AUDIT OBSERVATIONS AND RECOMMENDATIONS
A. FINANCIAL AND COMPLIANCE AUDIT
Property, Plant, and Equipment
1. At least 38 completed projects in CY 2024 under the General Fund and Special
Education Fund, totaling ₱58,898,662.36, were erroneously retained under the
Construction in Progress (CIP) account instead of being transferred to the
appropriate Property, Plant and Equipment (PPE) accounts, due to insufficient
monitoring and improper documentation, contrary to Section 50 of the NGAS
Manual for LGUs, Volume I and IPSAS No. 17, resulting in an overstatement of the
CIP account and an understatement of related PPE and depreciation expense
accounts.
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. 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.
1.3. 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.”
1.4. 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.”
1.5. As of December 31, 2024, the balances of the CIP–Land Improvements, CIP–
Infrastructure Assets and CIP–Buildings and Other Structures amounted to
₱4,910,519.87, ₱151,056,677.47, and ₱177,332,476.45, respectively. However, our
verification of these accounts revealed that at least 38 completed projects, with a
total cost of ₱58,898,662.36, remained erroneously recorded under Construction in
36
