OBSERVATIONS AND RECOMMENDATIONS

A. FINANCIAL AUDIT

1. The balance of Property and Equipment (PE) account amounting to P80.337

billion is doubtful due to: a) non-conduct of physical count and/or non-
submission of report on the physical count of PE costing P28.648 billion;
b) unreconciled variance between the balances of accounting and property
records in Head Office and Area Center IV amounting to P5.320 billion; c) non-
maintenance of PPE Ledger Cards and Property Cards; d) erroneous recording
of some transactions to PE account amounting to P18.937 million; e) non-
capitalization of major repairs of P1.496 million and other unrecorded PE in
AC XII; and f) non-derecognition of unserviceable PE with a net book value of
P7.552 million.

1.1 Paragraph 15 of Philippine Accounting Standard (PAS) 1 requires the fair

presentation of the financial statements.

1.2 Moreover, the Philippine Financial Reporting Standards (PFRS) provides for
the following qualitative characteristics of useful information:

QC2 “Financial reports provide information about the reporting entity’s

economic resources, claims against the reporting entity and the
effects of transactions and other events and conditions that
change those resources and claims.”

QC21 “Comparability enables users to identify and understand

similarities in, and differences among items. Unlike the other
qualitative characteristics, comparability does not relate to a
single item. A comparison requires at least two items.”

QC26 “Verifiability helps assure users that information faithfully

represents the economic phenomena it purports to represent.”

1.3 Analysis of the PE account disclosed the following observations:

a. Non-conduct of physical count and/or non-submission of Report on the

Physical Count of Property, Plant and Equipment (RPCPPE) in four Area
Centers resulting in doubtful balance of the account – P28.648 billion

1.4 Physical inventory taking as provided in COA Circular No. 80-124 is an

indispensable procedure for checking the integrity of the property
custodianship, hence, has to be regularly enforced and a corresponding
report shall be 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. Moreover, all inventory reports shall be reconciled with
accounting records.

55
 1.5 Audit disclosed that the four Area Centers of CAAP were not able to conduct
physical count and/or submit the RPCPPE which precluded the Auditor from
establishing or ascertaining the accuracy of the PE balances in the books.

Table 1. Area Centers without RPCPPE

PE balance per Books as
Location of December 31, 2020
AC V P 3,681,275,374
AC VI 16,316,847,421
AC IX 6,246,207,535
AC XII 2,403,998,784
TOTAL P 28,648,329,114

b. Unreconciled variance between accounting and property records - P5.320

billion

1.6 In CAAP-HO and AC IV, the corresponding RPCPPE were submitted,

however, balances per books/GL do not tally with the balances per RPCPPE:

Table 2. Comparison between GL and RPCPPE

Total PE
Location per GL per RPCPPE Variance
Head Office P 2,269,805,362 P 7,577,661,545 P 5,307,856,183
AC IV 4,487,266,968 4,499,139,851 11,872,883
TOTAL P 6,757,072,330 P 12,076,801,396 P 5,319,729,066

1.7 Some of the causes of the variance between the GL and the RPCPPE are:

 Different costing used by the Accounting Division and Supply Division

beginning CY 2019. Accounting Division (GL) records the cost of the PE
net of input Tax, while the Supply Division (RPCPPE) records the same
based on gross amount - VAT included;
 Cost of repair of aircraft in CY 2010 amounting to P87.210 million was
recognized in the books but not in the RPCPPE;
 Some equipment that were delivered/transferred to various ACs were still
included in the RPCPPE of CAAP-HO;
 Some items recorded in the RPCPPE were not reflected in the books;
 Misclassification of accounts used and erroneous computations; and
 Tangible items costing below the capitalization threshold of P15,000 were
recorded or classified as PE.

c. Non-maintenance of Property, Plant, and Equipment Ledger Cards (PPELC)

and Property Card (PC)

1.8 Section 114 of Presidential Decree No. 1445 provides that “The government
accounting system shall be on a double entry basis with a general ledger in

56
 which all financial transactions are recorded. Subsidiary records shall be kept
where necessary.”

1.9 Thus, Accounting Units are required to maintain PPELC which shall contain
the details of the General Ledger accounts. For check and balance, the
Property and Supply Office/unit shall maintain PC and the balance per PC
should always reconcile with the ledger card of the Accounting Unit. The
maintenance of PPELC and PC are required to facilitate the reconciliation
between the accounting and property records.

1.10 The reconciliation of inventory and accounting records cannot be done due
to the continuous non-maintenance by the Accounting Divisions/units and
Supply Offices of CAAP of PPELC and PCs, or if maintained, were not
prepared in the prescribed form, not updated, and lacked the necessary
information needed for the application of alternative audit procedures.

d. Transactions in HO erroneously recorded under PE accounts –P18.937

million

1.11 The Accounting Division in CAAP-HO committed error in recording some

transactions resulting in the overstatement of the PE account and
misstatements of other affected accounts:

Table 3. Misstatements in PE accounts

Particulars Amount Remarks
15 per cent advance P 13,042,082 Should be recorded as
payment as per sales Advances to Contractors
Inv#0059523 dated instead of Airport Equipment
8/4/2020 account
Payment of sales inv. no 390,168 Double Recording, affecting
3258 for the supply, Communication Equipment
delivery, and installation of account
radio repeaters for CSIS
Purchase of Thermal 25,448 Does not meet the capitalization
Paper roll and Easy tab threshold of P15,000. Should be
Mouthpiece recorded as Medical, Dental and
Laboratory Supplies Expenses
instead of Medical Equipment
account
Cost of repair of 90,000 Should be Repairs and
transportation equipment Maintenance - Transportation
erroneously charged to Equipment instead of Disaster
Disaster Response and Response and Rescue
Rescue Equipment Equipment account
Purchase of the Instrument 5,388,860 Recorded under Information and
Flight Rule (IFR) Communication Equipment,
Procedure Design should be reclassified to
Software Computer Software account
(Intangible asset)
TOTAL P 18,936,558

57
e. Non-capitalization of major repairs of P1.496 million and other unrecorded
PE

1.12 In AC XII, two major repairs/improvements totaling P1.496 million were not
capitalized or reclassified to the respective PE account.

Table 4. Summary of capitalizable repairs

Description Amount
Provision of new electrical installation at the P 996,353
Passenger Terminal Building of Bislig Airport
Repair and maintenance of Hino Firetruck at 500,000
Tandag Airport
TOTAL P 1,496,353

1.13 Also, the repair of the Siargao Airport Extension project and the donated 28
K9 dogs with undetermined amounts were not recorded in the books due to
insufficiency of documents.

f. Non-derecognition of unserviceable PE in HO with net book value of P7.552

million

1.14 Paragraph 67 of PAS 16 provides that the carrying amount of an item or

property, plant, and equipment shall be derecognized: a) on disposal; or
b) when no future economic benefits are expected from its use or disposal.

1.15 As of year-end, various unserviceable properties amounting to P99.897

million with net book value of P7.552 million have not been derecognized in
the books. These were also not reflected in the Inventory and Inspection
Report of Unserviceable Property (IIRUP).

1.16 This issue was already raised in the previous audit report but has remained
unacted. The continuous non-derecognition of the unserviceable properties
overstate the PE account balance.

1.17 We recommended and Management agreed to instruct the:

a. Respective Supply Divisions/inventory Committees to conduct a

complete physical count of PE and submit to the Auditor, the
RPCPPE pursuant to COA Circular No. 80-124 dated January 18,
1980. In conducting the physical count, the provisions of COA
Circular 2020-006 for the one time cleansing of PE account balances
should be considered;

b. Accounting Division and Supply Division of CAAP-HO and AC IV, to

reconcile their receipts and issuances of property/ies, determine the
cause of the variances, and effect the proper
adjustments/corrections;

58
 c. Accounting Division/units and Supply Office of CAAP-HO and ACs
to maintain updated/complete PPELCs and PCs, and to regularly
reconcile their records;

d. Accounting Division of CAAP-HO to make the necessary adjusting

entries for the erroneously recorded transactions of P18.937
million;

e. Accounting Unit of AC XII to prepare the necessary adjusting entry

to capitalize the major repairs of P1.496 million and to exert efforts
to obtain the records and documents on the repair of the Siargao
Airport extension and the donation of K9 dogs, and expedite its
appraisal, and recording in the books; and

f. Supply Officer of CAAP-HO to report all the unserviceable

properties in the IIRUP and initiate its proper disposal. Likewise,
direct the Accounting Division to prepare the necessary adjusting
entries to derecognize the unserviceable properties from the books
of accounts.

1.18 Management commented that:

a. For CAAP-HO, the Accounting Division has started reconciling their

records with Supply Division parallel to the maintenance of PPELC and
PC. Also, the advance payment of P13.042 million which was
erroneously recorded to PE account has already been adjusted under
JEV No. F-21-01-052 dated January 31, 2021.

b. For AC IV, Management committed to comply with the recommendations

and has already started the reconciliation of the accounting records and
RPCPPE.

2. The balance of Accounts Receivable amounting to P4.700 billion is unreliable

due to: a) variance of P1.688 billion between the balances per General Ledger
(GL) and Subsidiary Ledger (SL); b) existence of past due accounts aged more
than one year totaling P4.484 billion; c) unbilled Air Navigation Charges
(ANCs) for transient/non-scheduled flights amounting to P20.184 million;
d) discrepancies and over/under billing of ANCs for scheduled flights with net
overstatement of P19.939 million; e) variance of P138.062 million between the
SL balances and the amount confirmed by the 11 airline companies;
f) unsupported prior years’ adjustment amounting to P4.056 million; and
g) negative balance of P1.953 million due to erroneous recording of
advance/overpayments.

59
2.1 Paragraph 15 of Philippine Accounting Standard (PAS) 1 states that:

“xxx. 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. xxx”

2.2 Also, Title III, Chapter 2, Section 111 of Presidential Decree (PD) No. 1445
– General Ledger provides that:

Section 111. Keeping of accounts

(1) “The accounts of an agency shall be kept in such detail as is

necessary to meet the needs of the agency and at the same time be
adequate to furnish the information needed by fiscal or control
agencies of the government.”

(2) “The highest standards of honesty, objectivity and consistency shall

be observed in the keeping of accounts to safeguard against
inaccurate or misleading information.”

2.3 The Accounts Receivable balance of P4.700 billion pertains to the amount
due from airline companies and CAAP’s tenants/concessionaires for fees
and charges consisting of Air Navigational Charges (ANC), landing and take-
off fees, parking fees, rental income from concessionaires, and similar
others. ANCs are imposed on airline companies for the use of communication
facilities owned by CAAP. The ANC, being the primary source of revenue of
the Authority covers a huge portion of the receivable balance.

2.4 Analysis of the accounts disclosed the following:

a. Variance of P1.688 billion between the balance per GL and SL

2.5 Comparison of the General Ledger (GL) and Subsidiary Ledger (SL)
balances of CAAP-Head Office (HO) and Area Centers (ACs) disclosed a
total variance of P1.688 billion, to wit:

Table 5. Comparison between GL and SL of Accounts Receivables

Location per GL per SL Variance
CAAP-HO P 2,389,350,617 P 3,900,288,857 P 1,510,938,240
AC I 35,257,025 41,399,941 6,142,916
AC II 35,895,322 38,464,348 2,569,026
AC III 80,855,636 84,019,524 3,163,888
AC IV 133,924,280 134,136,361 212,081
AC V 39,733,369 39,733,369 0
AC VI 857,010,017 858,644,167 1,634,150
AC VII 227,042,870 244,147,432 17,104,562

60
 Location per GL per SL Variance
AC VIII 158,051,687 178,874,400 20,822,713
AC IX 134,855,993 147,191,064 12,335,071
AC X 146,432,439 220,841,258 74,408,819
AC XI 403,055,896 441,631,558 38,575,662
AC XII 58,302,065 58,302,065 0
Total P 4,699,767,216 P 6,387,674,344 P 1,687,907,128

2.6 Audit disclosed that one of the main causes of the variance in CAAP-HO is
the payments made by the international and/or foreign-based airline
companies through telegraphic/bank transfers which were already recorded
in the GL but not in their respective SLs. Accounting Division has yet to
identify the airline companies who made the fund transfers and/or which
corresponding billings are settled. Said office did not require the airline
companies to submit a Remittance Advice or any equivalent document as a
reference of payment. Hence, individual SLs were not timely updated
resulting in substantial discrepancy with the GL balance. Management
likewise attributed the variance to the improper turn-over to CAAP of the Air
Transportation Office (ATO) accounts and supporting documents, or lack
thereof.

b. Past due accounts aged more than one year totaling P4.484 billion or 70
per cent of the total receivable (SL) balance

2.7 Paragraph 66 of PAS 1, Presentation of Financial Statements, provides that:

“An entity shall classify an asset as current when:

(a) It expects to realize the asset or intends to sell or consume it, in
its normal operating cycle;
(b) It holds the asset primarily for trading;
(c) It expects to realize the asset within twelve months after the
reporting period; xxx”

2.8 Schedule on Aging of Accounts Receivable as of December 31, 2020, is

summarized below:
Table 6. Aging of Accounts Receivables
Past Due
CURRENT
Total Over 1 year to Total Past
Location Less than 1 Uncollected
SL Balance 3 years and ATO Due
year PAL accounts
onwards

CAAP-HO P3,900,288,857 P1,443,442,546 P1,017,712,715 P156,248,966 P1,282,884,630 P2,456,846,311

AC I 41,399,941 10,157,323 18,808,046 12,434,572 0 31,242,618
AC II 38,464,348 7,862,494 29,546,264 1,055,590 0 30,601,854
AC III 84,019,524 20,254,260 44,020,427 19,744,837 0 63,765,264
AC IV 134,136,361 41,429,811 91,969,120 737,430 0 92,706,550
AC V 39,733,369 6,911,615 27,330,578 5,491,176 0 32,821,754
AC VI 858,644,167 104,240,507 747,927,846 6,475,814 0 754,403,660
AC VII 244,147,432 61,652,393 161,293,153 21,201,886 0 182,495,039
AC VIII 178,874,400 24,080,947 154,793,453 0 0 154,793,453

61
 Past Due
CURRENT
Total Over 1 year to Total Past
Location Less than 1 Uncollected
SL Balance 3 years and ATO Due
year PAL accounts
onwards

AC IX 154,107,379 17,370,352 129,820,712 *6,916,315 0 136,737,027

AC X 220,841,258 50,999,107 151,702,847 18,139,304 0 169,842,151
AC XI 441,631,558 110,777,630 279,069,075 51,784,853 0 330,853,928
AC XII 58,302,065 11,693,337 6,637,368 0 39,971,360 46,608,728
TOTAL P6,394,590,659 P1,910,872,322 P2,860,631,604 P300,230,743 P1,322,855,990 P4,483,718,337
Percentage 100% 30% 45% 5% 20% 70%
* ATO accounts of AC IX amounting to P6.916 million were recorded as Other Non-Current Assets in the Financial
Statements. Total SL Balance exclusive of this amount is P6.388 billion as presented in Table 5

2.9 The past due account of Philippine Airlines (PAL) in CAAP-HO amounting to
P1.283 billion is the difference between the total unpaid fees and charges
covering the period CY 1977 to CY 2017 and the amount paid by the said
airline company, to wit:
Table 7. Uncollected PAL accounts in CAAP-HO
Particulars Amount
Total unpaid fees and charges of PAL per CAAP records
(CY 1977- CY 2017) P 6,960,772,245
Less: Payment of PAL on 11/13/2017 (5,677,887,615)
Balance/Difference P 1,282,884,630

2.10 Per accounting records, PAL has unpaid fees and charges totaling P6.961
billion from CY 1977 to CY 2017. In its letter dated October 6, 2017, PAL
offered the payment of P6 billion as full and final settlement of its accounts
to MIAA and CAAP, without the need for any further reconciliation and
resubmission of additional documents. The proposal was concurred and
accepted both by MIAA and CAAP. Based on the Official Receipt issued on
November 13, 2017, the payment of PAL to CAAP was only at P5.678 billion,
hence, a difference of P1.283 billion.

2.11 Moreover, the past due accounts of AC XII amounting to P39.971 million
were also due from PAL. However, the same was not duly transferred to the
books of the CAAP-HO at the time of the consolidation of all the unpaid fees
and charges of the said airline company.

2.12 Guidance was also sought on how to derecognize or write-off the said
uncollected/unaccounted balances due from PAL. Management was
previously advised to prepare and submit a request for condonation to
Congress through the Commission on Audit (COA). Management was also
instructed to conduct a thorough review and reconciliation of the PAL’s
accounts and to prepare the proper documents in support of the request.
However, as of year-end, no such request for condonation has been
prepared/submitted by CAAP.

62
2.13 The Accounting Division had already recognized the full impairment of the
uncollected/unaccounted PAL accounts as well as the ATO balances.

2.14 Management further claimed that some of the past due accounts are from
airline companies that were no longer in operation, thus, the probability of
collection was uncertain.

c. Unbilled ANCs for transient/non-scheduled flights amounting to P20.184

million resulting in understatement of Accounts Receivable by the same
amount

2.15 As of December 31, 2020, unbilled ANCs for transient/non-scheduled

international flights accumulated to P20.184 million, with breakdown as
follows:

Table 8. Unbilled ANCs for Transient/Non-

Scheduled International flights
Year Amount
2019 P 2,728,390
2020 17,455,244
Total P 20,183,634

2.16 ANCs are imposed to airline companies for the use of communication
facilities owned by CAAP in conformity with CAAP Circular No. 03-11 series
of 2011 dated April 11, 2011.

2.17 Section 2, Part III of CAAP Circular No. 03-11 provides for the formula for the
computation of Operational Charges for the Overflight and Domestic
Commercial and Domestic General Aviation Flights, as follows:

Section 2 Overflight

“A charge in U.S. Dollar or its peso equivalent at the time of payment

based on the derived formula for calculating Air Navigational Charges
(ANC) which is equal to the distance (D) flown by an aircraft in kilometer
divide by 100 (hundred) and multiplied by its weight factor (W).”

ANC (US $) = D/100 x W

2.18 Billing and collection process of Air Navigation Charges (ANCs) for
transient/non-scheduled flights is different from the scheduled flights. As
provided in CAAP Circular No. 03-11, the ANCs for transient/non-scheduled
flights shall be payable upon filing of the flight plan and issuance of the
Operational Flight Permit (OFP). While for the scheduled/regular flights, the
ANCs shall be payable within 10 working days upon receipt of the bill from
CAAP.

63
 2.19 Part of the process on the application of OFP for transient/non-scheduled
flights are the issuances of an Order of Payment Slip (OPS) and accounting
clearance for the advance payment of the ANC. These documents likewise
serve as a cross-reference of the Billing Section for the flight details of the
airline companies/operators and being compared to the Flight Statistics
Report (FSR), generated from the data captured by the system of CAAP
under Communication, Navigation and Surveillance – Air Traffic
Management (CNS-ATM).

2.20 However, since the start of the COVID-19 pandemic/lockdown, the regular
processes for issuance of the OPS and accounting clearances were
temporarily suspended. OFPs were continuously issued even without the
OPS and/or accounting clearance for the advance payment of ANCs of
transient/non-scheduled flights.

2.21 Further, the Flight Operations Division (FOD) which is in charge of the
issuance of OFP did not likewise provide the Accounting Division/Billing
Section with the list of airline companies/operators and/or handlers who were
issued OFPs, hence, the corresponding ANCs were not billed and recorded
in the books.

2.22 Similarly, the unbilled ANCs prior to the pandemic pertain to OFPs issued
after office hours, holidays and/or weekends, where no OPS and/or
accounting clearance for the advance payment of ANCs has been processed
and the Accounting Division/Billing Section had not been provided with the
necessary data to record and bill the same.

2.23 The unbilled ANCs for transient/non-scheduled international flights

amounting to P20.184 million as of December 31, 2020 resulted in the
understatement of Accounts Receivable balance by the same amount.

d. Discrepancies and over/under billings of ANCs for scheduled flights with

net overstatement of P19.939 million

2.24 Detailed review of the issued Billing Statements, Abstract of Bills Rendered,
Journal Entry Vouchers and other related reports revealed that the
Accounting Division/Billing Section had committed multiple errors in the
computation and posting of the amounts resulting in the net overstatement
of the recorded ANC by P19.939 million, with details as follow:
Table 9. Summary of Discrepancies and Over/Under Billings of ANCs for Scheduled International flights
ANC per ANC per Billing Over/Under
2020 Abstract of Bills Statements ANC per audit Discrepancies billing Net Effect
A B C D (A-B) E (B-C) (D+E) or (A-C)
Jan. P 546,922,268 P 547,960,177 P 548,618,855 P (1,037,909) P (658,678) P (1,696,587)
Feb. 368,075,712 368,075,662 368,075,662 50 0 50
Mar. 224,066,264 224,057,020 224,072,708 9,244 (15,688) (6,444)
April 94,086,568 94,086,568 94,106,981 0 (20,413) (20,413)
May 141,503,663 113,182,126 113,182,126 28,321,537 0 28,321,537
June 105,182,374 111,322,944 111,362,426 (6,140,570) (39,482) (6,180,052)
July 120,440,823 120,440,741 120,442,173 82 (1,432) (1,350)

64
 ANC per ANC per Billing Over/Under
2020 Abstract of Bills Statements ANC per audit Discrepancies billing Net Effect
A B C D (A-B) E (B-C) (D+E) or (A-C)
Aug. 135,415,644 136,104,250 136,104,250 (688,606) 0 (688,606)
Sept. 132,660,381 132,659,899 132,223,400 482 436,499 436,981
Oct. 146,409,629 146,899,275 146,899,275 (489,646) 0 (489,646)
Nov. 147,229,169 147,233,993 147,269,324 (4,824) (35,331) (40,155)
Dec. 162,072,193 162,072,193 161,768,986 0 303,207 303,207
Total P 2,324,064,688 P 2,304,094,848 P 2,304,126,166 P 19,969,840 P (31,318) P 19,938,522

e. Variance of P138.062 million between the Subsidiary Ledger (SL) balances

and the amounts confirmed by eleven (11) airline companies

2.25 QC4 and QC29 of the Conceptual Framework of the Philippine Financial
Reporting Standards state that:

QC4 – “If the financial information is to be useful, it must be relevant

and faithfully represent what it purports to represent. The
usefulness of the financial information is enhanced if it is
comparable, verifiable, timely, and understandable.”

QC29 – “Timeliness means having information available to decision-

makers in time to be capable of influencing their decisions.
Generally, the older the information is the less useful it is.
However, some information may continue to be timely long
after the end of a reporting period because, for example, some
users may need to identify and assess trends.”

2.26 Confirmation letters were sent out to 87 selected debtors in CAAP-HO and
the results are summarized below:
Table 10. Results of Confirmation
No. of
Particulars Debtors Amount per Books
Confirmed a different balance 11 P 340,954,649
Returned by Post Office
(marked as “moved-out”, “unknown”,
“closed” and “no one to receive”) 18 569,629,310
No replies 58 1,550,106,058
Total 87 P 2,460,690,017

2.27 Comparison of the SL balances and results of confirmation of eleven (11)

airline companies showed a total discrepancy of P138.062 million, to wit:

Table 11. Variance between SL balances and Results of Confirmation

Name of Debtor Per SL Per Confirmation Variance
All Nippon Airways Co. Ltd. P 34,087,290 P 27,659,576 P 6,427,714
Beijing Capital Airlines 5,622,084 2,588,475 3,033,609
China Airlines 132,615,320 68,600,125 64,015,195
Korean Airlines 95,432,699 67,690,171 27,742,528
Kuwait Airways 497,878 0 497,878
Japan Airlines 37,254,983 30,969,433 6,285,550

65
 Name of Debtor Per SL Per Confirmation Variance
Saudi Arabian Airlines 11,925,577 2,822,398 9,103,179
Oman Airlines 7,213,660 0 7,213,660
Turkish Airlines 12,453,980 2,562,112 9,891,868
Mactan-Cebu International 2,575,000 0 2,575,000
Ethiopian Airlines 1,276,178 0 1,276,178
Total P 340,954,649 P 202,892,290 P 138,062,359

2.28 The difference of the amounts between the SL and the confirmed balances
can be primarily attributed to the payments made thru telegraphic/bank
transfers. As discussed in Observation No. 2.6 of this report, payments from
international and/or foreign-based airline companies are not timely
recorded/posted in the respective SLs until such time that the payor and
billing statement corresponding to the said payment had been identified.

2.29 It was also noted that some of the confirmed balances pertain only to records
of the airlines’ present ground handlers. As the ground handlers of
international airline companies frequently change, the unreconciled balances
from clients’ previous ground handlers remained outstanding and
accumulate over time, hence, generating a substantial amount of variance
upon confirmation.

2.30 Moreover, the SLs maintained by the Accounting Division in CAAP-HO (Head
Office) and Area Center (AC) XI did not contain and/or had an incomplete
record of the airline companies’ specific legal addresses and/or local
operators’/handlers’ contact information precluding the confirmation of the
balances.

f. Unsupported prior years’ adjustment amounting to P4.056 million

2.31 In AC V, an adjustment of P4.056 million was made to the receivable account

reducing the balance. The adjustment was neither reflected in the
corresponding SLs nor was it supported with documents that would establish
the validity of the deduction made. The same was merely presented as a
deduction in the Aging Schedule. The adjustment had been existing since
CY 2012.

2.32 The lack of sufficient documentation on the adjustment made casts doubt on
its validity.

2.33 AC V commented during the Exit Conference that the negative balance of
P4.056 million pertains to the absorption of Air Transportation Office (ATO)
accounts by CAAP wherein the said amount was considered as a collection
but the particular accounts involved and corresponding SLs has yet to be
ascertained/identified, hence the same was merely presented as deduction
in their Aging Report.

66
g. Negative balance of P1.953 million due to erroneous recording of
over/advance payments

2.34 In AC V & VI, total negative/abnormal balances amounting to P182,020 and

P1.771 million respectively were noted, representing overpayments and/or
advance payments received from their clients.

2.35 The advance payments should have been recorded under the Other
Unearned Income account instead of the Accounts Receivable.

2.36 We recommended and Management agreed to instruct:

1. The Chief Accountant and/or AC Accountants:

a. To analyze the variances between the GL and the SL balances

and prepare the necessary adjusting entries;

b. To send demand letters and/or Statement of Accounts (SOA)

to all the clients with unpaid balances; and thereafter, initiate
the regular issuance of SOA at least every quarter, in addition
to the monthly billing statements for periodic reconciliation of
records;

c. To require client’s submission of Remittance Advice for every

payment made via telegraphic/bank transfer and compel them
to specify the corresponding reference billing statements that
have been paid/settled;

d. To continue the reconciliation/documentation of the P1.323

billion PAL accounts to facilitate the filing of the request for
condonation should Management pursue its request;

e. To reconcile the variances between accounting records and

confirmation replies and coordinate with both the client’s
current and previous local ground handlers/airline operators;

f. To regularly update client’s SL and indicate the latest and

specific airline legal addresses and/or the local
operator’s/handler’s contact information;

2. The Flight Standards Inspectorate Service (FSIS):

g. To submit to the Accounting Division/Billing Section the

necessary data to identify the respective operators/ground
handlers of the airline companies from the list of unbilled
flights to which the Operational Flight Permits (OFPs) for
CYs 2019 and 2020 have been duly issued;

67
 h. To regularly submit a monthly summary report to serve as
additional reference in the preparation of billing statements for
the current and succeeding year’s issuance of OFPs;

3. The Accounting Division and/or Billing Section:

i. To immediately act on the data to be provided by the FSIS;

expedite the preparation and sending out of the billing
statements to the concerned airline companies for the unbilled
flights amounting to P20.184 million;

j. To prepare the necessary adjusting entries for the

discrepancies and over/under billings of Air Navigational
Charges (ANCs) with net overstatement of P19.939 million;

k. To assign additional personnel to tediously review and

recheck the accuracy of data in the billing statements in order
to avoid the recurrence of errors;

4. The Area Center (AC) Accountant of AC V to locate/trace the

Journal Entry Voucher/s and the supporting documents on the
adjustment/deduction made from the Accounts Receivable (AR)
amounting to P4.056 million otherwise, restore the said amount to
AR, if the adjustment cannot be documented; and

5. The Area Center Accountants of AC V & VI to analyze the

abnormal/negative balances and prepare the appropriate
adjusting entries.

2.37 Management commented that the Accounting Division (i) will conduct
reconciliation of the balances between the GL and SL parallel to the
reconciliation of accounts with the respective airline companies; (ii) will issue
Statement of Account (SOA) every quarter vis-à-vis to require their clients to
notify/advise the Authority of the payments made thru telegraphic transfers;
(iii) prepare an adjusting entry for the errors amounting P19.939 million; and,
(iv) establish additional controls throughout the process by having multiple
verification stages to ensure the accuracy of the ANC data recorded in the
books.

2.38 Likewise, the Internal Audit Service (IAS) committed to take the lead in
coordination with the Enforcement and Legal Service (ELS) and other
concerned CAAP Offices regarding the preparation of the request for
condonation of uncollected/unaccounted PAL accounts.

2.39 During the Exit Conference, the Chief Accountant further commented that
they will be closely coordinating with the FSIS regarding the updated list of

68
 addresses of the airline companies to be used primarily in issuing the billing
statements. In addition, FSIS gave an assurance that they will conform and
comply with the stated recommendations.

3. The balance of Construction in Progress (CIP) account of P1.630 billion is

overstated by P504.928 million covering the cost of the 24 completed projects
recorded in CAAP-HO books which were not reclassified to its respective
Property and Equipment account. Moreover, the validity, accuracy, and
valuation of the CIP balance of P26.372 million in AC IX could not be
ascertained due to inadequate accounting records to validate ongoing and
completed projects.

3.1 PAS 16 states that:

“Items of property, plant, and equipment should be recognized as assets

when:

a) it is probable that the future economic benefits associated with the

asset will flow to the entity, and
b) the cost of the asset can be measured reliably.”

3.2 In addition, paragraph 6.2 of Annex “E” of the 2016 Revised Implementing
Rules and Regulations (RIRR) of Republic Act (RA) No. 9184 states that “The
total "retention money" shall be due for release upon final acceptance of the
works. Xxx.”

3.3 Construction in Progress (CIP) account is used to record the accumulated

cost or other appropriate value of a property/equipment which are still in
process of acquisition, construction or, completion.

3.4 As of December 31, 2020, the balance of the CIP account of the Authority is
P1.630 billion, of which P1.514 billion is for CAAP-HO while P115.299 million
are the balances of the 12 Area Centers.

a. 24 Completed projects in CAAP-HO books amounting to P504.928 million

were not reclassified from CIP to its respective PE account.

3.5 Audit of the Disbursement Vouchers (DVs) and the related reports and
schedules in CAAP-HO revealed that there were 24 completed projects from
CY 2016 to CY 2020 with a total contract cost of P504.928 million which were
not reclassified to the respective PE account. Most of these projects are
located in the Area Centers/regions but were bidded or procured at the
CAAP-HO. The non-reclassification of the CIP to PE accounts resulted in the
understatement of Depreciation Expense and Accumulated Depreciation
amounting to P43.955 million and P116.731 million, respectively, and

69
overstatement of CIP and Retained Earnings accounts by P504.928 million
and P72.776 million, respectively.

Table 12. Summary of 24 Completed Projects that were not yet reclassified to PE
accounts
Contract Date
Project Amount Completed
A. Completed projects with paid retention money/with Certificate of Final
Acceptance
Resurfacing/rehabilitation of damaged P 19,500,334 March-16
portion of runway at Butuan Airport
Development of Passenger Terminal 31,722,586 February-17
Building at Camiguin Airport
Waterproofing of selected buildings at 25,037,415 June-17
Davao International Airport
Rehabilitation of AFC Bldg. including 10,683,110 October-17
Control Tower & other works at
Mactan Airport
Repair of eroded riprap at Bacolod-Silay 4,735,180 December-17
Airport
Continuation of asphalt overlay of taxiway 8,675,640 March-18
& upgrading of runway and taxiway
shoulders at Plaridel Airport
Rehabilitation of Passenger Terminal 4,500,000 April-18
Building at Virac Airport
Improvement of Passenger Terminal 18,382,197 April-18
Building at Tacloban Airport
Asphalt overlay of runway project at 29,279,478 May-18
Sangley Airport
Rehabilitation of Virac Airport 39,453,025 May-18

Completion of CHB perimeter fence at 4,717,722 June-18

Zamboanga International Airport
Development of Borongan Airport 20,863,295 July-18

Development of Virac Airport 157,224,756 August-18

Civil Aviation Training Center (CATC) 6,807,875 March-19

Covered Parking Project
Subtotal P 381,582,613

B. Completed projects awaiting final acceptance/with Certificate of Initial

Acceptance
Improvement of Manila Transmitter P 7,767,889 June-16

Rehabilitation of powerhouse and other 6,783,412 September-16

works at Manila Transmitter Facility
CAAP Compound Beautification Project 5,137,442 December-16

Improvement of PTB at Tacloban Airport 18,382,197 April-18

Development project in Borongan Airport 20,126,316 July-18

Completion of Concreting of Runway 12,750,430 November-18

project in Marinduque Airport

70
 Contract Date
Project Amount Completed
Construction of Admin Building at Tandag 4,890,642 January-19
Airport
Construction of Admin Building at Ormoc 4,945,227 October-19
Airport
Development of Drainage System at 6,224,461 December-19
Pagadian Airport
Subtotal - Due for issuance of Certificate 87,008,016
of Final Acceptance
Asphalt Overlay of Runway at Lingayen 36,337,724 August-20
Airport
Subtotal P 123,345,740

TOTAL- At Contract Amount P 504,928,353

3.6 The CAAP-HO Accountant explained that the delay in the reclassification is
due to the Authority’s practice of reclassifying completed projects only upon
the availability/issuance of the Certificate of Final Acceptance (CFA). The
CFA is issued after a year from the completion date of the project or at the
end of the defects liability period, for which the contractor may request for the
release of the retention payment.

3.7 In CY 2019 audit, the accountant suggested that reclassification of

completed projects from CIP to PE be allowed immediately upon completion
of projects since the two criteria for initial recognition under PAS 16 are met.
The Audit Team agreed on the condition that there is sufficient
documentation and the Certificate of Project Completion (CPC), Inspection
and Acceptance Report (IAR) and Certificate of Initial Acceptance (CIA) are
available. The CPC, IAR, and CIA are issued by the Aerodrome Development
and Management Services (ADMS) and are approved by the Director
General. These documents are attachments to the full/final billing of the
contractor except for the required retention fee.

3.8 However, as of year-end, despite the availability of the CPC, IAR, and CIA,
the Accountant has not reclassified the 24 projects resulting in the
overstatement of the CIP balance by P504.928 million.

3.9 It can also be noted from the table that there were nine projects which were
not yet issued with a Certificate of Final Acceptance despite the lapse of one
year from the completion date or defect liability period.

b. Inadequate accounting records of CIP account in AC IX with a balance of

P26.372 million

3.10 As of December 31, 2020, the CIP account in AC IX has a balance of P26.372
million. However, the balances per accounting records have not been

71
 reconciled with the Project Monitoring Reports (PMR) to determine which
projects recorded under the CIP accounts have already been completed.

3.11 The report submitted by the Accounting Unit as of year-end is lacking in

material substance, with the following deficiencies noted in the report: a) the
balance carried over as of CY 2013 amounting to P8.034 million did not have
a breakdown, and b) some projects included in the CIP which were
implemented during CY 2015-2017 lack complete details and have negative
ending balances. Moreover, the Accounting Unit does not maintain
subsidiary ledgers by project name to facilitate reconciliation with the PMR
prepared by the Airport Maintenance Section (AMS). Thus, the validity,
accuracy, classification, and valuation of the balances were doubtful.

3.12 We recommended and Management agreed to direct the:

a. CAAP-HO Chief Accountant to prepare the adjusting entries for the

reclassification of the 24 completed projects amounting to P504.928
million, including the provision for depreciation expense and other
affected accounts;

b. ADMS to facilitate the issuance of the Certificate of Final

Acceptance for the nine completed projects with cost totaling
P87.008 million; and

c. AC IX Accounting unit to locate pertinent records to support prior

years’ CIP accounts and closely monitor the account thru the
maintenance of updated subsidiary ledgers and other accounting
records.

3.13 Management commented that:

a. The Accounting Division had already reclassified completed projects

totaling P295.936 million per JEV Nos. F-21-01-39 to F-21-01-50 dated
January 31, 2021;

b. The ADMS was not able to conduct the final inspection on the 2019
completed projects due to the pandemic and/or enforcement of the
community quarantine but will nonetheless expedite the conduct of the
final inspection of the projects; and

c. AC IX had already made necessary adjustments as recommended and

has committed to coordinate with the AMS about the projects reported
as completed in the PMR for purposes of recording in the books and
improve the recording of details in the subsidiary ledgers.

72
4. The existence of Inventories totaling P116.045 million and the accuracy and
reliability of the balance cannot be ascertained due to: a) the variance between
accounting and property records amounting to P42.758 million; b) the non-
maintenance of Supplies Ledger Cards (SLC) and Stock Cards (SC); and
c) various accounting errors and misstatements.

4.1 Paragraph 15 of Philippine Accounting Standard (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. The application of PFRSs, with additional
disclosure when necessary, is presumed to result in financial
statements that achieve a fair presentation.”

4.2 Analysis of the Inventories account disclosed the following observations:

a. Variance between accounting and property records – P42.758 million

4.3 Section 10.1.6 of the Internal Control Standards for the Philippine Public
Sector (ICSPPS) provides that the financial records should be reconciled with
appropriate documents on a regular basis, as part of the agency’s control
activities.

4.4 Comparison of the recorded balances in the books of accounts and the
submitted Report on the Physical Count of Inventories (RPCI) of the CAAP
Head Office (HO) and Area Centers (ACs) III, V, VIII, and IX disclosed a
variance totaling P42.758 million, details are as follows:
Table 13. Comparison of GL and RPCI Balances
Total Inventory
Location Per GL Per RPCI Variance
HO P 50,793,083 P 37,877,064 P 12,916,019
Area Centers
III 673,674 248,150 425,524
V 25,131,838 366,106 24,765,732
VIII 6,141,125 1,628,371 4,512,754
IX 137,740 0 137,740
TOTAL P 82,877,460 P 40,119,691 P 42,757,769

4.5 The variance of P42.758 million could be attributed to the incomplete

submission of the RPCI by the Accounting and Property Division of CAAP-
HO, ACs III, V, VIII, and IX and their inability to conduct periodic reconciliation
between their records despite the continued reiteration in the prior years’
Annual Audit Reports (AAR) on the importance of this procedure to ascertain

73
 the existence of assets and to determine the accuracy of the corresponding
balances in the books of accounts.

b. Non-maintenance of Supplies Ledger Cards (SLC)

4.6 Audit further noted that the Accounting Division of CAAP-HO, ACs III, V, VIII,
and IX were not able to maintain the Supplies Ledger Cards (SLC) which
should be used for each type of supplies to record all receipts and issuances
made by the agency. The SLCs shall be used, along with the Stock Cards
maintained by the Supply Division and the RPCI, to reconcile the balance of
the inventory accounts. Any discrepancy shall then be immediately verified
and adjusted accordingly.

4.7 The semi-annual conduct of physical count, the maintenance of appropriate

records such as the RPCI and SLCs, and the subsequent reconciliation of
accounting and property records, are all vital internal controls to ensure that
Management’s assertions as to the existence of its inventories, along with
the reliability of its corresponding inventory balances, are indeed complete
and accurate. The lack or absence thereof resulted in the difficulty in
ascertaining these assertions as reported in the Authority’s financial
statements.

c. Various accounting errors and misstatements

c.1 Some medical, office, and other supplies of the CAAP-HO and AC VI
were recorded as outright expense resulting in the understatement of
the Medical, Dental and Laboratory Supplies Inventory (MDLSI), Office
Supplies Inventory, and Other Supplies and Materials Inventory (OSMI)
accounts and overstatement of the corresponding expense accounts.

4.8 Annex C of COA Circular 2020-002 dated January 28, 2020, provides that
the Medical, Dental and Laboratory Supplies Inventory (MDLSI), Office
Supplies Inventory, and OSMI accounts are debited to recognize the cost of
the supplies purchased/received for government operations and credited for
issuances to end-users, transfers, losses, other disposals, and/or
adjustments.

4.9 During the year, the CAAP-HO purchased various medical supplies in
response to the COVID-19 pandemic. Audit revealed that these purchases
were recorded as an outright expense in the books of accounts, instead of
recording the same under the MDLSI account. Physical inventory at year-
end showed that out of the total purchases, medical supplies totaling P26.553
million remained on hand as of December 31, 2020.

4.10 In AC VI, it was observed that Accountable Forms, Plates and Stickers
Inventory, Drugs and Medicines Inventory, Supplies Inventory, MDLSI, Fuel,
Oil, and Lubricants Inventory reflected a zero balance. However, upon

74
 verification/confirmation by the Team, many of these items were still found in
the Supply Office.

c.2 Overstatement of the Other Supplies and Materials (OSM) account of

the CAAP-HO by P5.831 million, while the accuracy of the remaining
balance of the account amounting to P21.145 million is doubtful.

4.11 As reported in the 2019 AAR, various inventories of the CAAP-HO totaling
P5.831 million which were already issued to respective end-users and with
proof of issuance were still recorded under the OSMI account, instead of the
appropriate expense account, thereby overstating the OSMI account and
overstating the Retained Earnings account by P5.831 million.

4.12 Further, since the Accounting Division does not maintain SLCs, said Office
does not have a detailed breakdown or details of the account. The Supply
Division also claimed that procured supplies and materials were already
issued to respective end-users as of the report date, rendering the accuracy
of the remaining balance of P21.145 million in the OSMI account doubtful.

c.3 Dormant balance of the MDLSI account of the CAAP-HO - P97,000

4.13 The recorded balance of the MDLSI account in the CAAP-HO amounting to
P97,000 has been outstanding for more than four years. The 2018 AAR
already pointed out that these items are no longer in the custody of the Office
of the Flight Surgeon and Aviation Medicine (OFSAM) and according to the
Medical Staff, they can no longer locate the Report on Supplies and Materials
Issued (RSMI) to support the issuances. No further action has been made on
the matter to date, hence the same remained outstanding in the books.

c.4 Overstatement of the Fuel, Oil and Lubricant Inventory (FOLI) account
of the CAAP-HO and AC VIII by an estimated amount of P13.527 million

4.14 Annex C of COA Circular No. 2020-002 dated January 28, 2020, defined
Fuel, Oil and Lubricants Inventory (FOLI) account as an account used to
recognize the cost of fuel and oil in government depots and lubricants for use
in government vehicles and other equipment in connection with government
operations/projects, including the cost or fair value of refined/processed fuel
utilized in running power plants.

4.15 In CAAP-HO, fuel and oils used for generators/power plants are paid in
advance to Petron Corporation. The Air Navigation Service (ANS), the office
responsible for maintaining the power plants of the Authority, notifies the
supplier to deliver sufficient amount of fuel/lube oil needed to operate
generators for regular maintenance and during contingency in case of power
failure. The consumption of its generators is then monitored periodically by
the ANS. The ANS in AC VIII also conducts the periodic monitoring of fuel
consumption and preparation of the monthly Generators Operation Record

75
 and Fuel Report while the Supply Section monitors the purchases and
issuances of gasoline at the motor pool.

4.16 Records maintained by the ANS and Supply Section in CAAP-HO and AC
VIII showed the following fuel and oil inventory as of December 31, 2020:

Location Diesel/Gasoline Lube Oil

Fuel (in
(in liters) liters)
HO 42,722.73 236
AC VIII 6,407.83 30.86

4.17 The RPCI submitted by the Supply Division in CAAP-HO only includes the
diesel fuel as of year-end and does not include the lube oils on hand. As
such, the Audit Team referred to the monthly report (Generators Operation
Record and Fuel Report) prepared by the ANS, to determine the actual liters
of lube oil on hand as of year-end. On the other hand, the Supply Section in
AC VIII did not conduct a physical count of inventory nor maintain stock
cards.

4.18 The Audit Team used the Prevailing Retail Pump Price in Manila as of
December 29, 2020, by the Department of Energy to get the estimated price
for diesel during the period, which is P36.95 per liter. Based on this fuel cost
and excluding the cost of lube oils for which the Audit Team does not have
any reliable estimate, the FOLI account of CAAP-HO should have an
estimated value of P1.578 million, whereas the computed estimate in AC VIII
amounted to P295,289. Both are significantly lower than the year-end
balance of the account by P11.935 million and P1.592 million, respectively.

c.5 Understatement in the Accountable Forms Inventory (AFI) account of

the CAAP-HO by P1.550 million due to erroneous recording of inventory
issuance in CY 2019 which remained uncorrected as of
December 31, 2020

4.19 Upon issuance of accountable forms to respective users, the Supply Division
shall prepare the Report on Supplies and Materials Issued (RSMI). This will
be submitted to the Accounting Division for proper costing and recording in
the book of accounts. However, audit revealed that in CY 2019 the
Accountant committed errors when assigning the costs of the Accountable
forms issued resulting in the overvaluation of the inventories issued by
P1.550 million. Thus, AFI account was understated and the Accountable
Forms Expenses account was overstated by the same amount. Had the
Accounting Division maintained SLCs for each inventory item, the
Accountant could have correctly assigned the correct cost and avoid the
erroneous recording.

4.20 The inability to reconcile the balances between accounting and property
records as well as the non-maintenance of the necessary records resulted in

76
 various uncorrected accounting errors and misstatements and the non-
inclusion of inventory items in the RPCI which the Accountant could have
easily identified.

4.21 We recommended that Management direct the:

a. Accounting Division and Supply Division of CAAP-HO and ACs III,

V, VIII, and IX to conduct a thorough validation and reconciliation of
the property and accounting records to establish the true balance
of the inventory accounts;

b. Accounting Division of CAAP-HO and ACs III, V, VIII, and IX to

prepare and maintain SLCs for all inventory items/accounts and
regularly coordinate and reconcile with the Supply Division; and

c. Chief Accountant of the CAAP-HO and the Accountant-in-Charge of

ACs VI and VIII to prepare the necessary adjusting entries for the
errors and misclassifications in the MDLSI, Office Supplies
Inventory, AFI, FOLI, and OSMI accounts.

4.22 The Management commented that the Accounting and Supply Divisions are
in the process of validating and reconciling their records and the necessary
documents are being gathered to support the adjustments of the noted errors
and misstatements. Allowance for Impairment shall be recorded for the
obsolete accountable forms, and the Accounting and the Supply Divisions
are directed to maintain the Supply Ledger Card/Stock Card,

5. The existing processes and procedures adopted by the Authority in

accounting and recording of Fuel, Oil, and Lubricants in CAAP-HO result in
errors and misstatements of account balances and do not ensure safeguard
from wastage, theft, or misappropriation. Likewise, the advance payments
made to its supplier for fuel, oil, and lubricants were not in accordance with
the provisions of Republic Act (RA) No. 9184.

5.1 The Authority procures from Petron Corporation fuel, oil and lubricants for
use of the three offices/units of CAAP – Motorpool, for fuel of CAAP service
vehicles; Air Navigation Service (ANS), for fuel to power the nine power
plants and/or generator located in Metro Manila and Tagaytay; and Flight
Inspection and Calibration Group (FICG) for aviation fuel loaded in the
aircrafts used during inspection and calibration.

5.2 Fuel for the CAAP service vehicles is withdrawn from the designated Petron
station thru an approved trip ticket. CAAP is billed for the fuel withdrawals,
and upon payment, these are directly recorded under account Fuel, Oil, and
Lubricant Expense.

77
 5.3 On the other hand, the aviation fuel and the fuel and lubricants for use of the
generators are delivered and/or loaded to the generators and aircraft.
Aviation fuel loaded to the aircraft is on a per flight basis, hence no fuel
inventory is maintained by the FICG. For the generators, the ANS maintains
an inventory as to the quantity of the fuel requested and delivered by Petron
for a certain period.

5.4 Unlike fuel for motor vehicles, fuel for the generators and aviation fuel are
procured thru advance payment with Petron. These purchases were not
covered by a contract/purchase order, which they claimed, has been the
practice of CAAP over the years. The Accounting Division initially records the
advances to Petron under the Other Prepayment account and reclassifies
the same to the Fuel, Oil, and Lubricants Inventory (FOLI) account at year-
end, resulting in a zero balance of the advances. However, our audit
disclosed that these advances were not fully utilized/consumed each year.
As of December 31, 2020, CAAP’s balance, per the Statement of Account by
Petron, is still at P2.123 million, hence, the Other Prepayment account is
understated and the FOLI account is overstated by the same amount.

5.5 Audit disclosed that the Accounting Division made the reclassification of the
account, even without the delivery receipts or invoices from Petron showing
the quantity and amount of the fuel delivered. Said Office should have
requested/demanded from the FICG and ANS, thru the Supply office, the
submission of the said documents including the corresponding inspection
and acceptance report, before the reclassification.

5.6 Furthermore, ANS monitors the receipt and fuel consumption of each
generator by preparing a monthly Generators Operation Record and Fuel
Report (GORFR). The Audit Team requested copies of the monthly GORFR
for CY 2020 and the summary is provided hereunder:

Table 14. Summary of Generators Operation Record and Fuel Report

in number of liters
Fuel
Consumed Fuel Received Additions or
for Fuel From or (Deductions)
Balance, Fuel Generators/ transferred (Transferred to Balance Balance,
Power plant Jan. 1, Received Power to Service to) other of unknown Dec. 31,
Station 2020 from Petron plants Vehicle Facilities nature 2020
CAAP Main
Power Plant 7,830 0 *(32,242) 0 *29,351 0 4,940
Station
Manila
CNS/ATM
9,976 0 (2,321) 0 2,400 (350) 4,905
Facility Power
Plant
Manila AFC
Power Plant 7,853 7,000 (7,058) (400) 7,837 (9,885) 5,347
Station
NAIA 1 Power
4,005 6,000 (2,984) (90) 0 0 6,931
Plant Station
NAIA 2 Power
1,924 0 (630) 0 0 0 1,294
Plant Station

78
 in number of liters
Fuel
Consumed Fuel Received Additions or
for Fuel From or (Deductions)
Balance, Fuel Generators/ transferred (Transferred to Balance Balance,
Power plant Jan. 1, Received Power to Service to) other of unknown Dec. 31,
Station 2020 from Petron plants Vehicle Facilities nature 2020
Manila Tower
Power Plant 2,704 0 (399) (47) 0 0 2,258
Station
Manila
Transmitter 2,838 5,000 (1,4940) 0 0 (662) 5,682
Station
Tagaytay
Radar Remote
Communication 1,178 0 (29) 0 0 0 1,149
Air0to0Ground
Receiver
Tagaytay
Radar ANF
4,035 10,000 (3,123) (695) 0 0 10,217
Radar Power
Station
Total 42,343 28,000 (50,279) (1,232) 34,789 (10,898) 42,723
*These include receipt and consumption of fuel needed to power the generators rented by the CAAP Main Office
during the power failure from January 20, 2020 to February 29, 2020 as mentioned in the MGORAFR

5.7 Audit also disclosed that the fuel consumption/utilization of ANS and FICG
were not recorded in the books. The ending balance of the FOLI account,
excluding the cost of lube oils, has an estimated value of only P1.578 million,
which is significantly lower than the year-end inventory balance of P13.513
million, or a difference of P11.935 million. Similar to the delivery receipts, the
Audit Team learned that the Accounting Division was not furnished with a
copy of the GORFR, nor were they provided with the Report of Supplies and
Materials Issued (RSMI) or its equivalent record. Nonetheless, considering
the glaring absence of any recorded utilization in the FOLI account, the
Accounting Division should have demanded from the Supply Division/ANS
the aforementioned documents so that the fuel utilization/consumption could
have been recorded in the books.

5.8 The Supply Division, as embodied in the Description of CAAP Services

published on its official website, is the office responsible for the storage,
control, and distribution of supplies, materials and, office equipment as well
as maintenance of inventory of supplies and equipment and records of
property accountabilities of all CAAP employees. Thus, the ANS and the
FICG should have submitted to the Supply Division the delivery
receipts/invoices from Petron, including the GORFR and the RSMI, for the
latter to monitor these transactions and forward the documents to the
Accounting Division for recording.

5.9 Furthermore, in the analysis of the GORFRs of ANS for CY 2020, the Audit
Team noted the following:

79
 a) There were transfers of fuel from one generator to another where the
number of liters appearing in the source generator differs from the
recipient generator:

 January report submitted by the Manila CNS/ATM Facility Power

Plant showed a transfer of 1,000 liters of fuel to CAAP Main Power
Plant on January 25, 2020, however, only 400 liters are
reflected/received by the CAAP Main Power plant on the same date.

 February report submitted by the Manila CNS/ATM Facility Power

Plant revealed that it has transferred 400 liters to Manila AFC Power
Plant Station on February 4, 2020, however, no receipt was reflected
in the report submitted by the Manila AFC on the aforesaid date.

b) The deductions from the inventory of 10,897.72 liters are for

unknown/unclear reasons.

c) Transfer of fuel from the generators to service vehicles of 1,232 liters,

when fuels for service vehicles are supposed to be withdrawn directly
from the Petron Station thru an approved vehicle trip ticket.

5.10 The existing practice of the Authority in accounting and recording of FOL
resulted in errors and misstatements in the Other Prepayments, FOLI, FOL
Expenses, and Retained Earnings account. Further, the processes and
procedures do not also ensure adequate safeguard against wastage, theft,
and misappropriation of the asset.

5.11 Moreover, it is to be emphasized that payment of fuel and oil which are yet
to be delivered violates the provisions under Presidential Decree (PD)
No. 1445 and the RIRR of RA No. 9184, which states that advance payment
for goods procured by the Authority shall be made only after prior approval
of the President, and shall not exceed fifteen (15) per cent of the contract
amount, except for contracts entered into by for services where requirement
of down payment is a standard industry practice, to which an advance
payment not to exceed 50 per cent shall be allowed, without the need for
prior approval from the President.

5.12 The practice of making advance payments to Petron without proper

monitoring only led to the accumulation of funds in the coffers of the Supplier.
Likewise, the Team cannot find a good reason as to why Management did
not negotiate with Petron to allow the delivery of purchased fuel without the
need of an advance payment when Petron allows such payment/billing
system for fuel procured for service vehicles of the Authority. In CY 2020,
deliveries of fuel for generators and aviation fuel amounted only to P1.227
million as compared to P3.118 million for motor vehicle fuel. Given the above,
it is imperative that the Authority negotiates with Petron to avoid any further
advance payments which is contrary to the above-mentioned provisions.

80
5.13 We recommended that Management direct the:

a. Accounting Division to immediately stop the practice of

reclassifying advances to supplier to inventory without the
necessary supporting documents;

b. ANS and FICG, thru the Supply Division, to submit all delivery
receipts, invoices, inspection and acceptance reports, GORFR and
RSMIs or its equivalent record to the Accounting Division for the
proper recording of deliveries and issuances;

c. Accounting Division and the Supply Division to coordinate with the

ANS and FICG and reconcile its records to correct the erroneous
recording in the books and correct the balances of the FOLI, FOL
expenses and Other Prepayment accounts;

d. ANS to submit to the Audit Team for evaluation, the necessary

documents to support the transfer of fuel from one facility to
another as well as the documents explaining the nature of various
deductions in the GORFR totaling 10,897.72 liters;

e. ANS to provide basis and/or justifiable reasons as to why some

vehicles were allowed to load fuel from the generators/power plants
maintained by them and submit documents to support its usage to
the Audit Team for review; and

f. Accounting Division to exhaust the remaining prepaid balance to

Petron by charging therefrom the succeeding requests of the
ANS/FICG for diesel and aviation fuel and henceforth, refrain from
making advance payments for the needed fuel and oil in compliance
with the provisions cited under the RIRR of RA No. 9184.

5.14 Management commented that the Accounting Division is now coordinating

with the Supply Division, ANS and FICG for the submission of documents to
correct the expenses and Other Prepayments account.

5.15 On the observations noted on the GORFR, the ANS explained that the
discrepancies were due to errors in the reporting of fuel utilization and
adjustments, while the use/transfer of the fuel from generator to service
vehicles without proper request/authorization was due to the immediate
need, the work-from-home arrangement and other logistics issue. The
transfers of fuel from one generator to another were due to the power outage
in CAAP Head Office in January to February 2020.

5.16 The Audit Team’s initial verification revealed that the submitted documents
relative to the transfer of fuel between generators and to service vehicles

81
 were incomplete and insufficient to support the approval and authority
granted to the ANS to transfer the fuel to service vehicles and other
generators. While the Team understands that these were done in response
to the immediate need, we maintain our position that there should be a
detailed and well documented process to authorize these transactions since
it involves vulnerable assets which are prone to wastage, theft, loss and/or
misappropriation.

5.17 Moreover, the Audit Team could not ascertain the validity and correctness of
the adjustments made to the report submitted by the ANS as it was not duly
validated by the Supply Division which is necessary to ensure the check and
balance of the transaction. As such, we recommend that the ANS submit
these documents to the Supply and Accounting Division for validation and
proper recording.

6. The balance of Accounts Payable of P738.789 million is overstated due to:

a) inclusion of withholding taxes totaling P21.510 million; and b) dormant/long
outstanding payables amounting to P2.706 million.

6.1 We have noted the following causes of the overstatement of the AP accounts
in CAAP-HO and AC V books:

a. Inclusion of withholding taxes totaling P21.510 million in the Accounts

Payable in CAAP-HO books

6.2 Non-withholding of taxes on purchases of goods and services contrary to

Bureau of Internal Revenue (BIR) Revenue Memorandum Circular (RMC)
No. 10-2018 dated January 31, 2018.

6.3 BIR RMC No. 10-2018 dated January 31, 2018 states that the obligation to
withhold already arises when an expense or asset is already recorded
whether or not the same has been paid.

6.4 As of December 31, 2020, the balance of the Accounts Payable of CAAP-
Head Office is at P435.405 million. Audit disclosed that of the said amount,
the Accounting Division did not recognize the necessary withholding taxes
totaling P21.510 million.

6.5 We learned that it has been the practice of the Accounting Division to
recognize withholding taxes in the books only upon payment to the
suppliers/contractors. This practice is not in accordance with the
aforementioned guidelines which specifically require withholding agents to
withhold taxes upon recognition of assets/expenses.

6.6 The non-compliance to the BIR Regulations overstates the Accounts

Payable and understates the Due to BIR account by P21.510 million.

82
 Likewise, it exposes the Authority to the risk of potential fines and penalties.
RMC No. 23-2012 dated February 14, 2012, reiterated the responsibilities of
government officials and employees for the withholding of applicable taxes.

b. Inclusion of dormant/long outstanding payables totaling P2.706 million in

AC V

6.7 In AC V, the balance of Accounts Payable includes payables amounting to

P2.706 million which have remained in the books for more than 2 years.

6.8 The Aging of Accounts Payable disclosed that the accounts are listed with
insufficient particulars such as the specific date of the set-up of the accounts,
reference documents, and specific identification of the creditors. Various
Accounts Payable listed were named only to a generic creditor such as LBP-
Legazpi, LBP- Naga, LBP MBT, and various suppliers without particularly
providing the names of the creditors. More importantly, the Aging did not
contain the date of set-up of the accounts and reference documents, hence
the tracing and determination of the age of the payables are limited only to
that provided by the Agency.

6.9 Considering the age of the accounts with no valid claims filed with the
agency, these should be adjusted pursuant to the provisions of PD No. 1445.
The non-reversion of the dormant/long outstanding payables overstated the
AP by P2.706 million and understated the Retained Earnings by the same
amount at year-end.

6.10 We recommended and Management agreed to instruct the Chief

Accountant to:

a. Strictly comply with BIR Revenue Memorandum Circular (RMC) No.

10-2018 dated January 31, 2018, and effect the necessary
adjustments in the books of accounts to recognize the withholding
taxes erroneously recorded in the Accounts Payable account; and

b. Remit to the BIR the withholding taxes that the Accounting Division
failed to recognize in the books.

6.11 For AC V, we recommended and Management agreed to prepare the

necessary adjusting entries to revert to Retained Earnings the AP
which have remained outstanding for more than two years and correct
the erroneous accruals to AP and related asset and expense accounts.

6.12 Management commented that the Authority will be preparing the adjusting
entry to set up the withholding tax payable and the corresponding remittance.
Moreover, the Management gave assurance that the Chief Accountant will
adhere to the provisions under BIR Revenue Memorandum Circular (RMC)

83
 No. 10-2018 dated 31 January 2018 in withholding and remitting taxes upon
recording payables.

7. The balance of Other Receivable account amounting to P67.340 million, is

unreliable due to: a) erroneous recording of collections amounting to P9.483
million to Other Receivable account instead of Other Service Income account;
b) doubtful/unverified prior years’ receivable balances from Airline
Carriers/Operators amounting to P28.382 million; and c) previous years’
balances totaling P7.267 million which could not be accounted due to non-
maintenance of subsidiary ledgers.

7.1 The Other Receivable account has a balance of P67.340 million as of

December 31, 2020. Based on the review of the related schedules and
ledgers, the balance is composed of the following:
Table 15. Details of Other Receivable account
Particulars Amount
Unliquidated cash advances of deceased, retired, resigned, and
separated employees P 29,972,823
Unliquidated cash advances of flight inspectors 474,116
Receivable from various Airline Carriers/Operators - DSA of CAAP flight
Inspectors for CY 2016-2019 28,381,761
Area Center Balance 1,244,190
Unaccounted balance (without SL) 7,267,295
Balance, December 31, 2020 P 67,340,185

7.2 The receivable balances from various Airline Carriers/Operators pertain to

the Daily Subsistence Allowance (DSA) of CAAP officials/personnel (flight
inspectors) that conduct flight inspection/certification and/or other flight
related activity. The corresponding DSA of the personnel rendering the said
activity is billed by CAAP to the Airline Carriers/Operators requesting the
inspection/certification.

7.3 Audit disclosed that the account balance of P67.340 million is unreliable due
to the following observations noted:

a. Erroneous recording of collections totaling P9.483 million

7.4 Collections from Airline Carriers/Operators for CY 2020 billings amounting

to P9.483 million were erroneously credited to the Other Receivables
account instead of Other Service Income account, resulting to the
understatement of both accounts.

7.5 For the current year, the Authority’s collections for DSA amounting to
P14.042 million have been recorded as a credit to the Other Receivables
account. Audit revealed that of the said amount, only P4.559 million pertains
to the prior years’ billings and the P9.483 million collections came from the
current year’s billings. Thus, the P9.483 million collections should have been

84
 credited to the Other Service Income account instead of the Other
Receivables account.

7.6 The concerned Accounting personnel admitted and explained that the error
was committed due to the recent transition/changes implemented in the
recording of DSA collections during the year.

b. Doubtful/unverified prior years’ receivable balances from Airline

Carriers/Operators for DSA billings amounting to P28.382 million

7.7 Prior to CY 2020, it was the practice of CAAP to record receivables and
income upon issuance of the billing statement for the DSA of CAAP
personnel intended to render the flight inspection/certification. The billing was
recorded in the books as a debit to Other receivables and credit to
Miscellaneous Income. Inspections and/or the subsequent issuance of
certificates are then conducted only after receiving the payment from the
Airline Carriers/Operators. Audit however, revealed that not all operators
push through with their requests. Thus, the DSA billings recorded in the Other
Receivables account accumulated to P42.424 million as of
December 31, 2019.

7.8 The Audit Team in its CY 2019 audit report recommended that the practice
of recording the receivable and income upon issuance of billing statement
(DSA) for the request for flight inspection be stopped. The team also
recommended that the Accounting Division should verify and review the
receivable balance (DSA) of P42.424 million by coordinating with the office/s
involved in the conduct of inspection and/or issuance of certificates.

7.9 In CY 2020, management implemented changes in the manner of recording

the DSA billings. The Accounting Division likewise started the reconciliation
and verification of the billings issued in CY 2016-2019 and has identified
actual unpaid DSA. They claimed however that the bulk of the balance
pertains to cancelled travels/inspections, but which could not yet be adjusted
in the books as they are still in the process of verifying and/or collating the
documents to support the cancellation thereof.

7.10 As mentioned above, CAAP collected a total of P4.559 million in CY 2020

from the prior years’ billings amounting to P42.424 million hence, the total
remaining balance subject for reconciliation/verification should be P37.865
million.

7.11 Due to the erroneous recording of the P9.483 million collections as credit to
the Other Receivables account, the balance pertaining to prior years’ (DSA)
billings only stood at P28.382 million instead of P37.865 million.

85
 c. Unaccounted balances amounting to P7.267 million due to non-
maintenance of the subsidiary ledgers

7.12 The Accounting Division has no corresponding subsidiary ledger/s for the
balance of P7.267 million.

7.13 Review of the entries in the general ledger and other records showed that
the amount of P7.267 million came from various transactions, which
transpired mostly from CY 2011 to CY 2016.

7.14 The details and nature of the transactions have yet to be identified by the
concerned Accounting personnel.

7.15 We recommended and Management agreed to instruct the Chief

Accountant to:

a. Prepare the adjusting entry for the collections of the current year's
billings of P9.483 million which was erroneously credited to Other
Receivables account instead of Other Service Income account;

b. Fast track the reconciliation for DSA billings issued in CY 2016-2019

and prepare the necessary adjustments in the books; and

c. Identify/trace the details and nature of transactions of the P7.267

million unaccounted balances in the books, maintain the
corresponding subsidiary ledgers, and determine whether these
receivables are still collectible.

7.16 The Management commented that the Accounting Division is already

preparing the adjusting entry to correct the erroneous recording of collection
amounting to P9.483 million. Further, concerning the prior years’ DSA
billings, an adjusting entry under JEV No. F-21-01-29 has been prepared to
correct the error in the amount of P335,150 pertaining to canceled requests
for inspection in CY 2015-2017.

8. The balance of P15.607 million of the Advances to Contractors account is

overstated by P4.409 million due to the erroneous recording of transactions.
The said balance also includes dormant and/or unrecouped advances for
completed and terminated projects totaling P2.147 million, thus affecting the
reliability of the account balance.

8.1 The Advances to Contractors/Sub-Contractors account pertains to the

amount advanced to contractors/sub-contractors for the construction of
projects and/or delivery of goods/services as authorized by law.

86
8.2 The Due to National Government Agency’s (NGAs) account refers to fund
transfers from National Government (NGAs) for the implementation of
specific programs or projects subject to liquidation and other inter-agency
transactions.

8.3 As of December 31, 2020, the Advances to Contractors account in CAAP-

HO has an outstanding balance of P15.607 million. Audit disclosed that the
amount is overstated by P4.409 million due to error and/or misclassification
in the recording of two transactions as follows:

Table 16. Misstatements in Advances to Contractors

Effect
Under (Over)
Transaction Error statement
Recoupment of advances Recorded as credit to P 1,046,400
(mobilization fee) to contractor for Advances to Contractors
DOTr funded project (perimeter instead of Due to NGAs.
fence- Busuanga Airport), deducted
from the final billing of the
Contractor
(mobilization fee or advances for
the project was paid in CY 2018 and
was reclassified to Due to NGAs-
DOTr in CY 2019)
Input tax in the purchase of Recorded as debit to (5,455,226)
Communication Equipment Advances to Contractors
instead of Input Tax
Net Overstatement P (4,408,826)

8.4 Further review and analysis of the schedules and records relating to the
account showed unrecouped advances totaling P2.147 million pertaining to
dormant and/or advances for completed and terminated projects. The details
are as follows:

Table 17. List of unrecouped advances

Amount of Date
Project Contractor advances Granted Remarks
System Mannasoft P 33,000 Jan 2002 These are ATO
development of Technology balances
Auto AES (under Corporation assumed/forwarded to
ATO) CAAP books.
Repair of VFR Bentidel Ent 218,467 July 2005
room and other & Developer
floor levels at
Control Tower
Building, NAIA
(under ATO)
Repair/ Bridgestone 43,407 Dec 2007
Improvement of Construction
NDB Station Company
Phase 2 project at
Rosario, Cavite
(under ATO)
Improvement of 1st AQA Global 1,309,920 September Per available record,
and 4th floor CAAP Construction 2011 the Contract was
main building and Inc. terminated in CY 2016.

87
 Amount of Date
Project Contractor advances Granted Remarks
other main
selected areas

Construction of JV Lagon 542,152 June 2018 Reported by Aerodrome

Two Bay Fire Construction Development and
Station Building at Corp. Management Services
Vigan Airport (ADMS) as completed
project as of March 3,
2019. Per Accounting
record, no progress
billing has been made
on the project.
TOTAL P 2,146,946

8.5 The above-mentioned transactions cast doubt on the accuracy and reliability
of the balance of Advances to Contractors account.

8.6 We recommended and Management agreed to direct the Accounting

Division to:

a. Prepare the necessary adjusting entries to correct the net

overstatement of P4.409 million of the Advances to Contractors
account;

b. Verify/validate the correctness/existence of the advances that were

carried over from the ATO books; and

c. Coordinate with the ADMS and/or other concerned offices regarding

the status of the two projects, and prepare the adjustments in the
books, if necessary.

8.7 The Accounting Division has already prepared the adjusting entries to correct
the net overstatement in the amount of P4.409 million per JEV Nos. F-21-01-
29 and F-21-01-30 dated January 31, 2021. For the unrecouped advances
in the total amount of P2.147 million, the Accounting Division is waiting for
the payment vouchers from the ADMS to enable them to deduct the balance
from the payment.

8.8 The copy of the two JEVs were already submitted to the Audit Team for
verification.

9. The Customer’s Deposits Payable account of AC VI is overstated by P1.810

million due to misclassification of advance payments by the Accountant, thus
understating the Unearned Revenue/Income-Investment Property.

9.1 Annex C of COA Circular No. 2020-002, Description of Updated Accounts

(2019) stated that “Customer’s Deposit Payable is credited to recognize the

88
 receipt of cash deposits from customers for goods/services to be delivered
and property to be leased. This account is debited upon application of the
deposit to the cost of the goods/services delivered and of the damages to the
leased property, upon refund of the cash deposits, and/or adjustments.”

9.2 The Customer’s Deposits Payable account of the Authority amounted to

P6.949 million as of December 31, 2020. Review of the Accounts Receivable
of AC VI showed that P4.550 million was reclassified as Customer’s Deposit
Payable. Verification of the breakdown of amounts showed that only P2.740
million pertained to the cash/security deposits of concessionaires, while
P1.810 million were advance payments that should have already been
applied to rentals in CY 2020 and prior years.

9.3 The Area Accountant informed that the advance payments were not
used/applied for the rental of concessionaires. In fact, as of
December 31, 2020, these concessionaires have no outstanding
balances/receivables. Since it was already confirmed by the Accountant that
these advance payments were not applied to rentals, the amount should be
reclassified to Unearned Revenue/Income-Investment Property as described
in Annex C of COA Circular 2020-002.

9.4 The noted deficiencies exhibited a lapse on the part of the Accountant to
meticulously analyze and verify the breakdown of the account receivable. As
such reclassification was lumped to Customer’s Deposit Payable account,
which affected the fair presentation of financial statements.

9.5 We recommended that the Area Accountant of AC VI review/analyze the

accounts, as well as, the propriety of reclassification entries prior to
posting in the Subsidiary Ledger and prepare adjusting entries on the
noted errors.

10. The balance of the Advances to Special Disbursing Officer (SDO) account
totaling P1.877 million is overstated by P0.620 million due to various
accounting errors and misstatements in CAAP-HO books.

10.1 Advances to SDO is the account used to recognize the amount granted to
the entity’s accountable officers and employees for special purpose/time-
bound undertakings to be liquidated within a specified period.

10.2 Audit of the account disclosed various accounting errors and misstatements
in the recording of refunds from the unexpended balances of cash advances
totaling P0.620 million.

89
 Table 18. Misstatements in Advances to SDO
Amount of Effect
Nature of Error Refund Over (Under)
Refund erroneously credited to Advances to
Officers and Employees (AOE) instead of
Advances to SDO P 541,613 P 541,613
Unrecorded refund by the SDO 162,370 162,370
Amount of refund was P8,370 recorded as -
P83,740 8,370 (75,370)
Erroneous recording of refund involving cash
advances in 2019 6,083 (5,335)
Refund for other accounts erroneously recorded
in Advances to SDO 3,125 (3,125)
Total P 620,153

10.3 These errors and misstatements resulted in the overstatement of the account
balance by P0.620 million. It is to be emphasized that due diligence and
caution should be exercised at all times in the processing and recording of
financial transactions to ensure that the financial statements presented are
complete, neutral and, free from errors, as required by the Accounting
Standards.

10.4 We recommended and Management agreed to instruct the Chief

Accountant to prepare the necessary adjusting entries to reflect the
true balance of the affected accounts, and henceforth, ensure reliable
and accurate financial records.

10.5 The Accounting Division has already made the necessary adjusting entries
to correct the misstatements of P0.620 million under JEV Nos. F-21-01-34 to
F-21-01-38 dated January 31, 2021.

10.6 The JEVs for the said adjustments has already been submitted to the Audit
Team for verification.

11. The Due to National Government Agencies (NGAs) account includes long
outstanding and unsupported accounts and transactions of the Air
Transportation Office (ATO) amounting to P59.141 million rendering the
balance of the account unreliable.

11.1 Verification of the Due to NGAs account disclosed that the amount of
P59.141 million remained outstanding in the books for more than ten years,
with details presented in the table below.

Table 19. Unsupported transactions recorded in Due to NGAs account

Particulars Amount Remarks
Prior years' ATO account balances P 51,399,606 Unsupported/no
transferred to CAAP documents available
Funds received from DOTr for asphalt 5,000,000 Documents for retrieval by
paving of runway at Kalibo Airport the Accounting Division
Funds from DOTr for the salaries of 2,741,011
employees assigned at Cotabato

90
 Particulars Amount Remarks
Airport under Autonomous Region in
Muslim Mindanao (ARMM)
Total P 59,140,617

11.2 Due to the long period that these accounts have been outstanding in the
books of the Authority and the lack of documents to support these
transactions, the Audit Team was not able to verify the validity of the
transactions, thus, the accuracy of the account balance cannot be
determined.

11.3 We recommended and Management agreed to direct the Chief

Accountant to:

a. Take appropriate actions to locate the documents for the fund

transfer, including, coordination with the DOTr’s Accounting
Division to identify the details of the projects;

b. Seek the assistance of the Aerodrome Development and

Management Service (ADMS) to determine the existence/status of
the projects; and,

c. Prepare the necessary adjusting entries in the books of the

Authority.

11.4 The Management commented that the Finance Department and Accounting
Division have been reconciling their records with the DOTr to facilitate the
liquidation of the fund transfers. The Accounting Division has provided
essential documents to the DOTr to support the utilization of the transferred
funds and a liquidation of P0.927 million has been recorded under JEV No.
F-21-03-33 dated March 31, 2021.

12. The non-monitoring and non-reconciliation of advances to Procurement

Services of the Department of Budget and Management (PS-DBM) resulted in
an unaccounted discrepancy of P11.673 million between CAAP-HO and PS-
DBM’s records rendering the balance of Due from NGAs account of P52.659
million unreliable. Likewise, the account includes dormant and undocumented
balances totaling P22.971 million.

12.1 Paragraph 15 of PAS 1 on Presentation of Financial Statements states 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. The
application of PFRS, with additional disclosure when necessary, is presumed
to result in financial statements that achieve fair presentation.”

91
12.2 Due from National Government Agencies (NGAs) account is used to record
the advances and/or fund transfers to NGAs for the purchase of
goods/equipment/services and/or implementation of projects.

12.3 As of December 31, 2020, the said account has a balance of P52.659 million
which covers the advances to PS-DBM amounting to P29.688 million and
balances totaling P22.971 million which were assumed by CAAP from its
predecessor agency, the Air Transportation Office (ATO). Out of the P29.688
million, P4.245 million pertains to the consolidated balances of all Area
Centers while the remaining P25.443 million pertains to CAAP-HO balance.

12.4 Purchases through PS-DBM require advance payment equivalent to the total
cost of the items indicated in the Agency Procurement Request (APR). There
are instances, however, where not all items in the APR are available resulting
in over/excess payment. In this case, CAAP has the option to utilize the
remaining fund to pay for the subsequent APR/s or to request a refund.
Advances to PS-DBM are to be recorded in the books upon issuance of the
check and subsequently reduced upon delivery of the items and/or upon
refund.

12.5 Based on the Statement of Account (SOA) from PS-DBM, CAAP-HO’s

accumulated balance from its advances is only P10.338 million as of year-
end compared to the balance in the latter’s records of P25.443 million or a
difference of P15.105 million. The amount of P3.432 million of the said
difference has already been accounted by the Accounting Division leaving
an unaccounted balance of P11.673 million.

12.6 The foregoing observations show that Management did not promptly track or
monitor the advances and the deliveries from PS-DBM and did not conduct
periodic verification and reconciliation of its account as required by the
aforementioned provisions. Otherwise, these discrepancies could have not
existed and accumulated.

12.7 These issues have been raised in the previous year’s audit and the
Accounting Division has continuously committed to conduct the reconciliation
of the account with the PS-DBM, yet the same has not been started to date.

12.8 The dormant ATO balances of P22.971 million had likewise been previously
raised, but the Accounting Division claimed that the documents and records
pertaining thereto are no longer available and/or yet to be traced/located,
hence, are still outstanding in the books.

12.9 Considering the discrepancy between the CAAP and PS-DBM balances and
the dormant ATO balances, the accuracy of the Due from NGAs account of
P52.659 million is unreliable.

92
 12.10 We recommended and Management agreed to:

1. Direct the Chief Accountant to:

a. Coordinate and reconcile CAAP records with PS-DBM, trace the

cause/s of the P11.673 million discrepancy and make the
necessary adjusting entries in the books;

b. Properly monitor subsequent fund transfers to PS-DBM by

keeping track of each Agency Procurement Requests (APRs)
and corresponding deliveries, and apply the excess advances to
succeeding APRs and/or immediately request for a refund; and

c. Adhere to the processes and procedures required under COA

Circular No. 2016-005 particularly on the conduct of regular and
periodic reconciliation of the account balances.

2. Take appropriate action to settle/clear the ATO balances by exerting

effort in locating/tracing the records and documents and/or by
verifying/confirming the balances with concerned NGAs. If
warranted, submit a request for write-off of the accounts to COA,
following the procedures and requirements prescribed under COA
Circular No. 2016-005 dated December 19, 2016.

12.11 Management commented that the Accounting Division is addressing first the
issue with PS-DBM’s system where CAAP was classified as a National
Government Agency as this will affect the reconciliation of accounts.

12.12 Moreover, the Accounting Division committed to coordinate and reconcile the
discrepancy with PS-DBM and will adhere to the processes and procedures
required under COA Circular No. 2016-005. In addition, the said Division will
exert more effort to locate the records of the Air Transportation Office (ATO)
account.

13. The existence of dormant balances of the Due from Local Government Units
(LGUs) and Deposit on Letters of Credit accounts in CAAP-HO amounting to
P4.932 million and P18.332 million, respectively, resulted in the overstatement
of current assets and non-current assets by the same amount.

13.1 Paragraph 66 of the Philippine Accounting Standard (PAS) 1, Presentation

of Financial Statements, provides that:

“An entity shall classify an asset as current when:

(a) It expects to realise the asset or intends to sell or consume it, in

its normal operating cycle;

93
 (b) It holds the asset primarily for trading;
(c) It expects to realise the asset within twelve months after the
reporting period; xxx.”

13.2 Paragraph 15 of Philippine Accounting Standard (PAS) 1 states that financial

statements shall present fairly the financial position, financial performance
and cash flows of an entity.

13.3 Audit disclosed that the balance of the accounts Due from LGUs and Deposit
on Letters of Credit amounting to P4.932 million and P18.332 million,
respectively were ATO balances assumed by CAAP which have been
outstanding for years. Examination revealed that these balances were
carried forward from the books of the Air Transportation Office (ATO),
CAAP’s predecessor agency.

13.4 Records show that the balance of the Due from LGUs account pertains to the
unliquidated portion of fund transfers to the Provincial Government of
Misamis Oriental for the land acquisition of access roads between CY 2006
to CY 2009. Management made no recent attempt to coordinate with the
Provincial Government to verify or confirm the balance. Provision for
impairment was not also recognized which resulted in the overstatement of
the accounts.

13.5 Considering the length of time the balance of the accounts has remained
outstanding in the books, the Accounting Division while pursuing the
liquidation of the fund transfer/s with the Provincial Government of Misamis,
should have recognized an allowance for impairment on the account and/or
request the same for write-off as prescribed under the COA Circular No.
2016-005 dated December 19, 2016.

13.6 On the balance of the Deposit on Letters of Credit, the Accounting Division
claimed that they do not have any record of the account, even the name of
the bank to whom the deposit was opened/made. The Chief Accountant
asserted that they have already tried locating the documents relative to the
deposit but none was found.

13.7 The dormancy of these balances which resulted in the overstatement of Due
from Local Government Units (LGUs) and Deposit on Letters of Credit
accounts in CAAP-HO amounting to P4.932 million and P18.332 million cast
doubt on their actual existence thereby affecting the accuracy and reliability
of the account balances.

13.8 We recommended and Management agreed to direct the Accounting

Division:

a. To coordinate/confirm with the Provincial Government of Misamis

Oriental regarding the unliquidated fund transfer, and if existing in

94
 their books, demand for its liquidation; if not, submit a request for
write-off to COA, following the guidelines provided under COA
Circular 2016-005 dated December 19, 2016;

b. To provide an allowance for impairment on the Due from LGUs and

Deposit on Letters of Credit accounts, and

c. To exert more effort and/or explore other avenue to obtain

data/information on the balance of the Deposits on Letters of Credit.

13.9 Management commented that the Finance Department has already prepared
a letter inquiry for the Provincial Government of Misamis Oriental and to all
depository banks of CAAP and the then ATO to verify the existence of the
amount as recorded.

14. The correct balances of the three liability accounts – Guaranty Deposits
Payable, Due to Officers and Employees and Other Payables amounting to
P190.060 million, P71.787 million, and P54.745 million, respectively, could not
be ascertained due to the absence of complete and updated subsidiary ledgers
in CAAP-HO and AC V totaling P161.947 million and P8.021 million,
respectively.

14.1 The Philippine Financial Reporting Standards (PFRS) provides for the
following qualitative characteristics of useful information:

Xxx

QC26 “Verifiability helps assure users that information faithfully

represents the economic phenomena it purports to represent.”

14.2 Section 114 of the PD 1445 provides that the general ledger (GL) is where
all financial transactions are recorded and that the subsidiary ledger (SL)
shall be kept, where necessary.

14.3 Audit of the accounts and transactions of the agency for CY 2020 revealed
that the balances of some accounts as posted in the General Ledger (GL)
were not supported with SLs. The Audit Team requested for the supporting
documents, however, the CAAP-HO and AC V were not able to provide the
same.

14.4 Three liability accounts have no SLs and are without supporting documents
to establish the accuracy of the balances of CAAP-HO and AC V totaling
P161.947 million and P8.021 million, respectively, to wit:

95
 Table 20. Summary of liability accounts of CAAP-HO and AC V with no SLs
Account Name Particulars Amount
Liabilities
CAAP-HO
Guaranty Deposits Retention money/ warranty security of
Payable contractors P 161,947,231
AC V
Claims for travel, Productivity Enhancement
Due to Officers and Incentive (PEI), overtime, salary
Employees differential, flying pay, etc. 3,293,289
Guaranty Deposits Security deposits of lessees and warranty
Payable security of contractors 2,775,634
Loan amortizations to Capiz Electric
Cooperative, Inc. (CAPELCO), LBP,
Other Payables AMSWLAI, Terminal Leave Benefits, etc. 1,952,557
Total for AC V P 8,021,481

14.5 For CAAP-HO, the account Guaranty/Security Deposits Payable with a

balance of P 161.947 million as of December 31, 2020, pertains primarily to
the 10 per cent retention money from contractors as required under Annex E
of the RIRR of Republic Act No. 9184. The retention money is intended to
cover uncorrected defects and third-party liabilities.

14.6 Considering the materiality of the amount and the number of

projects/contracts of CAAP and considering further that some contractors
have various/simultaneous projects with CAAP, the Accounting Division/Unit
should have realized the necessity of maintaining SLs for the said account.

14.7 On the other hand, the Due to Officers and Employees and Guaranty
Deposits Payable accounts in the books of AC V were supported only with
schedules that do not tally with the GL balances. The SLs also lack the
information necessary to establish the correctness of the amounts.
Meanwhile, there was no schedule provided for the Other Payables account.

14.8 The non-maintenance of the SLs and/or the absence of documents negates
verifiability as one of the qualitative characteristics of the financial
statements.

14.9 We recommended and Management agreed to direct the Accounting

Division/Unit to:

a. Prepare complete and up-to-date subsidiary ledgers on the above

accounts of CAAP-HO and AC V;

b. Submit to the Audit Team for review, the Aging Schedules of the
accounts – Due to Officers and Employees, Guaranty Deposits
Payable and Other Payables of AC V; and

c. Reconcile the SL and GL balances of the accounts.

96
 14.10 The CAAP-HO Accounting Division already accounted for the
Guaranty/Security Deposit Payable in the amount of P60.719 million out of
the P142.235 million balance of the account. Copy of the list of contractors
covering the accounted deposits of P60.719 million was submitted to the
Audit Team and was validated accordingly.

14.11 The AC V Management is working on the updating of records and will provide
the necessary subsidiary ledgers as soon as the balances are reconciled
with the General Ledger and come up with the Aging Schedule as well.

15. The share of the Office of the Transportation Security on CAAP’s collections
from terminal fees as required under Executive Order No 30, amounting to
P1.752 million pertaining to CY 2012 remained unremitted as of December 31,
2020.

15.1 This is a reiteration of our prior year’s observation.

15.2 Executive Order No. 30 dated September 30, 1998 provides for the increase
of the Anti-Hijacking and Anti-Terrorism component (NACAHT share) of the
terminal fees collected pursuant to Executive Order No. 69 and Letter of
Instruction No. 414-A. Said share from the terminal fees in the amount of P60
and P15 from every departing international and domestic passenger,
respectively, shall be remitted to the Bureau of the Treasury (BTr) for the
account of the Office for Transportation Security (OTS) upon collection from
the airline companies.

15.3 Review of the Due to Treasurer of the Philippines account disclosed that
during the year, CAAP’s remittances to BTr totaled P57.468 million covering
the NACAHT’s share for CY 2020. CAAP, however, has an unremitted
NACAHT share amounting to P1.752 million pertaining to CY 2012 as of
December 31, 2020.

15.4 Since the purpose of the fund is for strengthening aviation security such as
anti-hijacking and anti-terrorism activities of the OTS, CAAP should promptly
remit the same to the BTr.

15.5 We recommended that Management immediately remit the amount of

P1.752 million to the BTr as required under EO No. 30.

15.6 The Accounting Division commented that the amount of P1.752 million was
paid directly by the airline operators to CAAP Laoag International Airport
(LIA) and eventually recorded in the Head Office thru reciprocal entry.
However, there is no document evidencing that the amount had been
deposited to Head Office resulting in the delay of deposit to the BTr.

97
 15.7 In view of the above, the Accounting Division was instructed to closely
coordinate with CAAP Laoag International Airport to settle the findings.

B. OTHER OBSERVATIONS

16. As of December 31, 2020, CAAP barely completed 16 out of the 86 airport
projects downloaded by the Department of Transportation (DOTr) from
CY 2016 to CY 2018, implying the Authority’s poor performance in the
implementation of the Projects. The delayed completion of projects deprived
the public of the prompt use or benefit that could have been derived from its
timely completion, including loss of income opportunity for CAAP and/or the
government. Moreover, timelines of procurement activities prescribed in
Annex C of the RIRR of RA No. 9184 were not observed.

16.1 CAAP is vested with the statutory authority to handle aviation matters
including the construction and development of airports, thus, is continuously
receiving equity contribution from the National Government thru the
Department of Transportation (DOTr) pursuant to Section 14 of RA No. 9497.
The General Appropriations Act (GAA) for Calendar/Fiscal years 2015 to
2020 included in the appropriation of the DOTr an allocation for airport facility
projects totaling P41.605 billion. Pertinent sections of the said GAAs provide
that the funds are appropriated for the construction of various airports and
navigational facilities and acquisition of navigational equipment which shall
be recorded in the books of accounts of the DOTr and transferred to CAAP.

16.2 The DOTr and CAAP executed three Memoranda of Agreement for the initial
implementation of the projects covered by the GAA for CY 2015 to CY 2018
with a Programmed Amount (PA) totaling P9.898 billion, as shown below:

Table 21. Summary of DOTr Downloaded projects per MOA

Fund Source No. of projects to
(DOTr GAA- PA per MOA be implemented by
Year) Date of MOA (in billion Pesos) CAAP
2015 December 29, 2016 P 2.653 21
2016 2.004 15
January 2018
2017 1.480 19
2018 January 10, 2018 3.761 31
TOTAL P 9.898 86

16.3 As provided in the three MOA, the release of funds to CAAP shall be in three
installments/tranches based on certain conditions/requirements.

Table 22. Schedule of fund releases from DOTr

Amount To Be
Tranche/ Transferred by DOTr
Installment GAA (PA) Conditions for Fund Transfer
1st Tranche 2015 Expenses for pre- After approval of MOA-
procurement activities  Upon receipt by DOTr of
(CY 2015 includes site

98
 Amount To Be
Tranche/ Transferred by DOTr
Installment GAA (PA) Conditions for Fund Transfer
acquisition at Ozamiz - written request from CAAP
Airport for the release of funds;
2016 and 2017 3% pre-construction - Bank certification (that
and supervision funds CAAP opened an account
for the project)
2018 1.5% of the Program - approved Individual
Amount to cover Program of
expenses for pre- Work of the project
construction and
supervision activities
2nd Tranche 2015 50% of the Upon review and concurrence
2016 and 2017 programmed amount of DOTr of the submitted
Program of Work and Plans
2018
and receipt of proof of
procurement activity.
3rd Tranche 2015 Remaining fund Upon liquidation of previous
2016 and 2017 requirement releases
2018 Remaining balance of Upon submission of partial
the fund requirement liquidation of the 1st tranche
(awarded cost) and full liquidation of the 2nd
tranche.

16.4 Moreover, Section IX of the 2016, 2017 and 2018 MOA states that:

“TERMINATION AND/OR RECESSION – The DOTr reserves the right

to terminate or rescind this Agreement upon breach of any provision
hereof or after it has been determined that the CAAP’s
accomplishment/performance is unsatisfactory, based on the
Approved Program of Work, by serving a written notice of termination
or rescission at least fifteen (15) days prior to the actual termination
or rescission. The amount unused shall, after proper accounting, be
turned to the DOTr after such termination or rescission.

16.5 Audit disclosed that as of December 31, 2020, the fund transfers of DOTr to
CAAP amounted only to P1.912 billion or 19.32 per cent of the programmed
amount of P9.898 billion, as shown below, including the fund utilization.

Table 23. Comparison of programmed amount, funds transferred, and utilization

DOTr Fund Fund
GAA Transferred by % of Utilization % of
Year PA per MOA DOTR to CAAP FT/PA (FU) by CAAP FU/FT
2015 P 2,653,157,000 P 1,427,000,855 54% P 803,927,396 56%
2016 2,003,621,140 260,278,232 13% 27,107,283 10%
2017 1,479,777,670 224,826,000 15% 42,120,500 19%
2018 3,761,515,315 0 0% 0 0%
TOTAL P 9,898,071,125 P 1,912,105,087 19% P 873,155,179 46%

16.6 Audit further disclosed that out of the 86 downloaded projects, only 16
projects, mostly small-ticket items were completed as of December 31, 2020.

99
 Table 24. Status of DOTr downloaded projects as of December 31, 2020
Pending Pre-
DOTr GAA No. of procurement procurement Procurement Ongoing
Year Projects planning Stage In Process construction Suspended Completed
2015 21 0 0 3 5 4 9
2016 15 1 8 1 3 2 0
2017 19 6 1 5 1 6
2018 31 1 11 8 6 4 1
TOTAL 86 2 25 13 19 11 16
Percentage of
accomplish-
ment as to
quantity 100% 2% 29% 15% 22% 13% 19%

Per cent of Accomplishment as to Transferred Amount (in billion pesos):

Amount (in
billion pesos) P 1.912 0 0 P 0.210 P 0.715 P 0.458 P 0.528
Per cent 100% 0% 0% 11.01% 37.39% 23.96% 27.64%

16.7 The Projects under the Pre-procurement stage are those where the Program
of Work, detailed engineering, and other similar activity are still in
process/uncompleted, or even if completed, the pre-procurement conference
or pre-bidding has yet to be conducted. Projects under the Procurement
process are those in the stage from pre-procurement/bidding until the
issuance of Notice to Proceed.

16.8 The data presented in the Tables 23 and 24 above is evident that the
Authority has not performed well or has poorly managed the implementation
of the projects. As shown, out of 21 projects covered by the CY 2015 GAA,
only nine were completed despite the lapse of four years from the execution
of the MOA. Similarly, out of the 65 projects from the CY 2016, 2017 and
2018 GAA, with MOA executed in January 2018, only seven were completed,
and there are still 27 projects where the procurement process has not even
started. With the Authority’s present set-up and/or manner of handling the
projects, further delay is most likely to happen.

16.9 Review and analysis of the procurement documents were conducted to

determine and identify the cause/s of the delay, the results of which are
shown below:

a. For the 16 completed projects, it appeared that it took an average of 30

months from the execution of MOA to the completion of the projects.

b. The maximum period allowed from Advertisement or posting of Invitation

to Bid (ITB) to the issuance of Notice to Proceed (NTP) provided in Annex
C of the RIRR of RA No. 9184 was not observed.

16.10 Annex “C” of the RIRR provides for the maximum allowable period in
conducting procurement activities for infrastructure projects, a total of 141
calendar days (CDs) and 156 CDs with Approved Budget for the Contract
(ABC) worth P50 million and below and above P50 million, respectively. Audit

100
 noted that the procurement activities for the 14 sampled DOTr downloaded
projects went beyond the maximum allowable period as shown below:

Table 25. Sampled DOTr projects with delay in procurement activities

Date No. of days No. of days
Contract from posting in excess of
Amount Advertisement of ITB to maximum
Project/Program/ Activity (in DOTr / Posting of Issuance issuance of CDs
Name millions) GAA ITB of NTP NTP allowed*
 With ABC amounting to P50 million and below – maximum of 141 CDs
Admin Building at General P 23.426 2015 10/18/2018 5/17/2019 211 70
Santos (Gensan) Airport
Control Tower - Gensan 10.472 2015 7/31/2018 3/5/2019 217 76
Airport
Basco Airport - CHB fence, 22.283 2016 3/14/2019 11/13/2019 244 103
& etc.
Reblocking of Apron at 29.807 2017 11/28/2018 11/01/2019 349 208
San Jose Airport
Widening of Runway at 19.420 2017 3/14/2019 11/13/2019 245 104
Palanan Airport
Perimeter Fence at Bislig 5.950 2018 8/21/2019 3/11/2020 203 62
Airport
Daet Airport Development 32.365 2018 9/28/2019 7/17/2020 294 153
Project
Busuanga Airport - 3.885 2018 9/28/2019 6/3/2020 249 108
Drainage System, access
roads & pavement
markings
 With ABC of more than P50 million – maximum of 156 CDs
Airside Perimeter Road 125.773 2015 11/28/2018 11/4/2019 341 185
and Security Fence at
Gensan. Airport
Upgrading of Runway at 58.977 2015 12/3/2018 7/3/2019 212 56
Basco Airport
Development of Ozamis 273.427 2015 7/31/2018 5/21/2019 295 139
Airport
Runway Embankment - 299.744 2015 4/15/2020 9/28/2020 166 10
Phase II, Busuanga Airport
Runway Strip Width 72.834 2016 1/14/2019 1/8/2020 359 203
Correction, Tuguegarao
Airport
Expansion of Terminal 41.427 2016 12/17/2019 9/29/2020 287 131
Building, Cotabato Airport
*No. of maximum CDs allowed for infrastructure projects with Approved Budget for the Contract worth
P50 million and below is 141 CDs while the projects with ABCs of above P50 million is 156 CDs.

c. The delays were noted in the following stages of the procurement

process which are beyond the maximum period provided in Annex C of
the RIRR of RA No. 9184.

Table 26. Summary of noted delays in procurement activity

Allowable period
Procurement Calendar
Activity Days From To Remarks
Post 45 Bid Evaluation Post-Qualification Delay of 5-111 CDs
Qualification
Award of 15 Post- Approval of Delay of 14-123 CDs
Contract Qualification Resolution/
Issuance of Notice
of Award

101
 Allowable period
Procurement Calendar
Activity Days From To Remarks
Contract 10 Approval of Contract 8-124 CDs
preparation and Resolution/ Preparation and Delays were attributable to
signing Issuance of Signing review by the Enforcement
Notice and Legal Service of the
of Award contract prepared by the
Procurement Division, its
subsequent approval until
its notarization.
Issuance of 10 Contract Issuance of Notice 2-29 CDs. delay due to
Notice to Preparation and to Proceed (NTP) delayed submission by the
Proceed (NTP Signing contractor of the duly
notarized contract.

16.11 Furthermore, it was noted that six out of the 11 suspended projects were due
to causes that could have been prevented had proper procurement planning
been conducted, and the P458 million or 23.96 per cent of the total fund
transfers covering the suspended projects.

Table 27. Summary of suspended projects

DOTr Specific Project/Program/ Remarks/ Project Status as of
GAA Activity Name Contractor/ Supplier December 28, 2020
2015 Development of Ozamiz Mindanao Rock Suspended due to right of way
Airport issue.
2015 Purchase/Installation of Evercon Builders Work Suspension still in effect;
Navigational Aids for Awaiting Department of Foreign
General Santos International Affairs response on the DOTr
Airport request regarding Visa Issuance
Exemption for SELEX ES
Engineer;
2017 Runway Strip Grade Unimaster Project suspended last Oct. 27,
Correction including Slope Conglomeration, Inc. 2020;
Protection at Maasin Airport Awaiting evaluation of survey team
regarding on site staking
2018 Continuation of Asphalt Syndtite Construction Project suspended due to
Overlay of Runway at Corporation preparation and approval of
Cauayan Airport method of working plan prior to the
issuance of Notice to Airmen
(NOTAM)
2018 Asphalting of Runway at Project suspended as of 15
Calapan Airport October 2020 until 14 January
2021 due to conduct of joint survey
and issuance of NOTAM
2015 Site Acquisition at Ozamiz With an ongoing expropriation
Airport proceedings. (Fund of P125 million
had been transferred to CAAP)

16.12 Section 20 of the RIRR of RA No. 9184 requires that during the conduct of
the pre-procurement conference, the Bids and Awards Committee (BAC)
shall ensure the readiness of the procurement including the confirmation of
the availability of right-out-way site or location and possession of affected
properties. Section 17.6 also provides that:

102
 “No bidding and award of contract for Infrastructure projects shall be
made unless the detailed engineering investigations, surveys xx have
been sufficiently carried out xxx. In case of projects with pending
acquisition of right-out way site or location, the procurement process
may commence, but no award of contract shall be made until an
authority or permit to enter is issued by the property owner; or a
notarized deed of sale or deed of donation is executed in favour of
the government; or a writ of possession is issued by a court of
competent jurisdiction, as the case may be.”

16.13 The delayed implementation of the projects deprived the public of the prompt
use thereof or benefit that could have been derived from its timely
completion, including loss of income opportunity for CAAP and/or the
government. The poor implementation of the projects could lead to the
cancellation by the DOTR of the other projects in view of Section IX of the
MOA and two-year limitation period on the use of appropriations which will
totally deprive the public of the enjoyment/benefit of the proposed projects.

16.14 We recommended and Management agreed to strictly adhere to the

pertinent provisions of the RIRR of RA No. 9184 in all its procurement
activities. Moreover, Management should direct the:

a. Project Management Division/ Procurement Division /BAC and/or

other concerned offices to effectively monitor the status of the
projects, fast track its implementation/completion, and strictly
observe the timelines of the procurement activities provided in
Annex C of the RIRR;

b. Project Management Division to facilitate the preparation of the

Program of Work, detailed engineering and related documents of
the 27 projects still under the pre-procurement stage;

c. Procurement Division to create a database specifically for

downloaded projects for effective monitoring of the projects;

d. Project Management Division/ Aerodrome Development &

Management Service to initiate immediate appropriate action on
suspended projects, to cause/facilitate its early resumption or
resolution; and

e. Project Management Division/ Procurement Division to conduct the

pre-procurement planning judiciously and strictly adhere to Section
17.6 and Section 20 of the RIRR of RA No. 9184.

16.15 We also recommended that Management assess the adequacy and

capability of the Authority’s present technical personnel in
handling/supervising the projects, and if necessary, augment the

103
 existing manpower to expedite the procurement and project
implementation.

16.16 The Air Navigation Service (ANS) explained that the delay in the
implementation of the purchase/installation of navigational aids at General
Santos International Airport was due to the unavailability of fiber glass
materials required for the project. The completion date was moved to
April 24, 2020, however, due to the pandemic, the project only resumed in
May 2021.

16.17 The Management gave assurance that they will strictly adhere to the
pertinent provisions of Republic Act No. 9184 and its Revised Implementing
Rules and Regulations. In addition, the Authority committed to direct the
concerned offices for the judicious pre-procurement planning, immediate
preparation, and approval of Plans and Programs of Work, timely
procurement, fast track the implementation, creation of data base for
effective monitoring, and timely completion of infrastructure projects.

16.18 Moreover, the Authority will endeavor to assess the adequacy and capability
of present technical personnel in the preparation of Detailed Engineering
Designs, Plans and Programs of Work and for supervising and monitoring
these projects. The Authority will also look into the possibility of augmenting
the existing manpower of the Aerodrome Development and Management
Service (ADMS) to expedite the procurement and implementation of DOTr
downloaded infrastructure projects.

16.19 The Audit Team will monitor Management’s plan of action to improve the
implementation of DOTr downloaded projects.

17. Management’s non-enforcement of the timely collection of fees and charges

as provided under existing CAAP Circulars, Concession Manual and contracts
led to the accumulation of receivables with SL balance totaling P6.395 billion
which may now result in the loss of income to the Authority given the present
crisis faced by the business/aviation industry due to the COVID-19 pandemic.
Moreover, the lack of adequate guidelines/policies to ensure that Air
Navigational Charges (ANCs) are properly billed, collected, and recorded in
the books also contributed to the accumulation of unbilled/uncollected ANCs.

17.1 CAAP Circular No. 03-11 dated April 11, 2011, provides an updated CAAP
Schedule of Fees and Charges for Air Navigation Services. Parts VI and VII
of the circular provides that –

“For scheduled flights, regular and other domestic flights, the fees and
charges prescribed herein shall be payable within ten (10) working
days upon receipt of the bill. Xxx. Credit Agreements may be entered
into with the CAAP for this purpose.”

104
 “The failure of any person, firm or corporation to pay the charges
herein prescribed shall be a ground for collection suit, without
prejudice to administrative action.”

17.2 Moreover, Annex B of the CAAP Concession Manual states that –

“The monthly payments due hereunder shall be paid by LESSEE to

LESSOR at the office of the LESSOR on or before the 15th day of the
month in which the rent shall fall due. It is expressly agreed and
understood that the payment of the rental herein stipulated shall be
made by LESSEE without delay.”

17.3 Furthermore, the recently issued lease contracts provide a 30-day maximum
due date from the receipt of the billing statement. It also states that failure on
the part of the LESSEE to pay any rental fee within sixty (60) days from the
due date thereof shall be a sufficient ground for stoppage of use of the leased
premises and automatic termination of the contract without need for further
notice or court action.

17.4 The Authority’s Accounts Receivable (AR) SL balance as of

December 31, 2020, is P6.395 billion. Excluding ATO and
uncollected/unaccounted PAL accounts of P300.231 million and P1.323
billion respectively, the remaining receivable balance would be P4.772
billion, to wit:

Table 28. AR SL balance excluding ATO and uncollected PAL accounts

Period AR balances Percentage
Within one year (2020) P 1,910,872,322 40.05%
Over 1 year (2019) 1,258,797,465 26.38%
Over 2 years (2018) 391,344,986 8.20%
Over 3 years & onwards
(2017 & Prior Years)
1,210,489,153 25.37%
Total P 4,771,503,926 100.00%

17.5 The above data evidently showed that that management did not strictly
enforce the collection of the fees and charges in accordance with the
pertinent provisions of CAAP MC 03-011 and CAAP Concession Manual
and/or concession/lease contracts.

17.6 Based on the submitted notes to financial statements, there are no pending
collection cases filed by CAAP on these receivable balances.

17.7 Verification disclosed that the Accounting Division merely sends monthly
billing statements to their clients without properly monitoring if payments
were made within the prescribed period. Moreover, the regular issuance of
Statement of Account (SOA) showing the total unpaid balance of the client,
especially to delinquent ones, was not also practiced by the Authority as
discussed in Observation No. 2 of this report.

105
 17.8 Likewise, the Authority’s only guidelines regarding ANC collections is the
CAAP Circular No. 03-11, series of 2011, entitled “CAAP Schedule of Fees
and Charges for Air Navigation Services.” The Circular itself is limited in
scope and merely focuses on the schedule of fees and charges. It does not
cover specific guidelines/policies that will ensure proper collection and
recording of the ANC – responsibilities of the concerned offices, reports to
be prepared/submitted, timelines/periods of submission, and sanctions for
non-compliance. Policy for the imposition of penalties and charges for late
and/or non-payment of ANC is not also provided in the MC.

17.9 The lack and/or absence of written guidelines/policies relating to billing,

collection, and recording of ANC led to the inaction and/or non-coordination
of the concerned offices/personnel which resulted in the accumulation of
unbilled/uncollected ANC as mentioned in Observation No. 2 of this report.

17.10 The non-collection of the ANCs deprived the Authority of the prompt use of
the funds and/or the interest income that could have been earned.

17.11 These deficiencies caused the accumulation of receivables, which may now
result in loss of income to the Authority in view of the present crisis faced by
the business/aviation industry due to the COVID-19 pandemic.

17.12 We recommended and Management agreed to:

a. Intensify the enforcement of collection by strictly implementing the

provisions of CAAP Circular No. 03-11 dated April 11, 2011, CAAP
Concession Manual and/or stipulations stated in the
concession/lease contracts and initiate the appropriate legal
remedies, if necessary; and

b. Revisit CAAP Circular No. 03-11, series of 2011, and/or issue

another circular/s prescribing the rules, procedure and processes
in the billing, collection, and recording of the income from ANC.

18. Management needs to revisit and introduce amendments to its guidelines on

the integration of the Domestic Passenger Service Charge in the cost of the
airline ticket in view of the amended guidelines of its counterpart agency –
Manila International Airport Authority (MIAA). Had CAAP immediately adopted
the said amendments, it could have generated savings of not less than P9.700
million to the Authority.

18.1 Passengers Service Charge (PSC) commonly known as Terminal Fee is the
second prime source of revenue of CAAP. For the last three years , income
from PSC which is recorded under account Transportation System Fee

106
 (Account Code: 4-02-02-070) summed up to P5,166,029,997 as shown
below:

Table 29. Income from Passenger Service Charge (CY 2018 – 2020)
Year Amount
2018 P 1,958,290,521
2019 2,647,936,193
2020 559,803,283
Total P 5,166,029,997

18.2 The significant decrease of PSC collections in CY 2020 was due to the
lockdowns and travel bans imposed by the government due to the Covid-19
pandemic. The PSC for domestic flights is called DPSC and for international,
it is IPSC. DPSC ranges from P50 to P200 depending on the airport terminal
while IPSC is P700. Collection from IPSC is very minimal compared to
DPSC.

18.3 Originally, the PSC is collected by the CAAP personnel from the passengers
at the airport before its boarding. However, to ease the congestion of
passengers at the airport terminals under the Authority’s supervision, the
CAAP issued Memorandum Circular No. 022-17 (series 2017) entitled
“Implementing Guidelines for the Integration of the Domestic Passenger
Service Charge at the Point of Sale of Airline ticket”, which took effect in
September 2017, adopting the integration of the DPSC in the cost of the
airline ticket and collected by the airline companies/carriers or their agents.

18.4 Review disclosed that the provisions/content of CAAP Memorandum Circular

(MC) No. 022-17, except those distinct to the operations of the Authority,
were patterned and substantially lifted from the integration policies of the
MIAA particularly MC No. 06 dated March 31, 2017, including the afore-
quoted sections. MIAA, which manages Terminals 1 to 4 of the Ninoy Aquino
International Airport Authority (NAIA), had implemented the integration
Scheme in August of 2012 for DPSC, and February 2015 for IPSC.

18.5 However, various amendments were already made to the MIAA MC No. 06
dated March 31, 2017 to address the issues noted by the MIAA Auditors, as
reported in the COA Annual Audit Report (AAR) on MIAA for CY 2017, which
includes:

 The 3.5 per cent Service Fee (SF) charged by airline companies for their
collection of PSC appeared excessive and needs to be reduced
considering that it is not remitted on real-time basis, hence, they can use
the same to augment their operational capital and/or earn interest
therefrom, during the holding period.

 The absence or lack of provision in the guidelines regarding the

unrefunded PSC for unflown/unused tickets (uPSCut) resulted in its non-

107
 remittance to MIAA. The Audit Team positioned that PSC collections are
money held in trust by the airline companies on behalf of the
MIAA/government hence, should remit the said collections if the same
were not refunded by the payors.

18.6 To address these issues, MIAA management sent demand letters to the
airline companies for the remittance of the uPSCut, and further negotiated
for the reduction of the 3.5 per cent SF. Both actions yielded positive results.
Thus, MIAA issued a revised implementing guidelines on PSC integration
through MC No.18 (series of 2019) which took effect in June 2019. The
revisions/amendments included in MC 18 are the remittance of PSC for
expired/unused tickets and the reduced service fee as stated under Sections
6 and 9 thereof.

“6. REMITTANCE AND COLLECTION

6.3 Remittance of collected PSC on expired tickets shall be done

quarterly, or before the fifteen (15th) of the succeeding quarter.

9. SERVICE FEE

9.1 In consideration for collecting and remitting the IPSC and DPSC
receipts, the collecting Air carrier shall be entitled to a service
fee.

9.1.1 2.95% from June 2019 to May 2020

9.1.1 2.75% from June 2020 – onwards”

18.7 Audit of the DPSC related reports and documents of CAAP showed that, as
of December 2020, the Service Fee paid to the airline companies is still at
3.5 per cent of the PSC collections and no unremitted Passenger’s Service
Charge for unused tickets (uPSCut) has yet been remitted by the airline
companies to the Authority. From the inquiry made, it was learned that
management has not made any revisions/amendments to MC 022-17 and
did not send demand letters to the airline companies for the remittance of the
uPSCut.

18.8 CAAP and MIAA essentially have the same mandate as provided under their
respective Charter, which is to set comprehensive, clear and, impartial rules
and regulations for the Philippine aviation industry which includes
determining and/or prescribing charges and/or rates pertinent to the
operation of public air utility facilities and services. Sharing the same
objectives and mandate, MIAA and CAAP should implement synchronized
policies on the same activities/operations. Thus, it is imperative upon CAAP
management to revisit and/or introduce amendments to MC No. 022-17
parallel with the actions of MIAA, more so, that the provisions of the said MC
are substantially lifted from the latter’s integration guidelines.

108
 18.9 Had CAAP management immediately revisited and issued amendments to
MC No. 022-17, the Authority could have saved the amount of not less than
P9.700 million from the service fee paid to the airline companies from June
2019 to December 20, 2020.

18.10 We recommended and Management agreed to review/revisit the rules

and regulations embodied in the CAAP MC 022-17 and introduce
revisions thereto, taking into consideration the changes implemented
by MIAA on its PSC integration guidelines.

18.11 Management commented that the finalized draft of the Revised Implementing
Guidelines for the Integration of Domestic Passenger Service Charge
(DPSC) at the Point of Sale of Airline Ticket was set to be approved and
implemented in early 2020. However, due to the onset of the COVID-19
pandemic, the implementation of the revised guidelines was put on hold as
the Authority prioritized other pressing concerns during that uncertain period.

19. The validity and regularity of the investment made by the Authority to United
Coconut Planters Bank under a Repurchase Agreement totaling P80 million
recorded in the Other Investment account could not be ascertained due to the
lack/absence of documents to support the transaction.

19.1 One of the fundamental principles governing transactions and operations of

any government Agency as provided under Section 4(6) of PD No. 1445 is
that “Claims against government funds shall be supported with complete
documentation”.

19.2 COA Circular 2012-001 dated June 14, 2012 prescribes the general
requirements in all types of disbursement, to wit:

a. Certificate of Availability of Funds;

b. Legality of transaction and conformity with laws, rules and
regulations;
c. Approval of expenditure by the Head of Office or his authorized
representative; and
d. Sufficient and relevant documents to establish validity of the claim.

19.3 Audit noted that on December 23, 2020, the Authority, through a letter signed
by the Director General (DG) and Acting Chief Financial Officer, entered into
a Repurchase Agreement with the United Coconut Planters Bank (UCPB)
and authorized the bank to debit the amount of P80 million from CAAP
Savings Account No. 120-127738-6 and place the same under the following
Repurchase Agreement:

109
 Table 30. Repurchase Agreement entered into by the Authority
Value Maturity
Deal ID Rate Security Date Date Term CIF Principal
234153 1% FXTN2017 12/23/20 01/27/21 35 days C007529 P 50,000,000
234155 1% RTB2001 12/23/20 01/27/21 35 days C007529 30,000,000

19.4 A repurchase agreement, as defined in Appendix 122 of BSP Manual of

Regulations for Bank, is a contract wherein a bank, in exchange for cash
(repo seller/cash borrower), sells the security to another party (repo
buyer/cash lender) under a true sale agreement with a simultaneous
commitment to repurchase the security at a fixed price at a date certain or
on-demand.

19.5 Review of documents supporting Journal Entry Voucher (JEV) No. F-20-12-
044 dated December 28, 2020 revealed that the said investments recorded
under the Other Investment account were not duly supported with complete
and sufficient documents to ascertain the validity and regularity of the
transactions, to wit:

a. Approved Disbursement Voucher;

b. Budget Utilization Requests/Certificate of Availability of Fund;
c. Repurchase Agreement Certificate;
d. Master Repurchase Agreement;
e. Any document that will show that an in-depth study was conducted prior
to investment; and
f. Board Resolution authorizing the transaction.

19.6 The only supporting document attached to the said JEV were the photocopy
of the passbook for savings account no. 120-127738-6 showing the amount
debited and the afore-cited letter signed by the Director General and Acting
Chief Financial Officer.

19.7 Request has been made for the submission of other documents pertaining to
the said transactions. The Accounting Division submitted a photocopy of a
Master Repurchase Agreement (MRA). However, the said MRA was not
signed by the authorized representative of UCPB and was unnotarized.
Further, it is not clear from the MRA whether the agreement pertains
specifically to the P80 million investment of the Authority. The MRA appears
to be a generic repurchase agreement of UCPB and does not contain
necessary details that would connote that it is the binding agreement
between CAAP and UCPB relative to the subject investment.

19.8 The Accounting Division was not able to provide the Repurchase Agreement
Certificate that, based on the supposed MPA, should contain the necessary
details to support the transaction, as follows:

“2.c. The confirmation shall describe the investment details and set
forth the:

110
 (i) Transaction Reference Number or Repurchase Agreement
Number
(ii) Transaction Value Date or Issue Date
(iii) Transaction Investment Amount
(iv) Investment Interest Rate or Yield
(v) Transaction Maturity Date or Repurchase Date
(vi) Transaction Maturity Value
(vii) Tenor of Transaction
(viii) Any additional terms or conditions of the Transaction

In addition, the Confirmation shall describe the Security/ies to be held

for collateral and set forth the:

(i) Third Party Custodian

(ii) Security’s International Security Identification Number (ISIN)
or other identifying number or numbers
(iii) Security’s Issue Date
(iv) Security’s Maturity Date
(v) Security’s Coupon Rate or other rate of return
(vi) Security’s Face Amount”

19.9 The inability of the Management to present the afore-cited documents

precluded the Audit Team from ascertaining the validity and regularity of the
investment. Likewise, it casts doubt on whether the Authority even performed
an in-depth study on whether the investment to the said Agreement was the
most advantageous type of investment to the government.

19.10 We recommended that Management instruct the Accounting Division

to submit to the Audit Team for review, the duly-signed and notarized
Repurchase Agreement and Repurchase Agreement Certificate and
other relevant documentary requirements to support the validity and
regularity of the transaction.

19.11 Management submitted some of the documents and commented that the
Authority entered into a Repurchase Agreement with UCPB because:

a. It was deemed to be the most advantageous type of investment during

that time;

b. It would yield a higher interest income compared to Time Deposits; and

c. It had a flexible time of maturity which the Authority could choose

depending on the need for funding.

111
 19.12 The Audit Team has yet to further verify and validate the documents and the
justification given. Also, some documents needed in the validation have still
to be submitted by the Management.

20. Payments to personnel of Service Provider under Institutional Contract of

Service (COS) totaling P33.752 million covering payroll for the pay period
March 16 to May 31, 2020, during the Enhanced/Modified Enhanced
Community Quarantine (ECQ/MECQ) are not within the purview of Joint
Circular No.1 dated March 9, 2020, of Commission on Audit (COA) and
Department of Budget and Management (DBM), rendering the regularity of the
expenses/payment questionable.

20.1 In response to the COVID-19 Pandemic, government agencies and offices

were enjoined to adopt the alternative work arrangement such as work-from-
home (WFH) arrangement and skeletal workforce set-up in view of the
implementation of the Enhanced/Modified Community Quarantine
(ECQ/MECQ). Relative thereto, COA and DBM issued Joint Circular (JC) No.
1, s. 2020 dated March 19, 2020, to include the Contract of Service (COS)
and Job Order (JO) workers directly hired by the concerned offices/agencies
in the said work arrangement. Meanwhile, Section 2 of the Circular provides:

“Section 2. Scope and Coverage

This Joint Circular shall cover all COS and JO workers whose
services are directly engaged by Departments, Bureaus, Offices, and
Agencies of the National Government, including Constitutional
Offices, SUCs, GOCCs, and LWDs for the duration of the State
Calamity and Community Quarantine due to the COVID-19.

XXX

Institutional COS workers assigned in government agencies to

provide services such as janitorial, security, consultancy and other
support services are excluded from the coverage of this joint
Circular.”

20.2 The exclusion of the Institutional COS workers from the coverage of the
Circular is in line with Joint Circular (JC) No. 1, s. 2017 of the Civil Service
Commission, COA, and the Department of Budget and Management which
provides that:

“6.1.2 Workers hired through institutional contract of service shall

remain to be employees of the contractor or service provider.

6.1.4 The contractor or service provider shall be responsible for

providing the workers with compensation and benefits

112
 compliant with existing labor law including the necessary
social security and other benefits mandated by law in addition
to the direct compensation as payment for their services.”

20.3 CAAP has contracted the service of LSERV Corporation (formerly LBP
Service Corporation) for the supply of technical and non-technical support
service personnel covering the period March 1, 2020, to February 28, 2021.
For non-technical support service personnel, the contract initially covers
2,588 personnel subject to increase/decrease depending on the manpower
requirement of the Authority. These personnel, are deployed in the CAAP
Head office and in different Area Centers/Airport Terminal located in all
regions of the Philippines.

20.4 Under the contract of service, LSERV is entitled to an administrative fee

ranging from 12 to 12.5 per cent of the total monthly payroll of the personnel
deployed to CAAP. The Terms of Reference to the contracts includes the
following provisions:

“2.4.1 For and in consideration of the services rendered by support

personnel deployed by the LSERV, payment shall be made
upon presentation of its semi-monthly personnel payment and
affidavit or sworn statement that it has paid the salaries and
benefits of its personnel for the period covered, per submitted
payroll and remitted the corresponding premiums to Pag-Ibig,
SSS, PhilHealth, ECC etc. as well as the withholding taxes to
BIR.

2.11 The personnel to be assigned to CAAP shall render work for 8

hours a day from Monday to Friday, and in case the need
arises, the said personnel may be required to render service
beyond 8 hours period or during holidays or rest days.

2.15 Manpower support personnel deployed in CAAP Central

Office Service/Department and Area Centers shall not be
considered organic personnel, neither will their assignment
under this contract establish an employee-employer
relationship with CAAP, nor be considered as valid service in
the government.”

20.5 Audit showed that CAAP paid LSERV a total of P141.391 million covering
the period March 16 to May 31, 2020 for non-technical support service
personnel. The breakdown is presented below:

Table 31. Summary of payments to LSERV

Payment inclusive of
Period Covered VAT Admin Fee Amount
March 16-30, 2020 P 26,418,471 P 3,126,446 P 29,544,917
April 1-15, 2020 26,450,927 3,130,287 29,581,214

113
 Payment inclusive of
Period Covered VAT Admin Fee Amount
April 16-30, 2020 26,427,732 3,127,244 29,554,976
May 1-15, 2020 22,219,817 2,629,565 24,849,382
May 16-31, 2020 24,912,410 2,948,512 27,860,922
TOTAL P 126,429,357 P 14,962,054 P 141,391,411

20.6 Detailed review of the individual payrolls and its supporting documents
showed that payments amounting to P33.752 million are questionable due to
the following deficiencies:

a. Payrolls amounting to P20.357 million were not supported with Daily Time
Records (DTRs), while P7.842 million were without Accomplishment
Reports (ARs).

20.7 DTRs and ARs are the basic documentary requirements in the payment of
salaries, more so, on Institutional COS personnel. The DTR is important as
it shows the record of the time-in and time-out of the personnel, making the
computation and validation of the corresponding work hours, under time
and/or overtime if any, and other related computations reliable and
measurable.

20.8 Similarly, the AR is necessary to determine if the personnel are indeed

performing the tasks assigned to them in accordance with the contract terms.

20.9 It was noted that CAAP paid LSERV for the supposed services of this
outsourced personnel despite the absence of DTRs and ARs to support the
payment.

20.10 Further, we observed that some personnel whose job requires their physical
presence in the Authority’s premises to perform their tasks, e.g. utility
workers, were tagged as WFH in their respective DTRs.

b. Under times/Absences of personnel with an equivalent amount of P2.081

million were not deducted from their payroll and included in the billing of
LSERV

20.11 As stated in the Service Contract, the LSERV personnel should only be paid
according to the actual number of hours performed. However, lates/under
times/absences reflected in the submitted DTRs with amount equivalent to
P2.081 million were not deducted from the amount paid to LSERV.

20.12 We also observed that excused absences, as prescribed under CSC MC

No. 08, s. 2020, were granted to 27 LSERV-managed personnel who
underwent quarantine in CAAP Area Centers II, III, and IV. Some of these
personnel were advised to WFH while undergoing quarantine, however, no
accomplishment reports were submitted.

114
20.13 Excused absences, as defined by the CSC, shall refer to the period when
government personnel are not required to report to work (required quarantine
and/or treatment, and work suspension), but are entitled to pay, as declared
by the President, or appropriate and competent authorities.

20.14 As clearly stated in Section 6.1.2 of the CSC-DBM-COA Joint Circular,

Institutional COS personnel shall remain to be employees of the service
provider, therefore all compensations and benefits accruing to outsourced
personnel should be borne by them, including the availment of paid leaves.

c. Payrolls amounting to P3.472 million were supported with DTRs with

incomplete/unreliable information/data.

20.15 Scrutiny of records showed that some of the DTRs contain incomplete data,
such as filled-out time-in and time-out, approved work arrangement (Skeletal
Workforce, WFH or day-off) and/or nature of absence (excused/ unexcused).
Despite these deficiencies, CAAP was still billed for the supposed services
of these outsourced personnel amounting to P3.472 million.

20.16 Further, we learned that CAAP issued Memorandum Circular (MC) No. 13-
2020 dated March 25, 2020, which included the LSERV personnel from the
WFH/skeletal work-set-up. Section 2 of the MC provides the following:

“2. PAYROLL

a. All CAAP personnel (whether permanent, JOs, Contract of

Service (COS), LSERV managed personnel) shall receive their
full salaries/basic pay for the duration of the ECQ period from 15
March to 14 April 2020 or as maybe extended by competent
authority.

b. For pragmatic considerations, the accomplishment report and

daily time records as required under the “work-from-home” policy
shall be submitted for processing on 24 April 2020, unless the
ECQ shall be extended.

c. Any deductions from payroll in relation to attendance shall be

chargeable to future pay periods after the ECQ shall be lifted.

d. In reference to the framework of [COA]-DBM Circular No. 01-2020

Sections 3.4 and 3.5, all JOs, COS, and LSERV managed
personnel who will not be required to report for work due to the
ECQ and those whose nature of work cannot be done thru WFH
arrangement, shall be paid their corresponding salaries/wages
during the ECQ period as an exception to the “no work/no pay”
principle for the prescribed period.”

115
20.17 The payments made by CAAP to LSERV from March 16 to May 31, 2020, for
the full payroll of the latter’s personnel assigned to CAAP despite the cited
deficiencies appeared to have been based and/or can be attributed to MC
No. 13-2020. However, the payments for the payroll totaling P33.752 million
cannot be justified using the MC as basis because the COA-DBM JC No. 01,
s. 2020 covers only the COS/JO workers directly hired by the government
agency/office, and does not include Institutional COS, like the LSERV
personnel, as provided in Section 2 of the JC. Hence, the Authority’s
reference to Sections 3.4 and 3.5 of the JC as a basis for the inclusion of the
LSERV personnel in the WFH/Skeletal work-set-up is misplaced.

20.18 Furthermore, it was noted that LSERV billed CAAP in advance for the month
of April 2020. Payroll for April 1-15, 2020 was billed on April 8, 2020, while
payroll for April 16-30, 2020 was billed on April 22, 2020. Since the billings
were made earlier than the pay periods, it is impossible for LSERV to
determine the exact payroll amount of the personnel and to comply with the
required supporting documents. The Terms of Reference to the contract,
clearly provides that LSERV can bill CAAP and accept payment only upon
presentation of its semi-monthly personnel payment and affidavit or sworn
statement that it has paid the salaries and benefits of its personnel based on
the payroll and with remittances of withholding taxes and other mandatory
contributions.

20.19 Likewise, audit noted that the supporting documents attached to the SOA,
which includes the Daily Time Records (DTRs) and Accomplishment Reports
(ARs) of the outsourced personnel from the Area Centers, were not original
copies but are either photocopies or scanned copies, casting doubt on the
authenticity of the entries on the DTRs and ARs.

20.20 While the physical distance between the Area Centers and the Head Office,
along with the prevailing community quarantine in place, may make it
cumbersome for LSERV to transport the original copies of the DTRs and the
rest of the supporting documents to the Head Office, the Authority should
have insisted on the submission of the same as these documents are
essential during the validation process. The Audit Team wishes to emphasize
that LSERV and CAAP even had more than sufficient time and opportunity
to transport the original documents after the payment but prior to submission
to COA. Records show that the Disbursement Vouchers related to these
payments were only submitted to COA last February 15, 2021, while the
photocopies or scanned copies of the supporting documents were only fully
submitted last March, 2021.

20.21 Lastly, while we commend the Authority in its ultimate goal of providing
support to all its personnel during this very challenging time of the pandemic,
noble it may be, these actions must be consistent with existing rules and
regulations.

116
 20.22 We recommended that Management:

a. Submit justification and/or legal bases, for evaluation of the Audit

Team, for the payroll payment with noted deficiencies amounting to
P33.752 million relative the services provided by the Institutional
COS personnel;

b. Require LSERV to submit the original copies of supporting

documents for the pay period March 16 – May 31, 2020 to the Audit
Team for review; and

c. Direct the Accounting Division to ensure that all claims are duly
supported with complete documentary requirements prior to
processing and payment.

21. The payments of hazard pay to the employees who physically reported to work
during the implementation of the Enhanced Community Quarantine (ECQ) in
Area Centers (ACs) IV, V, VI, and XII were insufficiently supported with
documents required under the provisions of Administrative Order (AO) No. 26
dated March 23, 2020, thereby casting doubt on the validity and propriety of
disbursement in the total amount of P2.655 million.

21.1 AO No. 26 dated March 23, 2020, issued by the President provides that,
National Government Agencies (NGAs), including State Universities and
Colleges (SUCs) and Government-Owned and Controlled Corporations
(GOCCs), are authorized to grant COVID-19 Hazard Pay to personnel who
physically report for work during the implementation of an Enhanced
Community Quarantine in their respective work stations, in an amount not
exceeding P500 per day per person. The grant of the said hazard pay is
subject to the following conditions enumerated in Section 2 of the same AO:

a. The personnel are occupying regular, contractual or casual positions, or

are engaged through Contract of Service (COS), Job Order (JO) or other
similar schemes;

b. The personnel have been authorized to physically report for work at

their respective offices or work station on the prescribed official
working hours by the head of agency or office during the period of
implementation of Enhanced Community Quarantine measures in the
area of such office or work station; and

c. The rate of COVID-19 Hazard Pay shall be based on the number of days
an employee physically reports for work using the formula under Section
1 of the AO.

117
 21.2 Review of the payments of hazard pay for the employees in ACs IV, V, VI,
and XII totaling P2.655 million were not duly supported with documents
necessary to validate their authority to physically report to work. Details are
presented below:

Table 32. Summary of lacking documents relative to hazard pay per Area Center
AC Amount Lacking Documents
IV P 1,355,500  Authority to report to work during ECQ
 Approved Schedule of Skeletal Work Force
 Accomplishment Report
 Proof of attendance such as the Timebook/Logbook
V 37,500  Approved Schedule of Skeletal Work Force
VI 173,000  Authority to report to work during ECQ
XII 1,088,500  Approved Schedule of Skeletal Work Force
TOTAL P 2,654,500

21.3 In AC IV, an approved work schedule was not provided as their personnel
was required to log in whenever there was a need to report for work. In the
same manner, several employees in AC VI were requested to report during
ECQ through a short messaging service (SMS), especially during sweeper
flights. Approvals to such requests were not translated into formal documents
and were replaced by certifications and justifications by the Division Chief.

21.4 While it is understood that there was a sudden need for employees to
physically report to work to carry out the operations of the agency,
compliance with the above-listed guidelines and conditions must still be
strictly observed.

21.5 We recommended that Management instruct the Accounting-in-charge

to:

a. Submit to the Audit Team for evaluation the required documents to

support the payment of hazard pay; and

b. Check the completeness of the supporting documents and

compliance with applicable rules and regulation of claims prior to
processing the payment.

22. Rules and regulations on the granting, utilization, and liquidation of cash
advances provided under COA Circular No. 97-002 dated February 10, 1997,
were not observed by the Authority posing risk of possible loss or misuse of
funds and resulted in the accumulation of the balance of cash advances
totaling P1.877 million as of December 31, 2020.

22.1 Section 89 of Presidential Decree 1445, otherwise known as the Government

Code of the Philippines, provides that “a cash advance shall be reported on
and liquidated as soon as the purpose for which it was given has been
served. No additional cash advance shall be allowed to any official or

118
 employee unless the previous cash advance given to him is first settled or a
proper accounting thereof is made.”

22.2 COA Circular No. 97-002 dated February 10, 1997 provides for the rules and
regulations on the granting, utilization, and liquidation of cash advances, for
effective and efficient monitoring of the same.

22.3 Audit of the cash advances granted to SDOs disclosed that the Authority did
not comply with the provisions of the aforementioned Circular. This
observation was based on the results of the analysis of the cash advances
and liquidations reports of the SDOs during the year.

22.4 The following were the observations noted:

a. Liquidation reports/documents were not submitted or reported by the

SDOs to the Accounting Division immediately after the
culmination/completion of the project or activity for which the cash
advances were granted.

22.5 Our verification disclosed that in CAAP-HO, almost all of the liquidation
reports/documents were submitted to the Accounting Division only after
several months from the completion of the intended project or activity
contrary to Section 89 of PD 1445 and Section 4.1.3 of COA Circular No. 97-
002. The summary of the submission of liquidation reports made during the
year in the CAAP-HO Accounting Division is presented below:

Table 33. Summary of submission of liquidation reports

Culmination of Date Submitted to Amount of
Date Granted Activity Accounting Cash Advance
04-Dec-18 06-Dec-18 20-Sep-20 P 47,250
13-Feb-19 28-Feb-20 20-Sep-20 868,750
05-Feb-20 20-Feb-20 20-Jul-20 500,000
17-Feb-20 not indicated 23-Jul-20 200,000
27-Feb-20 13-Mar-20 05-Oct-20 1,945,200
04-Mar-20 12-Mar-20 08-Jul-20 339,400
07-Aug-20 not indicated 15-Dec-20 200,000
07-Aug-20 not indicated 09-Oct-20 81,400
17-Nov-20 not indicated 11-Dec-20 60,000
24-Nov-20 25-Nov-20 11-Dec-20 75,253
17-Jul-19 19-Jul-19 04-Feb-20 114,800
23-Aug-19 28-Aug-19 27-Feb-20 126,560
11-Dec-19 14-Dec-19 09-Mar-20 95,000
27-Feb-20 02-Mar-20 19-Oct-20 102,450
04-Aug-20 not indicated 27-Nov-20 200,000
TOTAL P 5,505,063

22.6 This observation was also noted in AC III.

119
b. Cash advances were not fully liquidated as of December 31, 2020.

22.7 We have observed that some SDOs in CAAP-HO, ACs II, and IX have
unliquidated cash advances totaling P1.639 million as of December 31, 2020.
These amounts should have been liquidated as of year-end considering the
purpose for which the cash advances were granted. Section 5.8 of the COA
Circular provides that “All cash advances shall be fully liquidated at the end
of each year. Except for petty cash fund, the AO shall refund any unexpended
balance to the Cashier/Collecting Officer who will issue the necessary official
receipt.”

c. Cash Advances granted were in excess of what were required for the
activities/projects and refunds were made several months after the
culmination/ completion of the projects.

22.8 One of the documents required in granting cash advances is the Estimate of
Expenses, which is the basis in determining the amount of cash advance to
be granted.

22.9 In CAAP-HO, it was noted that many of the cash advances granted were
more than the amount required for the activities or projects. Some cash
advances exceeded by more than 30 to 50 per cent of the actual expenses
for the project/activity.

22.10 Moreover, excess/unused cash advances were refunded only after several
months from the culmination of the project/activity, which makes the practice
more disturbing. In CAAP-HO, a cash advance of P1.945 million was granted
on February 27, 2020 for the CY 2020 CAAP Anniversary in March 2020.
Due to the pandemic, some of the anniversary activities were cancelled and
the amount of P1.466 million was unspent. The said amount was
refunded/returned only on December 16, 2020 or more than eight months
from the culmination of the intended activity.

22.11 Section 5.7 provides that when a cash advance is no longer needed or has
been not been used for a period of two months, it must be returned to or
refunded immediately to the collecting officer.

22.12 The two-month period does not however apply to CAs for time-bound
activities but only for petty cash fund and field operating expenses where the
cash advances are continuous and subject to replenishment. Hence, excess
cash advances for time bound projects/activity should be immediately
refunded as soon as the activity/project is completed and/or the purpose is
served.

120
d. Multiple/additional cash advances were granted to SDOs despite non-
liquidation of previous cash advances.

22.13 Granting of additional cash advances before the full settlement of the
previous cash advance is prohibited to avoid the accumulation of cash in the
hands of the Accountable Officer and exposing the fund to possible loss or
misuse. Similarly, granting of multiple cash advances is discouraged in order
not to overburden the AOs of various accountabilities that may affect the
performance of his/her work, and cause delays in the submission of the
liquidation reports.

e. Significant delay was incurred in the verification and recording of

liquidation reports by the Accounting Division.

22.14 Section 5.2 and 5.3 of the aforementioned COA Circular states that:

“5.2 The AO shall prepare the Report of Disbursements in three (3)

copies and submit the same with duly accomplished
vouchers/payrolls and supporting documents to the Accountant.
For payments based on receipts and invoices only, he shall also
prepare a liquidation voucher which shall be submitted with the
report and supporting documents to the Accountant. He shall
ensure that receipt of the report is properly acknowledged by
the Accountant. The AO shall be deemed to have complied with
the requirement of proper accounting for the cash advance
upon the receipt by the Accountant of the liquidation documents
referred to above.

5.3 Within ten (10) days after receipt of the report and supporting
documents from the Accountable Officer (AO), the Accountant
shall verify the report, record it in the books and submit the
same with all the vouchers/payrolls and supporting documents
to the Auditor. The cash advance shall be considered liquidated
upon the recording thereof by the Accountant in the books of
accounts although not yet audited by the COA auditor.”

22.15 The rationale of the rules is to facilitate the prompt recording and settlement
of cash advances, coherent with the requirement that additional cash
advances shall be granted only after the previous cash advance has been
fully liquidated/settled.

22.16 Documents showed that in CAAP-HO, it took 13 to 314 days before the
liquidation reports submitted by accountable officers were fully verified and
recorded in the books by the Accounting Division.

22.17 The concerned accounting personnel claimed that one of the causes for the
late verification/recording of the Liquidation Reports is the

121
 lack/incompleteness of documents supporting the reports. She also
explained that the validation/verification of the liquidation reports of the SDOs
was given less priority in favor of other workloads handled by the concerned
personnel.

22.18 Late recording of liquidation reports consequently causes delays in the

recording/recognition of the expenses in the books, thus affecting the
correctness of the financial statements of the Authority.

f. Grant of cash advance to an SDO for travel expenses of another person is

not in accordance with the rules.

22.19 While Section 3.2 of COA Circular 97-002 did mention cash advances for
travel expenses, Section 4.5 of the same circular specifically provides that
the grant of cash advance for travel shall be governed by the provisions of
COA Circular 96-004 dated April 19, 1996.

22.20 It can be inferred from the cited provisions that cash advances for travel shall
only be granted to the employee/official who will be traveling.

22.21 In CAAP-HO, a cash advance amounting to P225,000 was granted to the

Head of the Enforcement and Legal Service (ELS) for the travel expenses of
the lawyers from the Office of the Government Corporate Counsel (OGCC)
representing CAAP in hearings and meetings. Grant of said cash advance is
not proper and is wanting of legal basis. Moreover, as indicated in the DV,
the cash advance was intended for the traveling expenses for February and
March 2020, however, as of December 31, 2020, the same had remained
unliquidated.

22.22 We recommended that Management:

1. Adhere to the provisions of COA Circular No. 97-002 in the grant and
utilization of cash advances as follows:

a. Direct the Accountable Officers with outstanding balances in

CAAP-HO, ACs II, V, and IX to immediately liquidate their cash
advances upon completion of the project/activity and
immediately refund the excess amount, if any;

b. Stop granting additional cash advance to AOs unless full

settlement of the previous CA are made;

c. Direct the Accounting Division to immediately take appropriate

action on the liquidation reports submitted by the AOs, and/or
complete the verification and recording within the 10 day period
as required by the Circular, and forward the corresponding
reports to the Office of the Auditor; and

122
 2. Adhere to the provisions of COA Circular No. 96-004 on the grant
and liquidation of cash advances for travel.

23. Disallowances and charges which have become final and executory in CAAP-
HO totaling P6.730 million remained unsettled due to the laxity of management
in enforcing its settlement or recovery as provided under Section 7.1 of COA
Circular No.2009 - 006 dated September 15, 2009.

23.1 The Receivable – Disallowances and Charges account covers the

receivables arising from transactions that are disallowed in audit for being
irregular/unnecessary, and/or other similar reasons. It also includes charges
for under-collection or under-remittance of revenue/income. A Notice of
Disallowance (ND) is issued by the Auditor for disallowed transaction/s and
a Notice of Charge (NC) for under-collection/remittance. Settlement of ND
and NC and similar other accountabilities and claims are governed by COA
Circular No 2009-006 dated September 15, 2009, entitled “Prescribing the
use of the Rules and Regulations on the Settlement of Accounts”.

23.2 The ND/NC is to be settled by the persons liable within six months from
receipt therefrom, or if appealed, immediately after receipt of the Notice of
Finality of Decision (NFD). The NFD is a written notification of COA to the
agency head and persons liable that the ND/NC has become final and
executory. The NFD is also the basis of the Accountant in recording the
receivables.

23.3 However, while the ND/NC is to be settled by the persons liable, the Head of
the agency is primarily responsible for ensuring that the
disallowances/charges are settled within the prescribed period. This is
anchored from the State’s policy provided in Section 2 of PD 1445 that
supervision and safeguard of government resources rest primarily on the
head of the respective government agency. Thus, Section 7 of the COA
Circular provides and we quote:

“Section 7. RESPONSIBILITIES FOR AUDIT AND SETTLEMENT

OF ACCOUNTS

7.1 Responsibility of the Agency Head

7.1.1 The head of the agency, who is primarily responsible for all
government funds and property pertaining to his agency,
shall ensure that:

a. xxx;
b. The settlement of disallowances and charges is made
within the prescribed period;

123
 c. xxx;
d. xxx.

7.1.2 The head of the agency shall initiate the necessary

administrative and/or criminal action in case of unjustified
failure/refusal to effect compliance with the foregoing
requirements by subordinate officials. xxx

7.1.3 He shall enforce the COA Order of Execution (COE) by

requiring the withholding of salaries or other compensation
due the person liable in satisfaction of the disallowance or
charge.

7.1.4 He shall ensure that all employees who are retiring or

transferring to other agencies shall first settle the
disallowances and charges for which they are liable.”

23.4 The COE is issued by COA, ordering the agency head, attention, the
Treasurer/Cashier/Accountant, to withhold payment of salary and other
money due to persons liable, for the settlement of their liability, in case of
their refusal/failure to settle the ND/NC.

23.5 Verification revealed that except for ND No. 13-004, CAAP-HO did not
enforce the COEs nor did they instigate any demand for the settlement of the
disallowances/charges. Salary deductions were not effected on persons
liable who are still in active service with CAAP nor were demand letters sent
to persons liable who are no longer connected with the Authority. Out of the
P6.822 million disallowances of previous years’ settlement for the year
amounted only to P12,690 or 0.19 per cent of the total disallowance. For the
issued NC, no settlement was made as of year-end. Details are presented
below:

Table 34. List of issued ND and NC and its settlements

Settlement
Balance
Disallowed/ Previous Current December
ND/NC No. Date Charged Years Year (2020) 31, 2020
ND
ND No. 11-002 19-Oct-11 P 540,000 P 30,000 P 0 P 510,000
ND No. 12-003 30-Jul-12 435,000 75,000 0 360,000
ND No. 13-001 08-Feb-13 430,946 0 0 430,946
ND No. 13-004 09-Oct-13 **185,709 0 12,690 173,019
ND No. 2014-001 30-Jan-14 40,000 5,000 0 35,000
ND No. 14-002 30-Jan-14 50,695 0 0 50,695
ND No. 15-002* 03-Aug-15 3,380,662 0 0 3,380,662
ND No. 19-002* 26-Mar-19 1,750,000 0 0 1,750,000
ND No. 19-007 05-Jul-19 8,748 0 0 8,748
Subtotal- ND P 6,821,760 P 110,000 P 12,690 P 6,699,070
In Terms of Percentage 1.61% 0.19%

124
 Settlement
Balance
Disallowed/ Previous Current December
ND/NC No. Date Charged Years Year (2020) 31, 2020
NC
NC No. 13-001 05-Aug-13 19,538 0 0 19,538
NC No. 15-01 19-Mar-15 11,375 0 0 11,375
Subtotal- NC 30,913 0 0 30,913
In Terms of Percentage 0% 0%
TOTAL P 6,852,673 P 110,000 P 12,690 P 6,729,983
*Appeal Memorandum was filed only after the issuance of the Notice of Finality of Decision
(NFD)
**Amount was reduced from P1.207 million to P185,709 per COA CP Decision No. 2017-379
dated November 20, 2017

23.6 The inaction or laxity of Management in enforcing the recovery of the

disallowances and charges is contrary to the provisions of the afore-cited
COA circular. Moreover, the non-settlement of these receivables will
consequently result in unnecessary loss of CAAP’s funds that could have
been used to implement its programs, projects and activities.

23.7 This observation has been raised in previous audit years but has remained
unacted. The Team however reminded Management that any payment of
salaries or any money due to persons liable in violation of the issued COEs
may be disallowed in audit.

23.8 We recommended and Management agreed to strictly adhere to the

Rules and Regulations on the settlement of accounts prescribed under
COA Circular No. 2009-006 by directing the:

a. Chief Accountant to withhold the salaries or any money due to

persons liable who are still connected with CAAP for the settlement
of their liabilities; and

b. Concerned CAAP officials to initiate and exhaust all legal means to

collect/recover the disallowances and charges, such as sending
demand letters, filing of administrative/criminal actions in case of
unjustified refusal to settle their liabilities, and/or other appropriate
actions.

23.9 Management commented that the Accounting Division has been withholding
an amount from salaries and other claims of employees whose disallowances
and charges have become final and executory. Instruction was also given to
the Accounting Division to religiously continue implementing the salary
deduction for those employees who are still active from the service with
ND/NC. In addition, Internal Audit Service (IAS) will coordinate with
Enforcement and Legal Service (ELS) for the accounts of CAAP Board of
Directors.

125
 23.10 The Audit Team will monitor Management’s compliance with the
recommendations.

24. Copies of perfected contracts and their supporting documents were not
submitted to COA within five working days from its perfection, disregarding
Sections 3.1.1 & 3.2.1 of COA Circular No. 2009-001, thereby preventing timely
verification of the legality and propriety of the procurement activities
completed.

24.1 Paragraph 3.1.1 of COA Circular No. 2009-001 dated February 12, 2009
requires the submission within five (5) working days from the execution of a
contract of a copy of the said contract and each of all the documents forming
part thereof by reference or incorporation shall be furnished to the Auditor of
the agency concerned.

24.2 Records showed that in CAAP-HO, copies of contracts are submitted several
months after receipt of the NTP by the contractor, and more often than not,
the submitted documents are incomplete, thus, causing further delays in the
review. Our inquiry disclosed that the delay and/or incomplete submission of
documents is caused by lack of clear delineation of duties and responsibilities
particularly on who is assigned in keeping and ensuring the completeness of
all the contracts and all other procurement documents.

24.3 While in AC X, the submission of the contracts and pertinent documents for
review was discontinued in CY 2020 mainly because of the delay in the
processing of signed Certificate of Availability of Funds, which forms part of
the required documents for submission. As justified by the BAC Secretariat,
the delay would sometimes go beyond 5 days, and since they will be
submitting the original documents to the accountant for the payment of the
first billing of the suppliers, they decided to stop submitting to COA the
contracts and documents within the prescribed reglementary period of 5 days
from the execution of the contracts or issuance of the purchase orders. In
prior years, submission of contract documents was also delayed and not
conforming to the prescribed timelines.

24.4 This observation has been consistently observed in almost all contract
submissions made by the Authority which defeats the purpose of the
complete and timely review and/or evaluation of the contracts.

24.5 We recommended that Management direct the concerned office/s to

submit copy of the contracts with complete supporting documents
within five days from its execution, as required in COA Circular 2009-
001.

126
 24.6 CAAP-HO commented that the delays were caused by the lack of manpower
in the Procurement Division. However, the said division committed to adhere
to the recommendation.

25. Various provisions in the Revised IRR of RA No. 9184 were not complied by
Area Centers (ACs) V, VI, VII, X, and XII, thus, there was no assurance that
transparency, competitiveness, efficiency, and economy were observed in the
procurement transactions of the Authority.

25.1 The governing principles on government procurement as contained in

Republic Act (RA) No. 9184 and its RIRR requires, among others, the
principle of transparency, competitiveness, economy, and streamlined
procurement process. These principles are translated into provisions and
requirements to attain an efficient and effective method of procurement.

25.2 The following infrastructure projects and contracts for the procurement of
goods and services with a total amount of P58.406 million were found to be
non-compliant with some of the provisions of the RIRR:

Table 35. Results of Evaluation of Procurement Contracts

Specific Provisions of the
Nature of Revised IRR of RA No. 9184 Contract
AC Transaction not complied Condition Amount

AC V Ten (10) Section 21.2.1 and Section No proof of posting P 23,044,855

Infrastructure 37.1.6 of the ITB and NOA
Projects at any conspicuous
Advertisement/posting of place in the
Invitation to Bid (ITB) and and premises of the
Notices of Award (NOA) in procuring entity.
conspicuous places, in
Website of the procuring
Entity, PhilGEPS website,
/newspaper

Section 37.2.2

The Procuring Entity shall Cannot be

enter into a contract with the ascertained if the
winning bidder within ten (10) winning bidder
days provided that all submitted the
documentary requirements documents required
under Sec. 37.2.3 are in Sec. 37.2.3 within
complied with- 10 days from receipt
of NOA due to
- Contract agreement insufficiency of
- Bidding documents information/data to
- Performance security allow the validation
- and others or verification.

127
 Specific Provisions of the
Nature of Revised IRR of RA No. 9184 Contract
AC Transaction not complied Condition Amount
Section 37.4.1 Delayed issuance of
the NTP from two
Issuance of NTP and copy of Calendar Days
the contract to the successful (CDs) to as long as
bidder within 7 CDs from the 96 CDs delay,
date of approval of the resulting in delayed
contract. implementation of
the project.
Section 37.4.2 Delayed posting of
the NTP in the
Posting of NTP and approved PhilGEPS, from four
contract in PhilGEPS and CD to as long as 30
Website of the PE within 15 CD delay.
days from the issuance of the
NTP.

AC V Payment for Section 68 Contract 7,141,078

various repairs Agreements did not
and Contracts shall contain a specify the
maintenance provision for liquidated commencement
projects damages. date of the projects
and did not contain a
provision on
liquidated damages
as well as
sanction/penalties.

AC VI Water Section 32 Detailed evaluation 257,351

Distribution of bids was not
System and BAC to conduct a detailed properly done which
Sanitary evaluation of all bids submitted resulted in
Plumbing as to the completeness of the undetected
System bid and arithmetical computational error
corrections. in the amount of
P257,351.

AC VI Procurement Section 34 Post-qualification on 4,518,593

of goods for the eligibility of the
the installation The Lowest Calculated Bid Lowest Calculated
of two 30 TRA (LCB) shall undergo post- Bidder were not
air qualification to determine done meticulously,
conditioning whether the bidder concerned thus, resulted in the
units complies with and is award of the contract
responsive to all the to a non-responsive
requirements and conditions bidder.
as specified in the Bidding
documents including the
verification and validation of all
the statements made therein.
AC Various Section 7.1 Procurement of 21,825,956
XII Infrastructure various
Projects and “All procurement shall be infrastructure
Equipment within the approved budget projects and

128
 Specific Provisions of the
Nature of Revised IRR of RA No. 9184 Contract
AC Transaction not complied Condition Amount
of the Procuring Entity and equipment were not
should be meticulously and properly and
judiciously planned by the judiciously planned
Procuring Entity. Xxx. For and managed.
purposes of this IRR, a
procurement project shall be  Four units water
considered crucial to the purifier, and 16
efficient discharge of units UV carbon
governmental functions if it cartridge and
is required for the day-to- others costing
day operations or is in P251,000 and
pursuit of the principal P269,960,
mandate of the Procuring respectively,
Entity concerned.” Xxx remained
unutilized as of
December 31,
2020

 Generator set
costing P7.977
million was
purchased despite
the existence of a
functional
generator set.

 17 units grass
cutters - P0.603
million; The units
were purchased
without
determining the
need for it.

 6-slot kennel -
P1.989 million; The
need for the
construction is not
established due to
the existing
functional kennel.

 Four (4) Sewage

Treatment Tanks
(STTs) - P10.735
million; The need
for the treatment
tanks is not
established due to
the existing tanks.

129
 Specific Provisions of the
Nature of Revised IRR of RA No. 9184 Contract
AC Transaction not complied Condition Amount
AC Various Section 23.6 Supplies and 1,618,603
XII Supplies and equipment were
Equipment Notwithstanding the purchased from
eligibility of a bidder, the suppliers with
Procuring Entity has the different line of
right to review the business.
qualification of the bidder at
any stage of the
procurement process if
there is reasonable ground
to believe that a
misrepresentation has been
made by the supplier; if
proven, the said bidder may
be declared ineligible.

25.3 We recommended and Management agreed to direct the concerned

BAC/Canvass Committees, procurement officers, and other concerned
officials to strictly adhere to the provisions of RA No. 9184 and its RIRR
in all procurement activities of the Authority, and implement/adopt
policies and/or monitoring system that will ensure compliance with the
procurement law.

26. The Authority was not able to comply with the mandatory budget requirement
of allocating at least 5 per cent of its total Corporate Operating Budget for GAD
Programs, Activities and Projects contrary to Section 36(a) of RA No. 9710 or
the Magna Carta of Women.

26.1 Section 36(a) Chapter VI of RA No. 9710 Magna Carta of Women mandates
that all departments, including their attached agencies, offices, bureaus,
state universities and colleges, government-owned and-controlled
corporations, local government units, and other government instrumentalities
shall adopt gender mainstreaming as a strategy to promote women's human
rights and eliminate gender discrimination in their systems, structures,
policies, programs, processes, and procedures which shall include, but not
limited to, planning, budgeting, monitoring and evaluation of GAD programs,
which shall be at least five (5) per cent of their budgets.

26.2 Similarly, Section 6.1 of PCW-NEDA-DBM Joint Circular No. 2012-01 states
that at least five per cent of the total agency budget appropriations authorized
under the annual GAA shall correspond to activities supporting GAD plans
and programs. The GAD budget shall be drawn from the agency's
maintenance and other operating expenses (MOOE), capital outlay (CO),
and personal services (PS). It is understood that the GAD budget does not
constitute an additional budget over an agency's total budget appropriations.

130
26.3 Further, Section 1.5 of the PCW Memorandum Circular 2016-05 dated 30
September 2016 states that “Aside from implementing direct GAD PAPs to
address organization- or client-focused gender issues or GAD mandates,
agencies may attribute a portion or the whole budget/expenditure of the
agency’s major program/s or project/s to the GAD budget/expenditure using
the Harmonized Gender and Development Guidelines (HGDG) tool. Major
programs/projects subjected to the HGDG test shall be reflected under the
GPB/GAD AR section on "ATTRIBUTED PROGRAMS…” (Underline ours)

26.4 Audit of GAD Plans and Budget for CY 2020 of the Authority revealed that
out of the P7.321 billion approved COB for 2020, only P74.123 million or 1.01
per cent were allocated to GAD Programs, Activities and Projects (PAPs),
contrary to the above-mentioned circulars. We noted that the allocation was
only for organization-focused and client-focused programs.

26.5 Examination of the GPB showed that the Authority was not able to include
any attributed programs in the GPB contributing to the inability of
Management to meet the five per cent budget allocation requirement. The
inclusion of portions of the attributed programs requires knowledge on the
utilization of the HGDG Tool. In the 2018 and 2019 Annual Audit Reports,
the Audit Team has continuously cited the need for Management to
capacitate themselves in the use of the tool. In CY 2020 GPB, Management
finally included the attendance of seminars on the use of HGDG tool,
however, Management was not able to attend any seminars/webinars related
to the topic.

26.6 As per the Philippine Commission on Women’s (PCW’s) official website, the
PCW held a webinar last October 15, 2020, on the topic. Likewise,
Management could have sourced out specialists or experts on the topic to
conduct the webinar for the Authority.

26.7 We recommended and Management agreed to instruct the Chairperson,

GFPS Executive Committee, to:

a. Strictly observe the guidelines in the preparation of the GPB and

henceforth ensure that at least five (5) per cent of the Corporate
Operating Budget supports PAPs relative to Gender and
Development; and

b. Conduct trainings to capacitate CAAP personnel in the HO and Area

Centers in the use of HGDG tool in assessing the gender-
responsiveness of the Authority’s major programs and activities
and determine the percentage of the budget that can be allocated
to the GPB.

131
27. Non-institutionalization of GAD Database/Sex-Disaggregated Data casts doubt
on whether the identified programs and activities of the Authority to address
gender issues are truly reflective of the existing issues faced by its clients and
employees.

27.1 Section 4.4 of the PCW-NEDA-DBM Joint Circular states that:

“Institutionalizing GAD Database/Sex-disaggregated Data (SDD): The

agency shall develop or integrate in its existing database GAD
information to include gender statistics and sex-disaggregated data
that have been systematically produced or gathered as inputs or
bases for planning, budgeting, programming, and policy formulation.”

27.2 Audit noted that Management was not able to institutionalize a GAD
Database/SDD for the past 3 audit years. The GAD Database/SDD is one of
the essential elements in GAD planning and budgeting as they enable
agencies to effectively plan and implement their agency-wide programs on
GAD. It serves as an important tool to facilitate the conduct of gender
analysis within the organization and in identifying GAD issues affecting the
the attainment of its mandate.

27.3 Establishing a GAD database/SDD could have been used to assess the
progress or results of prior years’ GAD activities to determine remaining
issues that have not been addressed in the earlier GPBs. The non-
implementation of the GAD database casts doubt on whether the identified
gender issues in the GPB are genuinely reflective of the existing gender
issues faced by its clients and employees.

27.4 Similar to our observation in the use of the HGDG tool, Management
asserted that they do not have the expertise to implement the subject
database. We emphasized that there are many resources available to enable
Management to capacitate themselves and that they simply have to allot
sufficient time and effort.

27.5 We reiterated our prior year’s recommendation that Management

instruct the Human Resource Management Office (HRMO) in
coordination with the Chairperson, GFPS Executive Committee, to
develop a GAD Database/Sex-Disaggregated Data and capacitate GAD
GFPS on its use and importance to be able to aid the focal point in the
determination of gender issues and corresponding actions to address
it.

28. CAAP’s GAD Focal Point System (GFPS) failed to submit to the PCW and COA
the GAD Accomplishment Report (AR) for CY 2020 along with the complete
supporting documentation contrary to Section 10 of PCW-NEDA-COA Joint

132
Circular No. 2012-01, thereby precluding the Audit Team from ascertaining the
degree of compliance of the GAD AR against the GPB.

28.1 Section 10 of the PCW-NEDA-COA Joint Circular states that the agency
GFPS shall submit to the PCW the GAD AR at the end of January of the
following year. The GAD AR shall include a summary of the reported
program or project, copies of reported policy issuances, results of HGDG
test, and, actions taken by Management to address audit findings and
recommendations. The report shall be used by the PCW to assess the actual
accomplishment of the agency and include the same in the annual integrated
GAD AR for submission to Congress, the Office of the President, Department
of Budget and Management, and the Commission on Audit.

28.2 Similarly, COA Circular 2014-001 dated March 18, 2014, requires the
submission of the GAD AR to COA within 5 working days from the end of
January of the preceding year.

28.3 Audit disclosed that Management did not submit the GAD AR to the PCW for
its CY 2020 GPB. We noted that the GFPS did prepare their GAD AR which
was subsequently approved by the Director General, however the same was
not submitted to the PCW. Per interview with a member of the GFPS, he
raised that they did not submit the GAD AR to the PCW since there was no
significant accomplishment for the year considering the pandemic and that
there was no instruction to submit the same to the PCW.

28.4 The GAD AR, regardless of the percentage of accomplishment vis-à-vis the
GPB, should be submitted to the PCW as required by the aforementioned
provision. We emphasize that the submission of the GAD AR to the PCW is
not a mere recommendation or suggestion. The Joint Circular mandates its
submission to be able to ascertain the percentage of accomplishment of the
agency against its PCW-endorsed GPB and to ensure compliance of
agencies as to the government’s goal to provide PAPs that respect, protect
and fulfill the rights of women at the socio-cultural, economic and political
sphere.

28.5 The Audit Team was able to secure a copy of the GAD AR duly signed by
the Director General, albeit the non-submission to the PCW, however,
Management was unable to provide sufficient documents as required by the
aforesaid provisions, thus, precluding the Audit Team in ascertaining the
extent of compliance of the GAD AR as against the GPB.

28.6 We recommended that Management instruct the Chairperson, GFPS

Executive Committee, to submit to the PCW and COA, for evaluation,
the GAD AR along with all the necessary supporting documents as
required by the PCW-NEDA-COA Joint Circular 2012-01.

133
29. Compliance with Tax Laws

29.1 For CY 2020, the CAAP-HO and 12 Area Centers (ACs) have substantially
complied with the requirements on the withholding and remittances of taxes
on gross compensation income from officials and employees. Details are
presented below:

Table 36. Taxes Withheld and Remitted

Beginning
Balance, Adjustments Taxes During CY 2020 Balance,
January 2020 During the December 31,
Offices (As Restated) Year Tax Withheld Tax Remitted 2020
Head Office P 53,341,447 P(1,627,452) P 275,634,829 P 248,671,546 P 78,677,278
Area Centers:
AC I 1,262,606 0 8,663,089 8,834,754 1,090,941
AC II 918,962 0 4,414,520 4,641,887 691,595
AC III 8,113,478 0 14,003,259 15,791,466 6,325,271
AC IV 1,695,839 (19,273) 8,749,481 9,547,433 878,614
AC V 307,013 0 9,760,138 9,843,323 223,828
AC VI 2,276,810 (106,878) 28,374,810 29,354,191 1,190,551
AC VII 2,232,348 0 24,783,667 20,571,884 6,444,131
AC VIII 1,398,036 (44,697) 8,295,732 8,549,718 1,099,353
AC IX 2,687,129 (2,368,527) 12,798,843 11,633,379 1,484,066
AC X 2,987,530 0 11,874,152 13,037,292 1,824,390
AC XI 4,246,165 0 23,118,914 23,970,258 3,394,821
AC XII 78,353 (52,608) 8,991,774 8,846,519 171,000
Total, Area
Centers 28,204,269 (2,591,983) 163,828,379 164,622,104 24,818,561
Grand Total P 81,545,716 P (4,219,435) P 439,463,208 P 413,293,650 P 103,495,839

29.2 The unremitted balances pertain mostly to the withholding taxes in

December 2020.

30. Compliance with GSIS, Pag-IBIG, and PhilHealth Premium/Loan

Amortizations/Deductions and Remittances

30.1 The GSIS personal share, loans of employees, Social Insurance Fund
(SIF),and Employees Compensation Insurance Fund (ECIF) premiums as
government shares were substantially deducted and remitted in accordance
with RA No. 8291, the GSIS Act of 1997. Likewise, Pag-IBIG/PhilHealth
premiums and loan amortizations collected were remitted in compliance with
RA No. 9679 (Pag-IBIG Fund Law 2009) and Title III, Rule III, Section 18 of
the Implementing Rules and Regulations of RA No. 7875 (National Health
Insurance Act of 2013) respectively.

134
 Table 37. GSIS, Pag-IBIG, and PhilHealth Premiums/Loan Amortizations and Remittances
Premiums and
Balances as Loan Balance as
of January 1, Amortization of
2020 as collected for December
Particulars restated Adjustment(s) CY2020 Remittances 31, 2020
GSIS P 16,386,322 P 2,821,771 P 312,419,978 P 320,205,380 P 11,422,691
Pag-IBIG 4,382,964 2,477,712 46,882,735 49,034,462 4,708,949
PhilHealth 3,944,152 262,099 30,198,290 30,124,079 4,280,462
TOTAL P 24,713,438 P 5,561,582 P 389,501,003 P 399,363,921 P 20,412,102

30.2 Most of the ending balances pertain to collections in December 2020 that
were subsequently remitted in January 2021. Moreover, an observation has
been noted in Area Center VI wherein the GSIS Premiums withheld from
employees’ salary and the corresponding Employer’s Share in the
accumulated amount of P1.089 million were not fully remitted due to
inadequate monitoring and reconciliation of records of Area and Satellite
Offices as of December 31, 2020, contrary to Section 6 of RA No. 8291 or
the GSIS Insurance Act of 1997. The unremitted premiums were withheld
from salary adjustments due to promotions, salary differentials, and
retirement, which as of year-end, were not fully reconciled with GSIS records
due to some deficiencies in updating the membership profiles of affected
employees and the absence of subsidiary ledgers.

31. Enforcement of COA Audit Suspensions, Disallowances, and Charges

31.1 The total audit suspensions, disallowances, and charges found in the audit
of transactions as of December 31, 2020, based on the Notice of Suspension
(NS)/Notice of Disallowance (ND)/Notice of Charge (NC)/Notice of
Settlement of Suspensions and Disallowances/Charges (NSSDC) issued by
this Commission, is summarized below:

HEAD OFFICE

Table 38. Summary of Audit Suspensions, Disallowances, and Charges in the Head Office
Ending
This Period January 1 to
Beginning Balance as of
December 31, 2020
Balance as of December 31,
Particulars January 1, 2020 NS/ND/NC NSSDC 2020
Notice of Suspension P 187,664,906 P 0 P 157,735,845 P 29,929,061
Notice of
Disallowance 728,668,186 157,626,293 197,882 886,096,597
Notice of Charge 30,913 0 0 30,913
TOTAL P 916,364,005 P 157,626,293 P 157,933,727 P 916,056,571
% of settlement 14.71%

135
AREA CENTERS

Table 39. Summary of Audit Suspensions, Disallowances, and Charges in the Area Centers
Beginning Ending
This period January 1 to
Balance as of Balance as of
December 31, 2020
January 1, December 31,
Particulars 2020 NS/ND/NC NSSDC 2020
Notice of Suspensions
AC V P 2,930,407 P 164,735 P 1,951,008 P 1,144,134
AC VIII 856,485 0 720,657 135,828
AC XII 15,440,024 0 458,575 14,981,449
TOTAL P 19,226,916 P 164,735 P 3,130,240 P 16,261,411
% of settlement 16.14%
Notice of Disallowances
AC I P 16,342,938 P 0 P 0 P 16,342,938
AC II 8,321,783 0 0 8,321,783
AC III 17,676,774 0 1,800,419 15,876,355
AC IV 11,676,055 0 0 11,676,055
AC V 22,315,430 0 0 22,315,430
AC VI 67,119,757 0 0 67,119,757
AC VII 41,530,411 0 0 41,530,411
AC VIII 9,353,023 14,204 10,654 9,356,573
AC IX 26,827,107 0 0 26,827,107
AC X 108,587,560 0 0 108,587,560
AC XI 39,066,589 0 30,000 39,036,589
AC XII 7,257,804 0 0 7,257,804
TOTAL P 376,075,231 P 14,204 P 1,841,073 P 374,248,362
% of settlement 0.49%

31.2 An observation has been noted in CAAP-HO wherein the disallowances and
charges which have become final and executory totaling P6.730 million
remained unsettled due to the laxity of management in enforcing its
settlement or recovery as provided under Section 7.1 of COA Circular
No. 2009 - 006 dated September 15, 2009.

136