EXECUTIVE SUMMARY

A. INTRODUCTION
The Philippine Air Force (PAF) was created as a Major Command of the
Armed Forces of the Philippines (AFP) on July 1, 1947 pursuant to the provisions of
Section 110 of Executive Order No. 94 dated October 4, 1947. The PAF is located at
the Col. Jesus Villamor Air Base (CJVAB), formerly named Nichols Air Base, now
known and referred to as Col. Jesus Villamor Air Base by virtue of Batas Pambansa
No. 166 dated February 8, 1982.

The defense of the Philippine territories evolved as follows:

 Commonwealth Act No. 1 (National Defense Act) dated December 21,

1935:
o Created the Council of National Defense to advise the President on all
matters pertaining to national defense policy;
o Created the Central General Staff, later named Armed Forces General
Staff;
o Organized the Army of the Philippines consisting of the Regular and
the Reserved Forces;
o Organized the Off-Shore Patrol under the Regular Force of the Army
of the Philippines;
o Created the Philippine Constabulary Air Corps (PCAC), which was
later renamed Philippine Army Air Corps (PAAC).

 Commonwealth Act No. 430 dated May 31, 1939, as implemented by

Executive Order No. 230 dated October 31, 1939, created the Department
of National Defense (DND).

 On July 1, 1947, the PAAC was renamed PAF and was elevated to
separate major command of the AFP.

 Section 110 of Executive Order No. 94 (Reorganization Act of 1947)

dated October 4, 1947:
o Charged the DND with the duty of supervising the national defense
program of the country;
o Created the Philippine Ground Force, now the Philippine Army (PA),
as one of the Major Command of the AFP;
o Created the Philippine Naval Patrol, forerunner of the Philippine
Navy (PN), as one of the Major Commands of the AFP.

 Executive Order No. 389 dated December 23, 1950 transformed the AFP
into the General Headquarters – AFP. It organized the PA, PAF and PN

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 as the Major Services of the AFP with primary concerns in ground, air
and sea operations, respectively.

 Executive Order No. 292 (Administrative Code of 1987) dated July 25,
1987:
o Directed the DND to exercise executive supervision over the AFP, the
OCD, the PVAO, the NDCP, and the Government Arsenal;
o Identified the structure of the AFP to consist of GHQ, the Major
Services and other units, services and commands of the AFP; and
o Provided for the powers, functions and organizational structure of the
PA, PAF and PN as the Major Services of the AFP under the
supervision and control of the DND.

The PAF is responsible for the defense of the Philippine airspace, aerial
photography and reconnaissance, close air support to combat forces, development of
doctrines and tactics for air operations, participation in national development, and
search and rescue operations.

Under the present organization of the PAF, the Commanding General,

LTGEN JEFFREY F DELGADO is assisted by the Vice Commander, MGEN
EDGAR R FALLORINA and Staff. Under PAF are the Headquarters, PAF and the
seven (7) bases. Each of these offices has its own Field Accounting Unit (FAU) that
prepare reports and financial statements for consolidation by the Air Force
Accounting Center (AFAC) in the Headquarters, namely:

1. Headquarters, PAF
Col. Jesus Villamor Air Base (CJVAB)
Pasay City

2. 1st FAU- Air Education and Training Command

Fernando Air Base (FAB)
Lipa City

3. 2nd FAU-Air Defense Wing

Basa Air Base (BAB)
Floridablanca, Pampanga

4. 3rd FAU-600th Air Base Wing

Clark Air Base (CAB)
Clarkfield, Pampanga

5. 4th FAU-15th Strike Wing

Danilo Atienza Air Base (DAAB)
Cavite City

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 6. 5th FAU- 560th Air Base Wing
BGen Benito N Ebuen Air Base (BGBNEAB)
Lapu-Lapu City

7. 6th FAU-530th Air Base Wing

Edwin Andrews Air Base (EAAB)
Zamboanga City

8. 7th FAU-570th Composite Tactical Wing

Antonio Bautista Air Base (ABAB)
Puerto Princesa City

For CY 2014, PAF had a total manpower complement of 17,845 personnel,

broken down as follows:

Status Military Civilian Total

Officers 1,963 1,963
Enlisted 14,961 14,961
Permanent 768 768
Casual 153 153
Total 16,924 921 17,845

B. FINANCIAL HIGHLIGHTS

PAF’s CY 2014 financial position, financial performance and allotments and

obligations incurred are as follows:

Amount
Particulars
(in million P)
Assets 28,326
Liabilities 857
Net Assets/Equity 27,469

Amount
Particulars
(in million P)
Revenue 13,567
Expenses 13,533
Surplus (Deficit) 34

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 Amount
Particulars
(in million P)
Allotment Received 13,586
Continuing Appropriation -
Total 13,586
Less: Obligations 13,578
Unexpended Balance 8

The details of allotments, obligations and balances are presented in Annex 1.

C. SCOPE OF AUDIT
The audit covered the operations and financial transactions of PAF for fiscal
year 2014.

D. AUDITOR’S REPORT
The Auditor rendered an adverse opinion on the fairness of the presentation
of the financial statements considering the accounting errors and deficiencies as
shown in the matrix of Analysis on the Effects of the Misstatements on the Financial
Statements marked as Annex 2 and enumerated below together with the
recommendations:

1. Unreleased checks as of year-end having an aggregate amount of P1,457,866.98

were not restored/adjusted to the appropriate payable/liability accounts of the
600th Air Base Wing, Clark Air Base (600th ABW, CAB) as prescribed under
GAFMIS Circular Letter No. 2002-001 dated December 16, 2002, resulting in
the understatement of Cash and Payable accounts by the same amount.
(Observation No. 1)

We recommended that Management: (a) establish proper coordination between

the Finance Unit and the Accounting Unit to ensure that all unreleased checks at
year-end are restored to the appropriate accounts for a reliable and fair
presentation of accounts in the financial statements; and (b) strictly adhere to the
reportorial requirement of the Schedule of Unreleased checks under GAFMIS
Circular Letter No. 2002-001.

2. Procured Medical and Laboratory supplies inventory in the 3rd Air Division,
Edwin Andrews Air Base (3rd AD, EAAB) amounting to P451,611.82 was
charged outright to expense account, in violation of Section 43 of the Manual on
the New Government Accounting System (MNGAS). (Observation No. 3)

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 We recommended that the (a) Base Accountant record as inventory the unissued
medical supplies; (b) Supply Accountable Officer (SAO) submit the RSMI to the
Accountant for the latter’s proper determination of the inventories actually
issued; thus can accurately make necessary adjustments of the affected accounts.

3. The balance of the Deposit on Letters of Credit (LC) account in the books of the
Headquarters, Philippine Air Force (HPAF) amounting to P114,618,976.88 as of
December 31, 2014 was overstated by P19,371,499.67 because the actual charges
made by the bank on the LCs were not yet recognized in the books of accounts;
thus, resulting in the understatement of MOOE and Inventory balances.
(Observation No. 4)

We recommended that Management (a) direct the Commanding Officer of the

PAFPC to immediately locate and submit to the AFAC the DVs and the pertinent
supporting documents pertaining to the utilized LC. Henceforth, require the
PAFPC to regularly submit the required documents to update records; and
(b) advise the AFAC to require the responsible offices to strictly comply with
PC-06-12 and the Chief Accountant to regularly monitor the charges to the LC,
analyze the balances of the Deposit on LC account and reconcile the difference
between the SL and bank balances.

4. The accuracy, existence and completeness of the recorded balances of Property,

Plant and Equipment (PPE) totaling P29,523,943,671.68 as of December 31,
2014 were doubtful due to: (a) unreconciled discrepancies of P 143,950,271.96
between the accounting records and property records of 570th CTW, ABAB and
3rd AD, EAAB; (b) non-submission of the Report on the Physical Count of
Property, Plant and Equipment (RPCPPE) to prove the existence of PPE under
ADW, BAB and 600 ABW, CAB valued in the books at P1,480,277,691.95; and
(c) unrecorded assets totaling P13,520,732.97 transferred by the Central
Command, AFP to the PAF caused by insufficiency of supporting documents.
(Observation No. 5)

For the unreconciled discrepancies, we recommended that Management require

the 570th CTW, ABAB SAO to: (1) maintain Property Cards (PC) for all PPE
found in the RPCPPE as of December 31, 2014 and compare with the PPE
Ledger Cards (PPELC) of the Accounting Unit in order to identify the
differences, (2) submit to the Accountant the documents pertaining to PPE
receipts, issuances, transfers and disposals in order to update the PPELC, and
(3) periodically conduct actual physical count of all PPE in order to determine
the existence of the PPEs. Likewise, require the 3rd AD, EAAB (1) Accounting
Unit to update the PPELC, analyze and reconcile each account against the
records of the Property Unit, and make necessary adjustments, (2) SAO to update
the PC and furnish the Accounting Unit all documents that pertained to PPE
movement (received, disposed, unserviceable), and (3) Inventory team to
determine each appropriate account classification of all inventory items through

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 coordination with field Accountants for easier verification and reconciliation of
records.
For the unsubmitted RPCPPE, require the (1) ADW, BAB Accounting Unit to
coordinate with the concerned PAFSAO of the 420th Supply Wing for the
submission of the RPCPPE, and to effect the necessary reconciliation; and
(2) concerned 600th ABW, CAB accountable officers to submit within the
deadline, the RCPI and the RPCPPE. Likewise, inform the Office of the Auditor
of the schedule of the inventory-taking for the COA representative to witness the
actual inventory-taking procedures.
For the unrecorded assets, require the 2nd AD, MBEAB Accountant to request
from CENTCOM a copy of the JEVs pertaining to the dropping of subject
properties, for recording purposes; and request the PAF SAO to transmit the IRP
of the transferred assets to the Accountant so that the latter can record such
properties in the books of accounts.
Henceforth, coordination between offices and units must be observed to avoid
recurrence of the foregoing deficiencies.

5. The Due to NGAs account with a year-end balance P172,832,570.75 was

overstated by P38,957,957.89 due to the errors in the recording of disbursements.
Moreover, P3,260,000.00 was still unutilized and became dormant, and
P432,281.98 was not remitted back to the source agency although the intended
project was already completed, contrary to Section 4.2 of COA Circular No. 94-
013. (Observation No. 9)

We recommended that (a) the AFAC prepare an adjusting entry to correct the
errors; (b) the Command enforce strict monitoring of the utilization of fund
transfers to ensure timely implementation of projects and prompt liquidation of
the fund; (c) Management return the unutilized fund to GHQ for them to
use/propose for other much needed projects;

6. The validity of almost all the assets and liability accounts of the Bases
Conversion Development Authority (BCDA) Fund, totaling P1,072,151,962.79
and P20,383,441.57, respectively, could not be established due to the absence of
details and supporting documents. The accounts had been dormant for more than
five years and the amounts found in the Subsidiary Ledgers (SL) were merely
described as “unreconciled”. (Observation No. 11)

We recommended that Management require the AFAC to thoroughly review the

accounts relative to the BCDA Fund and take appropriate action such as
(a) reconcile the amounts under accounts Due from National Treasury, Due to
BIR and Other Payables; (b) determine if the Other Payables account still
contains valid obligations, otherwise revert the same to the National Treasury
pursuant to Section 98 of PD 1445; (c) confirm and exert extra effort to collect
the receivables under accounts Other Receivables and Advances to Contractors;

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 (d) exert effort to locate the supporting documents relative to the "unreconciled
accounts" and analyze their composition for proper recording; and (e) provide
depreciation for all PPEs.

E. OTHER OBSERVATIONS AND RECOMMENDATIONS

7. Uncollected payments for light and water bills of the 570th Composite Tactical
Wing, Antonio Bautista Air Base (570th CTW, ABAB) increased by P452,930.38
or 30 per cent from last year’s total bills of P521,267.01 due to: (a) failure to
strictly implement the Air Force Management and Fiscal Letter (AFMFL); and
(b) insufficient measures to compel concessionaires to settle overdue accounts.
(Observation No. 2)

We recommended that Management implement a stricter policies and procedures

on Light and Water Services and to exhaust all applicable measures for the
collection of outstanding receivables.

8. Audit of the Motor Vehicles account of the Air Defense Wing, BAB and 600th
Air Base Wing, CAB disclosed that that there were several vehicles which were
registered in the name of private individuals and insured with private insurance
firms. Moreover, PAF-registered vehicles still bear plate numbers for private
vehicles, contrary to Sections 361(e) and 489 of the Government Accounting
Manual (GAAM), Volume I. (Observation No. 6)

We recommended that Management (a) secure documents for the change of

ownership and classification of the private-registered vehicles; and (b) insure all
government–owned motor vehicles with the GSIS in accordance with the
provision of the GAAM.

9. The unserviceable property of the units under Air Defense Wing, BAB worth
P474,571,044.00 were not yet disposed of, contrary to Section 79 of PD 1445
and COA Circular No. 89-296 and were exposed to the elements causing further
deterioration and congestion within the area. (Observation No. 7)

We recommended that Management facilitate the disposal of the

unserviceable/obsolete properties to avoid further deterioration and enable
Management to use the occupied area considering the limited space of the Wing.

10. Checks totaling P480,000.00, which were recorded by the 570th CTW under Due
to Officers and Employees account remained unclaimed for the last two (2) years.
(Observation No. 8)

We recommended that (a) Management make a final call to the payees concerned
for the payment due them; otherwise, revert the fund/obligation to the
unappropriated surplus of the General Fund pursuant to Section 98 of P.D. 1445;

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 and (b) the Accountant reclassify the amount to the proper account Other
Payables as prescribed by the COA.

11. Of the P79,990,770.98 year-end balance of Other Receivables account, 41.82 per
cent or P33,451,225.15 are receivables from (a) various government agencies,
officials and personalities amounting to P21,886,905.09 for their use of PAF
Aircraft and (b) inactive PAF personnel which remained uncollected/dormant for
nine to more than 20 years and the possibility of collection is nil because of lack
of continuous monitoring and appropriate action for the settlement of unpaid
accounts. (Observation No. 10)

We recommended that Management (a) formulate policies and rules on the use of
military aircraft/watercraft by legislators and other government officials to finally
resolve issues on the matter, in adherence to then President Fidel V. Ramos
statement quoted in a newspaper dated June 23, 1994; and (b) continuously
adhere to the decision/recommendation of the COA Legal Counsel rendered in
2009 to hasten the collection of the outstanding account by sending bills again to
concerned parties furnishing them a copy each of DND Circular No. 7 dated July
4, 1988 on the use of AFP aircraft/watercraft for non-military mission for their
information and guidance; (c) file malversation charge under Article 217 of the
Revised Penal Code, in accordance with Sec. 9 of COA Circular 2012-004;
(d) identify those for accounts write-off and strictly follow the guidelines and
procedures provided under COA Circular No. 97-001; (e) henceforth, adhere
strictly to the rules and regulations on the grant, utilization and liquidation of
cash advances.

12. Negligence and poor procurement control resulted in an overpayment of

P256,775.00 in the purchase of Oil Cooler Bearing. (Observation No. 12)

We recommended that Management review and tighten its controls in detecting

errors done in bad or good faith, to prevent occurrence of the same.

13. The procurement of supplies and materials for the major repair of the Enlisted
Personnel Quarter (EPQ) 4 (Female Barracks) at the 3rd Air Division, EAAB,
totaling P8,253,190.00 was done under the Shopping mode. Moreover, some
purchases were beyond the threshold for shopping, contrary to R.A. 9184.
(Observation No. 13)

We recommended that Management submit justification for the non-

consolidation of the purchases and for the CESO to furnish the Auditor the
project's plans and specifications and bill of materials for further review.

14. Several Unit Purchase Requisitions (UPRs) and POs, with an aggregate amount
of P28,046,915.92, intended for the same project or activity, were made by
various Units of the Command in the procurement of various supplies and
materials. This was a form of splitting, which violated the Revised IRR of RA
9184. (Observation No. 14)

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 We recommended that Management (a) direct the concerned procurement office
to consolidate UPRs and POs, and conduct bidding for amounts beyond the
threshold for the Shopping mode of procurement; and (b) stop breaking up UPRs
and POs into smaller amounts and strictly adhere to all laws, rules and
regulations on procurement for the protection and interest of the government.

15. Thirteen (13) UPRs and POs, totaling P5,893,091.00, were prepared for the
rehabilitation of the 8-door married officers’ quarters (MOQ) at the 560th Air
Base Wing, BGBNEAB. The breaking up of the UPRs and POs evaded public
bidding; hence violated RA 9184. (Observation No. 15)

We recommended that Management direct the concerned procurement office to

consolidate UPRs and POs, and conduct bidding for amounts beyond the
threshold for the Shopping mode of procurement.

16. As of December 31, 2014, the Procurement Service - DBM (PS-DBM) had
undelivered supplies, machineries and equipment, and motor vehicles worth
P93,340,414.33, of which P52,326,723.33 pertained to the balance as of
December 31, 2013. It was recommended in previous reports for the Command
to evaluate the capability and efficiency of the PS-DBM as a procuring arm of
the PAF considering its poor delivery performance. (Observation No. 16)

We recommended that Management (a) demand an immediate delivery of the

items requested from PS-DBM; (b) re-evaluate its decision of procuring
materials from PS-DBM; and (c) henceforth, ensure that all procurement
activities are implemented efficiently and advantageous to the agency at all
times.

17. Disbursement Vouchers, Bank Reconciliation Statements and other related

financial reports of the HPAF as well as various liquidation reports and POs of
SDOs within ADW, BAB and 600th ABW, CAB were not submitted to the
Office of the Auditor within the prescribed period; thus, preventing the timely
evaluation/verification of said reports/documents, the early detection of
deficiencies, and the immediate communication of results to Management
(Observation No. 17)

We recommended that the Accountant and the concerned Unit/Office to

(a) observe the timely submission of the DVs and other related reports and
statements as prescribed under COA Circular 97-002, Sections 6.04 and 6.05 of
COA Circular No. 95-006; (b) prepare Bank Reconciliation Statements and
submit the same within 15 days after the end of each month to the Auditor
concerned in compliance with Section 74 of PD 1445; (c) furnish the Auditor
copies of perfected contracts and POs, as prescribed by COA Cir. No. 2009-001;
and (d) all SDOs comply with the submission of financial documents within the
prescribed period.

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18. Penalties/Surcharges amounting to P1,034,756.31 and P104,219.13 were
incurred by the 600th ABW, CAB and 570th CTW, ABAB, respectively, due to
late payment of electric bills, resulting in the incurrence of additional expenses
on the part of government which could have been avoided had there been proper
planning and coordination with the concerned authorities. (Observation No. 18)

We recommended that proper representations and coordination be made with the

HPAF for the release of adequate funds to settle not only the electric bills but
also all mandatory expenses on time in order to avoid the incurrence of penalties,
and for HPAF to study its cash allocation for such expenses; thus, avoid
incurring expenses unnecessarily.

19. The Philippine Air Force Supermart (PAFSM) in the 600th Air Base Wing, CAB
has concentrated its operations mainly on the provision of the Combat Clothing
and Individual Equipment (CCIE) needs of re-enlistees instead of maintaining
the supplies and other fast-moving stocks needed by the units to
minimize/eliminate emergency procurement, which is its mandated function
(Observation No. 19)

We recommended that PAFSM Management revisit its mission and functions

and determine whether PAFSM's operations are still aligned with the attainment
of said mission, and in coordination with authorities from HPAF, undertake steps
for its improvement, where necessary.

20. Four military personnel aged 56 years old and above who have rendered more
than 30 years of active service and eligible for compulsory retirement, pursuant
to the provisions of PD No. 1638, series of 1979 as amended by PD No. 1650,
were still included in the payroll; hence, resulting in excess payment in salaries
and wages and other compensation totaling P2,137,061.41. (Observation No. 20)

We recommended that Management (a) require the A-1 to strictly monitor the
movement of personnel including those who are already retired and due for
compulsory retirement from the service, and regularly submit a report thereon to
the Pay Operation and Claims and Processing Branches of the AFFC; and
(b) take appropriate action to recover the overpayment of P2,137,061.41 from the
concerned military personnel without prejudice to the administrative sanctions on
those persons responsible for their violation of the law.

21. The General Fund was used to pay for the intelligence expenses of the Command
amounting to P44,151,395.00 because the fund intended for the Confidential and
Intelligence Expenses (CIF) of P17 Million was not enough to cover the
expenses. (Observation No. 21)

We recommended that Management exert more effort in its representation with

the proper authorities for an increase of PAF's Intelligence Fund to cover not

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 only the Command’s intelligence projects but also the operating expenses for
intelligence and confidential activities.

The above findings and recommendations contained in the report were

discussed with the concerned officials in an exit conference conducted on June 24,
2014. Management views and reactions were considered in the report, where
appropriate. The details of the above observations were discussed in Part II of this
report.

F. IMPLEMENTATION OF PRIOR YEARS’ AUDIT RECOMMENDATIONS

Out of the 17 recommendations contained in last year’s Consolidated Annual

Audit Report, two were fully implemented, 12 were partially implemented, and three
were not implemented.

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