EXECUTIVE SUMMARY

A. Introduction

1. Butuan City is the capital city of the Province of Agusan del Norte. Prior to
its proclamation as a city on August 2, 1950 by virtue of Republic Act No.
523, Butuan existed as a military district until 1901, when it was converted
into a sub-province. In 1907, with the merging of the sub-provinces of
Butuan and Bukidnon, the Province of Agusan was created. After several
political reorganizations, the Province of Agusan was subdivided in 1968 to
what are now the Provinces of Agusan del Norte and Agusan del Sur.

2. Butuan City is situated on the Northwestern part of Region XIII, bounded

on the north by Butuan Bay and the Municipality of RTR, on the south by
the Municipality of Las Nieves, Agusan del Norte, on the east and northwest
by the Municipality of Sibagat, Agusan del Sur and on the west by the
Municipality of Buenavista, Agusan del Norte. It has an aggregate land area
of 81,728 hectares and is subdivided into eighty-six (86) barangays; 27
urban barangays and 59 rural barangays. It has an estimated population of
almost 337,063 inhabitants (2015 census). It is the seat of the regional
government and serves as the trading center of the Region. It is also the
home of the “Balanhais” or Butuan Boats, the famous pre-historic native
boat in Southeast Asia.

3. Butuan City is accessible by land, air, and sea transportation routes. Land
transportation is greatly facilitated the concretely paved road arteries
traversing through the City from Surigao City, Cagayan de Oro City and the
reconstructed road of the Province of Agusan del Sur. By plane, it is one
hour and 45 minutes ride from Manila and 35 minutes from Cebu. By vessel,
it takes 36 hours and 45 minutes ride from Manila and Cebu, respectively.

B. Financial Highlights

4. Comparative Financial Position and Results of Operations

Particulars 2018 2017 Increase/(Decrease)

Assets Php6,979,632,694.30 Php 6,108,972,421.87 870,660,272.43
Liabilities 1,085,608,904.74 1,076,039,734.09 9,569,170.65
Government
5,894,023,789.55 5,032,932,687.78 861,091,101.77
Equity
Total Income 2,142,182,960.17 1,888,457,875.92 253,725,084.25
Total Expenses 1,181,447,364.68 1,007,673,556.44 173,773,808.24
Net Operating
960,735,595.49 880,784,319.48 79,951,276.01
Income
 5. Comparative Applications of Funds

Particulars 2018 2017 Increase/(Decrease)

Appropriations Php2,258,013,497.81 Php 3,001,358,698.00 (743,345,200.19)
Allotment 1,551,152,773.79 1,446,321,495.70 104,831,278.09
Obligations 1,389,657,388.37 1,278,225,890.91 111,431,497.46

C. Audit Opinion

6. The Supervising Auditor rendered a qualified opinion on the fairness of

presentation of the financial statements of the City Government of Butuan
for CY 2018 because of the following reasons:

i. The Cash-in-Bank and the Accounts Payable accounts are understated

by an aggregate amount of Php488,226.42 due to the failure of the
Accountant to effect the required adjustments in the books the total stale
checks issued outstanding as of December 31, 2018.

ii. The Accounts Receivable from stallholders delinquency aggregating

Php1,305,852.37 as of December 31, 2018 was not recorded in the books
of accounts due to the failure of the Office of the City Economic
Enterprise (OCEE) to submit to the Office of the Accountant the Journal
of Bills Rendered, thus not only understated the Income and Total Asset
Account, but also exposed government funds to the risk of loss from
unaccounted collection.

iii. The net realizable value or recoverable amount of Receivable Accounts

cannot be ascertained due to the failure of the Accountant to set up
Allowance for Impairment-Other Receivable Account (1-03-05-991),
thus the Net Book Value of Due from NGO/PO Account carried in the
Statement of Financial Position at Php6,074,226.50 is misstated.

iv. The financial and livelihood assistance granted by the previous

administration to Non-Government Organization/Peoples Organization
(NGO/PO) with an outstanding unliquidated balance of
Php17,511,785.40 as of December 31, 2018 was erroneously charged to
the Due from NGO/PO Account instead of the Donation Account thus
resulted in overstatement of the Total Asset and understatement of the
Equity accounts in the Statement of Financial Position.

7. For the above-mentioned audit observations which have caused the issuance
of a qualified opinion, we recommended that Management shall:
 i. Direct the Accountant to effect the required adjustments in the affected
accounts in order to present fairly the Cash-in-Bank and Accounts
Payable accounts in the CY 2018 Statement of Financial Position.

ii. Direct the OCEE to immediately submit the Journal of Bills Rendered
and other documentary to the Accountant who shall then draw a JEV to
recognize the delinquent accounts in the books to fairly present the
Receivable account in the CY 2018 Statement of Financial Position and
to avert the risk of loss of government funds from unaccounted
collection.

iii. Instruct the Accountant to provide for Allowance for Impairment-Other

Receivable Account in the books in order to present fairly the
recoverable amount or the net realizable value of the Due from NGO/PO
Account in the current-year Statement of Financial Position.

iv. Require the Accountant to effect the required adjustments in the books
for the affected accounts in order to present fairly the Total Asset and
Equity Accounts in the Statement of Financial Position.

D. Summary of Significant Observations and Recommendations

8. Favorable Audit Observations

i. The creation and the commissioning of the City Procurement

Management Office (CPMSO) by virtue of Sanguniang Panglungsod
Ordinance No. 5209-2017, which was mandated to undertake the
procurement of the City Government of Butuan covering procurement
planning, purchasing, contract management and monitoring, consistent
with the provisions of the Procurement Act (R.A. 9184).

The CPMO was instrumental in the efficient and effective procurement

of big ticket projects, such as: the procurement of heavy equipment
costing Php192 Million, and motor vehicle costing Php65.5Million in
support of the Butuan on Wheels Program. Furthermore, contracts for
urban drainage projects amounting to Php122 Million, and water system
projects for rural barangays costing Php42.5Million were likewise
executed by the City Government facilitated by the CPMO.

ii. The procurement of brand new heavy equipment costing Php192Million

under the lease with purchase option purposely in order to upgrade the
city’s capability in the expeditious repair and maintenance of urban and
rural road network which has been neglected in the previous years.
iii. The procurement of 43 brand new six-wheeler dump trucks costing
Php170.6Million distributed to the urban Barangays intended to be used
for the collection of solid waste, instrumental in the notable increase in
the segregation, collection, transport, storage, treatment and disposal of
solid waste by 40.70% (Please see related AOM).

iv. The substantial completion of drainage canal projects with a total project
cost of Php16Million scattered around the urban barangays in the city
had reduced if not totally eliminated the incidences of flash floods which
has been the perennial problem of local residents through the years,
considering that elevation of some parts of the city is below sea level.

v. In response to the worsening traffic condition of the city street, the City
of Butuan through the Land Transportation and Traffic Management
Office (LTTMO) implemented in CY 2018 a new traffic re-routing
scheme in the downtown area. The action instilled discipline among
pedestrian and motorists alike. As of today, traffic condition (especially
during rush hours) in the areas affected has become manageable at a
minimal cost when compared to the traffic condition of the city streets
previous years.

vi. Through the strict implementation of the Traffic and Transportation

Code of Butuan City (SP Ordinance No. 3616-2010), the City
Treasurer’s Office was able to collect an aggregate amount of
Php18.9Million representing penalty charges from various traffic
violations in CY 2018 which provides additional and substantial revenue
for the City Government. Per records of the LTTMO, in CY 2018, there
were 3,647 apprehensions for “Disregarding
signal/devices/Lights/Traffic Signals/Markings”, 1,349 for “Driving
without License”, while 837 for “No side mirror” to mention a few. (see
Appendix A for details)

9. The other significant audit observations and recommendations are as

follows:

i. Of the Php43,597,495.80 targeted collections of the OCEE-Market

Operations, only Php30,109,793.89 or 69% was actually collected as of
December 31, 2018, manifesting inadequacy in the collection efforts,
thus depriving the City Government from the much needed revenue
available for development projects.

Direct the OCEE to intensify its collection efforts by designing and

effecting improved revenue collection strategies in order to enjoin
lessees to update their outstanding accounts including but not limited to
 the strict implementation of the penal provisions of the Butuan City
Market Code.

ii. The City Government failed to timely remit to BIR, GSIS, Philhealth
and PAG-IBIG a total of Php9,545,396.76 withheld from suppliers and
employees thereby exposing the City Government to penalties and
surcharges for late remittance to the prejudice of the government and
City Government personnel concerned.

The Office of the Accountant and Office of the Treasurer must timely
remit the amount due to BIR, GSIS, PhilHealth and PAG-IBIG to avert
the imposition of penalty and surcharges and in order to prejudice the
government and City Government personnel concerned.

iii. Overdue or delinquent account of various employees of the Butuan City

Government aggregating Php34,577,475.06 as of December 31, 2018
remained unsettled due to the failure of the agency to deduct the required
loan amortization in previous years to the prejudice of financial
condition of the GSIS and ultimately of its members.

Enjoin the concerned employees to make arrangement with the GSIS for
the restructuring of their loans. Ensure that personnel in-charge withhold
loan amortizations as billed by the GSIS otherwise appropriate legal
actions may be initiated against them.

iv. Due to the failure of the City Treasurer to withhold the payment of
salaries and other amount due to persons liable of audit of Disallowance
which has become final and executory, the aggregate amount of
Php1,330,407.94 representing total Notice of Disallowance issued prior
to 2009 remained unsettled.
Direct the City Treasurer to effect the withholding of salaries and other
amount due to the persons liable.

E. Summary of Total Suspensions, Disallowances and Charges

10. Balances of audit suspensions and disallowances as of December 31, 2017

amounting to Php950,556.02 and Php114,086,008.32, respectively,
remained unsettled contrary to Sections 5.4 and 7.1.1 of COA Circular No.
2009-006 dated September 15, 2009. In CY 2018, the Audit Team issued
total audit suspensions and disallowances (under special audit) amounting
to Php244,680,262.97 and Php5,000,000.00, respectively, details presented
hereunder, all of which remain unsettled during the year.

A. Notice of Suspension

Date NS No. Nature of Suspension Amount

May 21, NS No. 2018- Non-submission of pertinent
Php209,779,604.33
2018 001(2013-2016) documents necessary for
 Date NS No. Nature of Suspension Amount
evaluation on the Construction of
Butuan City Polysports Complex
Non-submission of pertinent
documents necessary for
evaluation on the Construction of
Polysports Center (Access Road,
May 21, NS No. 2018- Gymnasium Seats, Cistern
Php13,123,441.34
2018 002(2016) Tank/Fire tank Reservoir,
Wastewater Treatment System
and Other General Requirements)
– Phase III

Non-submission of pertinent
documents necessary for
evaluation on the Construction of
May 21, NS No. 2018- Polysports Center (Access Road,
Php21,777,217.30
2018 003(2015-2016) Gymnasium Seats, Cistern
Tank/Fire tank Reservoir,
Wastewater Treatment System
and Other General Requirements)
TOTAL Php244,680,262.97

B. Notice of Disallowance

Date ND No. Nature of Disallowance Amount

Irregularities in the utilization of
Special Audit the financial assistance in the
February
ND No. 2018- purchase of office supplies, Php5,000,000.00
14, 2018
001 materials and equipment, and
payment for catering services
TOTAL Php5,000,000.00

F. Statement of the Quantity/Number of Recommendations Implemented,

Partially Implemented and Not Implemented.

11. Of the 22 audit recommendations embodied in the 2018 Annual Audit

Report, 12 or 55% were fully implemented, six or 27% were partially
implemented and four or 18% were unimplemented. Of the 57 audit
recommendations embodied in the 2017 Annual Audit Report, 32 were fully
implemented, 21 were partially implemented and four not implemented.