Republic of the PhilippinesProvince of Maaliwalas

MUNICIPALITY OF SAN JULIAN

PUBLIC FINANCIAL MANAGEMENT ASSESSMENT REPORT (PFMAR)Covering FYs 2009-2011

I. Executive Summary

The first formal assessment of San Julian’s PFM system marks another milestone in the Municipal Government’s Mission “to improve the socio-economic condition of its population through sustainable development and responsive management of its resources in active partnership with all concerned sectors.”

With the establishment of baseline information on the current state of its PFM system, the local government is provided with a springboard for PFM improvement efforts that will ensure the attainment of one of its identified goals - “to improve the efficiency of the local government to respond to the needs of the population.”

Using the assessment framework provided by the Public Financial Management Assessment Tool for Local Government Units (PFMAT for LGUs), and taking into weight the information contained in official records and reports for fiscal years 2009 to 2011, the Municipality of San Julian obtained an overall average score of 2.6. This indicates that while elements of an open and orderly PFM system are not complete, the existing elements are nevertheless fully operational.

The score of 2.6 is the average of the following scores obtained in the seven critical dimensions of an open and orderly PFM system:

Critical Dimensions:1 Policy-based Budgeting2 Comprehensiveness and

Transparency3 Credibility of the Budget4 Predictability and Control in the

Budget5 Accounting, Recording and

Reporting6 Internal and External Audit7 Citizens’ Participation

PFM Areas Where the Municipality is Strong

It should be noted that the LGU obtained the highest scores in Critical Dimensions 1 and 7, which are Comprehensiveness and Transparency, and Citizens’ Participation, respectively.

The Municipality was able to ensure that for FYs 2009-2011, budget information in the Appropriation Ordinances covering the Annual Budgets was complete and in the prescribed form. This is attributable to strong support and technical assistance from the Provincial Budget Office and the DBM Regional Office.

Moreover, it was able to substantially comply with the Full Disclosure Policy of the Department of the Interior and Local Government (DILG), particularly by optimizing the use of the internet and the government domain hosting the LGU’s official website.

The relatively high scores in these two Indicators resulted to an average score of 3.5 in the critical dimension – Comprehensiveness and Transparency.

San Julian also has an established CSO accreditation system and has in fact five accredited CSOs. It was also able to engage CSOs in the budget preparation and budget accountability phases in 2011, hence the relatively high score in the critical dimension of Citizens’ Participation.

PFM Areas to be Strengthened

Meanwhile, the LGU obtained the lowest scores in the critical dimensions of Internal and External Audit, and Accounting, Recording and Reporting.

Due to the PS Limitation, the LGU is constrained from establishing a separate and independent Internal Audit Service (IAS), hence the low score in the dimension – Internal and External Audit.

Moreover, due to lack of personnel in the Accounting Department and the limited opportunities for existing personnel to build their capabilities, a general delay in the reconciliation of accounts and in the preparation of regular financial reports and annual financial statements is incurred, hence, the low score derived in the dimension – Accounting, Recording and Reporting.

It is recognized that poor performance in Internal and External Audit, and in Accounting, Recording and Reporting will adversely impact transparency and accountability, both of which are pillars of good governance.

Accordingly, the Municipality of San Julian shall endeavor to come up with the appropriate measures that will address the critical dimensions with low scores. At the same time, appropriate measures will also be undertaken to further improve on the critical dimensions where the LGU fared relatively well.

II. Introduction

The importance of good governance in the attainment of development goals cannot be understated. Part and parcel of good governance and the strengthening of public institutions is the continued improvement of the local PFM system.

But for PFM improvements to be effectively undertaken, the LGU should be able to establish baseline information on the state of its PFM system. The issuance of the Public Financial Management Assessment Tool for Local Government Units (PFMAT for LGUs) is therefore timely as it serves as a mechanism by which the LGUs could measure their current PFM system and determine which areas need improvement.

The PFM assessment was undertaken over the course of two weeks and primarily involved the following Offices, the Heads of which form part of the LGU’s PFM Team:

1. Planning and Development;2. Budget;3. Treasury;4. General Services / Engineering / BAC; and5. Accounting.

The Office of the Municipal Mayor is also represented in the PFM Team.

The assessment covered the LGU’s total budgets for 2009 to 2011, and entailed looking into the LGU’s local revenue raising capacity also for the last three years.

This report embodies the results of the evaluation of this LGU’s PFM system, which, in turn, are envisaged to serve as springboard for the more important undertaking of identifying and implementing PFM improvement measures.

III. Background Information

San Julian is a first class municipality of the Province of Maaliwalas. It is located 57 kilometers east of Manila.

According to the latest census, it has 94,460 people in 15,720 households. Between 2000 and 2007, it registered a 2.69% growth rate in population.

The Municipality has 19 barangays distributed over a land area of 33,466 hectares. While it is already considered as the major agricultural and commercial center of eastern Maaliwalas, the LGU is endeavoring to become a regional tourism haven by showcasing the town’s heritage church, breathtaking views and landscapes, historical caves and majestic waterfalls, among others.

Just like every LGU in the country, the Municipality of San Julian seeks to “to improve the socio-economic condition of its population through sustainable development and responsive management of its resources in active partnership with all concerned sectors.”

Its declaration on responsive and participatory management of its resources as means of attaining socio-economic development sets the tone for the LGU’s PFM reforms. The declaration bespeaks of the local government’s commitment to advance sound PFM practices so it can further improve on the following:

Fiscal Performance:

PARTICULARS 2009 2010 2011Revenues xxx xxx xxx

Local Sources xxx xxx xxxExternal Sources xxx xxx xxx

Expenditures xxx xxx xxx PS xxx xxx xxx MOOE xxx xxx xxx CO xxx xxx xxx SPAs xxx xxx xxxAggregate Savings / Deficit xxx xxx xxx

Allocation of Resources:

SECTORACTUAL BUDGETARY ALLOCATION

2009 2010 2011Health xxx xxx xxxEducation xxx xxx xxxAgriculture xxx xxx xxxHousing and Community xxx xxx xxxLabor and Employment xxx xxx xxxEtc xxx xxx xxx

IV. Assessment of the Municipality’s Public Financial Management System

PFM Areas Where the Municipality is Strong

Of the seven critical dimensions of an open and orderly PFM system, the LGU was able to obtain the highest scores in Comprehensiveness and Transparency, and in Citizens’ Participation.

It is noteworthy that the Municipal Government was able to present all the required budget information in its Appropriation Ordinance covering the annual budget for the last three years. It was also able to substantially comply with the Full Disclosure Policy of the Department of the Interior and Local Government (DILG). On the average, the Province earned a score of 3.5 in Comprehensiveness and Transparency.

As for the critical dimension – Citizens’ Participation, the Province has accredited five Civil Society Organizations (CSOs), hence, it earned a score of 4 in terms of CSO accreditation by the Local Sanggunian. Moreover, the Province earned a score of 3 in terms of the degree of CSO participation in the budget process. Accredited CSOs in the Province actively participated in Budget Preparation and in monitoring and evaluating program/project implementation.

PFM Areas to be Strengthened

The lowest scores, on the other hand, were earned in the critical dimensions of Internal and External Audit, and in Accounting, Recording and Reporting.

The lowest score of 1.65 was registered for Internal and External Audit. The Province has no established Internal Audit Service (IAS) although initial steps to establish the same have already been undertaken. With the absence of an operational IAS, there were no internal audit reports prepared, hence, no internal audit findings to act upon.

The next lowest score of 2.0 was earned for the dimension Accounting, Recording and Reporting. There were delays in the preparation of bank reconciliation statements and in the liquidation of cash advances, hence, the scores of 2.0 in these indicators. Due to lack of accounting personnel, there were also delays in the preparation and submission of financial statements.

The table on the next page provides the details of the results of the assessment:

Critical Dimension Indicator/s ScoreAverage

ScoreREMARKS

1. Multi-year perspective in fiscal planning and budgeting

3.02.08 The LGU operates in a highly changeable environment. The priorities of the local

government constantly shift in order to be responsive to the needs of the people. Since the CDP was not updated as often as the LDIP, some priority projects included in the LDIP cannot be attributed to the CDP. Linkage between the AIP and Appropriation Ordinance has been strong for the last three years due to the strict enforcement of the policy by the budgets’ reviewing authority.

Over the last three years, the LGU was only able to adopt and enforce three PFM-related policies as enunciated in the pertinent Local Sanggunian Resolutions: 1. Reiteration of Compliance with the Full Disclosure Policy of the DILG and Uploading of the Required Reports in the LGU’s website; 2. Establishment of Computerized RPT Database; and 3. Study of Options for the Establishment of an Internal Audit Service in the LGU.

The preparation of the FY 2012 AIP was only completed on July 20, 2011. Moreover, the different Departments were only able to submit their budget proposal on August 30, 2011. Consequently, the budget hearings could only be completed September 20, 2011, which is way beyond the deadline of August 31.

The LGU was able to enact and approve the Appropriation Ordinance covering the Annual Budget twice in the last three years. 2010, being an election year, marked the influx of a large number of new officials. The deliberations on the 2011 Annual Budget became protracted, hence, it was only approved early part of 2011.

Over the last three years, the Secretary to the Sanggunian was able to submit the Appropriation Ordinance (AO) to the Sanggunian Panlalawigan only once within the reglementary period. That Office may have to look into the internal procedures for logging in and out of transactions to ensure that upon approval of the AO, the same is immediately transmitted to the Secretary to the Sanggunian for submission to the appropriate reviewing authority.

The LGU has three LEEs, all of which have not been operating for more than five years. Since the LEEs are still relatively new, their income can only cover at the most 30% of their total operating requirements.

1.1 Linkage between PDPFP/CDP and LDIP

2.0

1.2 Linkage between LDIP and AIP

3.0

1.3 Linkage between AIP and Appropriation Ordinances covering

4.0

2. PFM improvement policies are included in the budgets covered by Appropriation Ordinances

2.0

3. Orderliness of activities in the annual budget process

2.3

3.1 Adherence to a fixed calendar for budget preparation and authorization phases

2.0

3.2 Timely enactment and approval of the Appropriation Ordinance authorizing the Annual Budget

3.0

3.3 Timely submission of the Appropriation Ordinance authorizing the Annual Budget to the appropriate reviewing authority

2.0

4. Financial self-reliance of Local Economic Enterprises (LEEs) / Public Utilities (PUs)

1.0

Critical Dimension Indicator/s ScoreAverage

ScoreREMARKS

5. Comprehensiveness of budget information contained in the Appropriation Ordinance covering the Annual Budget

4.0

3.5 With the strong support and technical assistance from the Provincial Budget Office and DBM Regional Office, the LGU, through its Municipal Budget Office, has consistently ensured that budget information in the AO covering the Annual Budget was complete and in prescribed form over the last three years.

Also with the resolute policy direction provided by the DILG and the LGU’s leadership, the LGU was also able to substantially comply with the Full Disclosure Policy. This was facilitated with the LGU optimizing the benefits of the internet and the government domain hosting the LGU’s website.

6. Public access to key information

3.0

Credibility of the 7. Actual local revenue

collections compared with estimated revenues in the budget

3.0

3.0 Once in the last three years, the actual local revenue collections fell below 90% of the estimates in the budget. The variance stemmed from the discrepancies in the bases for estimating local revenues for budgeting purposes and for SRE preparation. It should be noted that the BLGF usually provides inputs on the revenue estimates of the LGU, which usually differ from revenue estimates reflected in the budget.

Once in the last three years, expenditures and disbursements fell below 90% of spending authorities. This took place in 2010, which was an election year, hence obligations and payments were somehow limited by the imposition of election bans.

8. Actual expenditure compared with appropriations by allotment class

3.0

8.1 Total allotments released compared with total appropriations

3.0

8.2 Total actual obligations compared with total allotments released

3.0

8.3 Total actual disbursements compared with total obligations

3.0

Predictability and Control in

9. Real Property Tax Accomplishment Rate

2.0 2.5 Twice in the last three years, the RPT Accomplishment Rate fell below because the estimated revenues were pegged based on the anticipated revised schedule of market values. However, the ordinance approving the SMVs was not immediately approved. Accordingly, collections were still based on the current assessed values of real properties in the Municipality.

With the strong support from the Local Legislative Body, which issued a Resolution supporting the Computerization of the LGU’s RPT Database, the LGU was able to

10. Effectiveness of tax enhancement measures

2.3

Critical Dimension Indicator/s ScoreAverage

ScoreREMARKS

establish a computerized database that is currently linked between the offices of the Local Assessor and Local Treasurer. The LGU is working on expanding the linkages of the database.

The issuance of notices of delinquencies only resulted to a 12% increase in collection of delinquent accounts, hence, the score of 2 in this sub-indicator. No other collection strategies are implemented as of this time, hence, the relatively low increase in the collection of delinquent accounts.

Updating of the tax map was undertaken along with the updating of the SMV. The updating, however, was undertaken not earlier than five years from the last update

10.1 Computerized RPT database system linkages

3.0

10.2 Effectiveness of implementing tax collection strategies for delinquent Real Property Tax (RPT)

2.0

10.3 Effectiveness of civil remedies on tax payment (For provinces and cities only)

N/A

10.4 Planning and monitoring of tax mapping

2.0

11. Predictability in the availability of cash for commitment of expenditures

2.5

In all the last three years, cash programming was very good thereby ensuring that all allotments, including liabilities, have available cash.

A cash flow forecast was prepared at the beginning of the year but no cash flow analysis was made and the cash flow forecast was not updated due to the magnitude of reports already being prepared by the Treasurer’s Office.

11.1 Cash availability to support budgeted program, projects and activities (PPAs), and liabilities

4.0

11.2 Preparation and updating of cash flow forecasts and cash flow analysis

1.0

12. Value for money controls of procurement

2.2

Critical Dimension Indicator/s ScoreAverage

ScoreREMARKS

Only 80% of procurement activities were awarded through public bidding. The remaining 20% were completed using alternative modes of procurement as allowed under R.A. No. 9184.

Only 80% of the LGU’s CSE purchases were covered by APRs submitted to the PS. The remaining 20% were nevertheless purchased using alternative methods sanctioned by law. The said amount of CSE purchases were purchased through shopping under emergency / urgent circumstances.

Deviations were made from the approved Annual/Supplemental Procurement Plans due to the implementation of activities which were not in the Office’s approved work plans. The deviations from the A/S PP represent the LGU’s “emergency procurement activities.”

Some procurement activities were not posted in the PhilGEPS. In 2011, the BAC and its Secretariat were reconstituted. Since the new Secretariat was still learning the ropes, some procurement activities requiring posting in the PhilGEPs were not posted in the said website.

Only 80% of procurement contracts were completed / delivered on time. The 20% deviation represents civil works which were not completed according to the planned completion dates. The implementation of these civil works were delayed by inclement weather and early onset of the rainy season.

12.1 Use of public bidding for the procurement of goods (excluding common-use supplies and equipment), civil works and consulting services in accordance with R.A. No. 9184 and its IRR

2.0

12.2 Procurement of Common-Use Supplies and Equipment from DBM – Procurement Service

2.0

12.3 Effectiveness of Procurement

2.0

12.4 Publication of procurement-related activities

2.0

12.5 Timeliness of completed procurement activities

3.0

13. Effectiveness of payroll controls

4.0Based on the 2011 COA AAR, there were no adverse findings on PS expenditures. There were, however, adverse findings on about 15% of non-PS expenditures. It should be noted that a substantial part of these expenditures pertain to items procured without being posted in the PhilGEPS.14. Effectiveness of internal

controls for non-Personal Services (PS) expenditures

2.0

Recording and 15. Timeliness and regularity of

accounts reconciliation2.0

2.0 There is a general delay in the reconciliation of bank accounts due to the volume of transactions being currently handled by a very limited number of accounting personnel.

15.1 Regularity of bank reconciliation

2.0

Critical Dimension Indicator/s ScoreAverage

ScoreREMARKS

The timeliness of reconciliation and liquidation of cash advances on the other hand is adversely affected by failure on the part of employees granted cash advances for travel to immediately submit their liquidation reports.

There are also adverse findings on the LGU’s financial reports and statements, particularly, on the timelines of their submission. The financial reports and statements are submitted beyond deadlines set by COA due to the limited accounting personnel and the volume of transactions currently handled by these personnel.

15.2 Regularity of reconciliation and liquidation of cash advances

2.0

16. Quality and timeliness of regular financial reports and annual financial statements

2.0

External Audit17. Effectiveness of internal audit 0.3

1.65 The lowest score was obtained in this indicator. The LGU has not established a separate and independent IAS due to the PS Limitation. It should be noted though that the Local Sanggunian has issued a Resolution supporting the conduct of a study on the options for the establishment of an IAS in San Julian.

Since there is no IAS, there are no internal audit reports and management action to speak of.

There is substantial follow-up action on external audit findings.

The amount of disallowances/suspensions that remain unsettled as of assessment date pertain to accounts which can still be settled by the LGU within the six month reglementary period that extends beyond the cut-off period for the COA AAR.

It should be noted that the settlement of disallowances / suspensions would involve several responsible personnel. Making them personally liable for the disallowed/suspended accounts usually takes time since proper procedures and notifications should be observed.

17.1 Existence of an operational Internal Audit Service (IAS)

1.0

17.2 Frequency and distribution of internal audit reports

0.0

17.3 Extent of management action on internal audit findings

0.0

18. Follow up on external audit 3.0

18.1 Compliance with audit recommendations

3.0

18.2 Extent of COA disallowances

3.0

18.3 Magnitude of COA disallowances settled

3.0

19. Civil Society Organizations (CSOs) accreditation by the Local Sanggunian

4.0 3.5 The LGU has a well-established CSO accreditation system. There are currently five (5) CSO accredited, hence, the high score in Indicator 19.

With the thrust towards participatory and transparent governance, the LGU was able to engage the CSOs in the budget preparation and in monitoring and evaluating PPA evaluation, hence, the relatively high score in Indicator 20.20. Degree of citizens’

participation in the budget process

3.0

TOTAL AVERAGE SCORE 2.6

V. Recommendations

Improvement efforts should, foremost, be focused on the critical dimensions with the lowest scores.

Accordingly, the Province should consider establishing and operationalizing its IAS. Internal audit is a key part of internal control, which provides the foundation for and strengthens accountability and good governance in public service organizations. The importance of having an IAS cannot therefore be understated. Follow up action on the study for options on the IAS must be undertaken.

Moreover, the LGU should also look into the staffing and training requirements of the Accounting Office. Failure to comply with the reglementary periods for the liquidation of cash advances, preparation and submission of financial statements appear to be caused by the Accounting Office’s lack of personnel. Rationalization of the LGU’s staffing may be considered to ensure that the existing staff are well distributed among the different offices.

Notwithstanding higher scores obtained for the rest of the critical dimensions, the Municipality should also consider the following:

a. Pursuit of innovative local revenue raising measures to strengthen the LGU’s thrust of continuous delivery of quality services, particularly to the needy rural folks;

b. Doubling the collection efforts, particularly collection of delinquent RPT accounts, as means of lessening the San Julian’s dependence on the Internal Revenue Allotment (IRA) and realize its goal for an accelerated economic growth; and

c. Focus on the computerization program on the Integrated Revenue Collection and Financial Management System.