EXECUTIVE SUMMARY

Introduction

The PHIVIDEC Industrial Authority (PIA) is a fully owned and controlled corporation of
the Government of the Republic of the Philippines. It was established on August 13,
1974 by Presidential Decree 538 as amended by Presidential Decree 1491.

The PIA manages, administers and supervises the 3,000-hectare PHIVIDEC Industrial
Estate in Misamis Oriental (PIE-MO) located in the municipalities of Tagoloan and
Villlanueva in Misamis Oriental covering 13 barangays. It is strategically located in a
region that is outside the typhoon belt adjacent to the gateway of Northern Mindanao
covering a 9-kilometer stretch of shoreline with deep harbors of almost 25 meters deep.
Considered as one of the largest industrial estates in the Philippines, the PIE-MO is also
an ideal business destination as it is situated at around 2.5 kilometers northeast of
Cagayan de Oro City and has all the necessary support infrastructure and utilities such
as telecommunication, commercial centers, ports, and water and power utilities.

PIA is mandated to identify and develop sites in the country as prospective industrial
areas and equip these areas with the necessary infrastructures to encourage the inflow
of domestic and foreign investments. The development of these sites is in accordance
with the Philippine Government’s policy to disperse industries to the countryside as a
means of equitably distributing resources, and as a vehicle to catalyze and sustain social
and economic development in the Philippines.

The Authority is also mandated to fix, assess and collect real property taxes and port
fees; collect lease rentals; issue permits and licenses; establish related revenue
generating businesses such as subsidiaries and joint ventures; and sell, lease, or
dispose of land and other properties it owned or administered.

Organization/Staff Highlights

PIA is headed by a Board of Directors and is managed by an Administrator. Under the

Office of the Administrator are five Departments and 13 Divisions. Each department is
headed by a Department Manager and each division by a Division Chief.

2020 2019 2018

PIA Staff Strength (no.)
Permanent 73 62 63
Co-terminus 5 5 5
PIA Board 5 5 6
Total 83 72 74

Mindanao Container Terminal

One of the biggest infrastructures inside the PIE-MO is the Mindanao Container
Terminal (MCT) which is considered to be the first modern container terminal in
Mindanao. The MCT caters containerized cargoes both destined for domestic and
international markets.

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PHIVIDEC Industrial Estate – Economic Zone

The entire PHIVIDEC Industrial Estate in Misamis Oriental (PIE-MO) was declared as a
Special Economic Zone by Presidential Proclamation No. 2106 dated June 29, 2010.
The said proclamation amended Proclamation No. 1485 dated April 11, 2008 and
created and designated the entire Estate as a Special Economic Zone, pursuant to
Republic Act No. 7916 as amended by Republic Act No. 8748.

Operational Highlights

The following are some of the significant accomplishments of the Authority during the
year compared with the last two years:

2020 2019 2018

Throughput/Cargoes at MCT (Foreign and domestic)
a. Boxes 177,833 166,467 151,654
b. Twenty-Foot Equivalent Units (TEUs) 264,763 245,865 229,634
Ratios of Foreign and Domestic Over Total Boxes
(MCT)
a. Foreign 0.73 0.74 0.77
b. Domestic 0.27 0.26 0.23

Financial Highlights

Increase
Major Accounts CY 2020 CY 2019
(Decrease)
Assets ₱ 5,653,997,2001 ₱ 5,722,069,437 ₱ 50,817,902,564
Liabilities 4,270,167,255 4,715,850,114 (445,682,859)
Equity 1,383,829,946 1,017,195,070 366,634,876
Income 1,051,089,995 919,177,301 131,912,694
Expenditures 333,900,542 335,119,061 (1,218,519)
Excess of Income
717,189,453 584,058,240 133,131,213
Over Expenses

Scope of Audit

The team conducted financial and compliance audit on the accounts and operations of
PIA, Tagoloan, Misamis Oriental, for the year ended December 31, 2020. The audit
aimed to ascertain the propriety of financial transactions, the agency’s compliance with
prescribed rules and regulations, the accuracy of financial records and reports, and the
fairness of presentation of the financial statements. Management comments on the audit
observations were considered, where appropriate.

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Independent Auditor’s Report on the Financial Statements

The Auditor rendered a modified qualified opinion on the fairness of the presentation of
the financial statements of the PIA due to the following:

1. The total reported carrying value of the Agency's Property, Plant and Equipment
(PPE) in the amount of ₱2.367 billion remained unaccounted for due to (a) non-
submission of the Report on the Physical Count of Property, Plant and Equipment
(RPCPPE); (b) unreconciled prior year deficiency pertaining to variance of ₱36.029
million between accounting records and results of the physical count; (c) non-
recognition of completed projects from Construction in Progress (CIP) account to
their respective PPE accounts amounting to ₱22.187 million; (d) non-preparation of
Property Cards; and (e) non-renewal of Property Acknowledgment Receipt (PAR).

2. The Agency erroneously recognized asset under the Deferred Charges/Losses

account and reciprocal Accounts Payable account amounting to ₱88.5 million
contrary to the asset/liability-recognition criteria as set forth under the Conceptual
Framework, overstating both the asset and liability of the Agency by the same
amount.

3. The reported Due to Officers and Employees amounting to ₱10.382 million (Net of
Provision for Salamat Paalam Program) representing the Agency's Leave Benefits
Payable is unreliable due to: (a) erroneous recognition of a reciprocal asset account -
Deferred Charges amounting to ₱9.612 million instead of recognizing an expense
account - Terminal Leave Benefits; (b) unexplained discrepancy of ₱0.770 million
between the Leave Benefits Payable account and said reciprocal account, and
unreconciled amount of ₱1.869 million between the Leave Benefits Payable account
and the Report of Leave Balances and Monetary Value submitted by the Human
Resource Division, contrary to the provisions of the Philippine Accounting Standards
(PAS) 19 on Employee Benefits and COA Circular No. 2015-010.

4. Cash Advances (CAs) granted to Officers and Employees from prior years 2019 and
2018 amounting to ₱500,987.45 were not liquidated in full during the year when the
CAs were granted. The Accountant also failed to withhold the salaries of the
concerned accountable officers contrary to Sections 5.8 and 5.9 of COA Circular No.
97-002 dated February 10, 1997, resulting to overstatement of asset account and
understatement of corresponding expense accounts. The same is also subject to
audit suspension pending submission of the Liquidation Reports and the supporting
documents.

Summary of Significant Findings and Recommendations

Below are among the significant findings and recommendations noted that were
discussed in detail in Part II of this report:
2. Due from Officers and Employees (Individuals) showed abnormal balances totalling
(₱247,294.70) contrary to Paragraph 15 of the Philippine Accounting Standards
(PAS) 1, affecting faithful representation.

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 We recommended that Management (a) start verifying the accounts by tracing from
available documents, (b) identify the reasons giving rise to the abnormal balances,
and (c) draw journal entries to bring such balances to their correct amounts.

3. Deficiencies in the recording and monitoring of Cash-Collecting Officers account

resulting in the unreconciled balances amounting to P(97,524.23) between the Cash
Receipts Record and General Ledger, contrary to paragraph 15 of PAS 1, thus the
accuracy of the account presented in the Financial Statements could not be
ascertained.

We recommended that Accounting Division and Collecting Officer to reconcile the

difference between the Cash Receipts Journal and General Ledgers. This
reconciliation must be done monthly in order to accurately present the Cash-
Collecting Officers account.

4. The Agency pre-terminated High Yield Savings Account (HYSA) 15 days prior to its
maturity date resulting to loss of ₱213,123.26 interest, causing undue disadvantage
to the Agency in the form of additional income.

We recommended Management to:

a. Establish strategic plans to avoid occurrence of similar incident; and

b. Intensify collection of its receivables to increase the Agency’s liquidity.

5. No internal control over cash collection and deposit were observed on collections
that were undeposited the next day but remained in the custody of collecting officers.
Moreover, the use of safety deposit box or vault are not strictly implemented by the
Agency, thus, posing risk to loss due to misappropriation, misuse, theft or robbery.

We recommended that Management:

a. Maintain adequate internal control on cash, require all accountable officer to

remit/turn-over to the Head Cashier the undeposited collection at the end of the
day.
b. Strictly keep in the safe deposit box or vault undeposited collection which is
accessible by authorized personnel.

6. The Bids and Awards Committee (BAC) failed to prepare and send the Request for
Quotations (RFQ) to, at least, three (3) consultants of known qualifications prior to
the awarding of contract and hiring of COS personnel for the provision of consulting
services with an aggregate contract price of ₱909,999.00, contrary to the procedural
guidelines under Annex H of the Revised IRR of RA No. 9184, casting doubts on the
validity of the transaction and the price may not be the most advantageous.

We recommended that Management:

a. Ensure strict compliance by the BAC with the provisions of RA No. 9184 and its
Revised IRR, particularly in the procurement of consulting services through
alternative modes of procurement such as SVP under Negotiated Procurement
by sending RFQs to, at least, three (3) consultants with known qualifications;

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 b. Submit a written justification why the payments to the consultants should not be
disallowed in audit given the observations discussed in the foregoing paragraphs;
and

c. Ensure that within five (5) working days upon execution of the contract, copies of
which, including all documents that form part thereof, are furnished to the Audit
Team concerned in order to allow ample time for the conduct of auditorial review
and apply corrective measures for any noted deficiencies.

7. Accountable Officers of the agency liquidated their respective cash advances for the
purchase of airline tickets totaling ₱102,385.00 without supporting them with used
boarding pass as required under COA Circular Nos. 2012-001, 2005-003, and 96-
004, thus propriety of these disbursements could not be established.

We recommended that Management:

a. Formally request the Philippine Airlines (PAL), the service provider, to provide
the agency a letter certifying the boarding of the aforementioned
officials/employees on the dates specified above;

b. Submit the lacking documentary requirements to the audit team, otherwise these
will be suspended/disallowed in audit.

c. Henceforth, ensure that all disbursements are duly supported with proper and
complete documents for claims against government funds pursuant to Section
4(6) of PD No. 1445 and COA Circular Nos. 2012-001 and 96-004.

8. Propriety and validity of payment of costs on rebooking and ‘no show’ flights
amounting to ₱21,776.00 cannot be established due to lacking liquidation
documents, contrary to Section 1.2.4.1 of COA Circular No. 2012-001, hence,
subject to audit suspension.

We recommended that management submit the lacking liquidation documents in

accordance with COA Circular No. 2012-001 in order to permit full evaluation of the
said travel transactions.

9. The Agency paid ₱305,517.36 for the services of its Job Order (JO) workers
assigned at the Office of the Administrator of PHIVIDEC - Industrial Authority
(OAPIA) in order to perform the functions of existing regular employees from its
department/division contrary to Sections 7.3 and 7.4 of COA-DBM Joint Circular No.
2 s. 2020, COA Circular 2012-003 and the DBM approved plantilla and functional
statements, resulting to duplication of work and incurrence of irregular expenditure.

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 We recommended that Management:

a. Review their functions, systems and procedures, organizational structure, and

staffing pattern to assess the needs and gaps, if any, and determine the
appropriate human resource complement for their programs, activities/projects;

b. Immediately discontinue the old practice of hiring JO workers who are tasked to
review the output of the Budget, Accounting and Human Resource Division prior
to approval by the APIA in order to avoid duplication of work with the Concurrent
Finance/Administrative Support Department Manager;

c. Immediately discontinue the hiring of JO workers who are tasked to perform the
functions already being discharged by the Business Development Division;

d. Immediately stop unnecessary press releases on the accomplishments that

highlight the direction of the APIA as these are tantamount to advertisement by
publicity which are deemed irregular under COA rules and regulations; and

e. Allow the Business Development Division to perform its functions regarding the
promotion of business and trade without committing duplication of duties and
functions.

10. The Agency has no established Gender and Development Sex-Disaggregated

Database (GAD-SDD) to effectively plan and implement their sectoral programs on
GAD, contrary to PCW-NEDA-DBM Joint Circular No. 2012-01 and PCW
Memorandum Circular No. 2014-05 dated November 28, 2014, casting doubts on
the accuracy and validity of the GAD activities for CY 2020 with a total appropriation
of ₱61,412,000.00.

We recommended that management include in the Agency's GAD Plan and Budget
(GPB) the development and maintenance of a GAD-SDD to institutionalize gender
mainstreaming; and to regularly collect and generate sex-disaggregated data and
statistics in support of the indicators relevant to the Agency. The data shall be stored
and maintained, updated as needed, and used in the Agency policy and program
development to address gender issues, particularly in the preparation of their annual
GAD plans and budgets and accomplishment reports.

11. The GAD Plan and Budget (GPB) of the Agency for CY 2020 is below five percent
(5%) of the agency’s total appropriation amounting only to ₱61,412,000.00 which is
deficient by 1.32% or an amount equivalent to ₱22,108,859.00, contrary to Section
31 of the General Provisions, General Appropriations Act (GAA) for CY 2020, limiting
the benefits envisioned by the program.

We recommended that management attribute annually at least 5% of the Agency’s

total Corporate Budget to activities supporting GAD plans and programs, in
compliance with the GAA and other GAD-related guidelines.

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12. Unaware of the pertinent tax laws and regulations, the Agency did not deduct and
withhold percentage tax of ₱18,864.75 [for CY 2020 alone] from the gross money
payments to its supplier that is not VAT registered during CY 2020 and prior years
contrary to Sections 109 and 116 of the National Internal Revenue Code (NIRC) of
1997, as amended by the Tax Reform for Acceleration and Inclusion (TRAIN) Law as
well as BIR Revenue Regulations No. 2-98, depriving the National Government of
additional funds for various programs and projects, and may subject to tax penalties
for non-withholding.

We recommended that Management:

a. Keep abreast with the latest developments in the internal revenue code as well
as pertinent BIR issuances on withholding of taxes; and

b. Henceforth, deduct and withhold the percentage taxes at the rate/s prescribed by
the existing BIR Revenue Regulations from gross money payments to suppliers
who are not VAT registered.

Summary of COA Notice of Suspensions, Disallowances and Charges

As of December 31, 2020, the total amount of audit suspensions, disallowances and
charges found in the audit of various transactions of the agency is ₱ 44,695,954.65.

Status of Implementation of Prior Year’s Audit Recommendations

Of the forty (40) prior years’ audit recommendations, three (3) were fully implemented,
seventeen (17) were partially implemented, and twenty (20) were not implemented.
Details are in Part III of the report.

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 ERRATA
Particulars Date Location/ Page As Published in the COA Website Correction
Published
PHIVIDEC June 2021 Executive Summary/ Major Increase Major Increase
CY 2020 CY 2019 CY 2020 CY 2019
Industrial page ii Accounts (Decrease) Accounts (Decrease)
Authority Assets ₱5,653,997,2001 ₱ 5,722,069,437 ₱ 50,817,902,564 Assets ₱5,653,997,201 ₱ 5,722,069,437 ₱(68,072,236)
Liabilities 4,270,167,255 4,715,850,114 (445,682,859) Liabilities 4,270,167,255 4,551,987,514 (281,820,259)
Equity 1,383,829,946 1,017,195,070 366,634,876 Equity 1,383,829,946 1,170,081,923 213,748,023

Compliance with Tax Our post-audit revealed that during January 1, 2021 to December 31, 2021, the Our post-audit revealed that during January 1, 2020 to December 31, 2020,
Laws, Rules, and Agency had transactions with supplier of food served during meetings and the Agency had transactions with supplier of food served during meetings
Regulations/page 80 conferences. and conferences.

Requested by: Approved by:

JEREMIAS B. BAGONGON
State Auditor II
Acting Audit Team Leader
CELSO L. VOCAL
Director IV
Recommended by:
Regional Director

Date: November 4, 2021

CECILIA A. PONTILLAS
State Auditor V
Supervising Auditor

Date: November 3, 2021

CGS – Water Districts and Other Stand-Alone Agencies

Tel No. 858-6162
Email add: cecilia.pontillas@yahoo.com

Authorized by:

_________________________________
Sector Head/Director

Date:
PHIVIDEC Industrial Estate – Economic Zone

The entire PHIVIDEC Industrial Estate in Misamis Oriental (PIE-MO) was declared as a
Special Economic Zone by Presidential Proclamation No. 2106 dated June 29, 2010. The
said proclamation amended Proclamation No. 1485 dated April 11, 2008 and created and
designated the entire Estate as a Special Economic Zone, pursuant to Republic Act No.
7916 as amended by Republic Act No. 8748.

Operational Highlights

The following are some of the significant accomplishments of the Authority during the year
compared with the last two years:

2020 2019 2018

Throughput/Cargoes at MCT (Foreign and domestic)
a. Boxes 177,833 166,467 151,654
b. Twenty-Foot Equivalent Units (TEUs) 264,763 245,865 229,634
Ratios of Foreign and Domestic Over Total Boxes
(MCT)
a. Foreign 0.73 0.74 0.77
b. Domestic 0.27 0.26 0.23

Financial Highlights

Increase
Major Accounts CY 2020 CY 2019
(Decrease)
Assets ₱ 5,653,997,201 ₱ 5,722,069,437 ₱ (68,072,236)
Liabilities 4,270,167,255 4,551,987,514 (281,820,259)
Equity 1,383,829,946 1,170,081,923 213,748,023
Income 1,051,089,995 919,177,301 131,912,694
Expenditures 333,900,542 335,119,061 (1,218,519)
Excess of Income
717,189,453 584,058,240 133,131,213
Over Expenses

Scope of Audit

The team conducted financial and compliance audit on the accounts and operations of
PIA, Tagoloan, Misamis Oriental, for the year ended December 31, 2020. The audit aimed
to ascertain the propriety of financial transactions, the agency’s compliance with
prescribed rules and regulations, the accuracy of financial records and reports, and the
fairness of presentation of the financial statements. Management comments on the audit
observations were considered, where appropriate.

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In line with the above provisions of the said Code, BIR Revenue Regulations No. 2-98
dated April 17, 1998, identifies and prescribes the withholding agents and tax rate
applicable for percentage tax, respectively, to wit:

Section 5.116. WITHHOLDING OF PERCENTAGE TAX

Bureaus, officers and instrumentalities of the government, including

government owned and controlled corporations as well as their
subsidiaries, provinces, cities and municipalities making any money
payment to private individuals, corporations, partnerships and/or
associations are required to deduct and withhold the taxes due from
payees on account of such money payments. [Underscoring supplied]

(A) Internal revenue taxes required to be withheld. - Percentage taxes on

gross money payments, to the following shall be subject to withholding at
the rates herein prescribed:

(1) Persons exempt from value-added taxes (VAT). - On gross payments

to persons who are exempt under Sec. 109 (z) [(BB) per amended NIRC]
from payment of value-added tax and who is not a VAT registered person
except payment to cooperatives - Three percent (3%)
xxx
Our post-audit revealed that during January 1, 2020 to December 31, 2020, the
Agency had transactions with supplier of food served during meetings and
conferences. (Please see Appendix B). The supplier is not VAT registered as
evidenced by the attached official receipts issued by the latter upon payment by the
former. As shown in the face of the disbursement vouchers, withholding for income
taxes were deducted and withheld prior to payment to these suppliers. We have noted
that such payments are further subject to business tax specifically the percentage tax.
However, the applicable withholding for percentage tax of 3% based on the gross
money payments were not deducted nor withheld contrary to the previously cited tax
laws and regulations. The following table shows the computation of tax deficiency due
to non-withholding of percentage tax:

Particulars Amount
Total Payments for CY 2020 ₱616,248.50
Divided by
(To add back withholding tax on income) 98%
Gross Money Payments 628,825.00
Withholding Tax Rate
(Applicable for percentage tax) 3%
Withholding Tax Deficiency
for CY 2020 only ₱18,864.75

Through an inquiry with the Acting Chief Accountant, we have confirmed that the
Agency has never been withholding percentage taxes from its non-VAT suppliers. The
lack of awareness of the tax provisions and requirements is identified as the main
cause for non-withholding for CY 2020 transactions and those pertaining to prior years.

80