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EXECUTIVE SUMMARY

HIGHLIGHTS OF FINANCIAL OPERATION Sources of Funds The General Fund Budget for Calendar Year 2011 was sourced mainly from Internal Revenue Allotment (IRA) and augmented by income from other sourcessuch as local taxes, permits and licenses, business income, service income, other income such as income from grants and donations andinterest income, and miscellaneousincome. The Special Education Fund Budget was sourced mainly from the one percent special education tax levied pursuant to Section 235 of the Local Government Code. Appropriations Total appropriations under the general fund and the special education fund for Calendar Year 2011 amounted toP619,878,284.96 and P34,406,000.00, respectively. Obligations Total obligations under the general fund and the special education fund during the year amounted toP579,006,857.61 and P 23,930,214.24, respectively. SCOPE OF AUDIT We conducted aFinancial and Compliance Audit covering calendar year 2011to determine the fairness of the presentation of the agencys financial statements, as well as compliance with existing laws, rules and regulations. We also conducted a Value for Money Audit on the General Fund, Special Education Fund (SEF) and Trust Funds to determine the efficiency of the agencys utilization of the Funds. AUDITORS OPINION ON THE FINANCIAL STATEMENTS We rendered anunqualified opinion on the financial statements notwithstanding unrecorded donated properties (Audit Finding No. 1) because the matter has been sufficiently disclosed in the notes to financial statements. SIGNIFICANT FINDINGS AND RECOMMENDATIONS

Financial and Compliance Audit

1.0 Various donated propertiesfrom threedonors remained unrecorded in the books of accounts of the City Government of Legazpi resulting in an understatement of assets, liabilities, government equity and income from grants and donations by approximately P28,952,044.45, 2,926,302.66, 8,333,581.79 and 17,692,160.00, respectively. Certain deficiencies on these donations were likewise noted.

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1.1 Donated properties from Bicol Consortium for Development Initiatives (BCDI) remained unrecorded in the books of accounts of the City Government of Legazpi.Deficiencies on this donation were noted.

Recommendations:

1. Designate a responsible CGL official/employee to supervise and manage the

operations of the SEDCen to ensure viability and sustainability ofSEDCen. There is more reason now to do this in the light of the above-mentioned observations (i.e. assumption of loan repayment by the City; doubtful viability and sustainability; very broad objectives of the CGL; region-wide coverage of the SEDCen).

2. Harmonize CGL and BCDI mission/objectives in the new SEDCen Operating Guidelines in order to meet the conditions of the donation (i.e. to continue the vision and mission of the donor).

3. Amend/reform the contract for clarity and guidance of both parties. 4. Obtain a copy of the agreement pertaining to the loan assumed by the City of

Legazpi (between the BCDI, as debtor, and the SEDP-Simbag sa Pag-Asenso, Inc.); verify validity of such loan; negotiate for waiver of interest or lower interest terms.

5. Seek Sangguniang Panlungsod approval for the payment of P2.75M loan and appropriate funds for the contingency of providing of additional funds in case SEDCen earnings are not sufficient to cover its operating expenses.

6. Amend existing lease contracts to reflect the City as the Lessor. Henceforth, all lease contracts shall be signed by Honorable City Mayor.

7. Conduct a physical count of furniture, fixtures and equipment donated by BCDI before recording in the books of accounts of the City.

8. The City Appraisal Committee should validate the valuation of assets and liabilities as a basis for recording these in the CGLs books of accounts. Donated real properties should be valued at their fair market values in accordance withPhilippine Generally Accepted Accounting Principles. Finally,

9. Record SEDCen as an Economic Enterprise in the books of accounts of the CGL.

1.2 Donated properties from ANBH Assets Development Philippine Corp remained unrecorded in the books of accounts of the City Government of Legazpi.Deficiencies on this donation were noted.

Recommendations: 1. The City Accountant must record the donated properties in the books of accounts

of the City of Legazpi. An appraisal of donated properties must be made by the City Appraisal Committee as basis for its recording.

2. A plan for the eventual use of the above-mentioned donated properties for the benefit of its constituents should be made.

3. The City Government thru its City Legal Officer should take the initiative to file its case with the Regional Trial Court of Legazpi City for the cancellation of the annotation of adverse claim on the donated lot.

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1.3 Donated properties from Mr. Gary T. Fernando remained unrecorded in the books of accounts of the City Government of Legazpi.

Recommendation:The City Accountant must record the donated properties in the books of accounts of the City of Legazpi. An appraisal of donated properties must be made by the City Appraisal Committee as basis for its recording.

2.0 The City Government of Legazpi is maintaining depository accounts with banks other than LBP and DBP without prior approval from the Department of Finance contrary to DOF Department Order No. 27-05. Recommendation:Management should seek DOF approval for the continued maintenance of all its accounts with banks other than LBP and DBP. Otherwise, these accounts should be closed (in accordance with Circular Letter dated March 4, 2006 of the BSP Deputy Governor, above-mentioned) and transferred to any of the following AGDBs: LBP, DBP, Philippine Postal Savings Bank and Philippine Veterans Bank.

3.0 The City of Legazpi invested P177,233,879.92 in a special savings account/time deposits contrary to Sections 21, 22 and 23 of COA Circular No. 92-382 instead of immediately using such funds for purpose/s which would immediately redound to the benefit of its constituents.

3.1 The LGU invested P92,175,403.41 under the General Fund in special savings/time deposits in violation of Sections 21 and 22 of COA Circular No. 92-382 instead of immediately using such funds for purpose/s which would immediately redound to the benefit of its constituents.

Recommendation:The P92,175,403.41 investment in special savings/time deposits should be returned to the General Fund current account. Management should immediately implement projects/programs in order that the needed services to the constituents may not be delayed or sacrificed in favor of earning interest in time deposits. In the future, in cases when there are idle funds identified, their investment should have the prior authority of the sanggunian and approval of the local chief executive as required.

3.2 The LGU invested P10,058,476.51 under the Special Education Fund in special savings/time deposits in violation of Sections 21 and 22 of COA Circular No. 92-382 instead of using such funds for the specific purpose/s of the SEF under Section 272 of the Local Government Code, thus, depriving the intended SEF beneficiaries of the immediate benefits that would have been derived therefrom.

Recommendation:The P10,058,476.51 investment in special savings/time deposits should be returned to the Special Education Fund current account. Thereafter, the Local School Board should facilitate the formulation of definite plans for its use and immediately implement the same. Education is a continuing process.

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3.3 The LGU invested P75 millions of its Trust Funds in special saving/time deposits in violation of Sections 21 and 22 of COA Circular No. 92-382 instead of using such funds for the specific purpose/s for which the trust funds were created thus depriving the constituents of the City of the benefits that would have been derived therefrom.

Recommendation:Management is advised to transfer back the P75 million plus interest to the Citys current account maintained for its trust funds.Management should hasten the implementation of programs/projects for which these trust funds were created.

3.4 Unrecorded/accrued interest on special savings account/time deposits of the City of Legazpi as of December 31, 2011 amounted P220,026.04. Minor errors were also noted in recording interest income.

Recommendation:The City Accountant should record the necessary adjustments in the accounting records.

4.0 Deficiencies noted in the construction of Core Shelter Housing Project Phase IV casts doubt on the correctness of the computed costs for the project.

Recommendation:The City Engineer should explain the variations in units, unit prices and total prices on the above-mentioned projects. In the future, the City Engineer should carefully review the costing of the projects.

5.0 Income and Expense trends showed decreasing income and increasing expenses compared to previous year.

Recommendations:

1. TheCity Treasurers Office should investigate the cause of the decrease in Permits and

Licenses and intensify its collection in the future. 2. The Honorable City Mayor should take appropriate measures to reduce and control the

increasing amount of general services payroll. 3. Management should investigate the causes of the increases in Maintenance and Other

Operating Expense accounts and if the increases are found to be beyond normal, employ a cost-cutting and/or monitoring mechanism to control unnecessary increases in expenditures in the future.

6.0 Various deficiencies were noted in the Procurement of Textbooks and Instructional Materials under the Special Education Fund.

6.1 In three (3) out of six (6) bidded transactions, the no warranty security was required from the winning bidder. In the remaining three (3) instances, although a 10% retention money was withheld, the same was returned before the expiration of the 3-month warranty period, contrary to Section 62.1 of Republic Act 9184.

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Recommendation:Management should strictly enforce compliance with the required warranty securities in all its procurements except those mentioned in Section 54.5 of RA 9184. Warranty securities must be released only after the lapse of the warranty period as provided in the regulations.

6.2 Percentage tax of three percent (3%) was not withheld from five (5) out of eight (8) transactions for the procurement of textbooks and instructional materials, contrary to RA 1051 and Revenue Regulation 2-98, as amended.

Recommendation:The Accounting Office must ensure that percentage tax and other internal revenue taxes due the government are properly withheld from all government money payments subject to tax as prescribed by the Bureau of Internal Revenue (BIR).

6.3 The withholding of business taxes due the LGU from the claim of the suppliers was not properly recorded contrary to Section 111 of PD 1445. No business taxes were withheld for five (5) out of eight (8) transactions for procurement of textbooks totaling P3,189,386.00.

Recommendation: The City Accountant should prepare the necessary correcting journal entry. A separate disbursement voucher must be drawn for the transfer of the collection of business tax to General Fund. Same procedures must be observed in all transactions involving the withholding of taxes due to the LGU, in order to accurately reflect the nature of the transaction.

6.4 Issuance of textbooks and instructional materials are not covered by Inventory Custodian Slips as required by COA Circular No. 2005-2.

Recommendations:

1. The City Accountant should record acquisition of textbooks as Textbook and

Instructional Materials Inventory first, and as Textbook and Instructional Materials Expense, upon issuance.

2. The General Services Office should use the Inventory Custodian Slip (ICS) together with the RIS for the issuance of textbooks and instructional materials and other small tangible items enumerated in COA Circular 2005-2.

7.0 Radio communications equipment worth P341,640.00 were purchased without a Permit to Purchase contrary to existing National Telecommunications Commission (NTC) Radio Rules and Regulations. Some units are reportedly unused due to lack of support facilities.

Recommendation:The CDRRMC Action Officer should facilitate the acquisition/establishment of the base station in order to immediately operationalize the use of the units issued to his Office and achieve the purpose for which these were bought. The necessary NTC requirements attendant to its purchase/possession and use should also be obtained. The Bids and Awards Committee is likewise reminded to comply with the rules on procurement (i.e. no reference to brand names; posting requirements, etc.).

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8.0Deficiencies were noted in the development and installation of a website

8.1 Advance payment of 50% of the contract price was paid to the service provider, in violation of Section 338, R.A. 7160 and Section 88, P.D. 1445.

Recommendation:Management should therefore avoid giving advance payments on contracts for goods/services not yet delivered/inspected/accepted.

8.2 The first advance payment amounting P29,500.00 was made without a valid contractual basis. Recommendation:Management should refrain from paying transactions which are not supported with complete and valid documents, in the future.

8.3 The second contract amounting to P180,000.00 was merely negotiated with the previous service provider and was not covered by a new sanggunian authority.

Recommendation:Management should consider this transaction as an isolated case and not as a precedent. In the future, management should strictly adhere to pertinent regulations on negotiated procurement and the proper authority to be given by the sanggunian to the City Mayor to enter into specific contracts.

8.4 The first contract was fully paid without inspection and acceptance by the City Government.

Recommendation:The Inspection and Acceptance report is a basic documentary requirement for procurement of services. No voucher may be paid until the evidence of satisfactory inspection by the agency has been attached to the voucher. (Section 467, GAAM, Volume I).

9.0 Expenditures of the same nature were inconsistently classified/recorded under different accounts.

Recommendation:The City Accountant should classify transactions in accordance with the Standard Chart of Accounts.

Value for Money Audit

10. A total amount of P51,347213.11 appropriations/allotments remained unobligated as of December 31, 2011 under the General Fund and the Special Education Fund indicating inefficiencies in the utilization of available funds.

Recommendation: Management should facilitate the implementation of projects/programs for the benefit of its constituents. The bidding and/or procurement for projects/programs already identified, as well as the preparation of project plans/documents should be facilitated by the Bids and Awards Committee and the City Engineers Office, respectively.

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11. Only P95,226,738.08 or 44.37% of the total PDAF for the calendar years 2009 to 2011 were utilized/spent as of December 31, 2011, leaving P119,405,261.92 or 55.63% unutilized indicating inefficiencies in the utilization of available funds and/or delayed implementation of programs/projects.

Recommendation: Management should hasten the implementation of projects funded out of the PDAF. STATUS OF IMPLEMENTATION OF PRIOR YEARS AUDIT RECOMMEND-ATIONS

The Agency implemented three (3) and partially implemented nine (9) out of twelve (12) prior years audit recommendations.