BOY SCOUTS OF THE PHILIPPINES

Annual Audit Report for CY 2012

EXECUTIVE SUMMARY

INTRODUCTION

Boy Scouts of the Philippines (BSP) is a public entity created by Commonwealth Act
(CA) No. 111, entitled “An act to create a public corporation to be known as the Boy
Scouts of the Philippines, and to define its powers and purposes,” as amended by
Presidential Decree No. 460 and Republic Act (RA) No. 7278 dated March 24, 1992. It
is a non-stock, non-profit organization.

The purpose of BSP shall be to promote through organization and cooperation with other
agencies, the ability of boys to do useful things for themselves and others, to train them
in scout craft, and to inculcate in them patriotism, civic consciousness and responsibility,
courage, self-reliance, discipline and kindred virtues, and moral values, using the
method which are in common use by boy scouts. (Section 1, RA 7278)

The BSP is a government controlled corporation by virtue of the Supreme Court decision
dated June 7, 2011. The decision became final and executory on March 14, 2012 when
the Supreme Court denied with finality the motion for reconsideration filed by the BSP.

BSP to carry out its mandate was authorized by CA 111, and RA 7278 to have offices
and conduct its business and affairs Metropolitan Manila and in the regions, provinces,
cities, municipalities, and barangays of the Philippines. As of January 2013, BSP is
composed of the BSP-National Office (with five (5) Regional Offices), National Scouts
Shop (with five (5) branches), Financial Assistance Program and One hundred
Seventeen (117) Local Councils.

1. National Office (NO)

The National Office (NO) is the central administrative office of the Boy Scouts of the
Philippines. The NO serves the National Council, the National Executive Board and its
committees, and the various Local Councils. The NO administers the nationwide
Scouting program and executes the policies and directives of the National Executive
Board. (Section 1, Article XI, National By laws (NBL) of the Boy Scouts of the
Philippines)

As extension of the National Office for administrative purposes, the ten scouting
regions were grouped into five (5) Regional Offices each headed by a Regional
Director. Details are as follow:

1.1 Northern Luzon Regional Office (3 Regions)

a. Ilocos Region
b. Central Luzon Region
c. Northeastern Luzon Region

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1.2 Southern Luzon Regional Office (3 Regions)

d. National Capital Region

e. Southern Tagalog Region
f. Bicol Region

1.3 Visayas Regional Office (2 Regions)

g. Western Visayas Region

h. Eastern Visayas Region

1.4 Western Mindanao Regional Office (1 Region)

i. Western Mindanao Region

1.5 Eastern Mindanao Regional Office (1 Region)

j. Eastern Mindanao Region

2. National Scout Shop (NSS)

The basic objective of NSS is to make available nationwide good quality official scout
items priced reasonably to make them affordable. At the same time, it shall develop
the NSS to realize its full potential as a source of revenue for the national organization
and the Local Scout Councils. (Section 6, Article X, NBL)

3. Financial Assistance Program (FAP)

A program unanimously approved by the National Executive Board to provide each

member with a benefit by extending financial assistance to any members who meets
an accident whether scouting or non-scouting related activities.

4. Local Councils (LCs)

The purpose and Function of these LCs are for the promotion and supervision of the
Scout Program in the provinces or cities and their subdivisions, in conformity with the
provisions of the NBL.

Audit Methodology

We conducted our audit in accordance with Philippine Standards on Auditing. Those

standards require that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance whether the financial statements are free from
material misstatement.

Scope of Audit

The audit covered the operations of BSP for CY 2012. The audit was to ascertain the
adequacy of books of accounts and subsidiary records, and the timeliness,
completeness and fairness of the presentation of the financial statements based on

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Philippines Financial Reporting Standards (PFRS). Our audit was also conducted to
determine BSP’s compliance with applicable laws, rules and regulations.

FINANCIAL HIGHLIGHT

Presented below is the summary of financial position and performance of BSP for the
CY 2012.

2012 2011

Financial Position
Assets P3,080,691,339 P3,068,424,780
Liabilities (88,964,208) (102,391,665)
Equity P2,991,727,131 P2,966,033,115

Financial Performance
Revenue P198,419,593 P243,882,838
Expenses 170,546,615 188,783,364
Excess of Revenue over Expenses P27,872,978 P55,099,474

State Auditor’s Report on the Financial Statements

The Auditor rendered a disclaimer of opinion on the fairness of the presentation of the
financial statements of BSP for the year 2012 for reasons stated in the Independent
Auditor’s Report in Part I of the Report.

SUMMARY OF SIGNIFICANT AUDIT OBSERVATIONS AND RECOMMENDATIONS

1. The Consolidated Financial Statements (CFS) of the BSP cannot be

ascertained because the financial transactions of its 117 Local Councils (LCs)
were not incorporated therein due to the autonomous concept of the LCs by
BSP. Consequently, financial reports, records and documents of the councils
were not available for audit.

Recommendations:

a. Incorporate in the CFS the financial conditions and operations of the 117 LCs;
and

b. Present the records and the related supporting documents of the 117 LCs to the
audit team to complete the audit of BSP.

2. The reliability, accuracy and valuation of Scout Materials and Supplies

account balances totaling to P37.436 million cannot be assured due to
(a) discrepancy between NSS balance per books and that per physical count
amounting to P4.935 million; (b) existence of items with negative balances in

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the TRACC system; and (c) non-conformance with Philippine Accounting

Standard (PAS) No. 2 on measurement of inventories.

Recommendations:

a. Undertake a thorough analysis of the NSS Scout Supplies Inventory

transactions to determine the required adjustments/corrections;

b. Require accounting personnel and the Supplies Officer/Custodian to maintain

supplies inventory cards (SLC);

c. Perform assessment in accordance with PAS 2 to determine the NRV of the

inventories, especially those items that are already damaged, obsolete or have
declined in selling price/value;

d. Submit to the audit team the assessment made and the comparison of cost and
NRV; and

e. Provide appropriate adjustments in the books.

3. The existence, completeness and accuracy of the Property, Plant and

Equipment (PPE) account balance of P700 million could not be ascertained
due to (a) absence of a detailed list of acquisitions cost of Equipment,
Furniture and Fixtures from 2007 to 2010; (b) non-maintenance of Property
and Equipment Ledger Cards and Property Cards by the Finance and
Property Divisions respectively and Lapsing Schedule of the National Scout
Shop; and (c) non-submission of the Report of Physical Count of Property,
Plant and Equipment due to incomplete physical count.

Recommendations:

a. Reconstruct the records and based on the same and information

gathered, review the correctness of the assets’ carrying amounts and the
estimated useful life and prepare the necessary adjusting journal entries;

b.  Require the FD to prepare and maintain Property and Equipment Ledger
Card (PELC). The PELC shall be kept for each class of equipment to record the
acquisition, description, custody estimated life, depreciation, disposal and other
information about the equipment, based on the source documents of the
transactions. Likewise, require RPD to maintain a Property Card (PC). The PC
shall be kept for each class of equipment to record the acquisition, disposal, tag
number/ control number, description, and other information about the
equipment; and

c. Fast track the preparation and submission of the annual RPCPPE to establish
the existence of BSP properties and to ensure the reliability and accuracy of
accounting reports and records and to comply with accounting rules and
regulations.

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4. The accuracy and valuation of the Investment Property (IP) account balance
of P1.542 billion was doubtful due to (a) non-presentation of IP at its Fair
Market Value (FMV); (b) use of the BIR Zonal Value in determining the FMV of
IP; (c) insufficiency of disclosure relating to IP and Leases as required for
under PAS 40 and PAS 17; (d) presentation of Transfer Certificate of Title
(TCT) that were in photocopies only; (e) differences in land area between
the schedule provided by BSP and the copies of TCTs; (f) transaction in the
amount of P1.216 billion that should not have been recorded as part of IP
due to restrictions imposed in the deeds of donations; and (g) donations of
equipment, furniture and fixtures that were not recorded in the books of
accounts and subjected into the valuation requirements of IP.

Recommendations:

a. Record IP using the FMV;

b. Provide for appropriate and adequate disclosures on Investment Property and

Leases in the Notes to Financial Statements in compliance with PAS 17 and 40,
respectively;

c. Obtain the Original Owner’s Duplicate Certificate of Title from the concerned
BSP personnel who have custody of it. If such is missing or lost, the
Management must immediately secure for its replacement from the concerned
Register of Deeds (RD) following the guidelines of Section 109 of PD 1529; and

d. Record and reconcile and adjust accordingly variances noted in land

improvements and some donations.

5. The accuracy, reliability and completeness of the balance of Registration

Fees amounting to P106.594 million as of December 31, 2012, including other
accounts affected could not be determined because the Official Receipts
(ORs) issued to Regional Offices (ROs) and Local Councils (LCs) were not
properly monitored and accounted for by the National Office (NO).

Recommendations:

a. Require the LCs to submit to the ROs copy of the Daily Collection Report and
Deposits (DCRD) indicating information such as the date of collection, OR
number, AUR number, payee, amount collected, particulars or nature of
collection, total collections and total deposits, to be accompanied with copy of
ORs, AURs and validated deposit slips. A copy of this report should be
forwarded to the NO for monitoring and control purposes;

b. Review the DCRD and check correctness of the amount and other data
contained therein and see to it that collections are deposited intact the next
banking day;

c. Check whether the series of ORs indicated in the DCRD are within the series
issued to the concerned LCs to ensure that only ORs duly issued by the BSP
are reported and recorded in the books;

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d. Submit letter to the NO acknowledging receipt of ORs received through courier

to show proof of receipt; and

e. Prepare the monthly RAAF to monitor and account for the issuance and usage
of ORs by the Regional Offices and Local Councils in order to establish proper
accountability over AURs and ORs.

6. The validity of recorded disbursements amounting to P4.876 million and

pertaining to financial assistance extended to BSP Registered Members or
their beneficiaries could not be ascertained due to the unavailability of 1,749
cash vouchers and their supporting documents. In addition, assistance
exceeding the allowable amount was extended in some instances.

Recommendations:

a. Submit for audit purposes the 1,749 CVs with complete supporting documents;

b. Comply with NOM No. 44 s. 2006 on the maximum amount of financial

assistance to claimant;

c. Obtain a copy of the AUR and maintain a database of the complete list of the
BSP Registered members to facilitate proper review procedures; and

d. Stop the practice of allowing the consultant to be a signatory of CVs and be

directly involved in the management and operations of BSP.

7. The Management was unable to comply with certain rules and regulations of
the Bureau of Internal Revenue (BIR) specifically on the payment of value
added tax (VAT), documentary stamps tax (DST) and corporate income tax;
and of the Local Government Units (LGU) particularly the payment of real
property tax (RPT).

Recommendations:

a. Comply with BIR/LGU rules and regulations with respect to the payment of VAT,
DST and corporate income tax and RPT due for previous and succeeding years;
and

b. Comply with the provisions of RA 7160 and other documentary requirements

related to Real Properties.

8. BSP is not compliant with Section 238 of the National Internal Revenue Code
of 1997, Revenue Memorandum Order (RMO) 29-002, and Revenue
Regulations (RR) 82-2008.

Recommendations:

a. Cause the registration of official receipts and sales or commercial invoices of the
NSS;

b. Apply for authority to print official receipts and invoices;

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c. Apply for adoption of Computerized Accounting System or components thereof;

and

d. Apply for use of Cash Register Machine (CRM) and/or Point of Sales Machine
(POS) with the Bureau of Internal Revenue;

9. Supply of electricity was provided by BSP without ERC License. Likewise,

BSP did not issue ORs on Rental Payments made by Digitel and Smart in
CHSC amounting to P371,759, contrary to ERC CASE NO. 2010-008 RM and
the National Internal Revenue Code (NIRC), respectively.

Recommendations:

a. Comply with the ERC CASE NO. 20120-008;

b. Require the CHSC to submit all supporting documents, in order for the Finance
Division to properly verify the transactions and for the Internal Audit Division to
properly subject it to audit; and

c. Comply with the provision of NIRC on the issuance of Official Receipts, sales or
commercial invoices.

10. There was no written contract covering the lease of BP International Hotel to
Palm Residence. Likewise, no income out of the lease was recognized in the
books.

Recommendation:

Execute a contract with Palm Residence and record appropriate rental income in
the books. 

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