5.1 Paragraph 11 of IPSAS 12 states that inventories include goods purchased or
produced by an entity for distribution to other parties, either for no charge or for
a nominal charge. In many public sector entities, inventories typically relate to
the provision of services rather than goods purchased and held for resale or
goods manufactured for sale.
5.2 On the other hand, paragraph 14 of IPSAS 17 sets out the recognition criteria
for PPE. It states that an item of PPE shall be recognized as an asset only if it is
probable that future economic benefits or service potential associated with the
item will flow to the entity, and if the cost or fair value of the item can be
measured reliably. Moreover, Section 4.2 of COA Circular No. 2020-006 dated
January 31, 2020, further clarifies that for an item to be capitalized, there must
be clear beneficial ownership and control vested in the entity.
5.3 Aligned with the requirements of IPSAS, the Commission issued COA Circular
No. 2015-009 dated December 1, 2015, which prescribed the revised chart of
accounts for Local Government Units. Annex B of the Circular includes
accounts for Inventory Held for Distribution, which covers, among other items,
Construction Materials for Distribution. This account is used to record the cost
of construction materials for distribution to various projects or beneficiaries,
while the Construction in Progress (CIP) accounts are intended to record the
accumulated cost directly related to the acquisition, construction, or production
of qualifying assets.
5.4 On March 12, 2024, the Provincial Government issued Check No. 188510
amounting to ₱11,495,167.80 as payment for 684.44 rolls of service drop wire
under DV No. 100(18)-2024-03-175, which was allocated for the
“Electrification Program to Various Barangays Provincewide.” The said
materials were recorded under Construction in Progress-Buildings and Other
Structures per Journal Entry Voucher (JEV) No. 100(18)-20240300073.
5.5 Review of the Summary of Estimates for the program revealed that the service
drop wires were intended to be distributed to 557 barangays across the Province.
The cost of labor and any additional materials required for installation are to be
borne by the respective barangays. As such, the Provincial Government’s role
is limited to supplying the materials, with no involvement in the construction or
installation process. Therefore, from the Provincial Government’s perspective,
no construction occurred since its involvement pertains only to the provision
and distribution of materials.
5.6 Given that the barangays are responsible for the installation and any further
material procurement, the service drop wires do not meet the criteria for
capitalization under CIP. Rather, they should be recorded as inventory until
distributed to the recipient barangays.
5.7 On the other hand, the Audit Team had requested the Inventory Transfer Report
(ITR) or any equivalent report from the Provincial Engineer, who had custody
of the service wires, to document the transfer of inventory to another local
government unit. The original copy of the ITR and other supporting documents
also serve as the basis for the preparation of the journal entry voucher, in
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