EXECUTIVE SUMMARY

INTRODUCTION

Some 94 kilometers from the City of Manila lies the Municipality of Cuenca.
With the natural majestic backdrop of Mt. Maculot, it is strategically located at the heart
of Batangas Province. It is a part of the Taal Lake region with the historic Mt. Maculot
overlooking the Taal Volcano. The town of Cuenca is known for its natural, historic and
cultural attractions. Originally called “Makulog” by the early settlers, it was converted
into town on November 7, 1876. It was named Cuenca by then Governor Paez because of
its cold breeze and beautiful scenic spots resembling almost perfectly his hometown
Cuenca in Spain.

It is a fourth class municipality of the third district of Batangas consisting of 21

barangays with a total land area of 3,410.87 hectares. Pursuant to Republic Act 7160,
known as the Local Government Code of 1991, the Municipality enjoys a total
independence in managing, deciding, and planning its own administrative, fiscal, and
development affairs in conformity with national government thrust for social economic
growth.

 It is presently under the leadership of Municipal Mayor Celerino A.

Endaya and supported by the members of the Sanggunian Bayan, local officials
and employees.

The Organizational Structure of the Municipality is as follows:

Key Officials
Municipal Mayor Hon. Celerino A. Endaya
Municipal Vice Mayor Hon. Romulo P. Cuevas
Sanggunian Bayan Members Hon. Grace R. Comia
Hon. Niña Neila P. Verdan
Hon. Danilo L. Magsombol
Hon. Geraldine L. Yu
Hon. Aurea P. Pantas
Hon. Danilo M. La Rosa
Hon. Crispin J. Magsombol
Hon. Lordlito M. Hoseña
Mr. David Limbo
Municipal Accountant Mr. Gregorio M. Endaya
Municipal Treasurer Ms. Luisa M. Limbo

Number of Personnel Complement

Permanent 73
Elective 11
Casual 2
 Job Order 85
Total Personnel 171

FINANCIAL HIGHLIGHTS

For Calendar Year (CY) 2017, the Municipality of Cuenca generated a total
income of ₱98,630,272.44, of which, 83% was derived mainly from Internal Revenue
Allotment and the rest are locally generated such as local taxes, permits and licenses,
service, business and interest income. To carry out the projects, programs and activities
of the Municipality, the appropriations and allotments for CY 2017 totaled
₱119,277,949.60 while the obligations totaled ₱78,702,298.31, leaving an unexpended
allotment of ₱40,575,651.29.

Assets of the municipality is comprised mainly by Cash and Cash Equivalents

(47.27%) and Property, Plant and Equipment (46.33%).

While liabilities of the Municipality are comprised of mainly of inter-agency

payables pertaining to trust receipts intended for specific purposes and are due for
liquidation. Liabilities also include trust liabilities for the Local Disaster Risk Reduction
and Management Fund (held intact within 5 years for disaster-related activities), deferred
income and payables of other types.
 Majority of the income earned by the municipality is generated from the Internal
Revenue Allotment (IRA) (82.92%).

The total assets, liabilities, equity, income and expenses for CY 2017 compared
with that of the preceding year are as follows:

Increase
CY 2017 CY 2016 (Decrease)

Total Assets ₱ 214,761,851.01 ₱ 178,020,295.45 ₱ 36,741,555.56

Total Liabilities 34,753,697.31 34,963,650.42 (209,953.11)
Total Equity 180,008,153.70 143,056,645.03 36,951,508.67
Total Income 98,630,272.44 88,548,025.59 10,082,246.85
Total Expenses 76,982,030.86 67,905,668.22 9,076,362.64

Comparison of the total assets, liabilities, equity, income and expenses for CY
2017 and 2016 is presented as follows:

As shown in the above graph, except for liabilities, everything increased in values
for CY 2017. The Municipality’s equity is composed of assets mainly financed from
income from Internal Revenue Allotment and has low-reliance on liabilities.
AWARDS AND CITATIONS

We commend the performance of the Municipal Government of Cuenca on

certain areas manifested by the awards and recognition received during the year:

National Level:
 Fully Functional Local Social Welfare and Development (LSWDO)
 Best Micro Enterprise Model to Pantawid Community Store

Regional Level:
 Bangon Kabuhayan Best Local Government Unit Engagement in
CALABARZON

Provincial Level:
th th
 Best Municipality - 4 - 6 class municipalities
th th
 Best Municipal Mayor - 4 - 6 class municipalities
 Confernment Qualifier 2017 Seal of Good Local Governance awarded by
Department of the Interior and Local Government
th th
 Best Municipality in Governance - 4 - 6 class municipalities
 Most Outstanding Municipal Women Coordinating Council (MWCC)

 6th Most Prompt and Compliant Municipal Treasurer

 Best Performance in External Assessment on Sputum Microscopy in the
Implementation of the Tuberculosis Control Program in Batangas
 Best MedTech/Microscopist in TB Care in the Implementation of
Tuberculosis Control Program in Batangas

MAJOR ACCOMPLISHMENTS

The Municipal Government of Cuenca has implemented projects funded by Local

Government Support Fund -Assistance to Disadvantaged Municipalities with an
aggregate amount of ₱15,845,000.00. This includes construction of local access roads
and footbridges on nine selected barangays. They have also established a Municipal
Materials Recovery Facility (MRF) at Barangay Bungahan-Dalipit East amounting
₱1,097,367.03 for receiving of mixed waste for final sorting, segregatiom, composting
and recycling of garbages.

SCOPE OF AUDIT

Financial and compliance audits were conducted on the accounts and operations
of the Municipal Government of Cuenca for Calendar Year 2017. It included analysis of
accounts of the financial statements, review of transactions and test of compliance with
financial rules and regulations. The audit was conducted to ascertain the fairness and
reliability of the Municipality of Cuenca’s financial position and results of operations,
and to determine whether the Municipality’s operations were conducted in compliance
with applicable laws, rules and regulations as well as the economical, efficient and
effective utilization of resources.
AUDIT OPINION

The Auditor rendered a qualified opinion on the fairness of the presentation of the
financial statements of the Municipality due to the following:

1. Depreciation was not provided for infrastructure assets constructed for

barangays totaling ₱4,331,134.73 resulting in overstatement of PPE accounts and
understatement of expenses in the financial statements for the year.
Unserviceable properties of ₱677,434.64 were still presented as PPE and not yet
disposed of contrary to Sections 162 and 163 of COA Circular No. 92-386 dated
October 20, 1992 thus overstating the PPE and exposing these assets to further
deterioration.

2. The accuracy and reliability of Real Property Tax (RPT) Receivable and Special
Education Tax (SET) Receivable totaling ₱3,078,231.34 could not be ascertained
due to discrepancies with the Municipal Treasurer’s Office’s reported balance of
₱3,577,062.90 in their report of delinquent real property and special education
taxes of December 31, 2017, thereby incurring a total difference of ₱498,831.56,
thus, affecting the fair presentation of the financial statements.

3. Cash Flows in the Statement of Cash Flows were not properly classified thereby
affecting cash balances for operating and investing activities. Also, the
disclosure requirements in the Notes to Financial Statements under the Philippine
Public Sector Accounting Standards (PPSASs) and the required pro-forma Notes
to Financial Statements prescribed in Section No. 3.4 of COA Circular No. 2016-
004 dated September 30, 2016 were not fully observed, thus, affecting the fair
presentation of the financial statements and full disclosure on the financial
position and performance of the Municipality.

SIGNIFICANT OBSERVATIONS AND RECOMMENDATIONS

For the exceptions cited above, the Audit Team recommended the following
courses of action:

1. The Municipal Mayor require the:

a) to ensure the accuracy, reliability and fair presentation, we recommended

that the Municipal Mayor instruct the Municipal Accountant to prepare
the lapsing schedule consistent with the balances presented in the
financial statements and provide the corresponding depreciation
expenses for the assets reported;

b) Municipal Treasurer to exert effort in updating the inventory of

unserviceable properties as the basis of disposal and exclude them from
 the report of serviceable PPE and prioritize the disposal of unserviceable
properties in accordance with the afore cited rules and regulations so that
the balances of Property, Plant and Equipment accounts presented in the
financial statements would only represent those assets that are in
existence and servicing the needs of the Municipality; and

c) Accountable personnel to refund the market value of those unserviceable

properties that are lost/missing.

2. The Municipal Mayor:

d) instruct the Municipal Treasurer to provide the Municipal Accountant the

certified list of taxpayers with their corresponding amount due and
collectible for the CY 2018 and years thereafter pursuant to Section 20
of NGAS Manual for Local Government Units, Volume 1;

e) direct the Municipal Treasurer, Municipal Administrator and Municipal

Assessor to coordinate and jointly exert extra efforts in the collection of
delinquent accounts and adopt necessary measures to enable the
maximum collection of unpaid taxes; and

f) instruct the Municipal Accountant and Municipal Treasurer to reconcile

the list of delinquent real property tax as of year-end against the recorded
RPT and SET Receivables to present an accurate and reliable receivable
accounts in the financial statements.

3. The Municipal Mayor instruct the Municipal Accountant to observe the

disclosure requirements in the preparation of the financial statements in
accordance with the PPSASs and Section 3.4 of COA Circular No. 2016-004
to assist users in understanding the financial statements and to provide them
with information relevant to decision-making.

In addition, the other significant observations and recommendations in the audit

of the Municipal Government of Cuenca for CY 2017, are summarized below:

1. Disaster preparedness and mitigation activities, projects and programs targeted

for execution during CY 2017 amounting to ₱9,326,585.82 remained not
implemented and/or with minimal utilization including as with previous years
due to improper planning, resulting to increased risk of damage, harm and loss
during calamity and disaster contrary to the mandates of Republic Act No.
10121.

We recommended that the LDRRM Council headed by the Municipal Mayor to:

a) require the LDRRMO of the diligent performance of his duties and

responsibilities by determining/assessing and documenting the identified
 disaster risks in the Municipality and its barangays to be able to plan
disaster-responsive activities and maximize the annual LDRRMF Plan
and verify the actual need for the purchase of disaster equipment and
supplies allotted with current and continuing appropriations; and

b) resolve in the upcoming council meeting any necessary

amendments/updates to the LDRRM Investment Plan including only
programs and activities that the Council intends to implement based on
disaster risk assessment and verified information from the LDRRMP on
pursuing the purchase activities existing in the plan. Consider providing
trainings given the available LDRRMF funds that could better inform
and improve disaster resiliency of barangay constituents through the help
of barangay officials.

2. Twenty-nine (29) projects with appropriations totaling ₱19,600,000.00 under the

20% Development Fund were not implemented due to lack of proper planning
contrary to Joint Memorandum Circular 2017-01 of the DILG and DBM, thereby
stalling the benefits to be derived by the intended beneficiaries from the
completed projects. Also, apartment-type niche for the Municipal Cemetery was
constructed utilizing the 20% Development Fund contrary to the same Circular.

We recommended that the Municipal Mayor, as head of the Municipal

Development Council, require that the Council include only projects that are
feasible and ready for implementation with properly planned timing of
implementation in its Annual Investment Plan and only those among the social,
economic and environmental projects enlisted in DILG-DBM JMC 2017-01. We
also recommend the Bids and Awards Committee to expedite the procurement
process considering that Procurement Law allows alternative methods in case of
failure of bidding.

3. Construction of the Municipal Materials Recovery Facility (MRF) at Barangay

Bungahan-Dalipit East was not fully compliant with the agreed plan and
specification that formed part of the contract amounting to ₱1,097,367.03 entered
into by Stall Construction Supplies and Services and the Municipality at the
latter’s disadvantage.

We recommended that the Municipal Mayor immediately require the completion

of the project in accordance to the specifications and plan. Otherwise, require
the contractor to refund the amount of construction works not performed
equivalent to the visible structural deficiencies.

4. Procurement of various projects funded out of Bottom-up Budgeting, 20%

Development Fund and regular projects from the General Fund were
implemented as of December 31, 2017. However, lapses in the procurement
process, reporting and validation procedures were noted contrary to pertinent
sections of RA 9184 and other governing rules and regulations.
 We recommended that the Municipal Mayor instruct the Bids and Awards
Committee to:

a) adhere with the pertinent provisions of RA 9184 in posting the Notice of

Award, Notice to Proceed and Contract Agreement;

b) validate the contractor’s list of on-going projects/awarded not yet started;

coordinate/confirm with other agencies/entities and ensure that all
possible on-going projects/awarded not yet started are included therein.
Check, verify and validate all the eligibility documents submitted by
contractors before awarding projects and document them in a report of
post-qualification; and

c) scrutinize the contractor’s manpower and equipment on all projects to be

awarded and not on an individual project only in cases where the latter is
the lowest bidder in several projects which have the same or overlapping
implementation period. This is in order to require contractor to augment
its manpower and/or equipment to be utilized in the project awarded to it
or to disqualify it from award of several contracts beyond its capacity in
consonance with the provisions of Section 23.7.

The above together with other observations and recommendations contained in

the report were discussed with concerned Municipal Government officials and employees
during the exit conference conducted on May 18, 2018. Management views and reactions
were considered in the report, where appropriate.

Other audit observations and recommendations are discussed in detail in Part II of

this Report.

STATUS OF IMPLEMENTATION OF PRIOR YEAR’S AUDIT

RECOMMENDATIONS

Of the twenty-three prior year’s audit recommendations embodied in the 2016

Annual Audit Report, eleven were fully implemented, eight were partially implemented
and the remaining four were not implemented.