Draft Aom_inventory Report.docx

AUDIT OBSERVATIONS MEMORANDUM (AOM) AOM No. ___________ Date: ___________ FOR

:

____________________ (Designation)

Attention

:

____________________ (Designation)

In compliance with the mandate under pertinent rules and regulations for COA to verify the Inventory Report of the auditee management, hereunder is the result of our verification and audit of the said report of Auditees’s properties for the calendar year (CY) _____: The accuracy and reliability of Auditee’s Inventory Report for CY _____is doubtful due to: a.) non-reconciliation of balances stated in the inventory report for each type of fixed assets with that of the balances in the Accounting Books for CY ____; b.) it disclosed various “damaged properties for disposal” which should have been reported separately from the serviceable one; c.) some properties which are recorded as serviceable but verification revealed that they were not; d.) it includes items which should not be classified as Property, Plant and Equipment (PPE) (for they did not meet the capitalization threshold of P15,000.00 as required by Government Accounting Manual (GAM)); among other observations.

1. The submitted Inventory Report for CY ____ does not conform to the required Report on the Physical Count of Property, Plant and Equipment (RPCPPE) official form under Appendix 73 of Government Accounting Manual (GAM). 1.1.

RPCPPE is the form which shall be used to report the physical count and condition of the PPE by type as at a given date, including those which are unrecorded and those which could not be accounted for. It shows the balance of PPE per property cards and per count and the shortage/overage, if any. It shall be rendered by the Inventory Committee, on its yearly physical count of properties owned by the entity. (Sec. 42 (g) of GAM, pg. 203)

1.2.

There are differences between the form used by Auditee with that of the required official form of RPCPPE and some of which are as follows: 1.2.1. The official RPCPPE form requires column for “Quantity per Property Card” and “Quantity per Physical Count”, and “Shortage/Overage”, which are not indicated in Inventory Report submitted.

1.2.2. The official RPCPPE form requires verification by COA, or in other words, COA representative should be one of the signatories in the said report. However, the submitted Inventory Report does not provide portion where COA Representative will sign upon its verification. 1.2.3. The official RPCPPE form requires indicating the official designation, the office of the accountable officer as well as the date when he assumed accountability thereof. These requirements were also absent in the inventory report. We recommend that Management use the official form of RPCPPE to report the physical count and condition of its properties instead of the Inventory Report they are currently using, and to accomplish the RPCPPE completely in accordance with the Instructions in accomplishing the same.

2. The Inventory Report disclosed items which are already “damaged for disposal” but corresponding Inventory and Inspection Report of Unserviceable Properties (IIRUP) where they are supposed to be recorded, and the corresponding Report of Lost, Stolen, Damaged, Destroyed Property (RLSDDP) per Accountable officer were not prepared accordingly. 2.1.

2.2.

IIRUP is a report which shall be used to account for all unserviceable property of an entity which is subject to disposal (Sec. 42(h) of GAM, pg. 204), prepared by the Supply and/or Property Unit as basis to record dropping from the books the unserviceable properties carried in the Property, Plant and Equipment (PPE) accounts (Appendix 74, Instructions in preparing IIRUP). The table below shows the amount of items with the status “Damaged for Disposal” (or deemed Unserviceable Properties) which are still included as part of the total value of PPE in the Inventory Report: PARTICULARS Office Equipment IT Equipment Furniture and Fixtures Books Communication Equipment Other Machinery & Equipment TOTAL

2.3.

Amount of “Damaged for Disposal” Items in the Inventory Report 286,401.10 2,055,016.09 4,475.34 30,770.14 16,729.00 210,646.06 2,604,037.73

The Inventory Committee of the Auditee still includes those items as part of its Inventory Report because according to the concerned personnel the corresponding IIRUPs with regard to those items are yet to be prepared.

2.4.

Under Sec. 40 (d) of GAM, all unserviceable property shall be reported in the IIRUP. PPE reported in the IIRUP shall be dropped from the books by debiting Impairment Loss-Property, Plant and Equipment (cost of the PPE less Accumulated Depreciation).

2.5.

Also, inasmuch as those properties are damaged, the officer accountable thereof must secure a Report of Lost, Stolen, Damaged or Destroyed Property (RLSDDP) (Appendix 75 of GAM). RLSDDP is the form which shall be used by the Accountable Officer to report or notify the auditor of the COA, the Chief Accountant and all others concerned of the lost, stolen, damaged or destroyed property (Sec. 42 (i) of GAM, pg 204). With regard to aforementioned items, no RLSDDPs were furnished to this office. We recommend that Management prepared IIRUP for those properties which are already under Unserviceable Condition and endeavor to dispose the same immediately through public auction if still saleable or through destruction if not, in the presence of COA Auditor. The accountable officers should see to it that before surrendering the unserviceable property from their custody to Property Officer for inspection, they must secure RLSDDP in connection to those properties which are damaged or destroyed.

3. Comparison of the balance of Property, Plant and Equipment (PPE) under the Statement of Financial Position (SFP) for year ended December 2017 by the Accounting Division and this Inventory Report by Inventory Committee under General Services Division (GSD) of the Auditee revealed material discrepancies as follows: Account

Office Building Other Structures Office Equipment IT Equipment Furniture and Fixtures Communication Equipment Books Motor Vehicles

Other PPE

TOTAL

Per SFP by Finance Division

Per Inventory Report by GSD

Differences

23,301,967.22

No record

23,301,967.22

23,014,364.78

No record

23,014,364.78

9,609,456.49 31,456,755.31

9,563,170.06 33,673,423.40

46,286.43 (2,216,668.09)

5,876,003.54

5,182,417.20

693,586.34

1,633,852.70

1,625,270.52

8,582.18

147,346.96

229,630.02

(82,283.06)

11,512,341.16

9,793,700.00

1,718,641.16

7,961,879.12

7,301,813.63

660,065.49

114,513,967.28

67,369,424.83

47,144,542.45

Remarks

Inventory Committee uses the account title “Land Transport Equipment” Inventory Committee uses the account title “Other Machinery and Equipment”

3.1.

Pursuant with our prior year’s Audit Observation Memorandum (AOM) re: Audit of PPE for CY ___ (AOM No. ____), we recommended that Management must provide details of reconciliation made between GSD’s Inventory Report for CY 2017 and that of Accounting Division’s. The presence of the aforementioned deficiencies, however, indicates that there was no reconciliation of the reports, or there is failure of reconciliation between Accounting Division and that of the GSD to arrive at more accurate balance of the said PPE accounts, thus, adversely affecting the fair presentation of affected accounts in the Financial Statement. We reiterate our previous recommendation that Management provide details of reconciliation between GSD’s Inventory Report with that of Finance Division’s Report of PPE Balances. Substantiate the same by attaching IIRUP (to be verified by COA) with regard to those items that were dropped in the books as a result of reconciliation, and if applicable the RLSDDP of concerned accountable officer.

4. The Inventory Report still includes those items which does not meet the capitalization threshold of P15,000.00, or called Semi-Expendable Property, contrary to the provision under GAM that semi-expendable property (wherein the issuance thereof to end-user is covered by Inventory Custodian Slip to establish accountability over them) shall be included in Report on the Physical Count of Inventories (PRCI) and not in the RPCPPE (or the Inventory Report for PPE). 4.1.

Sec. 10, Chapter 8 of GAM provides that Semi-expendable property which were recognized as PPE shall be reclassified to the affected accounts. Stating differently, those properties amounting to less than P15,000.00 and was previously recorded under PPE account shall be reclassified to affected account (i.e. applicable Semi-Expendable Property account)

4.2.

The table below shows number of Serviceable Items in the Inventory Report, along with their aggregate value, that: a.) partakes that of Semi-Expendable Items which are erroneously recorded in the Inventory Report for PPE; b.) are correctly included in the Inventory Report as far as threshold is concerned; and c.) are questionable for lack of amount.

Semi-Expendable Items (erroneously included in Inventory Report for PPE) Nature of PPE No. of Items

Total Amount

Items that Meet the Capitalization Threshold (Properly Included in Inventory Report for PPE) No. of Items Total Amount

Items with No Value

TOTAL Serviceable Items

No. of Items

Total Amount

No. of Items

Total Amount

Office Equipment

347

1,105,129.58

108

8,171,639.38

0

0

455

9,276,768.96

IT Equipment

342

2,747,841.20

391

28,870,566.11

1576

0

2309

31,618,407.31

0

0

11

9,793,700.00

0

0

11

9,793,700.00

Motor Vehicle

Furnitures and Fixtures Books Communicatio n Equipment Other Equipment TOTAL

4.3.

1003

3,266,951.41

22

1,168,380.45

74

0

1099

4,435,331.86

134

180,519.53

1

18,340.35

0

0

135

198,859.88

68

231,998.75

32

1,376,542.77

3

0

103

1,608,541.52

282

1,136,919.58

52

5,954,247.99

9

0

343

7,091,167.57

2,176

8,669,360.05

617

1,662

0

4,455

64,022,777.10

55,353,417.05

It was also noted that under Communication Equipment, 21 cellphone units and three Ipad units were only cost P1.00 each and one Ipad unit and two cellphone units have no recorded cost. Be it acquired through post-paid plan or acquired without consideration, it is erroneous to value it significantly lower than that of its fair value (or no cost at all) at the time the same is acquired. It is a basic principle that PPE acquired without consideration must be taken up in the book at its fair value at the date it is acquired. (Sec. 12, Chapter 10 of GAM).

We recommend Management to: a. report semi-expendable PPE as part of RPCI (that is the Inventory Report for Supplies) and not as part of RPCPPE (that is the Inventory Report for Property). b. indicate the value of the property at cost (if acquired with consideration) or fair market value (if acquired without consideration) so as not to understate the value of the property. 5. Verification of some items in the submitted Inventory Report revealed that there are many handheld items (e.g. cellphones and Tablet PCs) were recorded as serviceable items, where in truth and in fact they are unserviceable and is subject for disposal. Also, two or more of those handheld items were issued under the name of only one accountable officer in violation of Annex D of COA Circular 2012-003. 5.1.

Annex D (5) of COA Circular 2012-003 dated October 29, 2012 provides that “Provision of mobile phone, whether postpaid line subscription or prepaid, in excess of one unit for each entitled official which should not be lower than Division Chief rank” is considered Excessive Expenditures. This provision, by analogy, is also applicable to issuance of Tablet PC (e.g. Ipad) for they share almost similar functionality and can be acquired in similar way (i.e. post-paid or prepaid) with that of mobile phones.

5.2.

The table below shows those personnel, other than the property officer, of Auditee who are accountable for more than one unit of mobile phones and tablet PCs under the Inventory Report.

Name of Accountable Officer

Designation

No. of Units Held

Remarks

A

OIC- Division Chief, Information Technology Officer II of Systems Management Devt. Division

7 Tablet PCs (e.g. Ipad)

B

Info. II, Communication and Management Division

2 Tablet PCs (e.g. Ipad) and 2 Mobile Phones

C

Currently assigned in other GOCCs ; her plantilla is no longer with that of Auditee

3 Mobile Phones and 2 Tablet PCs (e.g. Ipad)

D

IT Officer I of Web Marketing Division

2 Mobile Phones

E

Assistant Chief

Division

3 Mobile Phones

F

Retired, previously Division Chief of Agri Marine Division

2 Mobile Phones

G

Resigned, previously

2 Mobile Phones

H

Administrative Officer IV of General Services Division

2 Mobile Phones

3 of those units are still serviceable and 4 were already damaged or not efficient for use; only one of those units is originally issued under his name and the rest were merely transferred to him so that other CITEM staff who may be in need of those items may borrow and make use of the same. The accountable officer is not around at the time of verification; we were not able to procure her comment about her accountability The Accountable Officer is currently assigned in Design Center, thus we were not able to get her comment with regard to this matter. The Accountable Officer is not a Division Chief, at least, thus, she is not entitled to be issued with mobile phones under COA Circular 2012-003.; She opined that one unit is being used by Social Media Officer. Both units are used during events posting and use it for facebook live of such events. The accountable officer is not a Division Chief, at least. She is not around during our verification, thus we were not able to get her comment as to her accountability. The accountable Officer has already retired. According to her, she already surrendered those items to Property Officer. The accountable officer was already resigned; According to his staff, 1 Unit was already returned to Property officer, while he has no idea as to whereabouts of the other unit. One unit is no longer functioning, while the other unit was already lost. According to accountable officer, there is policy guidelines before which gives provision that the unit

I

5.3.

Department Manager III of Service Business Department

3 mobile phones

can be owned by accountable officer after two years of paying for monthly due in lieu of communication allowance. Relying on said guidelines, the accountable officer believed that there is no need to return the aforementioned mobile phones. However, we were not get hold of the said guidelines. Currently detailed at Makati. We were not able to get her comment with regard to her accountability.

As the result of our verification, there are certain units which were reported as serviceable communication equipment but the end-user or person accountable thereof says otherwise. When the property became unserviceable it is the duty of accountable officer to apply for its inspection as mandated by Sec. 79 of PD 1445 which reads: “When govt. property has become unserviceable for any cause, or is no longer needed, it shall, upon application of the officer accountable therefore be inspected by the head of the agency or his duly authorized representative in the presence of the auditor concerned and if found valueless, or unsalable, it may be destroyed in their presence. If found valuable, it may be sold at public auction to the highest bidder upon the supervision of the proper committee on award or similar body in the presence of Auditor…”

5.4.

The presence of those unserviceable property for a long time, will result to its further deterioration reducing its salable value. Thus, there is a dire need to immediately prepare the IIRUP with regard to those item, to facilitate its dropping to book of accounts and for the accountable officer to secure RLSDDP and if it so warrants, applied for Relief of Accountability in case of loss of the said property, otherwise such accountable officer will be held liable.

5.5.

The above table disclosed that there are still items in the hand of those employees who are no longer in service with the Auditee. We recommend that Management: a. in issuing mobile phones, and the like, observes the prohibition under COA Circular 2012-003 that an employee who is below Division Chief Rank is not qualified to be issued with mobile phones, whether through post-paid or prepaid, and if he is at least a Division Chief Rank, he is only entitled to one unit. Moreso, under the same circular, it must also observe that replacement of serviceable equipment is considered unnecessary expenditure.

b. to justify issuance of more than one unit of mobile phones and tablet PCs without showing that the required RLSDDP with regard to its previous item was secured by accountable officer. c. required the accountable officer, before going out of service with the Center, to settle their property accountability.

May we have your comments on the foregoing observations within 15 days from your receipt of this memorandum.

___________________ State Auditor IV Audit Team Leader

______________________ State Auditor V Supervising Auditor

Proof of Service of AOM No. _________ dated ________.

Office of the Head of Auditee: Printed Name _________________ Signature _________________ Date _________________

Office of the Attention Addressee: Printed Name _________________ Signature _________________ Date _________________