EXECUTIVE SUMMARY

INTRODUCTION

The Philippine Forest Corporation (PFC) was a government-owned and controlled

corporation (GOCC) and a wholly-owned subsidiary of the Natural Resources
Development Corporation (NRDC), the corporate arm of the Department of Environment
and Natural Resources (DENR). It was governed by a Board of Directors (BOD) chaired
by the DENR Secretary. The PFC was tasked to undertake agro-forestry and reforestation
projects. It was registered with the Securities and Exchange Commission (SEC) on
January 24, 2006, with an authorized capital stock of One Hundred Million Pesos
(P100,000,000.00) divided into one million (1,000,000) shares with a par value of One
Hundred Pesos (P100.00) per share. The PFC’s flagship project was the Jatropha Curcas
L. (tuba-tuba) plantations for biodiesel and its national program was to achieve economic
productivity out of idle and neglected lands of the State, and to restore life back to the
forest through the implementation of its “Lupang Hinirang Program”, by leasing rights to
some of the Three Hundred Seventy Five Thousand and Ninety One (375,091) hectares
of untenured forest lands transferred by DENR to PFC through a Memorandum of
Agreement (MOA) dated September 1, 2006.

The primary purposes of PFC were to provide expert services and competent
management to the country side development program of the government, anchored upon
agro-forestry project by distributing property rights/usufructuary rights over public
agricultural and forest lands; to provide support services to the beneficiaries of PFC’s
programs and projects; to sell, exchange, import and export agro-forest products and its
by-products; and to engage in the establishment, development and sale of Clean
Development Mechanism (CDM) project under the Kyoto Protocol from its agro-forestry
projects.

There were 12 secondary purposes of PFC, the foremost of which was to undertake a
massive, community-based and commercially sustainable afforestation program in the
whole country to immediately address and reverse the wholesale deforestation of forests
and provide livelihood opportunities to farmers and other economically marginalized
sectors.

To achieve its mandate and vision of a dynamic, self-sustaining agro-forestry

developments, PFC shall work with the industry partners, farmers, ranchers, woodlot
owners, agro-forestry product buyers and producers, local government units (LGUs),
indigenous people (IPs), Peoples Organization (POs), corporations, landless poor, landed
individuals/farmers, and cooperatives and Non-Governmental Organizations (NGOs).

On August 3, 2013, the then Secretary of DENR issued Special Order (SO) No. 2013-506
designating an Undersecretary of the DENR as Acting President of PFC/Caretaker in view
of the investigation on the Priority Development Assistance Funds (PDAFs) being pursued
by the government.

i
Upon the representation/recommendation of the Governance Commission for
Government Owned or Controlled Corporations (GCG), the abolition of the PFC was
approved by the Office of the President of the Philippines under a Memorandum dated
November 26, 2013 signed by the former Executive Secretary. The Memorandum
prescribed the creation of a Technical Working Group (TWG) which shall coordinate with
the GCG in the implementation of the following activities:

a. Winding down of the operations of PFC, the disposition of its assets and settlement
of its liabilities;

b. Transfer of PFC’s functions, programs, and remaining assets to the DENR-Forest

Management Bureau (DENR-FMB); and

c. Settlement of the retirement/separation benefits of the affected PFC employees.

Pursuant thereto, the GCG created a TWG composed of representatives from the DENR,
NRDC, FMB, Department of Budget and Management (DBM), SEC, Department of
Finance (DOF)/Bureau of the Treasury (BTr), Project Management Office (PMO) – Office
of the President, and from the GCG itself.

The said Memorandum also directed the GCG to review the accuracy of the financial
statements (FSs) of PFC from Calendar Year (CY) 2006 up to the date of their issuance,
and to study the possibility of providing the qualified PFC employees the option of being
absorbed by FMB or by other government agencies.

On January 12, 2016, the DENR Secretary issued SO No. 2016-11, designating the FMB
as the Trustee-in-Liquidation (TIL) for the PFC and the FMB Director as co-signatory for
the remaining accounts of PFC. The TIL is tasked to:

a. Prepare the list of PFC assets and documents/files in its actual possession and
determine their proper disposition;

b. Prepare an action plan with detailed timelines on how to implement the approved
Liquidation Plan (LP);

c. Assign a group of persons that will focus on the implementation of the LP including
the preparation of quarterly progress reports;

d. Set up an account for the liquidation of PFC with DENR, as Co-signatory;

e. Prepare and submit regular progress reports to the TWG; and

f. Perform other tasks necessary to complete the liquidation.

On December 22, 2017, the TIL created the TIL Team (TILT) under FMB SO No. 2017-
464 to perform the above-mentioned tasks.

ii
FINANCIAL HIGHLIGHTS (In Philippine Peso)

I. Financial Position

Increase
2021 2020 (Decrease)
Assets 545,524,574 550,058,244 (4,533,670)
Liabilities 97,688,034 105,671,572 (7,983,538)
Equity 447,836,540 444,386,672 3,449,868

II. Financial Performance

Increase
2021 2020 (Decrease)
Income - - -
Non-cash expenses 4,533,670 7,425,000 (2,891,330)

SCOPE OF AUDIT

The audit covered the examination, on a test basis, of the accounts and financial
transactions of PFC for the period January 1 to December 31, 2021 in accordance with
the International Standards of Supreme Audit Institutions to enable us to express an
opinion on the fairness of presentation of the financial statements for the years ended
December 31, 2021 and 2020. Also, we conducted our audit to assess compliance by the
PFC with the pertinent laws, rules, and regulations, as well as adherence to the prescribed
policies and procedures.

AUDITOR’S OPINION ON THE FINANCIAL STATEMENTS

We rendered an adverse opinion on the fairness of the presentation of the FSs of PFC for
the years ended December 31, 2021 and 2020 since, despite the disclosure in Note 2.1 to
the FSs that the same and the accompanying Notes were already prepared on a liquidation
basis, these were not fully compliant with the guidance provided in the Philippine
Interpretation Committee (PIC) Question and Answer (Q&A) No. 2009-01 on the
interpretations of Paragraph 4.1 of the Conceptual Framework for Financial Reporting and
Paragraph 25 of Philippine Accounting Standard (PAS) 1 and Accounting Standards
Update (ASU) No. 2013-07 dated April 2013 in the preparation of the FSs on a liquidation
basis, considering the following: (a) the assets, liabilities, and equity accounts are still
presented in the Statements of Financial Position and Statements of Changes in Equity
instead of in the Statements of Net Assets in Liquidation and Statements of Changes in
Net Assets in Liquidation, respectively, or other appropriate title of the FSs to inform the
users/readers that the Corporation is under liquidation; (b) absence of appropriate
disclosures particularly on: (i) the impact of PFC’s selection of accounting policies which
would depend on how it expects to recover the assets and settle its liabilities; (ii) methods
and significant assumptions used in measuring the assets and liabilities including any
subsequent changes to those methods and assumptions; and (iii) a description of the
PFC’s Plan of Liquidation (POL) including the manner by which it will dispose of its assets

iii
and settle its liabilities, and the expected date of the completion of its liquidation; and the
assets in the FSs are not yet presented in their final recoverable values pending the
determination of the cost of disposal/realization thereof in carrying out the POL.

For the afore-cited observation, which caused the issuance of an adverse opinion, we
recommended that the TIL and TILT, created for the liquidation of the affairs of PFC,
require the Accountant to:

1.1. Coordinate with the Government Accountancy Sector (GAS), COA in the
preparation of FSs on a liquidation basis, for proper guidance;

1.2. Provide complete and appropriate disclosures following the guidance provided in
the PIC Q&A No. 2009-01 on the interpretations of Paragraph 4.1 of the Conceptual
Framework for Financial Reporting and Paragraph 25 of PAS 1 and ASU No. 2013-
07, in the preparation of the FSs on a liquidation basis, specifically, but not limited
to: (i) the impact of PFC’s selection of accounting policies depending on how it
expects to recover the assets and settle its liabilities; (ii) methods and significant
assumptions used in measuring the assets and liabilities including any subsequent
changes to those methods and assumptions; (iii) a description of the PFC’s POL
including the manner by which it will dispose of its assets and settle its liabilities,
and the expected date of the completion of its liquidation; and (iv) actions to be
taken to hold the former PFC personnel responsible/accountable for the non-
turnover of the documents and records, i.e. Journal Entry Vouchers (JEVs),
Disbursement Vouchers (DVs), copies of checks issued, subsidiary records, etc.,
particularly on those assets that were derecognized in the books due to
unavailability of documents and records to establish their existence; and

1.3. Present in the FSs the final recoverable values of the assets by determining the
cost of disposal/realization of the assets in carrying out the POL.

OTHER SIGNIFICANT AUDIT OBSERVATIONS AND RECOMMENDATIONS

The other significant audit observations and recommendations that need immediate action
are as follows:

2. The POL is not approved yet by the TWG, created by GCG, tasked to resolve all
matters involving the implementation of the winding down of the operations,
disposition of the assets and settlement of liabilities of PFC. Thus, the complete
liquidation of the affairs of PFC has not been carried out despite the lapse of eight
years from the approval of its abolition on November 26, 2013 by the Office of the
President of the Philippines, which is not in consonance with Section 122 of the
Corporation Code of the Philippines, as amended, and Section 4.6 of GCG
Memorandum Circular (MC) No. 2015-03 dated April 8, 2015. Moreover, some of
the financial reports and documents necessary for the closing of the books of
accounts of PFC and the transfer of the remaining assets to the receiving agency
as required under COA Circular No. 92- 375 dated March 9, 1992 were not yet
submitted to COA for review. The considerable delay in the liquidation of the affairs
of PFC might result in loss of assets as the accountability thereon is not ensured.

iv
2.1. We reiterated our previous year’s recommendation that the TIL/TILT fast track the
dissolution/liquidation of the PFC by closely coordinating with the TWG, for the
approval of the POL.

2.2. We further recommended that the TIL/TILT:

a. Expedite the revision of the 3rd draft POL and thereafter submit the 4th revised
POL to the TWG, for approval; and

b. Perform the necessary activities and prepare all the documents required for
the closing of the books of accounts of PFC and the transfer of the remaining
assets to the receiving agency, using as guide GCG MC No. 2015-03 and
COA Circular No. 92-375.

3. The Due from NGOs/POs in the amount of P237.483 million and Receivables-
Disallowances of P304.806 million which are covered by Notices of Disallowance
(NDs) and Notices of Finality of Decision (NFDs) are proposed to be requested for
write off in the draft POL, which is not in consonance with COA Circular No. 2016-
005 dated December 19, 2016.

3.1. We recommended that the TIL/TILT revise the proposed disposition activity for the
Due from NGOs/POs and Receivables-Disallowances accounts, taking into
consideration the following:

a. Receivables covered with NDs and NFDs are not subject for write-off
pursuant to Item 4.0 of COA Circular No. 2016-005;

b. The remaining assets will be transferred to the receiving agency pursuant to

the Memorandum issued by the Office of the President of the Philippines
approving the abolition of PFC; and

c. The recovery/collection of the disallowances shall be pursued by the

receiving agency, and collections therefrom are to be remitted to the Source
Agencies concerned or the BTr.

SUMMARY OF AUDIT DISALLOWANCES, CHARGES AND SUSPENSIONS

As of December 31, 2021, there were no unsettled audit charges and suspensions, while
the total unsettled audit disallowances amounted to P566.327 million. The details and
status are presented in Annex B of this Report. Out of the total amount disallowed
P358.331 million were issued with NFDs.

STATUS OF IMPLEMENTATION OF PRIOR YEARS’ AUDIT RECOMMENDATIONS

Of the seven audit recommendations embodied in the Management Letters for CYs 2014
to 2020 and Annual Audit Report for CY 2013, six were partially implemented and one
was not implemented, the details are presented in Part III of this Report.