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Republic of the Philippines

COMMISSION ON AUDIT
Regional Office No. X

OFFICE OF THE SUPERVISING AUDITOR

February 22, 2018

HONORABLE ANGELO G. CAPISTRANO, JR.


Municipal Mayor
Municipality of Salay

Dear Mayor Capistrano:

We are pleased to furnish you a copy of the Annual Audit Report (AAR) on the
audit of the Municipality of Salay, Misamis Oriental, for calendar year 2017 in
compliance with Article IX-D of the Philippine Constitution and Section 43 of
Presidential Decree No. 1445.

The audit was conducted to: (a) ascertain the degree of reliance that may be
placed on management’s assertions on the financial statements; (b) recommend agency
improvement opportunities; and (c) determine the extent of implementation of prior
year’s audit recommendations.

The report of our audit consists of Part I- Audited Financial Statements, Part II-
Observations and Recommendations, and Part III- Status of Implementation of Prior
Year’s Audit Recommendations, which were discussed with the Management officials
concerned.

We conducted our audit in accordance with Philippine Public Sector Standards


on Auditing and we believe that these standards provided a reasonable basis for the
audit results.

The Auditor rendered an unqualified opinion on the fairness of presentation of the


financial statements. Our audit showed that there are no misstatements in the presentation
of accounts and balances in the financial statements.

We request that a status report, by accomplishing the attached Agency Action


Plan and Status of Implementation (AAPSI) form, on the actions taken on the audit
recommendations be submitted within 60 days from receipt of this report, pursuant to
Section 88 of the General Provisions of the General Appropriations Act FY 2017.
We appreciate the invaluable support and cooperation extended by the officials
and staff of that Agency to the Audit Team during the audit engagement.

Very truly yours,

ADOLFA A. CREAYLA
State Auditor V
Supervising Auditor

Copy furnished:

1. The Sangguniang Bayan, Salay, Misamis Oriental


2. The Regional Director, BLGF RX, Cagayan de Oro City
3. The Regional Director, DILG RX, Cagayan de Oro City
4. National Library (soft copy)
5. University of the Philippines (UP) Law Center (soft copy)
6. COA Commision Central Library (soft copy)
7. The Regional Director, COA-X, Cagayan de Oro City
Republic of the Philippines
COMMISSION ON AUDIT
Commonwealth Avenue
Quezon City

ANNUAL AUDIT REPORT

ON THE

MUNICIPALITY OF SALAY
Province of Misamis Oriental

For the year ended December 31, 2017


Republic of the Philippines
COMMISSION ON AUDIT
Regional Office No. X

OFFICE OF THE AUDIT TEAM LEADER

February 21, 2018

ADOLFA A. CREAYLA
Supervising Auditor
Audit Group A-Misamis Oriental Province

Madam:

In compliance with Section 2, Article IX-D of the Philippine Constitution and


Section 43 of Presidential Decree No. 1445, we audited the accounts and operations of the
Municipality of Salay, Province of Misamis Oriental, for the year ended December 31,
2017.

The audit was conducted on a test basis to ascertain the propriety of financial
transactions and compliance of the agency to prescribed rules and regulations. It was also
made to ascertain the accuracy of financial records and reports and the fairness of the
presentation of the financial statements, as well as determine whether the agency observed
economy, efficiency and effectiveness in the utilization of its funds and resources.

Our attached report consists of four parts, Part I – Audited Financial Statements,
Part II – Detailed Audit Observations and Recommendations which were discussed with
concerned Management officials and staff during the exit conference conducted on
February 20, 2017, and Part III – Status of Implementation of Prior Year’s
Recommendations.

There is reasonable assurance that the financial statements are not free of material
misstatements which, however, are not material enough to conclude that the financial
condition of the Municipality as of December 31, 2017 and the results of operations are not
fairly presented.

Our audit was conducted in accordance with Philippine Public Sector Standards on
Auditing, and we believe that it provides reasonable basis for the results of audit.

Very truly yours,

CIELO S. BONACHITA
State Auditor II
Acting Audit Team Leader
EXECUTIVE SUMMARY
A. INTRODUCTION

The Municipality of Salaywas created through Executive Order No. 94 which


was promulgated on December 10, 1919 and took effect on January 1, 1920. It is a fourth
class municipality in the Province of Misamis Oriental.

Pursuant to RA 7160, known as the Local Code of 1991, the Municipality, like
the other government units, enjoys total independence in managing, deciding and
planning its own administrative, fiscal and development affairs in conformity with the
national government’s thrust for sustainable social economic growth. Programs and
projects were undertaken to promote social and economic stability centering on
construction of roads, rehabilitation of its waterworks system which is now on its fourth
phase, health program, livelihood, zero waste management and food security.

B. FINANCIAL HIGHLIGHTS

As of December 31, 2017, the financial position and performance of the


Municipality, showed the following:

CY 2017 CY 2016
A. Financial Position
Assets 267,552,236 190,534,204
Liabilities 127,772,913 67,072,281
Government 139,779,323 123,461,922
Equity
B. Financial Performance
Income 97,211,266 84,883,799
Expenses 78,792,136 66,223,652
Net Income 18,419,130 18,660,147

C. OPERATIONAL HIGHLIGHTS

The Municipality of Salay, Misamis Oriental is proud to present the


municipality’s major accomplishments for CY 2017 as follows:

1. Promotion and awareness on the Prevention and Control of HIV and AIDS
Program.
2. Family Planning Program in Achieving more than or equal to the benchmark of
65% Contraceptive Prevalence Rate (CPR).
3. Seal of Good Local Governance 2017.
4. Presidential award for Child Friendly Municipalities.

i
D. SCOPE OF AUDIT

A financial, compliance and performance audit was conducted on the accounts


and operations of the Municipality of Salay, Misamis Oriental for Calendar Year 2017.
The audit consisted of a review of the operating procedures, interview and inquiry of
concerned agency personnel, verification, reconciliation and analysis of accounts and
such other procedures considered necessary. The audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. The audit was aimed to verify the
level of assurance that maybe placed on management’s assertions on the financial
statements; recommend agency improvement opportunities; and determine the extent of
implementation of prior years’ audit recommendations.

The audit for Calendar Year 2017 was based on the following audit thrusts:

A. Audit of Financial Statements


1. Cash and Cash Equivalents
2. Financial Liabilities
3. Fund Transfers Received From/Given To
4. Funds Directly Released by the DBM to LGUs From the
Appropriations for LGSF

B. Compliance Audit
1. 20% Development Fund
2. Local Disaster Risk Reduction Management Fund (LDRRMF)
3. Solid Waste Management/Environmental Compliance
4. Special Education Fund (SEF)
5. Local Council for Protection of Children

C. Performance Audit
1. Evaluation of the Implementation of Programs and Projects
2. Audit of Revenue-Generating Programs

D. Inclusion of evaluation/audit observation on the following areas:


1. Payment to casuals, job orders, contractuals and consultants
2. Enforcement of COA Disallowances and Charges
3. Compliance with tax laws
4. Remittance of mandatory government contributions and remittance of
loan amortizations
5. Compliance with Programs and Projects related to Gender and
Development

The objective of the audit is to determine whether applicable laws, rules and
regulations were followed on its operations and whether the agency observed economy,
efficiency and effectiveness in the management of its funds and resources.
E. INDEPENDENT AUDITOR’S REPORT

The Auditor rendered anunqualified opinion on the fairness of the presentation of


the financial statements of the Municipality of Salay as of December 31, 2017.

F. SIGNIFICANT OBSERVATIONS AND RECOMMENDATIONS

The following are the significant observations and recommendations, which were
discussed with the concerned management officials whose comments were incorporated
in the report where appropriate:

1. Completeness of supporting documents for the contract entered into by and


between the Municipality of Salay and AT Builders & General Merchandise
for the construction of Community Fish Landing Center Project amounting
to P2,740,982 was not strictly prescribed as provided under Section 9.1 COA
Circular No. 2012-001 and Sec. 4 (6) P.D. 1445, thus causing doubt on the
legality and regularity of the transaction.

We recommended that Management submit immediately the required documents


herein enumerated for review and to submit a written justification as to why it was
not submitted within 5 working days from the execution of the contract by the
agency.

2. The Municipality withheld an amount of liquidated damages lesser than the


mandated figure by P209,999 caused by the delay in the delivery of one
unitHydraulic Excavator (Crawler Type) procured through public
biddingawarded to JROG Marketing, contrary to Section 68 of Revised IRR
of Republic Act No. 9184.

We recommended the Municipal Mayor to instruct the Municipal Accountant to


withhold the correct amount of Liquidated Damage to be deducted from the cost
of the contract as mandated by Section 68 of Revised IRR of RA 9184.

We also recommended supplying and filling out the essential documents


completely and submitting those within the reglementary period.

3. Completeness of supporting documents for the contract entered into by and


between the Municipality of Salay and JTA Builders &Enterprises for the
expansion of Water Works System III amounting to P29,699,505 was not
strictly prescribed as provided under Section 9.1 COA Circular No. 2012-001
and Sec. 4 (6) P.D. 1445, thus causing doubt on the legality and regularity of
the transaction.

We recommended that Management submit immediately the required documents


enumerated above for review and to submit a written justification as to why it was
not submitted within 5 working days from the execution of the contract by the
agency.

4. Copies of contract agreement for the Concreting of Access Road (Contract


Package 1) in the amount of P 11,519,833 together with the supporting
documents were not furnished to the Office of the Auditor within five (5)
working days from the execution of a contract inconsistent with Section 3.1.1
of COA Circular No. 2009-001 dated February 12, 2009, thus preventing the
Office to review and make decisions in audit.

We recommended that Management submit immediately the required documents


enumerated above for review and to submit a written justification as to why it was
not submitted within 5 working days from the execution of the contract by the
agency.

5. The Municipality had not been attentive and responsive to the agreement
entailed in different contracts amounting to P54,020,060, pertaining to terms
and duration, they entered into with contractors, thereby depriving the
targeted end-users the desired benefit expected to be enjoined on time, and
resulting to unexpected damages and losses, contrary to Section 8, 10.2 and
10.4 of RA 9184.

We recommended that the Municipality should be responsive of the provisions of


the legal bases through upholding compliance in the agreement disclosed in all
contracts they entered into.

We also recommended that the LGU should submit justification elaborating


reasons which hindered the LGU in accomplishing implemented projects on time.

G. SUMMARY OF SUSPENSIONS, DISALLOWANCES AND CHARGES

As of December 31, 2017


Notice of Suspension
Settlement/ Bal. Dec.
Agency Beg. Balance Issued NSSDC 12/31/2017
LGU-Salay - - - -
Notice of Disallowance
LGU-Salay P 130,200 - P40,390 P 89,810

H. STATUS OF IMPLEMENTATION BY THE AUDITEE OF PRIOR


YEAR’S AUDITRECOMMENDATIONS

Out of the ten (10) audit recommendations embodied in the Calendar Year 2016
Annual Audit Report, all were fully implemented.
TABLE OF CONTENTS

Page

Part I – AUDITED FINANCIAL STATEMENTS

Independent Auditor’s Report 1


Statement of Management Responsibility 3
Financial Statements 4
Notes to Financial Statements 15

Part II – AUDIT OBSERVATIONS AND RECOMMENDATIONS 50

Part III – STATUS OF IMPLEMENTATION OF PRIOR 62


YEARS’ AUDIT RECOMMENDATIONS

Part IV – ANNEXES 68
Republic of the Philippines
COMMISSION ON AUDIT
Region X
Cagayan de Oro City

OFFICE OF THEAUDIT TEAM LEADER

INDEPENDENT AUDITOR’S REPORT

HON. ANGELO G. CAPISTRANO, JR.


Municipal Mayor
Municipality of Salay
Province of Misamis Oriental

We have audited the accompanying combined financial statements of the Municipality of


Salay, Misamis Oriental which comprise the Statement Financial Position as of
December 31, 2017, and the related Statement of Financial Performance, Statement of
Changes in Net Assets/Equity, Statement of Comparison of Budget and Actual Amounts,
Statement of Cash Flows for the year then ended, and a summary of significant
accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial
statements in accordance with Philippine Public Sector Accounting Standards, 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 Public Sector Standards on
Auditing. Those standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement.

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, but not for the purpose of expressing an opinion on the effectiveness of
the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies 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.

Unqualified Opinion

In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Municipality of Salay, Misamis Oriental, as of December 31,
2017 and its financial performance and its cash flows for the year then ended in
accordance with Philippine Public Sector Accounting Standards.

COMMISSION ON AUDIT

By:

CIELO S. BONACHITA
State Auditor II
Acting Audit Team Leader

February 21, 2018

2
Republic of the Philippines
Province of Misamis Oriental
Municipality of Salay

Statement of Management’s Responsibility for Financial Statements

The management of the Municipality of Salay, Misamis Oriental is responsible


for all information and representation contained in the Financial Position as of
December 31, 2017 and the related Financial Performance, Statement of Changes in Net
Assets/Equity and Statement of Cash Flows for the period then ended. The financial
statements have been prepared in conformity with Philippine Public Sector Accounting
Standards (PPSAS) and reflect amounts that are based on best estimates and informed
judgment of management with an appropriate consideration of materiality.

In this regard, management maintains a system of accounting and reporting


which provides for the necessary internal controls to ensure that transactions are
properly authorized and recorded, assets are safeguarded against unauthorized use or
disposition and liabilities recognized.

ELBIMA MARIE T. TAN, CPA


Municipal Accountant

HON. ANGELO G. CAPISTRANO, JR.


Municipal Mayor

3
PART I – AUDITED FINANCIAL STATEMENTS
Municipality of Salay, Misamis Oriental
Statement of Financial Position
As of December 31, 2017
(With Comparative Figures for CY 2016)

Note 2017 2016


ASSETS
Current Assets
Cash and Cash Equivalents 4 69,583,793 47,431,264
Receivables 5 5,034,943 5,595,616
Inventories 6 2,643,760 1,455,667
Prepayments and Deferred Charges 7 7,075,791 97,451
Total Current Assets 84,338,288 54,579,997

Non-Current Assets
Property, Plant and Equipment 8 183,080,449 135,820,707
Biological Assets 9 133,500 133,500
Total Non-Current Assets 183,213,949 135,954,207
Total Assets 267,552,236 190,534,204

LIABILITIES
Current Liabilities
Financial Liabilities 10 2,953,091 1,206,890
Inter-Agency Payables 10 53,385,593 17,082,783
Intra-Agency Payables 10 597,230 282,295
Trust Liabilities 10 20,559,015 13,604,060
Deferred Credits/Unearned Income 10 2,417,393 2,549,857
Other Payables 11 2,302,175 2,475,315
Total Current Liabilities 82,214,496 37,201,201

Non-Current Liabilities
Financial Liabilities 45,558,417 29,871,080
Total Non-Current Liabilities 45,558,417 29,871,080
Total Liabilities 127,772,913 67,072,281

NET ASSETS/EQUITY
Government Equity 139,779,323 123,461,922
Total Liabilities and Net Assets/Equity 267,552,236 190,534,204

(See accompanying Notes to Financial Statements)

4
Municipality of Salay, Misamis Oriental
Statement of Financial Performance
For the Year Ended December 31, 2017
(With Comparative Figure for CY 2016)

Note 2017 2016


Revenue
Tax Revenue 12 3,902,222 3,032,339
Share from Internal Revenue Collections 12 81,232,284 73,138,884
Other Share from National Taxes 12 25,504
Service and Business Income 13 12,037,974 8,700,879
Shares, Grants and Donations 15 13,282 11,697
Gains
Other Income
Total Revenue 97,211,266 84,883,799

Less: Current Operating Expenses


Personnel Services 16 32,704,679 37,149,668
Maintenance & Other Operating Expenses 17-19,21-22 42,415,826 25,941,686
Non-cash Expenses 24 2,053,959 1,766,568
Financial Expenses 23 1,617,672 1,365,729
Current Operating Expenses 78,792,136 66,223,652

Surplus (Deficit) from Current Operation 18,419,130 18,660,147


Add (Deduct):
Transfers, Assistance and Subsidy From 14 4,506,905
Transfers, Assistance and Subsidy To 20 (6,612,521) (7,110,179)
Surplus(Deficit) for the period 11,806,609 16,056,873

(See accompanying Notes to Financial Statements)

5
Statement of Changes in Net Assets/Equity
For the Year Ended December 31, 2017
(With Comparative Figure for CY 2016)

Accumulated Accumulated
Surpluses/(Deficits) Surpluses/(Deficits)
2017 2016
Balance at January 1, 2017 123,461,922 77,243,775
Add (Deduct)
Change in Accounting Policy
Prior Period Errors (465,903) (2,315,634)
Restated Balance 122,996,019 74,928,141
Add (Deduct) Changes in net assets/equity
during the year
Adjustment of net revenue recognized directly in net
4,976,695 32,476,908
assets/equity
Surplus (Deficit) for the period 11,806,609 16,056,873
Total recognized revenue and expenses for the
16,783,304 48,533,781
period
Balance at December 31, 2017 139,779,323 123,461,922

6
Municipality of Salay, Misamis Oriental
Statement of Condensed Cash Flows
For the Year Ended December 31, 2017
(With Comparative Figure for CY 2016)

Note 2017 2016


Cash Flows from Operating Activities:
Cash Inflows:
Collections from Taxpayers 6,091,797 5,539,692
Share form Internal Revenue Collections 81,232,284 73,487,864
Receipts from Sale of Goods or Services 11,860,418 7,788,590
Interest Income 163,539 135,459
Other Receipts 70,129,643 41,421,446
Adjustment: Stale check 121,115 67,839
Total Cash Inflows 169,598,795 128,440,891

Cash Outflows:
Payments
To Suppliers/Creditors 37,540,379 31,485,404
To officers/employees 44,159,498 37,790,368
Interest Expenses 1,617,672 1,365,729
Other Expenses 28,851,949 30,419,794
Extraordinary Item -
Total Cash Outflows 112,169,498 101,061,296
Net Cash From Operating Activities 27 57,429,297 27,379,595

Cash Flow from Investing Activities:


Cash Inflows:
From Sale of Property, Plant & Equipment - -

Cash Outflows:
To Purchase Property,Plant & Equipment 50,770,939 38,126,082

Net Cash from Investing Activities (50,770,939) (38,126,082)

Cash Flows from Financing Activities:


Cash Inflows:
From Isuance of Debt Securities
From Acquisition of Loan 18,891,752 8,999,999
Total Cash Inflows 18,891,752 8,999,999

7
Cash Outflow:
Payment of Loan Amortization 3,397,581 3,251,302
Net Cash from Investing Activities 15,494,172 5,748,697
Net Increase in Cash 22,152,530 (4,997,790)
Cash at the beginning of the Period 47,431,264 52,429,053
Cash at the End of the period 69,583,793 47,431,264

(See Accompanying Notes to Financial Statements)

8
Municipality of SALAY
Province of Misamis Oriental
Statement of Comparison of Budget and Actual Amounts
For the Year Ended December 31, 2017

Particulars Budgeted Amounts Difference Difference


Notes Original and Actual Amounts Final Budget
Final Budget and Actual
Original Final
Revenue
A. Local Sources
1. Tax Revenue
a. Tax Revenue- Property 857,716 857,716 891,079
- 33,363
b. Tax Revenue – Goods and Services -
- -
c. Other Local Taxes 2,280,000 2,280,000 1,897,295
- (382,705)
c. Fine and Penalties- Local Taxes -
-
Total Tax Revenue 3,137,716 3,137,716 2,788,374
- - (349,342)
2. Non-Tax Revenue
a. Service Income 1,930,000 1,930,000 1,945,666
15,666
b. Business Income 13,650,000 13,650,000 10,068,208
(3,581,792)
c. Other Income and Receipts - 24,100
24,100
Total Non-Tax Revenue 15,580,000 15,580,000 12,037,974
- (3,542,026)
B. External Sources
1. Share from the National Internal
81,232,284 81,232,284 81,232,284
Revenue Taxes (IRA) - -
2. Share from GOCCs 50,000 50,000 13,282
9
(36,718)
3. Other Shares from National Tax
Collections -
a. Share from Ecozone
-
b. Share from EVAT 25,504
25,504
c. Share from National Wealth
-
d. Share from Tobacco Excise Tax
-
4. Other Receipts
-
a. Grants and Donations
-
b. Other Subsidy Income
-
5. Inter-local Transfer
-
6. Capital /Investment Receipts
-
a. Sale of Capital Assets
-
b. Sale of Investments
-
c. Proceeds from Collections of Loans
Receivable -
C. Receipts from Borrowings
-
D. Continuing Appropriations 23,805,155 23,805,155 23,805,155
-
Total Revenues and Receipts 123,805,155 123,805,155 119,902,573
- - (3,902,582)
Expenditures
General Public Services
Personnel Services 22,526,056 20,581,987
22,526,056 - 1,944,069
Maintenance and Other Operating
16,215,276 16,215,276
Expenses 16,215,276 - -

10
Capital Outlay 1,097,000 434,087
1,097,000 - 662,913
Education -
- -
Personnel Services -
- -
Maintenance and Other Operating
577,364 577,364 577,364
Expenses - -
Capital Outlay 700,000 700,000
700,000 - -
Health, Nutrition and Population
-
Control - -
Personnel Services 5,311,151 5,230,515
5,311,151 - 80,636
Maintenance and Other Operating
6,405,900 6,405,900
Expenses 6,405,900 - -
Capital Outlay -
- -
Labor and Employment -
- -
Personnel Services -
- -
Maintenance and Other Operating
-
Expenses - -
Capital Outlay -
- -
Housing and Community Development -
- -
Personnel Services -
- -
Maintenance and Other Operating
-
Expenses - -
Capital Outlay -
- -
Social Services and Social Welfare -
- -
Personnel Services 2,640,642 1,912,494
2,640,642 - 728,148
Maintenance and Other Operating
2,281,200 1,834,788
Expenses 2,281,200 - 446,412

11
Capital Outlay 468,378 115,000
468,378 - 353,378
Economic Services -
- -
Personnel Services 7,113,277 4,979,683
7,113,277 - 2,133,594
Maintenance and Other Operating
10,551,699 7,347,682
Expenses 10,551,699 - 3,204,017
Capital Outlay 100,000 100,000
100,000 - -
Other Purposes: -
- -
Debt Service -
- -
Financial Expense 1,584,600 1,584,600 1,617,672
- (33,072)
Amortization -
- -
LDRRMF -
- -
Maintenance and Other Operating
1,580,000 1,580,000 860,344
Expenses - 719,656
Capital Outlay 3,420,000 3,420,000 3,334,456
- 85,544
20% Development Fund -
- -
Maintenance and Other Operating
-
Expenses - -
Capital Outlay 12,848,876 12,848,876 10,039,043
- 2,809,833
Financial Expense 3,397,581 3,397,581 3,397,581
-
Share from National Wealth -
- -
Maintenance and Other Operating
-
Expenses - -
Capital Outlay -
- -
Allocation for Senior Citizens and PWD -
- -

12
Maintenance and Other Operating
1,181,000 1,181,000 994,154
Expenses - 186,846
Capital Outlay -
- -
Others -
- -
Personnel Services -
- -
Maintenance and Other Operating
-
Expenses -
Capital Outlay -
- -
Continuing Appropriations (Capital
-
Outlay) - -
General Public Services 1,236,800 1,236,800 1,236,800
- -
Education -
- -
Health, Nutrition and Population
-
Control - -
Labor and Employment -
- -
Housing and Community
-
Development - -
Social Services and Social Welfare -
- -
Economic Services -
- -
Continuing Appropriations (MOOE) -
- -
General Public Services 716,058 716,058 506,558
- 209,500
Social Services and Social Welfare 400,000 400,000 400,000
- -
Economic Services 481,675 481,675 481,675
- -
20% Development Fund - 2016 -
- -
Note

13
Maintenance and Other Operating
-
Expenses - -
Capital Outlay 11,235,836 11,235,836 1,247,706
- 9,988,130
-
Financial Expenses -
20% Development Fund-2015 -
- -
Maintenance and Other Operating
681,531 681,531 681,531
Expenses - -
Capital Outlay 3,745,200 1,112,491
3,745,200 - 2,632,709
Debt Service -
- -
20% Development Fund-2014 -
- -
Maintenance and Other Operating
-
Expenses - -
Capital Outlay 1,196,214 497,286
1,196,214 - 698,929
Debt Service -
- -
LDRRMF
Maintenance and Other Operating
Expenses 4,111,841 4,111,841 4,111,841 -

Total 3.18,26,28 123,805,155 123,805,155 96,953,912


- - 26,851,243
Surplus (Deficit) for the period - - 22,948,661
- -

(See Accompanying Notes to Financial Statements)

14
NOTES TO FINANCIAL STATEMENTS
(All amounts in Philippine peso unless otherwise stated)

Note I - Profile

The origin of Salay is believed to begun even before the Spanish Colonizers set
foot on this island but Salay into a full pledge municipality was due to
cooperative efforts of a civic organization name El Progreso Salayano in 1919
under the leadership of Mr. Bruno Salvaña. On December 19, 1919 an
Executive Order No. 94 was promulgated and should take effect on January 1,
1920 making Salay as a municipality.

Through the years, the municipality’s mission is to improve the quality of life
of its constituents through development of a just and economically cohesive
society through productivity and democratic processes operating within its
financial capability. Programs and projects are undertakes to promote social
and economic stability centering on construction of roads, rehabilitation of its
waterworks system now on its fourth phase, health program, livelihood, zero
waste management and food security.

The municipality has 11 elected officials, 78 permanent, 2 temporary and 86


contractuals (job orders) as of December 2016. It maintained General Fund,
Special Education Fund, Trust Fund and with a special project; Mindanao
Rural Development Program, Philippines Rural Development Program, and
MDFO Market(LP). Salay Economic Enterprise Development Office
(SEEDO) comprise of the market, waterworks, rent of heavy equipment and
many others.

Note 2 - The consolidated financial statements of the LGU have been prepared in
accordance with and comply with the Philippine Public Sector Accounting
Standards (PPSAS). The consolidated financial statements are presented in
pesos, which is the functional and reporting currency of the LGU and all
values are rounded to nearest thousand (P000). The accounting policies have
been applied starting the year 2015.

Note 3 - Summary of significant accounting policies

3.1 Basis of accounting

The consolidated financial statements are prepared on an accrual basis in


accordance with the Philippine Public Sector Accounting Standards
(PPSAS).

15
3.2 Consolidation

The controlled entities (funds) are all those over which the controlling
entity has the power to govern the financial and operating policies. Inter-
group transaction, balances and unrealized gains and losses on transactions
between entities and funds are eliminated in full. The LGU maintains three
(3) accounts General Fund, Special Education Fund and Trust Fund under
the Trust Fund the following special accounts are maintained:

 Municipal Development Fund Office


 Philippine Rural Development Program

3.3 Revenue recognition

Revenue from non-exchange transactions

Taxes, fees and fines

The LGU Salay recognizes revenues from taxes and fines when the event
occurs and the asset recognition criteria are met. To the extent that there is
a related condition attached that would give rise to a liability to repay the
amount, liability is recognized instead of revenue. Other non-exchange
revenues are recognized when it is improbable that the future economic
benefit or service potential associated with the asset will flow to the entity
and the fair value of the asset can be measured reliably.

Transfers from other government entities

Revenues from non-exchange transactions with other government entities


are measured at fair value and recognized on obtaining control of the asset
(cash, goods, services and property) if the transfer is free from conditions
and it is probable that the economic benefits or service potential related to
the asset will flow to the LGU and can be measured reliably.

The LGU availed of the 5 – year transitional provision for the recognition
of Tax Revenue- Real Property and Special Education Tax. For the first
year, there will be no change in policy for the recognition of the
aforementioned tax revenue.

Revenue from exchange transactions

Rendering of services

The LGU recognizes revenue from rendering of services by reference to


the stage of completion when the outcome of the transaction can be

16
estimated reliably. The stage of completion is measured by reference to
labor hours incurred to date as a percentage of total estimated labor hours.

Where the contract outcome cannot be measured reliably, revenue is


recognized only to the extent that the expenses incurred.

Sale of goods

Revenue from the sale of goods is recognized when the significant risks
and rewards of ownership have been transferred to the buyer, usually on
delivery of the goods and when the amount of revenue can be measured
reliably and it is probable that the economic benefits or service potential
associated with the transaction will flow to the LGU.

Interest income

Interest income is accrued using the effective yield method. The effective
yield discounts estimated future cash receipts through the expected life of
the financial asset to that asset’s net carrying amount. The method applies
this yield to the principal outstanding to determine interest income each
period.

Rental income

Rental income arising from operating leases on investment properties is


accounted for on a straight-line basis over the lease terms and included in
revenue.

3.4 Property, plant and equipment

All property, plant and equipment are stated at cost less accumulated
depreciation and impairment losses. Cost includes expenditure that is
directly attributable to the acquisition of the items. When significant parts
of property, plant and equipment are required to be replaced at intervals,
the LGU recognizes such parts as individual assets with specific useful
lives and depreciates them accordingly. Likewise, when a major
inspection is performed, its cost is recognized in the carrying amount of
the plant and equipment as a replacement if the recognition criteria are
satisfied. All other repair and maintenance costs are recognized in surplus
or deficit as incurred. Where an asset is acquired in a non-exchange
transaction for nil or nominal consideration the asset is initially measured
at its fair value.

Depreciation on assets is charged on a straight-line basis over the useful


life of the asset. Depreciation is charged at rates calculated to allocate cost

17
or valuation of the asset less any estimated residual value over its
remaining useful life:

Land Improvements 10
Buildings – those that are predominantly
Wood 10
Mixed 20
Concrete 30
Office, Equipment, Furniture and Fixtures
Office Equipment 5
Furniture and Fixtures 10
IT Equipment – Hardware 5
Library Books 5
Machineries and Equipment
Machineries 10
Agricultural, Fishery and Forestry 10
Airport Equipment 10
Communication Equipment 10
Construction and Heavy Equipment 10
Firefighting Equipment and Accessories 7
Hospital Equipment 10
Medical, Dental and Laboratory Equipment 10
Transportation Equipment
Motor Vehicles 7
Trains 10
Aircraft and Aircraft Ground Equipment 10
Watercrafts 10
Other Transportation Equipment 10
Other Property, Plant and Equipment 5

Leased assets may consist of vehicles and machinery. The assets’ residual
values and useful lives are reviewed, and adjusted prospectively, if
appropriate, at the end of each reporting period. An asset’s carrying
amount is written down immediately to its recoverable amount, or
recoverable service amount, if the asset’s carrying amount is greater than
its estimated recoverable amount or recoverable service amount. The LGU
derecognizes items of property, plant and equipment and/or any significant
part of an asset upon disposal or when no future economic benefits or
service potential is expected from its continuing use. Any gain or loss
arising on derecognition of the asset (calculated as the difference between
the net disposal proceeds and the carrying amount of the asset) is included
in the surplus or deficit when the asset is derecognized.

Public Infrastructures were not previously recognized in the books. The


LGU availed of the 5-year transitional provision for the recognition of the
Public Infrastructure. For the first year of implementation of the PPSAS,

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the LGU will not recognize the Public Infrastructure in the books of
accounts.

3.5 Leases

LGU as a lessee

Finance leases are leases that transfer substantially all of the risks and
benefits incidental to ownership of the leased item to the LGU. Assets
held under a finance lease are capitalized at the commencement of the
lease at the fair value of the leased property or, if lower, at the present
value of the future minimum lease payments. The LGU also recognizes
the associated lease liability at the inception of the lease. The liability
recognized is measured as the present value of the future minimum lease
payments at initial recognition. Subsequent to initial recognition, lease
payments are apportioned between finance charges and reduction of the
lease liability so as to achieve a constant rate of interest on the remaining
balance of the liability. Finance charges are recognized as finance costs in
surplus or deficit.

An asset held under a finance lease is depreciated over the useful life of
the asset. However, if there is no reasonable certainty that the LGU will
obtain ownership of the asset by the end of the lease term, the asset is
depreciated over the shorter of the estimated useful life of the asset and the
lease term.

Operating leases are leases that do not transfer substantially all the risks
and benefits incidental to ownership of the leased item to the LGU.
Operating lease payments are recognized as an operating expense in
surplus or deficit on a straight-line basis over the lease term.

LGU as a lessor

Leases in which the LGU does not transfer substantially all the risks and
benefits of ownership of an asset are classified as operating leases. Initial
direct costs incurred in negotiating an operating lease are added to the
carrying amount of the leased asset and recognized over the lease term.

Rent received from an operating lease is recognized as income on a


straight-line basis over the lease term. Contingent rents are recognized as
revenue in the period in which they are earned.

3.6 Intangible assets

Intangible assets acquired separately are initially recognized at cost. The


cost of intangible assets acquired in a non-exchange transaction is their

19
fair value at the date of the exchange. Following initial recognition,
intangible assets are carried at cost less any accumulated amortization and
accumulated impairment losses. Internally generated intangible assets,
excluding capitalized development costs, are not capitalized and
expenditure is reflected in surplus or deficit in the period in which the
expenditure is incurred.

The useful life of the intangible assets is assessed as either finite or


indefinite. Intangible assets with a finite life are amortized over its useful
life. Software is amortized for 10-20 years.

Intangible assets with a finite useful life are assessed for impairment
whenever there is an indication that the asset may be impaired. The
amortization period and the amortization method, for an intangible asset
with a finite useful life, are reviewed at the end of each reporting period.
Changes in the expected useful life or the expected pattern of consumption
of future economic benefits embodied in the asset are considered to
modify the amortization period or method, as appropriate, and are treated
as changes in accounting estimates. The amortization expense on an
intangible asset with a finite life is recognized in surplus or deficit as the
expense category that is consistent with the nature of the intangible asset.

Gains or losses arising from derecognition of an intangible asset are


measured as the difference between the net disposal proceeds and the
carrying amount of the asset and are recognized in the surplus or deficit
when the asset is derecognized.

Research and Development Cost

Research costs when incurred are treated as expenses by the LGU.


Development costs on an individual project are recognized as intangible
assets when the LGU can demonstrate:

a) The technical feasibility of completing the asset so that the asset


will be available for use or sale;

b) Its intention to complete and its ability to use or sell the asset;

c) How the asset will generate future economic benefits or service


potential;

d) The availability of resources to complete the asset; and

e) The ability to measure reliably the expenditure during


development.

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Following initial recognition of an asset, the asset is carried at cost less
any accumulated amortization and accumulated impairment losses.
Amortization of the asset begins when development is complete and the
asset is available for use. It is amortized over the period of expected future
benefit. During the period of development, the asset is tested for
impairment annually with any impairment losses recognized immediately
in surplus or deficit.

3.7 Impairment of non-financial assets

Impairment of cash-generating assets

At each reporting date, the LGU assesses whether there is an indication


that an asset may be impaired. If any indication exists, or when annual
impairment testing for an asset is required, the LGU estimates the asset’s
recoverable amount. An asset’s recoverable amount is the higher of an
asset’s or cash-generating unit’s fair value less costs to sell and its value in
use and is determined for an individual asset, unless the asset does not
generate cash inflows that are largely independent of those from other
assets or groups of assets.

Where the carrying amount of an asset or the cash-generating unit (CGU)


exceeds its recoverable amount, the asset is considered impaired and is
written down to its recoverable amount. In assessing value in use, the
estimated future cash flows are discounted to their present value using a
discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset. In determining fair value less
costs to sell, recent market transactions are taken into account, if available.
If no such transactions can be identified, an appropriate valuation model is
used.

Impairment losses of continuing operations, including impairment on


inventories, are recognized in the statement of financial performance in
those expense categories consistent with the nature of the impaired asset.

For assets, an assessment is made at each reporting date as to whether


there is any indication that previously recognized impairment losses may
no longer exist or may have decreased. If such indication exists, the LGU
estimates the asset’s or cash-generating unit’s recoverable amount. A
previously recognized impairment loss is reversed only if there has been a
change in the assumptions used to determine the asset’s recoverable
amount since the last impairment loss was recognized. The reversal is
limited so that the carrying amount of the asset does not exceed its
recoverable amount, nor exceed the carrying amount that would have been
determined, net of depreciation, had no impairment loss been recognized

21
for the asset in prior years. Such reversal is recognized in surplus or
deficit.

Impairment of non-cash-generating assets

The LGU assesses at each reporting date whether there is an indication


that a non-cash-generating asset may be impaired. If any indication exists,
or when annual impairment testing for an asset is required, the LGU
estimates the asset’s recoverable service amount. An asset’s recoverable
service amount is the higher of the non-cash generating asset’s fair value
less costs to sell and its value in use.

Where the carrying amount of an asset exceeds its recoverable service


amount, the asset is considered impaired and is written down to its
recoverable service amount.

In assessing value in use, the LGU has adopted the depreciation


replacement cost approach. Under this approach, the present value of the
remaining service potential of an asset is determined as the depreciated
replacement cost of the asset. The depreciated replacement cost is
measured as the reproduction or replacement cost of the asset, whichever
is lower, less accumulated depreciation calculated on the basis of such
cost, to reflect the already consumed or expired service potential of the
asset. In determining fair value less costs to sell, the price of the assets in a
binding agreement in an arm's length transaction, adjusted for incremental
costs that would be directly attributed to the disposal of the asset is used.
If there is no binding agreement, but the asset is traded on an active
market, fair value less cost to sell is the asset's market price less cost of
disposal. If there is no binding sale agreement or active market for an
asset, the LGU determines fair value less cost to sell based on the best
available information.

For each asset, an assessment is made at each reporting date as to whether


there is any indication that previously recognized impairment losses may
no longer exist or may have decreased. If such indication exists, the Group
estimates the asset's recoverable service amount. A previously recognized
impairment loss is reversed only if there has been a change in the
assumptions used to determine the asset’s recoverable service amount
since the last impairment loss was recognized. The reversal is limited so
that the carrying amount of the asset does not exceed its recoverable
service amount, nor exceed the carrying amount that would have been
determined, net of depreciation, had no impairment loss been recognized
for the asset in prior years. Such reversal is recognized in surplus or
deficit.

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3.8 Financial instruments

Financial assets

Initial recognition and measurement

Financial assets are classified as financial assets at fair value through


surplus or deficit, loans and receivables, held-to-maturity investments or
available-for-sale financial assets, as appropriate. The LGU determines the
classification of its financial assets at initial recognition.

Purchases or sales of financial assets that require delivery of assets within


a time frame established by regulation or convention in the marketplace
(regular way trades) are recognized on the trade date, i.e., the date that the
LGU commits to purchase or sell the asset.

The LGU’s financial assets include: cash and short-term deposits; trade
and other receivables; loans and other receivables and quoted and
unquoted financial instruments.

Subsequent measurement

The subsequent measurement of financial assets depends on their


classification.

Financial assets at fair value through surplus or deficit

Financial assets at fair value through surplus or deficit include financial


assets held for trading and financial assets designated upon initial
recognition at fair value through surplus and deficit. Financial assets are
classified as held for trading if they are acquired for the purpose of selling
or repurchasing in the near term. Financial assets at fair value through
surplus or deficit are carried in the statement of financial position at fair
value with changes in fair value recognized in surplus or deficit.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or


determinable payments that are not quoted in an active market. After
initial measurement, such financial assets are subsequently measured at
amortized cost using the effective interest method, less impairment.
Amortized cost is calculated by taking into account any discount or
premium on acquisition and fees or costs that are an integral part of the
effective interest rate. Losses arising from impairment are recognized in
the surplus or deficit.

23
Held-to-maturity

Non-derivative financial assets with fixed or determinable payments and


fixed maturities are classified as held to maturity when the LGU has the
positive intention and ability to hold it to maturity. After initial
measurement, held-to-maturity investments are measured at amortized
cost using the effective interest method, less impairment. Amortized cost
is calculated by taking into account any discount or premium on
acquisition and fees or costs that are an integral part of the effective
interest rate. The losses arising from impairment are recognized in surplus
or deficit.

Derecognition

The LGU derecognizes a financial asset or, where applicable, a part of a


financial asset or part of a group of similar financial assets when:

a) The rights to receive cash flows from the asset have expired or is
waived;

b) The LGU has transferred its rights to receive cash flows from the
asset or has assumed an obligation to pay the received cash flows
in full without material delay to a third party; and either: (a) the
LGU has transferred substantially all the risks and rewards of the
asset; or (b) the LGU has neither transferred nor retained
substantially all the risks and rewards of the asset, but has
transferred control of the asset.

Impairment of financial assets

The LGU assesses at each reporting date whether there is objective


evidence that a financial asset or a group of financial assets is impaired. A
financial asset or a group of financial assets is deemed to be impaired if,
there is objective evidence of impairment as a result of one or more events
that has occurred after the initial recognition of the asset (an incurred ‘loss
event’) and that loss event has an impact on the estimated future cash
flows of the financial asset or the group of financial assets that can be
reliably estimated. Evidence of impairment may include the following
indicators:

a) The debtors or a group of debtors are experiencing significant


financial difficulty;

b) Default or delinquency in interest or principal payments;

24
c) The probability that debtors will enter bankruptcy or other
financial reorganization; and

d) Observable data indicates a measurable decrease in estimated


future cash flows (e.g. changes in arrears or economic conditions
that correlate with defaults)

Financial assets carried at amortized cost

For financial assets carried at amortized cost, the LGU first assesses
whether objective evidence of impairment exists individually for financial
assets that are individually significant, or collectively for financial assets
that are not individually significant. If the LGU determines that no
objective evidence of impairment exists for an individually assessed
financial asset, whether significant or not, it includes the asset in a group
of financial assets with similar credit risk characteristics and collectively
assesses them for impairment. Assets that are individually assessed for
impairment and for which an impairment loss is, or continues to be,
recognized are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred,


the amount of the loss is measured as the difference between the assets
carrying amount and the present value of estimated future cash flows
(excluding future expected credit losses that have not yet been incurred).
The present value of the estimated future cash flows is discounted at the
financial asset’s original effective interest rate. If a loan has a variable
interest rate, the discount rate for measuring any impairment loss is the
current effective interest rate.

The carrying amount of the asset is reduced through the use of an


allowance account and the amount of the loss is recognized in surplus or
deficit. If, in a subsequent year, the amount of the estimated impairment
loss increases or decreases because of an event occurring after the
impairment was recognized, the previously recognized impairment loss is
increased or reduced by adjusting the allowance account. If a future write-
off is later recovered, the recovery is credited to finance costs in surplus or
deficit.

Financial liabilities

Initial recognition and measurement

Financial liabilities within the scope of IPSAS 29 are classified as


financial liabilities at fair value through surplus or deficit or loans and
borrowings, as appropriate. The LGU determines the classification of its
financial liabilities at initial recognition.

25
All financial liabilities are recognized initially at fair value and, in the case
of loans and borrowings.

The LGU Group’s financial liabilities include trade and other payables,
bank overdrafts, loans and borrowings.

Subsequent measurement

The measurement of financial liabilities depends on their classification.

Financial liabilities at fair value through surplus or deficit

Financial liabilities at fair value through surplus or deficit include


financial liabilities held for trading and financial liabilities designated
upon initial recognition as at fair value through surplus or deficit.

Loans and borrowings

After initial recognition, interest bearing loans and borrowings are


subsequently measured at amortized cost using the effective interest
method. Gains and losses are recognized in surplus or deficit when the
liabilities are derecognized as well as through the effective interest method
amortization process.

Amortized cost is calculated by taking into account any discount or


premium on acquisition and fees or costs that are an integral part of the
effective interest rate.

Derecognition

A financial liability is derecognized when the obligation under the liability


is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same


lender on substantially different terms, or the terms of an existing liability
are substantially modified, such an exchange or modification is treated as
a derecognition of the original liability and the recognition of a new
liability.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount
reported in the consolidated statement of financial position if, there is a
currently enforceable legal right to offset the recognized amounts and

26
there is an intention to settle on a net basis, or to realize the assets and
settle the liabilities simultaneously.

Fair value of financial instruments

The fair value of financial instruments that are traded in active markets at
each reporting date is determined by reference to quoted market prices or
dealer price quotations (bid price for long positions and ask price for short
positions), without any deduction for transaction costs.
.
3.9 Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and cash at bank,
deposits on call and highly liquid investments with an original maturity of
three months or less, which are readily convertible to known amounts of
cash and are subject to insignificant risk of changes in value. For the
purpose of the consolidated statement of cash flows, cash and cash
equivalents consist of cash and short-term deposits as defined above, net
of outstanding bank overdrafts.

3.10 Inventories

Inventory is measured at cost upon initial recognition. To the extent that


inventory was received through non-exchange transactions (for no cost or
for a nominal cost), the cost of the inventory is its fair value at the date of
acquisition.

Costs incurred in bringing each product to its present location and


conditions are accounted for, as follows:

a) Raw materials: purchase cost using the weighted average cost


method;

b) Finished goods and work in progress: cost of direct materials and


labor and a proportion of manufacturing overheads based on the
normal operating capacity, but excluding borrowing costs.

After initial recognition, inventory is measured at the lower of cost and net
realizable value. However, to the extent that a class of inventory is
distributed or deployed at no charge or for a nominal charge, that class of
inventory is measured at the lower of cost and current replacement cost.

Net realizable value is the estimated selling price in the ordinary course of
operations, less the estimated costs of completion and the estimated costs
necessary to make the sale, exchange, or distribution. Inventories are

27
recognized as an expense when deployed for utilization or consumption in
the ordinary course of operations of the LGU.

3.11 Provisions

Provisions are recognized when the LGU has a present obligation (legal or
constructive) as a result of a past event, it is probable that an outflow of
resources embodying economic benefits or service potential will be
required to settle the obligation and a reliable estimate can be made of the
amount of the obligation.

Where the LGU expects some or all of a provision to be reimbursed, for


example, under an insurance contract, the reimbursement is recognized as
a separate asset only when the reimbursement is virtually certain.

The expense relating to any provision is presented in the statement of


financial performance net of any reimbursement.

Rehabilitation liability

Rehabilitation costs are provided at the present value of expected costs to


settle the obligation using estimated cash flows and are recognized as part
of the cost of that particular asset. The cash flows are discounted at a
current rate that reflects the risks specific to the rehabilitation liability. The
unwinding of the discount is expensed as incurred and recognized in the
statement of financial performance as a finance cost. The estimated future
costs of decommissioning are reviewed annually and adjusted as
appropriate. Changes in the estimated future costs or in the discount rate
applied are added to or deducted from the cost of the asset.

Contingent liabilities

The LGU does not recognize a contingent liability, but discloses details of
any contingencies in the notes to the financial statements, unless the
possibility of an outflow of resources embodying economic benefits or
service potential is remote.

Contingent assets

The Group does not recognize a contingent asset, but discloses details of a
possible asset whose existence is contingent on the occurrence or non-
occurrence of one or more uncertain future events not wholly within the
control of the LGU in the notes to the financial statements. Contingent
assets are assessed continually to ensure that developments are
appropriately reflected in the financial statements. If it has become
virtually certain that an inflow of economic benefits or service potential

28
will arise and the asset’s value can be measured reliably, the asset and the
related revenue are recognized in the financial statements of the period in
which the change occurs.

3.12 Nature and purpose of reserves

The LGU creates and maintains reserves in terms of specific requirements.

3.13 Changes in accounting policies and estimates

The LGU recognizes the effects of changes in accounting policy


retrospectively. The effects of changes in accounting policy are applied
prospectively if retrospective application is impractical.

The LGU recognizes the effects of changes in accounting estimates


prospectively by including in surplus or deficit.

3.14 Foreign currency transactions

Transactions in foreign currencies are initially accounted for at the ruling


rate of exchange on the date of the transaction. Trade creditors or debtors
denominated in foreign currency are reported at the statement of financial
position reporting date by applying the exchange rate on that date.
Exchange differences arising from the settlement of creditors, or from the
reporting of creditors at rates different from those at which they were
initially recorded during the period, are recognized as income or expenses
in the period in which they arise.

3.15 Borrowing costs

Borrowing costs are capitalized against qualifying assets as part of


property, plant and equipment. Such borrowing costs are capitalized over
the period during which the asset is being acquired or constructed and
borrowings have been incurred. Capitalization ceases when construction
of the asset is complete. Further, borrowing costs are charged to the
statement of financial performance.

3.16 Related parties

The LGU regards a related party as a person or an entity with the ability to
exert control individually or jointly, or to exercise significant influence
over the LGU, or vice versa. Members of key management are regarded as
related parties and comprise the Governor, Mayors, Vice-Governors and
Vice-Mayors, Sanggunian Members, Committee Officials and Members,
Accountants, Treasurers, Budget Officers, General Services and all Chiefs
of Departments/Divisions.

29
3.17 Service concession arrangements

The LGU analyses all aspects of service concession arrangements that it


enters into in determining the appropriate accounting treatment and
disclosure requirements. In particular, where a private party contributes an
asset to the arrangement, the LGU recognizes that asset when, and only
when, it controls or regulates the services the operator must provide
together with the asset, to whom it must provide them, and at what price.
In the case of assets other than ’whole-of-life’ assets, it controls, through
ownership, beneficial entitlement or otherwise – any significant residual
interest in the asset at the end of the arrangement. Any assets so
recognized are measured at their fair value. To the extent that an asset has
been recognized, the LGU also recognizes a corresponding liability,
adjusted by a cash consideration paid or received.

3.18 Budget information

The annual budget is prepared on the modified cash basis, that is, all
planned costs and income are presented in a single statement to determine
the needs of the LGU. As a result of the adoption of the Modified cash
basis for budgeting purposes, there are basis, timing or entity differences
that would require reconciliation between the actual comparable amounts
and the amounts presented as a separate additional financial statement in
the statement of comparison of budget and actual amounts. Explanatory
comments are provided in the notes to the annual financial statements;
first, the reasons for overall growth or decline in the budget are stated,
followed by details of overspending or under spending on line items.

3.19 Significant judgments and sources of estimation uncertainty

Judgments

In the process of applying the LGU’s accounting policies, management


has made judgments, which have the most significant effect on the
amounts recognized in the consolidated financial statements.

Operating lease commitments – LGU as lessor

The LGU has entered into property leases of certain of its properties. The
LGU has determined, based on an evaluation of the terms and conditions
of the arrangements, (such as the lease term not constituting a substantial
portion of the economic life of the commercial property) that it retains all
the significant risks and rewards of ownership of the properties and
accounts for the contracts as operating leases.

30
Estimates and assumptions

The key assumptions concerning the future and other key sources of
estimation uncertainty at the reporting date, that have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are described below. The LGU
based its assumptions and estimates on parameters available when the
consolidated financial statements were prepared. However, existing
circumstances and assumptions about future developments may change
due to market changes or circumstances arising beyond the control of the
LGU. Such changes are reflected in the assumptions when they occur.

Useful lives and residual values

The useful lives and residual values of assets are assessed using the
following indicators to inform potential future use and value from
disposal:

a) The condition of the asset based on the assessment of experts


employed by the LGU;

b) The nature of the asset, its susceptibility and adaptability to


changes in technology and processes;

c) The nature of the processes in which the asset is deployed; and

d) Changes in the market in relation to the asset

Impairment of non-financial assets – cash-generating assets

The recoverable amounts of cash-generating units and individual assets


have been determined based on the higher of value-in-use calculations and
fair values less costs to sell. These calculations require the use of estimates
and assumptions. It is reasonably possible that the assumptions may
change, which may then impact management’s estimations and require a
material adjustment to the carrying value of tangible assets.

The LGU reviews and tests the carrying value of assets when events or
changes in circumstances suggest that the carrying amount may not be
recoverable. Cash-generating assets are grouped at the lowest level for
which identifiable cash flows are largely independent of cash flows of
other assets and liabilities. If there are indications that impairment may
have occurred, estimates of expected future cash flows are prepared for
each group of assets. Expected future cash flows used to determine the
value in use of tangible assets are inherently uncertain and could
materially change over time.

31
Impairment of non-financial assets – non- cash generating assets

The LGU reviews and tests the carrying value of non-cash-generating


assets when events or changes in circumstances suggest that there may be
a reduction in the future service potential that can reasonably be expected
to be derived from the asset. Where indicators of possible impairment are
present, the LGU undertakes impairment tests, which require the
determination of the fair value of the asset and its recoverable service
amount. The estimation of these inputs into the calculation relies on the
use estimates and assumptions.

Any subsequent changes to the factors supporting these estimates and


assumptions may have an impact on the reported carrying amount of the
related asset.

Fair value estimation – financial instruments

Where the fair value of financial assets and financial liabilities recorded in
the statement of financial position cannot be derived from active markets,
their fair value is determined using valuation techniques including the
discounted cash flow model. The inputs to these models are taken from
observable markets where possible, but where this is not feasible,
judgment is required in establishing fair values. Judgment includes the
consideration of inputs such as liquidity risk, credit risk and volatility.
Changes in assumptions about these factors could affect the reported fair
value of financial instruments.

Provisions

Provisions were raised and management determined an estimate based on


the information available. Provisions are measured at the management's
best estimate of the expenditure required to settle the obligation at the
reporting date, and are discounted to present value where the effect is
material.

Held-to-maturity investments and loans and receivables

The LGU assesses its loans and receivables (including trade receivables)
and its held-to-maturity investments at the end of each reporting period. In
determining whether an impairment loss should be recorded in surplus or
deficit, the LGU evaluates the indicators present in the market to
determine if those indicators are indicative of impairment in its loans and
receivables or held-to-maturity investments.

Where specific impairments have not been identified the impairment for
trade receivables, held-to-maturity investments and loans and receivables

32
is calculated on a portfolio basis, based on historical loss ratios, adjusted
for national and industry-specific economic conditions and other
indicators present at the reporting date that correlate with defaults on the
portfolio. These annual loss ratios are applied to loan balances in the
portfolio and scaled to the estimated loss emergence period.

3.20 Financial instruments - financial risk management

Exposure to currency, commodity, interest rate, liquidity and credit risks


arises in the normal course of the LGU’s operations. This note presents
information about the LGU’s exposure to each of the mentioned risks,
policies and processes for measuring and managing risk, and the LGU’s
management of capital. Further quantitative disclosures are included
throughout these financial statements. Fair values set out below, is a
comparison by class of the carrying amounts and fair value of the LGU’s
financial instruments.

The fair value of the financial assets and liabilities are included at the
amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or
liquidation.

The following methods and assumptions were used to estimate the fair
values:

a) Cash and short-term deposits, trade receivables, trade payables and


other current liabilities approximate their carrying amounts largely due
to the short-term maturities of these instruments;

b) Long-term fixed-rate and variable-rate receivables / borrowings are


evaluated by the LGU based on parameters such as interest rates,
individual creditworthiness of the customer and the risk characteristics
of the financed project. Based on this evaluation, allowances are taken
to account for the incurred losses of these receivables and market
related interest rates. As at 31 December 2016 the carrying amounts
of such receivables, net of allowances, are not materially different
from their calculated fair values;
c) Fair value of quoted notes and bonds is based on price quotations at
the reporting date. The fair value of unquoted instruments, loans from
banks and other financial liabilities, obligations under finance leases,
as well as other non-current financial liabilities is estimated by
discounting future cash flows using rates currently available for debt
on similar terms, credit risk and remaining maturities;

d) Fair value of financial assets is derived from quoted market prices in


active markets, if available;

33
e) Fair value of unquoted available-for-sale financial assets is estimated
using appropriate valuation techniques

Fair value hierarchy

The LGU uses the following hierarchy for determining and disclosing the
fair value of financial instruments by valuation technique:

Level 1: Quoted (unadjusted) prices in active markets for identical assets


or liabilities;

Level 2: Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e., as price) or
indirectly (i.e., derived from prices);

Level 3: Techniques which use inputs that have a significant effect on the
recorded fair value that are not based on observable market data

Credit risk

Credit risk is the risk of financial loss to the LGU if customers or


counterparties to financial instruments fail to meet their contractual
obligations, and it arises principally from the LGU’s investments, loans,
receivables, and cash and cash equivalents. The carrying amount of
financial assets represents the maximum credit exposure. The maximum
exposure to credit risk as at 31 December was:

Credit quality

Credit quality is assessed risk of default attached to counterparties to


which the LGU extends credit and also those parties with whom the LGU
invests. As such, the credit quality assessed extends to the customers,
investments and banks servicing the LGU.

For financial statement purposes, the investments and balances with banks
are limited to the investments, loans receivable and cash and cash
equivalents line items in the statement of financial position. The LGU
follows Department Order No. 27-05 of the Department of Finance (DOF)
in the maintenance of depository accounts. It also determines credit
quality of the investments and banks using information obtained from
external rating agencies.

The customer base of the Group is diverse and consists of individuals,


companies, non-profit organizations and government entities. Credit
ratings, from external rating agencies, are not readily available for all

34
customers. Also, it is not financially viable to obtain external credit ratings
for all customers due to the nature of the customer base. Furthermore, the
LGU, as a local government authority, is mandated under Republic Act
No. 7160 or the local Government Code to provide basic services to all its
constituents irrespective of their financial standing. As such, the LGU is
required, by legislation, to extend services and extended payment terms to
all customers irrespective of their financial standing. For the purpose of
determining the credit quality of customers, the LGU applies its past
experience with customers in determining the risk of default posed by
customers. In line with the methodology applied, customers are classified
into the following credit quality groups:

a) High - Those customers who have no history of defaulting on


payments to the Group and only includes customers who settle their
accounts in full and within the prescribed minimum period;

b) Medium - Those customers with a history of late payments only.


These customers usually arrange ahead of time with the Group in
settling balances in arrears and when payments are made, the
outstanding amounts (including interest) are settled in full; and

c) Low - Those customers with a significant history of defaults. The


balances of these customers are rarely settled in full. The recovery of
outstanding balances from these customers is problematic.

The credit quality of the balance of receivables and other receivables is


made up, as follows:

Investments

The LGU limits its exposure to credit risk by investing with only
reputable financial institutions that have a sound credit rating (rated BB
and above), which are within the specific guidelines set in accordance with
the LGU Finance Committee and the Sanggunian approved investment
policy. Consequently, the LGU does not consider there to be any
significant exposure to credit risk.

Receivables

Receivables are amounts owed by consumers, and are presented net of


impairment losses. The LGU has a credit risk policy in place, and the
exposure to credit risk is monitored on an ongoing basis. The LGU is
compelled, by its constitutional mandate, to provide all of its residents
with basic minimum services, without recourse to an assessment of
creditworthiness. There were no material changes in the exposure to credit

35
risk and its objectives, policies and processes for managing and measuring
the risk during the year under review.

The LGU’s maximum exposure to credit risk is represented by the


carrying value of each financial asset in the statement of financial
performance. The Group has no significant concentration of credit risk,
with exposure spread over a large number of consumers, and is not
concentrated in any particular sector or geographic area.

The LGU establishes an allowance for impairment that represents its


estimate of anticipated losses in respect of receivables.

Cash and cash equivalents

The LGU limits its exposure to credit risk by investing cash and cash
equivalents with only reputable financial institutions that have a sound
credit rating, and within specific guidelines set in accordance with the
Sanggunian’s approved investment policy. Consequently, the LGU does
not consider there to be any significant exposure to credit risk.

Liquidity risk

Liquidity risk is the risk of the LGU not being able to meet its obligations
as they fall due. The LGU’s approach to managing liquidity risk is to
ensure that sufficient liquidity is available to meet its liabilities when due,
without incurring unacceptable losses or risking damage to the LGU’s
reputation.

The LGU ensures that it has sufficient cash on demand to meet expected
operating expenses through the use of cash flow forecasts. On average,
receivables are settled within 30 days after the due date, and payables are
settled within 30 days of invoice date.

The following are contractual liabilities of which interest is excluded in


borrowings:

2017 On demand > 3 months 3-12 months 1-5 years > 5 years Total
Liabilities
Borrowing 1,360,700 353,449 1,751,966 2,474,131 39,618,171 45,558,417
Payables 3,568,329 - 76,304,557 - - 79,872,885
Total
4,929,029 353,449 78,056,523 2,474,131 39,618,171 125,431,302
Liabilities

Capital management

The primary objective of managing the LGU’s capital is to ensure that


there is sufficient cash available to support the LGU’s funding

36
requirements, including capital expenditure, to ensure that the LGU
remains financially sound. The LGU monitors capital using a gearing
ratio, which is net debt, divided by total capital, plus net debt. In a capital
intensive industry, a gearing ratio of 54.5% or less can be considered
reasonable. Included in net debt are interests bearing loans and
borrowings, payables, less investments.

LGU Salay has a gearing ratio of 24%, which measures the proportion of
LGU’s borrowed funds to its equity. The ratio indicates the financial risk
to which a business is subjected, since excessive debt can lead to financial
difficulties. A high gearing ratio represents a high proportion of debt to
equity, and a low gearing ratio represents a low proportion of debt to
equity. This ratio is similar to the debt to equity ratio.

Currency risk

The LGU is exposed to foreign-currency risk through the importation of


goods and services, either directly or indirectly, through the award of
contracts to local importers. The LGU manages any material direct
exposure to foreign-currency risk by entering into forward exchange
contracts. The LGU manages its indirect exposure by requiring the local
importer to take out a forward exchange contract at the time of
procurement, in order to predetermine the peso value of the contracted
goods or services. The LGU was not a direct party to any outstanding
forward exchange contracts at the reporting date. The movement in the
currency was not material to the Group’s procurement.

Market risk

Market risk is the risk of changes in market prices, such as foreign-


exchange rates and interest rates, affecting the LGU’s income or the value
of its financial instrument holdings. The objective of market risk
management is to manage and control market risk exposures within
acceptable parameters, while optimizing the return on the risk.

Note 4. Cash and Cash Equivalents

2017 2016
Cash on Local Treasury 10 1,510
Cash in Bank-Local Currency , Current 4,204,379 18,510,200
Cash in Bank-Local Currency , Savings
Account 65,379,405 28,919,554
Total 69,583,793 47,431,264

Cash in banks earns interest based on the prevailing bank deposit rates. Short-term
deposits are made for varying periods, depending on the immediate cash requirements of

37
the LGU and earn interest at the respective short-term deposit rate. The LGU bank
balances amounting to P 69,583,793includes an amount of P 58,229,904which must be
used on infrastructure projects. The LGU maintained a total of 16 bank accounts in
LCCA, LCSA and Short term time deposits.

Note 5 - Receivables

2017 2016
Real Property Tax Receivables 995,951 1,103,768
Special Education Tax Receivable 1,344,664 1,369,312
Total 2,340,615 2,473,079

Inter-Agency Recievables 2017 2016


Due from Local Government Units 472,828 472,828

Transfers from other government agencies represent those funds received for specific
projects undertaken by the LGU for specific purpose while transfer from the LGU
represents funds downloaded to our barangays for a specific project. These funds were
received on the basis of the project budgets submitted. Accordingly, the LGU is
contractually bound to spend these funds only in connection with the projects.
Furthermore, the contracts stipulate that the funds received for the project may only be
applied to the costs incurred for the project, as and when the phases of the project are
certified as complete. The conditions remaining therefore represent phases of the
projects that are yet to be certified as complete. Returned of the unspent portion of the
fund is subject to the conditions stated in the respective Memorandum of Agreements
executed between the LGU and the proponent government agencies.

Intra-Agency Receivables 2017 2016


Due from Other Funds 597,230 282,295

Advances 2017 2016


Advances to Special Disbursing Officer 59,861 1,830,873
Advances to Officers & Employees 1,342 30,090.01
61,203 1,860,963

Other Receivable 2017 2016


Receivables - Disallowances/Charges 77,824 121,220
Due from officers and employee- 122 109
Other Receivables 1,485,121 385,121
1,563,067 506,451

GRAND TOTAL 5,034,943 5, 595,616

Other Receivable includes Cash Bond from Regional Trial Court Branch 39 Case
Number 2008-212 OR 0847200 dated September 16, 2008 in the amount of P 200,000.

38
Note 6– Inventories

Inventory Held for Distribution 2017 2016


Drugs and Medicines for Distribution 141,723 88,619
Agricultural, & Marine Supplies for
Distribution 364,972 782,165
Agricultural, & Produce for Distribution 18,800 15,000
Construction Supply for Distribution 162,000 -
Other supplies & material for distributions 119,951 9,100
807,446 894,884

Inventory Held for Consumption 2017 2016


Office Supplies Inventory 40,949 31,290
Accountable Forms, Plates & Stickers 94,310 145,980
Non-accountable forms Inventory 18,450 -
Animal/Zoological Supplies Inventory 252,340 13,353
Drugs and Medicines Inventory - 40,592
Fuel, Oil &Lubricants Inventory 468,844 -
Agricultural, & Marine Supplies Inventory 83,292 -
Other Supplies and Materials Inventory 878,130 329,568
1,836,315 560,783
GRAND TOTAL 2,643,760 1,455,667

No inventory items were pledge as security during the current or prior financial year.

Note 7 – Prepayments and deferred Charges

Prepayments 2017 2016


Advances to Contractor 7,043,591 55,500
Prepaid Registration 9,869 15,512
Prepaid Insurance 22,331 26,439
7,075,791 97,451

Prepaid insurance are insurance paid to GSIS for the Vehicles and Property of the LGU
while Prepaid Registration are registration fee to Land Transportation Office. Advances
to Contractors for projects implemented specifically the advances to Mr.Liquigan for the
Consultancy fee of the Construction of the Public Market, AT Builders, JTA
Construction and Others.

Advances to Contractors for 2017 are broken down as follows:

Advances to Contractor
4barrels DCD BUILDERS TF 80,296
FMR Bunal -ADM AT BUILDERS TF 1,219,739
Water System Peace process AT BUILDERS TF 3,739,026

39
Water System level III JTA Builders TF 1,949,030
Design of New Public Market Liquigan GF 55,500
Total 7,043,591

Note 8 - Property, Plant and Equipment

Balance as of Balance as of
December 31, December 3,
2016 2017
Land and Land Improvements 19,558,807 - 19,558,807
Infrastructure Assets 42,645,221 22,950 42,668,171
Buildings and Other Structures 25,319,884 4,835,255 30,155,139
Machinery and Equipment 26,230,782 3,707,586 29,938,368
Transportation Equipment 2,589,907 869,600 3,459,507
Furniture, Fixtures and Books 1,439,803 49,215 1,489,018
Other Property, Plant and
Equipment 1,308,149 - 1,308,149
Construction in Progress 28,020,534 39,829,095 67,849,629
Accumulated Depreciation (11,292,380) (2,053,959) (13,346,339)
135,820,707 47,259,742 183,080,449

Increase in Property Plant and Equipment is due to completion of project implemented


and acquisition of assets.

Note 9 – Biological Assets


2017 2016
Breeding Stocks 133,500 133,500

The above balances are stated in net recoverable value. The said biological no
longer exist reports are being prepared for the request of dropping the account.

Note 10 – Liabilities

Financial Liabilities 2017 2016


Accounts Payable 2,953,091 1,206,890
Loan Payable- Domestic 45,558,417 29,871,080
48,511,518 31,077,970

Classification 2017 2016


Current 2,953,091 1,206,890
Non-Current 45,558,417 29,871,080
48,511,518 31,077,970

Accounts payables are non-interest bearing and are settled on 30-days terms. Part
of the Accounts payable are leave credits or terminal leave pay of Employees no

40
longer connected in the LGU. Loans payables are interest bearing. Interest
payable is normally settled quarterly and semi-annually throughout the financial
year.

Loans payable to NHA was used to finance the improvement of the Water works
System at a rate of 6% per annum payable in ten years at a quarterly basis. Loan
was effective on November 1, 2010.

The Construction of the new public market is finance with the LGU’s loan from
MDFO at a 6% and 4.5% rate per annum at a semi-annual basis. 80% of the loan
is 6% while the remaining 20% is 4.5%.

Loans Payable to MDFO is the Refinanced Loan of Postal Bank which will end
on 2018.

MDFO DMAF was used to finance to purchase Heavy Equipment-Backhoe at a


rate of 3% per annum.

MDFO DMAF is used to finance the Expansion of Water Supply System Level
III at a rate of 3% per annum.

Outstanding
Term of
Nature 1 Purpose/Project Creditor Balance, December
Loan
31, 2017
Domestic Loan Water System NHA 10yrs (6%) 2,750,052
Domestic Loan Refinancing MDFO 3yrs (4%) 2,748,614
Const. Public Market MDFO 15yrs (6%) 15,210,000
DMFA MDFO 10yrs (3%) 9,999,998
WATER-DMAF MDFO 20yrs (3%) 14,849,753
TOTAL 45,558,417

Inter-Agency Payables 2017 2016


Due to BIR 1,252,425 830,569
Due to GSIS 11,641 77,034
Due to Pag-ibig 12,126 13,546
Due to Phil. Health 4,298 3,861
Due to Other National Gov't. Agencies 44,573,712 15,335,213
Due to Local Gov't. Units 7,531,391 822,559
53,385,593 17,082,782

The first four accounts represent the amount deducted from the salaries of
officials and employees and is remitted to the respective government agencies
immediately on the month following the month for which these were deducted.
While the remaining accounts represents balances of funds received by the LGU

41
for specific purposes. Funds downloaded for the implementation of Bottom-Up-
Budgeting from the National Agencies which includes Farm to Market Roads and
livelihood assistance, Social Pension and Supplemental Feeding for the DSWD.

Intra-Agency Payables 2017 2016


Due to Other Funds 597,230 282,295

Trust Liabilities 2017 2016


Trust Liabilities 6,520,636 7,019,286
Trust Liabilities-DRRMFund 9,451,967 3,528,372
Bail Bonds Payable 78,601 78,601
Guaranty/Security Deposits Payable 4,507,811 2,977,802
20,559,015 13,604,060

Trust Liability represents LGU equity transferred in the Trust Fund Account for
the project Construction of the new Public market of the LGU, FMR Tinaga-an
(BUB 2014) and OPDA Building.

2017 2016
Deferred Credits/Unearned Income 2,417,393 2,549,857

Note 11– Other Payables


2017 2016
Other Payables 2,302,174 2,475,315

Other payables represent creditable institution which was deducted to employees’


payroll such as Banks with MOA to LGU Salay. (RBT, Postal Bank and others)

Note 12 – Tax Revenue

Tax Revenue-Individual and Corporation 2017 2016


Community Tax -
Individual 280,919 215,411
Corporation 22,758 37,505

Tax Revenue-Property
Real Property Tax – Basic 751,365 589,760
Discount on Real Property Tax (42,366) (36,344)
Special Education Tax 939,206 737,200
Discount on Special Education Tax (52,957) (45,430)
Tax Revenue-Goods and Services
Business Tax 1,547,285 1,259,477
Tax Revenue-Others
Other Taxes 2,640 388

42
Tax Revenue-Fines and Penalties
Tax Revenue - Fines and Penalties - CTC
individual 11,293 9,732

Tax Revenue - Fines and Penalties - Property 409,680 240,746


Tax Revenue - Fines and Penalties - Taxes on
Goods and Services 32,399 20,343
Fines and Penalties – Other Taxes - 3,550
Tax Revenue-Fines and Penalties
Share from Internal Revenue Collections (IRA) 81,232,284 73,138,884
Share from Expanded Value Added Tax 25,504 -
85,160,010 76,171,223

Note 13 – Service and Business Income

Service Income 2017 2016


Permit Fees 653,001 414,674
Registration Fees 370,429 217,773
Clearance and Certification Fees 612,209 363,525
Inspection Fees 235,406 148,279
Fees for Sealing and Licensing of Weights
and Measures 11,500 10,486
Fines and Penalties – Service Income - 3,280
Other Service Income 63,121 85,516
1,945,666 1,243,533

Business Income 2017 2016


Rent Income 598,746 546,227
Waterworks System Fees 5,442,615 3,948,629
Parking Fees 367,815 227,575
Receipt from Market Operations 340,539 51,790
Slaughterhouse Operation 1,065,951 933,658
Income from Cemetery 241,950 195,850
Sales Revenue 385,705 291,394
Garbage Fees 164,175 103,677
Hospital Fees 1,320,855 1,072,457
Interest Income 139,857 85,739
Other Permits & Licenses 24,100 350
10,092,308 7,457,346

Grand Total 12,037,974 8,700,879

43
Note 14- Transfers, Assistance and Subsidy
2017 2016
Transfers from Project Equity Share/LGU
Counterpart 2,367,132
Transfers from General Fund of Unspent
DRRMF 2,139,773
- 4,506,905

Note 15– Share, Grants and Donation


Shares, Grants and Donation 2017 2016
Share from PCSO 13,282 11,697
13,282 11,697

Note 16 - Employee Costs

Personnel Services
Salaries and Wages 2017 2016
Salaries and Wages - Regular 17,961,180 18,199,206
Salaries and Wages - Casual/Contractual - 405,923
Other Compensation
Personal Economic Relief Allowance
(PERA) 2,042,824 2,303,019
Representation Allowance 1,628,057 1,615,605
Transportation Allowance 1,500,075 1,601,325
Clothing/Uniform Allowance 425,000 480,000
Subsistence Allowance 224,909 -
Laundry Allowance 18,941 -
Productivity Incentive Allowance 430,000 430,000
Honoraria 32,600 4,000
Hazard Pay 651,925 865,643
Longevity Pay 35,000 55,000
Overtime and Night Pay - 198,848
Year End Bonus 3,087,722 3,092,345
Cash Gift 437,500 464,000
Other Bonuses & Allowances - 565,000
Personnel Benefit Contribution
Life & Retirement Insurance Contr. 2,099,374 2,180,065
Pag-ibig Contributions 356,983 370,398
Philhealth Contributions 202,500 223,701
ECC Contributions 90,899 92,483
Other Personnel Benefits
Terminal Leave Benefits 641,648 3,447,359
Other Personnel Benefits 837,541 555,749
32,704,679 37,149,668

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Note 17 – Maintenance and Other Operating expenses

Maintenance and Other Operating Expense


Traveling Expenses 2017 2016
Traveling Expenses - Local 2,417,261 2,811,977
Training and Scholarship Expenses
Training Expenses 549,110 901,940
Scholarship Grants/Expenses 1,020,050 726,800
Supplies and Materials
Office Supplies Expenses 1,501,396 1,214,357
Accountable Forms Expenses 210,110 48,190
Animal/Zoological Supplies Expenses 12,649 36,863
Food supplies Expense 223,839 67,719
Welfare Goods Expenses 82,801 364,561
Drugs and Medicines Expenses 1,315,525 319,880
Medical, Dental & Laboratory Expense 290,347 44,850
Fuel, Oil and Lubricants Expenses 1,092,612 1,509,293
Agricultural and Marine Supplies Expenses 348,943 4,550
Other Supplies and Materials Expense 4,392,205 1,105,523
Utility Expense
Water Expenses 274,850 79,474
Electricity Expenses 2,251,535 2,127,196
Communication Expenses
Postage & Courier Services 925 31,080
Telephone Expenses 326 11,704
Internet Subscription Expenses 120,222 42,188
Awards and Rewards and Prizes
Awards and Rewards Expenses 2,378,300 299,600
Prizes 414,500 623,100
Survey, Research
Surveys Expense 16,000 25,500
18,913,507 12,396,345

Note 18 – Contracted Services

Professional Services 2017 2016


Auditing Services 100,681 54,365
Other Professional Services 871,244 865,200
General Services
Environment/Sanitary Services 573,212 3,530,680
Janitorial Services - 315,775
Security Services 704,156 456,000
Other General services 8,576,860 1,403,600
10,826,153 6,625,620

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Note 19 – Repairs and Maintenance

Repairs and Maintenance 2017 2016


Repairs and Maintenance – Infrastructure
Assets 1,644,479 763,668
Repairs and Maintenance - Buildings and
Other Structures 580,953 451,825
Repairs and Maintenance – Machinery and
Equipment 1,464,830 335,494
Repairs and Maintenance - Machinery &
Equipment- Office Equipment 243,829 -
Repairs and Maintenance – Machinery &
Equipment – Construction & Heavy
Equipment 1,038,703 -
Repairs and Maintenance – Transportation
Equipment 1,049,841 592,443
Repairs and Maintenance –Furnitures&
Fixtures 15,000 8,610
Rep. &Maint.- Other Plant & Equipment 6,350 14,612
6,043,985 2,166,652

Note 20- Transfers

Transfer 2017 2016


Unspent DRRM Funds to the Trust Funds 6,612,521 3,765,115
Project Equity Share/LGU Counterpart - 3,345,064
6,612,521 7,110,179

Note 21 - Taxes, Insurance Premiums and Other Fees

2017 2016
Taxes, Duties and Licenses 399,374 67,736
Fedility Bond Premiums 66,000 76,129
Insurance Expenses 190,008 50,985
655,382 194,850

Note 22 – Other Maintenance and Operating Expenses

2017 2016
Advertising Expenses 24,580 4,455
Representation Expenses 2,399,422 1,063,843
Rent Expenses 10,500 52,900
Membership Dues - 10,800
Subscription Expenses 885 905
Donations 1,644,129 2,528,330

46
Other Maintenance and Operating Expenses 597,284 896,987
4,676,800 4,558,220

Note 23 - Financial Expenses


2017 2016
Interest Expenses 1,617,672 1,365,729

Note 24 – Non-Cash Expenses


2017 2016
Depreciation – Land Improvements - -
Depreciation – Buildings and Structures - 52,680
Depreciation – Machinery and Equipment 1,950,365 1,618,955
Depreciation – Transportation Equipment 71,268 71,268
Depreciation – Furniture, Fixtures and Books 32,326 23,665
2,053,959 1,766,568

Note 25 – Local Disaster Risk Reduction Fund

The LDRRMF represents the amount set aside by the LGU to support its disaster
risks management activities pursuant to R.A. No. 10121 otherwise known as the
“Philippine Disaster Risk Reduction and Management Act of 2010”. The amount
available and utilized during the year totaled P 12,444,996and P 10,414,597
respectively, broken down as follows:
Amount
Particulars Available Utilized Balance
Current Appropriation
Quick Response Fund
(QRF) 1,441,435 831,451 609,984
Mitigation Fund 3,363,348 3,363,348 -
Total 4,804,783 4,194,799 609,984
Continuing Appropriation
Quick Response Fund
(QRF)
Mitigation Fund 7,640,213 6,219,798 1,420,415
Total 7,640,213 6,219,798 1,420,415
TOTAL 12,444,996 10,414,597 2,030,399

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Note 26 – Budget Information

Appropriation General Fund Special Education Fund Total


Annual Budget 100,000,000 700,000 100,700,000
Supplemental Budget - 295,500 295,500
Continuing Appropriation 23,805,155 470,500 24,275,655
Total 123,805,155 1,466,000 125,271,155

The Annual Budget for CY 2017 of the General Fund carrying an appropriation of PhP
100 Million Pesos was enacted by the Sangguniang Bayan of Salay, Misamis Oriental on
November 28, 2016 through Appropriation Ordinance No. 18, s. 2016. The GF also has a
continuing appropriation amounting to PhP 23,805,155. No Supplemental Budget was
enacted in 2017, only realignments through Augmentation.

The Annual Budget for CY 2017 of the Special Education Fund carrying an appropriation
of PhP 700,000 was passed by the Local School Board on January 10, 2017 through
Resolution No. 1 s. 2017.

Supplemental Budget for the SEF amounting to PhP 295,500 was also passed in
December 2017.Continuing appropriation for the SEF amounted also to PhP 470,500.

Note 27 – Reconciliation of Net Cash Flows from Operating Activities to


Surplus/(Deficit)

2017 2016

Surplus/(Deficit) 11,806,609 16,056,873


Non-cash transactions
Depreciation 2,053,959 1,766,568
Increase (decrease) in payables 51,768,547 (7,928,806)
Increase in current assets 10,941,106
Increase in prepayments (7,173,242)
Increase in investments due to revaluation -
Decrease (Increase) in receivables (560,673) 6,543,854
Prior Period Adjustments that affected net
(465,903)
income
Net Cash from Operating Activities 57,429,297 27,379,595

48
Note 28 – Reconciliation between budget and actual amounts as presented in the
Statement of Comparison of Budget and Actual Amounts and in the
Financial Performance for the year ended December 31, 2017

INCOME Personnel Services MOOE Financial Expenses Capital Outlay


Comparison Statement of Budget Actual 119,902,573 32,704,679 40,417,113 5,015,253 17,580,068
Entity Differences - - - - -
Basis Differences
Income not considered budgetary items
Non-cashincome
Receipts not considered as income
Sale of capital assets
Borrowings
Non-cash expenses: - - - - -
Depreciation - - 2,053,959 - -
Amortization- Intangible Assets
Impairment Loss
Losses
Debt Service (Loan Amortization,Retirement of debt - 3,397,581
Intruments )
Interest Expenses capitalized
Capital Expenditures - 17,580,068
Timing Differences:
Prepayments charged to current appropriations
Unconsumed Inventories charged to current appropriations 2,643,760
Consumed Inventories and deferred charges to prior - 645,048
period appropriations
Continuing Appropraition - 22,691,307
Per Statement of Financial Performance 97,211,266 32,704,679 44,469,785 1,617,672 -

49
PART II – AUDIT OBSERVATIONS AND RECOMMENDATIONS

50
PART II – AUDIT OBSERVATIONS AND RECOMMENDATIONS

A. FINANCIAL AUDIT

A financial audit was conducted on the accounts and operations of the


Municipality of Salay, Misamis Oriental for CY 2017 and the team noted no
misstatements on the accounts. Hence, no audit observation memorandum was
issued that would form part in this report.

B. COMPLIANCE AUDIT

1. Completeness of supporting documents for the contract entered into by and


between the Municipality of Salay and AT Builders & General Merchandise
for the construction of Community Fish Landing Center Project
amountingto P2,740,982was not strictly prescribed as provided under
Section 9.1 COA Circular No. 2012-001 and Sec. 4 (6) P.D. 1445, thus
causing doubt on the legality and regularity of the transaction.

The Municipality of Salay implemented the project: Construction of


Community Fish Landing Center with a project cost of P2,740,982. Based on the
Program of Work, the project was funded by Bureau of Fisheries and Aquatic
Resources.

The Municipality submitted the contract and its supporting documents for
review. However, review of the accompanying bidding documents disclosed that
some documentary requirements prescribed under the aforementioned circular and
pertinent provision of P.D. 1445 were not enforced, to wit:

1. Invitation of three (3) observers in writing, at least 3 calendar days


before Procurement activity for Pre-Bid Conference:
 COA Representative
 Duly Recognized Private Group;
 Non-government Organization (NGO);
2. Annual Procurement Plan;
3. Instruction to Bidders;
4. Bid Data Sheet;
5. General & Special Conditions of Contract;
6. Abstract of Bids as Read
7. BAC Resolution on the Preliminary Examination of Bids
8. Abstract of Bids as Calculated
9. BAC Resolution declaring the LCB
10. Invitation of three (3) observers in writing, at least 3 calendar days
before Procurement activity for Submission, Receipt & Opening of
Bids:
 COA Representative
 Duly Recognized Private Group;

50
 Non-government Organization (NGO);
11. Invitation of three (3) observers in writing, at least 3 calendar days
before Procurement activity for Post-qualification:
 COA Representative
 Duly Recognized Private Group;
 Non-government Organization (NGO);
12. Post-qualification Evaluation Report by the TWG;
13. Notice of Post-qualification;
14. Post Qualification Report contained the validation of the
following:
a. Authenticity of the document submitted;
b. On-going and completed projects;
c. Verification and/or inspection and testing of the
good/product, after-sales and/or maintenance capabilities;
d. Bid Security as to type, form & wording, validity period;
e. Compliance with the financial requirements;
15. PERT/CPM;
16. Notification of Bidding Results of the Bidders;

Incompleteness of the documentary requirements prevented the Audit


Team from ascertaining legality/regularity of the payments made for the said
projects as well as to verify whether all relevant procurement process were
faithfully complied with.

1.1 Copies of contract agreement together with the supporting documents


were not furnished to the Office of the Auditor within five (5) working
days from the execution of a contract inconsistent with Section 3.1.1 of
COA Circular No. 2009-001 dated February 12, 2009, thus preventing
the Office to review and make decisions in audit.

Section 3.1.1 of COA Circular 2009-001 dated February 12, 2009, to wit:

“Within five (5) 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 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.”

Verification revealed that copy of the contract agreement with the


supporting documents entered into by and between the Municipality of

51
Salay and AT Builders & General Merchandise for the construction of
Community Fish Landing Center project amounting to P 2,740,982 was
not furnished the Auditor within five (5) working days from the execution
of a contract.

Because of the failure of management to submit the said contract together


with their supporting contract documents, the Audit Team was unable to conduct
a timely auditorial review as to legal and financial aspects.

Recommendation:

We recommended that Management submit immediately the required


documents herein enumerated for review and to submit a written justification as to
why it was not submitted within 5 working days from the execution of the
contract by the agency.

Management Comments:

The management had already complied the necessary supporting


documents following this audit observation memorandum.

2. The Municipality withheld an amount of liquidated damages lesser than the


mandated figure by P209,999 caused by the delay in the delivery of one
unitHydraulic Excavator (Crawler Type) procured through public
biddingawarded to JROG Marketing, contrary to Section 68 of Revised IRR
of Republic Act No. 9184.

Section 68 of RA 9184 stipulates that,

“All contracts executed in accordance with the Act and this IRR
shall contain a provision on liquidated damages which shall be
payable by the contractor in case of breach thereof. For the
procurement of Goods, Infrastructure Projects and Consulting
Services, the amount of the liquidated damages shall be at least
equal to one-tenth of one percent (0.001) of the cost of the
unperformed portion for every day of delay...”

The Municipality of Salay implemented the project: Procurement of


Hydraulic Excavator (Crawler Type) witha project cost of P9,999,998. Based on
the Program of Work, the project was funded through Local Disaster Risk
Reduction & Management Fund.

Verification of the herewith attached document signed by the Municipal


Accountant revealed that the delivery of the vehicle was expected on August 30,
2016 but made on October 24, 2016. The number of days delayed in delivering the
vehicle hence ran for 55 days and shall be counted as Liquidated Damage.

52
Moreover, the above-mentioned difference can be computed as follows:

One tenth of one percent of Number Amount


the cost of the unperformed of days
portion of every day of delayed
delay
Mandated Figure (RA 10,000 55 549,999
9184)
Accountant’s Computation 10,000 34 340,000
Difference 209,999

Moreover, the audit disclosed the following minor findings:

 Certain documents such as Acceptance and Inspection Report,


Purchase Orders and Purchase Requests were not supplied or filled out
completely as some necessary information can be barely grasped.
 Contract and Purchase Order were not submitted within the prescribed
period contrary to COA Circular No. 2009-01.

Recommendations:

We recommended the Municipal Mayor to instruct the Municipal


Accountant to withhold the correct amount of Liquidated Damage to be deducted
from the cost of the contract as mandated by Section 68 of Revised IRR of RA
9184.

We also recommendedsupplying and filling out the essential documents


completely and submitting those within the reglementary period.

Management Comments:

The management already withhold the actual amount of damages as


recommended and have reflected the same amount in DV No. 300-2018-01-004
for their final billing.

3. Completeness of supporting documents for the contract entered into by and


between the Municipality of Salay and JTA Builders &Enterprises for the
expansion of Water Works System III amounting to P29,699,505 was not
strictly prescribed as provided under Section 9.1 COA Circular No. 2012-001
and Sec. 4 (6) P.D. 1445, thus causing doubt on the legality and regularity of
the transaction.

The Municipality of Salayimplemented the project: Expansion of Water


Works System III with a project cost of P29,699,505.The project was funded
through MDFO-DOF.

53
The Municipality submitted the contract and its supporting documents for
review. However, review of the accompanying bidding documents disclosed that
some documentary requirements prescribed under the aforementioned circular and
pertinent provision of P.D. 1445 were not enforced, to wit:

1. Program of Works for the Project


2. Invitation of three (3) observers in writing, at least 3 calendar days
before Procurement activity for Pre-Procurement Conference:
 COA Representative
 Duly Recognized Private Group;
 Non-government Organization (NGO);
3. Certification from the Head of BAC Secretariat on the posting of
advertisement at conspicuous place within 7 calendar days;
4. Records of BAC on the issuance of Bid Documents with Official
Receipt
5. Invitation of three (3) observers in writing, at least 3 calendar days
before Procurement activity for Pre-Bid Conference:
 COA Representative
 Duly Recognized Private Group;
 Non-government Organization (NGO);
6. Invitation of three (3) observers in writing, at least 3 calendar days
before Procurement activity for Submission and Opening of bids:
 COA Representative
 Duly Recognized Private Group;
 Non-government Organization (NGO);
7. Bid Securing Declaration;
8. Abstract of Bids as Read;
9. BAC Resolution(s) on the preliminary examination of bids;
10. Abstract of Bids as Calculated;
11. Minutes of BAC Meeting on the Detailed Bid Evaluation;
12. Resolution of the BAC declaring the LCB;
13. Invitation of three (3) observers in writing, at least 3 calendar days
before Procurement activity for Post-qualification:
 COA Representative
 Duly Recognized Private Group;
 Non-government Organization (NGO);
14. Post-qualification Evaluation Report by the TWG;
15. Print-out of posting of Notice of Award (PhilGEPS& Conspicuous
place);
16. Equipment Utilization Schedule;
17. Print-out of posting of Notice to Proceed (PhilGEPS&
Conspicuous place);

Incompleteness of the documentary requirements prevented the Audit


Team from ascertaining legality/regularity of the payments made for the said

54
projects as well as to verify whether all relevant procurement process were
faithfully complied with.

3.1 Copies of contract agreement together with the supporting documents


were not furnished to the Office of the Auditor within five (5) working
days from the execution of a contract inconsistent with Section 3.1.1 of
COA Circular No. 2009-001 dated February 12, 2009, thus preventing
the Office to review and make decisions in audit.

Section 3.1.1 of COA Circular 2009-001 dated February 12, 2009, to wit:

“Within five (5) 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 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.”

Verification revealed that copy of the contract agreement with the


supporting documents entered into by and between the Municipality of
Salay and JTA Builders & Enterprises for the expansion of Water Works
System III project amounting to P 29,699,505 was not furnished the
Auditor within five (5) working days from the execution of a contract.

Because of the failure of management to submit the said contract


together with their supporting contract documents, the Audit Team was
unable to conduct a timely auditorial review as to legal and financial
aspects.

Recommendation:

We recommended that Management submit immediately the required


documents herein enumerated for review and to submit a written justification as to
why it was not submitted within 5 working days from the execution of the
contract by the agency.

Management Comments:

The management had already complied the necessary supporting documents


following this audit observation memorandum.

55
4. Copies of contract agreement for the Concreting of Access Road (Contract
Package 1) in the amount of P 11,519,833 together with the supporting
documents were not furnished to the Office of the Auditor within five (5)
working days from the execution of a contract inconsistent with Section 3.1.1
of COA Circular No. 2009-001 dated February 12, 2009, thus preventing the
Office to review and make decisions in audit.

Section 3.1.1 of COA Circular 2009-001 dated February 12, 2009


provides that,

“Within five (5) 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 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.”

Verification revealed that copy of the contract agreement with the


supporting documents entered into by and between the Municipality of Salay and
AT Builders & General Merchandise for Concreting of Access Road (Contract
Package 1)in the amount of P 11,519,833 was not furnished the Auditor within
five (5) working days from the execution of a contract.

Because of the failure of management to submit the said contract together


with their supporting contract documents, the Audit Team was unable to conduct a
timely auditorial review as to legal and financial aspects.

4.1 The contract amount posted in the PhilGepsInvitation to Bid had


materially differed from the Approved Budget of the Contract by
P307,845 which is inconsistent with Section 7 of RA 9184.

Section 7 of RA 9184 provides that,

“All procurement should be within the approved budget of


the procuring entity and should be meticulously and
judicially planned by the Procuring Entity concerned.
…xxx”

Verification revealed that the Municipality had an Approved Budget Cost


(ABC) for the project amounting to P11,530,743 which apparently did not
reconcile with the amount posted in PhilGEPS in inviting the bidders to convey
their intent, costingP11,838,588.

56
Moreover, the winning bidder, AT Builders, submitted bids with different
amounts inthe supporting documents. Its financial document reflected an amount
of P11,519,827 while the Opening of Bids Minutes of the Municipality disclosed a
total of P11,828,130.

The practice is highly discouraged by the above-quoted provision as it


emphasizes the limit set by the ABC.

4.2 Completeness of supporting documents for the contract entered into by


and between the Municipality of Salay and AT Builders &General
Merchandise for the Concreting of Access Road (Contract Package 1)
in the amount of P 11,519,833 was not strictly prescribed as provided
under Section 9.1 COA Circular No. 2012-001 and Sec. 4 (6) P.D. 1445,
thus causing doubt on the legality and regularity of the transaction.

The Municipality submitted the contract and its supporting documents for
review. However, review of the accompanying bidding documents disclosed that
some documentary requirements prescribed under the aforementioned circular and
pertinent provision of P.D. 1445 were not enforced, to wit:

1. Memorandum of Agreement between the Municipality and BUB-


LGS
2. Invitation of three (3) observers in writing, at least 3 calendar days
before Procurement activity for Pre-Procurement Conference:
 Duly Recognized Private Group;
 Non-government Organization (NGO);
3. Entire page of the newspaper clippings of advertisement;
4. Certification from the Head of BAC Secretariat on the posting of
advertisement at conspicuous place;
5. BAC Resolution on the Preliminary Examination of Bids;
6. Abstract of Bids as Calculated;
7. TWG Report on the Detailed Bid Evaluation;
8. Minutes of the BAC meeting on the Detailed Bid Evaluation;
9. Invitation of three (3) observers in writing, at least 3 calendar days
before Procurement activity for Pre-Bid Conference:
 Duly Recognized Private Group;
 Non-government Organization (NGO);
10. Invitation of three (3) observers in writing, at least 3 calendar days
before Procurement activity for Opening of Bids:
 Duly Recognized Private Group;
 Non-government Organization (NGO);
11. Post-qualification Evaluation Report by the TWG;
12. Post Qualification Report contained the validation of the
following:
a. Authenticity of the document submitted;

57
b. On-going and completed projects;
c. Verification and/or inspection and testing of the
good/product, after-sales and/or maintenance capabilities;
d. Bid Security as to type, form & wording, validity period;
e. Compliance with the financial requirements;
13. Print-out on posting of Notice of Award;
14. Print-out on posting of Notice to Proceed;

Incompleteness of the documentary requirements prevented the Audit


Team from ascertaining legality/regularity of the payments made for the said
projects as well as to verify whether all relevant procurement process were
faithfully complied with.

Recommendation:

We recommended that Management submit immediately the required


documents herein enumerated for review and to submit a written justification as
to why it was not submitted within 5 working days from the execution of the
contract by the agency.

Management Comments:

The management had already complied the lacking necessary documents


following this audit observation memorandum.

C. PERFORMANCE AUDIT

5. The Municipality had not been attentive and responsive to the agreement
entailed in different contracts amounting to P54,020,061, pertaining to terms
and duration, they entered into with contractors, thereby depriving the
targeted end-users the desired benefit expected to be enjoined on time, and
resulting to unexpected damages and losses, contrary to Section 8, 10.2 and
10.4 of RA 9184.

Section 10.2 provides,

“No extension of contract time shall be granted the contractor due


to (a) ordinary unfavorable weather conditions and (b)
inexcusable failure or negligence of contractor to provide the
required equipment, supplies or materials.”

Section 10.4 upholds the same that,

“No extension of contract time shall be granted when the reason


given to support the request for extension was already considered
in the determination of the original contract time during the

58
conduct of detailed engineering and in the preparation of the
contract documents as agreed upon by the parties before contract
perfection.”

Verification of the Reports on Publicized Projects of the Agency


submitted by the LGU for the 4th quarter of CY 2017 revealed that the
commitment of the contractors in implementing the local projects on the period
agreed in contracts could be validly questioned as four (4) of the projects carried
in the year had exceeded the target completion period.

These projects include the following:

Project Name Location Contractor Date Target Total Cost


Started Completion
Date
Market PoblacionSalay Footprints 1/19/2015 4/25/2016 20,350,176
Construction Construction
Design & Brgy. Ili- JTA 1/20/2017 11/16/2017 29,699,505
Build for the ilihon, Salay, Builders
Improvement Misamis
of WWS Oriental
Construction Brgy. Casulog, DCD 5/25/2017 8/23/2017 1,990,022
of Box Salay Builders &
Culverts (5- Enterprises
barrel)
Construction Brgy. Casulog, DCD 5/25/2017 8/23/2017 1,980,357
of Box Salay Builders &
Culverts (4- Enterprises
barrel)
TOTAL P54,020,060

The above-quoted provisions emphasize that delaying the accomplishment


of implemented projects should never even once be a consideration which should
be granted to all involved contractors, unless exceptions altogether mentioned
arise.

Section 8.4 of RA 9184 strongly upholds that, “in case that the delay in
the completion of the work exceeds a time duration equivalent to ten percent
(10%) of the specified contract time plus any time extension duly granted to the
contractor, the procuring entity concerned may rescind the contract, forfeit the
contractor’s performance security and takeover the prosecution of the project or
award the same to a qualified contractor through negotiated contract.

59
Recommendation:

We recommended that the Municipality should be responsive of the


provisions of the legal bases through upholding compliance in the agreement
disclosed in all contracts they entered into.

We also recommended that the LGU should submit justification


elaborating reasons which hindered the LGU in accomplishing implemented
projects on time.

Management Comments:

The management submitted documents for the following observation as follows:

a. Project under contract with Footprints Construction in the amount of P


21,192,580 was completed on October 30, 2016.

b. Project under contract with JTA Builders in the amount of


P 29,699,505 wereissued with three (3) suspension orders for a total
accumulated shutdown of 127 days. These were granted because the
spillway was destroyed last January 16, 2017 flood. The access road going
to the project is not passable. Aside from that, we had also issued another
Suspension of Works because the contractor had advised us to change the
location of diversion source which was also affected by the flood and also
the location of Settling Pond. These changes greatly affect the pace of
construction activities because plans had to be revised and land for the
location of Settling Pond have to be negotiated and acquired prior to
construction of structures.

c. Project under contract with DCD Builders in the amount of


P 1,975,425 and P 1,990,022 were recommended by the Municipal
Engineer, of this Municipality, of rescinding the contract by not
completing the unfinished works of the project.

REMITTANCE OF GSIS, HDMF AND PHILHEALTH PREMIUMS

The Local Government Unit of Salay was compliant with the required remittances
by withholding from salaries and wages of personnel and remitted the same to GSIS,
HDMF and Philhealth.

GENDER AND DEVELOPMENT (GAD)

For Calendar Year 2017, the Municipality appropriated the amount of


P2,107,000for various programs and activities related to Gender and Development

60
Program with the elderly, women, youth, children and the persons with disability as
beneficiaries and expended a total of P 2,089,400.
COMPLIANCE WITH TAX LAWS, RULES AND REGULATIONS

The Local Government Unit of Salay was compliant with the tax requirements by
withholding taxes from salaries and wages of personnel as well as from payments of
purchases and business contracts and remitted the same to the Bureau of Internal
Revenue.

STATUS OF SUSPENSIONS, DISALLOWANCES AND CHARGES

The audit suspensions, disallowances and charges found in the examination of


various transactions for all funds of the Municipality and the corresponding settlements
made by management are as follows:

Balance CY 2017 Balance


Particulars Settlement
12/31/2017 Issuances 12/31/2017
Prior to December 31, 2016 (COA Memo 2010-084)
With Final Order of Adjudication and/or COA Order of Execution (COE)
Disallowances - - - -
Those without Final Order of Adjudication and/or COA Order of Execution (COE)
Suspensions - - - -
Disallowances - - - -
Upon effectivity of COA Circular No. 2010-006 (Rules & Regulations on Settlement
of Accounts)
Suspensions - - - -
Disallowances P 130,200 0 P 40,390 P 89,810

61
PART III – STATUS OF IMPLEMENTATION OF PRIOR YEARS’
AUDIT RECOMMENDATIONS
PART III – STATUS OF IMPLEMENTATION OF PRIOR YEARS’
AUDITRECOMMENDATIONS
Monitoring and evaluation of the actions taken by the Management relative to the
implementation of prior year’s audit recommendations disclosed that out of the ten (10)
audit recommendations embodied in the 2016 Annual Audit Report, all were fully
implemented.

Status Auditor’s
Audit Observation Recommendation Ref. Validation
of Results
Implementation
1. Unused cash We 2016 Fully
advance for travel in the recommended that the AAR Implemented
amount of P30,100.00 were Municipal Mayor
not refunded but deducted enforce strictly the
in the succeeding cash refund of the
advances contrary to COA unused/unspent and
Circular No. 97-002 dated excess claim of cash
February 10, 1997 thus, advance to be
exposing any unexpended acknowledged by the
amounts to risks of loss, Municipal Treasurer
misuse or thru the issuance of an
misappropriations. Official Receipt which
is to beattached to the
Liquidation Report.

Also avoid the


practice of deducting
the excess claims and
unspent cash advances
from the succeeding
cash advances and
from the payroll as it
creates difficulty in
monitoring and audit.

Further, we
recommended that
additional cash
advance shall only be
granted once the
previous one is fully
liquidated.

62
2. The documentary We 2016 Fully
requirements in the recommended that AAR Implemented
liquidation of cash advances Management strictly
for travel were not properly comply with the
observed in violation of provisions of COA
COA Circular 2012-001, Circular 2012-001 on
thereby making the the requirements in the
liquidations doubtful. liquidation of cash
advances for travel.

3. Copies of Notices of We recommended that 2016 Fully


Deliveries/Inspection and Management should AAR Implemented
Acceptance Reports were instruct the General
not submitted to the Services Officer to
Auditor within twenty-four furnish copies of
(24) hours from acceptance Acceptance and
of deliveries of goods Inspection Reports,
contrary to Section 6.9 of together with the
COA Circular No. 2009-2 Delivery Receipts to
dated May 18, 2009 which the Audit Team within
prevented the Audit Team twenty-four hours
from performing the timely from acceptance to
post-audit of transactions. enable them to
conduct timely
validation thereof
pursuant to Section 6.9
of COA Circular No.
2009-002 dated May
18, 2009.
4. 4. The Municipality failed We 2016 Fully
to prepare Local Disaster recommended AAR Implemented
Risk Reduction and therefore that the
Management Fund Municipal Mayor
Investment Plan instruct the Designated
(LDRRMFIP), and comply DRRM Officer to
with the full disclosure prioritize the
policy on the utilization of preparation and
the LDRRMF contrary to submission of the
Sec. 5.1.5 of COA Circular LDRRMFIP, and the
No. 2012-002, Sec. 2 (e) of maintenance of public
RA 10121 and DILG awareness through
Memorandum Circular No. bulletin board. The
2013-040. submission, and
compliance of, these
reports has basic
importance on the lives

63
of the constituents as it
promotes disaster
mitigation, prevention,
and preparedness.

In addition, the
Designated DRRM
Officer must consider
the prompt fulfillment
of the activities or
tasks enumerated in
the LDRRMFIP as the
most effective way of
handling disaster goes
with the idea that
outweighs preventing
over curing.

5. The Municipality We recommended that 2016 Fully


paid various expenditures in the Municipality AAR Implemented
the total amount of evaluate further the
P339,536.07 charged components included
against 20% Development in its 20% annual
Fundcontrary to the internal revenue
provisions of Section 4 of allotment (IRA) for
the DILG-DBM Joint development projects
Memorandum Circular No. to avoid incurring
2011-1 dated April 13, expenditures that are
2011. not related to and/or
not connected with the
implementation of
development projects,
programs and
activities of the
Municipality in
conformity with the
Joint DILG-DBM
Memorandum
Circular.
6. Traveling expenses We recommended that 2016 Fully
amounting to P273,500.00 the Municipal Mayor AAR Implemented
were incurred by the make the appropriate
officials of the Municipality action with respect to
in violation of Section 4 of settlement of audit
Presidential Decree (PD) disallowances.

64
No. 1445, thereby rendering
the said expense irregular.

7. Remittances/deposits of We recommended that 2015 Fully


collections were not intact the Municipal AAR Implemented
and were delayed by one (1) Treasurer faithfully
to thirty three (33) days monitor and ensure
contrary to Section 69 of PD compliance with
1445, COA and MOF Joint Section 69 of P.D.
Circular 1-81 and Section 1445, COA and MOF
32 of the NGAS Manual for Joint Circular 1-81
LGUs, thus exposing the and Section 32 of the
accumulated NGAS Manual for
unremitted/undeposited LGUs. We also
collections to possible loss recommend that
thru theft or misuse.. administrative
sanctions be imposed
on all accountable
officers who
repeatedly did not
perform their sworn
duties in accordance
with law and
regulations.
8. Of the 20% Development We recommended that 2015 Fully
Fund amounting to Management direct AAR Implemented
P13,336,852.00, only 35% the heads of the
was utilized, denoting a different
very low utilization rate, implementing offices
thus depriving the intended to fully implement
beneficiaries of the projects funded out
maximum benefits that of the 20% Local
could be derived therefrom. Development Fund
during the year in
order to promptly
provide the
constituents the
benefits due them.
Likewise, we
recommended that
the Municipality
enforce strict
compliance of Joint
Memorandum
Circular (JMC) No.
2011-1 of the

65
Department of
Interior and Local
Government Unit
(DILG) and the
Department of
Budget and
Management (DBM)
dated April 13, 2011.
9. Cash Advances for We recommended that 2014 Fully
Intelligence fund Management exert AAR Implemented
totaling P1,600,000.00 extra efforts to follow
pertaining to prior years up the status of
and current year still liquidation of cash
remained unliquidated in advances from the
the books as of Office of the
December 31, 2014, Chairman,
contrary to the Commission on Audit
provisions of COA so that the amount of
Circular No. 2003-003 ₱1,500,000.00
dated July 30, 2003, thus representing the prior
overstating the asset years’ cash advances
account and understating for intelligence funds
the corresponding will be dropped from
expense account. the books of account.
We further
recommended for the
immediate liquidation
of cash advance on
intelligence funds that
were unliquidated as
of December 31, 2014.

It is further
recommended that
cash advances for
intelligence fund be
liquidated within one
(1) month from the
date the purpose of the
cash advance was
accomplished,
pursuant to COA
Circular No. 2003-003
dated July 30, 2003.
Subsequent cash
advances for

66
intelligence fund
should be granted only
after the issuance of
credit advice from the
Chairman of the
Commission on Audit
or the submission of
liquidation
vouchers/reports of
the previous cash
advance to the
COAChairman.
10. Eight (8) development We recommended that 2014 Fully
projects amounting to Management direct AAR Implemented
P6,500,000.00 or 50% the heads of the
of the sixteen (16) different
prioritized projects for implementing offices
Local Development to fully implement
Fund for Calendar Year projects funded out of
2014 were not the 20% Local
implemented by the Development Fund
Municipality, thus, the during the year in
desired output was not order to promptly
achieved depriving its provide the
constituents of the constituents the
benefits that they could benefits due them.
have availed therefrom.
Likewise, we
recommended that the
Municipality enforce
strict compliance of
Joint Memorandum
Circular (JMC) No.
2011-1 of the
Department of Interior
and Local
Government Unit
(DILG) and the
Department of Budget
and Management
(DBM) dated April
13, 2011.

67
PART IV – ANNEXES

Annex A - General Fund


1 – Statement of Financial Position
2 – Statement of Financial Performance
3 – Statement of Changes in Net Assets/Equity
4 -Statement of Cash Flow

Annex B - Special Education Fund

1 – Statement of Financial Position


2 – Statement of Financial Performance
3 – Statement of Changes in Net Assets/Equity
4 -Statement of Cash Flow

Annex C - Trust Fund


1 – Statement of Financial Position
2 – Statement of Financial Performance
3 -Statement of Cash Flow

67
Annex A. 1

Municipality of Salay, Misamis Oriental


Statement of Financial Position
General Fund (100)
As of December 31, 2017

2017 2016
ASSETS
Current Assets
Cash and Cash Equivalents 25,279,414 30,508,359
Receivables 3,556,988 3,856,630
Inventories 2,636,312 678,892
Prepayments and Deferred Charges 87,700 97,451
Total Current Assets 31,560,415 35,141,332

Non-Current Assets
Property, Plant and Equipment 120,810,758 101,123,280
Biological Assets 133,500 133,500
Intangible Assets
Total Non-Current Assets 120,944,258 101,256,780

Total Assets 152,504,673 136,398,112

LIABILITIES
Current Liabilities
Financial Liabilities 8,322,134 9,909,972
Inter-Agency Payables 3,451,603 1,702,071
Trust Liabilities 936,584 797,980
Other Payables 591,292 690,514
Total Current Liabilities 13,301,612 13,100,538

Non-Current Liabilities
Deferred Credits/Unearned Income 1,067,797 1,175,614
Total Non-Current Liabilities 1,067,797 1,175,614

Total Liabilities 14,369,410 14,276,152

NET ASSETS/EQUITY
Government Equity 138,135,263 122,121,960

Total Liabilities and Net Assets/Equity 152,504,673 136,398,112

68
Annex A. 2

Municipality of SALAY
Province of Misamis Oriental
Statement of Financial Performance
General Fund (100)
For the Year Ended December 31, 2017

2017 2016
Revenue
Tax Revenue 2,788,374 2,206,821
Share from Internal Revenue Collections 81,232,284 73,138,884
Other Share from National Taxes 25,504
Service and Business Income 12,037,974 8,711,470
Shares, Grants and Donations 13,282
Gains
Other Income
Total Revenue 96,097,418 84,057,175

Less: Current Operating Expenses


Personnel Services 32,704,679 37,149,668
Maintenance and Other Operating Expenses 41,597,948 25,267,228
Non-cash Expenses 2,038,151 1,766,568
Financial Expenses 1,617,672 1,365,729
Current Operating Expenses 77,958,450 65,549,193

Surplus (Deficit) from Current Operation 18,138,968 18,507,982


Add (Deduct):
Transfers, Assistance and Subsidy From
Transfers, Assistance and Subsidy To (6,612,521) (7,110,179)
Surplus(Deficit) for the period 11,526,447 11,397,803

69
Annex A. 3

Municipality of Salay, Misamis Oriental


Statement of Changes in Net Assets/Equity
General Fund (100)
As of December 31, 2017

Accumulated
Surpluses/(Deficits)

Balance at January 1, 2017 122,121,960


Add (Deduct)
Change in Accounting Policy
Prior Period Errors/ Adjustment (489,839)
Restated Balance 121,632,121
Add (Deduct) Changes in net assets/equity during the
year
Adjustment of net revenue recognized directly in net
4,976,695
assets/equity
Surplus (Deficit) for the period 11,526,447
Total recognized revenue and expenses for the
16,503,142
period
Balance at December 31, 2017 138,135,263

70
Annex A. 4

Municipality of Salay, Misamis Oriental


STATEMENT OF CASH FLOWS
General Fund (100)

For the Year Ended December 31, 2017

Cash Flows from Operating Activities: 2017 2016


Cash Inflows:
Collections from Taxpayers 4,000,372 3,973,343
Share form Internal Revenue Collections 81,232,284 73,487,864
Receipts from Sale of Goods or Services 11,860,418 7,788,590
Interest Income 139,857 134,354
Other Receipts 4,685,094 1,134,031
Adjustment: Stale check 121,115 67,839
Total Cash Inflows 101,918,024 86,586,021
-
Cash Outflows: -
Payments -
To Suppliers/Creditors 34,650,075 30,401,334
To officers/employees 43,621,722 37,250,744
Interest Expenses 1,617,672 1,365,729
Other Expenses 9,855,834 7,037,963
Extraordinary Item - -
Total Cash Outflows 89,745,303 76,055,771
Net Cash From Operating Activities 12,172,721 10,530,251
-
Cash Flow from Investing Activities: -
Cash Inflows: -
From Sale of Property, Plant & Equipment -
-
Cash Outflows: -
To Purchased Property,Plant & Equipment 14,004,086 4,995,567

Net Cash from Investing Activities (14,004,086.35) - 4,995,567


-
Cash Flows from Financing Activities: -
Cash Inflows: -
Total Cash Inflows -
-
Cash Outflow: -
Payment of Loan Amortization 3,397,581 3,251,302
Net Cash from Investing Activities (3,397,580.51) - 3,251,302
Net Increase in Cash (5,228,945.84) 2,283,382
Cash at the beginning of the Period 30,508,359 28,224,977
Cash at the End of the period 25,279,414 30,508,359

71
Annex B. 1

Municipality of Salay, Misamis Oriental


Statement of Financial Position
Special Fund (200)
As of December 31, 2017

2017 2016
ASSETS
Current Assets
Cash and Cash Equivalents 363,322 761,140
Receivables 1,344,664 1,369,312
Inventories 7,448 -
Prepayments and Deferred Charges - 720
Total Current Assets 1,715,434 2,131,172

Non-Current Assets
Receivables - 34,286
Property, Plant and Equipment 1,595,170 813,811
Total Non-Current Assets 1,595,170 848,098

Total Assets 3,310,603 2,979,270

LIABILITIES
Current Liabilities
Financial Liabilities 129,623 -
Inter-Agency Payables 186,440 205,521
Intra-Agency Payables - 58,658
Trust Liabilities 885 885
Deferred Credits/Unearned Income 1,349,596 1,374,243
Total Current Liabilities 1,666,543 1,639,307

Non-Current Liabilities
Total Non-Current Liabilities - -

Total Liabilities 1,666,543 1,639,307

NET ASSETS/EQUITY
Government Equity 1,644,060 1,339,962

Total Liabilities and Net Assets/Equity 3,310,603 2,979,270

72
Annex B. 2

Municipality of SALAY
Province of Misamis Oriental
Statement of Financial Performance
Special Fund (200)
For the Year Ended December 31, 2017

2017 2016
Revenue
Tax Revenue 1,113,848 825,518
Share from Internal Revenue Collections
Other Share from National Taxes
Service and Business Income
Shares, Grants and Donations
Gains
Other Income 1,106
Total Revenue 1,113,848 826,624

Less: Current Operating Expenses


Personnel Services
Maintenance and Other Operating Expenses 817,878 627,641
Non-cash Expenses 15,809
Financial Expenses
Current Operating Expenses 833,687 627,641

Surplus (Deficit) from Current Operation 280,162 198,983


Add (Deduct):
Transfers, Assistance and Subsidy From
Transfers, Assistance and Subsidy To
Surplus(Deficit) for the period 280,162 198,983

73
Annex B. 3

Municipality of Salay, Misamis Oriental


Statement of Changes in Net Assets/Equity
Special Education Fund (100)
As of December 31, 2017

Accumulated
Surpluses/(Deficits)

Balance at January 1, 2017 1,339,962


Add (Deduct)
Change in Accounting Policy
Prior Period Errors 23,936
Restated Balance 1,363,898
Add (Deduct) Changes in net assets/equity during the
year
Adjustment of net revenue recognized directly in net
assets/equity
Surplus (Deficit) for the period 280,162
Total recognized revenue and expenses for the period 280,162
Balance at December 31, 2017 1,644,060

74
Annex B. 4

Municipality of Salay, Misamis Oriental


STATEMENT OF CASH FLOWS
Special Education Fund (100)

2017 2016
Cash Flows from Operating Activities:
Cash Inflows:
Collections from Taxpayers 2,091,425 1,566,349
Share form Internal Revenue Collections - -
Receipts from Sale of Goods or Services - -
Interest Income - 1,106
Other Receipts - -
Adjustment: Stale check -
Total Cash Inflows 2,091,425 1,567,455

Cash Outflows:
Payments
To Suppliers/Creditors 400,330 25,492
To officers/employees 482,934 539,624
Interest Expenses - -
Other Expenses 969,364 671,885
Extraordinary Item -
Total Cash Outflows 1,852,629 1,237,001
Net Cash From Operating Activities 238,796 330,454

Cash Flow from Investing Activities:


Cash Inflows:
From Sale of Property, Plant & Equipment

Cash Outflows:
To Purchased Property,Plant & Equipment 636,615

Net Cash from Investing Activities (636,615)

Cash Flows from Financing Activities:


Cash Inflows:
From Isuance of Debt Securities
From Acquisition of Loan
Total Cash Inflows

Cash Outflow:
Payment of Loan Amortization -
Net Cash from Investing Activities -
Net Increase in Cash (397,819) 330,454
Cash at the beginning of the Period 761,140 430,687
Cash at the End of the period 363,322 761,140

75
Annex C. 1

Municipality of Salay, Misamis Oriental


Statement of Financial Position
Consolidated Trust Fund (300)
As of December 31, 2017

2017 2016
ASSETS
Current Assets
Cash and Cash Equivalents 43,941,058 16,161,764
Receivables 19,892 221,990
Inventories - 776,055
Prepayments and Deferred Charges 6,988,091 -
Total Current Assets 50,949,041 17,159,809

Non-Current Assets
Receivables 113,398 113,398
Property, Plant and Equipment 60,674,520 33,883,615
Total Non-Current Assets 60,787,918 33,997,013

Total Assets 111,736,960 51,156,822

LIABILITIES
Current Liabilities
Financial Liabilities 40,059,751 21,167,998
Inter-Agency Payables 49,747,551 15,175,190
Intra-Agency Payables 597,230 223,637
Trust Liabilities 19,621,546 12,805,195
Total Current Liabilities 110,026,077 49,372,020

Non-Current Liabilities
Other Payables 1,710,883 1,784,801
Total Non-Current Liabilities 1,710,883 1,784,801

Total Liabilities 111,736,960 51,156,822

NET ASSETS/EQUITY
Government Equity -

Total Liabilities and Net Assets/Equity 111,736,960 51,156,822

76
Annex C. 2

Municipality of SALAY
Province of Misamis Oriental
Statement of Financial Performance- Consolidated Trust Fund
For the Year Ended December 31, 2017

2017 2016
Revenue
Grants and Donations
Total Revenue

Less: Current Operating Expenses


Personnel Services
Maintenance and Other Operating Expenses 46,818
Non-Cash expenses
Current Operating Expenses - 46,818

Surplus (Deficit) from Current Operation


Add(Deduct) Transfers, Assistance and Subsidy
Transfers, Assistance and Subsidy From 2,139,773
Surplus(Deficit) for the period - (2,186,590)

77
Annex C. 3

Municipality of Salay, Misamis Oriental


STATEMENT OF CASH FLOWS
CONSOLIDATED TRUST FUND (300)

Cash Flows from Operating Activities: 2017 2016


Cash Inflows: -
Collections from Taxpayers P -
Interest Income 23,682 -
Other Receipts 65,565,664 40,287,415
Total Cash Inflows 65,589,346 40,287,415
-
Cash Outflows: -
To Suppliers/Creditors 2,489,974 1,058,578
To officers/employees 54,841 -
Interest Expenses - -
Other Expenses 18,026,751 22,709,956
Extraordinary Item - -
Total Cash Outflows 20,571,566 23,768,534
Net Cash From Operating Activities 45,017,780 16,518,880
-
Cash Flow from Investing Activities: -
Cash Inflows: -
From Sale of Property, Plant & Equipment -
- -
Cash Outflows: - -
To Purchased Property,Plant & Equipment 36,130,238 33,130,516
Net Cash from Investing Activities (36,130,238) (33,130,516)
- -
Cash Flows from Financing Activities: - -
Cash Inflows: - -
From Acquisition of Loan 18,891,752 8,999,999
Total Cash Inflows 18,891,752 8,999,999
- -
Cash Outflow: - -
Payment of Loan Amortization - -
Net Cash from Investing Activities 18,891,752 8,999,999
Net Increase in Cash 27,779,294 (7,611,636)
Cash at the beginning of the Period 16,161,764 23,773,400
Cash at the End of the period P 43,941,058 16,161,764

78