2006 Annual Financial Report of Local Governments

2006 ANNUAL FINANCIAL REPORT
OF LOCAL GOVERNMENTS
(Provinces, Cities and Municipalities)

		Introduction
		Financial Highlights (Executive Summary)

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INTRODUCTION

Pursuant to Section 4, Article 1X-D of the 1987 Philippine Constitution, the Commission on Audit (COA) submits to the President and Congress, within the time fixed by law, an Annual Report covering the financial condition and operations of the Government. With this mandated function, COA, the Government Accountancy and Financial Management Information System (GAFMIS) Sector in particular prepares the Annual Financial Report (AFR) for the three sectors of the government (national, local and corporate).

This year’s AFR for Local Governments was based on the submitted 4,896 or 96.34 percent of the targeted 5,082 pre-closing trial balances (PTBs) and financial statements (FS) for the three funds, namely: General Fund (GF), Special Education Fund (SEF) and Trust Fund (TF) of 79 provinces, 117 cities and 1,501 municipalities. Of the 186 unsubmitted pre-closing trial balances and FS, 53 are for GF, 67 for SEF and 66 for TF. The regions with the most number of unsubmitted reports are from Region VIII – 83 PTBs, Region IX – 48 PTBs and ARMM – 19 PTBs. The list of LGUs which failed to submit and which submitted the required financial reports after the cut-off date of June 15, 2007 is shown on pages 434-438, Volume III-B. Of the submitted financial reports, 210 are electronic New Government Accounting System (e-NGAS) generated reports from 71 LGUs (pages 432-433, Volume III-B). Compared to the 2005 submission rate of 98.27 percent, this year’s receipt is lower by 1.93 percent.

The consolidated 2006 AFR does not include the accounts of almost 42,000 barangays as they are still following the old government accounting system. However, starting fiscal year 2007, pursuant to COA Accounting Circular No. 2006-002 dated December 19, 2006, the barangays will adopt the New Government Accounting System (NGAS) using the Systems and Procedures Manual on the Management of Barangay Funds and Property. With this, the consolidated 2007 AFR for LGUs will include the accounts of all Local Government Units (LGUs).

In line with the Commission's constitutional mandate to promulgate accounting rules and regulations, the Philippine Government Accounting Standards (PGAS) was approved by this Commission under COA Resolution No. 2006-006 dated January 31, 2006 to ensure the promulgation of accounting standards that are attuned to international standards. Accounting Circular No. 2006-001 dated November 9, 2006 was issued prescribing the policies on the recording of certain transactions of LGUs under the cash accounts and the use of appropriate accounts under the NGAS to ensure proper presentation in the FS.

To carry out the provision of the Circular on the conversion of accounts, COA Accounting Circular Letter No. 2007-002 dated January 19, 2007 was issued providing guidelines on the submission of year-end FS and other reports/schedules for inclusion in the AFR for fiscal year 2006 and onwards.

This AFR is presented in two volumes as follows:

		Volume III-A includes the FS in Condensed and Comparative forms, Notes to Financial Statements and Financial Highlights and Analyses of the FS.

		Volume III-B shows the FS in detailed form by Class and Unit; Schedules of Selected Accounts; Reconciliation of Cash Balance shown in the Balance Sheet and Statement of Cash Flows, List of LGUs which Failed to Submit the Year-End Financial Reports and which have Submitted the Reports Beyond the cut-off date and List of e-NGAS Generated Reports.

It is expected that the publication of this AFR will help in the promotion of transparency, good governance and accountability in the Local Governments and will be beneficial to the end-users. This report will be posted in the COA website www.coa.gov.ph and the financial highlights will be published in leading newspapers for the information of the general public and all concerned.

FINANCIAL HIGHLIGHTS

EXECUTIVE SUMMARY

1.0 FINANCIAL CONDITION

As of December 31, 2006, the consolidated financial condition of the Local Government Units (LGUs), excluding Barangays, showed a total assets of 427.53 billion, total liabilities of 117.34 billion which includes deferred credits of 28.78 billion, and equity of 310.19 billion. Chart 1V-1 shows the comparative figures for the years 2006 and 2005.

1.1 Assets – 427.53 billion

The aggregate assets of 427.53 billion consisting of Current Assets – 132.96 billion, Investments – 4.43 billion, Property, Plant and Equipment (PPE) – 286.31 billion and Other Assets – 3.83 billion, increased by 37.55 billion or 9.63 percent from 2005 assets of 389.98 billion. The growth in the total resources was attributed to the increase in the Current Assets – 18.17 billion, PPE – 20.11 billion, and Other Assets – 20.92 million. These increases were partly offset by minimal decline in Investments amounting to 749.78 million or 14.48 percent.

Of the total current assets of 132.96 billion, Cash represents 59.68 percent or 79.34 billion, consisting of cash in bank – 75.05 billion and cash on hands of the Local Treasurers and Accountable Officers – 4.29 billion.

Receivables amounting to 45.35 billion accounted for 34.11 percent of the current assets. Fifty-four percent or 24.66 billion of this represents the combined amount of Real Property Tax Receivables of 14.58 billion and Special Education Tax Receivables of 10.08 billion.

The other components of current assets were Inventories – 6.10 billion, Prepayments – 1.64 billion and Other Current Assets – 521.14 million.

Of the total Investments of 4.43 billion, 87.70 percent or 3.88 billion was the outstanding investments in Government Securities like Treasury Bills – 1.80 billion, Stocks – 556.34 million, Bonds – 279.87 million and Other Investments – 1.25 billion.

Property Plant and Equipment worth 286.31 billion accounted for 66.97 percent of the total assets. Buildings valued at 112.85 billion was the biggest component of PPE accounting for 39.41 percent followed by Land and Land Improvements at 64.87 billion or 22.66 percent. Construction in Progress (CIP) with accumulated value of 44.87 billion constitute 15.67 percent of the total PPE, consisting of CIP-Agency Assets – 22.50 billion and CIP Public Infrastructures/Reforestation Projects – 22.36 billion.

1.2 Liabilities – 88.57 billion

Aggregate liabilities of LGUs rose to 88.57 billion, an increase of 5.71 billion or 6.89 percent compared to last year’s 82.86 billion. Current Liabilities of 51.77 billion constitute the largest share of total liabilities at 58.45 percent while Long-Term Liabilities of 36.8 billion shared 41.55 percent.

Current Liabilities of 51.77 billion increased by 15 percent or 6.75 billion compared to the previous year’s balance of 45.02 billion. Accounts Payable of 17.72 billion accounted for 34.24 percent of the total current liabilities.

Long-Term Liabilities at 36.80 billion dropped by 1.04 billion or 2.76 percent from 2005 level of 37.84 billion. This was brought about by the reduction in Loans Payable-Foreign by5.20 billion and Bonds Payable-Domestic by 112.14 million but it was however offset by the increase in Loans Payable-Domestic by 4.13 billion and Mortgage Payable by 162.18 million.

1.3 Deferred Credits – 28.78 billion

Deferred Credits of 28.78 billion composed mostly of Deferred Real Property Tax Income and Deferred Special Education Tax Income amounting to 14.56 billion and 10.12 billion, respectively.

1.4 Equity – 310.19 billion

Equity of LGUs rose to 310.19 billion as of December 31, 2006, up by 24.77 billion or 8.68 percent over last year’s 285.41 billion. The increase was brought about by the following factors:

The difference in figures presented above is due to rounding off.

Cities got the biggest share in equity at 50.47 percent or 156.56 billion while the Municipalities and Provinces reported 25.14 percent or 77.97 billion and 24.39 percent or 75.66 billion, respectively.

2.0 RESULTS OF OPERATION

For the period ended December 31, 2006, total income earned by LGUs reached 218.30 billion and expenses amounted to 177.53 billion resulting to a net income of 40.77 billion.

2.1 Income – 218.30 billion

Local Government Unit’s income for the year of 218.30 billion consists of Operating Income – 213.18, Subsidy Income – 5.07 billion and Extraordinary income – Gain on Sale of Disposed Assets (gross) – 51.47 million. It showed an increase of 22.67 billion or 11.59 percent compared to 2005 level of 195.63 billion. The Cities generated the highest income totaling 90.56 billion or 41.49 percent, followed by the Municipalities with 77.65 billion or 35.57 percent and the Provinces with the least share at 50.09 billion or 22.94 percent.

Chart 1V-2 shows the breakdown of income and expenses, by unit, for the last two years.

Operating Income of 213.18 billion comprises Tax Revenue – 52.88 billion and General Income Account – 160.30 billion. Both showed increases in the amount of 3.15 billion or 6.34 percent and 18.76 billion or 13.25 percent, respectively. Share in the Internal Revenue Allotment of 137.67 billion rose by 16.28 billion or 13.41 percent.

2.2 Expenses – 177.53 billion

Total expenses of LGUs of 177.53 billion registered an increment of 18.47 billion or 11.62 percent from last year’s 159.05 billion. The expenses were classified as follows: Current Operating Expenses – 158.53 billion, Financial Expenses – 3.63 billion, Subsidy Expenses 15.26 billion and Extraordinary losses – 115.96 million.

Total expenses was shared by LGUs as follows: Provinces – 41.38 billion or 23.31 percent, Cities – 69.27 billion or 39.02 percent and Municipalities – 66.88 billion or 37.67 percent.

2.3 Net Income – 40.77 billion

LGUs realized an aggregate net income for the year of 40.77 billion or a growth of 4.19 billion or 11.46 percent from last year’s net income of 36.58 billion. Component-wise, cities earned the highest net income of 21.30 billion or 52.23 percent, followed by the municipalities with 10.77 billion or 26.42 percent and the provinces with 8.71 billion or 21.35 percent.

By Fund, the net income was reported as follows: General Fund – 37.03 billion, Special Education Fund – 3.69 billion and Trust Fund – 53.86 million.

3.0 CASH FLOWS

The Consolidated Statement of Cash Flows of the LGUs showed an aggregate inflows and outflows of 251.56 billion and 242.01 billion, respectively, resulting to a net increase in cash of 9.55 billion. Chart 1V-3 presents the levels of net cash flows for the three activities.

3.1 Cash Inflows – 251.56 billion

Cash Inflows of 251.56 billion came from Operating Activities - 242.06 billion, Investing Activities – 1.25 billion and Financing Activities – 8.24 billion. The Operating Activities shared 96.22 percent of the total inflows. It showed an increase of 21.87 billion or 9.93 percent from 2005 level of 220.18 billion. Fifty percent or 121.77 billion of the total inflows from operating activities came from the Share from Internal Revenue Allotment.

3.2 Cash Outflows – 242.01 billion

Cash Outflows of 242.01 billion consists of the following: Operating Activities – 201.83 billion corresponding to 83.40 percent, Investing Activities – 33.71 billion equivalent to 13.93 percent and Financing Activities – 6.46 billion or 2.67 percent. The three highest components of cash outflows under the operating activities were: payment to suppliers of goods and services – 72.48 billion, payment to employees – 70.55 billion and other disbursements – 56.47 billion.

3.3 Net Cash Flows – 9.55 billion

LGUs consolidated cash flows reflected a net increase in cash of 9.55 billion. This year’s net cash flows showed a reduction of 918.49 million or 8.77 percent compared to 10.47 billion in 2005. The reduction was due to the increase in the use of cash under the Investing Activities to 32.45 billion, higher by 7.57 billion or 30.42 percent from the 24.88 billion in the previous year. LGUs used cash amounting to 32.84 billion for the purchase of PPE representing 97.41 percent of the total cash outflows under the Investing Activities.

The Operating Activities and Financing Activities, on the other hand demonstrated a net increase in cash amounting to 40.22 billion and 1.78 billion, respectively.

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