The existence and correctness of the PPE accounts as of December 31, 2020

amounting to P214,545,649.34 cannot be ascertained due to non-existing PPEs

amounting to P2,972,179.67 still found in the books. Procedures on One-Time
Cleansing of PPE Account Balances is advised as per COA Circular No. 2020-006
dated January 31, 2020.

Section 6 of COA Circular No. 2020-006 (Procedural Guidelines), provides:

6.1. Preliminary activities prior to the conduct of inventory taking

6.1.1 The Property Unit shall obtain the latest Report on Physical Count of
PPE (RCPPE)/Physical Inventory Report.
6.1.2 The Accounting Unit shall update its record of
acquisition/disposal/transfer of PPEs in the PPE Ledger Cards
(PPELCs) and ensure that the total balance of PPELCs tally with the
balances of controlling PPE accounts in the General Ledger.
6.1.3 The Property and Accounting Units shall compare the latest Report on
the RCPPE/Inventory Report with the PPELCs.
6.1.4 The Property Unit shall prepare a list of PPE items which are recorded
in the PPELCs but not included in the RPCPPE/Physical Inventory
Report as well as PPE items which are included in the RCPPE but not
recorded in the PPELCs.
6.1.5 Both listed and the latest RCPPE/Physical Inventory Report shall be
submitted to the Inventory Committee. These documents shall be
considered as inventory working papers and shall be used by the
Inventory Committee as basis in preparing the PIP.

6.2. Inventory taking

6.2.1 The Head of the Inventory Committee shall ensure that the inventory
taking activities are executed in accordance with the approved PIP. In
case there are planned activities/procedures that cannot be efficiently
performed, he/she shall keep record of the alternative
activities/procedures undertaken and the reasons for the deviation from
the PIP.
6.2.2 The Inventory Committee shall use the inventory working papers
provided by the Property Unit as basis for inventory taking activities,
taking into consideration the capitalization threshold of P15,000.00.
6.2.3 The physical count shall be recorded/documented daily in a standard
Inventory Count Form (ICF), using the format in Annex A of this
Circular, which shall be used as the basis in the preparation of the
RPCPPE after the physical count.
6.2.4 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. The
description of accounts provided in the Chart of Accounts prescribed
under the Accounting Manuals of the respective Sectors, shall be used
as basis in determining the proper classification of a PPE item.
6.2.5 All PPE items counted shall be tagged with new property stickers
containing the information provided under Paragraph 5.7 of this
Circular.
 6.2.6 The Inventory Committee shall state clearly in the lCF the condition of
the PPEs, such as: in good condition, needing repair, unserviceable,
obsolete, no longer needed, not used since purchase, etc.
6.2.7 PPEs found at station or items not included in the inventory working
papers, but there is reasonable basis to consider the same as owned by
the agency, shall likewise be included in the physical count and tagged
with property stickers. These items shall be described as "found at
station" which shall be indicated under the "Remarks" column of the
ICF.
6.2.8 PPEs included in the inventory working papers but are not found during
the physical count shall be considered as non-existing/missing PPEs per
physical count. These items shall be described as "non-existing" or
"missing" which shall be indicated under the "Remarks" column of the
ICF.
6.2.9 Other relevant information on each PPE item shall also be stated under
the "Remarks" column of the lCF.
6.2.10 Upon completion of the physical count, the Inventory Committee shall
prepare the RPCPPE, using the prescribed format under the Accounting
Manuals of the respective Sectors.
6.2.11 The unit value of articles/items counted shall be taken from
PPELCs/Subsidiary Ledgers (SLs) or, if not available, from Property
Cards or other proper records.
6.2.12 In case no such information could be found in both accounting and
property records such as for PPE items found at station, the unit
cost/value shall be established, as follows:

a. Cost/value may be assigned by the Inventory Committee based on

the market/fair value of the item. The cost/value of a similar item in
the RPCPPE may also be used by the Inventory Committee.

The market/fair value is the estimated amount for which an asset

could be exchanged on the date of valuation, between
knowledgeable, willing parties in an arm's length transaction; and

b. If there are items for which market/fair value could not be easily
determined by the Inventory Committee, their fair value shall be
determined by appraisal.

An appraisal of the value of an asset is normally undertaken by a

member of the valuation profession who holds a recognized and
relevant professional qualification. For many assets, the fair value
will be readily ascertainable by reference to quoted prices in an
active and liquid market. For example, current market prices can be
obtained for land, non-specialized buildings, motor vehicles, and
many types of plant and equipment.

If no evidence is available to determine the market value in an

active and liquid market of an item of property, the fair value of the
item may be established by reference to other items with similar
characteristics, in similar circumstances and location. In the case of
specialized buildings and other man-made structures, fair value,
may be estimated using depreciated replacement cost, or the
restoration cost or service unit approaches. In many cases, the
depreciated replacement cost of an asset can be established by
reference to the buying price of a similar asset with similar
remaining service potential in an active and liquid market. In some
 cases, an asset's reproduction cost will be the best indicator of its
replacement cost.

6.2.13 The RPCPPE shall be prepared in four (4) copies to be distributed as

follows:

Original – COA Auditor

Copy 2 – Accounting Division/Unit
Copy 3 – Property Divison/Unit
Copy 4 – Inventory Committee

6.3. Reconciliation of inventory count per RCPPE with property accounting

records:

The Property and Accounting Units shall undertake collaborative

procedures to ensure that all PPEs included in the RCPPE are duly recorded
in their respective records and that the Property Cards (PCs) maintained by
the Property Unit and the PPELCs maintained by the Accounting Unit are
reconciled. The reconciliation shall be completed within ten (10) days from
rendition of the RCPPE by the Inventory Committee. The following
procedures shall be observed:

6.3.1 The Property Unit shall:

a. Ensure that the PCs are updated by posting all unrecorded

acquisition/receipt, issue/transfer and disposal of PPE, if any;
b. Prepare a List of PPEs Found at Station for those items described as
“found at station” in the RCPPE, using the format in Annex B of this
Circular, and submit to the Accounting Unit for recording in the books of
accounts;
c. Prepare PCs for items of PPEs found at station;
d. Prepare a List of Non-Existing/Missing PPEs for items described as
“non-existing” or “missing” in the RCPPE as well as for those with PCs
and Property Acknowledgement Receipts (PARs) on file but not included
in the RCPPE, following the format in Annex C of this Circular;
e. Follow the procedures for the disposition of non-existing/missing PPEs
provided under Paragraph 7 of this Circular;
f. Work together with the Accounting Unit to reconcile the PCs with the
PPELCs maintained by the Accounting Unit;
g. Renew all PARs; and
h. Prepare Inventory and Inspection Report of Unserviceable Property
(IRIRUP) using the format prescribed under the Accounting Manuals of
the respective Sectors for all PPEs found unserviceable, obsolete and/or
no longer needed.

6.3.2The Accounting Unit shall:

a. Take up the necessary accounting entries to recognize the PPEs found at

station and prepare/maintain corresponding PPELCs based on the List of
PPEs Found at Station;
b. Take up the necessary accounting entries to recognize loss of PPE and to
set up the corresponding receivables from the concerned accountable
officer/personnel, pursuant to Paragraphs 7.8 and 7.9 of this Circular;
c. Work together with the Property Unit in reconciling the PPELCs/SLs
with the PCs maintained by the Property Unit;
d. Update the PPELCs as necessary in the course of reconciliation;
e. Take up the necessary accounting entries to write-off/drop from the
books of accounts the remaining balances as of December 31, 2020 of
amounts lumped under the “Unreconciled SL”, “Reconciling SL” for
PPEs, and the like, which were created to facilitate the conversion of
accounts from the Old Government Accounting System (NGAS) and/or
from the manual accounting system to the Electronic New Government
Accounting System (eNGAS); and
 f. Ensure that the total balance of PPELCs/SLs tally with the balances of
controlling PPE accounts in the Ledger.

6.3.3 After completing the above reconciliation procedures, the total of the
reconciled balances for each PPE account shall be established as the
correct balance of PPE of the government agency as of December 31,
2020.

Section 7 of COA Circular No. 2020-006 (Disposition Procedures for Non-

existing/Missing PPEs), states that:

7.1.1 For the non-existing/missing PPEs, the Property Unit shall:

a. Verify if the PPE items were already disposed with supporting IIRUP or
transferred/donated to other government agencies with supporting Property
Transfer Report (PTR); and
b. Submit to the Accounting Unit the original copies of the IIRUP and PTRs
for disposed and transferred PPE items, for recording in the books of
accounts.

7.1.2 The Accounting Unit shall take up the necessary accounting entries to
derecognize disposed or transferred PPEs based on original copies of the
IIRUP and PTR.

7.1.3 The Head of the Property Unit shall be responsible in determining the
person/s accountable for non-existing/missing PPEs not otherwise disposed
or transferred. The accountability shall be verified from the Property Unit’s
file/copy of the PARs, PCs and other available property records.

7.1.4 If there is a pending Request for Relief for any of the non-existing/missing
PPEs, such fact shall be indicated under the “Remarks” column of the list.

7.1.5 The Property Unit shall inform the Head of the Agency of the non-
existing/missing PPEs without pending Request for Relief and shall prepare
letters addressed to each concerned accountable officer/personnel
demanding the production of the PPE he/she is accountable for. The
accountable officer/personnel shall be given five (5) calendar days to
respond to the demand letter.

7.1.6 The demand letters shall be signed by the Head of the Agency or designated
representative and immediately issued by the Property Unit to the concerned
accountable officers/personnel.

7.1.7 If the accountable officer/personnel was able to produce the PPE item
demanded from him/her, the Property Unit shall indicate under the
“Remarks” column of the List of Non-Existing PPEs that the item was
“produced/presented upon demand” and, subsequently, inform the Inventory
Committee of such changes in order to amend the RCPPE.

7.1.8 If the accountable officer/personnel was not able to produce the PPE item,
such fact shall be indicated under the “Remarks” column of the List of Non-
Existing PPEs.

7.1.9 After gathering all the necessary information by performing the preceding
procedures, the Property Unit shall submit to the Accounting Unit the List
of Non-Existing/Missing PPEs, with complete information on which PPEs
could not be produced upon demand and those which have pending Request
for Relief, as well as the corresponding accountable officers/personnel.

7.1.10 The Accounting Unit shall take up the necessary accounting entries to
recognize in the books of accounts the loss of PPE and to set up the
corresponding receivables from concerned accountable officers/personnel
for the non-existing/missing PPEs that could not be produced upon demand.
It shall likewise check if appropriate accounting entries were already taken
up recognizing the loss of PPE and setting up of accountability for those
 with pending Requests for Relief; otherwise, it shall effect the necessary
accounting entries.

7.1.11 The amount to be set up as receivables over the loss of depreciable assets
shall be based on depreciated replacement cost, which is replacement cost
(current market price) less accumulated depreciation calculated on the basis
of replacement cost.

7.1.12 If there are non-existing/missing PPEs for which accountability could not be
established despite exhaustion of all diligent efforts, the following
procedures shall be followed:

a. The Head of the Agency shall cause the conduct of an investigation to

determine the last known location/office where the missing PPE items
were issued/installed, person accountable, circumstances of the loss, and
the persons responsible for the loss, among others;
b. If accountability/responsibility over the missing PPE was pinpointed
after investigation, demand shall be made from the accountable personnel
to produce the item or pay the depreciated replacement cost thereof;
c. The Accounting Unit shall be furnished the certified copy of the
investigation report and demand letter to be used as basis to recognize
loss of PPE and to set up the corresponding receivables from the
concerned accountable officer/personnel; and
d. If accountability/responsibility over the missing PPE could not be
pinpointed after investigation, authority for derecognition thereof from
the books of accounts may be requested from the COA, in accordance
with Paragraph 8 of this Circular. Pending the grant of authority by the
COA, the said PPEs shall remain in the books of accounts.

Section 8 of COA Circular No. 2020-006 (Procedures in the Derecognition of

Non-Existing/Missing PPEs Without Available Record of Accountability), states
that:

8.1.1 Non-existing/missing PPEs without available record of accountability shall be

derecognized from the books of accounts only upon the grant of specific
authority by the COA.

8.1.2 The Head of the Agency shall file the request for authority to derecognize
non-existing/missing PPEs to the COA Audit Team Leader (ATL) and/or
Supervising Auditor (SA), if the following conditions are met:

a. The PPE has already exceeded its estimated useful life, hence, its carrying
value is equivalent to its residual value.

The estimated useful life of PPEs shall refer to the estimation made by the
government agency on its PPEs, if any, as disclosed in its Notes to
Financial Statements for the immediately preceding year, otherwise, to use
the Estimated Useful Life of PPE by classification provided under COA
Circular No. 2003-007 dated December 11, 2003; and

b. Accountability/responsibility over the missing PPE could not be

pinpointed after the conduct of investigation for the purpose.

8.1.3 The request shall be supported with the following documents:

a. List of Non-Existing/Missing PPEs and their carrying values certified by

the Heads of the Property Unit and the Accounting Unit and approved by
the Head of the Agency;
b. Certification by the Head of the Accounting Unit that the non-
existing/missing PPEs had already exceeded their estimated useful lives;
and
c. Certified copy of the report of investigation conducted pursuant to
Paragraph 7.9 of this Circular.
 8.1.4 Upon receipt of the request, the ATL and the SA shall assign a reference
number, verify and validate the submitted documents and decide on the
requests for authority to derecognize non-existing PPEs for amounts not
exceeding P100,000.00 per PPE item within fifteen (15) working days from
receipt thereof.

8.1.5 In case the basis for denial of the request by the ATL and the SA is failure to
comply with the conditions and requirements under Paragraphs 8.1 and 8.2,
the Head of the Agency may refile the request for derecognition before the
ATL and the SA provided that the basis for denial has been satisfactorily
complied. The ATL and the SA shall decide on the request within fifteen (15)
working days from receipt thereof.

8.1.6 The Head of the Agency may appeal from the decision of the ATL and the
SA to the COA Cluster Director (CD)/Regional Director (RD) who has
jurisdiction over the government agency under audit within fifteen (15)
working days from receipt of the decision. The CD/RD shall decide on the
appeal within fifteen (15) working days from receipt thereof. The decision of
the CD/RD on the appealed request is final and non-appealable.

8.1.7 For amounts exceeding P100,000.00 per PPE item, ATL and the SA shall
forward the request and the entire records to the CD/RD, together with their
comments and recommendations, within fifteen (15) working days from
receipt thereof.

8.1.8 The CD/RD shall review the entire records for derecognition by the CD/RD is
failure to comply with the conditions and requirements under Paragraphs 8.1
and 8.2, the Head of the Agency may refile the request for derecognition
before the CD/RD provided that the basis for denial has been satisfactorily
complied. The CD/RD shall decide on the request within fifteen (15) working
days from receipt thereof.

8.1.9 The Head of the Agency may appeal from the decision of the CD/RD to the
Assistant Commissioner (AC) of the Sector within fifteen (15) workings days
from receipt of the decision. The AC shall decide on the appeal within fifteen
(15) working days from receipt thereof. The decision of the AC on the
appealed request is final and non-appealable.

8.1.10 For amounts exceeding P1,000,000.00 per PPE item, the CD/RD shall
forward the request and the entire records together with his/her
recommendation to the AC of the Sector within fifteen (15) working days
from receipt thereof.

8.1.11 The AC of the Sector shall review the entire records of the requests and shall
decide on amounts exceeding P1,000,000.00 per PPE item within fifteen (15)
working days from receipt thereof.

8.1.12 In case the basis for denial of the request for derecognition by the AC of the
Sector is failure to comply with the conditions and requirements under
Paragraphs 8.1 and 8.1, the Head of the Agency may file the request for
derecognition before the AC provided that the basis for denial has been
satisfactorily complied. The AC shall decide on the request within fifteen (15)
working days from receipt thereof.

8.1.13 The Accountant shall:

a. Prepare a Journal Entry Voucher within fifteen (15) working days upon
receipt of the decision granting the authority to derecognize PPEs, for
approval of the Head of the Agency, effect the necessary accounting
entries in the books of accounts, and enter the acquisition cost of the
derecognized PPEs and their carrying values in the Registry of
Derecognized PPEs (RDPPE), using the format in Annex D of the
Circular;
 b. Submit the JEV to the OCA ATL, supported with the certified copies of
the approved request for derecognition including the records/documents
pertaining thereto;
c. Keep as permanent file, the RDPPE as well as the copy of the approved
request for derecognition including the records/documents pertaining
thereto; and
d. Provide appropriate disclosure on the derecognized PPEs in the Notes to
the Financial Statements.

Section 9 of COA Circular No. 2020-006 (Accounting Entries and Disclosure in

the Notes to the Financial Statements), states that:

9.1.1 The Illustrative accounting entries for the recognition of PPEs found at
station, recognition of loss of PPEs, writing-off/dropping from the books of
accounts the remaining balances amounts lumped under the unreconciled SLs
of PPEs, and derecognition of non-existing/missing PPEs are the following:

1. Recognition of PPEs found at station:

Account Title Debit Credit

Technical and Scientific Equipment xx
Accumulated Surplus/Deficit Xx
To recognize technical equipment found at station.

2. Recognition of loss of PPE and setting up accountability of

accountable officer:

Account Title Debit Credit

Loss of Assets xx
Accumulated Depreciation-Office Equipment xx
Accumulated Impairment Losses-Office Equiment xx
Office Equipment Xx
To recognize loss of office equipment.

Account Title Debit Credit

Due from Officers and Employees xx
Other Deferred Credits Xx
To set up accountability of accountable officer for loss of office equipment.

3. Writing-Off/Dropping of remaining balances of unreconciled SL

for PPEs:

Account Title Debit Credit

Accumulated Surplus/Deficit xx
Office Equipment xx
To write-off remaining balance of unreconciled SL for Office Equipment.

4. Derecognition of non-existing/missing PPEs with authority from

COA:

Account Title Debit Credit

Loss of Assets xx
Accumulated Depreciation-Office Equipment xx
Accumulated Impairment Losses-Office Equipment xx
Accumulated Depreciation-Medical Equipment xx
Accumulated Impairment Losses-Medical Equipment xx
Office Equipment xx
Medical Equipment xx
To derecognize office equipment and medical equipment with authority from COA.

9.1.2 Disclosures on PPE in the Notes to the Financial Statements shall include
information on:

a. The total amount of non-existing/missing PPEs included in the PPE

balance, supported with breakdown as to sub-major PPE account group,
together with the following additional information, as applicable:
 i. A request for authority for derecognition has been filed and still
pending with the COA stating the date of filing thereof, or, still to be
filled; and/or
ii. The amount and breakdown of derecognized PPEs which are
transferred to the RDPPE based on the authority of derecognition
granted by COA; and
b. PPEs found at station which are still needing appraisal, supported with
breakdown as to sub-major PPE account group.

Review of Report on the Physical Count of PPE disclosed that several non-
existing properties were still carried in the books of the LGU. The Municipal Accountant
explained that they lack the knowledge on the proper disposal of said properties.

Summary of the non-existing properties is shown Table I, to wit:

Table 1
Particular Quantity Cost
Office Equipment 20 581,632.45
Information and Communication
Technology Equipment 31 948,379.04
Communication Equipment 6 121,335.02
Medical Equipment 4 61,250.00
Sports Equipment 6 80,600.00
Technical and Scientific Equipment 2 74,100.00
Other Machinery and Equipment 2 106,500.00
Watercrafts 3 66,500.00
Furniture and Fixtures 16 177,725.33
Other Property, Plant and Equipment 50 754,157.83
Total 140 2,972,179.67

Also, it was observed that there were 140 items of non-existing PPE that are still
included in the RCPPE.

The benefits and service potential of non-existing PPE valued at P2,972,179.67

are no longer expected to flow to the entity because they are already of no use, thus, these
must be dropped from the books of the agency.

We recommend that the Municipal Mayor require the General Services Officer to
perform the One-Time Cleansing of PPE accounts through the procedures prescribed in
the COA Circular 2020-006.

May we have your comments on the foregoing audit observation within five (5)
calendar days from receipt hereof.