Aom-donation-101.docx

1. Some Property, Plant and Equipment were not recognized as assets upon delivery of goods and completion of projects which was book up to Donation account, thus, cast doubt on the fair presentation of the accounts. Philippine Public Sector Accounting Standard (PPSAS) No. 1 defines assets as resources controlled by an entity as a result of past events, and from which future economic benefits or service potential are expected to flow to the entity. Hence, PPSAS No. 17 Paragraph 26 provides that an item of property, plant, and equipment that qualifies for recognition as an asset shall be measured at its cost. Analysis of transactions under Special Education Fund and 20% Local Development Fund disclosed that the following delivered good and completed projects were not recognized as assets, thereby understating several accounts of the Property, Plant and Equipment (PPE) as shown below: Table 1. Projects which were not recognized as assets upon delivery and completion. Source of Funds LDF

LDF

SEF

SEF

JEV No.

Project

Amount

Account Title

JEV2018-11015698 JEV2018-12018008 JEV2018-04000104

Purchase of Nebulizer & BP Apparatus

4,938,800.00

Purchase of Multi-Purpose Vehicles (mini-ambulance) with accessories

13,222,999.50 Motor Vehicle

Construction of Covered Court and Stage of Bangbangolan National High School, City of San Fernando, La Union

4,887,247.38

School Building

JEV2018-05000154

Construction one Classroom Building at Paringao Elementary School, Bauang, LU

1,056,820.58

School Building

Total

Medical Equipment

24,105,867.46

Table 2. Projects which were not recognized as Construction in Progress upon payment to contractors. Source of JEV Funds SEF JEV-201804-000105

Particulars First partial payment to Mo De Guzman Builders & Supply for his contract in the Construction of Corro-oy Elementary School of two (2) classroom school building, Santol, LU. V# 60 chk# 1630986

CIP-Building and Other Structure 2,069,054.19

SEF

JEV-201805-000159

First partial payment to E.E. Madayag for his contract in the Completion of School Building, Gusing Sur Elementary School, Naguilian La Union. V# 95 chk# 1630997

1,879,645.01

Total

3,948,699.20 Table 3. Projects which charged to Accounts Payable

Source of JEV Particulars Funds LDF JEV-2018- Set-up Accounts Payable to MCP Med Shop 12-018564 for the medical supplies to be installed in the multi-purpose barangay ambulance LDF

LDF

LDF

SEF

SEF

SEF

SEF

Accounts Payable 959,400.00

JEV-2018- Set-up Accounts Payable to Elite North 12-018631 Autocars, Inc. for the purchase of ambulances to be distributed to the different barangays JEV-2018- Set-up Accounts Payable to Frontier 12-018831 Automotive Marilao Corporation for the delivery of 2 units Mini-Dump Truck (Garbage Truck) to be given to Brgy. San Francisco, City of San Fernando and Brgy. Urbiztondo, San Juan, La Union JEV-2018- Set-up Accounts Payable to Burgos 12-018880 Construction and Supply for nthe Improvement Bilis Farm to Market Road, Burgos, La Union. JEV-2018- Set-up of Accounts Payable for MO. De 12-000383 guzman Builders & Supply - Construction of Corro-oy Elementary School Two ( 2) Classroom School Building Santol , LU (2nd and final payment ) JEV-2018- Set-up of Accounts Payable for E.E. Madayag 12-000382 Construction - 2nd and Final for Completion School Bldg. Gusing Sur Elementary School, Naguilian LU. JEV-2018- Set-up Accounts Payable to Shania Kenny 12-000366 Merchandise Computer & Gadget Store for the office equipment used during R1AA 2018.

4,938,800.00

JEV-2018- Set-up of Accounts Payable for Schools : 12-000378 Villar General Construction and Supplies Construction of Castro E/S Comfort Room and Water System, Sudipen LU - Construction of Bangar Central School

3,988,348.00

2,565,000.00

981,806.58

323,745.84

1,510,156.65

78,000.00

SEF

SEF

SEF

SEF

SEF

SEF

SEF

JEV-2018- Set-up of Accounts Payable for J.A. Olivar 12-000380 Engineering Design, Construction and Supplies- Construction of Covered Court, Lubing E/S, San Juan LU JEV-2018- Set-up of Accounts Payable to E.E. Madayag 12-000381 Construction - Improvement of Santo tomas Central School, Sto. Tomas LU JEV-2018- Set-up Accounts Payable for Construction 12-000386 Materials : Edel's Construction Products Refurbishing of IPED Learning Center, Bagulin LU Nemesio Agadang Refurbishing of IPED Learning Center, Bagulin LU JEV-2018- Set-up Accounts Payable for Construction 12-000387 Materials : Green Power - Repair of School Building of LU School of Culture & Arts Santol, LU Roy Tungpalan - Repair of School Building of La Union School of Culture & Arts , Santol LU JEV-2018- Set-up Accounts Payable to Villar General 12-000406 Construction and Supply - Construction of San Gregorio National High School Comfort Rm. and Water Sytem, Caba, LU. JEV-2018- Set-up Accounts Payable to Manuel Luis 12-000407 Florendo for the purchase of lot with TAx Declaration 2009-03-001-00414 for the school lot of Bacnotan National High School, Bacnotan LU. JEV-2018- Set-up Accounts Payable for the following: 12-000388 Reachability Corporation - Supply, Delivery of Audio and Visual System 2-PM Partners Trading Company - supply and Delivery of electronic Equipment 2-PM Partners Trading company - delivery of Instructional materials

Total

3,589,200.00

529,798.52

495,990.00

496,875.00

997,087.00

2,200,000.00

8,383,884.00

32,038,091.59

Review of the books revealed that the following entries were made by the Provincial Accountant. Table 1 and 2 entries: Donation (Dr)

XX

Cash in Bank (Cr)

XX

Due to BIR (Cr)

XX

To record payment to contractor

Table 2 entries: Donation (Dr)

XX

Accounts Payable (Dr)

XX

Set up payables to contractor Based on the entries made, it was observed that the goods/projects upon partial/full payment which are reportable as assets by the Provincial Government were directly charged as outright expense through Donation Account which, contrary to PPSAS No. 1 in which an asset shall be recognized in the financial position when and only when it is probable that the future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably. Moreover, PPSAS No. 17 provides that when a Property, Plant and Equipment (PPE) that qualifies for recognition as an asset shall be measured at cost. Cost of assets includes Purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Likewise, during the construction period, all expenses incurred in relation to the construction of the PPE shall be taken up in the books as Construction in Progress (CIP) with the appropriate asset classification. As soon as the construction is completed, the “Construction in Progress” account shall be reclassified to the proper asset account. In addition, Provincial Accountant derecognized assets through donation account contrary to the derecognition of the PPE in which it shall be removed from the accounts together with the related accumulated depreciation and accumulated impairment loss. The carrying amount of an item of PPE shall be derecognized on disposal or when no future economic benefits or service potential is expected from its use or disposal. Thus, cast doubt on the fair presentation of Property, Plant and Equipment presented in the Statement of Financial Position and overstated of expense account. We recommend that the Provincial Accountant to recognize an asset at its cost into proper account upon delivery of goods and partial/full payment of infrastructure for the fair presentation in the Financial Statement. 2. Pertinent documents necessary for donations were not attached in the voucher contrary to Article 749 of the New Civil Code (NCC) of the Philippines and Section 381 of the Local Government Code, thus, cast doubt on the validity and proprietary of such transfer. Article 725 of the New Civil Code (NCC) of the Philippines defines Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it. Person in the Civil Code refers either Natural or Juridical person, of which, the latter may refer to the State and its political subdivisions.

Moreover, Article 749 of the NCC provides that “In order that the donation of an immovable may be valid, it must be made in a public document, specifying therein the property donated and the value of the charges which the donee must satisfy. The acceptance may be made in the same deed of donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor. If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments.” The law requires that a deed of donation be executed in a public document indicating the details of the property to be donated and the conditions for the donation, if any, for a valid donation. It is also required that the person receiving the donation expressly manifests his/her conformity in receiving the donation in the same document or in a separate document but which must be executed within the lifetime of the donor. These formal requirements in the preparation and execution of a deed of donation must be fully observed to have a valid donation. The formalities for acceptance must be present, otherwise the donation is void.

Post-audit of donations of immovable property of the Provincial Government of La Union amounting to ₱24,105,867.46 disclosed that no deed of donation and approval/resolution of the sanggunian was attached to the voucher necessary for a valid donation such as: Property, Plant and Equipment Purchase of Nebulizer & BP Apparatus Purchase of Multi-Purpose Vehicles (mini-ambulance) with accessories Construction of Covered Court and Stage of Bangbangolan National High School, City of San Fernando, La Union Construction one Classroom Building at Paringao Elementary School, Bauang, LU

Amount 4,938,800.00 13,222,999.50

Total

24,105,867.46

4,887,247.38 1,056,820.58

Moreover, Section 381 of the Local Government Code provides that such transfer of property which is no longer needed by the agency shall be subject to the approval of the sanggunian concerned making the transfer and by the head of the office, agency, subdivision, instrumentality or local government unit receiving the property. Moreover, Disbursement or disposition of government funds or property shall invariably bear the approval of the proper officials. (Section 4.5 PD 1445)

Legality of the transactions and conformity with existing rules and regulations. The requesting and approving officials shall ensure that the disbursements of government funds are legal and in conformity with applicable rules and regulations. Thus, donations made by the Provincial Government of La Union to another Local Government Unit without the deed of donation and approval of the sanggunian would cast doubt on the validity and proprietary of such transfer of property. We recommend that, for a valid donation, the Provincial Government of La Union secures an approval from the Sangguniang Panlalawigan and execute a Deed of Donation and the acceptance of the donor whenever an immovable property was donated by the agency.