FINANCIAL OPERATION OF THE LOCAL GOVERNMENT OF

MAPANDAN IN PANGASINAN

Authors:

Elgie S. Nato, Reagan C. Roquiza, Jessierey Rasper Vinluan, Ardien M.

Sanchez, Gerald D. Josue and Christian Jay N. Diaz
University of Luzon, Perez Boulevard Dagupan City 2400 Philippines

ABSTRACT

Public sector entities report on their financial

accountability to the public and their elected representatives
through the provision of information in their financial
reports. Financial reports of public sector entities should
present information that is useful in evaluating an entitys
financial performance during the accounting period and its
financial conditions at the end of the accounting period. The
financial statements are a fundamental component of the
financial reporting of a public sector entity. Its purpose is to
convey an understanding of some financial aspects of a
business firm or any organization. With this, most of the
local government units in the Philippines are compelling to
be the subject of the study and the researchers chose
Municipality of Mapandan, Pangasinan to be the contingent
study. The reason behind choosing the municipality is due to
their terms of income classification and other aspects of
government operations. The introduction of technology, the
researcher would like to know the uniformity of the
preparation of financial statements and determine if the
LGUs and personnel of the Municipality of Mapandan,
Pangasinan applies the technology in preparing financial
reports. The present study aimed of determining the status
of the financial operation of the Local Government Units

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 (LGUs) of Mapandan, Pangasinan specifically in determining
the financial operation status and problems they commonly
encountered. The researchers used documentary analysis
and gathered all information needed from the Local
Government of Mapandan accounting department. Through
the analysis of the financial statements, the researchers are
expected to lay conclusions and address recommendations
as considered in this research study. Researchers analyze
the general status of the Municipality of Mapandan,
Pangasinan of the results of the financial operation in
conformity to their financial statements for the calendar year
2013 to 2015 in terms of horizontal and vertical analysis.
Results also showed clear that the personal service exceeds
the annual budget and maintenance and other operating
expenses and a non-cash expenses is lower than the annual
budget; also, the local government of Mapandan is focusing
on establishing infrastructure and projects and purchasing
properties. Most of the resources of the municipality go to
the fund for creating and completion of those projects.
Problems encountered by the local government of the
municipality of Mapandan, Pangasinan includes ineffective
information dissemination that affects the revenue
generation measures of the municipality, liquidity of the local
government decreases over time and insufficient monitoring
on the collection of accounts receivables.

KEYWORDS: Financial Operations, Financial Report, Local Government,

Mapandan, Pangasinan

INTRODUCTION

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 Financial reporting by a public sector enables the community for

information for accountability of the funds of the government allocated

to every cities and municipalities. Such information aids in

understanding and assessing the performance and financial health of

the public sector entity. Public sector entitles exist to serve the public.

This mandate is the filter through which key characteristics of public

sector entities are differentiated from less relevant attributes. Public

sector entities report on their financial accountability to the public and

their elected representatives through the provision of information in

their financial reports.

Financial reports of public sector entitles shall present

information that is useful in evaluating an entitys financial

performance during the accounting period and its financial condition at

the end of the accounting period. The financial statements are a

fundamental component of the financial reporting of a public sector

entity. Broadly, public sector entitled are expected to be accountable for

the extent to which the entity performed in accordance with its financial

plan, the extent to which current activities and results have an effect on

the activities of future periods, and the state of the financial condition

of the entity. More specifically, in the financial statements, public

sector entities are expected to demonstrate accountability for eight

aspects of financial performance as well as eight other financial

performance as well as eight other financial aspects primarily related to

financial position.

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 Financial analysis involves the use of financial statements. A

financial statement is an organized collection of data according to

logical and consistent accounting procedures. Its purpose is to convey

an understanding of some financial aspects of a business firm. It may

show a position at a moment of time as in the case of Balance Sheet, or

may reveal a series of activities over a given period of time, as in the

case of Income Statement. Thus, the term financial statements

generally refer to two basic statements which is the balance sheet and

the income statement. However, financial statements do not reveal all

the information related to the financial operations of a firm but they

furnish some extremely useful information which highlights two

important factors profitability and financial soundness.

Posited by Saunders (1976) that financial operation is the degree

to which financial objectives being or has been accomplished, it is the

process off measuring the results of a firms overall financial health over

a given period of time and can also be used to compare similar firms

across the same industry or to compare industries or sectors in

aggregation.

Moreover, financial operation uses past performances, income

and expenses to forecast what to expect in the following years. It then

incorporate past and recent trends into the planning so as to most

accurately forecast what is to come. The portion of the income

statement that deals with operating items is interesting to investors and

analysts alike because this discloses information about revenues and

expenses that are direct results of the financial operations. Financial

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position are usually analyze using vertical and horizontal analysis,

vertical analysis is called common size financial tool analysis that

managers use to compare a companys financial performance using a

base amount. Vertical analysis is usually used for a specific financial

statement item like cash or group of items like current assets. A vertical

analysis in which each financial statement item is expressed as a

percentage.

As shown in the study of Garcia K. et.al (2012), the support being

given by the national government for the LGUs in the Philippines for

they claimed that internally sourced revenues are insufficient to

perform their functions. They have been given broad taxing and revenue

powers through decentralization however it seems that the municipality

limits their revenue sources or ignore their broad powers for some

reasons. Even though the municipality has first class income, it

couldnt just be generalized that the revenue generation effort of the

specific LGU has paved the way for them to be called so because their

total revenue is still dominated by their share from external sources

also problems are inherent to every undertaking in spite of having a

status of first class.

Viado et al. (2012) concluded that the revenue generation

measures of Municipality of Mangaldan depend on the support given by

the National Government as they had inadequate to perform their

functions. Broad taxing and revenue powers bestowed upon them but

the municipality appears to limit their revenue sources or maybe for

some reasons ignores their broaden powers. Even though the

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municipality has first class income, it could not just be generalized that

the revenue generation effort of the LGU has paved the way for them to

be called so because their total revenue is still dominated by their share

from external sources also problems are inherent to every undertaking

in spite of having a status of first class.

The use of horizontal and vertical analysis in analyzing and

assessing the financial statements specifically the income and expense

and financial position of the local government of Mapandan,

Pangasinan were used by the researchers to give deeper understanding

of the said financial statements.

Objectives

The objective of this study was based from the Local Government

Code 1991 of the Philippines, the LGUs shall enjoy genuine and

meaningful local autonomy and which the President shall exercise

general supervision over all government. The State shall provide for a

more responsive and accountable local government units shall be given

more powers, authority, responsibilities and resources. The State

require all national agencies appropriate local and non-government and

peoples organization and other concern sectors of the community

before any program is implemented in their respective jurisdictions.

Under this Code, section 440 depicts the role of the municipality in the

purpose of coordinating and delivers basic, regular and direct services

and effective governance of the inhabitants within its territorial

jurisdiction. The function of local government is very broad, Section 3A

of the Act states that there shall be an effective allocation among the

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different local government units of their respective powers, functions,

responsibilities, and resources. In practice, this means that individual

councils can determine what they need to do to ensure the peace order

and good governance of their municipalities. Essentially, each council

makes it own decisions based on its collective beliefs, the advice it

received, various financial consideration, legislative powers and so on.

As set forth in the 1987 Philippine Constitution and in the Local

Government Code of 1991 it is the States policy to ensure that the

territorial and political subdivisions to enable them to attain their

fullest development as self-reliant communities and make them more

effective partners in the attainment of national goals.

Local government set the overall direction for their municipalities

through long term planning, that is, it includes council plans, financial

plans, municipal strategic statements and other strategic plans. Setting

the vision, and then ensuring that it is achieved, is one of the most

important roles of local government. Local government is responsible for

managing and delivering a range of quality services to

their communities, such as public health and recreational facilities,

local road maintenance, and public libraries. Local

governments legislate and make decisions in areas over which they have

legislative authority. Local laws are not allowed to replicate or be

inconsistent with state and federal laws or the operative planning

scheme. The laws made by local governments are called local laws and

cover issues such as the activities permitted on public land, animal

management, and use of infrastructure. Local governments are also

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responsible for enforcing local laws and other legislation over which they

have authority. The activities of local governments are guided by

policies. Developing and implementing these policies are key functions.

Councils often represent their local community on matters of concern to

those constituents. Local governments have a role in advocating on

behalf of their constituencies to state and federal levels of government,

statutory authorities and other sectors.

This study, however, seeks to fill the gaps in, and updates on the

financial operation of the Local Government Unit of Mapandan,

Pangasinan. Financial operations outlining the revenue and expenses

over a period of time and uses past performances of financial position to

forecast what to expect in the following years. The researcher aimed to

determine the status of the financial operation of the LGUs of

Mapandan, Pangasinan, specifically to identify issues and concerns that

served as basis for the improvement of the fiscal status of the LGU as to

identifying the financial operation of the Local Government Unit in

Mapandan, Pangasinan in terms of income and expenses and the

financial position, another is the problems encountered by the LGUs of

Mapandan, Pangasinan in terms of financial operation.

Significance of the Study

This research study is about the financial operation of the LGUs

of Mapandan, Pangasinan to understand the relationship of statement

of profit or loss and other comprehensive income and statement of

financial position more specifically to the Municipality of Mapandan

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which will also served as basis by the employees dealing with their

employer and attend able in their works toward other people. Their

study also plays a significant role to the accountancy students for giving

additional information about the financial operations of a local

government and help them understand government and to add their

knowledge about the said government entity despite of how to serve

other people. The most important is they will learn how to bean

instrument of service.

MATERIALS AND METHODS

This study utilized the descriptive method of research as it

involves adequate and accurate interpretation of findings. Relatively, the

method is appropriate to this study since it aims to describe the past

three (3) years of financial operation of the local government unit. The

interview is appropriate in this study because it enables the researcher

in formulation of generalizations. Comparative method defines the

differences in profit earned during different period of time. The

statement lines up financial data with corresponding information from

a prior time period which allows the users to compare and analyze the

information efficiently. The method which involves document sources

from the subject municipality is referred to documentary analysis. This

method is worry-free in gathering information for it is convenient to use.

Thus, the information to be gathered for the study has a benefit on the

part of the researchers convenience. The descriptive research method

used by the researchers were reviewed and analyzed for briefing the

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study. The Local Government of Mapandan accounting department

provided most of the data used and presented in obtaining the study.

RESULTS

The researchers were given the official documents as part of the

study through the help of the accountant officers. Key informant

interviews with the chief accountant and other employees under the

accounting department of the Local Government of Mapandan,

Pangasinan were also observed.

Horizontal Analysis of Income and Expenses

The horizontal analysis is performed by the researchers based

from the gathered data from the LGU Mapandan, Pangasinan

accounting department.

Table 1
Municipal of Mapandan
Comparative Income and Expenses
Horizontal Analysis
For the year ended December 31, 2013, 2014 & 2015

2013-2014 2014-2015
Tax Revenue 181,582.14 4.15% 474,835.53 10.43%
Total Operating 6,582,367.7 10.15% 9,620,255.9 13.47%

Income 7 4
Total Personal (458,463.62) (1.38%) 1,300,449.2 3.98%

Services 8
Total Maintenance 2,586,487.4 14.44% (345,858.00) (2.07%)

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 and other Operating 6
Expenses
Total Non-Cash 112,931.41 3.63% 24,229.05 43.73%
Expenses
Total Operating 2,240,955.2 4.14% 5,414,277.4 9.60%
Expense 5 4
Income from 4,341,392.2 40.56% 4,205,998.5 27.96%
Operation 5 0

Vertical Analysis of Income and Expenses

The table represents the vertical analysis of Statement of Income

and Expenses for the year ended 2013 to 2014 and 2014 to 2015. This

shows the percent based on total operating income to know what

expenses have a significant effect in the next income.

Table 2
Municipal of Mapandan
Comparative Income and Expenses
Vertical Analysis
For the year ended December 31, 2013, 2014 & 2015

2013 2014 2015

Tax Revenue 4,372,789.38 6.74% 4,554,371.52 6.38% 5,029,207.05 6.20%

Total Operating 64,849,667.8 100% 71,432,035.66 100% 81,052,291.60 100%

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Income
Total Personal 33,119,810.0 51.07 32,661,346.40 45.72% 33,961,795.68 41.90%

2 %
Services
Total 17,914,329.7 27.62 20,500,817.21 28.70% 24,590,416.07 30.34%

Maintenance 5 %

and other

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Operating
Expenses
Total Non-Cash 3,111,788.29 4.80% 3,224,719.70 4.51% 3,248,948.75 4.01%

Expenses
Total Operating 54,145,928.0 32.42 56,386,883.31 78.94% 61,801,160.50 76.25%

Expense 6 %

Income from 10,703,739.8 16.51 15,045,152.35 21.06% 19,251,131.10 23.75%

Operation 3 %

Horizontal Analysis of Financial Position

The table represents the horizontal analysis of Statement of

Financial Position for the year ended 2013 to 2015.

Table 3
Municipal of Mapandan
Comparative Financial Position
Horizontal Analysis
For the year ended December 31, 2013, 2014 & 2015

INC/(DEC) INC/(DEC)

2013-2014 2014-2015
Total Current 14,781,179.06 101.63 10,930,834.23 37.28%

Asset %
Total Non- (800,458.64) (0.93%) 4,565,033.13 5.33%

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 Current Asset
Total Asset 13,980,720.4 13.83% 15,495,865.3 13.47%

2 6
Total Current 9,925,266.90 128.58 6,580,076.46 37.29%

Liabilities %
Total Non- (4,311,274.04) (21.42% (1,073,160.23) (6.79%)

Current )

Liabilities
Total Liabilities 5,613,992.86 20.16% 5,506,916.23 16.46%
Equity 8,366,727.56 11.43% 9,988,951.13 12.24%
Total Liabilities 13,980,720.4 13.83% 15,495,865.3 13.47%
and Equity
2 6

Vertical Analysis of Financial Position

The table represents the vertical analysis of Financial Position for

the year ended 2013 to 2014 and 2014 to 2015. This shows the percent

based on total operating income to know what expenses have a

significant effect in the next income.

Table 4
Municipal of Mapandan
Comparative Income and Expenses
Vertical Analysis
For the year ended December 31, 2013, 2014 & 2015

2013 2014 2015

Total Current 14,543,656.18 14.39 29,324,835.24 25.49% 40,218,594.56 30.84%

%
Asset
Total Non- 86,512784.54 85.61 85,712,325.90 74.51% 90,314,431.94 69.16%

%
Current

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 Asset
Total Asset 101,056,440.7 100% 115,037,161.1 100% 130,533,026.50 100%

2 4
Total Current 7,719,186.07 7.64% 17,644,452.97 15.34% 28,139,575.99 18.56%

Liabilities
Total Non- 20,124,019.56 19.91 15,812,745.52 13.74% 10,824,538.27 11.29%

%
Current

Liabilities
Total 27,843,205.63 27.55 33,457,198.49 29.08% 38,964,114.26 29.85%

%
Liabilities
Equity 73,213,235.09 72.45 81,579,962.65 70.92% 91,568,913.78 70.15%

%
Total 101,056,440.7 100% 115,037,161.1 100% 130,533,026.50 100%

Liabilities and 2 4

Equity

Problems Encountered by the Local Government of Mapandan

Concerning the Financial Statement

Based from the interview conducted by the researchers, they

found out that majority of the problems encountered by the

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municipality concerning the financial statements includes ineffective

information dissemination, increasing amount of non-cash expenses

and insufficient monitoring on the collection of taxes. In line with

problems encountered by the municipality concerning the financial

position includes liquidity of the local government fund decreases over

time and insufficient monitoring on the collection of accounts

receivable. The researchers encountered are not be proactive in the

invoicing and collection efforts does not moving fact on past-due

receivables and they did not consider offering some past-due clients a

payment plan.

DISCUSSION

The financial operation shows the results of the operation of a

government agency at the end of a particular period. The accounting

unit from information taken directly from the year-end preliminary trial

balances and some information from the closing journal vouchers

prepares the said statement. It includes analysis and interpretation of

financial statement in such a way that it undertakes full diagnosis of

the financial soundness of the government agency. The analysis of

financial statements is a process of evaluating and relationship between

component parts of financial statements to obtain a better

understanding of the agencys income and expense and financial

position.

In line with income and expenses, it shows that the operation of

the Local Government for given period of time. The total operating

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income during 2013 increased in 2014 and also increases in 2015 due

to the internal revenue allotment given by national government. The

local government of Mapandan, Pangasinan has increased the collection

of taxes which is one of the major contributors of income. The annual

budget in 2013 to 2014 achieve in the actual operation while in 2015

the annual budget did not achieve in the actual operation. In 2013-

2014 the personal service did not exceeds the annual budget and the

maintenance and other operating expenses and a non-cash expense is

greater than the annual budget and the maintenance and other

operating expenses and a non-cash expense is lower than the annual

budget. The increased denotes to the allowances received by the

municipality from the National Government to cover the proposed

project for the enhancement of the municipality. On the other hand,

part of the decreased was the salaries and wages because of the

contractual and decreasing number of their employees because of the

New Government System. Part of the increased are due to the other

compensation because of the year-end bonus, hazard pay and the like.

Another component of the increase in the expenses are the travel

expenses due to seminars of the employee, maintenance and operating

expenses. Income increases due to maintained collection of taxes every

year. Information about the operation of a Local Government in

particular its profitability, is required in order to assess potential

changes in the economic resources that is likely to control in the future.

It is also useful in predicting the capacity of the local government to

generate cash flows from its existing resource base.

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 In line with financial position, the researcher found out that the

local government is focusing on establishing infrastructure and projects

and purchasing properties. Most of the resources of the municipality go

to the fund for creation and completion of those projects. Furthermore,

the increased of total assets is primarily due to the establishment of the

infrastructure and the corresponding increase in total liabilities is

primarily due to loans made by the municipality to fund the projects.

In line with the problems that have been encountered by the

municipality as to income and expenses are ineffective information

dissemination that affects the revenue generation measures of the

municipality next is there is increasing amount of non-cash expense

that decreasing governments equity by using up assets, lastly,

insufficient monitoring on the collection of taxes not properly monitored

since most people are having difficulties would really affect the income

and expenses of a local government unit. The problems that have been

encountered by the entity of financial positions are liquidity of the local

government decreases over time that the local government may be

having difficulty raising the cash needed to meet its current

expenditures and insufficient monitoring on the collection of accounts

receivable does not moving fact on past due receivables they did not

consider offering some past due clients a payment plan. There are

problems encountered by the local government, some of these are the

lack of facilities. This problem according to Tugade et al. (2014) is usual

to most government agency. It is about time that the government allot

budget to the improvement and renewal of all facilities used by all

government agencies for the development and upgrading of the services

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they are rendering. Another is the sense of responsibilities of the

officials and delay of services offered by most government officials, it is

usual in the Philippine government set-up what you need is given later.

This can be address by themselves but always coming in the office on

time, putting things first and putting public service over political career.

The sense of responsibility is just like dignity. It is not for sale, it is a

privilege given by the people to their leader. These problems are creating

massive headaches for government at every level. The aging population

is expected to create record levels of demand for services while

contributing less by way of tax revenues. And with a large portion of

their workforce retiring soon, state and local governments need to

ensure that a year of knowledge does not walk out the door with those

employees. One top of that, some regions face strained pension systems,

infrastructures in need of repair and longer-term imbalances between

revenues and expenditures. Service and operational improvement are

effective ways to address these problems. They can result in new levels

of efficiency that eliminate unnecessary costs and improve processes

and service delivery, giving the government some much-needed

breathing room to plan for upcoming challenges. At the same time, this

approach typically includes new technologies and processes for better

managing data and information, helping the government retain

important information while making it more widely accessible for

decision making within an organization.

The researchers proposed some measures of action to improve the

income and expenses of the entity. The employees should post

information about collection of general income. The local government

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officials/employees must monitor the increasing of their non-cash

expenses. And all accounts must be monitored and accurately

classified to their proper category to avoid misclassification of accounts.

The researchers proposed some measures of action to improve the

financial position of the entity. The LGU of Mapandan, Pangasinan,

having the ability to pay the bills as they come due and be proactive by

in the invoicing and collection efforts.

CONCLUSION

The approach in achieving goals was more on leveraging the

limited funds and lean manpower, and strive to foster better

collaboration and coordination with partner agencies and stakeholders.

Most of the plans and programs for the year were aimed at attaining

good governance, transparency and accountability by taking the

necessary steps towards simplified and better delivery of services, and

efficient monitoring of operations and performance across regions.

Results of the assessment indicated that financial operation of

the entity under investigation has generally complied with the

guidelines set in the pertaining to income and expenses in the judicious

administration of local finances as evidence by positive increase in

income generated in both internal and external sources. Further,

expenses incurred work consistent with the established criteria, overall

expenses did not exceed income hence, indicative of proper financial

operation. However, inspite of the favorable assessment of the local

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fiscal operation, some finance related problems are noted. Therefore, a

set of a proposed plan of action are highly recommended.

ACKNOWLEDGEMENT

Authors wishes to thank the local government of Mapandan,

Pangasinan as they promptly approved the request to provide the

financial statements to be used in conduct the study specially to the

municipal accountant Mrs. Teresita G. Soriano and Mayor Gerald Glenn

L. Tambaoan for allowing the authors gather important information

used in the entire study.

REFERENCES

Marinas, et.al. (2015). Financial Operation of Local Government of

Calasiao Pangasinan. Unpublished Thesis. University of Luzon,
Dagupan City

Tugade, et.al. (2014). Financial Operation of MKL Gasoline Station in

Bugallon, Pangasinan. Unpublished Thesis. University of Luzon,
Dagupan City

Viado et.al. (2012) Revenue Generation Measure Initiated by the

Municipal of Mangaldan. Unpublished Thesis. University of
Luzon, Dagupan City

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