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Some Property, Plant and Equipment were not recognized as assets upon delivery of
goods and completion of projects which was book up to Donation account, thus, cast
doubt on the fair presentation of the accounts.
Philippine Public Sector Accounting Standard (PPSAS) No. 1 defines assets as resources
controlled by an entity as a result of past events, and from which future economic benefits or
service potential are expected to flow to the entity.
Hence, PPSAS No. 17 Paragraph 26 provides that an item of property, plant, and equipment
that qualifies for recognition as an asset shall be measured at its cost.
Analysis of transactions under Special Education Fund and 20% Local Development Fund
disclosed that the following delivered good and completed projects were not recognized as assets,
thereby understating several accounts of the Property, Plant and Equipment (PPE) as shown below:
Table 1. Projects which were not recognized as assets upon delivery and completion.
Source
of JEV No. Project Amount Account Title
Funds
LDF JEV- Purchase of Nebulizer & BP 4,938,800.00 Medical
2018-11- Apparatus Equipment
015698
LDF JEV- Purchase of Multi-Purpose Vehicles 13,222,999.50 Motor
2018-12- (mini-ambulance) with accessories Vehicle
018008
SEF JEV- Construction of Covered Court and 4,887,247.38 School
2018-04- Stage of Bangbangolan National High Building
000104 School, City of San Fernando, La
Union
SEF JEV- Construction one Classroom Building 1,056,820.58 School
2018-05- at Paringao Elementary School, Building
000154 Bauang, LU
Total 24,105,867.46
Table 2. Projects which were not recognized as Construction in Progress upon payment to
contractors.
Source
CIP-Building and
of JEV Particulars
Other Structure
Funds
SEF JEV-2018- First partial payment to Mo De Guzman 2,069,054.19
04-000105 Builders & Supply for his contract in the
Construction of Corro-oy Elementary School
of two (2) classroom school building, Santol,
LU. V# 60 chk# 1630986
SEF JEV-2018- First partial payment to E.E. Madayag for his 1,879,645.01
05-000159 contract in the Completion of School Building,
Gusing Sur Elementary School, Naguilian La
Union. V# 95 chk# 1630997
Total 3,948,699.20
Review of the books revealed that the following entries were made by the Provincial
Accountant.
Table 1 and 2 entries:
Donation (Dr) XX
Cash in Bank (Cr) XX
Due to BIR (Cr) XX
To record payment to contractor
Table 2 entries:
Donation (Dr) XX
Accounts Payable (Dr) XX
Set up payables to contractor
Based on the entries made, it was observed that the goods/projects upon partial/full
payment which are reportable as assets by the Provincial Government were directly charged as
outright expense through Donation Account which, contrary to PPSAS No. 1 in which an asset
shall be recognized in the financial position when and only when it is probable that the future
economic benefits will flow to the entity and the asset has a cost or value that can be measured
reliably.
Moreover, PPSAS No. 17 provides that when a Property, Plant and Equipment (PPE) that
qualifies for recognition as an asset shall be measured at cost. Cost of assets includes Purchase
price, including import duties and non-refundable purchase taxes, after deducting trade discounts
and rebates, any costs directly attributable to bringing the asset to the location and condition
necessary for it to be capable of operating in the manner intended by management. Likewise,
during the construction period, all expenses incurred in relation to the construction of the PPE shall
be taken up in the books as Construction in Progress (CIP) with the appropriate asset classification.
As soon as the construction is completed, the “Construction in Progress” account shall be
reclassified to the proper asset account.
In addition, Provincial Accountant derecognized assets through donation account contrary
to the derecognition of the PPE in which it shall be removed from the accounts together with the
related accumulated depreciation and accumulated impairment loss. The carrying amount of an
item of PPE shall be derecognized on disposal or when no future economic benefits or service
potential is expected from its use or disposal.
Thus, cast doubt on the fair presentation of Property, Plant and Equipment presented in the
Statement of Financial Position and overstated of expense account.
We recommend that the Provincial Accountant to recognize an asset at its cost into
proper account upon delivery of goods and partial/full payment of infrastructure for the fair
presentation in the Financial Statement.
2. Pertinent documents necessary for donations were not attached in the voucher contrary to Article
749 of the New Civil Code (NCC) of the Philippines and Section 381 of the Local Government Code,
thus, cast doubt on the validity and proprietary of such transfer.
Article 725 of the New Civil Code (NCC) of the Philippines defines Donation is an act of liberality
whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it. Person in the
Civil Code refers either Natural or Juridical person, of which, the latter may refer to the State and its political
subdivisions.
Moreover, Article 749 of the NCC provides that “In order that the donation of an immovable may
be valid, it must be made in a public document, specifying therein the property donated and the value of
the charges which the donee must satisfy. The acceptance may be made in the same deed of donation or in
a separate public document, but it shall not take effect unless it is done during the lifetime of the donor. If
the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form,
and this step shall be noted in both instruments.”
The law requires that a deed of donation be executed in a public document indicating the details of
the property to be donated and the conditions for the donation, if any, for a valid donation. It is also required
that the person receiving the donation expressly manifests his/her conformity in receiving the donation in
the same document or in a separate document but which must be executed within the lifetime of the donor.
These formal requirements in the preparation and execution of a deed of donation must be fully observed
to have a valid donation. The formalities for acceptance must be present, otherwise the donation is void.
Moreover, Section 381 of the Local Government Code provides that such transfer of
property which is no longer needed by the agency shall be subject to the approval of the sanggunian
concerned making the transfer and by the head of the office, agency, subdivision, instrumentality
or local government unit receiving the property. Moreover, Disbursement or disposition of
government funds or property shall invariably bear the approval of the proper officials. (Section 4.5 PD
1445)
Legality of the transactions and conformity with existing rules and regulations. The
requesting and approving officials shall ensure that the disbursements of government funds are
legal and in conformity with applicable rules and regulations.
We recommend that, for a valid donation, the Provincial Government of La Union secures
an approval from the Sangguniang Panlalawigan and execute a Deed of Donation and the acceptance
of the donor whenever an immovable property was donated by the agency.