AUDIT OBSERVATIONS AND RECOMMENDATIONS
A. FINANCIAL AND COMPLIANCE AUDIT
Construction in Progress
1. At least 186 completed infrastructure projects, comprising 33 projects under the
Trust Fund (₱207,195,565.98) and 153 under the General Fund (₱42,292,425.04),
were not properly reclassified from Construction in Progress (CIP) to the
appropriate Property, Plant, and Equipment (PPE) accounts upon completion,
contrary to Sections 50 and 104(1.i) of the NGAS Manual for LGUs and IPSAS No.
17, resulting in significant overstatements in CIP balances and understatements in
PPE and depreciation expense accounts in the financial statements.
1.1. Section 50 of the New Government Accounting System (NGAS) Manual for Local
Government Units (LGUs), Volume I, requires that during the construction period,
Property, Plant, and Equipment (PPE) shall be classified as “Construction in
Progress” (CIP) with the appropriate asset classification. Upon completion, the CIP
accounts shall then be transferred to their appropriate asset accounts. The CIP
account is used to record the value of work performed in accordance with the terms
of applicable construction contracts.
1.2. Section 104(1.i) of the Manual on the New Government Accounting System
(NGAS) for Local Government Units (LGUs), Volume I, requires that completed
projects under the Trust Fund (TF) be transferred to the General Fund (GF) upon
their completion.
1.3. Furthermore, with the adoption of the International Public Sector Accounting
Standards (IPSAS), infrastructure assets shall be taken up as PPE. The annual
consumption of their service potential, along with any loss of value due to
depreciation and impairment, shall also be recognized.
1.4. Under IPSAS 17, depreciation is defined as the systematic allocation of the
depreciable amount of an asset over its useful life. Paragraph 71 of IPSAS No. 17
provides that “depreciation of an asset begins when it is available for use i.e., when
it is in the location and condition necessary for it to be capable of operating in the
manner intended by management.”
1.5. In addition, Item 4.1 of the Philippine Application Guideline (PAG) for IPSAS 17
states that “xxx For simplicity and to avoid proportionate computation,
depreciation shall be for one month if the PPE is available for use on or before the
15th of the month. However, if the PPE is available for use after the 15th of the
month, depreciation shall be for the succeeding month.”
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