AUDIT OBSERVATIONS AND RECOMMENDATIONS

A. Financial Audit

1. Various material uncertainties related to events or conditions of PNOC RC cast

significant doubt on its ability to continue as a going concern in accordance to
Section A2 of International Standards of Supreme Audit Institutions (ISSAIs) No.
1570, paragraph 15 of Philippine Accounting Standards (PAS) No. 10, Section 2.1
of Governance Commission for Government Owned and Controlled Corporations
(GCG) Memorandum Circular No. 2015-03 dated April 8, 2015 and Subject 4 of
Philippine National Oil Company (PNOC) Investment Management Policy Manual
effective August 14, 1996.

1.1. Section A2 of ISSAI 1570 provides the following examples of events or conditions
that, individually or collectively, may cast significant doubt about the going concern
assumption. This listing is not all-inclusive nor does the existence of one or more
of the items always signify that a material uncertainty exists.

Financial
• Net liability or net current liability position
• Fixed-term borrowings approaching maturity without realistic
prospects of renewal or repayment; or excessive reliance on short-
term borrowings to finance long-term assets
• Indications of withdrawal of financial support by creditors
• Negative operating cash flows indicated by historical or prospective
financial statements
• Adverse key financial ratios
• Substantial operating losses or significant deterioration in the value
of assets used to generate cash flows
• Arrears or discontinuance of dividends
• Inability to pay creditors on due dates
• Inability to comply with the terms of loan agreements
• Change from credit to cash-on-delivery transactions with suppliers
• Inability to obtain financing for essential new product development or
other essential investments

Operating
• Management intentions to liquidate the entity or to cease operations.
• Loss of key management without replacement
• Loss of a major market, key customer(s), franchise, license, or
principal supplier(s)
• Labor difficulties
• Shortages of important supplies
• Emergence of a highly successful competitor

Other
• Non-compliance with capital or other statutory or regulatory
requirements, such as solvency or liquidity requirements for financial
institutions

46
 • Pending legal or regulatory proceedings against the entity that may, if
successful, result in claims that the entity is unlikely to be able to
satisfy
• Changes in law or regulation or government policy expected to
adversely affect the entity
• Uninsured or underinsured catastrophes when they occur.

1.2. The significance of such events or conditions often can be mitigated by other
factors. For example, the effect of an entity being unable to make its normal debt
repayments may be counter-balanced by management’s plans to maintain
adequate cash flows by alternative means, such as by disposing of assets,
rescheduling loan repayments, or obtaining additional capital, among others.

1.3. Likewise, paragraph 15 of PAS No. 10 provides that deterioration in operating

results and financial position after the reporting period may indicate a need to
consider whether the going concern assumption is still appropriate.

1.4. Section 2.1 (c) of GCG Memorandum Circular No. 2015-03 dated April 8, 2015
states that in determining whether it shall recommend to the President of the
Philippines whether to abolish a GOCC or merge two or more GOCCs, the GCG
shall evaluate the GOCCs guided by principles which include GOCC not producing
the desired outcomes, or no longer achieving the objectives and purposes for
which it was originally designed and implemented, and/or not cost efficient and
does not generate the level of social, physical and economic returns vis-à-vis the
resource inputs.

1.5. Likewise, Section 9, Subject 4(d) of PNOC Investment Management Policy Manual
effective August 14, 1996 provides that divestment maybe considered when the
Corporation where PNOC has investment has been losing continuously for three
years after commercial operations.

1.6. Verification of various accounts and other relevant data of the Corporation
disclosed that several material uncertainties related to events or conditions that
cast significant doubt upon the PNOC RC’s ability to continue as a going concern,
as indicated by the following:

a. The repeated losses occurring for the last seven years are indicators that
PNOC RC may not survive for the long haul as shown below:

2019 2018 2017 2016 2015 2014 2013

Sales 22,853,643 16,203,397 13,198,945 2,844,607 28,127 0 46,389,198
Cost of Sales (12,806,793) (10,109,273) (7,944,261) (2,942,470) 0 0 (26,502,698)
Gross Profit
(Loss) 10,046,850 6,094,124 5,254,684 (97,863) 28,127 0 19,886,500
Operating expenses (104,402,333) (79,051,621) (74,016,856) (64,952,397) (52,967,958) (53,154,797) (42,259,535)
Other income
(charges) 20,320,894 19,391,006 20,693,101 14,344,550 31,512,880 17,059,660 6,179,493
Loss before income tax (74,034,589) (53,566,491) (48,069,071) (50,705,710) (21,426,951) (36,095,137) (16,193,542)
Income tax (209,756) (191,559) (123,593) (52,325) (346,640) (17,605) (405,310)
Net loss (74,244,345) (53,758,050) (48,192,664) (50,758,035) (21,773,591) (36,112,742) (16,598,852)
Accumulated Net Loss (301,438,279)

47
 The profitability of a Corporation is essential for its long-term sustainability.

As at December 31, 2019, the Statement of Changes in Equity showed that the
balance of the Retained Earnings- Unappropriated was only P162.846 million.
It decreased due to the net losses incurred from 2013 to 2019 amounting to
P301.438 million.

b. A cash flow statement describes the Corporation's financial situation relative to

the amount of cash it currently has on hand to cover operating expenses.
However, PNOC RC showed negative operating cash flows as indicated by
historical financial statements. Details follow:

CY Operating Cash Flows

201 (45,004,111)
9
201 (67,045,073)
8
201 (32,483,473)
7
201 (24,350,310)
6
201 (2,157,065)
5
201 (95,558,388)
4
c. To date, PNOC RC was not able to obtain their financing requests from PNOC,
as follows:

 PNOC to subscribe for the remaining capital stock of 125,028 shares at

P1,000.00 per share or P125.028 million; and
 PNOC to approve the increase in authorized capital stock from 500,000
shares at P1,000 per share (P500 million) to 1 million shares at P1,000 per
share (P1 billion).

d. PNOC RC submitted turnaround plans with two assumptions - (a) without

capital infusion and (b) with capital infusion of P2 billion. However, PNOC RC
was not able to obtain project financing through banks, partners and parent
since 2016.

e. PNOC RC did not declare and remit dividends to PNOC and Bureau of
Treasury for the period January 1, 2014 to December 31, 2019 due to net
losses incurred.

f. PNOC RC is using manual bookkeeping system where records are maintained

using Microsoft excel and without using an accounting system. Thus, there is
difficulty in recording, reviewing and reporting of accounting transactions. Poor
record keeping is an indicator of inadequate systems to manage operations
and cast doubt on the accuracy and reliability of the books. Also, data storage
and security cannot be assured when catastrophes occur.

g. Data from the Human Resource Department shows the loss of key
management without replacement. In 2019, 10 employees were separated
from PNOC RC, composed of three managers, two engineers, two specialist,
one attorney, one technician and one executive assistant.

48
 h. For 2019, no capital expenditure was allotted in the Corporate Operating
Budget.

i. There is a pending legal proceeding of Keppel Philippines Holdings, Inc.

against the entity that may significantly decrease the asset of PNOC RC from
the existing P156.054 million to P4.090 million, thus a significant decrease
estimated at P151.964 million.

1.7. In view of the foregoing, the ability to continue as a going concern of PNOC RC is
doubtful following Section A2 ISSAIs No. 1570, paragraph 15 of PAS No. 10,
Section 2.1 of GCG Memorandum Circular No. 2015-03 dated April 8, 2015 and
Subject 4 of PNOC Investment Management Policy Manual effective August 14,
1996.

1.8. We recommended and Management agreed to:

a. Make an assessment that will include the determination of:

(1) Whether the events or conditions constitute a material uncertainty;

(2) Whether the use of the going concern assumption is appropriate in
the preparation and presentation of the financial statements; and
(3) The adequacy of related disclosures in the financial statements;

b. ensure that Management obtain capital infusion to finance and implement

the turnaround strategy options presented; and
c. submit a detailed report on PNOC RC’s potential sources of replacement/
additional financing for 2020 and onwards.

2. Restricted Fund - Escrow Account – Development Bank of the Philippines (DBP)

is not accurately stated by P2.405 million due to non-reconciliation of
transactions per Escrow Agent and Accounting Books resulting to unrecorded
transactions, contrary to Section 74 of Presidential Decree (PD) No. 1445,
paragraphs 20 and 21 of Philippine Financial Reporting Standards (PFRS) 11, and
the Escrow Agreement dated December 19, 2014 entered into with DBP by PNOC
RC and National Development Company (NDC).
2.1. Section 74 of PD No. 1445 otherwise known as the State Audit Code of the
Philippines and Section 6 of COA Memorandum No. 2013-004 dated July 9, 2013
provide that at the close of each month, depositories shall report to the agency
head, in such form as he may direct, the condition of the agency account standing
on their books. The head of the agency shall see to it that a reconciliation is made
between the balance shown in the reports and the balance found in the books of
the agency.
2.2. Paragraphs 20 and 21 of PFRS 11 state that a joint operator shall recognize in
relation to its interest in a joint operation:
(a) its assets, including its share of any assets held jointly;
(b) its liabilities, including its share of any liabilities incurred jointly;
(c) its revenue from the sale of its share of the output arising from the joint
operation;

49
 (d) its share of the revenue from the sale of the output by the joint operation; and
(e) its expenses, including its share of any expenses incurred jointly.

2.3. A joint operator shall account for the assets, liabilities, revenues and expenses
relating to its interest in a joint operation in accordance with the PFRS applicable
to the particular assets, liabilities, revenues and expenses.

2.4. The Escrow Agreement dated December 19, 2014 with Development Bank of the
Philippines (DBP) - Trust Services by PNOC RC and NDC provides that:

“On July 1, 2014, the Principals entered into a Memorandum of

Agreement (MOA) to establish and enter into a partnership for the
development, commercialization, operation and maintenance of the
Rizal Project for energy commercialization xxx.”

“The Principals commit to infuse the amount P45,000,000 each or a

total of P90,000,000 for the Rizal Project and to perform their respective
commitments pursuant to the MOA and the Project Monitoring
Committee Guidelines xxx”

“Xxx the Principals have agreed to enter into an Escrow Agreement

with Development Bank of the Philippines- Trust Services for the
attainment of the purpose of the Project Funds.”

“Xxx The initial sum delivered by the Principals to the Escrow Agent,
DBP, and any income to be derived from the operation of the Rizal
Project as well as such instruments in which said sums are invested,
the proceeds, interests and income or profits realized from the
management, investment of reinvestment thereof, shall constitute
the “Escrow Deposit”.

“3. Powers and authorities of the Escrow Agent

a. Investment Powers

Xxx. Any income arising from the investment of the Escrow Deposit
shall accrue to the Escrow Deposit after deducting charges pertaining
to withholding tax, including any other fees, charges and expenses.

b. Collecting Agent

Xxx. The amount collected shall form part of the Escrow Deposit and be
subject to the terms and conditions set forth herein.

c. Withdrawal and Payments

The Escrow Deposit shall be held by the Escrow Agent and used
exclusively for the following purposes:

50
 a) To fund any and all withdrawals, and pay any and all
disbursement of Project Funds based on the written instruction of
the Principals through the Rizal Project Monitoring Committee;

b) To charge the Escrow Deposit for the compensation of the

Escrow Agent and for all costs, fees, expenses and charges as
may be necessary for the management, operation and
administration of the Escrow Deposit; and

c) Dividend Distribution.”

2.5. Review of the subsidiary ledger of Other Investment – DBP Escrow Account,
pertaining to the 50% share of PNOC RC to the fund set aside for the Rizal
hydropower plant operation, showed the following balances of the Escrow Account
from CY 2014 to 2019:

Beginning Transactions Escrow Account

Year Balance for the year Balance
(a) (b) (a+b)
2014 0 45,000,000.00 45,000,000.00
2015 45,000,000.00 (33,649,456.18) 11,350,543.82
2016 11,350,543.82 (5,267,461.19) 6,083,082.63
2017 6,083,082.63 155,051.46 6,238,134.09
2018 6,238,134.09 7,084,270.16 13,322,404.25
2019 13,322,404.25 (10,097,967.25) 3,224,437.00

2.6. The Balance Sheet as of December 31, 2019 provided by the Escrow Agent, DBP,
total assets of the fund is P11.258 million. Details follow:

ASSETS
DIB-OB Combo 9,000.28
Discount/Premium-FVOCI-FXTN 44,768.64
Investment in GS – FVOCI 11,189,794.27
Prepaid Tax 17,087.41
Accumulated Market Gain/(Loss) – FVOCI (2,357.37)
Total Assets 0

LIABILITIES & EQUITY

Accrued Trust Fee Payable 3,513.89
Total Liabilities 3,513.89

EQUITY
TP 11,079,576.92
Net Income 341,645.80
Income Withdrawal (287,990.00)
Net Unrealized Market Gain/(Loss) (2,357.37)
Retained Earnings 1,173,840.94
Retained Earnings – Withdrawal (1,049,936.95)
Total Equity 11,254,779.34

TOTAL LIABILITY AND TRUSTOR’S EQUITY 11,258,293.23

51
2.7. Verification of the account disclosed that DBP provided a summary of the
contributions and withdrawals for the period covering January 1, 2018 to
December 31, 2019. Analysis of the transactions disclosed that as of
December 31, 2019, Other Investment - Escrow Account – DBP is misstated by
P2.405 million as follows:

Particulars Amount
Per Accounting books 3,224,437.00
Per DBP (P11,258,293.23 x 50%) 5,629,146.62
Difference 2,404,709.62

2.8. Analysis of the transactions disclosed the following:

a. There is an unaccounted difference of P5.679 million for CY 2018 computed as

follows:

Particulars Amount
Increase in the Escrow Account Balance from 7,084,270.16
6,238,134.09 in CY 2017 to P13,322,404.25 in CY
2018 as shown in the table in paragraph 2.5
Increase based on the letter provided by DBP 1,405,587.87
Difference 5,678,682.30

b. Payments to PT Cerna Corporation for the progress billings for the design,
supply, delivery, installation, testing and commissioning for the Rizal
hydropower plant, which started its commercial operations on July 1, 2016,
were not evident in the subsidiary ledger provided by PNOC RC.

c. A transaction dated June 30, 2019 with reference no. 19050333 pertaining to
the payment of Retention to PT Cerna in the amount of P7.700 million was
credited from the Investment in Escrow account by the whole amount instead of
just the 50% share of PNOC RC or P3.850 million.

d. The transactions in the subsidiary ledger of PNOC RC shows investment

placements and terminations. However, the transactions cannot be verified due
to absence of reports from the Escrow agent.

e. Further comparison of the subsidiary ledger and letter from DBP shows delayed
recording of transactions, unrecorded contribution of P36,431.68 and
unrecorded withdrawals of P0.648 million, P1.128 million, P463,513.50 and
P452,305 in September 2018 and February, April and July 2019, respectively.
Details follow:

Per Accounting Books DBP Report (50% share of PNOC RC)

Date Particular Amount Date Particular Amount
7/31/18 To correct reclass 1,908,039.14 1/26/18 Contributions 626,409.84
2/19/18 Contributions 642,287.79
3/20/18 Contributions 639,341.52
7/31/18 Reclass of Collection 893,114.36 5/17/18 Contributions 588,265.77
5/25/18 Contributions 138,538.17
6/20/18 Contributions 166,310.44
11/30/18 Full termination of DBP Tbills 5,029,909.31 Adjusting entry of Accounting books

52
 Per Accounting Books DBP Report (50% share of PNOC RC)
Date Particular Amount Date Particular Amount
6/30/18 Reimbursement of expenses (1,138,873.50) 5/31/18 Withdrawal (1,138,873.50)
7/31/18 NEECO Collection 311,375.68 7/9/18 Contributions 311,375.69
No Record 9/7/18 Withdrawal (648,773.00)
9/30/18 NEECO Collection 80,705.17 8/30/18 Contributions 80,705.17
No Record 1/28/19 Contributions 36,431.68
No Record 2/1/19 Withdrawal (1,128,023.00)
3/31/19 Reclass of Reimbursement (1,095,594.00) No data provided by Escrow Agent
6/30/19 Payment Retention PT Cerna (7,700,000.00) 6/3/19 Withdrawal (3,850,000.00)
7/31/19 NEECO Collection 463,534.79 7/10/19 Contributions 463,534.79
7/31/19 Correction on OR No. 2578 18,762.32 No data provided by Escrow Agent
7/31/19 NEECO Collection 387,482.38 2/14/19 Contributions 387,482.38
7/31/19 NEECO Collection 676,773.03 3/18/19 Contributions 676,773.03
7/31/19 NEECO Collection 616,253.91 4/22/19 Contributions 616,253.91
No Record 4/25/19 Withdrawal (463,513.50)
7/31/19 NEECO Collection 190,000.69 5/23/19 Contributions 190,000.69
7/31/19 NEECO Collection 169,088.56 6/27/19 Contributions 169,088.56
No Record 7/12/19 Withdrawal (452,305.00)
8/31/19 Interest Income 1,209,775.72 No data provided by Escrow Agent
8/31/19 Interest Income 356,793.44 No data provided by Escrow Agent
8/31/19 Interest Income 839,820.50 No data provided by Escrow Agent
8/31/19 Adjustment (778,627.56) No data provided by Escrow Agent
8/31/19 Adjustment (796,388.80)
8/31/19 NEECO Collection 290,024.19 8/13/19 Contributions 290,024.19
9/30/19 NEECO Collection 66,128.13 9/25/19 Contributions 66,128.13
10/31/19 NEECO Collection 17,669.36 No data provided by Escrow Agent
12/31/19 Reversal of DV18070746 (5,029,463.91) Correcting entry of Accounting books
TOTAL (3,013,697.09) TOTAL (1,592,536.25)

2.9. Based on Section No. 6 of the Escrow Agreement, the Escrow Agent shall submit
the reports to the Principals. Per inquiry with DBP, the monthly reports were
submitted to PNOC RC and NDC. The Team requested for these reports starting
July 2019 but only the December 2019 report was provided on February 27, 2020.

2.10. Thus, the Restricted Fund - Escrow Account – DBP in the amount of
P6.125 million was not accurately stated in the financial statements due to non-
reconciliation of transactions per Escrow Agent and Accounting Books resulting to
unrecorded transactions contrary to Section 74 of PD No. 1445, paragraphs 20
and 21 of PFRS 11, and the Escrow Agreement entered into with DBP by PNOC
RC and NDC dated December 19, 2014.

2.11. We recommended Management to:

a. Analyze the Investment in DBP Escrow Account and reconcile the

balance with the Accounting Books;

b. accordingly, adjust the accounts pursuant to paragraphs 20 and 21 of

PFRS 11; and

c. provide copy of the monthly reports of DBP, to COA, from the start to
present to support the adjustments made.

53
 2.12. Management submitted a reconciliation of transactions and details of adjustments
which are still subject to verification by the audit team.

3. The reliability, accuracy and validity of the balances of Accounts Payable and
Other Liabilities of P2.985 million and P33.592 million, respectively, as of
December 31, 2019 is doubtful due to the inclusion of accruals for various payees
amounting to P7.398 million that were already paid, unmatched debit entries of
P397,009.86 in the Accounts Payable account, the presence of unmatched debit
entries of P2.188 million in the Other Payable account, and non-accrual of
expenses amounting P0.811 million, which are contrary to Section 119 of P.D. No.
1445 and paragraph 13 of PAS 1 on the fair presentation of financial statements.

3.1 Paragraph 13 of PAS 1 provides that financial statements shall present fairly the
financial position, financial performance and cash flows of an entity. Fair
presentation requires the faithful representation of the effects of transactions, other
events and conditions in accordance with the definitions and recognition criteria for
assets, liabilities, income and expenses set out in the Framework.

3.2 Section 119 of PD 1445 states that, “All lawful expenditures and obligations
incurred during the year shall be taken up in the accounts of that year.”

3.3 PNOC RC provided the balances for Accounts Payable and Other Payables as of
December 31, 2019, as follows:

Account Amount
Accounts Payable 2,985,406.25
Other Payables 33,592,111.29

Examination of the Subsidiary ledgers for Accounts Payable and Other Payable
showed the following:

a. Accrual for various payments still remained in the books despite payment:

Date Amount
Payees Date paid Amount paid
accrued accrued

Edward Marcs Philippines 06/2018 &

12/2017
Inc. 12/2018 5,462,780.00 5,462,780.00

Maximum Solutions
12/2017 August 2018
Corporation 884,143.00 1,257,950.81
Alexis Security Agency January to Various dates
Provider Phils. Co. Inc. June 2019 in 2019 570,016.02 624,757.85

Mr. Abbin S. Dalhani 12/2018 1/2019 104,903.56 20,000.00

Mr. Pedro L. Lite, Jr. 12/2018 2/2019 16,504.23 16,504.23

Mr. Benjamin E. Palmero 12/2018 1/2019 70,891.41 9,082.98

Bernard Paul M. Ponferrada 12/2018 1/2019

12,514.23 6,514.23

54
 Date Amount
Payees Date paid Amount paid
accrued accrued

Total
00

b. Inclusion of debit entries in the Accounts Payable and Other Payable in the
amount of P397,009.86 and P2.188 million, respectively. Records showed that
the debit entries were due to over or under accrual of expenses or adjusting
entries which cannot be attributed to any outstanding payable. These debit
entries are still lodged in the subsidiary ledgers. Per inquiry with Accounting,
they are waiting for the two-year period to lapse to adjust the erroneous entries
instead of reviewing and adjusting the errors.

c. Further verification disclosed the following:

i. Adjusting entries were made at year-end as follows:

 Accounts Payable amounting to P6,249.35 pertaining to over accrual or

under accrual of payables were closed to Retained Earnings. The set-up
amounts (accrual entry) for the liabilities were not the same amounts
derecognized or paid.

 Other Payables amounting to P107,592 were adjusted to Retained

Earnings. The entries to set-up (accrual entries) liabilities were not made
prior to derecognition or payment.

ii. Over and under-accrual of expenses and adjustments amounting to

P2.182 million made in December 2019.

iii. Non-accrual for the following services provided by DBP Service Corporation
estimated at P0.811 million:

Type of Service Month Amount

Office services June 2019 286,364.11
Janitorial services July 2019 135,010.57
Messengerial and driving services May to July 2019 389,983.29

Total 0

iv. Accrual in 2019 for the 40 MBPS dedicated fiber optic leased line internet
service connection from January to April 2020 amounting to P224,000;

3.4 Thus, reliability, accuracy and validity of the Accounts Payable and Other Liabilities
were doubtful contrary to Sections 111 (1) and 114 (2) of PD 1445 and paragraph
13 of PAS.

3.5 We recommended Management to:

55
 a. Analyze the subject accounts and identify:

 composition of the accounts with unmatched accrual and payment

entries; and
 accrual of the 40 MBPS dedicated fiber optic leased line internet service
connection from January to April 2020 amounting to P224,000;

b. accordingly prepare adjusting/reconciling entries, supported with

sufficient documents, in order to correct balances of the accounts; and

c. develop a system for monitoring the accrual and payment of liabilities

and expenses to avoid errors.

3.6 Management commented the following:

a. PNOC RC provided Subsidiary ledgers for Accounts Payable and Other

Liabilities for the validation and existence of the accounts.
b. The company is continuing its effort to clean up all its liabilities to various
suppliers and employees. Outstanding Liabilities without billing for over 2 years
will be reversed to Retained Earnings pursuant to Section 3.1, 3.3 and 3.4 of
DBM-COA Joint Circular No. 99-6 dated November 13, 1999.

c. In the case of DBP Service Corporation, the company opted not to reverse its
outstanding claims for more than 2 years since there were billings on hand and
en route and services have already been rendered from 2015 to 2017.

d. To mitigate errors for the over and under accrual, the company will be
monitoring other payable accounts ledgers on a monthly basis. Monthly
monitoring and clean-up of accrued liabilities will be performed.

B. Compliance Audit

4. The Accounts Payable and Other Liabilities accounts were not appropriately
classified and converted in accordance with the Revised Chart of Accounts (RCA)
for Government Corporations (GCs) contrary to Annex C of COA Circular No.
2020-002 effective January 1, 2019.

4.1 Annex C of COA Circular 2020-002 effective January 1, 2019 describes Accounts
Payable as follows:

Account Title Accounts Payable

Account Number 20101010
Normal Balance Credit
Description This account is credited to recognize
receipt/acquisition of goods or services on account in
the normal course of trade and business
operation. It is also used to recognize liability set up
against current operation for unpaid claims filed or
received and other unpaid expenses. This account is

56
 debited upon payment or settlement of liabilities,
and/or adjustments.

Likewise, the same Circular provides for separate accounts for other current
financial liabilities as follows:

Account Title Due to Officers and Employees

Account Number 20101020
Normal Balance Credit
Description This account is credited to recognize incurrence of
liability to officers and employees for salaries, benefits
and other emoluments including authorized expenses
paid in advance by the officers and employees. This
is account is debited upon settlement or payment to
officers and employees, and/or adjustments

Account Title Other Financial Liabilities

Account Number 20199990
Normal Balance Credit
Description This account is credited to recognize the amount of
other financial liabilities incurred which cannot be
appropriately classified under any of the specific
financial liability accounts. This account is debited for
settlement of liabilities.

Account Title Due to GSIS

Account Number 20201020
Normal Balance Credit
Description This account is credited to recognize the withholding
of employees’ premium payments and other payables
for remittance to the Government Service Insurance
System (GSIS). This account is debited for the
remittance of withheld amount, and/or adjustments.

Subsidiary Ledgers:
01 – Life and Retirement Premium
02 – ECC
03 – Salary Loan
04 – Policy Loan
05 – Real Estate Loans
06 – Stock Investment Loans
07 – Educational Loans
99 – Others

57
 Account Title Due to NGAs
Account Number 20201050
Normal Balance Credit
Description This account is credited to recognize receipt of funds
for delivery of goods/services as authorized by law,
fund transfers from National Government Agencies for
the implementation of specific programs or projects
and other inter-agency transactions. This account is
debited for delivery of goods/services, liquidation of
funds received, settlement of liabilities and/or
adjustments.

4.2 The total liabilities account as of December 31, 2019 of PNOC RC consisted of:
4.3
Account Amount
Accounts Payable 2,985,406.25
Due to Officers and Employees 373,384.39
Inter-Agency Payables (SSS, Pag-ibig, Philhealth, BIR) 7,791,773.24
Guaranty/Security Deposit Payable 11,324,386.92
Deferred Output VAT 5,991,365.82
Deferred Tax Liabilities 16,098,839.64
Other Payables 33,592,111.29
Total 0
Verification of the Subsidiary Schedule of Accounts Payable showed that the account
contains several transactions which are not directly related to its normal course of trade
and business operations, such as the payables to employees, PNOC and GSIS.

Also, PNOC RC maintains two subsidiary ledgers for one vendor as transactions
were recorded either under Accounts Payable or Other Payables account with
examples as follows:

Accounts Other
Vendor
Payable Payables
(1,417.50
AD Asia Multilink Inc. (473.22)
)
Alexis Security Agency Provider Phils. Co. Inc (118,535.20) (1,396,274.99)
Ashary P. Maongco (17,512.50) (9,602.32)
(2,700.00
Bernard Paul M. Ponferrada (32,133.41)
)
(2,340.00
Cal-Fil Appraisal & Management, Inc. (11,250.00)
)
DBP Service Corporation (643,736.53) (9,333,234.59)
ERA Print Shop (10,893.75) (10,000.00)
Full Advantage Phils. International Inc. (492,446.43) (4,796,000.00)
Government Service Insurance System (14,865.00) (39,531.18)
(8,437.50
HSH Auto Rebuilders (21,587.50)
)
(3,500.00
John J. Arenas (34,236.00)
)
Milouch Enterprises (12,000.00) (12,800.00)
Otus Copy Systems Inc. (22,089.37) (82,500.00)

58
 Accounts Other
Vendor
Payable Payables
(4,140.63
Pishon Industries , Incorporared (4,600.00)
)
PLDT, Inc. (622,513.19) (959,158.13)
PNOC Employees Consumer Cooperative (22,066.12) (23,639.20)
Techline, Inc. (206,250.08) (18,333.34)

For liabilities to PNOC, PNOC RC uses three accounts, Accounts Payable, Other
Payable and Due to PNOC, with balances as of December 31, 2019 as follows:

Vendor Accounts Payable Other Payables Due to PNOC

PNOC (420,071.95) (1,303,827.54) (6,232,608.69)

Other Payables contains liabilities payable to directors and employees, PNOC,

DOE and BIR which should have been recorded to these agencies’ appropriate
accounts.

4.4 Thus, the non-conversion of the accounts in accordance with the RCA for
Government Corporations is contrary to the provisions of COA Circular No. 2020-
002 effective January 1, 2019.

4.5 We recommended Management to properly classify and use the accounts for
liabilities under COA Circular No. 2020-0002 which is effective January 1,
2019.

4.6 Management commented that PNOC RC Financial Statements are prepared on

accrual basis. Accrued Expenses are payments that a company is obligated to pay
in the future for which goods and services have already been delivered but not yet
billed. Since the accrued expenses account was not on Revised Chart of Accounts,
the Corporation opted to use other account in the RCA.

For comparison purposes, Accounts Payables is the total amount of short-term

obligations or debt of a company has to pay for its creditors for goods or services
bought on credit. On the other hand, accrued expenses are the total liability that is
payable for goods and services that have been consumed by the company or
received but have not yet been billed.

Moreover, for faster and better monitoring of company’s accrued expenses, the
company opted to use single account, which is the Other Payable. Likewise, for
monitoring of company’s processed vouchers the company opted to use Accounts
Payable.

4.7 We took note of Management’s reply. However, based on the Revised Chart of
Accounts, transactions should be properly recorded in the appropriate liabilities
account instead of using one account for all accrual. It defeats the intention or
purpose of the Revised Chart of Accounts which is to properly classify transactions.
Moreover, monitoring of billed and unbilled payables should be done internally and
outside of the books of accounts.

59
5. The payment by the Corporation of insurance premiums for local travels of its
employees totaling P50,992 based on the Corporate Operating Budget (COB) for
CY 2019, is not authorized under Executive Order (EO) No. 77 that took effect on
March 15, 2019.

5.1 Section 18 of TITLE II, Official Foreign Travel of Government Personnel, of EO

No.77, Prescribing rules and regulations and rates of expenses and allowances for
official local and foreign travels of Government personnel, states that personnel on
foreign travel pursuant to this order may be entitled to travel insurance at the
minimum amount required by the country of destination, depending on the duration
of the official travel or a travel coverage of P500,000 if there is no minimum
coverage set by a country.

5.2 Records showed that PNOC RC paid for the travel insurance of personnel on local
travel to Government Service Insurance System (GSIS) totaling P50,992 from
March to November 2019.

5.3 Verification disclosed that the authority to allow PNOC RC employees to avail
insurance for local travel was in accordance with the PNOC Board approved 2019
COB that allotted a total amount of P3.149 million for Insurance expense. However,
under EO No. 77 there was no provision for insurance for local travel and therefore
the payment was without legal basis.

5.4 We recommended and Management agreed to:

a. Refund immediately the payments made for travel insurance from March
15, 2019 to present to preclude the issuance of Notice of Disallowance;
and

b. stop the payment of insurance premiums for local travel to strictly

comply with EO No. 77 that took effect on March 15, 2019.

6. The GAD Plan and Budget (GPB) for the Calendar Year 2019 in the amount of
P2.575 million was below the required five percent of the approved Corporate
Operating Budget, and was not submitted to Philippine National Oil Company on
time and to Philippine Commission on Women (PCW) for review/endorsement,
contrary to Section 36 (a) of RA No. 9710 dated August 14, 2009, Rule IV, Section
37(A)(1)(f) of the Magna Carta of Women Implementing Rules and Regulations
(MCW IRR) and Section 7 (iii) and (v) of PCW-NEDA-DBM Joint Circular No. 2012-
01. Likewise, GAD Programs, Activities, and Projects (PAPs) were not fully
implemented since only P0.652 million or 25.33 percent of the budgeted amount
was utilized for FY 2019 and no GAD database was in place.

60
6.1 Section 36 (a) of Republic Act (R.A.) 9710 states that GAD programs addressing
gender issues and concerns shall be designed and implemented based on the
mandate of government agencies and local government units, Republic Act No.
7192, gender equality agenda of the government and other GAD-related legislation,
policies, and commitments. The development of GAD programs shall proceed from
the conduct of a gender audit of the agency or the local government unit and a
gender analysis of its policies, programs, services and the situation of its clientele;
the generation and review of sex-disaggregated data; and consultation with
gender/women’s rights advocates and agency/women clientele. The cost of
implementing GAD programs shall be the agency’s or the local government unit’s
GAD budget which shall be at least five percent (5%) of the agency’s or the local
government unit’s total budget appropriations.

Likewise, Rule IV, Section 37(A)(1)(f) of the MCW IRR provides that the PCW shall
review the GAD Plans, Programs, and Budgets accompanied by GAD
Accomplishment Reports submitted annually by the NGAs, bureaus, SUCs,
GOCCs, and other government instrumentalities for gender-responsiveness.

Section 7 (iii) and (v) of PCW-NEDA-DBM Joint Circular No. 2012-01 states that:

“iii. November – Attached agencies, bureaus and regional offices

submit their annual GAD Plan and Budget (GPBs) and
Accomplishment Report (ARs) to their respective line departments
or central offices’ GFPS.

v. January (1 year before budget year) - Submission of reviewed GPBs

and ARs to PCW”

Moreover, Section 1.4 of PCW Memorandum Circular No. 2017-03 dated

September 29, 2017, sets the following deadlines:

January 19, 2018 Deadline of submission to PCW (thru GMMS) of

FY 2019 GPBs of the following:
a. Line department
b. Attached agencies
c. Attached bureaus

January 31, 2018 Deadline of submission to PCW (thru GMMS) of

FY 2019 GPBs of the ARMM, GOCCs receiving
budgetary support from the national government
and other government instrumentalities, and for
central offices and CHED regional offices to
submit to PCW (thru GMMS) the reviewed FY
2019 GPBs of their regional offices or
concerned SUCs, respectively.
January 31, 2018 Deadline of submission to PCW (thru GMMS) of
FY 2017 GAD ARs.

61
 Furthermore, Section 37(D) of the MCW IRR provides that all departments,
including their attached agencies, offices, bureaus, SUCs, GOCCs, LGUs, and
other government instrumentalities shall develop and maintain a GAD database
containing GAD information to include gender statistics and age- and sex-
disaggregated data that have been systematically produced/gathered, regularly
updated to serve as inputs or bases for planning, programming, and policy
formulation.

6.2 Review of the GPB for CY 2019 of P2.575 million disclosed that it was below the
required five percent (5%) which is P5.302 million of the total approved corporate
operating budget for CY 2019 of PNOC RC in the amount of P106.048 million.

Moreover, the GPB of PNOC RC in the Gender Mainstreaming Monitoring System

(GMMS) indicates a draft status therefore not submitted to PCW for review and
endorsement. The GPB was submitted to Philippine National Oil Company, the
Parent Company, only on January 31, 2018, the deadline of submission to PCW
thru GMMS. Thus, preventing PNOC and PCW from conducting review of the same.

PNOC RC’s GPB included Programs and Projects (PAPs) to address the following
gender issues:

For client-focused activities

 Lack of standardized/centralized gender-responsive Monitoring and Evaluation

(M&E) tool.
 Lack of integration of gender policies in renewable energy and energy
efficiency on previous policies.
 Lack of direct sustainable source of livelihood for host communities and
interested groups in the project sites related to power plant operation and
maintenance.
For organization-focused activities

 Lack of knowledge on gender perspective in occupational health and safety

risks particularly among women.
 Continuous support on the observance of International Women’s Month to
heighten awareness on gender equality.
 Need to strengthen the capability of employees on Gender Responsive
Planning and Budgeting.

6.3 Verification of the PAPs of the Corporation for 2019 for the aforementioned gender
issues showed that two out of six PAPs were implemented. Moreover, only 25.33
percent of the total GAD budget was utilized by PNOC RC amounting to P100,000
for the client-focused activities and P0.552 million for attributed activities. Details
are summarized below:

Activity Budget Actual Unutilized Remarks

1 Finalization/approval of the gender 300,000 0 300,000 Not
responsive Monitoring & Evaluation implemente
tool. d
2 Review of existing policies of PNOC 1,470,000 0 1,470,000 Not

62
 Activity Budget Actual Unutilized Remarks
Central Office on renewable energy implemente
resource assessment; d
Develop/generate sex-disaggregated
data templates for the database; Issue
letter/instructions requiring all project
offices and partners to submit
accomplished templates quarterly;
Gender responsive Policy drafted;
Training on the toolkit for GAD
mainstreaming in Renewable Energy
and Energy Efficiency.
3 Provide technical training and assist in 500,000 0 500,000 Not
the certification of participants to implemente
support in seeking employment or d
establish own SME.
Client-focused Activities 2,270,000 0 2,270,000
1 To conduct gender sensitive health 30,000 0 30,000 Implemented
and safety risks orientation and
trainings among employees.
2 Conduct of film showing that is geared 25,000 0 25,000 Not
towards gender equality and women implemented
empowerment and aligned to the
National and International Women’s
Month Celebration.
3 Annual conduct of GAD Planning and 250,000 100,000 150,000 Implemente
Budgeting. d
Organization-focused Activities 305,000 100,000 205,000
Attributed Program 0 552,290 (552,290)
TOTAL 2,575,000 652,290 1,922,710

Also, PNOC RC has not established GAD database containing gender analysis
and sex disaggregated data.

6.4 Thus, GPB for CY 2019 is not compliant with Section 36 (a) of R.A. No. 9710 dated
August 14, 2009 and Rule IV, Section 37(A)(1)(f) of the MCW IRR.

6.5 We recommended Management to:

a. Attribute at least five per cent of the total corporate operating budget on
the GAD;

b. submit the GPB and Accomplishment Report to PNOC and PCW within
the prescribed period;

c. closely monitor implementation of GAD PAPs with an immediate

alternative course of action if implementation could not be made;

63
 d. institutionalize the GAD database with adequate and systematically
gathered sex-disaggregated data which will provide bases for gender
analysis, planning, programming and policy information and undertake
gender analysis to identify and confirm existing gender issues; and

e. formulate the GPB within the context of PNOC RC mandates to

mainstream gender perspectives in their policies, programs and projects
to maximize the use of allocated funds to address GAD issues and
concerns.

6.6 Management commented the following:

a. Consistent with our reply to the previous years’ issue on GAD, PNOC RC
cannot strictly comply with the required allocation of five percent budget for
GAD PAPs from our COB due to the company’s financial status. Hence, we will
strive to attribute at least five percent of the total 2020 COB on GAD PAPs.

b. Although we were able to beat the deadline for submission of the GPB and
GAD Accomplishment Report, we note that PNOC and PCW are to be given
ample time for review and endorsement. Hence, we will submit these
documents as prescribed. Should additional changes be made in the GPB or
GAD AR, we will also advise the concerned agencies.

c. The PNOC RC GAD Focal Point System has been reconstituted. This group
will closely monitor the implementation of GAD PAPs in the company. The
GAD Focal Point System will ensure the establishment of the GAD database to
aid in GAD planning and budgeting and to serve as basis for GAD policy
formulation and implementation.

d. The GAD Focal Point System will spearhead the review and adjustment, as
necessary, of the 2020 GAD GPB to determine its alignment with PNOC RC’s
mandates and current business plans to ensure that GAD PAPs address the
identified GAD issues and concerns in the company, thereby maximizing the
use of funds allocated for GAD.
C. Compliance with Tax Laws

Taxes withheld and due to the Bureau of Internal Revenue were recorded and remitted
within the prescribed period.

D. Compliance with Rules on Government Mandatory Deductions

PNOC RC has been compliant with RA 8282 and RA 9679 on the policies relative to the
collection and remittance of contributions/loan amortization to the Social Security
System and the Home Development Mutual Fund or Pag-IBIG Fund, respectively.
Likewise, PNOC RC remits payment in accordance with RA 7875 for the national health
insurance premium contribution to the Philippine Health Insurance Corporation.

E. Insurance of Property

PNOC RC has also been compliant with RA 656 on insuring its properties with the GSIS.

64
F. Status of Notice of Suspension, Notice Disallowance and Notice of Charge

There was no Notice of Suspension, Notice of Disallowance and/or Notice of Charge

issued in CY 2019.

65