AUDIT OBSERVATIONS AND RECOMMENDATIONS
A. FINANCIAL AUDIT
Unreconciled difference of ₱40,304,574.47 in the Property, Plant and Equipment account
1. The unreconciled difference between the General Ledger (GL) balance and the
Inventory Count Forms (ICF) of the Property Plant and Equipment account
amounting to ₱40,304,574.47, along with the inability to locate properties totaling
₱19,531,243.91 is inconsistent with the International Public Sector Accounting
Standards (IPSAS) 1 and COA Circular No. 2020-006, thus affecting the fair
presentation of the PPE accounts in the financial statements.
1.1 COA Circular No. 2020-006 dated January 31, 2020 prescribes the guidelines and
procedures on inventory taking, recognition of those PPE items found at station
and disposition for non-existing / missing PPE items for the one-time cleansing
of PPE accounts of government agencies. As emphasized in the Circular, PPE
generally comprise a substantial portion of the total assets of the government.
Thus, each agency is tasked to conduct a physical count of all its PPE, whether
acquired through purchase or donation, including those constructed by the
administration and found at the station.
1.2 Paragraph 27 of IPSAS 1 requires that Financial Statements shall present fairly
the financial position, financial performance, and cash flows of an entity. Fair
presentation requires the faithful representation of the effects of transactions,
other events, and conditions in accordance with the definitions and recognition
criteria for assets, liabilities, revenue, and expenses set out in IPSAS.
1.3 Among the reasons behind the issuance of the Circular is the existence of
discrepancies in the PPE account balances of government agencies, which has
become a perennial issue and caused the non-establishment of the accuracy of the
PPE balances presented in the financial statements. Hence, the said Circular
provided guidelines and procedures to help agencies establish PPE balances that
are verifiable as to their existence, condition, and accountability.
1.4 One of the procedural guidelines in the conduct of inventory count states that the
physical count shall be recorded/documented daily in a standard ICF. A separate
ICF shall be used for each PPE sub-major account group such as Land, Land
Improvements, Infrastructure Assets, Buildings and Other Structures, Machinery
and Equipment, Transportation Equipment, Furniture, Fixtures and Books, etc.
For ease of reconciliation, the Inventory Count Form for each PPE category/type
shall be subdivided by PPE General Ledger account, e.g., Machinery and
Equipment may be subdivided into Machinery, Office Equipment, Information
and Communications Technology Equipment, etc.
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