPORT

HON. DEL R. DE GUZMAN City Mayor City of Marikina

We were mandated by the 1987 Constitution to audit the accompanying financial statements of the City of Marikina, which comprise the Balance Sheet as of December 31, 2011, and the Statements of Income and Expenses and Cash Flows for the year then ended, and the summary of significant policies and other explanatory notes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with generally accepted accounting principles in the Philippines and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Philippine Standards on Auditing. These standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatements.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes assessing the accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. :

Consolidated Financial Statements Pages 4 – 12

2 3 Consolidated Financial Statements Pages 4 – 12

See MS Excel File

4 NOTES TO FINANCIAL STATEMENTS (All amounts in Philippine Peso unless otherwise stated)

1. General/Agency Profile

The City of Marikina was created on July 20, l996 by virtue of Republic Act No. 8223. The City comprises of 16 barangays and two Congressional Districts with the passage of Republic Act No. 9364.

For the year 2011, the focal point of Mayor Del R. De Guzman’s governance is still the people. The status of living of people, particularly the vulnerable members of society, provides the most important yardstick of community management. Much has been done on infrastructure development and other areas of community building, and it is high time that efforts be geared toward human upliftment. The present administration has adopted its governance philosophy, “Tunay na Kaunlaran, Tao Naman”. Mayor Del R. De Guzman shifted the focus of governance on people especially on the vulnerable sectors and less privileged constituents.

The 7K program of the city translates this philosophy into concrete action and results in the areas of Health (Kalusugan), Education (Karunungan), Peace and Order (Kapayapaan at Kaayusan), Livelihood (Kabuhayan), Environment (Kalikasan), Housing (Katiyakan sa Paninirahan), and Good Governance (Katapatan at Makataong Paglilingkod).

Among the priority projects in the areas of the 7K program are the following:

KABUHAYAN  Facilitate the registration of new business establishments  Hiring of volunteers by the City Government with the attendant provision of opportunities to hone skills and earn income  Reactivation of the Marikina Shoe Commission  Establishment of the Marikina Shoe Trade Fair  Conduct of various capability building programs  Facilitate employment of job seekers through various jobs fair

KARUNUNGAN  Completion of College Education Program for City Employees  Establishment of new and bigger City Library  Repair and rehabilitation of public schools damaged by “Ondoy”  Completion of SSS and St. Mary Elementary Schools  Revitalization of PLMAR for better organization and implementation of quality education  Integration of Gender and Development into DepEd’s Alternative Learning System

13 KALUSUGAN  Expansion of PHILHEALTH beneficiaries  Acquisition of new dental chairs and instruments to replace those damaged by “Ondoy”  Upgrading of the various facilities in the Marikina Sports Center  Establishment of Nangka Health Center  Transfer of Kalumpang and Sta. Elena Health Centers to new locations

KAPAYAPAAN AT KAAYUSAN  Establishment of Marikina Anti-Drug Abuse Council Office  Renovation of Marikina Rehabilitation Center  Organization of Local Disaster Risk Reduction and Management Council  Upgrading of street lights in major thoroughfares  Retooling of the local PNP with the provision of new vehicles and equipments

KAPALIGIRAN/KALIKASAN  Installation of two (2) more Septage Treatment Facilities in partnership with the Manila Water Company  Zero Garbage visibility  Relocation of Material Recovery Facility to a more appropriate site  Reactivation of Marikina Bikeways Office  Expansion of the River Park Development to include the development of ground golf facilities, edible park and empty lot farming

KATIYAKAN SA PABAHAY  Demolition of new illegally constructed structures in settlement sites to give way to legitimate beneficiaries  Improvement in the Community Mortgage Program (CMP) collection efficiency rate  Facilitate take-out to beneficiaries under the Marikina Originated CMP Project

KATAPATAN, KAHUSAYAN SA PAMAMAHALA AT MAKATAONG PAGLILINGKOD  Implementation of the Simplified Business Transaction Process  Expansion of Wide Area Network  Establishment of the Marikina Control Facility (a central monitoring and dispatch center)

The City maintains three (3) funds: the General, Special Education and Trust Funds. Likewise, special accounts are maintained under the General Fund books for the 20% Development Fund and the operation of economic enterprises, namely: Marikina Hotel, Pamantasan ng Lungsod ng Marikina (PLMAR), and Marikina Sports Park (MSP).

14 2. Summary of Significant Accounting Policies

Basis of Financial Statement Preparation The consolidated financial statements have been prepared in accordance with the Generally Accepted State Accounting Principles and Standards.

Revenue and Expense Recognition Separate registries are maintained to monitor appropriations, allotments and obligations.

The agency uses accrual basis of accounting for expenses. Under this method, all expenses are recognized when incurred and reported in the period to which they relate. The agency adopts the modified accrual method of accounting for Real Property Taxes. Other taxes, fees and charges and other revenues, as well as Internal Revenue Allotments, are accounted on cash basis.

Financial expenses such as interest expense are separately classified from maintenance and other operating expenses.

Inventories Supplies and materials purchased for inventory purpose are recorded using the perpetual inventory system. Regular purchases are coursed thru the inventory account and issuances thereof are recorded as they take place except those purchased out of petty cash fund which shall be for immediate use and not for stock. Such case shall be charged immediately to the appropriate expense accounts. Cost of ending inventory of supplies and materials are computed using the moving average method.

Receivable Real Property Tax Receivable and Special Education Tax Receivable are established at the beginning of the year based on RPT Account Register/Taxpayers Index Card submitted by the Treasurer’s Office.

Property and Equipment The costs of public infrastructures, such as roads, bridges and other infrastructures for general public use are excluded from the Property and Equipment account and recorded in the Registry of Public Infrastructures.

Infrastructures under construction are valued following the construction period theory.

Property and equipment are carried at cost less accumulated depreciation. For donated land which cost cannot be determined, valuation were made at market value.

The straight-line method of depreciation is used in depreciating property and equipment with estimated useful lives ranging from five (5) to fifty years. A residual value equivalent to ten percent of the cost of asset is set and depreciation starts on the following month after purchase/construction.

15 Payable Payable accounts are recognized and recorded in the books of accounts only upon acceptance of the goods/inventory and rendition of services to the agency.

3. Cash

This account is broken down as follows:

2011 2010

General Fund Cash in Vault 2,578,067 1,849,429 Cash - Disbursing Officers 15,021,430 43,706 Cash in Bank - Local Currency , Current Account 454,195,862 630,115,980 Cash in Bank - Local Currency, Time Deposits 566,435,299 291,853,181 1,038,230,658 923,862,296

Special Education Fund Cash in Vault 388,445 585,252 Cash in Bank - Local Currency , Current Account 42,250,765 31,745,254 Cash in Bank - Local Currency, Time Deposits - 52,556,323 42,639,210 84,886,829

Trust Fund Cash in Vault 9,718 118,989 Cash - Disbursing Officers 182,082 - Cash in Bank - Local Currency, Current Account 54,079,751 52,636,733 Cash in Bank - Local Currency, Time Deposits 55,919,445 54,167,225 110,190,996 106,922,946 1,191,060,864 1,115,672,072

The Cash in Vault account consists of collections from real property taxes, fees, charges and other revenues at year end which were deposited on January 2 to February 7, 2012.

Cash in Bank-Local Currency, Current account represents bank deposits under interest- bearing current account for the General, Special Education and Trust Funds.

Cash – Disbursing Officers include cash advances granted to Mayor Del R. De Guzman amounting to P15,000,000.00 for Confidential and Intelligence activities; Evelina P. Elen amounting to P11,430.00 for the renewal of permit to carry and surety bond of firearms and registration/emission test/insurance of RP vehicles; Rommel C. Felipe amounting to P10,000.00 for the transfer of license and permit to carry firearms; and Soledad S. Solomon amounting to P182,082.38 for the Feeding Program of Congressman Miro Quimbo and DSWD.

16 Cash in Bank-Local Currency, Time Deposit account consists of excess funds placed in Philippine Veterans Bank and Land Bank of the Philippines-Marcos Highway Branch.

4. Receivables

This account includes the following:

2011 2010

General Fund Due from Officers and Employees 136,946 151,846 Loans Receivable - Others 329,458 329,458 Real Property Tax Receivable 335,789,721 236,965,372 Due from NGAs 32,467,257 44,141,242 Other Receivables 7,382,406 7,326,327 376,105,788 288,914,245

Special Education Fund Special Education Tax Receivable 162,853,421 128,004,946 Other Receivables 506,887 504,985 163,360,308 128,509,931

Trust Fund Due from Officers and Employees 49,621 49,621 Loans Receivable - Others 35,500 35,500 Due from NGAs - 5,232 Other Receivables - 1,324,000 85,121 1,414,353 539,551,217 418,838,528

The Due from Officers and Employees account substantially consists of bike loans under the Bike Loan Program for City employees payable in six months as salary deduction and advances to employees for their seminar and trainings.

The account Loans Receivable - Others represents loan assistance to the community under the Community Mortgage Program, as per Sangguniang Panlungsod Resolution No. 2000, series of 2003. The assistance is extended to qualified borrowers who are residents of the City, payable in six months with an interest of five percent per annum. Also included in this account is the Livelihood Loan assistance under the “Isang Bayan, Isang Produkto, Isang Milyong Piso Programa” of former President Gloria M. Arroyo.

Included in the account Due from NGAs is the balance of the CYs 2000 and 2001 unprogrammed Internal Revenue Allotment (IRA) from the Department of Budget and Management (DBM), for Local Government Units which did not avail of the IRA monetization program, amounting to P13.632 million and P20.448 million as of December

17 31, 2011 and 2010, respectively. It also consists of the balance of IRA differential from DBM due to the reenactment of the General Appropriations Act for CYs 2001 and 2004 amounting to P18.734 million, and P23.418 million as of December 31, 2011 and 2010, respectively. Also included in the account is the overpayment of Community Tax Certificate to Bureau of Internal Revenue amounting to P28,116 and P175,716 as of December 31, 2011 and 2010, respectively.

Other Receivables include dishonored checks in the amount of P1.028 million from payment of real property taxes in prior years which are uncollectible due to absence of document. A request for an authority to write-off has already been made.

5. Inventories

This account consists of the following:

2011 2010

General Fund Office Supplies Inventory 7,156,558 6,425,654 Accountable Forms Inventory 1,597,620 265,574 Drugs and Medicine Inventory 3,715,529 2,772,056 Medical, Dental and Laboratory Supplies Inventory 1,796,275 1,807,528 Other Supplies Inventory 2,239,586 1,374,291 Construction Materials Inventory 54,190,896 39,579,532 70,696,464 52,224,636

The Construction Materials Inventory consists of construction and materials for the repair and maintenance and the construction of agency assets by administration.

6. Prepayments

The account consists of the following:

2011 2010

General Fund Prepaid Insurance 1,100,222 692,402 Advances to Contractors 1,242,249 1,756,549 2,342,471 2,448,951 Special Education Fund Advances to Contractors - 78,976 - 78,976 2,342,471 2,527,927

18 The Prepaid Insurance represents the unexpired portion of prepaid insurance for property and equipment of the City.

Advances to Contractors account represents 15 per cent mobilization fee granted to Square Meter Trading and Construction for the construction of Marikina Sports Park Building.

7. Investments in Securities

This account consists of Investments in Stocks amounting to P1.198 million and P320,540 for the General Fund and Special Education Fund, respectively, representing 151,614 preferred shares with Meralco at P10.00/share.

8. Property and Equipment

This account consists of the following:

2011 2010 General Fund Land 1,038,323,533 1,069,224,717 Land Improvements 225,143,345 231,269,297 Buildings 1,178,466,266 1,067,843,359 Office Equipment, Furniture and Fixtures 85,973,097 81,948,690 Machineries and Equipment 168,965,315 106,963,140 Transportation Equipment 127,070,237 130,583,484 Other Property and Equipment 84,382,967 76,797,613 2,908,324,760 2,764,630,301 Accumulated Depreciation (248,065,380) (200,250,754) 2,660,259,380 2,564,379,546 Construction in Progress 158,558,870 266,480,335 2,818,818,250 2,830,859,882

Special Education Fund Buildings 693,965,510 636,549,318 Office Equipment, Furniture and Fixtures 17,019,017 18,487,110 Machineries and Equipment 25,191,881 25,214,321 Transportation Equipment 3,105,000 3,105,000 Other Property and Equipment 24,796,568 23,282,192 Public Infrastructures - 2,491,736 764,077,976 709,129,677 Accumulated Depreciation (49,758,201) (28,595,917) Balance carried forward 714,319,775 680,533,760 Balance forwarded 714,319,775 680,533,760

19 Construction in Progress 31,480,458 83,212,058 745,800,233 763,745,818

Trust Fund Office Equipment, Furniture and Fixtures 261,215 261,215 Machineries and Equipment 73,115 73,115 Transportation Equipment 286,720 286,720 Other Property, Plant and Equipment 283,831 283,831 Public Infrastructures 61,497,617 61,497,617 62,402,498 62,402,498 Accumulated Depreciation (690,633) (700,525) 61,711,865 61,701,973 Construction in Progress 3,030,923 5,448,699 64,742,788 67,150,672 Total Net Book Value 3,629,361,271 3,661,756,372

Most of the property and equipment were acquired prior to CY 2002. The depreciation reflected in the books pertains to assets which were acquired by the City from CY 2002 to present. For assets acquired prior to CY 2002, appraisal of PPEs will be undertaken to serve as basis for the computation of depreciation. Included in the account are property and equipment of Marikina Hotel amounting to P2.561 million which was declared lost by the General Services Office after the take over from Prime Global last November 26, 2011.

Land represents the value of lot located at Barangay Sta. Elena, Marikina City where the City Hall is located and other lots acquired by the agency.

The decrease of P162.071 million in Construction in Progress, represents finished projects reclassified to account, Public Infrastructures.

9. Other Assets

2011 2010

General Fund 49,506,209 49,506,209 Special Education Fund 880,324 -

50,386,533 49,506,209

This account consists of various obsolete and unserviceable property of the agency.

10. Current Liabilities

20 This account is broken down as follows:

2011 2010

General Fund Accounts Payable 113,226,012 151,789,176 Due to Officers and Employees 21,713,067 15,563,891 Due to BIR 1,862,580 3,861,724 Due to GSIS 10,593,328 10,580,780 Due to PAG-IBIG 1,611,819 1,581,993 Due to PHILHEALTH 587,861 596,041 Due to Other NGAs 62,029,295 54,957,696 Due to LGUs 2,663,154 30,850,486 Due to Other Funds - 655 Guaranty Deposits Payable 1,129,721 1,129,721 Other Payables 35,748,746 33,812,934 251,165,582 304,725,097

Special Education Fund Accounts Payable 3,375,428 26,639,709 Due to Officers and Employees 12,992 15,805 Due to BIR 182,068 27,574 Due to GSIS 150,461 135,002 Due to PAG-IBIG 31,441 29,447 Due to PHILHEALTH 31,842 28,779 Guaranty Deposits Payable 178,685 178,685 Other Payables 26,008 11,760 3,988,924 27,066,761

Trust Fund Due to BIR 6,707 4,766 Due to Other NGAs 28,719,732 11,782,821 Due to LGUs 23,635,427 21,660,751 Guaranty Deposits Payable 106,020 106,020 Performance/Bidders/Bail Bonds Payable 7,049,428 7,688,689 Trust Liability - DRRMF 67,583,117 - Other Payables 43,925,346 55,032,145 171,025,777 96,275,192 426,180,283 428,067,050

The Accounts Payable represents the amount due to suppliers and contractors for the delivery of goods and services for the year 2011 and prior years.

21 The Due to Officers and Employees account significantly consists of unclaimed salaries and terminal leave pay of city employees.

The Due to BIR, GSIS, PAG-IBIG and PHILHEALTH are the amounts payable for withheld taxes, premiums and loan payments. The following balances of the amount due to national government agencies and government-owned and/or controlled corporations were remitted on February 10, 2012:

Bureau of Internal Revenue 2,013,501 Government Service Insurance System 8,901,768 Home Development Mutual Fund 1,525,883 Philippine Health Insurance Corp 617,500 13,058,652

The Due to Other NGAs represents the 5 per cent contribution of the City to MMDA and Priority Development Assistance Fund of various senators and congressmen.

The Due to LGUs represents payable to various barangays as part of advance payment of Real Property Tax for 2011.

The Guaranty Deposits Payable represents 10 per cent retention fee from contractors for various projects implemented by the agency.

The Performance/Bidders/Bail Bonds Payable are liabilities arising from the receipt of cash to guarantee the performance of contract/court order.

The Other Payables account includes collection for the account of housing beneficiaries under the Emergency Relocation Center of which 798 beneficiaries have fully paid their balances. Adjustment on the account will be made upon submission of the Marikina Settlements Office and Treasurer’s Office of the list of fully paid beneficiaries. Also included are the account of private entities or institutions as bond for existing projects of contractors, and supervision and restoration deposits of the Philippine Long Distance Telephone (PLDT), Manila Water Sewerage System (MWSS) and other contractors.

11. Long-Term Liabilities

This account consists of the balance of the City’s P500 million loan from the Philippine Veterans Bank (PVB) which was acquired in August 25, 2006 and will mature on November 17, 2013. This was approved thru Sangguniang Resolution No. 59 dated April 5, 2006 for various infrastructure projects of the City.

12. Deferred Credits

22 This account consists of:

2011 2010 General Fund Deferred Real Property Tax Income 335,789,721 236,965,372 Other Deferred Credits 9,103,405 15,578,630 344,893,126 252,544,001 Special Education Fund Deferred Special Education Tax Income 162,853,421 128,004,946 Other Deferred Credits 14,266,047 17,853,124 177,119,468 145,858,070 522,012,594 398,402,071

Other Deferred Credits account consists of real property tax payments which are under protest due to the increase in real property taxes that took effect in Calendar Year 2002, and advance payment of Real Property Tax for 2012. It also includes Interest Free Loan for City Employees who were victims of typhoon “Ondoy” as per City Ordinance No. 151, series of 2009.

13. Government Equity

The change in the balance of the account is as follows:

2011 2010 Government Equity, Beginning 4,303,481,958 4,754,105,546 Adjustment to Beginning Balance (6,091,366) 5,435,289 Add: Net Income 184,215,532 302,924,514 Total 4,481,606,124 5,062,465,349 Add (Deduct) Prior Years' Adjustment a. Additions Interest Earned 425 - Refund of Salaries 15,793 32,962 Reversion of Accounts Payable 53,701,964 76,325,547 Reclassification of Account 12,914 2,470,220 Reversion of Expense 17,533,749 4,650,710 Overpayment to Suppliers - 50,572 Lost PPE 810 - Returned Bond 189,375 1,013,496 Internal Revenue Allotment - 7,963,429 Reversion of Paid Under Protest 548 6,051,482 Unrecorded Income - 16,620 Inter-fund Transfer 24,365,094 1,966,668 Double Entry - 136,600 Adjustment on PPE 270,480 96,091,152 2,779,000 103,457,307 b. Reduction Liquidation of Cash Advance 23,936 15,500

23 Refund of Collection - 246,246 Payment of Salaries 962,005 719,348 Other MOOE 326,041 151,800 Reversion of Accounts Payable 617,939 7,642,250 Repairs and Maintenance - 131,789 Unrecorded Issuance of Inventory 69,826 - Depreciation Expense 801 336,375 Supplies Expense - 1,383,172 Communication Expense 3,020 594 Inter-fund Transfer - 16,514,044 Reclassification of Account 17,286,807 2,962,552 Adjustment of PPE 66,661 (19,357,036) 3,062,606 33,166,276 Deduct: Receipt/Transfer of PPE/ Public Infrastructures 7,401,074 Completed Infrastructures 2,417,776 600,671 Transfer to Registry: Roads, Highways and Bridges 47,190,532 689,560,176 Parks, Plazas and Monuments 743,960 14,889,965 Irrigation, Canals and Laterals 4,233,858 65,265,991 Waterways, Aqueducts, Seawalls, River Walls and Others 15,808,311 - Other Public Infrastructures 16,807,117 (87,201,554) 67,560,035 (829,274,423) Government Equity, End 4,471,138,686 4,303,481,958

14. Operating Income

The City realized an aggregate income of P1.524 billion or an increase of P533,631 from last year’s P1.523 billion.

Operating Income consists of Tax Revenue of P679.307 million from P707.567 million last year resulting to a decrease by P28.261 million or 3.99 per cent due to the reduction of Real Property Tax by 50 per cent as per City Ordinance No. 88, Series of 2010, and General Income of P845 million from P816.205 million last year with an increase of P28.795 million or 3.53 per cent. Share in the Internal Revenue Allotment increased by P38.352 million or 7.12 per cent.

15. Expenses

Total operating and financial expenses of P1.340 billion registered an increase of P140.496 million or 11.77 per cent from last year’s P1.200 billion.

The expenses were classified as follows: Current Operating Expenses, P1.198 billion, Financial Expenses, P5.360 million, Subsidies, Donations and Extraordinary Expenses, P136.694 million.

24 16. Local Disaster Risk Reduction Management Fund (LDRRMF)

The LDRRMF represents the amount set aside by the LGU to support its disaster risk management activities pursuant to RA 10121, otherwise known as the “Philippine Disaster Risk Reduction and Management Act of 2010”. The amount available and utilized during the year totaled P146,439,876 and P8,701,713, respectively, broken down as follows:

Amount Particulars Available Utilized Balance

Current Year Appropriation: 2011 Quick Response Fund (QRF) 22,805,199 4,235,649 18,569,550 Mitigation Fund (MF) MOOE 53,212,131 4,198,564 49,013,567 Capital Outlay Total 76,017,330 8,434,213 67,583,117 Continuing Appropriation: 70,422,546 267,500 70,155,046 Special Trust Fund - - Total 146,439,876 8,701,713 137,738,163

17. Other Matters

City Government of Marikina represented by its City Treasurer, Ricardo L. Castro Versus Primeglobal Hotels, Inc., and/or John Rex T. Tiu, in his capacity as the Corporate Treasurer, Incorporator and members of the Board of Directors, Lei P. Tiu, Eric A. Acejo, Marian Michelle E. Mazo and Dominic Frederick D. Francisco, in Their capacities as Incorporators and members of the Board of Directors, Civil Case No. 11-1477-MK, Regional Trial Court, Branch 272, Marikina City.

The above-entitled case is a complaint for Collection of Sum of Money with Damages with Application for Writ of preliminary Attachment against above-named defendants for their failure to comply with their obligation under the Contract of Lease dated April 8, 2011 over the Marikina Hotel and Convention Center in the total amount of P11,709,159.15, broken down as follows:

P 6,000,000.00 - Unpaid rent from June to November 2011 (note: City took over the leased premises on November 26, 2011 2,394,591.58 - Meralco Bill 39,096.50 - PLDT Bill 469,636.07 - value of lost properties 215,214.00 - receivables from hotel clients P11,709,159.15

The Honorable Court in its Order dated January 13, 2012 granted the application for writ of preliminary attachment which should only be issued against defendant Primeglobal Hotels,

25 Inc. and required the City to post a bond in the amount of P2,000,000. However, in its Order, it declared that the amount due to the City should only be P7,709,159.15 considering that Primeglobal paid the City P2M as advance rent and P2M as security deposit.

The possible contingent claims of the City would be in the amount of P7,709,159.15 (P11,709,159.15 – P4Million, advance rent and deposit), exclusive of interests, other unpaid utility bills (water) and other damages as may be awarded by the court.

26 PART II

DETAILED AUDITED FINDINGS AND RECOMMENDATIONS DETAILED AUDIT FINDINGS AND RECOMMENDATIONS

Financial and Compliance Audit

1. Deficiencies noted in the audit of Property and Equipment

1.1. Net variance amounting to P96.252 million between the Result of Physical Inventory and balances per Books of the Property and Equipment account was not reconciled by the General Services Office and Accounting Office, thus, rendering the account balance doubtful.

In our previous audits, it has been observed that the variance between the physical inventory and balance per books of the Property and Equipment account was not reconciled by the General Services Office (GSO) and Accounting Office, thus, rendering the account doubtful.

Our audit of the CY 2011 transactions of the account also revealed a net variance of P96,252,243 between the balance per books as of December 31, 2011 and the result of the annual physical inventory conducted by the GSO as shown in Table 1.

Table 1 - Variance between balance per books and physical inventory (excluding the Construction in Progress)

Per Inventory Per Books Variance Report General Fund P 2,908,324,760 P 3,524,211,408 (P 615,886,648) Special Education Fund 764,077,977 51,939,086 712,138,891 P 3,672,402,737 P 3,576,150,494 (P 96,252,243)

Section C.3 Chapter V of the Manual on Property Custodianship states that:

“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 stock cards maintained by the Property and supply ledger cards maintained by the Accounting and finally against the control accounts. On the other hand, the inventory listing of equipment shall be checked with the property card maintained by the Property as against the equipment ledger cards maintained by the Accounting and the total thereof shall be compared with those in the general ledger”

Moreover, Section 491, Volume I of the Government Accounting and Auditing Manual (GAAM) provides that:

“All discrepancies between physical and book inventories must be investigated and cleared immediately. If necessary, written explanations shall be required from persons responsible”

27 We also noted that a substantial amount of the balances per books of the various property and equipment represents reconciling items which amounted to P732,328,250 as of December 31, 2011 as shown in Table 2. Reconciling items refer to those balances of the accounts, which cannot be identified, or those accounts without details.

Table 2 – Reconciling items per Property and Equipment classification and corresponding Accumulated Depreciation

Accumulated Depreciation Property Reconciling Items as of December 31, 2011 and Equipment General SEF Total General SEF Total Fund Fund P323,667,5 P323,667,5 Land 28 28

Land 225,143,34 225,143,34 P 2,106,835 P Improvement 5 5 2,106,835 Office 116,034,65 116,034,65 16,534,64 Buildings 7 7 16,534,641 1 School P P31,996,57 43,255,35 Buildings 5,475,119 6,071,370 11,546,488 11,258,780 2 2 Markets and Slaughterhous 4,493,710 4,493,710 es 6,712,410 6,712,410 Other 21,083,08 Structures 14,253,201 849,363 15,102,564 21,083,083 3 Office Equipment 17,878,188 635,805 18,513,994 2,759,573 1,319,082 4,078,655

IT Equipment 16,891,491 22,057,94 and Software 92,240 92,240 5,166,458 9 Other Machineries and 2,493,227 2,494,125 Equipment 434,298 434,298 898 Other Transportatio n Equipment 478,000 478,000 2,508,794 2,508,794 Other Property and 33,845,769 37,646,21 Equipment 14,602,726 14,602,726 3,800,441 0 P P23,163,8 P732,328,2 P113,975,9 P42,283,4 P156,259, 709,164,4 02 50 04 50 354 48

While we recognize the efforts of the GSO and Accounting Office for the reconciliation of the said variances which led to a significant decrease from P691,000,000 of the previous year to only P96,252,243 for CY 2011, the presence of the Reconciling Items in the balances per books, notwithstanding the unreconciled variance, casts doubts on the accuracy/correctness of the recorded balances. Since the property items in the Reconciling Items cannot be identified, these are possibly not included in the property records of GSO; thus, the total variance will now total to P828,580,493. Moreover, the difference between the market value (appraised cost) and the purchase cost of the parcels of land adjusted in the Reconciling Items noted in Finding 1.2 below, will also add up to the total variance.

28 Consequently, the accumulated depreciation of those property classifications with Reconciling Items amounting to P156,259,354 as of December 31, 2011 as presented in Table 2, is understated because depreciation was not computed on the Reconciling Items. Also, the yearly depreciation is understated and the income for each year is then overstated.

We reiterated our previous years’ recommendation that the City Accountant, in coordination with the GSO, fast track the analysis and reconciliation of the balances per books with the property records. Also, for properties whose values cannot be determined, their estimated values as well as their remaining useful lives may be assigned by an appraisal committee.

We further recommended that extra effort be exerted in the analysis of the accounts in the Reconciling Items and accordingly prepare adjusting journal entries to reflect the correct balances of the affected accounts at year-end. The Accounting Office may secure list/s from other departments of the City concerning the items that were possibly included in the account.

Management appreciated that their efforts to decrease the difference between the balance per book and physical inventory of the GSO has been recognized. It will serve as their inspiration to fast track the analysis and on-going reconciliation. Concerning the reconciling items which are classified under the Property and Equipment account without detailed breakdowns, actual physical inventory of the GSO is a big help to correct the account. Management also replied that as per properties whose values cannot be determined, an indorsement letter had already been sent to the appraisal committee to determine their estimated value as well as their remaining useful lives.

1.2. Erroneous valuation of land adjusted in the Reconciling Items account

In December 2011 an adjusting entry was made on cost of land with tax declaration under the name of the City Government of Marikina debiting the Land account and crediting the Land-Reconciling Items amounting to P570,230,834. Reconciling items refer to those balances of the accounts, which cannot be identified, or those accounts without details. These accounts have been in the books since 2004 or earlier.

Our verification of the said adjusting entry disclosed that market values were used to record the adjustment. If these parcels of land were confirmed to be part of those previously debited under the Land-Reconciling Items account, the market value should not be credited but rather the purchase cost of the land because the said market value is not yet the cost of these lands at that time the balances were recorded in the Reconciling Items account in 2004 or earlier. The difference between the market value (appraised cost) and the purchase cost of these pieces of land should be recorded crediting an Equity account.

Further, we noted that except for those recorded under the said adjustment, parcels of land acquired by the City are recorded at purchase cost. Generally accepted accounting principles provides that if an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which

29 that asset belongs shall be revalued. The increase shall be recognized and accumulated in equity.

The adjustment made crediting the Land-Reconciling Items using the market value of the parcels of land resulted in the understatement of the Equity account by the difference between the market value (appraised cost) and the purchase cost of the said parcels of land. On the other hand, the presence of reconciling items in the Land account casts doubts on the accuracy/correctness of the account balance as of December 31, 2011.

a. Analyze the remaining accounts in the Land-Reconciling Items;

b. Ensure that the parcels of land included in the adjustment made are those previously included in the Land-Reconciling Items; and

c. Adjust the amount recorded in the adjustment made to effect the acquisition costs of the parcels of land with tax declaration under the name of the City.

1.3. Property and Equipment with zero acquisition costs but with accumulated depreciation

Several items in the Property and Equipment accounts without acquisition costs reflected in the Property, Plant and Equipment Schedule and as shown in Table 3 below, still have accumulated depreciation which resulted in negative net book values for the affected accounts.

Table 3 – Property and Equipment with zero acquisition cost but with accumulated depreciation

Acquisition Accumulated Cost Depreciation Construction and Heavy Equipment 0 P 710,062 Land Improvement 0 2,731,873 IT Equipment and Software 0 151,953 Medical, Dental and Laboratory Equipment 0 1,867 Technical and Scientific Equipment 0 44,522 Other Machineries and Equipment 0 31,834 Motor Vehicles 0 368, 646 Other Property, Plant and Equipment 0 76,902 Total P 4,117,659

These items were acquired in various dates from 2002 to 2008 and with estimated useful lives that range from five to 30 years. The occurrence of such transactions casts doubts on the accuracy and correctness of the Property and Equipment and the depreciation expense and income for the year and prior years.

30 We recommended that Management analyze the affected accounts and accordingly prepare the adjusting journal entries to reflect the correct balances of the accounts at year-end.

Management has subsequently adjusted the affected accounts. Upon our evaluation of the adjustment, however, we noted that there was no analysis made on the accounts. The basis of the said adjustment was merely the Audit Observation Memorandum. The details comprising the balances of the accounts should first be identified/analyzed before any adjustment is made.

1.4. Ownership for parcels of land totalling 44,365.14 square meters acquired by the City for the period from 2006 to 2011 are evidenced only by either Deed of Absolute Sale, Deed of Forfeiture or Memorandum of Agreement with Conveyances.

Land title refers to that upon which ownership is based. The Certificate of Land Title is the best evidence of ownership. It is the evidence of the right of the owner or the extent of his interest, and by which means he can maintain control and as a rule assert right to exclusive possession and enjoyment of the property (Registration of Land Titles and Deeds by Pena, Pena, Jr., Pena, 1994 Edition).

Inspection made on the proof of ownership of land owned by the City disclosed that parcels of land with a total area of 44,365.14 square meters, with total acquisition cost of P20,598,762 (excluding those which were acquired through Deed of Forfeiture), are only evidenced by either Deed of Absolute Sale, Deed of Forfeiture or Memorandum of Agreement with Conveyances. These pieces of land, which were purchased by the City for the period from 2006 to 2011, remain untitled or titles were not yet transferred in the name of the City as of December 31, 2011.

Deed of Forfeiture was executed for delinquent real property taxpayers whose property was auctioned to satisfy said obligations. Said auctions are being forfeited in favor of the City when there is failure of any bidder to bid the total amount satisfying the delinquent real property tax. On the other hand, Memorandum of Agreement with Conveyances was made for parties whose lots will be affected by a proposed road widening project and other project of the City. To avoid tedious and expensive process of expropriation, the party and the City amicably settled thereby the affected owner of the lot cedes, transfers and conveys absolute ownership of the lot to the City.

We recommended that Management take steps to have the land titled in the name of the City to prove legal ownership on these parcels of land.

Management submitted a status/list of properties acquired by the City pending transfer of Transfer Certificate of Title (TCT) in its name. Among the various remarks/status in the said list include- still for application for segregation and approval of Subdivision Plan before the Land Registration Administration; for assessment of capital gains tax and documentary stamp tax; expropriation case on going, etc. Management claimed that the title for land with a total area of 3,443.25 sq.m. were already transferred in the name of the City.

31 Upon verification, however, the TCTs of the total land area of 3,443.25 sq.m. are among the TCTs which we have already counted during the ocular inspection, thus, the total area of 44,365.14 square meters remain untitled in the name of the City.

2. Deficiencies noted in the audit of the Inventory account

2.1. Inventory Report not submitted

Except for Office Supplies Inventory, the report on the result of physical count of the rest of the recorded inventory of supplies and materials of the City amounting to P63,539,904 as of December 31, 2011 was not submitted, contrary to Section 156 of COA Circular 92-386 dated October 20, 1992 which states that:

“Sec. 156 – Annual Inventory of Supplies or Property – The local chief executive shall require an annual physical inventory of all supplies or property of the local government unit as of December 31 of each year, to be conducted by office or department by a committee of three (3) consisting of the representative of the local chief executive as chairman and the general services officer, municipal or Barangay treasurer, as the case may be, and the supply accountable officer of the department or office concerned, as members. The inventory report shall be submitted to the local chief executive and copy furnished the provincial, city or municipal auditor concerned.”

The veracity of the recorded balance of the inventory account could not be ascertained due to the absence of the said Report and the corresponding reconciliation of any variance between the GSO and Accounting records.

2.2. Variance between the Stock Card and Subsidiary Ledger

Comparison between the Subsidiary Ledger (Accounting records) and the Stock Card (Warehouse records) of sampled inventory items as of December 31, 2011, disclosed variances in quantity as shown below:

Table 4 – Variances in quantity between Subsidiary Ledger and Stock Card

Per Per Stock Description Accounting Variance Card Records

Portland Cement 40kg (per bag) 19,325 5,418 13,907 Welding Rod* (in kilos) 5,421 3,172 2,249 Tex Screw- 21/2” 1,050 0 1,050 Rivets Screw 1/8” x ½” (per piece) 8,500 6,387 2,113 QDE Marikina C. Green Destiny ( per gal) 136 24 112 QDE Marikina Magenta Solid EZ Coat (per gal) 435 345 90

32 QDE Black Boysen (per gal) 89 56 33 GI Nipple ½” x 4 “ (per pc) 444 458 (14) GI Pipe with thread 3” dia. X 20’ sch. 40 (per pc.) 809 682 127 Halide Lamp Hid Lamp 150w (per set) 161 20 141 *various item codes per Accounting Records

The inadequacy of submitted records, like the Physical Inventory Report and the reconciliation between the records of GSO and Accounting Office, did not permit us to apply alternative procedures to validate the correctness of the balances of the sampled inventory items.

2.3. Questionable Unit Costs

The unit cost of cement purchased during the year varied oddly from P195 per bag to P275 per bag while the price of cement was stable in CY 2011 per the Department of Trade and Industry price watch. We noted that the said prices varied depending on the supplier.

Also, the unit costs for inventory items in Table 5 were noted to be questionable.

Table 5 – Dissimilar Unit Costs

Unit Cost Description Per Accounting Per Stock Cards Records Tex Screw -2 ½” (per piece) 1,176.31 2.50 Rivets Screw 1/8” x ½” (per piece) 146.84 0.30 GI Nipple ½” x 4” (per piece) 7,554.52 38.00

The unit costs per Accounting Records are calculated using the weighted average method while the unit costs per Stock Cards are based on the actual purchase/acquisition cost. The big difference of the unit costs between the two records, however, casts doubts on the correctness of the recorded inventory item since the acquisition cost and the quantity in every purchase, are also considered in the determination of the weighted average.

The inadequacy of submitted records, like the Physical Inventory Report and the reconciliation between the records of GSO and Accounting Office, did not permit us to apply alternative procedures to validate the correctness of the recorded inventory.

a. Come up with an Inventory Report on the result of physical inventory. A copy of the said Report, including the reconciliation of any variance between the GSO and Accounting records, should be furnished the Auditor’s Office at the prescribed period;

b. Reconcile variances between the balances per books and the warehouse records and make necessary adjustments to reflect the correct balances of the inventory accounts; and

33 c. Look into the varied prices of the same inventory items purchased from different suppliers.

Management replied that regarding the matter of the Inventory Report which were not submitted, this has been coordinated with the GSO, the officer in charge in the inventory of supplies and materials and they took note of it in compliance with COA Circular 92-386. The double coding referring to the same item will be adjusted once the Accounting has verified and reconciled with the GSO. Management also averred that the variance between the Stock Card and Subsidiary Ledger resulted from non-issuances or late issuances of the Summary of Supplies and Materials Issued. Also, another reason for the variance is that the description codes used in Purchase Orders differ from the existing description codes that resulted to the creation of new item codes. Management is now in the process of reconciliation and adjustment of the item codes in inventory account.

3. Non-reversal of the fully-paid accounts of the beneficiaries of the Relocation Program of the City of Marikina.

Other Payables account of the General Fund with a total amount of P35,748,746 as of December 31, 2011 includes accounts totalling P34,997,149 or 97.90 per cent representing collections from the beneficiaries of the Relocation Program of the City of Marikina as shown in Table 6.

Table 6 – Accounts concerning Relocation Program of Marikina

Particulars Amount ERC – Originator’s fee P 185,512 Emergency Relocation Center 31,156,723 Reconciling Items 3,654,914 Total P 34,997,149

The payable account (Other Payables) is being created whenever a beneficiary pays the monthly amortization. The account shall be debited and Income shall then be recognized upon full settlement by the beneficiary of the contract amount.

Our analysis of the records maintained by the Accounting Office showed that no beneficiary has fully paid his/her account. However, interview with the Officer-In- Charge of the Marikina Settlement Office (MSO), the implementor of the said program, as well as the Status Report submitted by the said Office disclosed that as of December 31, 2011, they have already awarded 798 land titles to those who have fully paid their amortization. The City Treasurer has likewise issued the Certificates of Full Payment to them. This showed that the Other Payables account still includes fully settled accounts as of December 31, 2011.

The non-reversal of the payable account resulted in the overstatement of the account by the total amount fully settled by the 798 beneficiaries and understatement of the Income account by the same amount.

34 We recommended that Management require the Accounting Office and MSO to analyze the accounts concerning the Relocation Program, reconcile their records and make the necessary adjustments. To prevent the accumulation of paid/settled accounts in the payable account, we further recommended that the City Treasurer and the Officer in Charge of MSO to furnish the City Accountant with copies of the Certificates of Full Payment and the Status Report (with status of payment for each beneficiary), respectively.

Management replied that the Accounting Office has coordinated with the Marikina Settlements Office (MSO) regarding the fully paid beneficiaries under the Relocation program and that the Treasury Office has already furnished the Accounting Office copies of list of paid beneficiaries with the Certificate of Full Payment in order to update the books. Further, the three offices concerned namely the Treasury Office, City Accounting Office and the MSO agreed that the Treasury Office will periodically furnish the Accounting Office and the MSO a list of fully paid beneficiaries and copies of Certificate of Full Payment for the necessary adjustments in the books to prevent the accumulation of paid/settled accounts in the Payable account and for the MSO to transfer the TCT to the beneficiaries who have fully settled their accounts.

4. Long-outstanding and abnormal balances

4.1 Reconciling items on various accounts – P5,428,478

Various payable accounts shown in Table 7 include Reconciling Items totalling P5,428,478. These accounts refer to withheld premiums and loan payments to GSIS, Pag-IBIG and PHILHEALTH, which remain unremitted to the said institutions as of December 31, 2011 and real property tax payments which are under protest. On the other hand, Reconciling Items refer to those balances of the accounts that cannot be identified or accounts without details. These accounts have been in the books since CY 2004.

Table 7 – Accounts with Reconciling Items

General SEF Total Fund Due to GSIS P 902,329 P 54,082 P 956,411 Due to Pag-IBIG 771,977 19,466 791,443 Due to PHILHEALTH 498,399 9,740 508,139 Other Deferred Credits 0 3,172,485 3,172,485 P2,172,705 P3,255,773 P5,428,478

The presence of the Reconciling Items casts doubts on the accuracy/correctness of the payable accounts as of December 31, 2011.

We recommended that Management require the Accounting Office to analyze the Reconciling Items in the various payable accounts and to prepare necessary adjusting journal entries to reflect the correct balances of the accounts at year- end.

35 Management has subsequently adjusted the subject reconciling items in the various affected accounts to Prior Years’ Adjustments account. The financial statements, however, can no longer be corrected after the adjustment to correct the balances as of December 31, 2011; thus, said adjustment will be reflected in the ensuing financial statements.

4.2. Guaranty Deposits Payable - P1,412,625

Guaranty Deposits Payable account includes balances totalling P1,412,625 which have been outstanding for more than five years as of December 31, 2011 as shown in Table 8. Guarantee deposits, as disclosed in the Notes to Financial Statements, pertain to the 10 per cent retention fee from contractors for various projects implemented by the City. Said retention fees should be due for release after the defects liability period, upon final acceptance of the works. Since the transactions are dated from 2007 and earlier and the projects are already operational, all the transactions relative to the construction of these agency assets are deemed completed; thus, said retention fees should have already been released. Table 8 – Long-outstanding accounts

Fund Amount

General Fund P1,129,720 Special Education Fund 178,685 Trust Fund 104,220 Total P1,412,625

In addition, there are abnormal (debit) balances totalling P1,979,178 under the Special Education Fund and Reconciling Items amounting to P735,319.

The abnormal balances have a negating effect resulting in the understatement of the account by P1,979,178. On the other hand, the presence of Reconciling Items in the account casts doubts on the accuracy and correctness of the overall account balance as of December 31, 2011.

We recommended that Management require the Accounting Office to analyze the dormant and abnormal balances and accordingly make the necessary adjustments. Reconciling Items should likewise be analyzed and broken down to names of recipients/claimants. Existence of the claims should be determined.

Management has subsequently made adjustments after analyzing the accounts. The financial statements, however, can no longer be corrected after the adjustment to correct the balances as of December 31, 2011; thus, said adjustment will be reflected in the ensuing financial statements.

5. Dishonored checks

36 Our audit of the account Other Receivables revealed that 93.65 per cent or P7,388,463 of the account total represents dishonored checks in payment of real property, business and other taxes or fees as of December 31, 2011. Included in the dishonored checks is the amount of P1,029,743, which was already requested for authority to write off.

Table 9 shows that most of the accounts have been outstanding for over three years now.

Table 9 – Aging of dishonored checks

General Fund Amount Less than 1 yr P 364,181 1 yr to 2 yrs 81,143 2 yrs to 3 yrs 243,359 3 yrs to 4 yrs 4,810,680 More than 4 yrs 1,382,213 Special Education Fund Less than 1 yr 2,916 More than 4 yrs 503,971 Total P7,388,463

We noted that there are cases wherein the City Treasury Office still acknowledges checks as payment for taxes from taxpayers whose checks have previously been dishonored by the bank. For CY 2011 accounts, the check payments of a certain taxpayer have been dishonored by the bank monthly from January to December 2011.

These uncollected accounts representing dishonored check payments deprived the City of resources needed to implement its projects.

We recommended that Management exert extra efforts to collect the soonest possible time, the accounts representing dishonored checks.

We also recommended that Management discontinue accepting check payments from those whose checks have been previously dishonored by the bank; thus, the City Treasury Office should maintain a master list of these taxpayers. Management should likewise adopt a policy regarding the matter.

Management replied that all cases of dishonored checks were already referred to the City Legal Office for appropriate action. Regarding CY 2011 accounts wherein the check payments of a certain taxpayer have been dishonored by the bank monthly from January to December 2011, the said condition transpired due to the Compromise Agreement entered into by the complainant (City Treasurer), assisted by the Legal Officer and the accused for violation of BP 22. Regarding the recommendation that the City Treasury Office should maintain a master list of taxpayers with cases of dishonored checks, a logbook is maintained by the Treasury staff on taxpayers whose checks were dishonored and returned by the bank. Moreover, in compliance to the recommendation, the Treasury Office will

37 stop accepting check payments for those whose checks have been previously dishonored by the bank and shall adopt a policy regarding thereof.

6. Deficiencies noted in the audit of Local Disaster Risk Reduction and Management Fund (LDRRMF), formerly Calamity Fund.

Section 12.a of Republic Act 10121 (RA 10121) otherwise known as “The Philippine Disaster Risk Reduction and Management Act of 2010”, provides that a Local Disaster Risk Reduction and Management Office (LDRRMO) should be established in every city which shall be responsible for setting the direction, development, implementation and coordination of disaster risk management programs within their territorial jurisdiction.

In compliance with the above provisions, the Sangguniang Panlungsod approved Ordinance No. 32, Series of 2011, institutionalizing the organizational capability of the City of Marikina for disaster risk reduction and management, on April 13, 2011 and by the City Mayor on May 3, 2011. The said Ordinance created the Marikina City Disaster Risk Reduction and Management Council (MCDMC) and the Marikina City Disaster Risk Reduction and Management Office (MCDMO). Also included in the Ordinance are the roles of the Barangay officials as well as the volunteers.

Our audit of the Local Disaster Risk Reduction and Management Fund (LDRRMF), formerly Calamity Fund, disclosed the following:

6.1. No approved Disaster Risk Reduction and Management Plan

The City had no approved Disaster Risk Reduction and Management Plan for CY 2011 and the corresponding Work and Financial Plan was not prepared.

The Ordinance specifically provides that the MCDMO shall design, formulate and program the Disaster Risk Reduction and Management Plan. The MCDMC, as the policy-making body of the City on matters related to disaster risk reduction and management, approves the Marikina City Disaster Risk Reduction and Management Plan, monitors, and evaluates the implementation of the same.

The City has only a List of Pre-Disaster Preparedness Programs and Post- Disaster Activities. To facilitate proper monitoring and evaluation of programs and projects, said Plan should have explicitly defined time frames/schedules of implementation, resources/sources of funding and targets/expected output. Projects should address specific programs or objectives and each project should comprise activities. The Office that will implement the program/project/activity should also be included in the Plan.

6.2. No MCDMO

38 The City has not yet formed the MCDMO. At present, the Head of the City Transportation Management and Development Office is temporarily handling the disaster matters in concurrent capacity. An accessible and functioning Office is necessary to perform the assigned duties and functions mandated in the Ordinance.

6.3 Programs not effectively accomplished

For CY 2011, the City Government of Marikina appropriated the amount of P76,017,330 or 5 per cent of its estimated revenues from regular sources as its Calamity Fund or LDRRMF, 70 per cent or P53,212,131 of the fund is for mitigation and disaster preparedness and the 30 per cent or P22,805,199 for the Quick Response Fund.

The City expended only P8,434,212 or 11.10 per cent of its LDRRMF for CY 2011 (P4,235,649 from the Mitigation Fund and P4,198,563 from the Quick Response Fund). We noted that the charges from the 70% Mitigation Fund were mostly on repairs and maintenance and depreciation expenses. Programs, projects and activities like purchase of tools and equipment, conduct of training and disaster drills, etc., which are very important in the preparedness of the community for any disaster, were not undertaken considering that the City of Marikina is disaster-prone.

The non-compliance with the full provisions of RA 10121, non-implementation of the City Ordinance, and unavailability of a Disaster Risk Reduction and Management Plan, precluded the City to effectively manage their budgeted fund for Local Disaster Risk Reduction and Management.

We recommended that Management look into the immediate and full implementation of RA 10121 and City Ordinance No. 32, Series of 2011 in order that necessary plans for risk reduction and the proper utilization of the fund can be attained/achieved.

Management replied that to date, the Local Disaster Risk Reduction and Management Council has issued Resolution No. 1, Series of 2012 dated February 21, 2012. In the Resolution, the Council has resolved the utilization of the 5 per cent of the Calamity Fund and has identified and allocated the amount of P123.530 million to various programs and projects. With regard to the office, the MCDMO has not yet been organized as Management is trying to locate first an available area big enough to accommodate various equipment and facilities related to disaster preparedness. Hence, to properly run the said office, department head and staff who possess the required knowledge and skills demanded by the job are still being identified.

7. Unutilized Priority Development Assistance Fund (PDAF) granted to the City of Marikina

39 Priority Development Assistance Fund (PDAF) granted to the City of Marikina by Congressional Representatives and Senators for specific purposes and recipients, showed a balance of P17,924,909 as of December 31, 2011.

Table 10 shows the PDAF extended to the City from 2004 to 2008 which were not fully implemented or utilized for the programs/projects these were intended totalling P5,670,593.

Table 10 – PDAF not fully utilized

SARO Purpose Year Amount Balance as No. Granted Granted of Dec. 31, 2011

No data Medicare coverage of Indigent families, Gawad available Kalinga and Various expenses 2008 P 4,000,000 P2,612,177

04044 Bike Loan 2004 500,000 309,250 2007 500,000 80,000 06-07493 2,000 pcs Marikina Books No data available forwarded balance 2005 Not available 87,554

08-04520 DepEd Flagpole @ Knights of Columbus & var. 2008 6,492,000 2,189,431 expenses 040658 No data available 2004 500,000 200,000

03-0663 Nutrition Cooking Demonstration @ Community 2004 330,000 150,043 Nutrition Center 2008 3,200,000 42,138 08-01505 various expenses P 15,522,000 P5,670,593

Likewise, Table 11 shows the PDAF granted in 2004 and 2006 which the City of Marikina was not able to implement/utilize at all totalling P3,100,000.

Table 11 – Unutilized PDAF

Year Amount Balance as of SARO No. Granted Granted Dec. 31. 2011 02-0392 2004 2,000,000 2,000,000 No data available 2004 100,000 100,000 08-6340 2006 1,000,000 1,000,000 Total P3,100,000 P3,100,000

More benefits from programs/projects could have been extended to the constituents of Marikina City had the PDAF been fully utilized as to its purpose.

We recommended that Management utilize fully the PDAF granted to the City. 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. 529 dated February 21, 2011.

40 Management averred that the City will assure the utilization of the remaining balance of PDAF especially those with clear purpose for its use and identified target beneficiaries. Management has, nonetheless, decided to communicate with the originator of the PDAF with no clear purpose for its possible realignment to programs in connection with Children-In-Conflict-with-the-Law shelter.

8. Surcharge and interest imposed on late payments of business tax were not in accordance with the provisions of Sections 167 and 168 of RA 7160 resulting in financial loss

Section 168 of the Local Government Code (RA 7160) provides that –

“The sangunian may impose a surcharge not exceeding 25% of the amount of taxes, fees or charges not paid on time and an interest at the rate not exceeding 2% per month of the unpaid taxes, fees or charges including surcharges, until such amount is fully paid but in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months.”

Ordinance No. 12, series of 1998 was enacted prescribing the procedure for the payment of license fees in the City of Marikina and fixing the date thereof. The City imposed and computed surcharges and interests on late payments of business taxes based on the 7-days grace period from receipt of notice of assessment instead of the January 20 deadline as required under Section 167 of RA 7160.

During the month of February 2011, business establishments, who paid beyond the January 20 deadline, per records of the Business Permit and Licensing Office numbered about 11,508. Out of these, 87 were sampled to have not been subjected to surcharge and interest which amounted to about P5,826,587.

The non-imposition of surcharges and interests based on the January 20 deadline required under Section 167 of RA 7160 deprived the City of additional resources for its operations and projects.

a. impose and collect surcharge and interest from business establishments who pay business taxes after the January 20 deadline or of each subsequent quarter in compliance with Section 168 of RA 7160; and

b. require that related provisions of Ordinance No. 12, s. 1998 on the procedures for the payment of license fees and fixing the date of payment be amended/revised to conform to Sections 167 and 168 of RA 7160.

Management replied that Section 168 of RA 7160 states that the Sanggunian may impose surcharge not exceeding 2 per cent per month of the unpaid taxes,

41 fees or charges including surcharges, until such amount is fully paid but in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months. The provision of the Local Government Code is not self-executing and needs an enabling ordinance to enforce it. Philippine Law on Local Government Taxation provides that “Surcharges and penalties are collectible only if so expressly imposed in an Ordinance, either specifically or generally, and only at rates provided for, which may be less than 25 per cent in the case of surcharges, or 2 per cent per month in the case of interest charges.” In view of the foregoing, the City Council enacted Ordinance No. 12, series 1998 prescribing the procedure for the payment of license fees in the City of Marikina and fixing the date thereof. There is no manifest discrepancy in the provisions of Local Government Code and the Ordinance that gives life to it. For it is within the power of the Sanggunian to impose penalty and surcharge at any rate provided not to exceed two per cent and 25 per cent respectively, they can also provide for the manner of its imposition.

Management further commented that the BPLO’s contribution to the coffer of the city has consistently improved despite the fact that there were two ordinances enacted by the City Council that gives reprieve to the taxpayer. The business tax rates being used is still that of a municipality.

Our rejoinder:

While it is within the power of the Sanggunian to provide for the manner of the imposition of surcharges and interests on late payments of business taxes, the enacted ordinance should be aligned with the law specifically on Section 167 of RA 7160. This will encourage the taxpayers to pay on time.

9. Deficiencies noted in the purchase of tarpaulins

Analysis of the submitted copies of CY 2011 Purchase Orders disclosed that the City outsourced the printing of tarpaulins despite the City’s own equipment (tarpaulin printer) and personnel in charge for the printing of the same. For the period from May to July 2011, the City outsourced 719 pieces of tarpaulins of various sizes spending a total of P414,246.

Management (GSO) is agreeable that they have their own equipment, however, the document processes from preparation of Purchase Request (PR) to the approval of Obligation Request (ObR) for the purchase of the needed supplies would take for example from January 12, 2011 to July 21, 2011. Pending receipt of the approval and the processing of procurement, various promotional and informational campaigns for the City ensued which necessitated the outsourcing of the printing of tarpaulins not to mention the various requests from constituents which likewise have to be addressed by the City. The tarpaulin for the events for the period were outsourced pending receipt of the delivery of consumables since the belated printing of tarpaulins for specific events would no longer serve its purpose.

The above-mentioned tarpaulin materials and other supplies amounting to P1,427,400 were delivered on July 2011, thus, those should have been enough

42 to print subsequent tarpaulins which were outsourced in August to December 2011 amounting to P658,932.

Our subsequent audit of disbursements pertaining to purchases of materials for tarpaulin printing also showed that aside from the 120 rolls of tarpaulin materials delivered in July 2011, another 120 rolls of 8’ x 50m, 12-ounce tarpaulin and 24 gallons of solvent ink and other materials were again purchased in September to December 2011 which totalled to P1,427,400. This is equal to the original purchase as to amount, item and quantity. We also noted that bid documents and other pertinent supporting documents were not attached to the disbursement vouchers and said deliveries of tarpaulin materials were charged directly to expense.

We recommended that Management properly plan its purchases to ensure availability of supplies in sufficient quantities and to avoid overlapping of transactions. Bid documents should be attached to the disbursement vouchers and the purchased tarpaulin materials should be recorded to the inventory account. We also recommended that Management submit accomplishment/output of the in-house tarpaulin printer from May to July 2011.

Management submitted the required accomplishment/output of the in-house tarpaulin printer for CY 2011 on May 9, 2012.

Our rejoinder:

Our verification of the submitted accomplishment/output showed that the tarpaulins printed in-house for the period from January to August 2011 included some tarpaulins that were also outsourced in various dates from March to August 2011.

10. Copies of Contracts together with all supporting documents were not submitted to the City Auditor’s Office on time

COA Circular No. 2009-001 dated February 12, 2009 states that:

“Section 3.1 Contracts –

3.1.1 Within five working days from the execution of a contract by the government or any of its subdivisions, agencies or instrumentalities, including government-owned and controlled corporations and their subsidiaries, a copy of said contract and each of all the documents forming part thereof by reference or incorporation shall be furnished to the Auditor of the agency concerned. In case of agencies audited on an engagement basis, submission of a copy of the contract and its supporting documents shall be to the Auditor of the mother agency or parent company as the case may be.”

It has been observed that contracts and its supporting documents were not submitted within five days after perfection. Review of the submission of contracts showed that the delay ranged from 16 days to 160 days.

43 The delayed submission of the contracts hinders the conduct of a timely review, evaluation and determination of the reasonableness of price of the transactions.

We recommended that Management require the officials concerned to submit on the prescribed time as stated under COA Circular No. 2009-001 copies of contracts and to set up a mechanism in the routing of the required documents.

Management replied that they are exhausting all strategies to ensure full compliance and those new strategies will be implemented in response to the recommendation in the routing of documents. The Office of the City Administrator also prepared a Memorandum dated March 19, 2012 to all departments concerned reminding strict compliance to the stated COA Circulars.

11. Compliance to laws, rules and regulations on Gender and Development

Joint Circular No. 2004-1 dated April 5, 2004 issued by the Department of Budget and Management, the National Economic and Development Authority and the National Commission on the role of Filipino Women defines Gender and Development (GAD) as a development approach that seeks to equalize the status and condition of and relations between women and men by influencing the processes and outputs of policymaking, planning, budgeting, implementation, and monitoring and evaluation so that they would deliberately address the gender issues and concerns affecting the full development of women.

It is required in the said Joint Circular that agencies prepare an Annual GAD Plan, which shall include activities that are either client-focused or organization- focused and that the cost of implementing the GAD activities be part of their approved budget.

Republic Act No. 9710, otherwise known as “An Act Providing for the Magna Carta of Women”, directed all departments, including their attached agencies, offices, bureaus, state universities and colleges, government-owned and controlled corporations, local government units, and other government instrumentalities to adopt gender mainstreaming as a strategy to promote women’s human rights and eliminate gender discrimination in their systems, structures, policies, programs, processes, and procedures.

The City’s GAD plans and programs for CY 2011 included Alternative Learning System, Livelihood Program, Support Project for Working Mothers, and Maternal and Child Care: Towards Zero Death.

Review of the approved budget of the City for CY 2011 vis-à-vis expenses of the City’s GAD activities revealed that the City had allotted a total of P5,100,671 for GAD activities and had disbursed a total of P2,561,612 for the period from January to December 2011.

Table 12 – Allotment vs. Expenses

ALLOTMENT EXPENSES

44 Training 1,290,671 422,833 Office supplies 180,000 5,872 Printing and binding 2,500,000 1,806,000 Other maintenance and operating expenses 500,000 226,400 Travelling 4,000 - Gasoline and oil 126,000 - Repairs and maintenance 500,000 - Depreciation - 100,507 5,100,671 2,561,612

12. Compliance with tax laws

Out of the taxes totalling P57,552,189.64 which were withheld from employees, suppliers and contractors in CY 2011, the City has remitted the amount of P55,500,834.91 during the year. The balance of P2,051,354.73 as of December 31, 2011 was remitted in February 2012.

13. Summary of unsettled suspensions, disallowances and charges

Suspension Notices of Charge Disallowance Balance, December 31, 2010 0 0 0 Add: Issuances 2,603,909.75 0 0 2,603,909.75 0 0 Less Settlements: Current Issuances 2,603,909.75 0 0 Prior Years’ Issuances 0 0 0 2,603,909.75 0 0 Balance, December 31, 2011 0 0 0

The suspension amounting to P2,603,909.75 was issued in August 25, 2011 due to non-submission of required documents, but was subsequently settled in December 29, 2011.

45 PART III

STATUS OF IMPLEMENTATION OF PRIOR YEAR’S AUDIT RECOMMENDATIONS STATUS OF IMPLEMENTATION OF PRIOR YEAR’S AUDIT RECOMMENDATIONS

Of the 12 audit recommendations contained in the previous year’s Annual Audit Report, six were fully implemented, five were partially implemented and one was not acted upon by the agency.

Reason for Audit Management Status of Partial/Non- Observation Recommendation Ref. Action Implementat implementatio ion n

1. There was a difference We strongly CY Reconciliation Partially There was a of P691.09 million recommend that the 2010 between the implemented difference of between the Property, City Accountant, in AAR Accounting P96,252,243.00 Plant and Equipment coordination with the Office and the Reiterated in between the PPE (PPE) balance per GSO, fast-track the General Finding No. balance per books and the physical reconciliation of the Services Office 1.1 books and the inventory, thus Inventory Report with is on-going up physical rendering the said the balance per books to the time inventory as of amount doubtful. This and property records. It that they will December 31, was due to the failure is also recommended come up with 2011. of the General that for those the same Verification is Services Office (GSO) properties whose balance per still on-going. and the Accounting values cannot be books and Office to reconcile the determined, their physical Inventory Report with estimated values as inventory. the accounting and well as their remaining property records. useful life may be assigned by an appraisal committee.

2. Unpaid obligations in We advise the City CY Adjusted as Fully CY 2007 and prior Accountant to 2010 per JEV Nos. implemented years amounting to immediately revert AAR 2011-01- P6.78 million, which these undocumented 000991, 2011- did not have any accounts payable to 07-008890, supporting documents the Government Equity 2011-07- to prove validity and account as required 008892, 2011- existence, were still under Section 98 of PD 07-008891. recorded under 1445. Accounts Payable (401)

3. The Construction in We recommend the CY Reconciliation Partially Still included in Progress (CIP) review of the CIP 2010 of the CIP implemented the Construction accounts were accounts so that all AAR accounts per in Progress overstated by P328.72 completed projects Engineering account is the million because the could be transferred to and cost of MSP 8th completed projects of PPE. Further, it is Accounting storey deck prior years were not recommended that the Office records building fully transferred to Status Report of is on-going. amounting to their appropriate PPE Projects Undertaken by P111,923,121.27 account. the Engineering Office . The Accounting be submitted quarterly Office and to the City Accountant Engineering so that there will be a Office are still basis for the reconciling

46 Reason for Audit Management Status of Partial/Non- Observation Recommendation Ref. Action Implementat implementatio ion n preparation of the records Journal Entry Voucher regarding (JEV) that will record finished projects the transfer. for the preparation of JEV to record the transfer. There are still projects not yet fully paid and transfer of the same will be on the basis of full payment for the completed projects.

4. Wages, allowances and We recommend that CY This practice Fully benefits of volunteers the practice of utilizing 2010 had been implemented and non-regular the allotment for AAR stopped upon employees totaling Personal Services for receipt of the P20.50 million were payment of expenses Audit erroneously charged other than those for Observation against the allotment personal services be Memorandum. for Personal Services discontinued. It is (PS), thereby further recommended overstating the PS and that the City understating the Accountant and the Maintenance and City Budget Officer Other Operating should be extra careful Expenses (MOOE). On in the budget the other hand, utilization and in various expenses such recording and as traveling/training, classifying expenses. intelligence/ confidential expenses and Other MOOE amounting to P8.66 million were erroneously recorded as Extraordinary Expenses (883), thus overstating said account by the same amount and understating the appropriate expense accounts.

5. Supplemental Budgets We recommend that CY All Fully were not supported by the supplemental 2010 supplemental implemented new revenue sources. budgets be backed-up AAR budgets were Likewise, the budget with new revenue supported by for Continuing source/s, and duly savings from Appropriations were certified as such by last year’s

47 Reason for Audit Management Status of Partial/Non- Observation Recommendation Ref. Action Implementat implementatio ion n realigned to other the City Treasurer. On budget duly projects and to MOOE. the other hand, certified by realignments should the City only be made within Treasurer. the same allotment class and Continuing Appropriations should be supported with the list of projects for implementation to ensure that it is utilized for the purpose for which it was intended.

6. Of the P135.63 million We reiterate our CY The City’s Fully appropriation for the recommendation that 2010 Annual implemented 20% Development the 20% Development AAR Development Fund, P20.63 million Fund be utilized only Plan is now in or 15.21% was utilized for the purposes for line with the for purposes other which it was intended DBM and DILG than those provided and for the City Joint under Department of Development Council Memorandum Budget and to prepare an Annual Circular No.1, Management (DBM) Development Plan that dated and Department of the is in line with the September 20, Interior and Local above-mentioned 2005. Government (DILG) circular. Joint Memorandum Circular No. 1, series of 2005, dated September 20,2005.

7. The Annual It is recommended that CY The BAC Fully Procurement Plan the department heads 2010 Secretariat implemented (APP) that supported be required to submit AAR submitted the the approved Annual to the Bids and Awards revised APP in Budget for the Committee (BAC) accordance procurement of goods Secretariat their with Section 7 and infrastructure individual Project of RA 9184. projects did not Procurement contain the detailed Management Plans list of goods and (PPMPs) showing the infrastructure projects detailed list of goods to be procured during and infrastructure the year, contrary to projects to be procured Section 7 of RA 9184. during the year. These PPMPs shall be consolidated by the BAC Secretariat into an Annual Procurement Plan to support the appropriated amount in the approved Annual Budget.

48 Reason for Audit Management Status of Partial/Non- Observation Recommendation Ref. Action Implementat implementatio ion n

8. The City has yet to It is recommended that CY The City has Fully come up with a clear- policy guidelines in the 2010 already come implemented cut policy and detailed grant of financial AAR up with guidelines in the grant assistance conform Executive of financial assistance with Section 36 and Order # 021, to qualified pertinent portions of series of 2010, constituents and to Section 458 (5) of RA Guidelines for People’s and Non- 7160. the grant of governmental assistance to organizations. Indigents and Organizations.

9. The Marikina Revenue We reiterate our CY 2010 Proposals for Partially The City Council Code of 1995 has yet previous AAR the upgrading implemented has not acted on to be updated to recommendation that of the the proposals for conform with the Local the City Mayor Marikina upgrading the Government Code, coordinate with the Revenue Code Marikina hence, the City’s Sangguniang were already Revenue Code. revenue raising power Panlungsod for the transmitted has not been codification of all to the maximized. revenue ordinances. legislative/ Existing ordinances City Council to should likewise be conform with reviewed to determine the Local conformity with the Government Local Government Code. Code.

10. Submission of copies of We recommend that CY The Office of Partially The GSO contracts, job orders, the General Services 2010 the City implemented complied with and purchase orders Office be required to AAR Administrator the submission were delayed by a submit to the City issued a Reiterated in of the purchase period ranging from Auditor’s Office copies Memorandum Finding No. 10 orders and job 12 to 100 days, while of purchase orders, job reminding all orders including copies of delivery orders, letter orders departments delivery documents were and contract within to comply with documents, but likewise delayed by a five days from the it was still period ranging from perfection and for requirement. delayed. 35 to 64 days. notices of deliveries to be submitted within twenty-four hours from acceptance.

11. The City’s continuous We recommend that CY The Partially The Remote failure to establish a the management 2010 Management implemented Contingency written, prioritize and carefully AAR Information Servers to be comprehensive and study the contingency System and located at the 6th tested disaster plan presented to them Call Center floor of the New recovery and business by the MISCC in order ensured that Marikina Sports continuity plan; and to prevent the risks of they have Center has not formal policies and loss or damage to data tested backup yet been procedures to perform files, hence, ensuring and recovery approved by the backup and to provide the continuous plan in case management. offsite servers/storage operation of the disaster

49 Reason for Audit Management Status of Partial/Non- Observation Recommendation Ref. Action Implementat implementatio ion n of data files, management occurred. databases, program information system. They have the and documentation, Business may result in Continuity Information Plan List. The Technology (IT) losses. BGMS-GSO prioritized the MISCC on the use of generators in case of power failure. There are personnel assigned to the attendance kiosk machine in case of malfunction. They have set up procedures for post- disaster recovery and normalization of IS service and optimized the existing wireless equipment in keeping up with the changes caused by Typhoon “Ondoy”.

12. Other Receivables We advise the City CY Not The request of representing Accountant to follow-up 2010 implemented the City for dishonored checks for with the Office of the AAR authority to the years 1981 to City Mayor the request Reiterated in write-off has 1987 totalling P1.03 for authority to write- Finding No.5 been forwarded million remained in off dishonored checks to the COA. the books for 23 to 29 based on the years despite the verification made by absence of documents the City Treasurer’s to enforce collection. Office. The request for write-off shall be filed with the Commission Proper of the Commission on Audit, thru the City Auditor’s Office.

50 PART IV

ANNEXES Annexes, pages 50 - 64