The Commission on Audit (COA) has called out Ungkaya Pukan town in Basilan on the municipality's purchases of P5.9 million worth of supplies and materials that were treated as "outright expenses" without coursing them through the inventory account.
In its 2023 audit report, the COA cited Section 114 of the Manual on the New Government Accounting System (MNGAS), Volume 1, which discussed the perpetual inventory method.
It pointed out: "The perpetual inventory method prescribes that purchases of supplies and materials shall be coursed through the inventory account and issuances thereof shall be recorded as they take place, except those purchased out of the petty cash fund which shall be for immediate use."
It explained: "The accounting method requires a detailed inventory of records for each item, and the municipal accountant is in charge of maintaining the perpetual inventory records such as the Supplies Ledger Cards (SLC) for each commodity. The physical inventory of supplies will then be reconciled quarterly with the SLC, and any discrepancy should be verified and adjusted."
In the case of Ungkaya Pukan town, the COA said state auditors discovered that certain purchased supplies and materials of the municipality were directly charged to its related supplies and materials expense account instead of recording them first as inventory upon receipt.
It said the inventories that were charged outright to expense accounts were Office Supplies Expense (P340,461), Food Supplies Expense (P743,871), Welfare Good Expense (P16,230), and Fuel, Oil, and Lubricants Expense (P4,822,286) or a total of P5,922,848.
Also, it said the audit team noted that the inventory account of Ungkaya Pukan as of Dec. 31, 2023 consisted only of Other Supplies and Materials Inventory amounting to P36,000. The municipality also failed to maintain and prepare SLCs and conduct physical count of inventories, it also said.
When the municipality was confronted, the COA said its auditors were told that the municipal government does not maintain any record of inventories, the common practice is to just purchase supplies and materials as the need arises, and when the supplies are delivered, they are simply issued to the end-users.
"The practice of purchasing supplies and inventories in a piecemeal manner provides no assurance that these were economically procured in accordance with the municipality's needs/requirements," the COA's report stressed.
"Furthermore, the absence, or non-maintenance, of accounting reports and records by the municipal accountant and municipal treasurer at year-end suggests that the receipt and issuances of procured inventories were not adequately controlled and may not be properly recognized in the books," it added.
By treating procured goods as outright expenses without being coursed through the inventory account, the audit team warned the municipality that it is casting doubt on the reliability of its Inventory and Expense accounts.
The audit team also urged the municipality's accountant to prepare and maintain SLC for each inventory account moving forward, while the treasurer and property custodian should maintain and record the receipts and issuances of its supplies and inventories in the corresponding Supplies and Stock Cards.