AUDIT OBSERVATIONS AND RECOMMENDATIONS
- Aircraft inventories which are considered worthless because these could no longer be installed to aircrafts or be sold to clients for lack of authenticating documents from respective manufacturers are still presented at a net realizable value of P35.032 million, thereby overstating the inventory and understating the expense accounts by the same amount.
International Accounting Standard (IAS) No. 2 requires that inventory items be measured at lower of cost or net realizable value (NRV). This necessitates that a periodic assessment of the items be conducted to determine their commercial value, and to provide an allowance for their obsolescence, if warranted.
The breakdown of aircraft inventory account as of December 31, 2013 per reclassification made is as follows:
Particulars / AmountUnserviceable (w/o authenticating documents) / 58,596,202
Allowance for obsolescence (provided in 1991) / 23,563,740
Net / 35,032,462
Serviceable (with authenticating documents) / 5,006,566
Reparable / 2,968,298
Job-in-process / 10,036,458
Total / 53,043,784
As shown in the above reclassification, unserviceable aircraft inventories (without authenticating documents) are still presented at a net realizable value of P35,032,462. They are assets recorded in the books but have no commercial value because such items can no longer be installed to the aircrafts nor can be sold to the clients. These inventory items, being valueless, should be dropped from the books.
Management committed that they will set up an additional allowance for obsolescence in 2013 once the reclassification has been completed. We noted that despite Management’s completion of the re-tagging and reclassification of aircraft inventory, no adjustments were made to the allowance account. We have reiterated in previous years’ Annual Audit Reports that the last allowance for obsolescence was provided in CY 1991. Therefore, there has been no provision for the past 22 years and consequently, the aircraft inventory account is not reflected at lower of cost or NRV.
In view hereof, we reiterated our previous years’ audit recommendation that the appropriate adjustments be made to the allowance for inventory obsolescence.
Management replied that their commitment to set-up an additional allowance for obsolescence was held in abeyance because a Fact Finding Committee is still validating the condition of inventories. They assured that they will certainly take the necessary adjustments once the Committee has established the facts for its obsolescence and non-traceability.
- The validity of PADC’s spending has become doubtful or indeterminate given that its Corporate Operating Budget (COB) for CY 2013 was returned without action by the Department of Budget and Management (DBM) for being submitted in January 2014 or after the budget year.
Section 6 of Executive Order No. 518 dated January 23, 1979 otherwise known as the “Government Corporate Budget Executive Order of 1978” requires government-owned or controlled corporations to prepare an operating budget prior to the beginning of the year and have it recommended by its Governing Board for consideration and approval by the President/Prime Minister (presently delegated to the Department of Budget and Management).
Further, Section 15 of said Order provides that “No government-owned or controlled corporation shall incur obligations or make payments for current operating or capital expenditures after the beginning of each calendar year without a budget as approved under this Order.”
For 2013, the Corporation projected revenues of P75 million; operating expenses of P71.827 million; and a net income of P7.44 million.
Upon inquiry from Management, we learned that the Corporation’s CY 2013 COB was returned without action by the DBM for having been submitted on January 7, 2014 or after the budget year. Apparently, the COB could not be submittedearlier to the DBM because approval from the Governing Board could not be obtained since it has not convened for meetings since April 2012. However, on December 18, 2013, majority of the Board members approved the COB through an ad-referendum per Board Resolution No. 04-2013. Only thereafter was it completed and submitted to the DBM.
The inaction by the DBM has placed the Corporation’s CY 2013 spending in a loose foothold given that no approval was obtained. Section 15 of EO 518 is specific that prior budget approval must be obtained before obligations are incurred or payments made by GOCCs.
In view thereof, we recommended that all available remedies be sought by Management to obtain DBM approval of the Corporation’s CY 2013 COB.
Management averred that the OIC, Controller has been in constant communication with the DBM for possible approval or confirmation of the total actual expenditures of PADC for CY 2013.
- The Property and Equipment (PE) account stated at a gross value of P96.059 million is overstated by P1.336 million representing condemned and lost items.
The Propertyand Equipment account is composed of the following:
Acquisition Cost / Accumulated Depreciation / Net BookValue
Buildings & other structures / 27,597,260.08 / 21,865,954.25 / 5,731,305.83
Leasehold improvement - Buildings / (1,236,331.80) / (1,236,331.80) / -
Leasehold improvement - Land / 455,279.70 / 455,279.70 / -
Office equipment / 12,840,464.31 / 11,346,071.95 / 1,494,392.36
Tech. & scientific - Machequipt. / 40,856,374.48 / 35,464,670.70 / 5,391,703.78
Land transport / 5,747,659.91 / 5,172,893.92 / 574,765.99
Aircraft & aircraft - ground equipment / 8,884,516.44 / 7,996,064.80 / 888,451.64
Communication equipment / 494,747.44 / 445,272.70 / 49,474.74
Other machinery & equipment / 26,411.22 / 26,411.22 / -
Technical library books / 29,492.96 / 976.95 / 28,516.01
IT& software equipment / 363,042.87 / 68,600.68 / 294,442.19
96,058,917.61 / 81,605,865.07 / 14,453,052.54
The above PE account included the following items:
Condemned items (various) / 1,274,051.12Land transport account (1 unit motorcycle) / 61,875.00
1,335,926.12
We noted that P1,274,051.12 invarious items out of P96,058,917.61 have been reclassified as condemned upon completion of the retagging and reclassification made on the PE. These items pertained to items that have been kept in the stockroom for several years for being defective and/or obsolete.
Moreover, one unit motorcycle under the Land transport account was lost on February 18, 2008 but still continues to be carried in the books. Request to the COA CGS Cluster Director for relief from property accountability for the loss thru theft was made on July 31, 2008 and August 27, 2008, respectively. However the request for relief was denied for lack of merit and Mr. Rolando P. Broas, the accountable officer, was required to pay the acquisition cost of the lost motorcycle amounting to P61,875 under COA LSS Decision No. 2009-078 dated February 19, 2009. On March 10, 2010, Mr. Broas sought for a reconsideration of LSS Decision No. 2009-078. To date,a reply from the Office of theCOA Legal Services Sector has remained pending.
Regardless of the decision of the request for relief, the value of the lost motorcycle should be dropped from the books.
In view thereof, we recommended that Management make the necessary adjustments to the PE account to take up the condemned items and the loss of motorcycle.
- PADC is not updated in recording of accruals and payments of liabilities.
Verification of the Accrued Liabilities account showed that out of P3.440 million recorded OGCC assessments only P1.056 million were paid and out of the P11.852 million recorded COA assessments, only P2.400 million were paid to show:
OGCC / COABeg.balance,January 1, 2004 / 2,525,000.00 / 8,618,668.13
Accruals (2005-2007) / 625,000.00 / 3,233,278.96
Accruals (2007-2013) / 290,000.00 / -
Adjustments / - / (947,671.36)
Payments (2006-2013) / (1,056,500.00) / (2,400,000.00)
Ending balance / 2,383,500.00 / 8,504,275.73
Moreover, it was noted that no further accrual for the cost of audit services to COA was recorded from 2007 to the presentfor the reason that PADC will also be setting up corresponding expanded withholding tax payable to the BIR.
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We recommended that the Corporation update its books of accounts to accurately reflectits liabilities to the OGCC and the COA as of December 31, 2013.
Management replied that they will pay its liabilities depending upon the availability of its funds.
- Dividendspayable to the National Governmentamounting to P440,355 have yet to be remitted.
PADC reported a net income of P4.399 million in CY 2011 and remitted P2.00 millionas dividendto the National Government during the GOCC Day on June 3, 2013 in compliance with R.A. No. 7656. Likewise, the PADC remitted P3.00 milliondividend based on PADC’s 2012 net income of P6.482 million on May 5, 2014.
However, while we appreciate the remittance of dividends to the National Government, it was noted that there is an under remittance of P440,355, computed as follows:
Calendar year / Net Income / Should be remitted / Remitted / Under remittance2011 / 4,398,623 / 2,199,312 / 2,000,000 / 199,311
2012 / 6,482,088 / 3,241,044 / 3,000,000 / 241,044
Total 10,880,711 5,440,356 5,000,000 / 440,355
We recommended that Management remit fully the dividend due to the National Government pursuant to R.A. No. 7656.
6. Gender and Development(GAD) budget amounting to P100,000 for Calendar Year 2013 was not fully utilized.Joint Circular No. 2004-1 dated April 5, 2004 of the Department of Budget and Management (DBM), National Economic Development Authority(NEDA) and National Commission on the Role of Filipino Women(NCRFW) and E.O. No. 273 (Approving and Adopting the Philippine Plan for Gender-Responsive Development, 1995 to 2025) provides for the policies on the inclusion to the Agency’s programs and activities the GAD projects.
PADC has allotted for CY 2013 the amount of P100,000 for GAD but only P11,500 was utilized. Likewise, PADC failed to submit its GAD plans and programs to the Philippine Commission on Women for review and approval such that they lack policies and guidelines in implementing any program/activity/project (PAP).
We recommended that the Corporation formulate and develop more GAD PAP attuned with its mandate to fully utilize its budget.
- Unliquidated cash advances of P1.885 million
Name / Designation
Unliquidated Cash Advances / Remarks
Angelo Dwight Penson / 19,698.32 / ND#2009-011 dtd. 12/15/09
Former PADC President
Roberto R. Navida / 626,878.68 / ND#2008-003 dtd. 9/23/08
Former PADC President
Ma. Lorena B. Aquino / 84,590.51 / ND#2010-12 dtd. 11/11/10
Financial Specialist B / (P81,700.03)
Richard K. Lazaro / 199,306.92 / ND#2010-09 dtd. 8/23/10
Former Acting President/CEO / (P195,197.65)
VilmaS. Miane / 323,062.55 / ND#2008-006 dtd. 9/24/08
Division Manager / (P344,700.00)
Roberto Manlavi / 93,937.14 / With demand letter
Senior Vice President / dated April 22, 2013
Danilo R. Crisologo / 492,677.50 / With demand letter
Former PADC President / dated April 22, 2013
Michael Baculi / 2,378.73 / With demand letter
dated April 22, 2013
Raquel Echin / 28,250.00 / With demand letter
dated April 22, 2013
Alicia Herezo / 6,508.13 / With demand letter
dated April 22, 2013
Jireh Nacionales / 5,537.83 / With demand letter
dated April 22, 2013
Darwin Paraguison / 1,920.00 / With demand letter
dated April 22, 2013
TOTAL / 1,884,746.31
We recommended and Management agreed to exert extra effort to collect long outstandingcash advances from the corresponding accountable employees.
PADC sent demand letters to the concerned separatedemployees in January 2013and forwarded the issues to the Office of the Government Corporate Counsel for legalaction.
- Suspension, Disallowances and Charges
For CY 2013, the Status of Suspensions, Disallowances and Charges are as follows:
Suspension / Disallowance / Charge / RemarksND No. 2006-01 / 169,499.18 / Unsettled
ND No. 2006-02 / 173,618.27 / With appeal
ND No. 2006-03 / 909,415.36 / With appeal
with Sandiganbayan
ND No. 2006-04 / 2,750.00 / With appeal
ND No. 2006-05 / 5,238.00 / With appeal
ND No. 2006-06 / 15,861.78 / With appeal
ND No. 2006-07 / 144,567.68 / With appeal
ND No. 2006-08 / 295,345.69 / With appeal
ND No. 2006-09 / 130,009.84 / With appeal
ND No. 2006-10 / 685,671.09 / With appeal
Total for 2006 / 2,531,976.89
ND No. 2007-01 / 160,011.64 / With appeal
ND No. 2007-02 / 20,985.12 / With appeal
ND No. 2007-03 / 29,430.82 / With NFD dtd 12/1/10;Unsettled
ND No. 2007-04 / 9,681.97 / With appeal
ND No. 2007-05 / 244,406.29 / With NFD dtd 11/10/10; Unsettled
ND No. 2007-06 / 14,540.00 / With NFD dtd 12/1/10
With Appeal
Total for 2007 / 479,055.84
Suspension / Disallowance / Charge / Remarks
ND No. 2008-01
ND No. 2008-02 / 241,478.68
62,000.00 / With COE dtd.
6/28/10
With NFD dtd.
11/10/10; unsettled
ND No. 2008-03 / 626,878.68 / With appeal
ND No. 2008-04 / 1,000,000.00 / With NFD dtd 6/1/11
With appeal
ND No. 2008-05 / 11,282.57 / With NFD dtd 6/1/11
Unsettled
ND No. 2008-06 / 344,700.00 / With NFD dtd12/1/10
With appeal
Total for 2008 / 2,286,339.93
ND No. 2009-05 (2007) / 14,957.22 / With appeal
ND No. 2009-06 / 153,286.47 / With appeal
ND No. 2009-07 / 15,772.00 / With appeal
ND No. 2009-09 / 38,733.13 / With appeal
ND No. 2009-10 / 56,110.00 / With appeal
ND No. 2009-11 / 19,698.32 / With appeal
NC No. 2009-01 / 4,992,250.30 / With appeal
ND No. 200901A / 4,267,491.15 / With appeal
Total for 2009 298,557.14 9,259,741.45
ND No. 2010-01 / 28,080.72 / Unsettled
ND No. 2010-02 / 12,490.57 / Unsettled
ND No. 2010-03 / 23,274,28 / Unsettled
ND No. 2010-04 / 18,569.41 / Unsettled
ND No. 2010-05 / 7,000.00 / With appeal
ND No. 2010-06 / 100,039.49 / With appeal
ND No. 2010-07 / 49,000.00 / With appeal
ND No. 2010-08 / 63,871.05 / With appeal
ND No. 2010-00 / 195,197.65 / With appeal
ND No. 2010-10 / 30,088.75 / With appeal
ND No. 2010-11 / 25,093.03 / With appeal
ND No. 2010-12 / 81,700.03 / With appeal
ND No. 2010-13 / 242,938.91 / With appeal
ND No. 2010-14 / 50,000.00 / With appeal
ND No. 2010-15 / 256,990.19 / With appeal
ND No. 2010-15 / 998,000.00 / With appeal
Total for 2010 2,182,334.08
Total 7,778,263.88 9,259,741.45
As of December 31, 2013, the unsettled balance of audit disallowances/charges isP17.038 million.
Other Matter
9. Compliance with Republic Act (R.A.) Nos.656 and 8291
PADC has insured its hangars and motor vehicles with GSIS pursuant to R.A. 656 as amended by Presidential Decree No. 245. A total of P243,301 has been paid as insurance premiums in 2013.
PADC has been consistently deducting GSIS premiums from the salaries of its officers and employees and remitting the State Insurance Fund (SIF) and Employees Compensation Insurance Fund (ECIF) premiums to the GSIS in accordance with R.A. No. 8291. A total of P5.781 million was remitted in CY 2013.
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