Observations and Recommendations
OBSERVATIONS AND RECOMMENDATIONS
1. The System’s Net worth of P10.477 billion as of December 31, 2013 may not be sufficient to comply with the provisions of Executive Order No. 590, as amended, de-activating the System and directing the transfer of its assets in trust to a Government Financial Institution. Moreover, the Governance Commission on Government-Owned or Controlled Corporation (GCG), per Memorandum Order No.2013-26 dated May, 2013, classified the System as dissolved/liquidated/ inactive.
1. In 2006 and 2007, then President Gloria Macapagal Arroyo issued Executive Order (EO) Nos. 590 and 590-A ordering the de-activation of the AFPRSBS effective December 31, 2006 and the transfer of its assets in trust to a Government Financial Institution, and for other purposes, with the following conditions:
a. Creation of Cabinet Oversight Committee (COC-RSBS) composed of the Secretary of National Defense (DND), Secretary of Finance (DOF), Secretary of Department of Budget and Management (DBM), Chief of Staff Armed Forces of the Philippines (AFP) and a representative of the Office of the President designated by the President which shall provide policy guidelines for, and oversee the final liquidation of assets and liabilities of the RSBS, the winding down of its operations and the retirement and separation of its personnel, in accordance with existing laws, rules and regulations.
b. Specific Guidelines for deactivation, liquidation and winding down of RSBS –
1. Conduct of a due diligence review of RSBS and its subsidiaries
2. Transfer of Assets to a Government Financial Institution (GFI) preparatory to liquidation and winding down.
3. The proceeds of the sale of the transferred assets together with all the mandatory contributions of military personnel collected by the AFP shall be remitted to a Trust Account to be established by the GFI Trustee for the purpose.
4. The funds in the Trust Account shall be placed under professional trust management of the GFI Trustee to be approved by the COC, subject to such investment guidelines as may be prescribed in the rules and regulations to be jointly issued by the DND, DOF and DBM to implement the EO.
5. Return of Members Contributions shall be paid from RSBS funds in the Trust Account as and when they fall due, and shall be guaranteed by the National Government.
c. The Office of the Corporate Government Counsel is directed to assist the COC or the GFI Trustee on any aspect relating to the deactivation of the RSBS as directed herein.
d. The DND is directed to complete the study and prepare the draft legislation that shall establish and set up a new retirement and pension system that shall have strict guidelines in the organization of its governing Board particularly the investment parameters it is allowed to undertake in the course of the management of the funds.
2. The System’s actuarial reserves, the funds that must be set up to ensure payment of the benefits when these fall due, as evaluated by the Government Service Insurance System in the study made for CY 2012 showed that the estimated funding requirements of the System is P61.63 billion as against the total assets of P15.013 billion for CY 2013, thus, short by P46.616 billion.
3. In May, 2013, GCG issued Memorandum Order No. 2013-26 classifying the System as dissolved/liquidated/inactive after assessment of the System based on EO 590 and 590-A. It further stated that the System was “fundamentally flawed” as per Feliciano Commission Report issued in 2003 due to its inability to discharge its mandate of providing the retirement and separation benefits of the members of the Armed Forces of the Philippines.
4. Moreover, the same memorandum cited the study on the financial status and condition of the System conducted by KPMG Laya Mananghaya & Co, Philippines which disclosed the following:
a. Inappropriateness of the System’s investment portfolio which consisted mainly of non-liquid assets (i.e. real estate, equity investments in and advances to non-traded companies) that take a long time to dispose, are risky and with very long yields;
b. Slow fund build-up and inability to achieve its goal of self-sufficiency caused primarily by the low rate of profitability of a majority of its assets, classified as non-productive and non-yielding;
c. Illiquid position as a large portion of its assets is in non-earning or low-yielding investments; and
d. Inability of the System to implement the Board Resolution, as a result of the Senate Blue Ribbon Investigation in 1998, to divest and liquefy all real estate assets and to focus on fixed-income investments.
5. Notwithstanding the pronouncement of GCG, the System continued to operate and the provisions for the winding down condition set forth under EO 590 and 590-A has not yet been implemented; and no going-concern assessment was made.
6. We recommended that Management immediately comply with the provisions of EO 590 and 590-A to put into action the winding down of the System.
7. Management stressed the need to pursue the winding down of the System in view of the publicly known standing of the System, the reports made on its financial status and the GCG’s evaluation of its status and to give way to the creation of a new System that will truly help the members of the armed forces of the country.
2. The System’s Financial Statements are not consolidated with the financial statements of its subsidiaries and controlled entities where it has invested a total of P2.546 billion. Hence, the said financial statements do not present reliable and accurate financial conditions and the results of its operations as of and for the year ended December 31, 2013, contrary to pertinent provisions of Philippine Accounting Standard (PAS) 27.
1. Pertinent provisions of PAS 27 on consolidation of the financial statements of parents and subsidiaries provide as follows:
Paragraph 9 - requires a parent corporation to consolidate its investment in subsidiaries.
Paragraphs 12 and 22 - require that in preparing consolidated financial statements, an entity combines the financial statements of the parent and its subsidiaries line by line by adding together like items of assets, liabilities, equity, income and expenses and that consolidated financial statements shall include all subsidiaries of the parent.
Paragraphs 28 and 26 - the parent shall use uniform accounting policies for like transactions and other events in similar circumstances as of the same reporting date.
Paragraph 10 - a parent need not present consolidated financial statements if and only if:
a. The parent is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidated financial statements;
b. The parent’s debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets);
c. The parent did not file, nor is it in the process of filing its financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market; and
d. The ultimate or any intermediate parent of the parent produces consolidated financial statements available for public use that comply with Philippine Financial Reporting Standards.
Paragraph 41 –disclosure requirements if the conditions for the presentation of separate financial statements of a parent entity are not met:
a. the fact that the financial statements are separate financial statements; that the exemption from consolidation has been used; the name and country of incorporation or residence of the entity whose consolidated financial statements that comply with the Philippine Financial Reporting Standards have been produced for public use; and the address where those consolidated financial statements are obtainable;
b. a list of significant investments in subsidiaries, jointly controlled entities and associates, including the name, country of incorporation or residence, proportion of ownership interest and, if different, proportion of voting power held; and
c. a description of the method used to account for the investments listed under (b).
PAS 8 on the disclosure on new PFRS
Paragraphs 30-31-requiring the disclosure on new PFRS, amendments, annual improvements and interpretations to existing standards that has been issued but is not yet effective, which will be effective for periods subsequent to 2013, but not applied in the current financial statements presentation.
2. The financial statements and its accompanying notes as at December 31, 2013 disclosed that the System has a total investments in stocks of its subsidiaries and affiliates/controlled entities, as follows:
|Subsidiaries and Controlled Entities |% of Ownership |Cost of Investment |
| | |2013 |2012 |
| | | | |
|Monterrosa Dev’t. Corp. |100.00% |873,927,445 |873,927,445 |
|Resources Investment House |100.00% |102,123,549 |102,123,549 |
|RSBS Land, Inc. |100.00% |70,000,000 |70,000,000 |
|Matrix Realty Dev’t, Corp. |100.00% |35,931,250 |35,931,250 |
|Fashion Link Corporation |100.00% |20,100,000 |20,100,000 |
|Globan Fruits & Dev’t. Corp. |100.00% |10,000,000 |10,000,000 |
|RSBS Enterprises, Inc. |100.00% |2,500,000 |2,500,000 |
|Southern Utility Mgt. Services, Inc. |100.00% |10,000,000 |10,000,000 |
|Veterans Electronics Comm. |90.65% |126,738,598 |126,738,598 |
|Goodfit Manufacturing Corp. |79.99% |25,556,920 |25,556,920 |
|General Satellite Comm., Inc. |62.00% |2,906,238 |2,906,238 |
|AFP Theater Enterprises, Inc. |50.00% |120,000,000 |120,000,000 |
|Bay Resources Dev’t. Corp. |50.00% |402,000,000 |402,000,000 |
|Cyquest Incorporated |40.00% |2,000,000 |2,000,000 |
|Marilaque Land, Inc. |40.00% |609,000,000 |609,000,000 |
|Amtrust Holdings, Inc. |25.56% |127,000,000 |127,000,000 |
|CEMX, Inc. |24.00% |6,000,000 |6,000,000 |
|Total | |2,545,784,000 |2,545,784,000 |
3. Note 3.7 to financial statements states that the System’s investments in subsidiaries and associates are accounted for under the equity method or cost method depending on the whether the System has significant influence or not. Under the equity method, the System recognizes in its statements of income, its equity in the net earnings or losses of subsidiaries and associates since dates of acquisition. The difference between the System’s cost of such investments and its proportionate share in the underlying net assets at dates of acquisition is amortized using the straight-line method for a period of 20 years. Dividends received are credited to the investments account.
4. The said note also states and we noted that the System does not prepare consolidated financial statements, as required by generally accepted accounting principles in the Philippines since majority of the audited financial statements of the System’s subsidiaries are not available because they are either closed or have ceased operations.
5. As of audit date, the System has not submitted the financial statements of the subject subsidiaries and affiliates and the details of the accumulated equity in net losses of its subsidiaries and affiliates amounting to P2,545,784,000 and P532,525,209, respectively, to prove the correctness of the balances of the said accounts as at December 31, 2013.
6. We also noted that the System, is not qualified for exemptions from presenting the line by line consolidation of its financial statements with the financial statements of its subsidiaries as provided for under Paragraph 10 of PAS 27.
7. Further, the System has not complied with the disclosure requirements of Paragraph 41, PAS 27 for the presentation of separate financial statements.
8. Likewise, the System, contrary to the requirements of Paragraphs 30 and 31 PAS 27, has not disclosed in its notes to financial statements whether or not it will comply with the IFRS 10, amending certain provisions of PAS 27 on consolidated and separate financial statements and the impact of its adoption, which shall be effective in January 2013.
9. Contrary to Par. 20 of PAS 27, the System has also failed to eliminate the parent and subsidiary reciprocal account balances of P27,836,403 and its allowance for doubtful accounts of P17,837,020 thereby overstating the net asset account balance by P9,999,383, as follows:
| |2013 |2012 |
|Bay Resources Development Corp. (BRADCO) |9,179,341 |29,179,341 |
|Monterrosa Development Corp. (MDC) |10,152,495 |9,451,245 |
|Matrix Realty and Development Corp (MRDC) |5,894,093 |5,894,093 |
|Veterans Electronics Communications, Inc. |1,768,761 |1,768,761 |
|Southern Utility Mgt. & Services, Inc. (SUMSI) |841,713 |841,713 |
| |27,836,403 |47,135,153 |
|Allowance for doubtful accounts | (17,837,020) | (17,837,020) |
| |9,999,383 |29,298,133 |
10. Moreover, the System has not assessed whether it has significant influence over its subsidiaries and affiliates to warrant the equity method for accounting of investments or recognized them using the fair value method, as prescribed under Par. 14-18 of PAS 27.
11. In view of the foregoing, the financial statements of the System do not present a true and reliable representation of its financial condition and the results of its operations as at and for the year ended December 31, 2013.
12. We recommended that Management:
a. Consolidate financial statements of AFPRSBS with that of its subsidiaries to include its assets, liabilities, equity and results of operations;
b. Eliminate all parent and subsidiary reciprocal account balances during the process of consolidation;
c. Disclose the status of the financial standing of said subsidiaries and its investment thereon;
d. Comply with all the disclosure requirements of PAS 27 relative to investments in subsidiaries and affiliates; and
e. Evaluate whether the system has significant influence over the subject entities, and accordingly adjust the investment and affected accounts, if the significant influence is lost.
13. We further recommended that the System prepare the Statement of Affairs and the Statement of Realization and Liquidation and submit them for COA Audit until all its assets are realized; all its liabilities are settled; and the concerned subsidiaries and affiliates are fully liquidated/dissolved in accordance with the pertinent rules and regulations of SEC.
14. Management commented that it has significant influence on its subsidiaries, however, except for SUMSI, the other subsidiaries are non-operational or have ceased operations, thus there are no available financial statements for inclusion in the consolidation. Moreover, the current financial standing of the subsidiaries cannot be ascertained yet. In the same manner, the elimination of the reciprocal account balances cannot be done for the subsidiaries in the absence of the updated financial statements.
15. As to the Statement of Affairs and Realization, the System is still awaiting response from the Bureau of Internal Revenue (BIR) and Realization with regard to the existing tax liabilities of the non-operating subsidiaries/affiliates. The requested data from the BIR are significant in the preparation and completion of the Statement of Affairs and Realization.
3. Valuation and appraisal of assets worth P10.094 billion are not undertaken regularly, as required under the pertinent provisions of PAS 36 and 39 to determine the adequacy and correctness of the allowance for decline in investment value amounting to P1.031 billion as at year-end.
1. Verification of the financial statements of the System as at December 31, 2013 disclosed investments totaling P10,094,603,424, as follows:
|ACCOUNT TITLE |Balances as at 12/31/2013 |Allowance for the decline in |% of allowance |
| | |value/impairment loss | |
|Investment in Shares of Stock |3,132,386,080 |926,737,819 |30% |
|Investments in Real Estate |6,962,217,344 |104,260,941 |1% |
| |10,094,603,424 |1,030,998,760 |10% |
2. Valuation, appraisal and impairment of assets under PAS No. 36 states:
The objective of the standard is: To ensure that assets are carried at no more than their recoverable amount and to define how recoverable amount is determined [PAS 36.9]
At each balance sheet date, review all assets to look for any indication that an asset may be impaired (its carrying amount may be in excess of the greater of its net selling price and its value in use). PAS 36 has a list of external and internal indicators of impairment. If there is any indication that an asset may be impaired, then you must calculate the asset’s recoverable amount. [PAS 36.9]
Paragraph 12 of PAS 36 further states that in assessing whether there is any indication that an asset may be impaired, an entity shall consider, among others, the following indications:
External sources of information
a) Xxx
b) significant changes with an adverse effect on the entity have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated.
c) market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an asset’s value in use and decrease the asset’s recoverable amount materially.
d) the carrying amount of the net assets of the entity is more than its market capitalization.
Internal sources of information
e) xxx
f) significant changes with an adverse effect on the entity have taken place during the period, or are expected to take place in the near future, xxx, plans to discontinue or restructure the operation to which an asset belongs, plans to dispose of an asset before the previously expected date, and reassessing the useful life of an asset as finite rather than indefinite.
3. Philippine Accounting Standard (PAS) 39 also requires an entity to assess at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is impaired under paragraphs 58 and 59. It further requires that if an impairment loss on financial assets measured at amortised cost has been incurred, the carrying amount of the assets shall be reduced either directly or through use of an allowance account and the amount of reduction shall be recognized in profit or loss under paragraph 63.
4. Paragraph III - D of AFPRSBS SOP No. 98-02 states that:
all real estate property and acquired assets shall be re-appraised periodically by an independent appraiser to determine their current fair market and appraised values. Intervals between re-appraisals shall be determined by the real estate management department based on its assessment of changes/movements in prices to be approved by the president.
5. Contrary to the above provisions, the System did not regularly conduct the valuation of its investments to determine the sufficiency of the recognized allowance for the decline in its value, although there are indications of impairment, as discussed in the following paragraphs:
6. Analysis of the System’s Investment in shares of stocks of 20 companies/corporations showed that six out of 20 entities or 30 per cent are on-going concern status; 10 or 50 per cent have ceased operations; two or 10 per cent have obtained revocation of license order from the SEC; one or five per cent have merged with another corporation and one or five per cent was reactivated as follows:
|Subsidiary/Controlled Entity/Affiliates |% of Ownership |2013 |2012 |
| |
|Ceased operations/dissolved |
|1 |Resources Investment House |100.00% |102,123,549 |107,884,449 |
|2 |RSBS Land, Inc. |100.00% |70,000,000 |70,000,000 |
|3 |Matrix Realty Dev’t, Corp. |100.00% |35,931,250 |35,931,250 |
|4 |Fashion Link Corporation |100.00% |20,100,000 |20,100,000 |
|5 |Globan Fruits & Dev’t. Corp. |100.00% |10,000,000 |10,000,000 |
|6 |RSBS Enterprises, Inc. |100.00% |2,500,000 |2,500,000 |
|7 |Veterans Electronics Comm. |90.65% |126,738,598 |126,738,598 |
|8 |Goodfit Manufacturing Corp. |79.99% |25,556,920 |25,556,920 |
|9 |Advent Capital and Finance Corp. |14.02% |71,183,811 |71,183,811 |
|10 |CEMX, Inc. |24.00% |6,000,000 |6,000,000 |
| | | |1,344,061,573 |1,349,822,471 |
| |
|Obtained SEC Revocation of License Order |
|11 |General Satellite Comm., Inc. |62.00% |2,906,238 |2,906,238 |
|12 |Cyquest Incorporated |40.00% |2,000,000 |2,000,000 |
| | | |4,906,238 |4,906,238 |
| |
|Merged |
|13 |First Dominion Prime Holdings, Inc. |0.93% |15,418,269 |15,418,269 |
| | | | |
|Going Concern Entities | | | |
|14 |Southern Utility Management Services |100.00% |10,000,000 |10,000,000 |
|15 |AFP Theater Enterprises, Inc. |50.00% |120,000,000 |120,000,000 |
|16 |Bay Resources Development Corp. |50.00% |402,000,000 |402,000,000 |
|17 |Marilaque Land, Inc. |40.00% |609,000,000 |609,000,000 |
|18 |Amtrust Holdings, Inc. |25.56% |127,000,000 |127,000,000 |
|19 |Philippine Air Lines | 0.31% |500,000,000 |500,000,000 |
| | | |1,768,000,000 |1,768,000,000 |
| | | | |
|Reactivated (5%) | | | |
|20 |Monterrosa Dev’t. Corp. * |100.00% |873,927,445 |873,927,445 |
| |Total | |3,132,386,080 |3,138,146,980 |
*Board Resolution No. 05-2013 dated October 24, 2013 approved the reactivation of the Monterrosa Development Corporation (MDC) to represent itself in a pending case filed against it by the former lot owner, Group Developer, Inc. or it can negotiate for an amicable settlement to enable the recovery of its investment therein. In view of the decision to revive MDC, the Securities and Exchange Commission will impose penalty in the amount of P10,000 per year for failure to submit audited financial statements from the date it ceased operations in 2005.
7. Out of the P3,132 million investment in stocks valued at cost, allowance for decline in value was set up as disclosed in Note 10 to the financial statements as follows:
| | | |ALL OTHER INVESTMENTS | | | |
|Particulars |TOTAL |% | |% |PAL |% |
| | | | | | | |
|Investment at cost |3,132,386,080 |100 |2,632,386,080 |84 |500,000,000 |16 |
|Allowance for decline in value | 926,737,819 |100 |453,237,819 |49 |473,500,000 |51 |
a. The allowance for decline in value of investment of P926.738 million has been recognized several years ago with no additional set up.
b. Except for the recognized allowance for decline in value of the PAL share of P473.500 million, Management did not submit the details of the allowance for the decline in the value of the other investments and their corresponding application to each investment account to provide basis for determining the correctness and adequacy of the amount recognized.
8. Further, the adequacy and correctness of the allowance of P926.737 million for decline in investment value as at year-end cannot be ascertained due to the inability to undertake regular valuation and appraisal of Investments.
9. We recommended that Management:
a. Conduct a valuation and appraisal of all its subsidiaries and affiliates to determine whether there is an increase in value or an indication of impairment thereof, as required under the pertinent provision of PAS 36 and 39;
b. Submit the details of the allowance for the decline in the value of investment and their corresponding application to each investment account resulting from the valuation/appraisal to be made to provide basis for determining the correctness and adequacy of the amount recognized; and
c. Adjust the balance of the allowance for the decline in value of the assets and/or recognized the impairment loss, if any, to reflect the correct value of the Investment in stocks as at year-end.
10. Management commented that it will need to outsource an independent appraiser who will determine the exact valuation of the assets, specifically shares of stock, on all its investments. For the real estate properties, appraisal will be done by the System’s in-house appraiser to save on cost considering that the System owned several properties.
11. Once the appraisals are made, the allowance for the decline in value of the assets will be adjusted to reflect the correct value of the investment. Likewise, the application to each investment account resulting from the valuation/appraisal will be submitted once the same are available.
4. The Supreme Court’s decision declaring the 16 lots located in General Santos City with a book value of P174.175 million as part of the Magsaysay Public Park is a big loss to the System and to the AFP military personnel, who are the rightful owners/beneficiaries of the AFPRSBS funds.
1. Presidential Proclamation No. 168 issued by then President Diosdado Macapagal on October 3, 1963 declared the 5.2 hectare land located in Barrio Dadiangas, General Santos City as reserved for recreation and health purposes. This being the case, “the land is considered an inalienable and non-disposable public land. Said lots were known as Lots X containing 15,020 square meters, Y-1 with an area of 18,695 square meters and Y-2 with 18,963 square meters or a total of 52,678 square meters.” (emphasis supplied)
2. The heirs of Cabalo Kusop (Kusop) waged a campaign, through petitions and pleas made to the President to have Lots Y-1 and Y-2 taken out of the reservation for the reason that they have acquired vested private rights over these lots and as a result, in 1983, then President Ferdinand Marcos issued Presidential Proclamation No.2273, amending Proclamation 168 and declaring and segregating Lots Y-1 and Y-2 from the reservation and declaring them open for disposition to qualified applicants. Thus, only Lot X, which consists of 15,202 square meters remained part of the park reservation, now known as Magsaysay Park. (emphasis supplied)
3. As a result of such exclusion, the heirs of Kusop applied for Free Patent with the District Land Office and consequently Certificates of Title were issued sometime in 1983. In 1984, two cases were filed by the local government of General Santos City against the said heirs of Kusop for Declaration of Nullity of Titles and on the other hand, the heirs of Kusop filed a case against the local government for Injunction and Damages.
4. On May 23, 1991, the Sangguniang Panlungsod of General Santos City passed Resolution No. 87, series of 1991, approving the compromise agreement between the City Government of General Santos represented by the City Mayor and the heirs of Cabalo Kusop re: Magsaysay Park.
5. On July 23, 1997, the following private individuals applied for Miscellaneous Sales Patent over the whole of Lot X with the Department of Environment and Natural Resources (DENR) regional office in General Santos City, which approved them. On September 18, 1997, the Certificates of Titles were issued by the Register of Deeds of General Santos City.
|Lot No. | |Area applied | |
| |Applicants/Owner | |OCT No. |
|X1 |A |999 sq.m |P-6393-A |
|X2 |B |999 sq.m |P-6392 |
|X3 |C |999 sq.m |P-6389-A |
|X4 |D |999 sq.m |P-6393 |
|X5 |E |999 sq.m |P-6399 |
|X6 |F |999 sq.m |P-6388-A |
|X7 |G |999 sq.m |P-6389 |
|X8 |H |999 sq.m |P-6391 |
|X9 |I |999 sq.m |P-6392-A |
|X10 |J |999 sq.m |P-6388 |
|X11 |K |999 sq.m |P-6396 |
|X12 |L |999 sq.m |P-6395 |
|X13 |M |999 sq.m |P-6390 |
|X14 |N |999 sq.m |P-6394-A |
|X15 |O |510 sq.m |P-6395-A |
|X16 |P |524 sq.m |P-6394 |
6. On September 24 and 25, 1997, except for lots X-6, X-7, X-15 and X-16, the above-named registered owners sold their lots, through their attorney-in-fact to the AFPRSBS. On the other hand, the registered owners of lot nos. X-6 and X-7 executed a Deed of Exchange with AFPRSBS, represented by its former President consenting to the exchange of lots X-6 and X-7 with lots Y-1-A and Y-1-A-2 respectively, the latter two lots being owned by AFPRSBS. While lots X-15 and X-16 were exchanged with one office unit or condo unit given or ceded to their attorney-in-fact.
7. On September 25, 1997, Transfer Certificate of Title Nos. T-81051 to T-81062; T-81146 to T-81147 and T-81150 to T-81151 were issued in the name of AFPRSBS.
8. On September 11, 1998, a complaint was filed under Civil Case No. 6419, with the Republic of the Philippines as petitioner, for the reversion, cancellation and annulment of the AFPRSBS titles on the thesis that they were issued over a public park which is classified as inalienable and non-disposable public land. (emphasis ours)
9. On November 5, 2001, the Regional Trial Court (RTC) Branch 23 of General Santos City rendered judgment nullifying the AFPRSBS titles and ordering the return of Lot X to the government, with the corresponding issuance of new titles in its name.
10. In October 2007, the Court of Appeals overturned the RTC decision and ruled in favor of the AFPRSBS. The city government of General Santos City sought the help of the Office of the Solicitor General and filed an appeal before the Supreme Court.
11. On January 16, 2013, the Supreme Court in a decision promulgated under G.R. 180463 annulled and set aside the decision of the Court of Appeals in CA-G.R. CV No. 75170 and reinstated the decision of the Regional Trial Court of General Santos City in Civil Case No. 6419. In its decision, the Supreme Court said certificates of title issued covering inalienable and non-disposable public land, even in the hands of an alleged innocent purchaser for value, should be canceled. (emphasis supplied)
12. Moreover, the Supreme Court ordered the Register of Deeds of General Santos City to cancel Transfer Certificates of Title Nos. T-81051 to T-81062, T-81146 to T-81147, and T-81150 to T-81151 (all in the name of AFPRSBS) and issue in lieu thereof, new titles in the name of the Republic of the Philippines.
13. The AFPRSBS is a government entity and its funds is public in nature as clarified by the Supreme Court in GR No. 145951 dated August 12, 2003. Consequent thereto, exercise of due diligence is expected in pursuit of its mandated functions, as well as by its officers and employees in the performance of their duties and responsibilities to prevent prejudice to the public funds (which funds came from the National Government and the AFP military personnel) and in compliance with Section 4(a) of Republic Act 6713, also known as Code of Ethical Standards for Government Officials and Employees which state that –
a) “Commitment to public interest – Public officials and employees shall always uphold the public interest over and above personal interest. All government resources and powers of their respective offices must be employed and used efficiently, effectively, honestly and economically, particularly to avoid wastage in public funds and revenues.”
14. With the Supreme Court decision, the System incurred loss equivalent to the cost of the property in the amount of P174,175,414, thus detrimental to the interest of the members whose contributions funded its purchase.
15. We recommended that Management:
a. Conduct an investigation on the officers and employees who failed to exercise the degree of diligence required in the performance and discharge of their duties as stated in Section 4 (a) and (b) of Republic Act 6713;
b. Institute appropriate legal actions or impose sanctions on erring officers and employees in conformity with paragraph (a) of Section 11 of R.A. 6713; and
c. Make available all documents pertaining to the purchase of subject lots for post-audit purposes and for issuance of Notice of Disallowance, if necessary.
16. Management commented that the Senate Blue Ribbon Committee and the Office of the Ombudsman have already conducted an investigation on the said acquisition by the System of Lot X in General Santos City and as a result of the investigation, 24 consolidated cases were filed and are now pending before the 4th Division, Sandiganbayan.
17. The Property Management & Enhancement Department, in coordination with the concerned units, will make a compilation of all the necessary documents related to the acquisition and submit the same to COA for post-audit purposes.
18. As a rejoinder, when the decision of the Supreme Court becomes final and executory and the Register of Deeds cancels the TCTs registered in the name of the System, Management has to derecognize in its books the Investment in Real Estate and recognize a Receivable in the amount of P174,175,414 from the officers who approved the transaction.
5. Discrepancies totaling to P199.201 million between the balances in the general ledger (GL) controlling accounts and the subsidiary ledger (SL) schedules of accounts totaling to P10.981 billion cast doubt on the reliability and accuracy of the balances of accounts reflected in the financial statements, contrary to Section 58 of PD 1445.
1. Section 58 of PD 1445 states that:
The examination and audit of assets shall be performed with a view to ascertaining their existence, ownership, valuation and encumbrances as well as the propriety of items composing the respective asset accounts, determining their agreement with record, proving the accuracy of such records; ascertaining if the assets were utilized economically, efficiently and effectively; and evaluating the adequacy of controls over the accounts. (underscoring ours)
2. The following accounts revealed discrepancies between the balance indicated in the T/B and the SL schedule, as follows:
|Account Name |GL |SL Schedule | |Discrepancy |
|Investment in Real Estate |6,857,956,403 |6,860,429,677 | |2,473,274 |
|Acquired Asset |424,950,274 |463,763,521 | |38,813,247 |
|Installment Contract Receivable -Past Due |197,922,835 |171,446,588 | |26,476,247 |
|Installment Contract Receivable |367,422,880 |366,970,782 | | 452,098 |
|Investment in Shares of Stocks |3,132,386,080 |3,263,372,589 |* |130,986,509 |
|Total |10,980,638,472 |11,115,982,887 | |199,201,375 |
|* |Per Schedule of Equity Investment Management Department (EIMD) |
3. Comparison of the balances in the GL against the SL Schedules aims to ensure the accuracy of the amounts reported, to identify and investigate any difference and take corrective actions when necessary to resolve such differences.
4. The noted discrepancies in the accounts casts doubt on the reliability and accuracy of the amounts reflected in the financial statements.
5. We recommended that EIMD and Controllership Department (CD) reconcile totals of the SL schedules with the balances of the GL controlling accounts to come up with correct and reliable account balances and make the necessary adjustments for fair presentation of the accounts in the financial statements.
6. Management commented that the discrepancies were due to the additional adjustments made by CD as a result of the review and reconciliation of the accounting entries in the manual subsidiary ledgers (SLs) for 2013 after copies of the SLs were provided to the auditors. On the other hand, the discrepancy in the account Investment in Shares of Stock as against the Schedule provided by the EIMD is because the Investment in Advent Capital and Finance Corporation was presented at the original investment cost in the amount of P202,170,320.
7. In view of the differences of GL and SL schedule balance which still exist at year end, we maintain our recommendation for EIMD and all the different departments of the System to regularly reconcile their records with CD.
6. Unserviceable assets are still included in the Property & Equipment account contrary to Section 79 of Presidential Decree No. 1445 and Philippine Accounting Standard (PAS) 16 – Property, Plant and Equipment and other pertinent rules and regulations, thus overstating the Property & Equipment account by P2.361 million and its related Accumulated Depreciation by an undetermined amount.
1. Section 79 of Presidential Decree No. 1445 provides that:
“Section 79. Destruction or sale of unserviceable property - When government property has become unserviceable for any cause, or is no longer needed, it shall, upon application of the officer accountable therefore, be inspected by the head of the agency or his duly authorized representative in the presence of the auditor concerned and, if found to be valueless or unsalable, it may be destroyed in their presence. If found to be valuable, it may be sold at public auction to the highest bidder under the supervision of the proper committee on award or similar body in the presence of the auditor concerned or other duly authorized representative of the Commission, after advertising by printed notice in the Official Gazette, or for not less than three consecutive days in any newspaper of general circulation, or xxx.”
2. Paragraph 67 of the Philippine Accounting Standard (PAS) 16 also provides for the derecognition of the carrying amount of an item of PE upon disposal or when no future economic benefits expected from its use or disposal.
3. COA Circular No. 89-296 dated 27 January 1989 provides the audit guidelines on the divestment or disposal of property and other assets of national government agencies including government-owned or controlled corporations and their subsidiaries. Included also are the manners/modes of disposal and COA’s role during disposal.
4. On the other hand, COA Memorandum 88-569 dated 12 August 1988 prescribes the guidelines for the appraisal of unserviceable property including the table on estimated economic lives of certain assets, the computation of appraised value and the documentary requirements prior to the disposal.
5. Contrary to the above provisions, ocular inspection in CYs 2012 and 2013 disclosed that the same unserviceable/defective assets were still stored in the open bodega and open areas exposing the assets to pilferage and to rapid wear and tear caused by exposure to sunlight and rain, thus, Management would not be able to get the best price in the event of disposal through sale.
6. Included in the General Services Division’s (GSD) Inventory Report of Property & Equipment are 2,166 items of unserviceable office equipment, furniture and fixtures and electronics worth P2,360,839, more or less, which may further result in the loss of possible income upon disposal and the misstatement of PE accounts as at year-end.
7. We recommended Management to:
a. Comply with Section 79 of PD 1445, COA Circular Nos. 89-296 and COA Memorandum No. 88-569 on the disposal of unserviceable property so that Management can decongest its storage areas/bodega of obsolete/unserviceable assets and at the same time get the best price upon its sale;
b. Include in the yearly plans/activities the manner in which to dispose the unserviceable assets for the fair presentation of the balance of the PE accounts in the financial statements; and
c. Pending disposal of the above-stated property, we suggest that Management cause the appraisal of all its property and the items for disposal be recorded under Other assets account.
8. Management replied that –
a. The List of Unserviceable Property and Equipment that was prepared by GSD as of December 31, 2013 was finalized only last February 2014. GSD affirms that all items included in the list are still existing and can be programmed for disposal once the appraisal has been completed.
b. GSD is just awaiting for the book value and appraisal of the identified unserviceable property and equipments prior to endorsement to the Disposal Committee. The Controllership Department will reclassify the items subject for disposal in 2014 to Other Assets account based on the final list prepared by GSD.
7. The System did not conduct the physical inventory of all its property hence, reconciliation with accounting records was not made during the year as required under COA Circular 80-124 dated 18 January 1980. Further, total insurance coverage of P100.744 million for the System’s property at the main office and at the Industrial Park as required under RA 656 has no clear basis in the absence of correct book value of the property.
1. Physical inventory is an indispensable procedure for checking the integrity of property custodianship. This is undertaken by a committee of two or more employees designated by the Agency Head, including the property officer or custodian.
2. COA Circular 80-124 dated 18 January 1980 prescribes the rules and regulations for the inventory of fixed assets of all government-owned and/or controlled corporations and subsidiaries, including self- governing boards, commissions, agencies and state colleges and universities. Section IV of the said Circular states that physical inventory of fixed assets shall be made at least once a year as of December 31 and submitted to the Auditor not later than January 31 of each year, unless extended by the Chairman upon prior request of the head of agency concerned.
3. Likewise, the inventory reports shall be prepared on the prescribed form (Gen. Form No. 41-A) and certified correct by the committee in charge thereof and approved by the head of the agency. The reports shall be properly reconciled with accounting and inventory records. (emphasis supplied)
4. Moreover, failure on the part of the officials concerned to submit the inventory reports mentioned herein shall automatically cause the suspension of payment of their
salaries until they shall have complied with the requirements pursuant to Sec. 122 of PD 1445.
5. Interview with concerned personnel from the General Services Department (GSD) disclosed that no physical inventory taking was conducted during the year. Instead, he just added the acquisitions made during the year to come up with the 2013 Inventory Report which was then furnished to the audit team.
6. Thus, the validity of the System’s property and equipment with a net book value of P36,838,359 cannot be ascertained.
|Particulars |Per Books |Allow. for Depreciation |Net Book Value |
|Office Mach. & Equipment |153,331,297 |132,619,325 |20,711,972 |
|Transportation/Motor Vehicles |10,964,953 |7,755,178 |3,209,775 |
|Office Furn. & Fixtures |14,880,135 |11,319,458 |3,560,677 |
|Buildings/Structures |91,429,579 |82,286,621 |9,142,958 |
|Property & Equip. Clearing |123,750 |- |123,750 |
|Books & References |158,491 |69,264 |89,227 |
|TOTAL |270,888,205 |234,049,846 |36,838,359 |
7. On the other hand, Section 5 of RA 656 states that every government agency is required to insure its property with the Government Service Insurance System (GSIS), against any insurable risk therein provided and pay the premiums thereon, which however, shall not exceed the premiums charged by private insurance companies.
8. For the year under audit, the System insured for P41,326,046 and P59,418,200 all of its assets (buildings, property and equipment) at the main office and at the Industrial Park Management Office with the GSIS, respectively. In as much as the System did not conduct the required annual physical inventory for all its property and equipment to determine their existence and the accuracy of the recorded account balances in the books of the System, there is no clear basis to determine whether the amount of insurance applied for is enough to cover any fortuitous event.
9. We recommended that Management:
a. Strictly adhere with the provisions of COA Circular 80-124 regarding the conduct of physical inventory of government property and the submission of inventory report within the prescribed period; and
b. Determine the correct book value of the System’s property and equipment which will serve as the basis for the amount of insurance to be applied for with GSIS.
10. Management commented that
a. The System concurred with COA’s recommendation to conduct the physical inventory of the System’s Property and Equipment in 2014.
b. The General Services Department and Controllership Department focused on creating an excel-based inventory record of all those recorded in the
Plant, Property, and Equipment (PPE) Management System as an initial step to its reconciliation process aimed at establishing the correct balances of the PPE accounts. The next step will be the reconciliation of what were encoded in the database and the accounting records.
8. Cash in bank (CIB) account balance per book differed by P3.147 million against the balances confirmed by the concerned banks and financial institution. Bank reconciliation is not regularly done thereby creating doubt on the accuracy of the account balance totaling P126.640 million.
1. Bank reconciliation statement (BRS) is a statement which brings into agreement the cash balances per books and per bank. The purpose of the preparation of the bank reconciliation statement is to identify items that have not been recorded in the books and banks or vice versa so that appropriate adjusting entries can be made. Preparation of the periodic bank reconciliation is a basic and important control in safeguarding cash.
2. The AFPRSBS maintains nine bank accounts, two with government banks and seven with commercial banks for its operating fund. It also has deposit with a financial institution (FI), the Armed Forces of the Philippines Savings and Loan Association Inc. Confirmation of balances with concerned banks/FI disclosed a variance of P3,147,255. Similarly, the recorded balance per books of the Controllership Department (CD) with the balance per Treasury Department (TD) showed a discrepancy of P23,856,730 as shown hereunder:
|Bank name |Bank account balance |Difference |
| | | | |CD vs. Bank |CD vs |TD vs. Bank |
| |CD |Treasury |Bank | |TD | |
|PNB |11,381,247 |8,742,404 |11,381,247 |- |2,638,843 |2,638,843 |
|BPI |51,066 |463,468 |463,764 |412,698 |412,402 | 296 |
|BDO (SSA) |50,138,146 |50,085,817 |50,138,146 |- |52,329 |52,329 |
|BDO SA $ |55,855 |55,855 |55,855 |- |- |- |
|BDO-CA |26,142,394 |7,740,024 |28,804,782 |2,662,388 |18,402,370 |21,064,758 |
|BDO-CASA |4,686,519 |4,427,759 |4,684,831 |1,688 |258,760 |257,072 |
|LBP |24,764,234 |22,742,343 |24,764,234 |- |2,021,891 |2,021,891 |
|SCB |185,871 |185,681 |185,871 |- |190 |190 |
|DBP |44,860 |44,831 |44,888 |28 |29 |57 |
|AFPSLAI |9,189,462 |9,119,546 |9,259,915 |70,453 |69,916 |140,369 |
|Total |126,639,654 |103,607,728 |129,783,533 |3,147,255 |23,856,730 |26,175,805 |
3. The reliability of the CIB balance cannot be established/accounted for in view of the following circumstances which precluded the team from proving its accuracy:
a. The CIB beginning balance per books in the amount of P82,068,327.35 is based on unaccounted balance after the crash of the system;
b. The bank reconciliation for the BDO account is still on going and the latest BRS is for CY 2008 while the BRS for the LBP account showed debit and credit adjustments, which cannot be traced in the subsidiary ledgers (SL) maintained by the CD;
c. The system of recording is not in conformity with the best accounting practice since CD records disbursements by debiting the expense account and crediting Cash in Treasury – a suspense account. At the end of each month, upon receipt of list of checks issued from the Treasury Department, the CD then debits the Cash in Treasury and credits the actual bank (i.e. BDO/PNB/LBP/SCB) from which the expense was charged; and
d. The CD and TD do not conduct reconciliation of balances for check and balance, while the TD do not reconcile it’s bank balances with the bank on a regular basis.
4. The inability of the CD to regularly prepare the BRS resulted in the difference between the book and bank balance in the amount of P3,147,255.
5. We recommended that Management:
a. Regularly prepare monthly BRS for all its bank accounts to determine the causes of the discrepancy between the book and bank balances at the earliest possible time;
b. Regularly reconcile the cash in bank account of CD and TD since they are both in the same agency.
6. Management replied that:
a. CD is exerting its best effort to reconcile the book and bank balances, and make the necessary adjusting journal entries; and
b. CD has already booked the adjustments in the February 2014 financial statements. Some of the discrepancies noted pertains to interest income that were not taken up in the books. On the BDO account, the reconciliation is still on-going
9. A total of 311 unclaimed/stale checks in the aggregate amount of P3.527 million representing refund of members contributions and other payments have not been canceled, thus, understating the Cash in bank and Accounts payable account by the same amount.
1. During the audit of the accountabilities of the Cashier-Treasury Department, there were 311 unclaimed/staled checks drawn against Banco de Oro-Equitable PCI, Philippine National Bank and LBP in the custody of the cashier. Details of the staled checks are as follows:
|Year |Quantity | Bank | Amount |
|2005 |33 |BDO-CA |54,833 |
|2007 | 1 |BDO-CA |2,250 |
|2008 |21 |BDO-CA |68,831 |
|2009 |89 |BDO-CA |249,048 |
|2010 | 2 |BDO-CA |4,223 |
|2011 |13 |BDO-CA |18,540 |
|2012 |39 |BDO/LBP |709,059 |
|2013 |113 |BDO/LBP/PNB |2,420,383 |
|Total |311 | |3,527,167 |
2. The TD did not timely submit to the Controllership Department the 311 unclaimed/stale checks totaling P3,527,167 for adjustment and reversion to cash thus understating Cash in bank and Accounts payable accounts by the same amount.
3. We recommended that the Cashier report the stale checks in the List of Unclaimed Checks as cancelled and for the Controllership Department to prepare the necessary adjusting entries to take up the cancellation of the stale checks in the books of accounts.
4. Management replied that its TD has already provided the CD with the list of stale/cancelled/unclaimed checks. The initial adjustments made to take up the cancellations was under JV No. RSBS-0027 dated 31 December 2013. Additional stale/cancelled checks will be reported by TD to CD for appropriate adjustment.
10. The deposit/placement of the System’s resources in private banks and financial institutions is contrary to Department of Finance (DoF) Order No. 27-05.
1. DoF Department Order No. 27-05 dated December 9, 2005 requires all government agencies including government-owned and controlled corporations (GOCCs) to deposit their funds and maintain depository accounts with Land Bank of the Philippines (LBP) and Development Bank of the Philippines (DBP). Heads of all GOCCs are required to secure prior DoF approval if they are to deposit their funds or maintain depository accounts with banks other than the LBP and DBP.
2. The System maintains bank accounts with seven private banks and one financial institution (AFPSLAI). Notwithstanding the audit observations for the past several years, the System continues to deposit its funds (current, savings and money market placements) with private commercial banks without the required DoF approval.
3. As at 31 December 2013, the System’s deposit with private banks totaled P101,830,561 representing 80 per cent of the total Cash in Bank account of P126,639,654. Meanwhile, out of the total money market placement of P3,554,416,897, 68 per cent or P2,424,516,897 are with private banks.
4. While we understand the System’s effort to achieve the maximum yield from its liquidity portfolio given the six per cent interest it has to give back to its members upon their retirement, the same should be achieved without violating any law, rules and regulations.
5. We recommended that Management:
a. Secure DoF approval on its deposits with private bank;
b. Pending approval of the same, the System has to transfer its funds from the current depository private commercial banks to government banks.
6. Management replied that it has sent a follow-up letter dated March 17, 2014 to the DoF requesting clearance to allow the System to continue investing with private banks/corporations.
7. In partial compliance to COA’s recommendation to transfer the funds from private to government banks, effective 11 December 2013, the existing Single Borrower’s Limit (SBL) of LBP and DBP was amended by removing the 20 per cent SBL and set a “no investment limit” policy for the said banks. In 2013, investments in government banks increased to 33 per cent
8. In 2013, the Investment Portfolio of the System was shifted from money market placements to long-term investments in DBP Tier 2 Notes and LBP Long-Term Negotiable Certificate of Deposit. The System will continuosly shift its investment portfolio securities and/or government bank notes should there be investment opportunities.
11. Accountable Officers handling cash and property accountabilities were not bonded in violation of Section 101 of P.D. 1445 (State Audit Code of the Philippines) and Section 7 of COA Circular 97-002.
1. Section 101 of PD 1445 - Accountable officers; bond requirement –
(1) Every officer of any government agency whose duties permit or require the possession or custody of government funds or property shall be accountable therefor and for the safekeeping thereof in conformity with law.
(2) Every accountable officer shall be properly bonded in accordance with law.
Moreover, under Section 7 of COA Circular 97-002 each accountable officer with a total cash accountability of P2,000.00 or more shall be bonded. The amount of bond shall depend on the total accountability of the officer as fixed by the Head of the Agency. An official or employee who has both money and property accountability, shall be bonded only once to cover both accountabilities, but the amount of the bond shall be in accordance with the schedule set forth under Treasury Circular No. 02-2009 dated 6 August 2009. The minimum cash accountability to be bonded has been increased from P2,001.00 to P5,001.00 per COA Circular No.2013-001 dated 10 January 2013. (underscoring supplied)
2. The audit issue on the non-bonding of the System’s accountable officers dates back to CY 2006, which was the first time that the System was declared as a government entity. The Director of the Bureau of Treasury (BTr) in the letter dated 21 March 2011 contends that the personnel of the System are not public officers, hence they could not be bonded by the BTr under the Public Bonding Law and Section 4.1 of Treasury Circular No. 02-2009 which states that:
4.1 Public Officers Covered – Every officer, agent and employee of the Government of the Philippines or of the companies or corporations of which the majority of the stock is held by the National Government (NG), regardless of the status of their appointment shall, whenever the nature of the duties performed by such officer, agent or employee permits or requires the possession, custody or control of funds or property for which he is accountable, be deemed a bondable officer and shall be bonded or bondable and his fidelity insured (Sections 324 & 318, Public Bonding Law).
3. In a letter to the Cluster Director dated 1 August 2012, the then President and Chief Executive Officer VADM Emilio C. Marayag, Jr. (Ret), expressed his agreement for the need to bond all personnel handling collections, revolving funds and those authorized to sign checks. In the said letter, Management intends to obtain cash bond and fidelity bond from a private insurance company, the AFP General Insurance Company, a 100 per cent subsidiary of the AFP Mutual Benefits Association Inc. in the meantime that BTr declines its application.
4. In a memorandum dated 9 December 2013, the Office of the General Counsel, Legal Services Sector, Commission on Audit recommended that the System submits its bonding application to the Government Service Insurance System (GSIS) while waiting for the approval of its application for fidelity bond with the Bureau of Treasury that is, if the System’s application for bonding with AFP General Insurance Company has not been finalized yet.
5. As regards the issue on the status of the System, the Governance Commission for Government Owned and Controlled Corporation in its letter dated 18 January 2013 confirmed that the System is a government entity/GOCC.
6. We recommended that Management:
a. Submit to the Bureau of Treasury, with the application for bonding, the GCG declaration that the System is a government entity;
b. In the meantime, comply with the recommendation of the COA’s Legal Services Sector to file the bonding application for its accountable officers with the GSIS, if no fidelity bond application has been filed/approved by the AFP General Insurance Company.
7. Management commented that it has approved the application for Destruction, Disappearnce and Dishonesty (DDD) insurance policy with the Government Service Insurance System (GSIS) covering the four (4) accountable officers and staff of Investment Management Group per approved Disposition Form dated 17 March 2014. Check payment for the insurance premium is in the process with the Controllership Department. Upon availability of the check, TD will submit the check payment together with the letter conforme and Certificate of Fund Availability to the GSIS Office for the issuance of the insurance policy. Coordination will again be made with the Bureau of Treasury for the bonding of the other accountable personnel using as basis the Supreme Court and the GCG declaration that the System is a government entity.
12. Transfer Certificate of Titles (TCTs) are not yet consolidated in the name of the System to safeguard its interest and of its members.
1. Land Title refers to that upon which ownership is based. It is the evidence of right of the owner or the extent of his interest, and by which means he can maintain, control and as a rule assert right to exclusive possession and enjoyment of the property.
2. Inventory of the TCTs kept inside the vault of the Internal Records Management Department (IRMD), showed that 1,987 of the 6,726 TCTs or 30 per cent are still in the name of the original owners or the System with co-owner/joint venturers. Details are as follows:
| |NO. OF TCT |Titles under RSBS |TCTs with Original |Titles under RSBS &|
|NAME OF PROJECT | | |Owners |JV Partner |
|Antipolo Property |596 | |596 | |
|Benjamin 9 |1,319 |473 |846 | |
|Calamba-Tanauan |249 |242 |7 | |
|Calidguid, Evelyn |11 | |11 | |
|Cemx |6 |2 |4 | |
|Chinatown Steel Towers |10 | |10 | |
|Eastridge Golf Village |103 | |103 | |
|Gapay, Nicolas |3 | |3 | |
|Hermosa, Bataan |2 | |2 | |
|Iloilo Presidio |65 |64 |1 | |
|Malayan Integrated Ind. |1 | |1 | |
|Marilaque Land Inc. |14 | |14 | |
|Mdc Venture Group |1 | |1 | |
|Monterossa |1 | |1 | |
|Morong, Rizal |62 | |62 | |
|Mt. Zion |9 |8 |1 | |
|North Matrix Ville |59 |55 |4 | |
|Paredes, Zosimo |1 | |1 | |
|Philcons |78 | |78 | |
|Riviera (Rawlands) |29 | |29 | |
|Rsbs Land |7 | |7 | |
|San Lorenzo Dev’t Corp |78 | |5 |73 |
|San Lorenzo-South |33 | |33 | |
|San Lorenzo-South 1c |202 |124 |1 |77 |
|San Lorenzo South-Rawland |42 | |7 | |
| | |35 | | |
|San Mateo |84 |72 |12 | |
|Santa Rosa, Nueva Ecija |1 | |1 | |
|Shade – On Base Housing |6 |3 |3 | |
|Villa Caceres |445 |153 |143 |149 |
|TOTAL |3,517 |1,231 |1,987 |299 |
3. In the case of Riviera (Rawlands), 29 titles were acquired by the System in 1996-1997 and are considered owned by the AFPRSBS having been paying for the real property tax. However, court hearings being handled by the Office of the Government Corporate Counsel (OGCC) are still going on for its judicial titling, thus, still in the name of private individuals.
4. Moreover, there are 299 land titles which are shared by the System and its joint venture partners for its various projects.
5. Meanwhile, TCT No. 409162 for Calamba-Tanauan land titles was not reflected in the Inventory List but which was among the titles inventoried during the said undertaking.
6. The System is co-owner to two land titles as indicated in TCTs Nos. 488658 and 488675, as follows:
|TCT No |AREA |Registered Owner in TCT |Location |
|T-488658 |26,473 sqm. |Consuelo Macapagal/RSBS |San Lorenzo South Subd. |
|T-488675 |7,057 sqm. |Gorgonia Barraquio/RSBS |-do- |
7. In TCT No. T- 488658, RSBS has an ownership rights over 20,000 sqm., while Consuelo Macapagal has 6,473 sqm. Meanwhile, in TCT No. T-488675, RSBS and Gorgonia Barraquio has a 50/50 share in the 7,057 sqm. residential lot.
8. Inquiry with the personnel from the Property Management Enhancement (PMED) disclosed that till now, the lots have not been subdivided. However, for the property covered by T488675 it is RSBS which is paying for the property tax for the whole lot since 2008 based on the records on file. For the land covered by T-488658, RSBS is paying its real property tax based on the actual land it owns.
9. The undivided lots may give rise to additional expenses/burden in subdividing the lots, problem in payment of real property tax and eventually its disposal upon sale. Disposal of these real estate property is hindered by the unavailability of the land titles in the name of the AFPRSBS in addition to stiff competition in the market.
10. Meanwhile, the printed Inventory List provided by IRMD which is not updated was as at 31 March 2013 and there were already changes/releases during the year which were not reflected in the list. The custodian had to look into the Inventory List in his computer for any updates made.
11. We recommended that Management:
a. Prioritize the registration of titles in the name of the System;
b. Initiate subdividing the two lots shared with the other owners and register for sole ownership; and
c. Ensure that the inventory list is always updated
12. Management commented that it is already working for the transfer of the TCTs to its name for the property that it acquired. For the lots with pending court cases that are still ongoing, the System has no control over the same. Moreover, for the lots under joint venture agreement, some titles are registered under the name of the joint venture or the name of each of the joint venture partners based on the sharing agreement.
13. PMED has already initiated the subdivision of the two lots share with other owners.
14. The System has already an updated list of inventory of titles.
13. Leniency in the implementation of the System’s Employees Salary Loan resulted in unpaid loan of P0.268 million of six employees of the System who were separated from the service.
1. Personnel Policy No. 01-11-09, which took effect on 26 November 2009 and amendments thereat provides the policy on Employees Salary Loan (ESL).
2. The salient features are as follows:
|Loanable amount |Personnel Policy No. 01-11-09 dated 11/26/2009 50,000 |
| |Senior Management Co. 07-2011 dated 3/25/2011 100,000 |
| |BoT Meeting No. 05-2013 dated 10/24/2013 200,000 |
|Repayment Terms |Minimum of 6 months to a maximum of 26 months payable through automatic salary deduction in semi-monthly |
| |installments. |
|Procedures |Request for loan shall be on a first-come, first serve basis. The Human Resource (HR)-ASD shall evaluate |
|for availment |the capacity to pay of the borrower whose net take home pay per month must be P3,000. After which, the |
| |borrower must accomplish the Loan Agreement, Promissory Note and Authority to collect/deduct in three (3)|
| |copies. Proceeds of the loan shall be payable to the borrower and the check shall be released by the |
| |Treasury Department. |
|Monitoring of Loan |Deduction of the loan amortization shall start on the next payroll period after the release of the |
|Payments and Control |loan. The Controllership Department shall maintain the individual ledgers of the borrowers. Copies of the|
|of Documents |loan documents shall be kept in the vault for safekeeping. |
|Re-availment |Loan borrowers may re-avail of a loan upon payment of at least 75% of his existing salary loan. The |
| |balance from the original loan shall be deducted from the proceeds of the new loan. However, SMC 09-2011|
| |dated 06 May 2011 reduced the required payment of 75% to 30% of the existing loan to re- avail of a new |
| |loan. |
3. The Schedule of Outstanding Salary Loan showed a balance of P7,863,4761 as at 31 December 2013.
4. Included in the schedule are receivables from six employees with outstanding receivables in the amount of P267,656, five are resigned/retired, separated, and one died. Verification from the Human Resource officer disclosed that the employees did not file an application for clearance, hence their outstanding loan obligations could not be deducted against their separation benefits, if any, as provided under Personnel Policy No. 01-11-09.
5. Another employee who has resigned and secured a clearance has an overpayment on her loan in the amount of P2,016, however, no refund has yet been made to the employee.
6. No collection letters were sent to the separated employees to settle their outstanding loan and recovery thereof is not feasible for their separation benefits are not sufficient.
7. Our evaluation of the existing Policy showed that Management did not require a co-maker for each borrower considering that the maximum loanable amount has already increased from P50,000.00 to P200,000.
8. While we agree with Management decision to provide financial assistance to its employee and at the same time earned higher interest from its lending operation given the six per cent interest, diligent care must be exercised at all times for the member’s retirement.
9. We recommended that Management:
a. Exert effort to collect the unpaid loans of P267,656 from the separated employees;
b. Review the System’s loan policy to include a co-maker for each borrower. Include also the provision and the number of times he can act as such; and
c. Set-up an allowance for probable loss corresponding to the unpaid loan amount.
10. Management replied that several verbal coordination with the concerned former employees were made by the HRO staff and will comply with the recommendation to send out collection letters.
11. Management commented that the requirement for a co-maker was set aside since repayment of the loan was through automatic salary deduction and the borrowers will be the 83 bonafide regular employees of the System, hence the borrower and co-maker will only revolve among themselves. However, to safeguard the interest of the System, the Legal Department has ensured the inclusion of safeguard provisions in the Loan Agreement. Management will set-up in 2014 the allowance for probable loss corresponding to the unpaid loan amount.
12. We, therefore, recommend that Management revisit and increase the criteria/eligibility for the renewal of the loan from 30 per cent payment to at least 50%.
14. No Contract of Lease was executed by a lessee with the Industrial Park Management Office (IPMO) contrary to COA Circular No. 88-282A, thus prejudicial to the interest of the System. Moreover, three lessees did not comply with Sections 3.3.2 and 3.3.3 of the Contract of Lease on the remittance of rental payment resulting in opportunity loss to immediately use the funds for other purposes.
1. COA Circular No. 88-282A states that:
“The contract of lease shall be embodied in a public instrument and shall integrate all the covenants, understanding and agreements of the lessor and the lessee. Xxx.”
2. Likewise, the Civil Code of the Philippines requires that for a contract to be enforceable it must be reduced into writing and must be notarized. Otherwise the agreement has no effect and may just be treated as a mere scrap of paper and has no probative value.
3. The AFPRSBS Industrial Park Management Office (IPMO) located in Taguig City, with a total area of 90,249 sqm. (Lot 1 – 38,437 sqm., Lot 2 – 2,520 sqm., Lot 3 – 49,292 sqm.) was declared as its Industrial Park per Proclamation No. 1218, dated May 8, 1998 issued by then President Fidel V. Ramos. The IPMO leases its facilities and open spaces to various lessees.
4. The list of tenants as at February 2014, furnished by the Administrative Officer, IPMO showed that there are 24 facilities and all are occupied.
5. All contracts, except for one, are in order, signed, notarized and submitted to the System. However, one lessee (JADGC Holdings Inc.,) had an expired contract since April 2008. A new contract has been sent to the company, however they did not sign and return the contract of lease but only signed in a prepared document which bears the terms of the lease with the conforme of the lessee which was executed as a draft of the lease contract.
6. Meanwhile, paragraph 3.3.2 of the lease contracts provides that payment of monthly rentals should be made on the 5th of the month and paragraph 3.3.3 provides a penalty of two per cent per month of the total sum due and unpaid as of the day of delay/default shall be imposed by the System. However, three lessees failed to remit their payment on time but the System did not imposed the penalty as provided under the lease contracts.
7. We recommended that Management:
a. Execute a lease contract duly notarized, before turning over the property to the lessee in compliance with COA Circular No. 88-282A and the provision of the Civil Code of the Philippines;
b. Require JADGCHI to sign and return the contract of lease to the System, otherwise, terminate the lease on the date specified on the signed documents with conforme;
c. Strictly impose and monitor the stipulations in the contracts of lease for the benefit of the system and its members; and
d. Impose penalty on the delayed remittance of the three lessees.
8. Management replied that –
a. The System permits the lessee to enter the premises/facility only to allow the locators to make renovations/improvements on the unit subject of lease prior to actual occupancy. This period of ingress is included in the agreed upon terms and conditions between RSBS and the tenants/lessees.
b. The contract of lease with JADGCHI has already expired after April 2008 and was never renewed because of its unpaid obligations and therefore, there is no contract to terminate. The account is now being handled by our Legal Department for a collection case against the company. Terms are currently being negotiated with Outsourcing & Management Services, Inc. (OMSI), which is presently occupying the space vacated by JADGCHI. OMSI is current in its monthly rental payments. Payments by OMSI, however, are being made for the account of JADGCHI.
c. On the observation made by the auditors that the three IPMO lessees failed to remit their payments on time, the Property Management & Enhancement Department has already taken the necessary actions.
c. The System imposes penalties, not interest, for every delayed remittance of rental payments of tenants as provided for in the lease contracts.
9. We maintain our position that Management has to execute a new contract of lease with OMSI, the present occupant of the premises formerly leased to JADGCHI, whose lease agreement was terminated for failure to pay the monthly rentals. Hence, rental payments made by OMSI should not be for the account of JADGCHI.
15. Asset foreclosed in 2009 with a book value of P254.702 million covering 213 Condominium Certificate of Titles (CCTs) and the Transfer Certificate of Title (TCT) of the land where the condominium stands has not been disposed, thus, the System has not recovered its investment. Moreover, the System continues to incur expenses pertaining to the real property tax on the lot.
1. The System foreclosed the 213 condominium units and the land where it is erected on March 16, 2009, for failure of the mortgagor to pay its obligation upon maturity date. The title on the condominium units and the lot has been consolidated in the name of the System.
2. Ocular inspection of the condominium units revealed that the same is not completed and with its condition, the System may not be able to recover its investment. We also found out that there are three owners of the condominium/building although from our interview with the caretaker of one of the owners of the condo/building, RSBS has the most number of units owned. The System continues to incur expenses by way of payment of Real Property Tax amounting to P120,965.40.
3. The inability of the System to dispose its acquired assets may result in the continuous deterioration of the asset, the incurrence of additional expenses, and ultimately, the non-recovery of the System’s investment.
4. We recommended that Management exert effort to immediately disposed its acquired assets to recover its investment.
5. Management replied that it will take note of the abovecited recommendation. Management also commented that the Accounts Management Department is no longer entering into new commercial loan agreements in light of the winding-down status of AFPRSBS.
16. The System did not submit its 2013 Corporate Operating Budget (COB) to the Department of Budget and Management (DBM) for review, evaluation and approval as required under Section 6 of Executive Order (EO) No. 518 dated 23 January 1979, otherwise known as the “Government Corporate Budget Executive Order of 1978.”
1. Section 6 EO No. 518 on Operating Budget states that:
Each government-owned or controlled corporation (GOCC) shall prepare an operating budget consisting of (1) estimates of revenue, (2) estimates of expenditure, and (3) estimates of borrowings. The expenditure estimates shall cover current operating and capital expenditures. The operating budget of each government-owned or controlled corporation shall be prepared following such procedure and guidelines as may be determined by the President/Prime Minister. They shall be prepared prior to the beginning of the fiscal year and recommended by the Governing Board of the Corporation, for consideration and final approval by the President/Prime Minister.
2. The salient provisions of EO 518 require ALL GOCCs, regardless of whether they receive funding support from the National Government or not, to prepare their COBs in accordance with EO 518 and the procedure and guidelines prescribed by the DBM. The COBs shall be approved by their respective governing boards and submitted to the Secretary of Budget and Management for review and evaluation as part of the budget process.
3. We gathered and verified that the System’s budget was not submitted to DBM for its review and evaluation and approval in view of the System official’s contention that the System is not a government corporation.
4. We recommended and Management concurred to submit its 2013 and 2014 COB for review, evaluation and approval of the DBM.
17. The allowances and benefits totalling to P0.688 granted to employees, as well as per diem and research allowance granted to the members of the Board of Trustees (BOT) totaling to P0.919 million were not in accordance with authorized rate prescribed under the Department of Budget and Management (DBM) Budget Circular No. 2010-1 dated 28 April 2010 and other rules and regulations.
Payment of per diem and research allowance of the members of BOT
1. Section 7, Article IX-B, Item 3.3, Roman No. II, GCG-MC -2012-2 Re-issued dated May 2, 2012 containing the General Rule Against Dual or Multiple Offices or Employment of Public Officials, Not Covering Cabinet Officials, provides that:
“SEC.7. xxx. Unless otherwise allowed by law or by the primary functions of his position, no appointive official shall hold any other office or employment in the Government or any subdivision, agency or instrumentality thereof, including government-owned or controlled corporations or their subsidiaries.”
2. As Appointive Director, they are covered by Item 3.4 Roman No. II of GCG–MC-2012-2 (Re-issued), which adopted Section 8, Article IX-B, providing for the Rule Against Additional or Double Compensation for Public Officials and Employees
“Section 8. No Elective or appointive public officer or employee shall receive additional, double, or indirect compensation, unless specifically authorized by law, nor accept without the consent of the Congress, xxx.”
3. Documents showed that the officers of Department of National Defense (DND) and other branches of the military, by virtue of their position, becomes the members of the AFPRSBS BOT, except, for the President and Chief Executive Officer who is appointed by the Secretary of the DND.
4. Verification disclosed that there were nine officials of AFPRSBS who are granted per diems and research allowance contrary to Item 3.4 Roman No. II of GCG–MC-2012-2 (Re-issued), on additional or double compensation for public officials and employees, as follows:
| |Offices |Per Diem |Research Allowance| |
|Payee’s Position | | | |Total |
|Chief of Staff/Chairman (12 mos) |DND |60,000 |84,000 |144,000 |
|Ex Chief of Staff/Chairman (1 mo) |DND |10,000 |7,000 |17,000 |
|Pres.,/Vice Chairman |RSBS |30,000 |0 |30,000 |
|Ex Pres., /Vice Chairman |RSBS |30,000 |0 |30,000 |
|LTGen/ /Trustee |CG,PA |30,000 |42,000 |72,000 |
|LTGen/ /Trustee |CG,PAF |30,000 |84,000 |114,000 |
|VADM/FOIC, /Trustee |PN |20,000 |84,000 |104,000 |
|DCS,J1/Trustee |PA |60,000 |84,000 |144,000 |
|OTIA/Trustee (8 mos) |DND |30,000 |56,000 |86,000 |
|OTIA/Trustee (2 mos) |DND |20,000 |14,000 |34,000 |
|FCMS/Trustee |PA |60,000 |84,000 |144,000 |
|TOTAL | |380,000 |539,000 |919,000 |
5. Management commented that as early as February 2013, they have coordinated with the GCG on the status of the System and the members of its Board of Trustees (BoT). The System was advised to maintain the status quo of the BoT and to consider the incumbent Trustees in holdover capacities pending clarification with the Office of the President of the Philippines on the status of the System in view of the existence of Executive Order No. 590-A. To date, the System has not yet received such clarification. Moreso, the appointed Trustees terms of office have not yet expired.
Allowances and other benefits granted to officers and employees
6. The following allowances and benefits paid by AFPRSBS to its officers and employees for CY 2013 are not in accordance with the pertinent rules and regulations summarized as follows:
|Nature of Benefits and allowances |Amount |Remarks |
|cash gift |326,000 |Total amount in excess of the authorized rate prescribed |
| | |under the Department of Budget and Management (DBM) Budget |
| | |Circular No. 2010-1 dated 28 April 2010-1. |
|service loyalty cash incentive bonus |125,000 |Total amount granted to six employees of AFPRSBS in excess |
| | |of the amount prescribed under CSC Memorandum Circular No. |
| | |6, s. 2002 as implemented by COA Circular No. 2013-003A dated|
| | |18 September 2013 |
|Rice subsidy |236,656 |Value of rice allowance in excess of the P1,500 limit for the|
| | |“de minimis” benefit as intended in AFPRSBS Standard |
| | |Operating Procedure No. HRMO-98-01 |
|Total |687,656 | |
Cash Gift
7. DBM Budget Circular No. 2010-1 dated 28 April 2010 provides the Rules and Regulations on the Grant of Year-End Bonus and Cash Gift for FY 2010 and years thereafter pursuant to Joint Resolution No. 4
8. Section 6.1 of the said Circular states that the Year-End Bonus equivalent to one (1) month basic pay as of October 31 of the year and the Cash Gift at P5,000.00 shall be granted to each personnel who has rendered at least a total or an aggregate of four (4) months of service from January 1 to October 31 of the year, including leaves of absence with pay, and who is still in the service as of October 31 of the same year.
9. Verification of the year-end bonus payroll disclosed that the System granted cash gift of P14,000.00 each to its officers and employees totaling P1,613,200.00, which is higher by P9,000.00 from the approved rates set forth under the above cited Budget Circular.
Service loyalty cash incentive bonus
10. Item 6 of CSC Memorandum Circular No. 6, s. 2002 states that in addition to the loyalty memorabilia/souvenir, a cash gift which shall not be less than P500.00 but not more than P1,000.00 for every year of service shall be given to qualified officials or employees as follows:
10th year from P5,000.00 to P10,000.00
15th year - from P2,500.00 to P5,000.00
20th year - from P2,500.00 to P5,000.00
25th year - from P2,500.00 to P5,000.00
30th year - from P2,500.00 to P5,000.00
35th year - from P2,500.00 to P5,000.00
40th year - from P2,500.00 to P5,000.00
11. During the year, a total of P185,000 loyalty cash incentive bonus were granted to nine employees during the anniversary celebration of the System. Two received P30,000 each corresponding to 30 years of service, three received P25,000 each for 25 years of service, one received P20,000 for 20 years of service and three received P10,000 each for 10 years of service. Except for the last three employees who have rendered 10 years of service with an equivalent loyalty cash award of P10,000 each, the six other awardees were given loyalty cash award in excess of the rates prescribed under CSC Memorandum Circular No.6.
Rice Allowance
12. Executive Order No. 51 issued on 22 December 1998 directs all Departments, Bureaus, Offices, Agencies and Instrumentalities of the National Government including Government-Owned and Controlled Corporations, the Armed Forces of the Philippines and the Philippine National Police who either provide rice to their employees as a form of incentive or non-monetary benefit or use rice in connection with their functions, to purchase their rice requirements from the National Food Authority (NFA).
13. Section 1 of said EO states that the National Food Authority shall be the primary supplier or source of government entities that either grant rice as a form of incentive or benefit to their employees or use rice in connection with their functions. Only upon issuance of an NFA waiver can these government entities source rice elsewhere. (emphasis supplied)
14. AFPRSBS Standard Operating Procedure No. HRMO-98-01 on the subject “De Minims’ Fringe Benefits provides that the System shall grant fringe benefits to all regular employees. The General Services Department shall be the office of prime responsibility in the administration of this benefit, in coordination with the Human Resources Management Office, Office of the Controller and Finance Department.
15. The term “De Minimis” benefits which are exempt from the fringe benefit tax shall, in general, be limited to facilities or privileges furnished or offered by an employer to his employees that are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees.
16. Bureau of Internal Revenue (BIR) Revenue Regulations No.5-2011 dated 16 March 2011, prescribes that the following shall be considered as ‘de minimis” benefits not subject to income tax as well as withholding tax on compensation income of both managerial and rank and file employees, to wit:
xxxx
d) Rice subsidy of P1,500.00 or one (1) sack of 50 kg rice per month amounting to not more than P1,500.00. (emphasis ours)
17. Rice subsidy equivalent to one sack of rice is granted on a monthly basis to regular employees who are hired prior to 2004.
18. Contrary to Section 1of EO 51, records disclosed that the System purchased rice from different retailers through shopping/canvassing mode of purchases. As such, the Rice Bidding Committee meets monthly to witness the opening of bids and award the same to the lowest responsive bidder. Details of the transactions are as follows:
| | | | |No. of |Cost/ Sack |
|Date |Ref. No. |Payee |Amount |Availees | |
|1/31/2013 |NI 97859 |Cresto Trading |120,960.00 |72 |1,680.00 |
|2/20/2013 |NI 98584 |ML Morada Enterprises |124,147.80 |73 |1,670.00 |
|3/12/2013 |NI 99458 |Nueva Ecija Rice Center |124,500.00 |75 |1,660.00 |
|4/18/2013 |NI 100691 |Nueva Ecija Rice Center |121,180.00 |73 |1,660.00 |
|5/23/2013 |NI 101900 |Nueva Ecija Rice Center |117,561.20 |72 |1,660.00 |
|6/11/2013 |NI 102621 |ML Morada Enterprises |117,325.60 |72 |1,640.00 |
|7/24/2013 |NI 104049 |Nueva Ecija Rice Center |120,950.40 |72 |1,720.00 |
|8/06/2013 |NI 104543 |Nueva Ecija Rice Center |129,456.00 |72 |1,798.00 |
|9/26/2013 |NI 105988 |Nueva Ecija Rice Center |142,200.00 |72 |1,975.00 |
|10/16/2013 |NI 106387 |GCMR Trading |139,300.00 |70 |1,990.00 |
|11/19/2013 |NI 107090 |GCMR Trading |138,450.00 |71 |1,950.00 |
|12/17/2013 |NI 107879 |Cresto Trading |133,684.00 |71 |1,900.00 |
|Total | | |1,529,715.00 | | |
19. From the above data/schedule, the amount of rice subsidy given in kind to its employees exceeded the authorized amount of P1,500.00, thus, could no longer qualify as “de minimis”, per Bureau of Internal Revenue (BIR) Revenue Regulations No.5-2011. Total excess for all employees for CY 2013 amounted to P236,656.00
20. We recommended that Management require:
a. the six employees to refund the total amount of P125,000 representing the service loyalty cash incentive bonus in excess over the amount prescribed under CSC Memorandum Circular No. 6, s. 2002;
b. the officials and employees to refund cash gift received in excess of the authorized rate prescribed under the Department of Budget and Management (DBM) Budget Circular No. 2010-1.
c. for the rice subsidy, comply with the requirement of EO 51 on the purchase of rice from the National Food Authority to save on bidding expenses and maintain the P1,500.00 limit of rice subsidy; and
d. refund of the amount of P236,656 representing the amount in excess of the P1,500 granted to all employees of AFPRSBS.
21. On the grant of cash gift, Management replied that the grant of cash gift to RSBS employees is a benefit that has been given to the employees since 2003 and was funded through annual budgets approved by the Board of Trustees, hence, in view of the principle of non-diminution on salary and benefits, even after the RSBS was already declared as government institution, RSBS policies pertaining to salaries and benefits not present in the structure of the government were continued to be provided to employees.
22. Management also replied that prior to 2004 when the Supreme Court issued its opinion that the fund of the System is imbued with public interest, the RSBS has been operating like a private institution. It has its own salary and benefits structure different from that of the government and supported by an internally-generated budget approved by its Board of Trustees. Even after the RSBS was already declared as government institution, RSBS policies pertaining to salaries and benefits not present in the structure of the government were continued to be provided to employees.
23. Loyalty Cash Incentive Bonus is given to employees who were employed with the System for continuous ten (10), fifteen (15), twenty (20), twenty-five (25), thirty (30) and thirty-five (35) years in service. This benefit is given as reward for their loyalty and dedicated service for several years now even before the System was declared as a government institution. Decreasing the benefit would violate the employees their right to the principle on “non-diminution of benefits” and would constitute an inequity to those who received in year 2013. In 2013, the BoT approved the allocation of P374,000 as cash incentives for Loyalty Awardees of the year. The amount disbursed as incentive for 2013 Loyalty Awardees was well within the approved budget for 2013.
24. Management requests consideration of the payments made for Christmas Cash Gift and Loyalty Awards for the year 2013. The employees were not given the productivity enhancement incentive of P5,000 granted in accordance with DBM Budget Circular No. 2013-3. For the year 2014, the System will coordinate with the GCG for the identification of the benefit entitlements of the System’s employees.
25. Management replied that it will comply with the recommendations of the auditors. Coordination will be made with the NFA for the procurement of rice subsidy and any amount in excess of the allowed de minimis benefit will be subject to tax.
26. We maintain our recommendation on the refund of the excess cash gift and loyalty cash incentive bonus since it does not fall under the principle on non-diminution of benefits. Loyalty award is given to those employees celebrating their milestones, as such, it is only given once every five years. Moreover, the disallowance will apply to all who had received the same since the System was recognized as a government entity.
27. As discussed during the exit conference, the amount in excess of P1,500 has to be refunded, otherwise, will be disallowed in audit.
18. Withdrawal of gasoline by private vehicles from the AFP Commissary and Exchange Services (AFPCES) totaling P0.205 million is contrary to Section 4 (2) of Presidential Decree (PD) 1445 and Section 7 of COA Circular No. 77-61 dated September 26, 1977, hence considered irregular expenses, as defined under Section 3 of COA Circular 2012-003 dated 29 October.
1. Section 4 (2) of Presidential Decree (PD) 1445 – The State Audit Code of the Philippines and COA Circular 2012-003 dated 29 October states that:
“Section 4. Fundamental principles. Financial transactions and operations of any government agency shall be governed by the fundamental principles set forth hereunder, to wit:
xxx
Government funds or property shall be spent or used solely for public purposes.” (emphasis ours)
2. Section 7 of COA Circular No. 77-61 prescribing the manual on the audit of fuel consumption states that;
No disbursement voucher for fuel consumption (gasoline and oil) shall be allowed in audit unless duly supported by properly accomplished and approved serially numbered driver’s trip ticket and that the government vehicles involved are plainly marked For Official Use Only and bear government plates only with the exception of security vehicles exempt from using government plates.
3. Section 3 of COA Circular 2012-003 dated 29 October 2012 on Updated Guidelines for the Prevention and Disallowance of Irregular, Unnecessary, Excessive, Extravagant and Unconscionable Expenditure (IUEEUE) defines Irregular Expenditures as an expenditure that is incurred without adhering to established rules, regulations, procedural guidelines, policies, principles or practices that have gained recognition in laws. Irregular expenditures are incurred if funds are disbursed without conforming with prescribed usages and rules of discipline.
4. Moreover, there is no observance of an established pattern, course, mode of action, behavior or conduct in the incurrence of an irregular expenditure. A transaction conducted in a manner that deviates or departs from, or which does not comply with standards set is deemed irregular. A transaction which fails to follow or violates appropriate rules of procedures is likewise, irregular.” (italization supplied)
5. The AFPRSBS Chart of Accounts describe Fuel and Oil (901109) now Petroleum, Oil and Lubricant (POL) as expenses incurred for gasoline, fuel and oil used on System’s owned vehicles and other equipment. Each withdrawal of gasoline is supported by a Driver’s Trip Ticket and Gas Slip issued by the dispatcher and approved by the Head, General Services Department (GSD).
6. Analysis of the account and verification of the Gas Slip showed that during the year, owners of “private vehicles” had withdrawn gasoline worth P205,025 from the
AFPCES, the official gasoline depot of the System. Among them are the former President and CEO, officers, personnel of the System and even contractual employees. Moreover, seven of these officers/personnel have more than one vehicle alternately withdrawing gasoline. In one instance, a separated employee was able to withdraw gasoline using a gas slip issued and approved by the Head, GSD. Details are summarized as follows:
|Withdrawn by: |Amount |
|Former President and CEO |3,207.29 |
|Other officers, personnel of the System |155,004.89 |
|Contractual employees |45,674.75 |
|Separated Employees |1,138.50 |
|Total |205,025.43 |
7. Review of the Contractual Employment Agreement disclosed that as contractual employee, they are not entitled to company benefits and privileges enjoyed by the regular employees. Withdrawal of gasoline for their private vehicles is not in accordance with Section 7 of COA Circular No. 77-61. (emphasis ours)
8. Interview with Accounting Personnel and verification of subsidiary ledgers revealed that the availment/withdrawal of gasoline for their private vehicles is in lieu of the Transportation Allowance since the officers of the System do not claim such allowance due to their misinterpretation of the amount authorized under the DBM Circular on the grant of Representation and Transportation Allowance (RATA)
9. Verification showed that no transportation allowance was paid for those entitled to receive RATA.
10. We recommended Management to:
a. Stop the practice of withdrawing gasoline from AFPCES Depot for use of private vehicles;
b. Cause the immediate refund of the equivalent cost of gasoline withdrawn by private vehicles since these are irregular expenditures; and
c. Include in the Corporate Operating Budget (COB) submitted to DBM the Transportation Allowance to officers of the System entitled thereto.
11. Management replied that at present, the System has only four (4) available service vehicles to accommodate the daily transportation requirements of the operating and support offices. The granting of gasoline allocation to private/personal vehicles for official trip(s) cannot at all be avoided due to insufficiency of company-owned service vehicles. This is being done so as not to hamper the activities of the requesting units.
12. The granting of gasoline allocation is well within the provisions of RSBS Office Policy Number 03-01-94 pertaining to the use of Transportation Vehicle and Issuance of Gasoline Allowance which provides that “in the absence of the System’s vehicle, gasoline allocation for the use of private/personal vehicle for official trip(s) shall be allowed upon approval of the group/department head of the requesting unit/department”. All gas allocations noted by the auditors are properly approved and were all used on official business transactions. It should be taken into consideration that the use of the private vehicles causes wear and tear and there are risks being taken by the owners of the vehicles. The System is not compensating the owners for the same.
13. The officers of the System that were issued with gas allocation were authorized to receive the same since, in the year 2013, they were not receiving the Transportation Allowances authorized by the DBM. Although there was no approved budget for the Transportation Allowances of the officers in 2013, there were budgets for the Petroleum, Oil, and Lubricants (POL) expenses for official business travels. Based on the Income Statement of the System for 2013, the actual disbursements for POL is P2.119 million as against the budget of P2.414 million. This shows that all disbursements for POL including the gas allocations made to private vehicles owned by the officers are well within the approved budget.
14. In the case of the separated employee, she was being considered by the System to be a Consultant in the cleansing/documentation of various real estate transactions of the System since she has already established contacts with various government agencies. Pending the finalization of her contract, she was already working on some of the transactions and GSD was instructed by the former President to provide gas allocations to cover her travels to and from Cavite, Quezon City, and other Metro Manila areas. The contract with the separated employee was not consummated, hence, only the gas allocation amounting to P1,138 was used to pay for the transfer of country club shares for nine (9) buyers which translates to a cost of P500 per account.
15. The gas issuances to the former President pertain to the use of his pick-up vehicle during the company summer outing in May 2013, at the time he was still the President.
16. Management, therefore, affirms that all issuances made to private vehicles as authorized and that the personnel identified by the auditors (rank & file and contractual employees) should not be required to refund the corresponding amount of the issued gas allocations. The System is the one who benefited the most considering the savings on maintenance and depreciation expenses.
17. The System has already included in its 2014 budget the Transportation Allowances of the entitled officers. Also, included in the approved budget is the procurement of 3 vehicles (including 1 motor vehicle for messengerial activities). With this, the granting of gas to private vehicles on official travel will be limited.
18. We maintain that the System cannot authorize the purchase of gasoline for private vehicles. Payment in the amount of P205,025.43 will be disallowed in audit.
19. The System’s hard disk server crashed and untested data back-up and restore procedures after crash affected the master data records resulting in data lost, inaccurate processing/computation of borrowers’ loan balances, interest charges and fines; and further affecting the integrity of data, which may result in the generation of unreliable information and over or under statement of financial records.
1. Database integrity relates to the accuracy and completeness of information as well as its validity in accordance with business values and expectations. In relation to Information Communication and Technology (ICT) processes, master data serves as the basis for transaction processing, thus controls over the integrity and quality of the data should exist. An erroneous master data will compromise the integrity of whatever transactions that use the field values stored in the specific table/file.
2. DS11 Manage Data - Effective data management requires identifying data requirements. The data management process also includes the establishment of effective procedures to manage the media library, backup and recovery of data, and proper disposal of media. Effective data management helps ensure the quality, timeliness and availability of business data.
3. DS11.1 Business Requirements for Data Management - Verify that all data expected for processing are received and processed completely, accurately and in a timely manner, and all output is delivered in accordance with business requirements. Support restart and reprocessing needs.
4. Business Disaster and Recovery Plan (BDRP) is a major IT process that assesses the preparedness of the System in handling disaster in the event that any force majeure, man-made or fortuitous events, will occur like, earthquakes, typhoons, fires, bombings, theft, sabotages, systems and database crashes etc.
5. Policies and Plans on Business Disaster, Recovery and Contingency are vital and integral components to ensure the continuity and operational requirements of the agency on the basis of the following major domains of COBIT version 4.1.
6. (DS4) Ensure Continuous Service - the need for providing continuous IT requirements and services that requires developing, maintaining and testing of IT disaster and continuity plans, utilization of offsite backup storage facilities and providing periodic continuity plan training. An effective continuous service process minimizes the probability and impact of a major IT service interruption on key business functions and processes.
7. (DS4.8) IT Services Recovery and Resumption - Plan the actions to be taken for the period when IT is recovering and resuming services. This may include activation of backup sites, initiation of alternative processing, communication with customer, and resumption procedures. Ensure that the business understands IT recovery times and the necessary technology investments to support business recovery and resumption needs.
8. (DS4.9) Offsite Backup Storage - Store offsite all critical backup media, documentation and other IT resources necessary for IT recovery and business continuity plans. Determine the content of backup storage in collaboration between business process owners and IT personnel. Management of the offsite storage facility should respond to the data classification policy and the enterprise’s media storage practices. IT management should ensure that offsite arrangements are periodically assessed, at least annually, for content, environmental protection and security. Ensure compatibility of hardware and software to restore archived data, and periodically test and refresh archived data.
9. In the course of the IT audit conducted for Management Information Systems Office (MISO) of the System, the audit team prepared several Internal Control Questionnaires (ICQs) related to IT policies, procedures and processes. Among the ICQs are the Business Disaster and Recovery Plan (BDRP) accomplished by the Branch Heads of Systems Development and Systems and Database Administration - MISO. The answered ICQs, as validated through interview, disclosed that currently MISO does not have strategic offsite back-up storage where backup data and application systems could be stored. Presently, the offsite backup data and application systems storage is just stored in one of the annex building but within the compound of RSBS premises which is not in accordance with the best practices in the IT industry.
10. Inquiries conducted with the two (2) Branch Head of MISO revealed that there was an incident that occurred on 27 February 2012 wherein two (2) hard disks of the SunFire 4800 Server simultaneously crashed that damaged the IFMS database.
11. After the server crashed, MISO technical staff/s attempted to restore and recover lost data files using the latest data backup but unfortunately it failed. The reasons given is that the data tapes (backup media) that were used to back-up the data have a low disk capacity which means that saving all data for a full back-up procedures cannot be attained and this was only discovered after the data server have crashed. This only showed that saving data and restore procedures were never tested prior to the implementation of IFM application system.
12. This incident showed that the System is not fully prepared to deal with any major IT service interruption, whether force majeure or fortuitous events beyond their control and the lack of capacity and capability to address such problems in providing continuous or restoring service at the least possible time.
13. Having a well-tested and effective BDRC plan could have save the System from a major impact of IT service interruption on key business functions and processes and minimizes the probability of lost databases.
14. Meeting with the head of the Management Information Systems Office (MISO) and section head of Treasury Department (TD) disclosed that there were approximately 4,250 Official Receipts (ORs) that were affected by the crash of the two hard disks of the Sunfire 4800 server and ultimately damaged the database of Integrated Financial Management Systems (IFMS).
15. In the absence of operational IFMS and access to the database, TD has no recourse but to manually encode the ORs issued using MS Excel.
16. Interviews disclosed that an IT Consultant was hired to perform the cloning of the production database in preparation for the uploading of the manually encoded ORs in view of the design limitations on IFMS application system.
17. However, after the cloning and uploading of the OR’s in the production server, the mandatory data fields for Official Receipt Number were missing. Moreover, there were negative values in the OR amount as shown on the data entry screen module.
18. Clarification on the existence of negative values in OR amount revealed that said negative values assumed values on the basis of previous month’s remittances as discussed by one of the member of the IT Task Force. These only strengthened our observations that the master data for OR’s issuance is unreliable and inaccurate.
19. We recommended that Management:
a. Fast-track the re-encoding of the OR data that were affected by the hard disks crash;
b. Study the possibility of outsourcing computer programmer who can enhance the program procedures/routines on how to re-compute ORs issued from start of payment until the application of last payment;
c. Examine the existence of OR amounts with negative values and effect immediate corrections;
d. Ensure that a complete check routine on mandatory fields where these fields must be populated with valid entries and not to accept blank and null entries, particularly, in the OR numbers, OR dates and OR amounts;
e. Update and formulate policies and procedures on Business Disaster, Recovery and Contingency procedures;
f. Re-locate the Offsite backup data storage facility to a more strategic location outside the proximity of the main processing center (MISO); and
g. Test and improve the data backup and restore procedures;
20. Management replied that –
a. The Management Information System has already uploaded the Official Receipts that were manually prepared on February 21, 2014.
b. The services of a former MISO employee were acquired to train the current MIS personnel and at the same time enhance and resolve some issues currently being encountered on IFMS2.
c. The negative entries pertain to the adjustments made for monthly contributions which were uploaded/captured twice in the SLs. The negative values represent the amount adjusted to arrive at the correct total contributions made by the members
d. The IT Task Force is currently assessing all the problems and issues encountered by the users of IFMS1 and IFMS2 as a result of the system crash in February 2012. The enhancement of IFMS2 application was programmed to be undertaken by MISO after the migration period.
21. Management further commented that it will review the current policies and procedures on Business Disater, Recovery and Contingency procedured and make the necessary amendments/corrections.
22. Further, the Technical Working Group is drafting the Terms of Reference for the migration project from Sunfire 4800 Enterprise Server Spare Processor to IBM X3500 M3 servers with Intel processor. The data backup storage and test/restore procedure will be addressed after the migration project.
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