[Featured Circular] COA’s Circular on “One-Time Cleansing” of PPE accounts

Featured Circular

The Commission on Audit (COA) issued COA Circular No. 2020-06 in CY 2020 to prescribe the guidelines on the following for the one-time cleansing of PPE account balances of government agencies:

☑️ conduct of physical count of property, plant and equipment;

☑️ recognition of PPE items found at station; and

☑️ disposition procedures for non-existing or missing PPE items.

Why did COA issue this Circular?

• According to COA, the PPE accounts constitute a significant portion of the assets of the government, usually 50%.
• There exist an enormous amount of discrepancies in PPE account balances which result to inaccurate presentation of said accounts in the financial statements (FS) of government agencies.
• If said discrepancies are not addressed properly, it would could cause exception in the fairness of presentation of the financial position of the agency.
• If the account balances are not fairly presented in the FS, it would deprive the government of reliable and useful information in making decisions and establishing accountability for these assets.
• Thus, there is a need to provide guidelines and procedures that are useful in coming up with reliable PPE balances that are verifiable as to existence, condition and accountability.

Applicability

This Circular is applicable to the following

• National Government Agencies (NGAs), including State Universities and Colleges (SUCs)
• Local Government Units (LGUs) and
• Government-Owned or Controlled Corporations (GOCCs).

COA-prescribed general procedures in the conduct of one-time cleansing of PPE account balances

1. The Head of Agency shall create an Inventory Committee (with an adequate number of members; at least one (1) member from the Accounting and Property Division/Unit) who will conduct the physical count of all PPEs of the agency in three (3) months or less.

2. The members of the Inventory Committee shall be temporarily relieved from their regular duties to devote their full time in the conduct of the physical inventory taking until the same is completed.

3. COA shall witness the entire inventory taking in which case the Audit Team Leader and/or his/her team members may be assigned for the purpose. If applicable, the Internal Audit Service/Unit of the agency may also be required to witness the count.

4. The Inventory Committee shall be responsible for the actual count to ascertain the existence, completeness, and condition of all PPEs owned by the agency.

5. The agency shall prepare a Physical Inventory Plan (PIP) which shall be submitted to the Commission on Audit Inventory Team at least 10 calendar days before the inventory taking. The PIP shall contain at least the following:

• The specific assignments/duties of the Inventory Committe members;
• The cut-off date of the inventory;
• Location of the inventory; and
• The start and end of the inventory count.

6. Property records shall be updated based on the results of the physical inventory and reconciled with Accounting records. The reconciled balances shall be considered as the correct balance of agency’s PPE.

COA-prescribed Uniform Property Identification (Numbering) of PPEs

Government agencies concerned shall follow the following uniform property identification system:

The codes for the “PPE sub-major account group” and “General Ledger account” correspond to those provided in the Revised Chart of Accounts prescribed under the Government Accounting Manual of the respective sectors (National, Local, Corporate

Important things to do BEFORE the inventory taking

1. The Property Division/Unit and the Accounting Division/Unit have to compare/reconcile their respective records (i.e., Report of Physical Count of PPE (RCPPE) vs. PPE Ledger Cards (PPELCs)) before they conduct the physical inventory.

2. In comparing/reconciling said records, they need to take note of the following:

• PPE items that are recorded in the PPELCs but not included in the RCPPE; and
• PPE items that are included in the RCPPE but not recorded in the PPELCs.

3. The agency shall prepare a list of the above items and the same shall be submitted together with the RCPPE/Physical Invetory Report to the Inventory Committee which they will use as working paper and the basis in preparing the required Physical Inventory Plan.

Important Things to do DURING the Inventory Count

1. Strictly follow the PIP. Should there be any deviation therefrom, the same should be properly and completely documented.

2. Take into consideration the appropriate capitalization threshhold in conducting the inventory.

3. Use the Inventory Count Form (ICF) prescribed in the Circular (Annex A). The same shall be used in the preparation of the RCPPE after the physical inventory.

4. Do not mix up. Use separate ICF for each PPE sub-major account group and further classified into specific classification of said sub-major account group. For instance, machinery and equipment shall be further classified into machinery, office equipment, ICT equipment, etc. The agency shall be guided by their respective Chart of Accounts on this.

5. Consequently, all PPE items counted shall be tagged with a new property sticker containing at least the following:

• Property Number
• Description of the property
• Model Number
• Serial Number
• Acquisition Date/Cost
• Person Accountable
• Space for the validation/signature of the Inventory Committee

6. State in the ICF the present condition of the PPE such as: in good condition, needing repair, unserviceable, obsolete, no longer needed, not used since purchase, etc. These shall be indicated in the “Condition” column of the ICF.

7. In case during the physical count there are PPE items that were established to be the property of the agency, but not included in the inventory report, the same shall be included in the ICF and to be marked in the “Remarks” column as “found at station”.

8. On the other hand, PPE items that are recorded in inventory report but are not found during the physical count shall be considered as “non-existing/missing”. The same shall also be noted in the ICF.

9. After the physical count, the Inventory Committee shall prepare four (4) copies of RCPPE using the information gathered during the physical count. They shall use the RCPPE format precribed in the accounting manual for their sector (i.e., NGA, LGU, GOCC). The RCPPE shall be distributed as follows:

• Original Copy – COA Auditor
• Copy 2 – Accounting Division/Unit
• Copy 3 – Property Division/Unit
• Copy 4 – Inventory Committee

Basis for the unit value of items “found at station”

Generally, the unit value of the PPEs counted shall be taken from available records from the Property and Accounting Division/Unit such as the RCPPE, PPELCs and other reliable documents. However, if these are not available, especially for items classified as “found at station”, the unit value shall be established as follows:

1. Based on market/fair value.

2. Based on the unit value of similar item.

3. Or, if the above are not available, the unit value shall be based on appraised value.

Responsibilities of the Property and Accounting Division/Unit in the reconciliation of PPE records

1. The Property and Accounting Division/Unit shall collaborate with each other and conduct reconciliation of PPE records after the inventory count. The reconciliation shall be done 10 days after the rendition of the RCPPE by the Inventory Committee.

2. The Propety Division/Unit shall do the following, among others:

• Update all Property Cards (PCs) taking into consideration unrecorded acquisition or receipts, issuances/transfer of PPEs, and disposal if any.
• Make a list of items classified as “found at station” using Annex B of the Circular and provide the same to the Accounting Unit. Accordingly, PCs for these items shall likewise be prepared.
• Make a list of “non-existing or missing” PPEs using Annex C of the Circular.
• Those PPEs with property cards and Property Acknowledgement Receipts (PARs) but not included in the RCPPE shall likewise be included in Annex C.
• Renew all PARs accordingly.
• Prepare an Inventory and Inspection Report of Unserviceable Property (IIRUP) for PPEs which were found unserviceable, obsolete, and/or no longer needed.

3. On the other hand, the Accounting Division/Unit shall do the following, among others:

• Make the necessary accounting entries for the PPEs “found at station and prepare and maintain PPELCs for the same. The list provided by the Property Division/Unit (Annex B of the Circular) shall be the basis on this;
• Make the necessary accounting entries for the “non-existing or missing” PPEs (i.e., recognize loss and receivables);
• Take up the necessary accounting entries to write-off/drop from the books of accounts the remaining balances of amounts lumped under the “Unreconciled SL”, “Reconciling SL” for PPEs, and the like, if any;
• Ensure that the property ledger cards/subsidiary ledgers tally with the General Ledger of the PPE;
• Coordinate with the Property Unit and ensure that the accounting and property records are reconciled.

4. After completing the reconciliation, the reconciled balances of the PPE accounts shall be considered as the correct balance of the PPEs of the agency.

The Circular also provides the procedures for the following

• Disposition procedures for non-existing/missing PPEs;
• Procedures in the derecognition of non-existing/missing PPEs without available record of accountability; and
• Required accounting entries and disclosure in the Notes to the Financial Statements of the agency concerned.

Other important provisions

• After the conduct of the one-time cleansing activity, the agencies are mandated to strictly ensure proper accounting and reporting of PPEs.
• The Circular is applicable only to the one-time cleansing of PPE account balances; hence, it cannot be used to further derecognize non-existing/missing PPEs and/or cleanse subsequent discrepancies or unreconciled balances in PPE accounts.

Learn more

Learn more about COA’s policy and procedures in the conduct of one-time cleansing of PPE. The Circular for the same can be downloaded or printed through the COA‘s website.