EXECUTIVE SUMMARY

Introduction

The Municipality of San Nicolas was created by virtue of Republic Act No. 1229 by
President Ramon Magsaysay under House Bill No. 3407 dated June 1, 1995. It is a
fifth-class Municipality from the 3rd District of Batangas and located 125 kilometer
south of Manila. It has a total land area of 2,664 hectares which was apportioned to
eighteen barangays.

The organizational structure of the Municipality of San Nicolas is as follows:

a. Key Officials

Mayor Lester D. De Sagun

Vice Mayor Napoleon V. Arceo

Members of Sangguniang Bayan Manuel M. Matienzo

Victor G. Sandoval
Christopher A. Barrion
Leo A. Mortel
Marivic M. Ondo
Gemetrio T. Umandap
Marie Kristine Joy M. Obligar

Leonardo A. Alvaira
Aquilino Luther S. Gahol Jr.
(ABC President)
Kelvin M. Mortel
(SK Federation President)

Municipal Accountant Elisa S. Enriquez

Municipal Treasurer Erlinda P. Montenegro

b. No. of Personnel Complement:

Permanent 73
Elective Officials 12
Job Order 18
Co-Terminus 2
Total 105

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Scope of Audit

Financial and compliance audits were conducted on the accounts and operations of
the Municipal Government of San Nicolas for Calendar Year 2020. The audit was
conducted to ascertain the adequacy and reliability of the books of accounts and
financial reports, fairness of the presentation of the financial statements and the
Municipality’s compliance with applicable laws, rules and regulations, as well as
adherence to prescribed policies in handling its finances and operations in general.

Financial Highlights (in Totals)

For the Calendar Year (CY) 2020, the Municipality of San Nicolas generated
revenue of ₱118,634,193.43 sourced from local taxes, Internal Revenue Allotments
(IRA), service, business and other sources of income. Total
appropriations/allotments were ₱124,684,040.37 of which ₱87,094,336.88 or
69.85% was obligated during the year, thus, leaving an unexpended balance of
₱37,589,703.49 or 30.15%.

The total assets, liabilities, equity, revenue and expenses of the Municipality for
CYs 2020 and 2019 are as follows:

2020 2019 Increase/Decrease

Assets 230,010,116.22 181,111,267.36 48,898,848.86

Liabilities 38,735,557.32 22,921,179.68 15,814,377.64
Equity 191,274,558.90 158,190,087.68 33,084,471.22
Income 118,634,193.43 120,680,359.21 (2,046,165.78)
Expenses 84,838,213.75 84,824,314.25 13,899.50
Surplus (Deficit) 33,795,978.68 35,856,044.96 (2,060,066.28)

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Assets of the Municipality comprised mainly of Property, Plants and Equipment with
a percentage of 57% and Cash and Cash Equivalents with the percentage of 41% of
the total assets.

While liabilities of the Municipality comprised mainly of Deferred Credits/Unearned

Income with 1%, Financial Liabilities and Trust Liabilities with 34% of the total
liabilities.

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Most of the income earned by the Municipality is generated from the Share from
National Taxes with 81% and Tax Revenues of 12% such as taxes on property,
business, and local taxes.

Independent Auditor’s Report on the Financial Statements

The Auditor rendered a qualified opinion on the fairness of presentation of financial

statements of the Municipality of San Nicolas, Batangas due to:

1. The year-end balance of Property, Plant and Equipment (PPE) accounts with a
net carrying value of P130,061,459.38 under the General and Special Education
Funds were unreliable due to continuous failure of the Municipality to conduct
physical inventory of all its assets and prepare the Report on Physical Count of
Property, Plant and Equipment (RCPPE). Moreover, the unserviceable
properties amounting to P7,813,296.83 were not yet disposed of and still
included in the PPE accounts, thereby affecting the fair presentation of these
accounts in the financial statements.

2. Certificate of title of the twenty one out of twenty three parcels of land owned by
the Municipality with a total value of P6,047,340.65, were not yet transferred in
the name of the Municipality, contrary to Section 39 of P.D. 1445 and Article 47
of the Local Government Code and Section 148 of the Rules and Regulations on
Supply and property management in the Local Governments, hence the
Municipality’s absolute right or legal ownership over properties is doubtful and
exposes property from third party claims.

3. The accuracy and reliability of Real Property Tax Receivable and Special
Education Tax Receivable totaling P66,272.50, could not be ascertained due to
the discrepancies by P1,502,013.92 with the Municipal Treasurer’s Office total
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 reported delinquent Real Property and Special Education Taxes as of December
31, 202, thus, affects the fair presentation of financial statements.

4. Guaranty/Security Deposits Payables recorded in the books for more than one
(1) to 5 years totaling P242,119.17 which were already matured for refund were
not yet returned to the concerned suppliers/contractors despite the lapsed of
warranty period contrary to the provision of Sections 27.4, 39.5, 62.1 and 62.2 of
the 2016 Revised Implementing Rules and Regulations (IRR) of Republic Act
(RA) No. 9184, while several long-outstanding payables of P56,661.20 with no
actual claims remained unreverted to the Unappropriated Surplus of the General
Fund contrary to Section 98 of Presidential Decree No. 1445 and Republic Act
No. 3526, thus affecting the fair presentation of the liability accounts in the
financial statements as of year-end.

5. Office and medical supplies, welfare goods and accountable forms totaling
P11,926,835.22 were recorded outright expenses when purchased instead of
inventory account, contrary to Sections 182, 189 and 190 of the Government
Accounting Manual (GAM) for Local Government Units (LGUs), thereby LGU’s
assertion on completeness and fair presentation of the financial statements is not
satisfied.

For the above cited deficiencies, we recommended that the Municipal Mayor:

1. reiterated previous recommendations instruct the:

a. Municipal GSO and Inventory Committee to conduct complete physical

inventory of all the Municipality’s assets and prepare the Report on Physical
Count of Property, Plant and Equipment. Make strategic actions/plan on how
to conduct a complete physical inventory of all properties of the municipality.

b. Municipal GSO to prepare corresponding Inventory and Inspection Report of

Unserviceable property for the identified unserviceable properties and initiate
the process of disposing the same in accordance with Section 79 of PD 1445
and the rules provided in COA Circular No. 92-386.

2. require the:

a. Municipal Accountant to recognize in the books of accounts the

assessed value of the 23 parcels of land;

b. Municipal Budget Officer to request from Sangguniang Bayan to

appropriate funds for the titling of land owned by the Municipality;

c. Municipal General Service Officer to conduct physical count and

inspection and prepare the actual usage of each property;

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 d. Municipal Assessor to prepare the necessary documents for the titling
and refer the matter to the concerned agencies to facilitate the
processing of title.

3. instruct the:

Municipal Accountant and the Municipal Treasurer to determine the cause of

discrepancies of their respective reports and prepare the necessary adjustments
for a fair presentation of the financial statements. Ensure that the accounts of
the agency shall be kept in such detail as necessary and observe consistency in
keeping of accounts to safeguard against inaccurate or misleading information
pursuant to Section 111 of PD 1445 and other relevant rules and regulations.

4. instruct the:

a. Municipal Accountant in close coordination with the General Services Officer

to devise more effective strategies to encourage the available/existing
contractors/suppliers to process the claims for refund/release of their
retention money to reduce the balance of the Guaranty/ Security Deposits
Payable for only those amounts which have not yet matured or are not yet
due for release; and

b. Municipal Accountant to evaluate the validity of the long outstanding payables

and seek authority, if needed from the Sangguniang Bayan for the reversion
of the long outstanding payables to Unappropriated Surplus of the General
Fund to reflect the correct balance of the liabilities accounts as of year-end.

5. require the:

a. Municipal Accountant to record the procurement of supplies and materials for

operations into an appropriate inventory accounts and credit the same for
issuance to end-users;

b. Municipal Accountant and General Services Officer to prepare and maintain

the Supplies Ledger Cards and Stock Cards, respectively:

c. Municipal Accountant to draw a Journal Entry Voucher to record the

appropriate supplies expense accounts based on the Summary of Supplies
and Materials Issued (SSMI).

Significant Audit Observations and Recommendations

In addition, the following are other significant findings and recommendations:

1. Cash in Bank account balance in the General Fund was understated by

P141,468.76 due to non-adjustment of stale checks contrary to Section 104,

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 Chapter III, Volume I of the Government Accounting Manual (GAM) for Local
Government Units (LGUs).

We recommended that the Municipal Accountant verify and evaluate the nature
and authenticity of the above transactions and prepare necessary Journal Entry
Voucher (JEV) to effect the adjustments for these checks to present an accurate
and reliable balance of the Cash in Bank accounts.

2. Interest Income totaling ₱87,733.17 from the account of the Trust Fund books
were treated as Due to NGAs and Due to Other Funds in the amount of
P78,292.34 and P9,440.83, respectively in the same fund and were not
transferred at the end of the year to the General Fund, contrary to Section 112 of
Presidential Decree (PD) No. 1445 and Section 49, Chapter III, Volume I of the
Government Accounting Manual (GAM) for Local Government Units (LGUs), thus
resulting

We recommended that the Municipal Accountant effect the transfer of the interest
income totaling ₱87,733.17 to the General Fund as prescribed in Section 112 of
PD 1445 and Section 49, Chapter III, Volume I of the GAM for LGUs.

3. The fund transfers of various national government agencies were not fully utilized
as of year-end, leaving P22,028,782.98 unexpended and/or unimplemented and
unutilized at year end, thereby depriving constituents of timely basic and value-
added services and benefits that could have been derived there from or the
source agency of additional funds for its future projects.

We recommended that the Municipal Mayor instruct the following:

a. The Municipal Accountant to immediately submit the liquidation reports if not

yet submitted and the check to the source agency for refund of the
unexpended balance. See to it that future fund transfers are fully
implemented within the time frame to avoid delay in liquidation; and

b. The Head of the Municipal Planning and Development Office coordinate with
the concerned department heads to enforce utilization and implementation of
those projects that are not implemented. Likewise, see to it that their
respective time frames and schedules are strictly monitored and evaluated to
avoid delays in the implementation.

4. The Municipality’s efforts to intensify its response and measures to combat

COVID-19 through various assistance, procurement of relief goods, enforcing
quarantine and disease control preventive measures, were properly executed.
However, deficiencies and inconsistencies were noted in the reporting and
documentation of some procurements and distributions thereof contrary to
existing rules and regulations and related issuances made during the pandemic,
thus, casting doubts on the propriety of the transactions.

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 We recommended that the Municipal Mayor require the concerned Departments:

a. to immediately present for audit the lacking documents to substantiate

aforecited transactions and ensure that all documentary requirements for
emergency purchase are complied with before certifying as to completeness
of the supporting documents of the disbursement vouchers;

b. to utilize the QRF only after issuance of a Local Sanggunian Resolution to

support such release including an itemized utilization thereof pursuant to Item
5.1.3 of COA Circular No. 2012-002;

c. that for succeeding transactions, secure authorization first from the

Sanggunian Bayan before any disbursements from a lump-sum appropriation
is made pursuant to COA Memorandum No. 2010-014;

d. minimize if not eliminate the procurement of goods and services on a

reimbursement basis, unless the circumstances warrant its application; and

e. ensure that all the procedures under negotiated procurement (emergency

cases) as required under Item 3 of GPPB Circular 01-2020 dated April 6,
2020 are undertaken and the required documents are prepared to prevent
abuses and corruption in the procurement process.

For future similar transactions, the Municipal Accountant should ensure that
payments to suppliers/creditors be made based on complete documents to
support the claims pursuant to Section 4(6) of PD 1445 and guidelines under
COA Circular 2012-001.

5. Deficiencies were noted in the grant of the COVID-19 Hazard Pay and Special
Risk Allowance to officials, employees and job orders amounting to
P1,349,161.38 and P64,082.37, respectively, contrary to the various rules and
regulations issued during the enhanced community quarantine (ECQ) period and
Section 5 of COA Circular No. 2012-001 dated June 14, 2012, leading to the
doubtful validity and propriety of the claimed allowances.

We recommended that the Municipal Mayor require the Municipal Accountant in

coordination with the Human Resource Development Officer - Designate to
submit the necessary documents to support the grant of COVID-19 Hazard Pay
and the one-time Special Risk Allowance to officials, employees, job order
workers and public health workers during the ECQ period.

6. Optimal utilization of funds appropriated and received for local disaster response
effort by the Municipality was not achieved contrary to COA Memorandum No.
2014-009 dated August 28, 2014 and COA Circular No. 2012-002 dated
September 12, 2012, thus, may deprive the constituents of more efficient,
effective and responsive disaster risk reduction program.

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 We recommended that the Municipal Mayor direct the Municipal Disaster Risk
Reduction and Management Officer (MDRRMO) to judiciously plan on how to
maximize the utilization of the LDRRM Funds including those financial assistance
received from other government agencies and to accelerate their implementation
in order to achieve the goal/target of the Municipality regarding disaster relief,
recovery, and risk reduction and management.

7. The Municipality has not complied with the provisions of Republic Act 9003,
Ecological Solid Waste Management Act of 2000 on the formulation and
implementation of ecological waste management plans and programs, contrary
to Section 1, Rule XI of the Implementing Rules and Regulations (IRR) of the
Republic Act No. 9003 and DILG Memorandum Circular No. 2009-168, thus the
objectives of ensuring environmentally sound methods in garbage management
were not achieve.

We recommended that the Municipal Mayor:

a. Reorganize the composition of Municipal Solid Waste Management Board in

accordance with Section 12 of RA 9003;

b. Modify the 10-Year Solid Waste Management Plan and ensure its
compliance with the National Solid Waste Management Framework and
coordinate with the Regional Office of the Environmental Management
Bureau and ensure that the same be approved by the National Solid Waste
Management Commission within the year;

c. Instruct the Municipal Solid Waste Management Board to assist all

barangays in the establishment of an individual or common Materials
Recovery Facility (MRF) and ensure the Municipality’s MRF is existing and
fully operational;

d. Address the issues already identified within the year for effective and
efficient Ecological Solid Waste Management in the Municipality.

8. Non-compliance to the provisions on the Gender and Development’s Joint

Circular No. 2013-01 dated July 18, 2013, precluded the assessment of the
development, utilization and gender-responsiveness of GAD and the
effectiveness and efficiency of its mainstreaming efforts.

We recommended that the Municipal Mayor:

a. Maintain GAD database and establish gender issues and concerns through
conduct of gender analysis, generation and review of sex-disaggregated data
and consultations with gender advocacies and women clientele.

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 b. Require the GAD Focal Point Person to submit GAD Plan and Budget to the
DILG Regional Office for review and approval before its integration to the
Municipality’s annual appropriation;

c. Exert active efforts in accomplishing the targeted and planned Client-focused

and Agency-focused PPAs. Try not just to sustain its compliance with
minimum budget requirement on GAD programs, projects and activities as
provided by the law, but to increase identification of gender-responsive PPAs
to be covered by the annual budget.

9. Agency Action Plan and Status of Implementation (AAPSI) for audit observations
and recommendations for Calendar Year 2019 remained unsubmitted to date,
contrary to General Provisions of Republic Act (RA) No. 11465 and COA
Memorandum No. 2014-002 requiring the AAPSI to be submitted within 60 days
from the date of the receipt of the Annual Audit Report (AAR), thus limiting the
Audit Team to fully evaluate the actions taken and status of implementation by
the agency on the audit recommendations.

We recommended that the Municipal Mayor direct all the Department Heads/
employees concerned to submit their detailed action plans on the CY 2019 AAR
findings and recommendations, including that of prior years, related/connected to
their departments/offices and the information gathered therein be used to
properly accomplish the Agency Action Plan and Status of Implementation, and
submit the same to the Audit Team.

Moreover, we recommended to follow strictly the above provisions of the law on

the submission of the AAPSI within 60 days from the receipt of the COA Annual
Audit report to give enough time for the Auditor to review, monitor and evaluate
the action taken by the management on the audit recommendations.

Unsettled Suspensions, Disallowances and Charges

As at December 31, 2020, the total outstanding audit suspensions, disallowances

and charges of the Municipal Government of San Nicolas based on the Notice of
Suspensions (NS), Notice of Disallowances (ND), Notice of Charges (NC) and
Notice of Settlement of Suspensions Disallowances and Charges (NSSDC) issued
by this Commission totaled ₱35,037,980.00.

Status of Implementation of Prior Year’s Recommendations

Of the 41 prior year’s audit recommendations embodied in the CY 2019 Annual

Audit Report, 5 were fully implemented, 14 were partially implemented, and the
remaining 22 were not implemented by the Municipal Government of San Nicolas.