NARRATIVE REPORT

PART I
Introduction

A cash examination was conducted on the cash and accounts of Ms. Nelia E. Jaime,
Municipal Treasurer, Sto. Tomas, Pangasinan on September 25, 2018 covering the period
October 27, 2017 to September 25, 2018.

The cash accounts of the Municipal Treasurer subjected to cash examination were Cash
in Local Treasury, Petty Cash Fund and Payroll Fund.

The examination was conducted to establish the actual existence of cash in the custody of
the accountable officer as well as the validity of the cash items presented; determine
whether all monies received had been correctly recorded and fully accounted for in
accordance with accounting and auditing rules and regulations, ascertain whether
disbursements are duly authorized, actually paid and properly recorded; and to prove the
accuracy of the cash balance appearing in the cashbook and the ledgers.

Relative thereto, we issued Audit Observation Memorandum Nos. 2019-001, 2019-002,

2019-003 and 2019-007 to the Management for the deficiencies noted during the cash
examination conducted. Hereunder are our audit observations and recommendations.

PART II
Findings and Recommendations

During the conduct of cash examination on the cash and accountabilities of Ms. Nelia E.
Jaime on September 25, 2018, the following deficiencies were noted:

1. Stale Checks amounting to P9,557.37 were not adjusted in the books, thus making the
Cash in Bank – Current Account and Accounts Payable account inaccurate and unreliable
contrary to Section 59 of NGAS Manual for Local Government.

Section 59 of the Manual on the New Government Accounting System (NGAS) states that:
Checks may be cancelled when they become spoiled or stale. A check is considered spoil
when it is torn, mutilated, defaced or with erasures/errors affecting the genuineness of
any material information contained therein.
It is stale if it has been outstanding for over six months from date of issue or as
prescribed by the depository bank. At least one month before a check becomes stale, the
Treasurer shall send a written notice to the payee of the existence of the check.
A spoiled or stale check shall be marked cancelled on its face and reported as follows:

1. xxx
2. For stale checks which have been unclaimed and thus, the original DV
and supporting documents are still with the Treasurer, the cancelled
check shall be presented in the RCI after the last check issued for the
period indicated in the report. The original DV and supporting
documents shall be returned to the Accountant who shall prepare a JEV
to record the transaction as Accounts Payable.

3. For checks which became spoiled or stale in the hands of the payee and
which require replacement, a new check may be issued upon submission
 of the spoiled or stale check to the Treasurer. A certified copy of the DV
shall be requested from the Auditor for presentation to the
Administrator/Local Chief Executive who shall countersign the check.
The cancelled check shall be reported and attached to the RCI prepared
at the period of cancellation. The replacement check shall also be
reported chronologically in the RCI.

In the verification of the Bank Reconciliation Statements (BRS) as of cash examination on

September 25, 2018, it was revealed that checks totaling to P9,557.37, as presented below
remained outstanding for more than six (6) months which should already be considered as stale
checks. Further verification showed that these checks are still recorded as outstanding as of
year-end.

Date Issued Check No. Payee Amount

March 5, 2018 91178 Bustos Auto Supply P 5,046.57
March 5, 2018 91190 Bayambang Culture 4,000.00
March 2, 2017 32246 DSWD RO1 510.80
TOTAL P 9,557.37

Inquiry made by the Audit Team revealed that written notice were not sent by the concerned
official or the Municipal Treasurer to notify the payee to encash their checks before they become
stale.
Failure of the agency to comply with Section 59 of the NGAS Manual may result to accumulation
of outstanding checks that were already stale in the Bank Reconciliation Statement which affects
the reliability and validity of the account Cash in Bank-Current Account.

2. Check No. 91238 under Landbank Account Number 3792-1004-56 of the General Fund
with an amount of P6,452.31 was inadvertently recorded twice in the cashbook and in the
ledger thus understating the recorded amount in the account Cash in Bank – Current
Account of both records.
Examination of Bank Reconciliation Statements and bank statements disclosed that check no.
91238 under Landbank Account Number 3792-1004-56 in the General Fund with an amount of
P6,452.31 was already encashed in the bank last May 24, 2018. This check however, was still
reported as outstanding as of cash examination on September 25, 2018. In the further analysis of
the cash accounts it was discovered that this check was recorded in the cashbook and in the ledger
on the month of May. Same check was inadvertently recorded again in the same records in June.
The double posting of the amount resulted in understating the recorded balances both in the
cashbook and in the ledger account Cash in Bank-Current Account.

We recommend that-
a) For the Municipal Mayor to instruct the Municipal Accountant to periodically
coordinate with the Municipal Treasurer regarding the existence of stale checks and to
require that the latter shall send written notices to the concerned payees before checks
become stale.

b) Municipal Accountant is likewise advised to take up the necessary adjustments in

the books of accounts for the stale checks by debiting Cash in Bank and crediting Accounts
Payable.
 c) For the double posting of checks, the Municipal Accountant should make the
needed correcting entries in the books of accounts to reverse the double entry made. In the
same manner, the Municipal Treasurer should cancel/remove the second posted check
recorded in the cashbook and to reconcile its record with the ledger balances in order to
reflect the correct balances of the account Cash in Bank-Current Account of both records.

3. Various checks were encashed/debited in the bank but remained unrecorded in the
Cashbook and recorded in the Journal for a significant period of time resulting in the non-
reconciliation of records. These lapses could only mean absence of coordination among those
in charge which mirrors poor internal control.
In the cash examination conducted by the Audit Team last September 25, 2018, verification of the
monthly bank statements and Bank Reconciliation Statements (BRS) revealed that various checks
were encashed in the bank but took several days before it was recorded in the Cashbook of the
Municipal Treasurer and in the Ledger maintained by the Municipal Accountant. These are in the
table below.
Date
Check Date recorded in Date recorded in Days
Encashed/Debited
No. the Cashbook the Journal Outstanding
to bank
90939 1/18/2018 02/08/2018 02/08/2018 21
91164 3/06/2018 07/10/2018 07/10/2018 126
91026 4/03/2018 07/10/2018 07/10/2018 98
91084 4/20/2018 05/02/2018 05/03/2018 13
91267 5/21/2018 06/04/2018 06/07/2018 17
91240 5/23/2018 06/01/2018 06/01/2018 9
Unrecorded as of Unrecorded as of
90969 5/30/2018 September 25, September 25, 118
2018 2018
91303 5/30/2018 06/29/2018 06/29/2018 30
91282 5/31/2018 06/29/2018 06/29/2018 29
91304 6/06/2018 07/10/2018 07/10/2018 34
91317 6/08/2018 08/08/2018 8/31/2018 84
90993 6/18/2018 07/10/2018 07/10/2018 22
91379 7/10/2018 08/31/2018 8/31/2018 52
Unrecorded as of Unrecorded as of
91502 9/19/2018 September 25, September 25, 6
2018 2018

Scrutiny of the monthly Bank Reconciliation Statements submitted by the Accounting Office
further revealed that these were treated as reconciling item as deduction in the book balance and
presented as “Unrecorded Disbursement Voucher”. Also, as shown in the table above, it can be
gleaned that it took almost 2-3 months before these unrecorded voucher were recognized in the
books thereby indicating weakness in the internal control.
The Audit Team would like to give emphasize on Section 43 of the Manual on the New
Government Accounting System which states that:

“These checks released to the claimants shall be reported in the Report of Checks Issued (RCI)
which shall be prepared daily by the Treasurer for each fund. It shall be submitted to the
Accountant for preparation of Journal off Entry Voucher based on the individual checks issued
and recording in the Check Disbursement Journal.”

Attention is also invited to Section 3.3 of COA Circular 96-011 dated October 2, 1996 which
provides that the accountant shall draw journal vouchers to record all valid reconciling items that
require adjustments and correction in the GL.

We recommend that the agency explains in writing the reason why these checks were
encashed/debited in the bank and took significant period of time before they were
recognized in the books.
For the management to strictly conform to Section 43 on the Manual of New Government
Accounting Manual and Section 3.3 of COA Circular 96-011 for the immediate recording of
checks issued in the Reports of Checks Issued for recognition in the books. Furthermore,
management should improve existing internal control and policies in processing,
recognizing and recording its financial transactions.

4. The Municipal Treasurer did not prepare Reports of Checks Issued (RCI) which resulted
to ten (10) unaccounted checks that might have been fraudulently used if not lost and
contrary to Section 42 and 43 of NGAS, Volume I.
Section 42 and 43 of NGAS Volume I provides that:
Section 42. Release of checks - The treasurer shall release the check only to the payee or his duly
authorize representative. For purposes of releasing checks, the Treasurer shall maintain a Check
Register where all checks issued shall be recorded chronologically and where the claimants shall
be required to acknowledge receipt thereof.

Section 43. Reporting of Checks Issued - The checks released to claimants shall be reported in
the Report of Checks Issued (RCI) which shall be prepared daily by the Treasurer for each fund.
It shall be submitted to the Accountant for preparation of Journal Entry Voucher based on
individual checks issued and recording in the Checks Disbursement Journal.

Due to the non-preparation of Report of Checks Issued (RCI), the Audit Team conducted
alternative procedure through the verification of Check Disbursement Journal and monthly Bank
Statements to determine whether the checks were properly accounted.

In order to determine whether there are no missing checks, the Audit Team sorted and organized
the issued and cancelled checks within its inclusive serial number. It was observed that the checks
were not issued sequentially which is a manifestation that there is no proper control as regard to
issuances of checks. As a result, the following checks remained unaccounted as of this writing:
 LBP Current Account No. 3792-1004-56 (General Fund)

Inclusive Serial Unaccounted Check

Nos. Nos.
91001-91100 91001
91001-91100 91060
91101-91200 91138
91101-91200 91188
91301-91400 91388
91301-91400 91395
91401-91500 91476
91401-91500 91477
91401-91500 91478
91401-91500 91479

Further verification disclosed that neither these checks were encashed or reported as outstanding
as such they are not reported in the Bank Statement. These checks were not also reported or
cancelled or found on hand at the time of the cash examination.
The foregoing noted deficiency might give an impression that internal control over the proper
disposition of these checks is weak or there is a breakdown of control as manifested by the non-
preparation of Report of Checks Issued (RCI).

We recommend that the Municipal Treasurer account the missing checks, prepare a
corrected Report of Checks Issued (RCI) and duly accounted the same and should be
presented to the Audit Team for audit whether these are cancelled or still on hand.
In addition, the Municipal Treasurer is required to prepare Report of Checks Issued (RCI)
for proper monitoring of issuance of checks which shall also be recorded chronologically.
Lastly, for the management to observe sound internal control on the issuance and custody
of checks to dispense with possible loss, misapplication and unauthorized use.

5. The procedures adopted in granting, utilization, replenishment and accounting of Petty

Cash Fund (PCF) were not in accordance with the existing rules and regulations, thus may
expose to unnecessary risk on misuse of funds.

Non-adoption of imprest system in the maintenance of Petty Cash Fund

Section 2 of COA Circular No. 97-002 dated February 10, 1997 provides that “Cash should be
handled under the general principles of the imprest system to wit: xxx only payments in small
amounts may be made through petty cash fund. Replenishment shall be equal to the total amount
of expenditures made therefrom.”
 Section 48 of Manual of NGAs for LGUs provides that PCF shall be maintained under the
imprest system. The fund shall be sufficient for the non-recurring, emergency and petty expenses
of the LGU for one month.
Review of the transaction under the Petty Cash Fund account disclosed that the imprest system
was not adopted.

Petty Cash Fund Expenditures

Ck. JEV BALANCE

No. Date Amount Particulars No. Date Amount Particulars

90946 1/10/18 50,000.00 Grant of PCF 50,000.00

Various expenses
Various 1/2018 48,966.60 1,033.40
incurred under PCF

91117 2/15/18 50,000.00 Grant of PCF 51,033.40

Various expenses
Various 2/2018 19,891.66 31,141.74
incurred under PCF

91059 3/23/18 50,000.00 Grant of PCF 81,141.74

Various expenses
Various 3/2018 31,836.04 49,305.70
incurred under PCF

Various expenses
Various 4/2018 13,338.92 35,966.78
incurred under PCF

91293 5/2018 50,000.00 Grant of PCF 85,966.78

Various expenses
Various 5/2018 30,225.63 55,741.15
incurred under PCF

Various expenses
Various 6/2018 27,132.40 26,808.75
incurred under PCF

91433 7/25/2018 50,000.00 Grant of PCF 78,608.75

Various expenses
Various 7/2018 41,756.63 36,852.12
incurred under PCF

Various expenses
Various 8/2018 28,958.19 7,893.93
incurred under PCF

91491 9/2018 50,000.00 Grant of PCF 57,893.93

Various expenses
Various 9/2018 9,668.00 48,225.93
incurred under PCF

Various expenses
Various 9/2018 2,001.82 46,224.11
incurred under PCF

10/2018 39,344.79 Grant of PCF 85,568.90

Various expenses
Various 10/2018 45,437.95 40,130.95
incurred under PCF

Various expenses
Various 11/2018 29,992.21 10,138.74
incurred under PCF

12/2018 39,000.00 Grant of PCF 49,138.74

Various 12/2018 48,921.27 Liquidation 217.47

Various 12/2018 217.47 Refund 0.00

Total 378,344.79 378,344.79

As shown above, it was observed that the replenishment of the PCF were not equal to the actual expenses
incurred during the period, thus the balance was more than the fixed amount granted to PCF.

The practice of the LGU was that at the beginning of the year, a grant of PCF amounting to P50,000.00
was made and every expenses incurred under the PCF were submitted to the Accounting Division for
recording. Once the expenditure reach 90 to 95 percent, the PCFC then request for another grant of PCF
without returning the remaining balance which is not in keeping with the policies in handling PCF under
imprest system.

Non-conformity with rules and regulations in the Replenishment of Petty Cash Fund

Section 52 of Manual of NGAs for LGUs provides the pro-forma accounting entries for Petty Cash Fund

Debit Credit
1. Release of cash Petty Cash Fund
advance for
Cash in Bank - LCCA
petty cash fund
2. Replenishment Expenses
of petty cash
Cash in Bank - LCCA
fund during the
year
3. Liquidation at Expenses
year end
Petty Cash Fund
4. Return of Cash in Treasury
unused PCF
Petty Cash Fund

Section 48 of the same manual provides that “xxx Disbursements from the fund shall be through the Petty
Cash Vouchers (PCV) which shall be signed by the payee to acknowledge the amount received. The
official receipt shall be attached to the PCV.
Payments out of the fund shall be made through the use of PCVs duly supported by official receipts and
other required documents. A disbursement voucher shall be prepared for replenishments of the petty cash
fund during the year duly supported by a list/summary of PCVs, the PCVs and its supporting documents.
At the end of the year, the petty cash fund shall be fully liquidated by preparing a Report of Disbursement
supported by the list/summary of PCVs, the PCVs and its supporting documents. Unused cash shall be
returned to the Treasurer who shall issues an Official Receipt to acknowledge the amount returned. A new
cash advance for PCF shall be set up in the ensuing year.

As per examination of the process, the Accounting Division recorded the transactions of Petty Cash Fund
as follows:
 Debit Credit
1. Release of cash advance Petty Cash Fund
for petty cash fund
Cash in Bank - LCCA

2. Expenses incurred during Expenses

the period
Petty Cash Fund
3. Release/Replenishment of Petty Cash Fund
cash advance for PCF
Cash in Bank - LCCA
Expenses
5. Liquidation at year end
Petty Cash Fund
6. Return of unused PCF Cash in Treasury
Petty Cash Fund

The Accounting Division separately records the expenses incurred by crediting to PCF and establishing a
new grant by debiting PCF.
Also, the disbursements, replenishment and liquidations made by the PCFC were not supported with Petty
Cash Vouchers (PCVs) and list/summary of PCVs.
The non-conformity with the above rules and regulations poses a risk on misuse of funds.
We recommend that the Local Government Unit to ensure compliance with the Manual of NGAs
for LGUs and COA Circular No. 97-002 in handling and maintaining the Petty Cash Fund.