11 PHILGUARANTEE2021 Part2 Observations and Recomm

OBSERVATIONS AND RECOMMENDATIONS
A. FINANCIAL AUDIT
1. Collections arising from the disposition of Real and Other Properties

Acquired (ROPAs) of P886.567 million as at December 31, 2021 recorded
under Deferred Credit – Trust Projects (DC-TP) account were not properly
adjusted to the Sales Contract Receivable (SCR) account, thereby,
overstating the DC-TP and SCR accounts by the same amount as at even
date, contrary to the fair presentation mandated by Paragraph 15 of
Philippine Accounting Standards (PAS) 1 – Presentation of Financial
Statements.
1.1. Paragraph 15 of PAS 1 provides that financial statements shall present

fairly the financial position, financial performance and cash flows of an
entity. The application of Philippine Financial Reporting Standards
(PFRSs), with additional disclosure, when necessary, is presumed to result
in financial statements that achieve a fair presentation.
1.2. As disclosed in the CY 2021 Notes to the Financial Statements (NTFS) of

the Philippine Guarantee Corporation (PHILGUARANTEE), the DC-TP
account is a temporary liability account for collections from buyers and/or
clients awaiting execution of pertinent sales documents and those
collections lacking necessary information to allow application of payments
to specific accounts. The collections are subsequently analyzed, and
amounts are reclassified to the proper accounts upon submission of the
complete documents by the buyers.
1.3. Specifically, the DC-TP account is credited for the collections received from
buyers of ROPAs with some noted deficiencies, such as, but not limited to
the following:
a. Collections from buyers who are still awaiting execution of pertinent

sales documents, i.e., notarized and certified Contracts to Sell (CTS)
and Transfer Certificate of Title (TCT);
b. Payments of buyers which were deposited directly to authorized

depository banks without furnishing the Cash Management
Department (CMD) under the Business Operations Group (BOG) and
the Financial Accounting Department (FAD) copies of the validated
deposit slips; and
c. Collections that lack appropriate information in the Payment

Acceptance Order (PAO) regarding the application of payments, i.e.,
principal, interest, and fines and penalties.
1.4. Inquiries with concerned personnel of the Comptrollership Group (CG)

disclosed that once the deficiencies connected to the payments have been
remedied and/or resolved, the CG will prepare a Journal Voucher (JV) to
effect the necessary adjusting entries by debiting the DC-TP account and
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crediting SCR, Interest Income, Fines and Penalties, and other appropriate
accounts.
1.5. Thereafter, where applicable, another JV will be prepared to amortize the

unearned income on the sale of the acquired properties under the
installment payment scheme recorded under Other Unearned Revenue –
Unearned Income – Installment Sales (OUR-UI-IS) account. This account is
amortized and recognized as Gain on Sale based on the payment applied
to the SCR account multiplied by the gross profit rate. The gross profit rate
is determined at the time of recording the sale in the books by dividing the
gross profit by the selling price.
1.6. Verification of pertinent records revealed that collections from buyers of

ROPAs of P886.567 million as at December 31, 2021 were recorded under
DC-TP account, broken down as follows:
Accounts Amount
Developmental Projects 368,784,819
Pinesville Project 153,072,887
Retail Accounts 134,064,490
BLISS Development Corporation Project 93,716,093
Folio Accounts 58,027,241
Community Mortgage Program Project 10,852,301
Cooperative Housing Program Project 8,066,225
Others 59,983,287
Total 886,567,343
1.7. Further verification showed that collections from buyers of ROPAs awarded
and sold in CY 2021 totaling P1.411 million were recorded under the DC-
TP account despite the fact that these collections can already be identified
and classified to their proper accounts, broken down as follows:
Installment Payment
Property Date Sold Credited to DC-TP
ROPA 1 June 1, 2021 862,170
ROPA 2 June 1, 2021 38,564
ROPA 3 June 2, 2021 504,600
ROPA 4 June 10, 2021 994
ROPA 5 June 21, 2021 1,078
ROPA 6 October 11, 2021 3,374
Total 1410780
1.8. It bears stressing that while the temporary recording of collections under
the DC-TP account is not per se objectionable; failure, however, to timely
analyze and adjust said account affect the fair presentation of
PHILGUARANTEE’s financial statements. The delayed recording, from DC-
TP account to the proper accounts, of collections that can already be
identified and classified as reduction to SCR account overstated both the
DC-TP and SCR accounts as at year end.
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1.9. Ultimately, the foregoing deficiencies resulted in overstating the
Corporation’s total liabilities recorded under the DC-TP account and the
SCR account as at December 31, 2021, contrary to the fair presentation
mandated by PAS 1.
1.10. We reiterated our prior years’ recommendations that Management,

through CG:
a. Formulate an accounting policy, subject to the approval of the

Governing Board, emphasizing on when to clear the DC-TP
account to SCR and other appropriate accounts in order to
eliminate or minimize undistributed collections; and
b. Set reasonable timelines and milestones for the reconciliation of

the account, a copy of which should be provided to the Audit
Team, in order to properly evaluate progress and
accomplishments.
1.11. We further recommended that Management:
a. Through the CG:
i. Ensure the proper recording and crediting of payments made

by the buyers of ROPAs to SCR and other proper accounts in
the books of PHILGUARANTEE in accordance with PFRSs;
ii. Ensure that only valid transactions under Paragraph 1.4

hereof are recorded in the DC-TP account and that those
validly credited to the account are timely analyzed before
year-end;
iii. Analyze each transaction recorded under the DC-TP account

for proper recognition and prepare the necessary adjusting
entries to reclassify the DC-TP transactions to their proper
accounts;
iv. Coordinate with the Special Asset Management and Recovery

Group (SAMRG) on the proper recording of the collections
from the ROPA buyers; and
v. Reconcile the balances in the books of accounts with the

records of SAMRG on the collections received from ROPA
buyers.
b. Through the SAMRG:
i. Coordinate with the CG for the proper recognition of

collections from the ROPA buyers in the books of
PHILGUARANTEE; and
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ii. Provide to the CG the breakdown of payments received from
each buyer of ROPAs, including the allocation for principal,
interest, and penalties, if applicable.
1.12. Management commented that as at April 4, 2022, the Inter-Department

Committee (IDC) tasked to reconcile discrepancies noted in the DC-TP
account, among others, delivered a total of 1,300 documents covering
P338.160 million worth of sales transactions for evaluation. Of these
documents, FAD was able to book or adjust 457 accounts with total selling
price of P273.970 million as well as reclassify DC amounting to P66.050
million involving 383 accounts.
1.13. Unfortunately, a slowdown in the turnaround time was brought about by the
resignation of two staff under Contracts of Service (COS) and two senior
officers under FAD during the year. To speed up the resolution of the
issues, a task force consisting of encoders to assist the FAD in the
reconciliation process, documentation and booking was created and
additional COS personnel to handle the analysis of accounts were hired
and trained. Close coordination between SAMRG and FAD is on-going to
facilitate the reconciliation, documentation of the transactions.
1.14. As an audit rejoinder, the courses of action taken and to be undertaken by

Management to comply with the recommendations will be monitored and
evaluated accordingly. We stress, however, that the reported balances of
the subject accounts remain doubtful pending full compliance with the
recommendations.
2. The accrued dividends for CYs 2021 and 2020 of P505.902 million and
P780.787 million, respectively, are inaccurate due to non-compliance with the
requirements of Republic Act (RA) No. 7656 and its 2016 Revised
Implementing Rules and Regulations (RIRR) as to the computation thereof.
Thus, the reported Dividends Payable and Retained Earnings are both
understated by P354.120 million as at December 31, 2021 and overstated by
P2.340 million as at December 31, 2020, contrary to the fair presentation
mandated by Paragraph 15 of PAS 1 – Presentation of Financial Statements.
2.1. RA No. 7656 requires all government-owned and/or controlled corporation

(GOCCs) to declare and remit at least 50 percent of their annual net
earnings as cash, stock or property dividends to the National Government
(NG). Pertinent provisions of the 2016 RIRR to RA No. 7656 follow:
a. All GOCCs covered by the law shall annually declare and remit on or
before May 15 of each year, at least 50 percent of their net earnings as
cash, stock and/or property dividends to the NG. As a general rule,
GOCCs shall declare and remit dividends in the form of cash in order
to raise additional revenues for the NG.
b. “Net earnings” refers to income derived from whatever source, whether

exempt or subject to tax, net of deductions allowed under Section 34 of
the National Internal Revenue Code, as amended, and income tax and
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other taxes paid thereon, but in no case shall any reserve for whatever
purpose be allowed as deduction from net earnings. For the avoidance
of doubt, “net earnings” shall include:
i. Income subject to income tax, as provided in the Annual Income

Tax Return (ITR), net of tax;
ii. Income subject to final tax, as provided in the Annual ITR

Schedule on Supplemental Information, net of tax; and
iii. Income exempt from tax, as provided in the Annual ITR Schedule
on Gross Income/Receipts from Income Tax, net of tax.
c. In the interest of the national economy and general welfare, and in

consideration of the viability of the GOCCs and the purpose for which
they were established, the percentage of annual net earnings that shall
be declared by the GOCC may be adjusted by the President of the
Philippines below the minimum 50 percent dividend rate, upon
recommendation by the Secretary of Finance.1
2.2. Relative to liabilities, Paragraph 4.26 of the Conceptual Framework for

Financial Reporting provides that a liability is recognized in the statement of
financial position when it is probable that an outflow of resources
embodying economic benefits will result from the settlement of a present
obligation and the amount at which the settlement will take place can be
measured reliably. Thus, for financial reporting purposes, a liability must be
recognized when there is a present obligation arising from past events, the
settlement of which is expected to result in an outflow from the entity of
resources embodying economic benefits.
2.3. For CYs 2021 and 2020, PHILGUARANTEE accrued Dividends Payable of
P505.902 million and P780.787 million, respectively, pursuant to RA No.
7656 and its RIRR. Details follow:
Particulars 2021 2020

Income subject to income tax, net of tax 340,203,997 1,051,260,162
Income subject to final tax, net of tax 671,600,975 456,608,731
Income exempt from tax 0 53,704,662
Dividend base 1,011,804,972 1,561,573,555
Dividend rate 50% 50%
Dividends payable 505,902,486 780,786,778
1
Under the RIRR, a downward adjustment in dividend rate below the minimum 50 percent may be
allowed for the following cases: (i) where there is a presence of a deficit as reflected in the GOCC's latest
Statement of Equity; (ii) where the GOCC's viability or the purpose for which it has been established will be
impaired by the payment of the required dividends; (iii) where the declaration and remittance of dividends at
the minimum dividend rate will result in a breach in minimum regulatory requirements; and (iv) for GOCCs
governed by the Corporation Code of the Philippines, where declaration and remittance of dividends at the
minimum dividend rate exceeds the unrestricted retained earnings of the GOCC.
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2.4. Records show that the CY 2021 dividends were remitted to the NG through
the Bureau of the Treasury (BTr) on April 21, 2022 and May 17, 2022 in the
amounts of P193.655 million and P312.247 million, respectively.
Meanwhile, the Corporation requested for waiver of the CY 2020 dividends
which was approved by the President of the Philippines under Executive
Order (EO) No. 153 dated December 6, 2021. Thus, the percentage of net
earnings to be declared and remitted by PHILGUARANTEE to the NG for
CY 2020 was adjusted from 50 percent to zero percent.
2.5. Audit of the above account disclosed that the amount accrued as Dividends
Payable for CY 2021 is understated by P354.120 million while that accrued
for CY 2020 is overstated by P2.340 million, due to error in the computation
thereof, which is not consistent with the requirements of RA No. 7656 and
its 2016 RIRR. Details follow:
Particulars 2021 2020

Income subject to income tax, net of tax 287,097,398 1,053,259,290
Income subject to final tax, net of tax 456,693,961 453,345,571
Income exempt from tax 976,252,843 50,289,334
Dividend base 1,720,044,202 1,556,894,195
Dividend rate 50% 50%
Dividends payable per audit 860,022,101 778,447,098
Dividends payable per books 505,902,486 780,786,778
Understatement (Overstatement) 354,119,615 (2,339,680)
2.6. Analysis showed that the overstatement for CY 2020 was caused by the
failure of Management to adjust the recorded dividends to conform to the
amended Annual ITR for said year. While the request for dividend waiver
was ultimately approved by the President of the Philippines, the obligation
to pay the same at the adjusted amount of P778.447 million subsists as at
December 31, 2020. Thus, adjustment of the amount presented as
Dividends Payable as of said date is warranted, consistent with Paragraph
4.26 of the Conceptual Framework.
2.7. On the other hand, the understatement for CY 2021 was primarily due to
the non-inclusion by Management of the P976.253 million of non-taxable
income as shown in its Amended Annual ITR 2 for CY 2021, contrary to the
definition of “net earnings” under the 2016 RIRR to RA No. 7656. The
amount consists of: (a) reversal of provision for expected credit losses
(ECL) of P965.244 million; (b) foreign exchange gains of P113,606; and (c)
prior years’ adjustments of P10.895 million.
2.8. As a result, the reported Dividends Payable and Retained Earnings are
both understated by P354.120 million as at December 31, 2021 and
overstated by P2.340 million as at December 31, 2020, contrary to the fair
presentation mandated by Paragraph 15 of PAS 1.
2.9. We recommended that Management, through the CG:
2
Specifically, Schedule V of the Amended BIR Form No. 1702-RT filed on May 30, 2022.
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a. Adjust the books and the financial statements as at December 31,
2021 and 2020 to correct the amount accrued and reported as
Dividends Payable pursuant to RA No. 7656 and its 2016 RIRR;
and
b. Strictly adhere to the provisions of RA No. 7656 and its RIRR on

the declaration and remittance of dividends to the NG.
Specifically, ensure that the dividend base comprising the
Corporation’s net earnings as described in the RIRR is carefully
evaluated.
2.10. Management commented that it referred the matter to the Department of

Finance (DOF) personnel who reviewed PHILGUARANTEE’s computations
of its dividends payable for CY 2021. The same was the basis of the
remittances made to the BTr in April and May 2022. Pending receipt of
DOF’s opinion, Management defers the recognition of the additional
dividends payable of P354.120 million for CY 2021.
2.11. Nonetheless, Management believes that the P964.869 million, which

represents gain on reversal of impairment loss as a result of the partial
recovery from a default guaranteed account, does not qualify as a
component of net earnings for dividend base assessment. The amount
represents collection of principal advanced by the Corporation (then known
as TIDCORP) booked under Subrogated Claims Receivable. Further, the
gain on reversal merely offsets the same amount of impairment loss
recognized in previous years for financial reporting purposes. Such
impairment loss was not previously claimed as tax deduction.
2.12. For the CY 2020 discrepancy, the reported amount shall be simply restated
in the revised financial statements as at December 31, 2021. The accrued
dividends for CY 2020 was already reversed under JV No. 80008322 dated
December 31, 2021 in consonance with EO No. 153 which approved the
Corporation’s request for waiver of dividends for said year.
2.13. As an audit rejoinder, we reiterate that the 2016 RIRR to RA No. 7656 is
explicit. “Net earnings” for dividends base assessment shall include income
exempt from tax as provided in the Annual ITR. For CY 2021, the
Corporation reported P976.253 million of non-taxable income in its
Amended Annual ITR. By implication, it considers the same includible as
“net earnings” for dividends computation purposes.
3. Deficiencies and misstatements noted during the review of the contents of

the NTFS which are contrary to fair presentation mandated by Paragraph 15
of PAS 1 – Presentation of Financial Statements:
3.1. Several information required to be disclosed by PFRS in the NTFS

were not presented therein, thus, the fair presentation of the financial
statements of PHILGUARANTEE for the years ended December 31,
2021 and 2020, is adversely and materially affected.
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3.1.1. PAS 1 prescribes the basis for presentation of general purpose
financial statements to ensure comparability both with the entity’s
financial statements of previous periods and with the financial
statements of other entities. It sets out the overall requirements for
the presentation of financial statements, guidelines for their
structure and minimum requirements for their content.
3.1.2. Paragraph 10 of the standard provides that a complete set of

financial statements shall include, as an integral part thereof, notes
comprising significant accounting policies and other explanatory
information. Specifically, the notes contain information in addition to
that presented in the statement of financial position, statement/s of
profit or loss and other comprehensive income (OCI), statement of
changes in equity and statement of cash flows. Notes provide
narrative descriptions or disaggregations of items presented in
those statements and information about items that do not qualify for
recognition in those statements.
3.1.3. Corollarily, Paragraph 15 of PAS 1 provides that the application of

PFRS, with additional disclosure when necessary, is presumed to
result in financial statements that achieve a fair presentation. Under
Paragraph 17 thereof, fair presentation also requires an entity to
present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable
information. Accordingly, Paragraph 112 of PAS 1 mandates that
the notes shall, among others, disclose the information required by
PFRS that is not presented elsewhere in the financial statements.
3.1.4. Review of the notes accompanying the financial statements of

PHILGUARANTEE for the years ended December 31, 2021 and
2020 showed that several relevant and material information
required to be disclosed by applicable PFRSs in the notes were not
presented therein, to wit:
Relevant PFRS Required Disclosures

Paragraph 92,  Reclassification adjustments relating to components of
PAS 1 OCI. A reclassification adjustment is included with the
related component of OCI in the period that the
adjustment is reclassified to profit or loss.
Paragraphs 75  The amounts recognized in profit or loss for: (i) direct
and 79, PAS 40 operating expenses arising from investment property that
generated rental income during the period; (ii) direct
operating expenses arising from investment property that
did not generate rental income during the period; and
 The fair value of investment property. In exceptional
cases when an entity cannot measure the fair value of
the investment property reliably: (i) a description of the
investment property; (ii) an explanation of why fair value
cannot be measured reliably; and (iii) if possible, the
range of estimates within which fair value is highly likely
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to lie.
Paragraphs 31, Generally:
33, 34 and 35A  Quantitative disclosures for each type of risk arising from
to 42, PFRS 7 financial instruments, including: (i) summary quantitative
data about its exposure to that risk at the end of the
reporting period which shall be based on the information
provided internally to key management personnel of the
entity; (ii) the disclosures required by Paragraphs 35A to
42, to the extent not provided in accordance with (i); and
concentrations of risk if not apparent from the
disclosures made in accordance with (i) and (ii).
Specifically:
 Explanation of credit risk management practices and
how they relate to the recognition and measurement of
ECL, including:
i. An entity’s definitions of default, including the reasons
for selecting those definitions;
ii. How the instruments were grouped if ECL were
measured on a collective basis;
iii. How an entity determined that financial assets are
credit-impaired financial assets; and
iv. How the requirements of PFRS 9 – Financial
Instruments for the modification of contractual cash
flows of financial assets have been applied.
 Explanation as to the inputs, assumptions and estimation
techniques used to apply the requirements in Section 5.5
of PFRS 9, including:
i. How forward-looking information has been
incorporated into the determination of ECL, including
the use of macroeconomic information; and
ii. Changes in the estimation techniques or significant
assumptions made during the reporting period and
the reasons for those changes.
 To explain the changes in the loss allowance and the
reasons for those changes, an entity shall provide a
reconciliation from the opening balance to the closing
balance of the loss allowance, in a table, showing
separately the changes during the period for:
i. Loss allowance measured at an amount equal to 12-
month ECL;
ii. Loss allowance measured at an amount equal to
lifetime ECL; and
iii. Financial assets that are purchased or originated
credit-impaired.
 Explanation of how significant changes in the gross
carrying amount of financial instruments during the
period contributed to changes in the loss allowance.
 To enable users of financial statements to understand
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the nature and effect of modifications of contractual cash
flows on financial assets that have not resulted in
derecognition and the effect of such modifications on the
measurement of ECL:
i. The amortized cost before the modification and the
net modification gain or loss recognized for financial
assets for which the contractual cash flows have
been modified during the reporting period while they
had a loss allowance measured at an amount equal
to lifetime ECL; and
ii. The gross carrying amount at the end of the reporting

period of financial assets that have been modified
since initial recognition at a time when the loss
allowance was measured at an amount equal to
lifetime ECL and for which the loss allowance has
changed during the reporting period to an amount
equal to 12-month ECL.
 To enable users of financial statements to understand
the effect of collateral and other credit enhancements on
the amounts arising from ECL, an entity shall disclose by
class of financial instrument:
i. The amount that best represents its maximum
exposure to credit risk at the end of the reporting
period without taking account of any collateral held or
other credit enhancements;
ii. Quantitative information about the collateral held as
security and other credit enhancements for financial
assets that are credit-impaired at the reporting date.
 The contractual amount outstanding on financial assets
that were written off during the reporting period and are
still subject to enforcement activity.
 The gross carrying amount of financial assets and the
exposure to credit risk on loan commitments and
financial guarantee contracts by credit risk rating grades.
 When an entity obtains financial or non-financial assets
during the period by taking possession of collateral it
holds as security or calling on other credit enhancements
and such assets meet the recognition criteria in other
PFRSs, an entity shall disclose for such assets held at
the reporting date: (a) the nature and carrying amount of
the assets; and (b) when the assets are not readily
convertible into cash, its policies for disposing of such
assets or for using them in its operations.
 Maturity analysis for non-derivative financial liabilities,
including issued financial guarantee contracts that shows
the remaining contractual maturities.
 Sensitivity analysis for each type of market risk to which
the entity is exposed at the end of the reporting period,
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showing:
i. How profit or loss and equity would have been
affected by changes in the relevant risk variable that
were reasonably possible at that date;
ii. The methods and assumptions used in preparing the
sensitivity analysis; and
iii. Changes from the previous period in the methods
and assumptions used, and the reasons for such
changes. Or the sensitivity analysis that it prepares
which reflects interdependencies between risk
variables and uses it to manage financial risks.
Paragraph 97,  The level of the fair value hierarchy within which the fair
PFRS 13, in value measurements are categorized in their entirety
relation to PAS (Level 1, 2 or 3);
40  A description of the valuation technique(s) and the inputs
used in the fair value measurement. If there has been a
change in valuation technique, the entity shall disclose
that change and the reason(s) for making it. For fair
value measurements categorized within Level 3 of the
fair value hierarchy, an entity shall provide quantitative
information about the significant unobservable inputs
used in the fair value measurement; and
 If the highest and best use of a non-financial asset differs
from its current use, an entity shall disclose that fact and
why the non-financial asset is being used in a manner
that differs from its highest and best use.
Paragraphs 58,  As lessee, maturity analysis of lease liabilities separately
94 and 97, from the maturity analyses of other financial liabilities;
PFRS 16  As lessor under operating lease, maturity analysis of
lease payments, showing the undiscounted lease
payments to be received on an annual basis for a
minimum of each of the first five years and a total of the
amounts for the remaining years; and
 As lessor under finance lease:
i. Maturity analysis of the lease payments receivable
showing the undiscounted lease payments to be
received on an annual basis for a minimum of each of
the first five years and a total of the amounts for the
remaining years; and
ii. Reconciliation of the undiscounted lease payments to
the net investment in the lease, identify therein the
unearned finance income relating to the lease
payments receivable and any discounted
unguaranteed residual value.
3.1.5. Consequently, the fair presentation of the financial statements of

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2020, is adversely and materially affected. Users of the financial
statements are deprived of relevant information about the
Corporation’s financial position, financial performance and cash
flows that is useful to them in making economic decisions.
3.1.6. Likewise, we noted that the following information, which though not
required to be disclosed by relevant PFRS but may be found by
users relevant to their needs, are not disclosed in the NTFS:
Relevant PFRS Encouraged Disclosures

Paragraph 79,  Gross carrying amount of any fully depreciated property,
PAS 16 plant and equipment (PPE) that is still in use;
 Carrying amount of: (i) temporarily idle PPE; and (ii) PPE
retired from active use and not classified as held for sale
in accordance with PFRS 5;
 Fair value of PPE accounted for using the cost model
when this is materially different from the carrying amount.
Paragraph 128,  Description of any fully amortized intangible asset that is
PAS 38 still in use.
3.1.7. We reiterated our prior years’ recommendation that

Management disclose all the foregoing information in the
NTFS as required or encouraged by pertinent PFRSs. For this
purpose, concerned Operating Groups should be required to
assist and promptly provide the required information to the
CG to enable the latter to timely prepare the NTFS sufficient in
form and substance and to submit the same to the Audit Team
within the statutory deadline.
3.1.8. Management commented that it has already instructed the

concerned operating units to assist the CG in complying with PFRS
disclosure requirements. However, there are still remaining
required disclosures that the FAD and the Enterprise Risk
Management Office (ERMO) should address, some of which are
still being prepared and will be submitted to the Audit Team as
soon as possible.
3.1.9. To improve future disclosure compliances, FAD and ERMO, based

on the PFRSs identified in the observation, will propose their
participation in trainings/seminars as part of its capacity-building
initiatives. Rest assured that the required disclosures in the notes
will be completely addressed in the succeeding financial
statements.
3.1.10. As an audit rejoinder, the courses of action taken and to be

undertaken by Management to comply with the recommendations
will be monitored and evaluated accordingly. We stress, however,
that the reported disclosures remain incomplete, thus, adversely
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affecting the fair presentation of the financial statements as a
whole, pending full compliance with the recommendations.
3.2. Several misstatements which understated the total assets and

liabilities as at December 31, 2021 by P199.155 million and P192.639
million, respectively and overstated expenses by P6.516 million for CY
2021, including misclassification of non-operating income of P964.869
million as part of Service and Business Income in CY 2021, were
noted in the information disclosed in the NTFS and Statement of
Changes in Equity, contrary to the fair presentation mandated by
Paragraph 15 of PAS 1 – Presentation of Financial Statements.
3.2.1. Review of the notes accompanying the financial statements of
2020 revealed further misstatements, to wit:
Reference Particulars
Notes 23.1 and A. Other non-operating income of P964.869 million
23.3 representing partial reversal of previously recognized
impairment loss was misclassified as part of Service and
Business Income in CY 2021, improperly suggesting that it
arose from the Corporation’s ordinary course of business,
contrary to the definition of Revenue under PFRS 15 and the
fair presentation mandated by Paragraph 15 of PAS 1.
Revenue is defined under PFRS 15 as the Corporation’s

income arising in the course of an entity’s ordinary activities.
Accordingly, under the Revised Chart of Accounts (RCA) for
Government Corporations (GCs), revenue is to be presented
under Service and Business Income separate from Gains
and Other Non-operating Income.
Review of the CY 2021 NTFS disclosed that other non-

operating income of P964.869 million was misclassified as
Service and Business Income in CY 2021, contrary to the
definition of revenue under PFRS 15. The amount which
represents partial reversal of previously recognized
impairment loss on a default account under the Guarantee
Program is merely incidental to the main revenue-generating
activities of the Corporation.
The misclassification is material because regularity of

occurrence is expected of revenues by users of the financial
statements of the Corporation but not so as to gains and
other non-operating income. Thus, users will be misled as to
true status of the Corporation’s financial performance.
Accordingly, the reported Service and Business Income and

Other Non-operating Income of the Corporation for CY 2021
are misstated, contrary to the fair presentation mandated by
Paragraph 15 of PAS 1.
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“Adjustments” in B. Impairment loss of P343.426 million on Investment

the Statement of Property was presented in the Statement of Changes in
Changes in Equity as direct charge to Retained Earnings for CY 2021
Equity rather than as an adjustment to the balance of the Retained
Earnings as at January 1, 2020 or restatement of CY 2020
Impairment Loss, as applicable, contrary to pertinent
provisions of PAS 8 – Accounting Policies, Changes in
Accounting Estimates and Errors. Moreover, direct charges
to Retained Earnings for CY 2020 of P116.837 million cannot
be verified due to lack of details and non-submission of
supporting documents thereof, contrary to the fair
Paragraph 5 of PAS 8 defines “prior period errors” as
omissions from, and misstatements in, the entity’s financial
statements for one or more prior periods arising from a
failure to use, or misuse of, reliable information that: (a) was
available when financial statements for those periods were
authorized for issue; and (b) could reasonably be expected to
have been obtained and taken into account in the
preparation and presentation of those financial statements.
Paragraph 42 of the same standard directs an entity to
correct material prior period errors retrospectively in the first
set of financial statements authorized for issue after their
discovery by: (a) restating the comparative amounts for the
prior period(s) presented in which the error occurred; or (b) if
the error occurred before the earliest prior period presented,
restating the opening balances of assets, liabilities and equity
for the earliest prior period presented.
Review of the comparative Statement of Changes in Equity
of PHILGUARANTEE for CYs 2021 and 2020 disclosed that
impairment loss of P343.426 million on Investment Property
was presented in the Statement of Changes in Equity as
direct charge to Retained Earnings for CY 2021. Inquiry
disclosed that these are unrecorded impairment pertaining to
years prior to CY 2021.
Thus, under PAS 18, the amount should have been

presented in the Statement of Changes in Equity as an
adjustment to the opening balance of the Retained Earnings
as at January 1, 2020 if it relates to CY 2019 and prior, or as
restatement of Impairment Loss for the year if it relates to CY
2020.
Moreover, the CG cannot provide to the Audit Team the

nature, details and supporting documents of the other
adjustments totaling P116.837 million presented as a direct
136
charge to Retained Earnings for CY 2020. Audit evidence
gathered throughout the audit do not reveal any material
adjustment for CY 2020 that could be presented as such
rather than as an adjustment to the January 1, 2020 balance
of the Retained Earnings.
As a result, the reported Retained Earnings as at January 1,
2020 and December 31, 2020, as well as the reported
changes in equity for CYs 2021 and 2020 are unreliable,
contrary to the fair presentation mandated by Paragraph 15
of PAS 1.
Notes 13 and 17 C. The amounts included under non-current Other Assets

and Trust Liabilities for the Agricultural Guarantee Fund Pool
(AGFP) as at December 31, 2021 do not tally with the
audited total assets of said fund by P176.657 million and
P188.640 million, respectively, contrary to the fair
As disclosed in the CY 2021 NTFS, the Corporation acts as

trustee and/or administrator pursuant to law or agreements
that result in the holding of funds on behalf of other entities
such as the AGFP. As matter of policy, the resources,
liabilities and income or loss arising thereon are generally
excluded from the financial statements as these do not
pertain to the Corporation.
Instead, separate sets of books of accounts and financial

statements are maintained and prepared, respectively, for
each fund, and only the total assets of these funds are
reciprocally presented and accounted for as non-current
“Other Assets” and non-current “Trust Liabilities” in the
financial statements.
However, review of the NTFS disclosed that the amounts

included under Other Assets and Trust Liabilities for the
AGFP as at December 31, 2021 of P10.674 billion and
P10.662 billion, respectively, do not tally with the audited
total assets of said fund as of even date of P10.850 billion.
Thus, there are unreconciled variances between said
balances of P176.657 million and P188.640 million,
respectively, computed as follows:
Particulars Amount
Other assets – AGFP 10,673,595,499
Total assets per audited AGFP FS 10,850,252,361
Variance 176,656,862
Trust liabilities – AGFP 10,661,612,310
137
Total assets per audited AGFP FS 10,850,252,361
As a result, the reported non-current Other Assets and Trust

Liabilities as at December 31, 2021 are inaccurate, contrary
to the fair presentation mandated by Paragraph 15 of PAS 1.
Notes 10 and 14 D. The mobilization fee paid for the renovation of the leased
office space at BPI-Philam Life Building amounting to P9.600
million was erroneously recorded and capitalized as
Leasehold Improvements, contrary to the recognition
principles of PAS 16 – Property, Plant and Equipment and to
the fair presentation mandated by Paragraph 15 of PAS 1.
Under PAS 16, an item of property, plant and equipment that

qualifies for recognition as an asset shall be measured at its
cost. Cost is defined as the amount of cash or cash
equivalents paid or the fair value of the other consideration
given to acquire an asset at the time of its acquisition or
construction.
We noted that, as at December 31, 2021, the renovation of

the leased office space has not substantially begun. Thus,
the amount paid to the contractor cannot be capitalized as
the same was not spent and used for the renovation. It was
not paid to acquire the asset at the time of construction.
As generally accepted, mobilization fees are reported as a

prepayment by the payor prior to the receipt of progress
billings from the contractor. Under the RCA for GCs (2019),
such amount is to be recorded under the Advances to
Contractors account which are to be recouped from progress
billings.
As a result, the reported Leasehold Improvements as at

December 31, 2021 is overstated by P9.600 million while the
reported Advances to Contractors under Prepayments as of
even date is understated by the same amount.
3rd Paragraph, E. Equity investments elected to be measured at fair value

Note 6 through OCI (FVOCI) were impaired and provided with
allowance for ECL totalling P6.516 million as at December
31, 2021, contrary to the measurement requirements of
PFRS 9.
Impairment assessment for equity securities is no longer

applicable under PFRS 9. The impairment model prescribed
therein is applicable to financial assets mandatorily
measured at FVOCI but not to those merely designated as
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such. Under PFRS 9, all equity investments within the scope
of PFRS 9 are to be measured at fair value through profit or
loss, except for those equity investments for which the entity
has “elected” to present value changes in OCI.
Accordingly, the reported Impairment Loss for CY 2021 and

Allowance for ECL as at December 31, 2021 are both
overstated by P6.516 million, contrary to the fair presentation
mandated by Paragraph 15 of PAS 1.
Notes 13 and 17 F. The amount reciprocally reported under non-current Other

Assets and Trust Liabilities for the foreign currency deposit
unit (FCDU) time deposits held in trust for the BTr as at
December 31, 2021 are both understated by P3.999 million,
of PAS 1.
Said account arose from court cases filed in the United

States of America against pre-merger TIDCORP relative to a
default account under the Guarantee Program which was
already turned over to the NG in 1989 pursuant to
Administrative Order (AO) No. 64 dated March 24, 1988 and
Deed of Transfer dated March 31, 1989. The DOF and BTr
released US$5.000 million to TIDCORP on April 26, 2002 for
the settlement of said cases.
However, the final settlement agreement between TIDCORP

and Fidelity Partners, Inc., the plaintiff, amounted to only
US$4.800 million, thus, leaving a balance of US$200,000.
Over the years, the Corporation administered the excess
amount pending its transfer to the BTr by maintaining the
same in FCDU time deposit which earn interest ranging from
2.50 to 3.00 per cent per annum.
The fund has an outstanding balance of US$374,506 as at

December 31, 2021. Accordingly, the FCDU time deposit
should have been recorded at P19.099 million using a
Bankers Association of the Philippines (BAP) closing rate of
P50.999.
However, review of the NTFS disclosed that the amounts

included under non-current Other Assets and Trust Liabilities
for the FDCU time deposit is only P15.100 million, or an
understatement of P3.999 million, determined as follows:
Particulars Amount
FCDU Time Deposit, as audited P19,099,442
FCDU Time Deposit, as reported 15,100,302
139
Understatement P3,999,140
Similarly, the Corporation did not use the BAP closing rate,
which complied with the requirements of PAS 21 – The
Effects of Changes in Foreign Exchange Rates, in converting
the December 31, 2020 balance of the FCDU time deposit
into peso, resulting in the understatement of the reported
non-current Other Assets and Trust Liabilities as at
December 31, 2020 by P1.173 million, to wit:
Particulars Amount
Total fund balance, December 31, 2020 US$373,881
BAP closing rate 48.023
FCDU time deposit, as audited P17,954,887
FCDU time deposit, as reported 16,781,832
Understatement P1,173,055
a
Notes 14 and 19 G. The amount due to a winning plaintiff of P4.405 million
was erroneously included among the Corporation’s accounts
payable under Financial Liabilities as at December 31, 2021,
of PAS 1. Moreover, the liability was still reported as a
Provision for P13.771 million as at December 31, 2020
despite the item no longer uncertain as to timing and amount,
contrary to Paragraph 11 of PAS 37 – Provisions, Contingent
Liabilities and Contingent Assets.
In CY 2017, a third-party plaintiff filed an unlawful detainer

case against the Corporation before the Metropolitan Trial
Court (MeTC) of Muntinlupa City, Branch 112. Said court
ruled in favor of the plaintiff but did not award reasonable
monthly rentals.
Upon appeal, the Regional Trial Court (RTC) of Muntinlupa

City, Branch 206 affirmed with modification the MeTC
judgment. The RTC ruled in favor of the plaintiff and awarded
reasonable monthly rentals and interest. The RTC decision
attained finality in CY 2020.
Review of the NTFS disclosed that the amount awarded to

the winning plaintiff amounting to P4.405 million was
recorded as Accounts Payable. This is erroneous because,
first, the liability did not arise in the normal course of trade
and business operations, and second, it is not a financial
liability as it did not result from a contract. The amount
should have been reported as among the Corporation’s
Other Payables.
140
Likewise, we noted that the liability was still reported as a

Provision for P13.771 million as at December 31, 2020.
Under Paragraph 11 of PAS 37, provisions are distinguished
from other liabilities because there is uncertainty about the
timing or amount of the future expenditure required in
settlement. It must be stressed that, as at December 31,
2020, there is no longer any uncertainty as to the liability to
the plaintiff since the RTC decision already attained finality.
The Corporation should have reversed in CY 2020 the

provision of P13.771 million and recorded a regular liability
under Other Payables for the final amount awarded to the
plaintiff under the RTC decision, or P4.405 million. The
difference should have been recognized as a Gain in CY
2020.
As a result, the reported Accounts Payable, Provision and

Gains as at and for the year ended December 31, 2021 and
2020 are unreliable, contrary to the fair presentation
2nd Paragraph, H. The reported current portions of the Lease Liability are
Note 15 understated by P3.438 million as at December 31, 2021 and
overstated by P12.427 million as at December 31, 2020.
Correspondingly, the reported non-current portions thereof
as of even dates are overstated and understated,
respectively, by the same amounts, contrary to the
classification guidelines prescribed under Paragraphs 60 and
66 of PAS 1.
Paragraph 60 of PAS 1 requires an entity to present current
and non-current assets as separate classifications in its
statement of financial position, except when a presentation
based on liquidity provides information that is reliable and
more relevant.
For assets, Paragraph 66 of the same standard 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 the purpose of trading; (c) it expects to realize the asset
within twelve months after the reporting period; or (d) the
asset is cash or a cash equivalent unless the asset is
restricted from being exchanged or used to settle a liability
for at least twelve months after the reporting period.
As disclosed in the CY 2021 NTFS, the reported lease
liability is classified into its current and non-current portion as
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follows:
2021 2020
Current 34,081,864 30,947,491
Non-current 81,036,576 118,032,147
115,118,440 148,979,638
Comparison of the above disclosure with audited amounts

following the classification guidelines under Paragraphs 60
and 66 of PAS 1 disclosed that while the total lease liability is
correct, the reported current and non-current portions thereof
as at December 31, 2021 and 2020, and ultimately the
current ratios for said years, are both misstated, as follows:
2021 2020
Current, per NTFS 34,081,864 30,947,491
Current, per audit 37,520,186 18,520,265
Over(Understatement) (3,438,322) 12,427,226
Non-current, per NTFS 81,036,576 118,032,147
Non-current, per audit 77,598,254 130,459,373
Over(Understatement) 3,438,322 (12,427,226)
a
Notes 10 and I. Depreciation Expense on Investment Property for CYs
24.4 2021 and 2020 of P1.722 million and P1.643 million,
respectively, were misclassified as pertaining to Land
Improvements under Property and Equipment. Similarly,
Depreciation Expense on Office, IT, Furniture, Fixtures and
Others for CYs 2021 and P2020 of P455,611 and P261,388,
respectively, were misclassified as pertaining to Leasehold
Improvements. Both are contrary to the fair presentation
Review of the CY 2021 NTFS disclosed that discrepancies

exist between the reported Depreciation Expense under Non-
cash Expenses in Note 24.4 against the Depreciation
Expenses reported in the lapsing schedule for Property and
Equipment under Note 10, respectively. Details follow:
2021 2020
Land Improvements
Per Note 24.4 2,039,979 1,961,162
Per Note 10 318,270 318,271
1,721,709 1,642,891
A
2021 2020
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Leasehold Improvements
Per Note 24.4 455,611 261,388
Per Note 10 0 0
455,611 261,388
Variance 2,177,320 1,904,279
Verification disclosed that the variance on the reported

Depreciation Expense on Land Improvements pertain to
Investment Property while the variance on the reported
Depreciation Expense on Leasehold Improvements pertain to
Office, IT, Furniture, Fixtures and Others.
As a result, the reported Depreciation Expenses for the

abovementioned accounts for CYs 2021 and 2020 are
misstated, contrary to the fair presentation mandated by
3.2.2. As a result of the deficiencies noted in the information disclosed in

the NTFS, the reported total assets and liabilities of the Corporation
as at December 31, 2021 are understated by P199.155 million and
P192.639 million, respectively. On the other hand, the reported
expenses for CY 2021 is overstated by P6.516 million, contrary to
the fair presentation mandated by Paragraph 15 of PAS 1. Details
follow:
Item Assets Liabilities Equity Income Expenses

A 0 0 0 0* 0
B 0 0 0* 0 0
C (188,640,052) (188,640,052) 0 0 0
D 0* 0 0 0 0
E (6,515,669) 0 0 0 6,515,669
F (3,999,140) (3,999,140) 0 0 0
G 0 0* 0 0 0
H 0 0* 0 0 0
I 0 0 0 0 0*
(199,154,861) (192,639,192) 0 0 6,515,669
*Net effect of the misstatement is nil since it involves reclassifications or incorrect
presentation only.
3.2.3. We recommended and Management agreed to:
a. Prepare adjusting journal entries to correct the

misstatements noted in the books of accounts, and ensure
that the pertinent CY 2021 and 2020 balances in the CY
2022 financial statements are restated accordingly; and
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b. Install appropriate control mechanisms, i.e. records
reconciliation, “peer” review and preparation of disclosure
checklist, to ensure that disclosures contained in the NTFS
are accurate and consistent with pertinent records.
4. The realizability of the reported Deferred Tax Asset (DTA) as at December 31,
2021 of P1.534 billion is not duly supported by convincing evidence that
would show sufficiency of future taxable profits against which the related
deductible temporary differences can be utilized as required by pertinent
provisions of PAS 12 – Income Taxes. Thus, the accuracy and reliability of
the reported DTA as of even date are doubtful, contrary to the fair
presentation mandated by Paragraph 15 of PAS 1 – Presentation of Financial
Statements.
4.1. Relative to income taxes, PAS 12 implements a so-called “comprehensive

balance sheet method” of accounting which recognizes both the current tax
consequences of transactions and events and the future tax consequences
of the future recovery or settlement of the carrying amount of an entity's
assets and liabilities. Pertinent provisions thereof follow:
a. A DTA shall be recognized for all deductible temporary differences to

the extent that it is probable that taxable profit will be available against
which the deductible temporary difference can be utilized. Such
probability exists when there are sufficient taxable temporary
differences relating to the same taxation authority and the same
taxable entity which are expected to reverse: (i) in the same period as
the expected reversal of the deductible temporary difference; or (ii) in
periods into which a tax loss arising from the DTA can be carried back
or forward.
b. Conversely, when there are insufficient taxable temporary differences

relating to the same taxation authority and the same taxable entity, the
DTA is recognized to the extent that: (i) it is probable that the entity will
have sufficient taxable profit relating to the same taxation authority and
the same taxable entity in the same period as the reversal of the
deductible temporary difference; or (ii) tax planning opportunities are
available to the entity that will create taxable profit in appropriate
periods.
c. In evaluating whether it will have sufficient taxable profit in future

periods, an entity: (i) compares the deductible temporary differences
with future taxable profit that excludes tax deductions resulting from
the reversal of those deductible temporary differences; and (ii) ignores
taxable amounts arising from deductible temporary differences that are
expected to originate in future periods, because the DTA arising from
these deductible temporary differences will itself require future taxable
profit in order to be utilized.
d. The existence of unused tax losses is strong evidence that future

taxable profit may not be available. Therefore, when an entity has a
144
history of recent losses, the entity recognizes a DTA only to the extent
that the entity has sufficient taxable temporary differences or there is
convincing other evidence that sufficient taxable profit will be available
against which the unused tax losses or unused tax credits can be
utilized by the entity. In such circumstances, disclosure of the amount
of the DTA and the nature of the evidence supporting its recognition is
required.
e. To the extent that it is not probable that taxable profit will be available
against which the unused tax losses or unused tax credits can be
utilized, the DTA is not recognized. At the end of each reporting period,
an entity reassesses unrecognized DTA. The entity recognizes a
previously unrecognized DTA to the extent that it has become probable
that future taxable profit will allow the DTA to be recovered.
4.2. As at December 31, 2021, PHILGUARANTEE reported DTA and Deferred

Tax Liability (DTL) of P1.534 billion and P285.483 million, respectively
relative to its future deductible and taxable temporary differences. Details
follow:
Particulars Amount
Deferred tax assets
Bad debts 671,504,403
Impairment losses 692,103,996
Accrued expenses 86,087,653
Unrealized foreign currency losses 119,556
Unrealized losses on financial assets 84,573,679
1,534,389,287
Deferred tax liabilities
Accrued lease income 122,680,053
Other accrued income 36,137,068
Unrealized gains on financial assets 2,957,851
Unrealized foreign currency gains 6,011,417
Gain on debt extinguishment 117,696,157
285,482,546
4.3. Audit of the accounts disclosed that there is lack of substantial evidence to
show that there are sufficient taxable profits in future periods against which
the above deductible temporary differences can be utilized rendering the
realizability of the recorded DTA doubtful. Considering that the Corporation
has insufficient taxable temporary differences, the DTA should be
recognized to the extent that it is probable that the entity will have sufficient
taxable profits in the same period as the reversal of the deductible
temporary differences.
4.4. On this score, PAS 12 requires the Corporation to compare the deductible
temporary differences with future taxable profit that excludes tax deductions
resulting from the reversal of those deductible temporary differences.
145
However, there is no documentation prepared and submitted by
Management as to the conduct of such comparison or analysis. Neither has
Management demonstrated tax planning opportunities available to the
entity that will create taxable profits in appropriate periods.
4.5. Further, there are circumstances suggesting the improbability that taxable
profits will be available against which the Corporation’s deductible
temporary differences can be utilized. We noted that PHILGUARANTEE
had unused tax losses or net operating loss carryover of P59.437 million
and P54.892 million which expired in CYs 2020 and 2019, respectively.
Under PAS 12, such unused tax losses are strong evidence that future
taxable profits may not be available.
4.6. Prior to the merger, TIDCORP and the former HGC also had history of
recent taxable losses casting doubt on the availability of future taxable
profits. Details follow:
Year TIDCORP Former HGC

2018 115,540,804 0
2017 59,437,455 0
2016 54,892,094 0
2015 49,893,427 0
2014 0 0
2013 0 395,863,778
2012 0 608,412,988
4.7. In view of the above, we reiterate that the Corporation does not have
sufficient taxable temporary differences to cover its deductible temporary
differences. Its reported DTL as at December 31, 2021 amounted to
P285.483 million only. Likewise, no other convincing evidence was
presented by Management to justify the availability of future taxable profits.
4.8. As a result, the accuracy and reliability of the reported DTA as at December
31, 2021 of P1.534 billion is doubtful, contrary to the fair presentation
4.9. It bears stressing that significant judgment is required to determine the

amount of DTA that can be recognized based upon the likely timing and
level of future taxable income together with future planning strategies. It is
based on assumptions such as availability of future taxable income and the
timing of the reversal of the temporary differences that are affected by
expected future market or economic conditions and the expected
performance of the Corporation.
4.10. Therefore, at the minimum, PHILGUARANTEE must have a well-

documented analysis and decision making at the appropriate management
level for the valuation of its DTA, including therein a breakdown and timing
of projected taxable profits, as well as a determination of the level of
probability thereof.
146
through the CG, either:
a. Recognize DTA only to the extent of its total taxable differences

as at December 31, 2021, and disclose the excess DTA in the
NTFS; and
b. Reassess at the end of each year the derecognized/unrecognized

DTA and recognize the same only to the extent that it has become
probable based on the result of such reassessment that future
taxable profit will allow the DTA to be recovered; or
c. Submit justification for the continued recognition of its DTA of

P1.534 billion which must be objective and well-documented,
including a breakdown and timing of projected taxable profits, as
well as a determination of the level of probability thereof.
4.12. We further recommended that Management through the CG, disclose
in the NTFS the nature of the evidence supporting the recognition of
its DTA as required by PAS 12.
4.13. Management commented that the Board of Directors (BOD) approved on

June 21, 2022 the Medium-term Plan (MTP) of the Corporation from CYs
2022 to 2026. Based on the projected results of operations,
PHILGUARANTEE will register positive results, with comprehensive income
ranging from P848.420 million in CY 2022 to P1.480 billion in CY 2026 with
average growth rate of 20.01 percent over the five-year period. The
assessed income tax expenses thereon were projected at P307.78 million
to P421.18 million in CY 2026.
4.14. Currently, the FAD, in coordination with the concerned units is still
assessing the transactions and accounts subjected to DTA, i.e. impairment
losses on credit exposures and investment properties, relative to the
projected timeline of possible write off of the accounts when the tax benefits
may be derived. The outcome of the assessment will be furnished to the
Audit Team as soon as possible.
4.15. As an audit rejoinder, the Audit Team still has to be provided with a copy of
the MTP, thus, we cannot assess the propriety of the same to justify the
continued recognition of the DTA. Accordingly, the courses of action taken
and to be undertaken by Management to comply with the recommendations
will be duly monitored and evaluated. We stress, however, that the reported
balances of the subject accounts remain doubtful pending full compliance
with the recommendations.
5. The reported carrying amounts of Investment Property as at December 31,

2021 totaling P10.396 billion are unreliable due to deficiencies in the
determination of impairment loss on some properties, contrary to pertinent
provisions of PAS 36 – Impairment of Assets and the fair presentation
mandated by PAS 1 – Presentation of Financial Statements.
147
5.1. PAS 36 prescribes the procedures that an entity applies to ensure that its
assets are carried at no more than their recoverable amount. An asset is
carried at more than its recoverable amount if its carrying amount exceeds
the amount to be recovered through use or sale of the asset. Pertinent
provisions of said standard follow:
a. An entity shall assess at the end of each reporting period whether

there is any indication that an asset may be impaired. If any such
indication exists, such entity shall estimate the recoverable amount of
the asset, which is the higher of its fair value less costs of disposal
(FVLCD) and value in use (VIU).
b. VIU refers to the present value of the future cash flows expected to be
derived from an asset while FVLCD pertains to the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date less
incremental costs directly attributable to the disposal of an asset,
excluding finance costs and income tax expense.
c. In assessing whether there is any indication that an asset may be

impaired, an entity shall consider, as a minimum, the following
indications:
i. There are observable indications that the asset’s value has

declined during the period significantly more than would be
expected as a result of the passage of time or normal use;
ii. Significant changes with an adverse effect on the entity have

taken place during the period, or will take place in the near future,
in the technological, market, economic or legal environment in
which the entity operates or in the market to which an asset is
dedicated;
iii. Significant changes with an adverse effect on the entity have

taken place during the period, or are expected to take place in the
near future, in the extent to which, or manner in which, an asset is
used or is expected to be used such as the asset becoming idle;
and
iv. Evidence is available that indicates that the economic

performance of an asset is, or will be, worse than expected.
d. If the recoverable amount of an asset is less than its carrying amount,

an entity shall reduce the carrying amount of the asset to its recoverable
amount. Such reduction is an impairment loss, which must be
recognized immediately in profit or loss, unless the asset is carried at
revalued amount.
e. An entity shall assess at the end of each reporting period whether there
is any indication that an impairment loss recognized in prior periods for
an asset other than goodwill may no longer exist or may have
decreased. If any such indication exists, the entity shall estimate the
148
recoverable amount of the asset. These indications include the opposite
of those enumerated above.
5.2. As at December 31, 2021, PHILGUARANTEE reported Investment

Property of P10.396 billion, net of accumulated depreciation and impairment
losses, as follows:
Particulars Land Building Total

Cost 11,288,633,046 116,410,844 11,405,043,890
Accumulated depreciation (0) (36,736,400) (36,736,400)
Accumulated impairment losses (953,908,544) (18,810,457) (972,719,001)
Carrying amount 10,334,724,502 60,863,987 10,395,588,489
5.3. Verification of pertinent records disclosed that the Corporation failed to fully
recognize the impairment loss (and/or reverse previously recognized
impairment losses) on ROPAs recorded as Investment Property for CY
2021 despite the existence of several indicators of impairment as
enumerated under Paragraph 5.1.c brought about by the on-going
Coronavirus Infectious Disease 2019 (COVID-19) pandemic. As at
December 31, 2021, the Corporation has recognized an allowance for
impairment on some investment property specifically land totaling P953.909
million only.
5.4. Relevantly, there is lack of substantial evidence that would prove that
Management, particularly the CG in coordination with the SAMRG, has
adequately performed the impairment testing required under PAS 36. For
CY 2021, no documentation was submitted for our evaluation and audit, as
to the process by which Management has determined the recoverable
amounts of the subject assets.
5.5. On this score, we observed that 101 appraisal reports on the Corporation’s
investment properties submitted to the Audit Team, which serve as the
primary basis of Management in determining whether an impairment loss
must be recognized, are not up to date. All the submitted appraisal reports
were prepared prior to October 1, 2021. Notably, 68 of them were prepared
pre-pandemic as follows:
No. of Appraisal
Year Prepared Reports Percentage (%)
2021 8 7.92
2020 25 24.75
2019 52 51.49
2018 4 3.96
2017 4 3.96
2015 1 0.99
2014 1 0.99
2013 2 1.98
2011 2 1.98
2003 1 0.99
1997 1 0.99
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No. of Appraisal
Year Prepared Reports Percentage (%)
Total 101 100.00
5.6. Evidently, the valuations contained in the above reports exclude the
probable effects of the COVID-19 pandemic and cannot, therefore, serve as
the sole basis for the impairment testing as at December 31, 2021. We
stress that the impairment testing process is highly judgmental and is based
on significant assumptions which are generally affected by expected future
market and economic conditions.
5.7. On the other hand, we noted the following deficiencies in the Schedule of
Fair Values as at December 31, 2021 prepared and submitted by the
SAMRG to the Audit Team:
a. The Legacy Memorial Estates (LME) Property, which has a book value
of P1.261 billion, has an appraised value of P632.128 million as of
February 2021. Thus, the impairment of P628.916 million of said
property was recorded under JV No. 41006302 dated July 2021.
However, verification of schedule on Investment Property and related
Accumulated Impairment revealed that the posted accumulated
impairment of LME was P439.937 million only, thus, a difference of
P188.979 million.
b. Additional impairment loss on some ROPAs based on the latest

appraisal reports were not recognized as at December 31, 2021, thus,
understating the recorded impairment losses by P216.082 million, as
follows:
As at December 31, 2021

Net Carrying Unrecognized
Property Amount FVLCD Impairment Losses
Balay Ticala - Claveria 19,256,711 0 19,256,711
Margarita – Eastville 43,071,500 37,882,708 5,188,792
Woodland Hills 1,184,000 0 1,184,000
Divine Grace (Sugarland) 9,413,207 7,642,585 93,870,606
South View Homes 101,513,191 14,777,166 75,889,348
Tradition Homes 90,666,514 8,077,720 14,741,198
Villa Samantha 22,818,918 3,461,645 5,951,562
Total 287,924,041 71,841,824 216,082,217
c. As at December 31, 2021, the Margarita Northville property posted a

book value of P9.710 million with latest appraised value of P12.024
million which is higher than the book value. Meanwhile, the reported
recoverable amount per SAMRG is P8.132 million. Thus, partial or full
reversal of the recorded impairment losses, based on the recoverable
amount or historical book value whichever is lesser, should have been
made.
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d. Lastly, several investment properties with book values totaling
P377.965 million have appraised values aggregating P295.249 million
which were dated more than twenty years ago, thus, outdated for
impairment testing purposes as at December 31, 2021. Details follow:
Year Book Value per

Property Appraised Appraised Value Schedule
BF Homes - Sambayanihan 1995 4,600,000 2,851,411
FM Pasig BLISS 1995 3,880,000 139,885,000
Community Mortgage Program
MALABAN 1995 2,620,000 14,371,082
MASHAI 1995 117,580,000 35,658,768
Pila 1995 690,000 1,109,487
PMRDC and KDIC
Calauan Property 1997 35,010,099 64,764,799
Sta. Maria, Laguna Property 1997 40,809,069 74,595,684
Sto. Tomas Property 1997 18,710,115 43,410,865
Tanay Rizal Property 1997 71,350,085 1,317,930
Total 295,249,368 377,965,026
5.8. It bears emphasis that it is not only in impairment testing that updated fair
values are needed. Under PAS 40 – Investment Property, an entity that
applies the cost model shall disclose the fair value of its investment
property. In exceptional cases when an entity cannot measure the fair value
of the investment property reliably, it shall disclose: (i) a description of the
investment property; (ii) an explanation of why fair value cannot be
measured reliably; and (iii) if possible, the range of estimates within which
fair value is highly likely to lie.
5.9. As a result, the reported carrying amounts of Investment Property as at

December 31, 2021 are unreliable due to the non-recognition and/or non-
reversal of impairment loss on some Investment Properties during the year,
contrary to the fair presentation mandated by Paragraph 15 of PAS 1.
5.10. We reiterated our previous year’s recommendations that Management,

through the concerned Groups:
a. Submit the detailed documentation of its impairment testing as at

December 31, 2021, including significant assumptions used, to
justify the non-recognition of impairment loss (and/or non-reversal
of previously recognized impairment losses) during the year
despite the existence of indicators of impairment;
b. Resolve the discrepancies noted in the Schedule of Fair Values as

at December 31, 2021 provided by the SAMRG;
c. Otherwise, perform the required impairment testing as at

December 31, 2021 and based on the results thereof, adjust the
recorded impairment loss for the year as necessary. Detailed
documentation of the impairment testing shall likewise be
submitted;
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For (a) and (c), the documentation shall include a detailed listing of
each item under Investment Property together with their
corresponding FVLCD and where necessary, the VIU information.
This, of course, is in addition to the typical information maintained
for each item such as, but not limited to, location, year acquired,
initial and subsequent measurement, status as to titling of
property and whether it is for sale or not; and
d. Ensure that the FVLCD used in impairment testing are up-to-date

and/or comply with the requirements of PFRS 13 – Fair Value
Measurements.
5.11. We further recommended that Management, through the concerned

Groups, set reasonable timeline and milestones for the evaluation,
reconciliation and adjustment of the impairment losses to come up
with the correct account balances and valuation.
5.12. Management commented that several investment properties especially

those located in the provinces are without updated appraisal reports due to
the pandemic. This is the reason they have requested the Bangko Sentral
ng Pilipinas (BSP) to allow them an extension of the prescribed two-year
validity of appraisal reports. Initially, BSP allowed one year and then
granted another one-year extension.
5.13. Aside from the pandemic, it normally takes time to complete the appraisal
of the thousands of properties booked as investment properties. The
accurate amount of impairment losses will only be determined upon
completion of the inspection/appraisal. Relatedly, many appraisers were not
operating during the height of the pandemic in CY 2020 and early CY 2021,
thus, the updating of appraised values cannot be done during those two
years.
5.14. In addition, the review of the accounts and the related FVLCD by the
concerned units is on-going. The required documents, reports, and
adjustments of the impairment losses will be taken up in financial
statements for CY 2022. After validation, the additional impairment losses,
if any, will have to be charged to prior year.
5.15. As an audit rejoinder, we remind Management that regulatory reliefs

approved by the BSP cannot be used to justify deviations from the
requirements of PAS 40. Such reliefs are acceptable for prudential reports
only. Section 1 of BSP Circular No. 1011 dated August 14, 2018, requires
PHILGUARANTEE as a BSP-supervised financial institution to adopt in all
respects the PFRS in the preparation of its financial statements for financial
reporting. COA Circular No. 2015-003 dated April 16, 2015, likewise, does
not provide for any exemption from applying a particular PFRS.
5.16. Further, appraisal reports are not the only source of information in
determining fair values for financial reporting purposes. Under PFRS 13,
unobservable inputs can be used in valuation techniques when relevant
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observable inputs such as market prices and appraisal reports are not
available. An entity develops unobservable inputs using the best
information available in the circumstances, which might include the entity's
own data, taking into account all information about market participant
assumptions that is reasonably available.
5.17. Accordingly, the courses of action taken and to be undertaken by

evaluated by the Audit Team. We stress, however, that the reported
balances of the subject accounts remain doubtful pending full compliance
6. PHILGUARANTEE recorded the cash collections from contracts of lease with

option to purchase totaling P24.798 million as at December 31, 2021 as
Deferred Credits – Contracts of Lease with Option to Purchase (DC-CLOP)
instead of recognizing the same as lease payments under either an operating
lease or a finance lease, thus, overstating DC-CLOP, while understating
Lease Income, if classified as operating lease, or understating Lease
Receivables and overstating Investment Property and/or Non-current Assets
Held for Sale (NCAHS), if classified as finance lease; contrary to pertinent
provisions of PFRS 16 – Leases and the fair presentation mandated by
6.1. Paragraph 61 of PFRS 16 requires that a lessor shall classify each of its
leases either as an operating lease or a finance lease. One situation that
would normally lead to a lease being classified as finance lease is when the
lessee has the option to purchase the underlying asset at a price that is
expected to be sufficiently lower than the fair value at the date the option
becomes exercisable for it be reasonably certain, at the inception date, that
the option will be exercised.
6.2. As disclosed in the CY 2021 NTFS of PHILGUARANTEE, the Corporation

has entered into a significant number of lease agreements as lessor.
Judgment was exercised by Management to distinguish each lease
agreement as either an operating or finance lease by looking at the transfer
or retention of significant risk and rewards of ownership of the properties
covered by the agreements.
6.3. Moreover, under Note 18 of said NTFS, DC-CLOP account is described as

pertaining to collections from CLOPs and the excess of the book value over
cost on the acquisition of the BLISS Development Corporation (BDC).
Collections from CLOP are applied as down payment when the lessee
exercises his option to purchase. Otherwise, these are forfeited upon end of
the lease term and recognized as income by the Corporation.
6.4. In determining whether the lease arrangements qualify as a finance lease,

the following factors have been considered: (a) the lease provides the
lessee an option to purchase the asset at a price that is expected to be
sufficiently lower than the fair value at the date the option is exercisable; (b)
the lease transfers ownership of the property at the end of the lease; and
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(c) the lease term approximates the estimated useful life of the asset being
leased.
6.5. Further, leases wherein the Corporation substantially transfers to the lessee
all risks and benefits incidental to ownership of the leased item are
classified as finance leases and are presented as receivable at an amount
equal to the Corporation’s net investment in the lease. Finance income is
recognized based on the pattern reflecting a constant periodic rate of return
on the Corporation’s net investment outstanding in respect of the finance
lease.
6.6. Furthermore, leases which do not transfer to the lessee substantially all the
risks and benefits of ownership of the asset are classified as operating
leases. Lease income from operating leases is recognized in profit or loss
on a straight-line basis over the lease term.
6.7. Verification revealed that PHILGUARANTEE recorded the cash receipts

from lease agreements with options to purchase totaling P24.798 million
and P24.842 million as at December 31, 2021 and 2020, respectively, as
DC-CLOP under non-current liabilities.
6.8. It must be stressed that the DC-CLOP account must not be maintained to
begin with. Under PFRS 16, CLOPs must be treated in the books either as
operating or finance lease. Hence, the collections should be recorded as
lease income if classified as operating lease; or as a reduction to finance
lease receivables, with prior derecognition of Investment Property or
NCAHS, as applicable, if classified as finance lease.
6.9. Lease agreements with a purchase option are contracts whereby a lessor
grants the right to use a fixed asset to a lessee, for which the lessee pays a
number of installments over a specific term. When the agreement expires,
the lessee has the option of purchasing the leased asset. Leases of this
type take the form of a lease agreement that includes a purchase option
that may be exercised within the contractually stipulated term.
6.10. Moreover, from an accounting point of view, the above reasonableness

requirement, when exercising the purchase option, will be met if the fair
value of the asset at the date on which the option is exercised significantly
exceeds the price agreed to transfer the asset, which has to be evaluated
by Management. In this respect, the above situation may be assumed to
occur when the price agreed for the transfer of the asset is equivalent to the
fair value of the asset on the date the lease agreement is signed less the
monthly payments made by the lessee prior to the exercising of the option.
6.11. Therefore, and in line with the above, if there are no reasonable doubts
about the exercising of the purchase option, the lease agreement should be
accounted for as a finance lease. In the event that there are reasonable
doubts as to the exercising of the option, the lease will be classed as an
operating lease. In this case, the lessor will recognize revenue for the
income accrued and the lessee will recognize a lease expense for said
payments.
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6.12. The lessor will recognize a receivable for the present value of the minimum
payments to be received for the lease plus the asset's residual value,
discounted at the implicit contract interest rate. Likewise, the result of the
operation will be accounted for by derecognizing the asset subject to the
financial lease at its net book value.
6.13. The lessee must recognize the value of the leased item under assets and
must simultaneously recognize the amount payable to the lessor under
liabilities on the balance sheet.
6.14. In the event that the lease is classed as a finance lease but finally the
purchase option is not exercised by the lessee, from an accounting
viewpoint, this situation would imply an adjustment to the carrying value of
assets and/or liabilities resulting from the obtainment of additional
information or knowledge of new events which would be classified as a
change in accounting estimates. Changes in accounting estimates are
applied on a prospective basis and the relevant effect is attributed,
depending on the nature of the transaction concerned, as income or
expense in the income statement for the year or, when appropriate, is
charged directly against equity.
6.15. The lessor must recognize the addition of the leased asset at its acquisition
cost on the date of finalization of the term for exercising the purchase
option, equivalent to the outstanding receivable held against the lessee. In
this event, no income will be recorded in the income statement.
6.16. Contrary to the above discussed requirements of PFRS 16, Management

did not properly account the CLOP in its books. Instead, it readily and
erroneously lumped the lease payments received under a liability account
and applied the same as down payment when the option to purchase is
exercised or as income when the option is foregone.
6.17. We recommended that Management, through the CG and SAMRG:
a. Analyze and determine whether the lease agreements with option

to purchase should be treated either as operating lease or as
finance lease;
b. Based on the results of its analyses, properly account the cash

receipts from those lease agreements either as operating lease or
as finance lease; and
c. Submit to the Audit Team the results of its analyses, copies of the
said contracts, as well as the schedule of payments per lessee
under the said contract, for audit.
7. Deficiencies noted in the accounting treatment of guarantee premiums which

are contrary to pertinent provisions of PFRS 15 – Revenue from Contracts
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with Customers and the fair presentation mandated by Paragraph 15 of PAS
1 – Presentation of Financial Statements:
A. Housing Guarantee Operations:
7.1. Collections from guarantee premiums of housing guarantee

operations totaling P1.372 million for CY 2021 were improperly
recorded as Other Deferred Credits – Insurance Premium (ODC-IP)
instead of crediting the same to Guarantee Income account, Other
Unearned Revenue (OUR) and Other Income – Fines and Penalties.
Also, collections from the same guarantee operations totaling P1.715
million for the same year were incorrectly lodged under Guarantee
Income account instead of recording the same to OUR and ODC-IP
accounts, thus, the aforementioned errors resulted in the
overstatement of ODC-IP and Guarantee Income accounts by P1.317
million and P215,134, respectively and understatement of OUR and
Other Income – Fines and Penalties account by P1.532 million and
P329, respectively, for the same year.
7.1.1. Relative to revenue, PFRS 15 specifies how and when an entity will
recognize revenue as well as requiring such entities to provide
users of financial statements with more informative and relevant
disclosures. Pertinent provisions thereof follow:
a. Paragraph 46 provides that when or as a performance

obligation is satisfied, an entity shall recognize as revenue the
amount of the transaction price that is allocated to that
performance obligation. Relative thereto, Paragraph 35
explains that an entity transfers control of a good or service
over time and, therefore, satisfies a performance obligation
and recognizes revenue over time, if one of the following
criteria is met:
i. The customer simultaneously receives and consumes the

benefits provided by the entity’s performance as the entity
performs;
ii. The entity’s performance creates or enhances an asset

that the customer controls as the asset is created or
enhanced; or
iii. The entity’s performance does not create an asset with an

alternative use to the entity and the entity has an
enforceable right to payment for performance completed to
date.
b. Paragraph 47 defines the transaction price as the amount of

consideration to which an entity expects to be entitled in
exchange for transferring promised goods or services to a
customer, excluding amounts collected on behalf of third
parties.
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c. Paragraph 60 directs that in determining the transaction price,
an entity shall adjust the promised amount of consideration for
the effects of the time value of money if the timing of payments
agreed to by the parties to the contract provides the customer
or the entity with a significant benefit of financing the transfer
of goods or services to the customer. In those circumstances,
the contract contains a significant financing component.
d. Paragraph 65 requires an entity to present the effects of

financing (interest revenue or interest expense) separately
from revenue from contracts with customers in the statement
of comprehensive income. Interest revenue or interest
expense is recognized only to the extent that a contract asset
(or receivable) or a contract liability is recognized in
accounting for a contract with a customer.
e. Paragraph 73 explains that the objective when allocating the

transaction price is for an entity to allocate the transaction
price to each performance obligation (or distinct good or
service) in an amount that depicts the amount of consideration
to which the entity expects to be entitled in exchange for
transferring the promised goods or services to the customer.
7.1.2. PHILGUARANTEE provides risk guarantees and fiscal incentives

for housing credits extended by banks, investors, and other
financial institutions, thereby stimulating the flow of funds from both
the government and private sectors for housing and urban
development.
7.1.3. Upon the enrollment of guarantee by the accredited financial

institutions (AFIs) to PHILGUARANTEE, the latter shall issue a
PAO which will be used as a reference for the payment of
guarantee fees by the former. The official receipt (OR) which will be
issued to the AFI upon payment of guarantee fees will be
presented to the Housing Guarantee Group (HGG), for evaluation.
7.1.4. Thereafter, the HGG will review the batch list of the accounts
subject to guarantee enrollment for the issuance of Certificate of
Guarantee. At this point, there are occasions where some of the
accounts are either disapproved or withdrawn due to certain
deficiencies such as, but not limited to, failure to meet the Loan-to-
Collateral Ratio (LCR) and other warranties expressly stated in the
Contract of Guarantee (COG).
7.1.5. As a result, overpayment of guarantee fees is expected and

realized, which are being accounted and maintained by the HGG,
subject to refund or offsetting from subsequent enrollments.
7.1.6. As disclosed in the CY 2021 NTFS of PHILGUARANTEE, the

Corporation uses the accrual basis of accounting for premium on
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credit insurance guarantee. Guarantee fees are collected upon
enrollment of accounts for guarantee coverage. The journal entries
to record the receipt of guarantee premiums are as follows:
a. To recognize receipt of guarantee premiums from enrollment

of accounts for guarantee:
Account Title Debit Credit

Cash xxx
OUR xxx
Guarantee income, if any xxx
Fines and penalties, if any xxx
b. To record overpayment of guarantee fees:

Cash xxx
ODC – IP xxx
c. To record revenue through recognition of the earned portion

of unearned guarantee income:

OUR xxx
Guarantee income xxx
7.1.7. Verification of accounts revealed that collections of guarantee

premiums from housing guarantee operations totaling P1.372
million for CY 2021 were improperly recorded under the ODC-IP
account instead of crediting the same to Guarantee Income, OUR
and Other Income – Fines and Penalties accounts, broken down as
follows:
Debit Credits
Per Books Per Audit
Guarantee Fines and
AFIs Collections ODC-IP Income OUR Penalties
AFI A 538,908 538,908 510,855 28,053 0
AFI B 279,536* 285,240 224,098 61,142 0
AFI C 8,190 8,190 7,276** 1,375 329
AFI D 7,237 7,237 7,672** 3,828 0
AFI E 537,778* 548,913 255,524** 301,204 0
Total 15427 1388488 734953 395602 329
*Net of creditable withholding tax totaling P16,839; **Debits to ODC-IP totaling P12,868.
7.1.8. Inquiry with FAD personnel disclosed that no guarantee coverage

was furnished as basis for the proper recording of the said
collections of guarantee premiums from AFIs; thus, the CG
recorded these transactions under the ODC-IP account. However,
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the Audit Team was able to secure a copy of the guarantee
coverage of the said accounts from the HGG.
7.1.9. Meanwhile, collections from the same guarantee operations

totaling to P1.715 million for the same year were incorrectly lodged
under Guarantee income account instead of recording the same to
OUR and ODC-IP accounts, broken down as follows:
Debit Credits
Per PGC Per audit
AFI
Collections Guarantee ODC- Guarantee
OUR
income IP income
AFI F 69,539 69,539 69,539 - -
AFI G 1,645,341 1,645,341 14,951 1,136,069 494,321
Total 1714880 1714880 84490 1,136,069 494,321
7.1.10. The Accounting personnel in charge of the account alleged that the
above collections were directly recorded to guarantee income since
the guarantee coverage has already been lapsed. However,
substantiation of the accounts showed otherwise.
7.1.11. Per validation, the guarantee premium paid by AFI F amounting to

P69,539 represents overpayment awaiting to be utilized, thus
should be recorded under the ODC-IP account. On the other hand,
the guarantee coverage of AFI G corresponding to the guarantee
premium of P1.645 million shall end only in September 2022.
7.1.12. In sum, the following accounts are overstated (understated) by the

amounts indicated as at or for the year ended December 31, 2021,
contrary to the fair presentation mandated by Paragraph 15 of PAS
1:
Overstatement
Account Per PGC Per Audit (Understatement)
ODC – IP 1,388,488 71,622 1,316,866
OUR 0 1,531,671 (1,531,671)
Guarantee Income 0 1,499,746 215,134
Fines and Penalties 0 329 (329)
7.2. Overpayment and earned guarantee income portion of the premium

payments of Corporation A amounting to P145,181 as at December 31,
2021 were not recognized in the books; thus, overstating OUR
account by P145,181 while understating the ODC-IP and Guarantee
Income accounts by P8,537 and P136,644, respectively.
7.2.1. Audit disclosed that unearned revenue from housing guarantee

fees of Corporation A amounting to P145,181 as at December 31,
2021 was overstated due to non-recognition of overpayment and
earned guarantee income portion of the premium payments.
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7.2.2. Out of the P145,181 of the guarantee premium paid by the said
client recorded in the OUR account, only P8,537 relates to
overpayment, while the difference, or P136,644 pertains to
guarantee fees subject to guarantee income amortization, broken
down as follows:
Particulars Amount
Cash collection recorded under OUR 145,181
Overpayment under HGG Schedule 8,537
Guarantee fees subject to income amortization 136,644
7.2.3. Thus, the OUR account as at December 31, 2021 is overstated by

P145,181 while the ODC-IP and Guarantee Income accounts as of
even date are understated by P8,537 and P136,644, respectively,
contrary to the pertinent provisions of PFRS 15 as cited in
Paragraph 7.1.1 hereof and the fair presentation mandated by
7.3. Guarantee income of P1.590 billion is understated by P1.573 million

and unearned revenue portions of guarantee premiums of P601.821
million is overstated by P23.861 million, both in CY 2021, due to
inaccurate amortization of the guarantee fees paid by the AFIs.
7.3.1. For CY 2021, PHILGUARANTEE reported guarantee income and

unearned guarantee income from its housing guarantee operations
totaling P1.590 billion and P601.821 million, respectively.
7.3.2. Audit showed that the guarantee income and unearned revenue
portions of guarantee premiums collected from the housing
guarantee operations totaling P1.590 billion and P601.821 million
for CY 2021 were overstated (understated) by (P1.573 million) and
P23.861 million, respectively, due to inaccurate amortization of the
guarantee fees paid by the AFIs.
7.3.3. Unearned revenue portion of guarantee premiums as at December

31, 2021 per roll forward is broken down as follows:
Account Amount
OUR 604,412,787
Other financial liability (OFL) (2,591,970)
Total 601,820,817
7.3.4. Inquiry with concerned accounting personnel revealed that the first
amortization only from the OUR to Guarantee Income account of
the collections of housing guarantee premiums from AFIs is
programmed in the XVision. Subsequent amortizations are
manually computed and recorded in the books.
7.3.5. Validation and recomputation of the Schedule of Guarantee Fee

Amortization provided by the CG revealed understatement in the
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recorded guarantee income by P1.573 million and overstatement in
the unearned revenue portions of the guarantee premiums
received by P23.861 million for CY 2021.
7.3.6. Likewise, the following errors in the unearned guarantee income

lodged under OUR account were observed, among others:
a. Reclassification of entries and splitting of the unearned

guarantee fees account into OFL and OUR accounts;
b. Unreconciled balances of OFL and OUR accounts between

trial balance and roll forward amounting to P314.288 million;
c. Debit balances in OFL and OUR accounts totaling P116.266

million; and
d. Unbooked adjustments in the Schedule of OUR account.
7.3.7. Thus, the inaccurate amortization of the guarantee fees paid by the
AFI, as well as the deficiencies noted in the unearned guarantee
income accounts resulted in the understatement of the Guarantee
Income account by P1.573 million and overstatement of OUR
and/or OFL accounts by P23.861 million, contrary to pertinent
provisions of PFRS 15 as cited in Paragraph 7.1.1 hereof and the
a. Ensure the proper recording of guarantee fees received from its

AFIs, in accordance with the provisions of the PFRSs;
b. Coordinate with the HGG on the recognition of liability from

overpayments of guarantee premiums;
c. Reconcile the balances of OUR and OFL accounts and provide for
a policy in recording the unearned guarantee fees; and
d. Adjust the ODC-IP, OUR, OFL and Guarantee Income accounts to

properly account the collections from guarantee premiums paid
by the AFIs, if warranted.
7.5. Management commented that the FAD is currently conducting the

reconciliation of accounts and has prepared the proposed adjustments to
correct the balances, subject to review.
7.6. As an audit rejoinder, we reiterate that as required in PFRSs, the

Corporation has to apply the accrual principle in recording guarantee
premiums received from AFIs in the books; thus, it shall initially recognize
the said premiums received as unearned guarantee income and
subsequently amortize the same as income at the time actually earned.
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balances of the subject accounts remain misstated pending full compliance
B. Priority Sectors Guarantee Operations
7.8. Unearned income on restructured loans totaling P6.351 million as at

December 31, 2021, which pertain to fully paid/settled or past
due/expired accounts, were not adjusted and/or closed to proper
accounts. As a result, the Unearned Income and Income/Retained
Earnings accounts are overstated and understated, respectively, by
undetermined amounts.
Unearned Income on Fully Paid/Settled Accounts
7.8.1. Verification revealed that unearned income on restructured

accounts totaling P2.776 million as at December 31, 2021 relates
to fully paid and/or settled accounts as of even date. However,
these were not adjusted and/or closed to the proper accounts.
Details follow:
Corporate and SME Borrowers Amount

Corporation B 0
Corporation D 0
Corporation D 0
Corporation E 0
Total 0
7.8.2. Inquiry with concerned account officers disclosed that the

outstanding obligations from the restructured loans of Corporations
B, C, D and E have already been fully paid and settled. However,
for Corporation B, the CG did not recognize the payment yet due to
the absence of a duly executed Restructuring Agreement.
Unearned Income on Past Due/Expired Accounts
7.8.3. Further verification showed that unearned income on restructured

loans totaling P3.575 million as at December 31, 2021 pertains to
past-due/expired and impaired accounts as of even date. These
were also not adjusted and/or closed to the proper accounts.
Details follow:
Corporate and SME Borrowers Amount

Corporation F 0
Corporation G 1,000,000
Corporation H 0
Corporation I 73,598
Total 73598
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7.8.4. Inquiry with the concerned account officers revealed that the
outstanding obligations from the restructured loans of Corporations
F, H and I are already past due/expired and impaired due to failure
to settle the remaining amounts as agreed. Similarly, the
compromised loan of Corporation G is already past due and has
been referred to Legal Services Group (LSG) for appropriate
action.
7.8.5. As a result, the Unearned Income and Income and/or Retained

Earnings accounts are overstated and understated, respectively, by
undetermined amounts, contrary to the pertinent provisions of
PFRS 15 and the fair presentation mandated by Paragraph 15 of
PAS 1.
7.8.6. We recommended that Management:
a. Through the CG:
i. Ensure the proper recording of the restructured

loans and unearned income, in accordance with the
provisions of the PFRSs;
ii. Coordinate with the SAMRG, through the Recovery

Management Department (RMD), the updated
balances of the restructured loans and the Unearned
Income account; and
iii. Reconcile and adjust the balances of the Unearned

Income and other affected accounts of the
restructured loans, if warranted.
i. Submit to CG the updated balances of the

restructured loans and unearned income; and
ii. Assist the CG in the reconciliation of the

restructured loan balances and unearned income in
the books.
7.8.7. Management commented that the RMD under SAMRG always
provides the CG with a copy of the Application of Payment (AOP)
for every payment made by clients wherein the outstanding
principal and interest income are reflected. Likewise, the RMD
already provided CG with copies of the Restructuring Agreements
and AOPs of the four accounts subject of the observation.

that the reported balances of the subject accounts remain doubtful
pending full compliance with the recommendations.
163
8. “Passed-on” gross receipts tax (GRT) received from clients for CYs 2021 and
2020 totaling P363,813 and P19,586, respectively, were recorded as GRT
Payable instead of recording the same as Other Income – Fees and Charges
and recognizing the corresponding GRT expense under Taxes and Licenses
upon remittance thereof, contrary to Bureau of Internal Revenue (BIR)
Revenue Memorandum Circular (RMC) No. 62-2016 dated June 13, 2016.
Thus, the reported GRT Payable, Other Income, and Taxes and Licenses
accounts as at December 31, 2021 or for the year then ended are misstated.
8.1. Sections 121 and 122 of the National Internal Revenue Code (NIRC)
impose the collection of a tax of five percent on the gross receipts derived
by banks and non-bank financial intermediaries doing business in the
Philippines, from interest, discounts and all other items treated as gross
income under the Code.
8.2. In connection therewith, BIR RMC No. 62-2016 clarifies that should such
GRT be passed on to clients, the “passed-on” GRT should form part of the
tax base upon which the GRT is based for GRT purposes based on the
definition of “gross receipts,” that is based on actual or constructive receipt
of income. The “passed-on” GRT shall also be considered as receipt of
gross income specified under Section 32(A) of the NIRC.
8.3. Likewise, the “passed-on” GRT are considered as other fees and charges
to the banks and non-bank financial intermediaries, consistent with BSP
Circular No. 370 dated July 20, 2011, on the “Updated Rules Implementing
the Truth in Lending Act to Enhance Loan Transaction Transparency.”
8.4. Under the standard terms and conditions of the Guarantee Agreement by
and between PHILGUARANTEE and the AFIs under its Micro, Small and
Medium Enterprises (MSME) credit guarantee programs, the latter shall pay
the guarantee fee and shall cover the GRT of five percent for each
approved guarantee account. Thus, the Corporation passes to the AFIs the
GRT imposed under the NIRC.
8.5. For CYs 2021 and 2020, the total “passed-on GRT” from guarantee fees
received by PHILGUARANTEE under the MSME credit guarantee facilities,
including then General Facility Program of pre-merger TIDCORP,
amounted to P363,813 and P19,586, respectively.
8.6. Verification disclosed that receipts of guarantee fees are recorded in the
books of PHILGUARANTEE by crediting the Income from Guarantee Fee
and GRT Payable accounts, as follows:

Cash (gross of the GRT) xxx
Creditable Withholding Tax xxx
Income from Guarantee Fee xxx
GRT Payable xxx
164
8.7. Audit disclosed that the Corporation’s practice of crediting the GRT Payable
account to recognize “passed-on” GRT in the books is inconsistent with
RMC No. 62-2016 which clarifies that the same is considered as other fees
and charges and must be treated as receipt of gross income. Thus, upon
the initial recording of the receipt of guarantee fees, the Other Income
account is understated while the GRT payable account is overstated by the
same amount.
8.8. Nonetheless, the GRT Payable is being derecognized upon remittance of

the tax to the BIR. This causes the non-recognition of GRT expense on the
guarantee fees received in the books of PHILGUARANTEE. As stressed in
RMC No. 62-2016, banks and non-bank financial intermediaries can claim
the GRT paid as a deductible expense for income tax purposes pursuant to
Section 34(C) of NIRC subject to the actual remittance of the GRT as
provided under Section 128 of the same Code.
8.9. As a result, the GRT Payable, Other Income, and Taxes and Licenses
accounts as at or for the year ended December 31, 2021, are misstated,
a. Adjust the books as at December 31, 2021 and 2020 to record the
“passed-on” GRT received from clients as Other Income – Fees
and Other Charges as well as the GRT Expense arising from the
guarantee fees received in consonance with RMC No. 62-2016;
b. Formulate a policy on the proper recognition of “passed-on” GRT

and integrate it into the FIS, where feasible, and the new
computerized accounting system to be developed under
PHILGUARANTEE’s Information and Communications
Technology (ICT) Modernization Project;
c. Thereafter, account for the “passed-on” GRT in accordance with

such policy which must be consistent with RMC No. 62-2016.
8.11. Management commented that the FIS currently does not include a feature
for the systematic computations for the transaction. However, this year, the
Corporation will commence the procurement and development of the
Enterprise Resource Planning (ERP). The recommended policy and
process will be considered for integration into the new accounting system.
8.12. Since there is no net impact on the profit or loss, Management suggested
that the recommendation be applied prospectively effective April 2022. The
GRT collections were correctly assessed and remitted to the BIR. These
were recorded under the Taxes and Licenses account in the appropriate
period. Thus, no adjustment is required.
8.13. As an audit rejoinder, while there may be no impact on the Retained

Earnings, there is definitely an effect on the reported profit and loss of the
Corporation, which include understatement of both income and expense
165
accounts. Again, the Corporation did not recognize the additional income as
a result of the “passed-on” GRT and the expense as a result of GRT
payment. This process of proper recording cannot be circumvented by just
providing in the agreement that the client shall cover the GRT.

balances of the subject accounts remain misstated pending full compliance
9. The delayed recognition of sales and disposition transactions of ROPAs

under the Investment Property account resulted in the overstatement of the
Investment Property, Security Deposits Payable and DC-TP accounts, and
the understatement of the SCR and Gain on Sale or OUR-UI-IS accounts by
undetermined amounts. Likewise, the practice of recording certain monthly
installment payments of ROPA buyers as credits to SCR account even
without a prior set up of related receivables and corresponding
derecognition of the sold ROPAs resulted in the understatement of SCR and
Gain on Sale or OUR-UI-IS accounts and overstatement in the Investment
Property account by undetermined amounts. Both are contrary to pertinent
provisions of PFRS 15 – Revenue from Contracts with Customers and the fair
Statements.
9.1. Review of the sale and disposition procedures of ROPAs disclosed that the
process commences with the publication of the Notice of Sale (NOS) or
Invitation to Lease, as applicable, by the Asset Sales and Disposition
Department (ASDD) under SAMRG. Prospective buyers wanting to
participate in the bid should first pay the PHILGUARANTEE the PAO
issued by the ASDD of at least 10 percent down payment based on the
buyer’s bid price for the property for sale.
9.2. Presently, there is no fixed schedule for the publication and conduct of bid
openings. However, bid openings are held every Tuesday of the following
week after each publication. The opening is generally presided by the head
of the ASDD pursuant to Credit Policy Memorandum (CPM) No. 2020-098
dated July 10, 2020. Upon bid opening, the Asset Management Officer
checks the completeness of the bid documents and routes them to
PHILGUARANTEE representatives for signature. Bids with incomplete
documents are deemed non-compliant and no opportunity for rectification is
given. Approved bids are then compiled for evaluation.
9.3. After evaluation, the ASDD prepares the Notice of Award of Sale (NOAS)
and/or the Notice of Disapproval (NOD). The bidders are notified through
call, e-mail, and personal mail of the results of the evaluation. Potential
buyers who receive the NOD have the option of having their bid amount
refunded or maintained in their account for future bidding.
166
9.4. For the potential buyers winning the bid, they are required to appear
personally or through an authorized representative for the processing of
sales documents. Clients opting for the cash sale are required to appear
within 60 days from the receipt of the NOAS while those opting for the
installment sale are given five working days to do so.
9.5. The ASDD briefs the client on the terms of the contract and notes any
typographical errors raised by the latter regarding their personal details.
Thereafter, the pertinent CTS for installment sales or the Deed of Absolute
Sale (DOAS) for cash sales is drafted and printed for signature of the client.
9.6. Thereafter, signed CTS or DOAS is routed by the ASDD for signature of
authorized PHILGUARANTEE officers. The client is then advised to have
the contract and NOAS notarized.
9.7. The journal entries to record the aforementioned disposition transactions

are as follows:
a. To reclassify ROPAs from Investment Property to NCAHS upon the

issuance of NOAS to the identified buyer/buyers:

NCAHS xxx
Investment Property xxx
b. To record sale of ROPAs upon the signing of CTS or DOAS:

If installment payment:
SCR xxx
Cash (for the down payment, if any) xxx
NCAHS xxx
Discount on SCR (if any) xxx
OUR-UI-IS xxx
If cash sales:
Cash xxx
NCAHS xxx
Gain on Sale xxx
9.8. Audit disclosed that PHILGUARANTEE sold a total of 15 ROPA units3 in

CY 2021 with book values totaling P8.871 million and selling prices
amounting to P24.475 million. However, four of the properties sold with
book values totaling P3.369 million and selling prices amounting to P15.097
million were not derecognized in the books as at December 31, 2021 due to
delayed submission of sales documents by the SAMRG to the CG for
recording in the books. Further, these sold properties have no
corresponding set up of receivables. Details follow:
3
Sale of ROPA 5 on November 9, 2021, not included. Please refer to Observation No. 10 hereof for
further discussion.
167
Total Collections
Selling Security Deposits
ROPA Price Book Value SCR Payable
ROPA 1 11,834,000 2,290,000 10,946,450 0
ROPA 2 2,310,000 400,325 2,136,750 0
ROPA 3 472,500 347,661 115,351 75,000
ROPA 4 480,000 331,106 116,047 75,000
Total 952500 3369092 13464598 150000150000
9.9. The failure to recognize the abovementioned sales transactions resulted in

the overstatement of ROPAs recorded under Investment Property account
and understatement of SCR and Gain on Sale or OUR-UI-IS accounts.
Thus, the balance of IP account totaling P10.396 billion as at December 31,
2021 remain misstated; contrary to pertinent provisions of PFRS 15 as cited
in Paragraph 7.1.1 hereof and the fair presentation mandated by Paragraph
15 of PAS 1.
9.10. We recommended that Management:
a. Through the CG:
i. Ensure that the sale and disposition of ROPAs are timely

recorded in the books to prevent the monthly installment
payments’ accumulation to DC-TP account and credit to SCR
without prior recognition of receivables from sales of ROPAs;
and
ii. Analyze each sales transaction for proper recognition and

prepare the necessary adjusting entries to recognize the sale
and disposition of ROPAs and set up of SCR and Gain on
Sale or OUR-UI-IS, in accordance with the provisions of the
PFRSs.
i. Coordinate with the CG for the proper recognition of the sales

and disposition of ROPAs in the books of PHILGUARANTEE;
ii. Submit to the CG and to the Audit Team copies of the

contracts, schedules of payments and collections from each
buyer as at December 31, 2021, to reconcile the records with
the books of PHILGUARANTEE and for audit purposes,
respectively; and
iii. Provide to the CG the breakdown of payments received from

each buyer of ROPAs, including the allocation for principal,
interest and penalties, if applicable.
9.11. Management reiterated its comments under Paragraphs 1.12 and 1.13
hereof. The duties of the IDC include the reconciliation of the discrepancies
noted in the SCR account, among others.
168
the subject accounts remain misstated pending full compliance with the
recommendations.
10. Investment Property with book value totaling P329,428 as at December 31,
2021, was not reclassified to the NCAHS account despite the high probability
of its sale and the identification of the buyer, thus, overstating the
Investment Property account while understating the NCAHS accounts by the
same amount, contrary to pertinent provisions of PAS 40 – Investment
Property and PFRS 5 – Non-current Assets Held for Sale and Discontinued
Operations.
10.1. Paragraph 5 of PAS 40 defines investment property as property, land or a

building or part of a building, or both, held to earn rentals or for capital
appreciation or both, rather than for: (a) use in the production or supply of
goods or services or for administrative purposes; or (b) sale in the ordinary
course of business.
10.2. Meanwhile, Paragraph 6 of PFRS 5 requires that an entity shall classify a

non-current asset, i.e., investment property, or a disposal group as held for
sale if its carrying amount will be recovered principally through a sale
transaction rather than continuing use. To be classified as held for sale,
Paragraphs 7 and 8 of said PFRS require that the asset must be available
for immediate sale in its present condition subject only to terms that are
usual and customary for sales of such assets and its sale must be highly
probable.
10.3. For the sale to be highly probable, the following requisites must be met: (a)
the appropriate level of management is committed to a plan to sell the
asset; (b) an active program to locate a buyer and complete the plan must
have been initiated; (c) the asset must be actively marketed for sale at a
price that is reasonable in relation to its current fair value; (d) the sale
should be expected to qualify for recognition as a completed sale within one
year from the date of classification; and (e) actions required to complete the
plan should indicate that it is unlikely that significant changes to the plan will
be made or that the plan will be withdrawn.
10.4. Pertinently, it is a generally accepted practice in the banking and quasi-

banking industries that ROPAs, consisting of collaterals of cancelled CTS
and foreclosed properties with registered Certificate of Sale, but still within
the redemption period, as well as those with titles already consolidated in
favor of the Corporation, are classified as investment property. These
assets are then reclassified into NCAHS when they become readily
available for immediate sale in its present condition with high probability of
sale within a year pursuant to PFRS 5.
169
10.5. Verification revealed that on November 9, 2021, PHILGUARANTEE
awarded a property located in Wood Estate, Cavite with a book value of
P329,428 and selling price of P460,000. On the same date, the buyer paid
the required 10 percent down payment amounting to P46,100 which was
recorded in the books under Security Deposit Payables account.
10.6. Interview with the concerned account officer disclosed that the property was
fully awarded only in CY 2022 due to misunderstanding on the part of the
buyer, ergo, the payment of monthly installment by the buyer commenced
only in February 2022.
10.7. We noted, however, that the property has not been reclassified from
Investment Property to NCAHS despite the high probability of the sale and
identification of the buyer, thus, understating the NCAHS while overstating
the Investment Property accounts by P329,428 as at December 31, 2021,
contrary to pertinent provisions of PAS 40 and PFRS 5.
10.8. We reiterated our prior years’ audit recommendation that

Management, through the concerned Groups, develop accounting and
reporting policies for ROPAs that are consistent with the acceptable
industry and financial reporting standards.
a. Through the CG:
i. Ensure the proper recording of ROPAs in its books of

accounts in accordance with the provisions of the PFRSs;
ii. Reclassify the properties with probability of sale and

identified buyers from Investment Property to NCAHS; and
iii. Coordinate with the SAMRG on the recording of the sale and
disposition of ROPAs in the books.
i. Regularly submit to the CG the results of the evaluation and

awarding of ROPAs to the bidders/prospective buyers; and
ii. Update the CG on the disposition of ROPAs to ensure the

proper recording of transactions in the books.
10.10. Management commented that close coordination between FAD and the
SAMRG will be undertaken to address documentation of transactions for
the proper and timely recording of the same as well as their submission to
the Audit Team. Further, there is a need to resolve what event will trigger
the reclassification of the Investment Property to NCAHS.

170
recommendations.
11. Sale of ROPA with a book value of P400,325 and a selling price of P2.310
million is not supported by an updated appraised value of the property, thus,
the accuracy and reliability of the disposition of said ROPA cannot be
ascertained, contrary to Item VI of COA Circular No. 89-296 dated January 27,
1989, Item 362-Q(g) of the Manual of Regulations for Non-bank Financial
Institutions (MORNBFI), and pertinent provisions of PHILGUARANTEE’s
Harmonized Disposition Guidelines (HDG) dated January 26, 2021.
11.1. Item VI of COA Circular No. 89-296 provides that, to facilitate audit of the
disposal of corporate assets, the management of the GOCC concerned
shall furnish the Auditor at least 20 days before the advertisement of the
call to public auction with a copy, among others, of the appraisal report
showing the appraised values of the assets, prepared by an in-house
and/or independent appraiser.
11.2. The Corporation’s HDG states that the appraisal for real estate is valid for
two years. Updating may be allowed even before the two-year period
expires, if warranted. This is consistent with the rule under Item 362-Q(g) of
MORNBFI which requires that an in-house appraisal of all ROPAs shall be
made at least every other year, provided that immediate re-appraisal shall
be conducted on ROPAs which materially decline in value.
11.3. Review of the process of sale and disposition of ROPAs showed that prior
to the publication of the NOS and/or Intention to Lease, the RMD sends the
ASDD a list of properties ready for sale, which are then added to ASDD’s
Schedule of Assets Held for Sale.
11.4. Accompanying the said schedule are appraisal reports which are valid for
two years and were obtained from the services of independent appraisers.
After two years, the properties are removed from the schedule until a new
valuation is obtained. The published recommended selling price (RSP) is
the highest of the BIR zonal value, fair market value indicated in the tax
declaration, and the appraised value.
11.5. However, verification of available records and other documents disclosed

that the appraisal report of one property sold in CY 2021 under TCT No. T-
81782 with book value of P400,325 and selling price of P2.310 million was
inadvertently excluded from the documentation of the sale and disposition
of ROPAs.
11.6. Inquiry from the concerned account officer revealed that the appraisal
report for the said property cannot be located despite diligent search. As a
result, the accuracy and reliability of the disposition of the said ROPA
cannot be ascertained, contrary to Item VI of COA Circular No. 89-296 and
pertinent provisions of PHILGUARANTEE’s HDG.
171
11.7. We recommended that Management, through the SAMRG:
a. Ensure that the appraisal reports of ROPAs sold are included in

the documentation of the sale transaction; and
b. Submit to the Audit Team copies of the appraisal reports of

ROPAs, for audit purposes.
11.8. As of this writing, Management has not submitted its written comments to
the subject observation. Nonetheless, the courses of action taken and to be
undertaken by Management to comply with the recommendations will be
monitored and evaluated accordingly. We stress, however, that the
reported balances of the subject accounts remain doubtful pending full
compliance with the recommendations.
12. The delayed recognition of the earned portion from the collection of monthly
installment payments of ROPA buyers lodged under OUR-UI-IS account and
the non-amortization of payments recorded under Security Deposits Payable,
DC-TP, and SCR accounts resulted in the overstatement of the OUR-UI-IS,
Security Deposits Payable, DC-TP and SCR accounts and understatement of
the Other Gains and Retained Earnings accounts by undetermined amounts,
contrary to pertinent provisions of PFRS 15 – Revenue from Contracts with
Customer and the fair presentation mandated by Paragraph 15 of PAS 1 –
Presentation of Financial Statements.
12.1. As disclosed in the CY 2021 NTFS of PHILGUARANTEE, the OUR-UI-IS

account pertains to the deferred gain on sale of acquired assets on
installment basis where the down payment is less than 25 percent of the
selling price. The unearned income is amortized and recognized as gain on
sale of disposed assets upon collection based on the gross profit rate which
ranges from 6.23 to 91.39 percent.
12.2. As at December 31, 2021, the recorded unearned income on installment

sales, lodged under OUR-UI-IS account, amounted to P1.012 billion.
Verification showed that PHILGUARANTEE did not timely and reliably
record the gain on sale already earned at the time of collection due to
delayed submission of sales documents by the SAMRG to the CG for
recording in the books. In CY 2021, the amortization of unearned income
from installment sales were done only in December 2021 and January 2022
for relevant collections made from January to November 2021 and
December 2021, respectively.
12.3. Further, the earned income portion of the collections recorded under
Security Deposits Payable, DC-TP and certain SCR accounts were not
recognized in the books. Double amortization of earned income totaling
P117,791 was also noted.
12.4. For ROPAs awarded and sold in CY 2021 alone, the earned portions
amounting to P673,251 from collections of eight accounts, were not
recorded in the books, broken down as follows:
172
Unrecognized Income – Installment Sales
Total Down
Property Collections Payment DC-TP SCR Total
ROPA 1 72,328 5,269 125 0 5,394
ROPA 2 1,289,952 119,467 428,963 0 548,430
ROPA 3 44,380 24,994 0 3,897 28,891
ROPA 4 112,578 49,634 669 0 50,303
ROPA 5 119,970 26,534 20,091 3,823 50,448
ROPA 6 115,351 19,816 0 4,998 24,814
ROPA 7 116,047 23,265 0 5,954 29,219
ROPA 8 88,418 48,970 2,295 2,278 53,543
Total 88418 317949 452,143 20,950 791042
Double Amortization (117,791)
Earned Portion 673,251
12.5. The installment sales method of revenue recognition defers revenue

recognition until cash from the sale is received. It is a conservative method
of revenue recognition as revenue is not immediately recognized at the
point of sale.
12.6. Thus, the delayed recognition of the earned portion from the collection of
monthly installment payments and the non-amortization of payments
resulted in the overstatement of the OUR-UI-IS, Security Deposits Payable,
DC-TP and SCR accounts and understatement of the Other Gains and
Retained Earnings accounts by undetermined amounts, contrary to
pertinent provisions of PFRS 15 as cited in Paragraph 7.1.1 hereof and the
12.7. We recommended that Management:
a. Through the CG:
i. Ensure the proper and timely recording in the books of OUR-

UI-IS in accordance with the applicable provisions of the
PFRSs;
ii. Analyze each sales transaction for proper recognition and

prepare the necessary adjusting entries to recognize the
earned portion of the OUR-UI-IS to properly reflect the
monthly installment payments made by the buyers; and
iii. Submit to the Audit Team the schedule of amortization of

OUR-UI-IS account and the results of analyses and
adjustments made, for audit purposes.
i. Timely submit the sales documents to the CG for recording in

the books; and
173
ii. Update the CG on the disposition of ROPAs to ensure the
proper recording of transactions in the books.
12.8. Management commented that the study of the pertinent accounting

standards will be undertaken in relation to the transactions to facilitate the
proper and timely recording of the accounts. As coordinated with the
SAMRG, the supporting documents will be provided to facilitate the
recognition of the adjustments, and a review of the process and required
supporting documents will be undertaken.

recommendations.
13. Deficiencies were noted in the audit of the Joint Venture Agreement (JVA)
with Corporation J recorded under SCR account which are contrary to PFRS
15 – Revenue from Contracts with Customers, fair presentation mandated by
Paragraph 15 of PAS 1 – Presentation of Financial Statements and Item 362-
Q.a of the MORNBFI:
13.1. On July 22, 2009, a JVA (Original JVA) 4 was entered into by and between
the former HGC and Corporation J whereby the parties will recover their
respective investments in the properties with the total area of 780,494.79
sqm. Hence, Corporation J waived its claims against the former HGC
amounting to P31.010 million, as well as its remuneration for the cost of
managing and administering the properties.
13.2. The recoverable amount on the part of then HGC is P700 million, broken
down as follows:
Property Amount Credited to SCR

Property A 318,323,215
Property B 168,628,862
Property C 152,538,545
Property D 60,509,378
Total 700000000
13.3. The original JVA has a term of seven years which commenced in July
2009, inclusive of the one-year moratorium for the development or
completion of the development of the properties, with the exception of the
properties situated on Property C which is extendable for another two
years.
13.4. The journal entry to record the original JVA in the books of the former HGC
was as follows:
4
Board Resolution No. 22-2009 dated May 18, 2009, authorized the Management of the former HGC to
enter into a JVA.
174
SCR 700,000,000
Loss on JVA 161,672,938
NCAHS 798,036,574
OUR-UI-IS 63,636,364
13.5. Prior to the expiration of the original JVA in July 2016, Corporation J
requested a five-year extension of the said agreement to complete the
development and marketing of the projects included therein. The request
was ultimately approved by the BOD of the former HGC under its
Resolution No. 33-2017 dated July 27, 2017, and another JVA (New JVA)
was executed between the parties on February 22, 2018.
13.6. The delayed derecognition and reversal of the Original JVA accounts
in the books and the existence of unreconciled difference of P60.682
million between the amount recorded in the books and that reported
by the SAMRG of P246.430 million resulted in the misstatement of
SCR, NCAHS, OUR-UI and Retained Earnings accounts’ balances
upon the expiration of the Original JVA.
13.6.1. As at December 31, 2017, the sales remittance report revealed that
the total lot sold and the total remitted amount were 68,611.43 sqm
and P246.430 million, respectively, or only 35.20 percent of the
P700.000 million recoverable amount after the Original JVA had
fully expired, broken down as follows:
Sold Area
Project (In sqm) Remitted Amount
Property A 24,095 164,838,499
Property B 30,792 63,580,367
Property C 5,869 7,311,104
Property D 7,855 10,700,468
68611 246430438
13.6.2. However, verification revealed that the former HGC reverted back
the balances of the Original JVA to its books in December 2018
only to close the remainder upon its expiration.
13.6.3. Moreover, an unresolved difference of P60.682 million per

recomputation was noted between the records in the books for the
collection of the Original JVA amounting to P307.113 million and
the amount reported by the SAMRG totaling P246.430 million as at
December 31, 2017.
13.6.4. Included in the difference are the collections pertaining to the New
JVA totaling P40.631 million which were inadvertently recorded in
the books as collections for the Original JVA, while the remaining
difference of P20.051 million were unreconciled amounts between
collections in the books and in the report of SAMRG.
13.6.5. The aforementioned deficiencies in recording the transactions of

the Original JVA resulted in the understatement of the Retained
175
Earnings and NCAHS by P14.014 million and P69.181 million,
respectively, and the overstatement of the SCR and OUR-UI
accounts by P60.682 million and P5.515 million, respectively,
determined as follows:
Per Books Per Audit Required Adjustments

Account Debit Credit Debit Credit Debit Credit
NCAHS 447,911,594 0 517,092,999 0 69,181,405 0
OUR-UI 35,719,090 0 41,233,597 0 5,514,506 0
SCR 0 392,887,245 0 453,569,562 0 60,682,317
Retained Earnings 0 90,743,440 0 104,757,034 0 14,013,594
a. Through the CG:
i. Ensure that the collections from the JVA accounts are

properly and timely recorded in the books;
ii. Reconcile the collections pertaining to the original

JVA with the records of SAMRG;
iii. Adjust the NCAHS, OUR-UI, SCR, and Retained

Earnings accounts to properly reflect the balances of
the Original JVA prior to the closing of accounts; and
iv. Submit to the Audit Team the results of the

adjustments made, for audit.
i. Coordinate with the CG on the accurate and proper

balances of the Old JVA accounts in the books; and
ii. Submit to the CG the schedule of collections and

remittances of the old JVA accounts for proper
recording and adjustments in the books.
13.6.7. Management commented that the SAMRG coordinated with and

submitted to CG the detailed schedule of the remittances of
Corporation J under the Old JVA and the New JVA amounting to
P246.430 million and P204.400 million, respectively, for proper
recording and adjustments in the books. The CG will then reconcile
the accounts in coordination with the SAMRG and provide the Audit
Team with a report on the adjustments made, including pertinent
JVs recording the same.

that the reported balances of the subject accounts remain doubtful
pending full compliance with the recommendations.
176
13.7. The accuracy and reliability of the balance of SCR account from the
New JVA with Corporation J totaling P384.643 million as at December
31, 2021, cannot be ascertained due to the existence of unreconciled
variance of P65.938 million noted between the amount recorded in the
books and that reported by the SAMRG of P370.176 million.
13.7.1. As at December 31, 2021, PHILGUARANTEE reported SCR

arising from the New JVA with Corporation J of P384.643 million,
broken down as follows:
Property Amount Credited to SCR

Property A 117,220,937
Property B 76,040,101
Property C 169,898,140
Property D 21,483,748
Total 384,642,926
13.7.2. Review of the Sales Report and Summary of Remittances prepared

by the RMD as at December 31, 2021, disclosed that the remaining
balances of receivables from the New JVA amounted to P370.176
million only, or a variance of P65.938 million with that recorded in
the books, computed as follows:
SCR, 12/31/2021
Property Variance
Per SAMRG Per CG
Property A 93,051,369 117,220,937 24,169,568
Property B 62,965,197 76,040,101 13,074,904
Property C 166,940,134 169,898,140 2,958,006
Property D 47,219,578 21,483,748 25,735,830
Total 65,938,308
13.7.3. Further verification revealed that PHILGUARANTEE reported

collections for the New JVA totaling P189.653 million as at
December 31, 2021. Details follow:
Account Amount
Total collections per books – New JVA, 12/31/2021 165,436,177
Adjustments for Property D 24,716,369
Adjustments for Property B (499,144)
Adjusted collections per book, 12/31/2021 189,653,402
13.7.4. However, per RMD report as at December 31, 2021, the total
remittance of Corporation J from the New JVA amounted to
P204.120 million, thus, variance of P65.938 million with the books
and records of CG, broken down as follows:
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Remittance as at 12/31/2021
Property Per SAMRG Per CG Variance
Property A 107,891,367 83,721,800 24,169,567
Property B 63,090,425 50,015,520 13,074,905
Property C 10,830,807 7,872,801 2,958,006
Property D 22,307,451 48,043,281 25,735,830
Total 65,938,308
13.7.5. Obviously, the existence of the unreconciled variance of P65.938

million casts doubt on the validity of the recorded SCR and total
collections as at or for the year ended December 31, 2021,
1.
13.7.6. Based on available records, the differences observed in the SCR

balance and total remittance between the records of SAMRG and
the books as at December 31, 2021, arose from the following:
Per CG
Total
Reconciling Items SCR Remittance
Unadjusted balances, December 31, 2021 384,642,926 189,653,403
Overstatement of reversal under RIDS in
CY 2018 1,675,170 (1,675,170)
Reversal entries in CY 2018 for CY 2017
items which are already reversed 24,217,225 (24,217,225)
Collections posted in the transaction listing
(TL) of SCR but not included in RMD
records 829,190 (829,190)
Discrepancy between RMD records versus
TL 44,171 (44,172)
CY 2017 collections applicable to the New
JVA (40,630,537) 40,630,537
Collections included in RMD records but
not recorded in TL of SCR (601,867) 601,867
Adjusted balances, December 31, 2021 370,176,278 204,120,050
a. Through the CG:
i. Ensure that the transactions of the New JVA with

Corporation J are completely and properly recorded
in the books;
ii. Reconcile the collections and balances of receivables

of each project of the New JVA with Corporation J
with the records of SAMRG;
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iii. Adjust the SCR Discount, OUR-UI, Retained Earnings
and other affected accounts to properly reflect the
accounts’ balances as at December 31, 2021; and
iv. Submit to the Audit Team the results of the

adjustments made, for audit purposes.
i. Coordinate with the CG on the accurate and proper

amount of collections and balances of receivables of
each project of the New JVA in the books; and
ii. Submit to the CG the schedule of collections and

remittances of the New JVA accounts for proper
recording and adjustments in the books.
13.7.8. Management commented that the required adjustments were

already taken up under JV No. 41012876 dated December 31,
2021, together with the adjustment of the other SCR accounts.
Said JV and its supporting documents will be submitted to the Audit
Team. In so doing, the CG and SAMRG coordinated in order to
reconcile the accounts.
13.7.9. As an audit rejoinder, we shall await submission by the FAD of the

pertinent JV recording the adjustments including supporting
documents thereto for our validation. We expect that subsequent
transactions of similar nature will be recorded properly.
14. Corporation K remitted rentals of P16.268 million only in CY 2021 out of the
P34.616 million stipulated in the contract even without the approval of its
request for a 50 percent discount on rent. This resulted in unpaid rentals of
P18.349 million, as well as penalties of P1.109 million as at December 31,
2021.
14.1. Items III.3 to 4 of the Contract of Lease (COL) dated October 19, 2007, with
Corporation K state that the monthly rentals covered by post-dated checks
shall be due on the first five days of each month, without need of demand.
Monthly rentals not paid on due date may be accepted but shall be
assessed a penalty of one percent per month based on the amount due
until fully paid, but the penalty shall be pro-rated in case the delay in
payment is less than a month.
14.2. On March 8, 2020, the President of the Philippines issued Proclamation No.
922 declaring a State of Public Health Emergency throughout the
Philippines due to the outbreak of COVID-19 that threatens national
security. In light of this development, the President of the Corporation K
requested the Management of PHILGUARANTEE through a letter dated
May 25, 2020 for a 70 percent discount on the rent of the Monumento Plaza
property.
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14.3. On October 30, 2020, the PHILGUARANTEE, through the Head of
SAMRG, replied that the BOD approved the following reliefs to be granted
to Corporation K:
a. Payment of P753,718 only or 30 percent of the monthly lease rental of

P2.512 million thereby deferring payment of P1.759 million equivalent
to 70 percent of the lease rental per month for the period from June 1
to December 31, 2020, subject to submission of bi-monthly
assessment.
b. The deferred 70 percent portion of the regular monthly rentals for the
period June 1 to December 31, 2020 in the total amount of P12.311
million shall be added to the regular rental fee in equal monthly
payments for the remaining term of the contract.
c. Charge the rental fees corresponding to the moratorium period, i.e.,

March 16 to May 31, 2020 against the deposit/advance rental.
14.4. On January 15, 2021, the President of Corporation K sent a letter

addressed to the President and Chief Executive Officer (CEO) of
PHILGUARANTEE requesting a rental discount of 50 percent from
February 2021 to June 2021. On September 22, 2021, PHILGUARANTEE
denied the request for rental discount due to lack of legal basis.
14.5. However, inquiry with concerned personnel of the SAMRG revealed that
even without the prior approval of PHILGUARANTEE, Corporation K
remitted only 50 percent of the required rental payments for the months
from February 2021 to December 2021, or a total of P16.268 million,
inclusive of EWT of P753,720. Under the COL and as reflected in the
Schedule of Payments, Corporation K should have paid rentals totaling
P34.616 million for CY 2021.
14.6. Thus, there are unpaid rentals totaling P18.349 million as well as penalties
arising from delayed payment thereof estimated to be around P1.109
million as at December 31, 2021, computed as follows:
Actual Should be Unpaid

Date OR No. Month Applied Penalties
Payment Payment rental fee
01/11/2021 40787 2,512,393 2,780,017 January 2021 267,624 32,115
02/08/2021 42060 1,256,196
2,780,017 February 2021 267,625 43,347
03/05/2021 42921 1,256,196
04/05/2021 43851 1,256,196
2,905,6375 March 2021 393,245 77,010
05/05/2021 44843 1,256,196
06/02/2021 46117 1,256,196
2,905,637 April 2021 393,245 98,202
07/01/2021 47073 1,256,196
08/03/2021 48389 1,256,196
2,905,637 May 2021 393,245 119,393
09/03/2021 49215 1,256,196
10/04/2021 50454 1,256,196
2,905,637 June 2021 393,245 140,585
11/03/2021 51468 1,256,196
12/06/2021 52744 1,193,386 2,905,637 July 2021 1,712,251 162,404
5
Escalation rate of five per cent beginning March every three years.
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Actual Should be Unpaid
Date OR No. Month Applied Penalties
Payment Payment rental fee
- - 0 2,905,637 August 2021 2,905,637 145,282
- - 0 2,905,637 September 2021 2,905,637 116,225
- - 0 2,905,637 October 2021 2,905,637 87,169
- - 0 2,905,637 November 2021 2,905,637 58,113
0 2,905,637 December 2021 2,905,637 29,056
166336811
Total 0 34616404 6633681 598249
14.7. As shown in the table above, Corporation K consistently remitted 50

percent only of the original monthly rent of P2.512 million without
considering the add-on amount on the deferred lease rental from June 1 to
December 31, 2020 as provided under Paragraph 14.3(b). However,
PHILGUARANTEE applied the rental payments to the unpaid portion of
previous months.
14.8. We recommended that Management, through the SAMRG:
a. Ensure that the lessees of the PHILGUARANTEE are regularly

paying the proper rental fees at the date fixed in their respective
COLs;
b. Submit to the Audit Team the official response of

PHILGUARANTEE to the letter-request of Corporation K for a 50
percent discount on rental fees; and
c. Demand from Corporation K the payment of the unpaid rental

fees, as well as the penalties arising therefrom.
14.9. Management commented that PHILGUARANTEE, in separate letters dated

September 22, 2021 and May 19, 2022, already informed Corporation K of
the denial of its request as presented to the BOD. In the same letters,
Corporation K was advised to pay the regular rent to avoid incurring
additional penalties.
14.10. The Remedial Officer accepted the 50 percent lease payments considering
the poor sales condition of the stall owners due to the pandemic and the
fact that as early as January 15, 2021, Corporation K had already made a
request which was then for presentation to and consideration by the Asset
Disposal Committee and subsequently to the BOD. Notably, the RMD has
been monitoring and validating the actual occupancy of the stalls at Victory
Mall as well as the number of shoppers entering the mall.
14.11. According to Corporation K, it has extended a 50 percent discount on the

monthly rent of the stall owners due to the adverse impact of the COVID-19
pandemic on their business. Hence, the request of Corporation K to
likewise remit 50 percent only of its monthly rental. Furthermore, the
opening of an SM Mall across Victory Mall greatly affected the businesses
of stall owners. For this reason and the fact that the sublease of the Victory
Mall is about to expire, the stall owners preferred not to renew their own
leases.
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14.12. Nonetheless, the RMD has revised the application of the lease payments
accordingly based on the hierarchy of payments, i.e., penalties first and
then rent, to be submitted to FAD for proper recording.
14.13. As an audit rejoinder, the fact remains that the BOD denied the request of
Corporation K on two occasions. The courses of action taken and to be
monitored and evaluated accordingly.
15. Audit of the balances of the Cash in Bank, Cash Equivalents and Investment
Securities at Amortized Cost accounts as at December 31, 2021 revealed
various discrepancies which remained unadjusted, contrary to the fair
Statements.
15.1. Section 74 of PD No. 1445 provides that “[a]t the close of each month,
depositories shall report to the agency head, in such form as he may direct,
the condition of the agency account standing on their books. The head of
the agency shall see to it that a reconciliation is made between the balance
shown in the reports and the balance found in the books of the agency.”
15.2. In connection therewith, Section 2.0 of COA Circular No. 92-125a dated
March 4, 1992, requires the Chief Accountant to prepare monthly Bank
Reconciliation Statement (BRS) based on the bank statements submitted
by the bank, including correcting/adjusting entries for discrepancies/errors
or other reconciling items requiring corrections by the agency immediately
after those items were properly analyzed and verified. Such BRS shall be
submitted to the COA Resident Auditor within 15 days after the end of the
month.
15.3. As at December 31, 2021, PHILGUARANTEE reported Cash in Bank, Cash

Equivalents and Investment Securities at Amortized Cost as at December
31, 2021 of P25.409 million, P1.060 billion and P5.290 billion, respectively.
Audit of these accounts disclosed the following discrepancies in the
accounting and handling thereof:
a. Foremost, the reported total Cash in Bank balance of P25.409 million as

at December 31, 2021 differs from the total Cash in Bank balances as
reconciled in the BRS as of even date by P141,512 to wit:
Adjusted Balance
Particulars As Reported Per BRS Variance
Cash in bank – LC, current account 25,217,143 25,355,011 137,868
Cash in bank – LC, savings account 1,000 0 1,000
Cash in bank – FC, savings account 190,506 187,862 2,644
25,408,649 141,512
b. We noted that the Cash in Bank balances as reconciled in the BRS

should be the amount reported as Cash in Bank for financial reporting
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purposes. To stress, the BRS as required under Section 74 of PD No.
1445 and COA Circular No. 92-125a is prepared in order to: (i) check
the correctness of both the bank's and agency's records; (ii) serve as a
deterrent to fraud; and (iii) enable the agency/bank to take up charges
or credits recognized by the bank/agency but not yet known to the
agency/bank.
c. Second, the recorded Cash in Bank balance per Financial Information

System (FIS) which carries the Corporation’s books of accounts differ
from the above balances by P16.365 million and P16.499 million,
respectively. These three balances must be equal and tally with each
other in order to have a reliable cash in bank balances. Details follow:
Particulars As Reported Adjusted Balance

Per BRS
Cash in bank balance 25,408,649 25,542,873
Balance per FIS (9,043,597) (9,043,597)
Variance 16,365,052 16,499,276
d. Third, the reported Cash Equivalents and Investment Securities at

Amortized Cost as at December 31, 2021 of P1.060 billion and P5.290
billion, respectively, differ by P33.998 million and P1.411 million from
those reported in the Schedule of Outstanding Investments as of even
date provided by the Funds and Investments Department (FID), as
follows:
Per FID
Particulars As Reported Schedule Variance
Cash equivalents 1,060,241,065 1,026,242,890 33,998,175
Investment securities at amortized cost 5,289,764,240 5,288,353,517 1,410,723
35,408,898
e. Additionally, sufficient and appropriate documents to support the

adjustments made to Cash and Investment accounts aggregating
P34.147 million were not submitted to the Audit Team for verification.
Thus, the validity thereof cannot be fully ascertained. Details follow:
Nature of Adjustments Amount

HGC Bank account transactions recorded in the FIS 137,870
Double recording of maturity to cash equivalent 34,002,365
Adjustments on foreign Account 2,645
Record rollover of investment of DBP Trust 4,190
Total 34,147,071
15.4. Undeniably, the non-reconciliation and non-adjustment of the foregoing

discrepancies as at December 31, 2021 is contrary to the fair presentation
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a. Analyze, evaluate and reconcile the variances noted: (i) between
the Cash in Bank balances as reconciled in the BRS and that
reported in the financial statements; (ii) between the Cash in Bank
book balances per BRS and per FIS; and (iii) between the
Investment balances per Schedule of the FID and that reported in
the financial statements;
b. Effect appropriate adjustments in the books of accounts to correct

the account balances as a result of such analysis, evaluation and
reconciliation to be accompanied by sufficient and appropriate
supporting documentation;
c. Set reasonable timeline and milestones for the evaluation,

reconciliation and adjustment of the accounts to properly evaluate
progress and accomplishments;
d. Submit sufficient and appropriate documentation to justify the

various adjustments made to the Cash and Investment accounts
aggregating P34.147 million;
e. Ensure that the Cash in Bank balances per FIS are the ones used
and/or reflected in the BRS as the Cash in Bank book balances to
be reconciled with the pertinent bank statements; and
f. Strengthen internal control mechanisms and accountability over

Cash and Investment accounts to include, among others,
intensified reconciliation and review procedures and regular
independent internal verification.
15.6. Management commented that the FID, in close coordination with FAD,
conducted the analysis and reconciliation of the balances of the investment
portfolio and prepared the additional schedule to support the balances per
books, financial statements, the FIS and schedule of FID. On the cash in
bank balance, the review is still on-going and appropriate adjustment will be
effected once the analysis and reconciliation is completed.
15.7. Further, the necessary internal control mechanism was already established
with the close coordination of FAD with FID and CMD to reconcile the
balances per books and the FIS with their respective reports on a monthly
basis. The target date of completion of the reconciliation is on September
30, 2022, and the pertinent supporting documents and reports will be
submitted as soon as possible.

recommendations.
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16. The accuracy and reliability of the reported carrying amounts of Property and
Equipment of P105.099 million as at December 31, 2021 are doubtful due to
the non-reconciliation of the discrepancy of P43.284 million noted between
the Report on the Physical Count on Property, Plant and Equipment
(RPCPPE) and the recorded cost of Property and Equipment, including the
missing Information Technology (IT) equipment costing P3.532 million,
contrary to pertinent provisions of COA Circular No. 80-124 dated January
18, 1980 and the fair presentation mandated by Paragraph 15 of PAS 1 –
Presentation of Financial Statements.
16.1. Relative to government property, pertinent provisions of law, rules and

regulations impose the following duties and responsibilities:
a. Item IV of COA Circular No. 80-124 requires the conduct of physical

inventory of fixed assets at least once a year as of December 31 in
accordance with the guidelines enumerated therein, and the
submission of an inventory report thereon (now the RPCPPE) to the
Auditor not later than January 31 of each year. Item V thereof further
mandates that said inventory report be properly reconciled with the
accounting and inventory records.
b. Section 104 of PD No. 1445 states that the head of any agency shall
exercise the diligence of a good father of a family in supervising
accountable officers under his control to prevent the incurrence of loss
of government funds or property, otherwise he shall be jointly and
solidarily liable with the person primarily accountable therefor.
c. Section 105 of the same PD mandates that every officer accountable

for government property shall be liable for all losses, damages, or
deterioration occasioned by negligence in the keeping or use of the
property whether or not it be at the time in his actual custody.
d. Section 77 of PD No. 1445 directs that when government funds or

property are transferred from one accountable officer to another, or
from an outgoing officer to his successor, it shall be done upon
properly itemized invoice and receipt which shall invariably support the
clearance to be issued to the relieved or out-going officer, subject to
regulations of COA.
16.2. For CY 2021, PHILGUARANTEE submitted to the Audit Team its

RPCPPEs. The report shows the results of the inventory-taking of its
Property and Equipment as at December 31, 2021, which has a total
carrying amount of P105.099 million. Details follow:
Particulars Amount
Land Improvements 20,302,585
Building and Other Structures 36,640,772
Transportation Equipment 8,127,326
Office, IT, Furniture and Fixtures and Others 30,167,331
Leasehold Improvements 9,861,388
105,099,402
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16.3. Review of the submitted reports disclosed that the Inventory Committee
accomplished two separate RPCPPEs, for the BDO Towers and the Jade
Building offices, contrary to COA Circular No. 80-124 which requires
submission of one RPCPPE for every agency. We reiterate that this
practice diminishes the use of said report as a monitoring tool since errors
and discrepancies may not be timely discovered and/or corrected.
16.4. More importantly, there still remains an unresolved discrepancy of P43.284

million between the reported cost of movable Property and Equipment vis-
à-vis cost per RPCPPE, determined as follows:
Cost per Cost per

Property Classification Books RPCPPE Discrepancy
Office Equipment 9,116,152 3,061,957 6,054,196
ICT Equipment 108,548,283 83,486,053 25,062,230
Communication Equipment 1,704,059 693,002 1,011,057
Transportation Equipment 41,040,370 47,601,406 6,561,037
Furniture and Fixtures 16,643,297 19,268,872 2,625,575
Books 291,330 0 291,330
Other PPE 7,688,846 6,009,787 1,679,059
105,099,402 43,284,484
16.5. On the above discrepancy, verification showed that three unserviceable

motor vehicles costing P2.526 million which are recorded under Other
Assets were erroneously included in the RPCPPE as at December 31,
2021.
16.6. We reiterate that it is through the reconciliation of inventory reports with the
accounting records that the accuracy and reliability of reported balances
are determined and proven. The existence of discrepancies in the RPCPPE
and PPE-related records have been observed since CY 2010 and CY 2013
in the audit of the pre-merger TIDCORP and the former HGC. It was then
recommended that the concerned departments timely conduct
reconciliation or record and effect adjustments in both records to correct the
account balances. To date and despite repeated issuance of AOMs on the
matter, there still remains significant amount of unresolved discrepancy.
16.7. Relatedly, Management still has not reconciled and accounted for the 55
desktop computers, 10 laptop computers and two paintings costing P2.816
million, P715,943 and P79,000, respectively, that were observed as missing
in the CY 2015 audit of the pre-merger TIDCORP.
16.8. The prompt resolution of the above discrepancies finds more relevance in
light of the merger of TIDCORP with the former HGC and the former’s
reorganization pursuant to EO No. 58 that resulted in the transfer of official
stations of some officers and employees, if not their separation from
service. Moreover, the transfer of the Corporation to its unified corporate
office this CY 2022 increases the risk of loss of PPE items.
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16.9. We stress that Section 105 of PD No. 1445 holds every officer accountable
for government property liable for all losses, damages, or deterioration
occasioned by negligence in the keeping or use of the property while
Section 77 thereof requires a properly itemized invoice and receipt upon
transfer of funds or property as support to the clearance to be issued to
relieved or outgoing officer. These provisions cannot be fully enforced
unless and until the above discrepancies are resolved.
16.10. We also noted that Management has not yet implemented the provisions of
COA Circular No. 2020-006 dated January 31, 2020, which prescribes the
guidelines and procedures in the conduct of physical count of PPE for the
one-time cleansing of PPE account balances of government agencies. Said
COA Circular will assist PHILGUARANTEE in coming up with reliable PPE
balances that are verifiable as to existence, condition, and accountability.
16.11. In view of the above discrepancies, the reported carrying amount of

Property and Equipment as at December 31, 2021, is unreliable.
Accordingly, the usefulness of the financial information pertaining to
Property and Equipment is diminished as the accuracy and reliability of said
data in the books of accounts is doubtful.
16.12. We reiterated our prior years’ recommendations that Management

a. Submit one RPCPPE for PHILGUARANTEE as provided under

COA Circular Nos. 2020-006 and 80-124;
b. Reconcile promptly the discrepancy between the reported cost of

Property and Equipment and the RPCPPE, and prepare the
necessary adjusting journal entries to be supported by a current
status report on the reconciliation which must be sufficient in
form and substance;
c. Immediately take appropriate action to locate the whereabouts of

missing IT equipment and paintings;
d. If determined lost after diligent search, identify accountable

officers and/or employees to enforce Sections 104 and 105 of PD
No. 1445 on the measure of liability of accountable officers;
e. Consider filing a request for relief from property accountability

should the circumstances of the loss of the IT equipment warrant;
and
f. Implement the one-time cleansing of the books on PPE accounts

following the procedures and guidelines as provided under COA
Circular No. 2020-006.
16.13. Management commented that the Inventory Committee for the one-time
cleansing of PPE account balances was already created by virtue of Office
Order No. 2021-073 dated December 29, 2021, signed by the President
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and CEO. Said Committee is currently undertaking preparatory activities for
the conduct of the one-time cleansing of the books on PPE accounts as
prescribed and allowed under COA Circular No. 2020-006. The cleansing
shall rectify whatever deficiencies noted in the conduct of inventory,
including the lack of turnover by the previous accountable officers.
16.14. Regarding the missing IT equipment and paintings, the pre-merger

TIDCORP has conducted a thorough search of the items in the main office
and in the warehouse in Pampanga. However, the items cannot be located.
As such, the items shall be included in PHILGUARANTEE’s request for
authority to derecognize non-existing/missing PPE items as part of the one-
time cleansing activities.

recommendations.
17. The procedure adopted by PHILGUARANTEE in testing its Right-of-Use

(ROU) Asset for impairment is substantially inconsistent with the impairment
guidelines prescribed under PAS 36 – Impairment of Assets. Thus, the
reported carrying amount of the ROU Asset of P102.328 million and the non-
recognition of any impairment loss thereon as at or for the year ended
December 31, 2021 are unreliable, contrary to the fair presentation mandated
by Paragraph 15 of PAS 1 – Presentation of Financial Statements.
17.1. Paragraph 33 of PFRS 16 dictates that a lessee adopting the cost model for
its ROU asset, such as PHILGUARANTEE, shall apply PAS 36 to
determine whether the ROU asset is impaired and to account for any
impairment loss identified.
17.2. PAS 36 prescribes the procedures that an entity applies to ensure that its
assets are carried at no more than their recoverable amount. An asset is
carried at more than its recoverable amount if its carrying amount exceeds
the amount to be recovered through use or sale of the asset. Pertinent
provisions of said standard follow:
a. An entity shall assess at the end of each reporting period whether

there is any indication that an asset may be impaired. If any such
indication exists, such entity shall estimate the recoverable amount of
the asset, which is the higher of its FVLCD and VIU.
b. If the recoverable amount of an asset is less than its carrying amount,

an entity shall reduce the carrying amount of the asset to its
recoverable amount. Such reduction is an impairment loss, which must
be recognized immediately in profit or loss, unless the asset is carried
at revalued amount.
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c. VIU refers to the present value of the future cash flows expected to be
derived from an asset while FVLCD pertains to the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date less
incremental costs directly attributable to the disposal of an asset,
excluding finance costs and income tax expense.
d. Determining the VIU of an asset involves estimation of future cash

inflows and outflows to be derived from continuing use of the asset and
from its ultimate disposal applying the appropriate discount rate to
those future cash flows. The discount rate used in the VIU calculation
shall be a pre-tax rate that reflects current market assessments of the:
(i) time value of money; and (ii) risks specific to the asset for which the
future cash flow estimates have not been adjusted.
e. On the other hand, the estimates of future cash flows shall consider
the following:
i. Cash flow projections shall be based on reasonable and

supportable assumptions and represents the management’s best
estimate of the set of economic conditions that will exist over the
remaining useful life of the asset;
ii. Cash flow projections shall be based on the most recent budgets

on financial forecasts, usually up to a maximum period of 5 years,
unless a longer period can be justified; and
iii. Cash flow projections beyond the 5-year period shall be

estimated by extrapolating the 5-year projections using a steady
or declining growth rate each subsequent year, unless an
increasing rate can be justified.
f. Moreover, estimates of future cash flows must exclude cost of

improving asset performance, restructuring cost, cash flows from
financing activities and income tax payment, but should include:
i. Projections of cash inflows from the continuing use of the asset;
ii. Projections of cash outflows necessarily incurred to generate the

cash inflows from the continuing use of the asset; and
iii. Net cash flows received on the disposal of the asset at the end of
the useful life in an arm's length transaction.
17.3. On October 22, 2019, PHILGUARANTEE entered into a contract of lease

with the joint venture (JV) between Lessor A and Lessor B for the lease of
the 22nd, 23rd and 24th floors and 85 parking lots of the BPI-Philamlife
Building located at Ayala Avenue, Makati City. The lease term is for a
period of five years from October 21, 2019 to October 20, 2024 at an initial
monthly rental fee of P3.427 million, inclusive of VAT, with a 6 percent
annual escalation rate.
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17.4. As at December 31, 2021 and 2020, PHILGUARANTEE reported the ROU
asset, relative to the lease contract for its unified corporate office at
P102.328 million and P138.983 million, respectively. Details follow:
2021 2020
Cost 183,274,074 183,274,074
Accumulated Depreciation (80,946,049) (44,291,235)
Carrying Amount, December 31 102,328,025 138,982,839
17.5. In the CY 2020 audit, we noted that the leased office space has been idle
since the signing of the pertinent contract of lease in October 2019 and was
not expected to be used by the end of CY 2021 (now estimated to be
occupied by July 2022). Considering this condition as well as the adverse
effects of the on-going COVID-19 pandemic, we then recommended that
Management perform the required impairment testing as at December 31,
2020, and recognize impairment loss for the year as necessary.
17.6. Pursuant to our recommendation, Management initially recognized in CY

2021 an impairment loss of P18.166 million. The amount represents the
difference between the unadjusted carrying amount and the assessed VIU
of the ROU Asset as at December 31, 2021 of P101.428 million and
P83.262 million, respectively. The impairment loss, however, was ultimately
reversed in the final version of its financial statements.
17.7. Audit of the above accounts as well as review of the impairment testing
procedures adopted by Management revealed the following deficiencies:
a. In initially recognizing an impairment loss on the ROU asset, the cash

inflows used by FAD in estimating the recoverable amount following
the VIU model are the undiscounted actual monthly depreciation
throughout the remaining lease term beginning July 2022 totaling
P83.262 million. This is improper. The cash flow estimates must follow
the parameters discussed under Paragraph 17.2(d) to (f) hereof.
Notably, the cash inflow estimates, i.e., monthly depreciation, do not to
reflect those expected to be generated from the continuing use of the
asset. Cash outflows necessarily incurred to generate the cash inflows
are likewise excluded from the computation.
b. Moreover, the cash flow estimates were not discounted to determine

the final VIU calculation. It bears emphasis that estimating the VIU of
an asset involves not only estimating the future cash inflows and
outflows to be derived from continuing use of the asset and from its
ultimate disposal, but also applying the appropriate discount rate to
those future cash flows.
c. On this score, we remind Management that for impairment of an

individual asset, the discount rate to be used is not automatically the
entity’s own weighted average cost of capital. The discount rate should
be the rate the entity would pay in a current market transaction to
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borrow money to buy that specific asset. Only if the market-determined
asset-specific rate is not available may a surrogate6 that reflects the
time value of money over the asset's life as well as country risk,
currency risk, price risk, and cash flow risk be used.
d. No impairment loss was recognized for CY 2020 despite the existence

of indicators of impairment as previously noted. Anent this,
Management has not forwarded a reason to justify, nor did it detail in
its initial CY 2021 impairment testing documentation the ground for the
non-recognition of any impairment loss for CY 2020.
e. It was the FAD that solely determined the inputs for the initial VIU
calculation. We stress that, in impairment testing, several factors are to
be considered and various inputs not readily available to the FAD are
to be used. Impairment testing therefore requires joint and
collaborative efforts of several Departments. For example, provision of
cash flow estimates may be required from the Budget Management
Department and the CMD. On the other hand, market data and
assessment of market conditions appropriately pertains to the ERMO.
f. Finally, the validity of the reversal of the impairment loss initially

recognized and the decision to not recognize any impairment loss for
CY 2021 cannot be determined due to non-submission by FAD of its
revised computation and analysis as well as revised documentation of
its impairment testing procedures.
17.8. As a result of the foregoing, the carrying amount of the reported ROU Asset
as at December 31, 2021 and 2020 and the non-recognition of any
impairment loss thereon for the years then ended, are unreliable, contrary
to the fair presentation mandated by Paragraph 15 of PAS 1.
17.9. We reiterate that while the impairment testing process is highly judgmental
as it is based on significant assumptions which are generally affected by
expected future market and economic conditions, the estimation of
recoverable amount must be reasonable and should substantially comply
with prescribed guidelines to achieve fair presentation of the financial
statements.
17.10. We recommended that Management, through the CG and the ERMO:
6
Paragraphs A17 to A19 of PAS 36 reads: “As a starting point in making such an estimate, the entity
might take into account the following rates: (a) the entity’s weighted average cost of capital determined using
techniques such as the Capital Asset Pricing Model; (b) the entity’s incremental borrowing rate; and (c) other
market borrowing rates.
However, these rates must be adjusted: (a) to reflect the way that the market would assess the specific
risks associated with the asset’s estimated cash flows; and (b) to exclude risks that are not relevant to the
asset’s estimated cash flows or for which the estimated cash flows have been adjusted. Consideration
should be given to risks such as country risk, currency risk and price risk.
The discount rate is independent of the entity’s capital structure and the way the entity financed the
purchase of the asset, because the future cash flows expected to arise from an asset do not depend on the
way in which the entity financed the purchase of the asset.”
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a. Reassess and recalculate the VIU for the ROU Asset strictly
observing the PAS 36 guidelines in estimating the future cash
inflows and outflows to be derived from the continuing use of the
asset and from its ultimate disposal, and applying the appropriate
discount rate to those future cash flows;
b. Adjust the impairment losses recorded for CYs 2021 and 2020, as
necessary, based on the results of the reassessment and
recalculation to be supported by the detailed documentation of its
impairment testing; and
c. Adopt a policy describing and delineating the specific roles of

each Group in the impairment testing process to ensure that the
cash flows and discount rates used in the impairment
calculations are reasonable and supportable.
17.11. Management commented that the reassessment and recalculation of the

VIU is currently on-going. Based on the results thereof, the required
adjustments will be booked to reflect the correct account balances.
Likewise, the recommended policy shall be crafted this CY 2022.

the subject accounts remain unreliable pending full compliance with the
recommendations.
18. Tangible items below the capitalization threshold of P15,000 with aggregate
cost and carrying amount of P6.481 million and P700,353, respectively, are
still classified under PPE accounts, contrary to Item 5.4 of COA Circular No.
2016-006 dated December 29, 2016. Consequently, the Property and
Equipment, related Accumulated Depreciation and Retained Earnings
accounts as at December 31, 2021 are overstated by P6.481 million, P5.781
million, and P700,353, respectively, contrary to the fair presentation
18.1. Item 5.4 of COA Circular No. 2016-006 dictates that tangible items below
the capitalization threshold of P15,000 shall be accounted as semi-
expendable property and the following policies shall be applied thereto:
a. Semi-expendable property which were recognized as PPE shall be

reclassified to the affected appropriate semi-expendable inventory
accounts if not yet issued to end-users, expense accounts if issued
within the year, or Retained Earnings account if issued in prior years.
These tangible items shall be recognized as expenses upon issue to
the end-user.
b. Inventory Custodian Slip (ICS) shall be issued to end-user to establish

accountability over the semi-expendable property. Accountability shall
be extinguished upon return of the item to the Property and Supply
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Division/Unit or in case of loss, upon approval of the relief from
property accountability.
18.2. Audit disclosed that 1,538 tangible items below the capitalization threshold
of P15,000 with aggregate cost and carrying amount of P6.481 million and
P700,353, respectively, as at December 31, 2021 are not accounted for as
semi-expendable property and are still classified under PPE accounts,
contrary to the aforementioned COA Circular, to wit:
Accumulated Carrying
Property Classification Quantity Cost Depreciation Amount
Office Equipment 108 615,473 553,926 61,547
Furniture and Fixtures 647 2,618,843 2,304,734 314,109
ICT Equipment 530 1,927,397 1,734,658 192,739
Communication Equipment 123 653,756 588,380 65,376
Other PPE 130 665,823 599,241 66,582
Total 1,538 6,481,292 5,780,939 700,353
18.3. The above items should have been reclassified to or charged against
Retained Earnings considering that they have already been issued to end-
users in prior years. Consequently, the reported PPE, Accumulated
Depreciation and Retained Earnings as at December 31, 2021 are
overstated by P6.481 million, P5.781 million, and P700,353, respectively.
18.4. Inquiry with FAD and the Facilities and General Services Department
(FGSD) disclosed that the required reclassification of the items cannot be
done because the requisite ICS have not been issued to the concerned
end-users. Some of them refused to sign the ICS and/or acknowledge
accountability over an assigned property.

a. Reclassify the identified semi-expendable property recorded

under PPE accounts to Retained Earnings in accordance with
COA Circular No. 2016-006; and
b. Instruct the Property Officer to strictly comply with the

requirements of the aforementioned COA Circular on the proper
monitoring of semi-expendable items.
18.6. Management commented that the FGSD no longer classifies tangible items
below the capitalization threshold of P15,000 as PPE as evidenced by the
“List of Semi-Expendable Items” dated February 4, 2021, submitted to the
CG, copy furnished the Audit Team.
18.7. As an audit rejoinder, the CG is yet to reclassify the identified semi-

expendable property recorded under PPE accounts to Retained Earnings
as at December 31, 2021. Thus, the affected accounts remain misstated as
of even date.
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19. Liability accounts with carrying amounts totaling P268.183 million as at
December 31, 2021 are inaccurate due to the presence of negative or
abnormal balances in the books totaling P92.751 million, contrary to Section
111 of PD No. 1445 and the fair presentation mandated by Paragraph 15 of
PAS 1 – Presentation of Financial Statements.
19.1. Section 111 of PD No. 1445 provides that 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, and that the highest standards of
honesty, objectivity and consistency shall be observed in the keeping of
accounts to safeguard against inaccurate or misleading information.
19.2. Our audit disclosed that, as at December 31, 2021, negative or abnormal
balances totaling P92.751 million exist in the General Ledgers and/or
submitted schedules for liability accounts with carrying amounts totaling
P268.183 million. Details follow:
Negative or
Carrying Amount, Abnormal
Accounts 12/31/2021 Balances
Accounts Payable – Clearing Fixed Assets (140,000) 140,000
Due to Officers and Employees 59,177,968 4,766,973
Due to BIR 127,178,603 2,988,270
Due to GSIS 4,373,758 22,153,063
Due to Pag-IBIG 1,397,650 795,975
Due to PhilHealth 141,131 1,789,511
Due to NGAs 2,481,653 654,161
Other Payables 74,395,342 58,639,671
Other Deferred Credits (823,535) 823,535
268,182,570 92,751,159
19.3. Verification disclosed that majority of these negative or abnormal balances

are caused by the non-recognition or failure to set-up liability accounts,
particularly those pertaining to government remittances, to which payments
should have been credited against. Indubitably, the existence of these
negative or abnormal balances casts doubt on the reliability of the recorded
liabilities.
19.4. Further, this deficiency indicates an internal control weakness in the

handling by Management of its liabilities which goes against the highest
standards of honesty, objectivity and consistency required in the keeping of
accounts prescribed by Section 111 of PD No. 1445. Arguably, failure to
timely reconcile these balances provides an opportunity for fraud to occur.
19.5. We recommended and Management agreed to:
a. Investigate, evaluate and reconcile the accounts with negative

balances, and effect the necessary adjustments in the books;
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b. Set reasonable timeline and milestones for the evaluation,
reconciliation and adjustment of the accounts to properly
evaluate progress and accomplishments;
c. Install appropriate control mechanisms to ensure that every debit

to a liability account for payment made has a corresponding prior
set-up of liability; and
d. Regularly monitor the existence of negative or abnormal balances

to eliminate, or at least minimize, the existence of these balances
in the books.
20. The total amount reported under Due to BIR, GSIS, Pag-IBIG and PhilHealth
accounts as at December 31, 2021 totaling P133.091 million differs by
P97.633 million from that subsequently remitted to said government agencies
in the succeeding quarter. Thus, the accuracy and reliability of the balances
of said accounts as at even date are doubtful, contrary to the fair
Statements.
20.1. Pertinent provisions of laws, rules and regulations as regards the

remittance of amounts statutorily withheld follow:
a. Under Sections 14 and 15 of the RIRR of RA No. 8291, as amended, a

government agency is required to: (i) deduct from the fixed monthly
compensation of their employees the loan amortizations, premium
payments and other amounts due to the GSIS; and (ii) remit said
amounts to the GSIS within the first 10 days of the calendar month
following the month when the deductions were effected. Otherwise,
interest for every month of delay, or a portion thereof, in the remittance
of the monthly premium contributions and other amounts due to the
GSIS, at the rate of 2 percent per month simple interest starting the
end of the month following the due month shall be imposed.
b. Under Section 18 of the IRR of RA No. 7875, as amended, the

member’s monthly contribution shall be deducted and withheld
automatically by the employer from the former’s salary, wage, or
earnings. The monthly premium contribution of employed members
shall be remitted by the employer on or before the date prescribed by
PhilHealth, which currently is every 11th to 20th day of the month,
depending on the employer’s PhilHealth number.
c. Under Section 3, Rule VII of the IRR of RA No. 9679, all employers
shall remit to Pag-IBIG their contributions, the contributions of their
covered employees as well as the latter’s loan amortizations or
payments within 15 days from the date the same were collected or
within such periods as Pag-IBIG may prescribe otherwise. Non-
payment thereof shall subject the employer to a penalty of three
195
percent per month of the amounts payable from the date the
contributions fall due until paid.
d. Under the NIRC, as amended, and various RMCs and Revenue

Regulation (RR) issued by the BIR pursuant to law, the following are
the deadline for the filing and payment of withholding and other taxes:
Type of Tax Tax Form Deadline of Filing and Payment Legal Basis
Withholding Tax on 1601-C The return shall be filed and tax paid on RMC No. 27-
Compensation or before the 10th day of the month 2018 dated
following the month in which withholding April 27, 2018
was made, except for taxes withheld for
December which shall be filed/paid on
or before January 15 of the succeeding
year.
Withholding of 0619-E The return shall be filed and tax paid: RMC No. 73-
Creditable Tax at (Monthly) (a) on or before the 10th day of the 2018 dated
Source following month in which withholding August 31,
was made for eFPS taxpayers; or (b) on 2018
or before the 15th day of the following
month, depending on the industry
grouping for non-eFPS taxpayers.
1601-EQ The return shall be filed and tax paid not Section 58,
(Quarterly later than the last day of the month NIRC, as
) following the close of the quarter. amended
Withholding of Final 0619-F The return shall be filed and tax paid: RMC No. 73-
Tax on Certain (Monthly) (a) on or before the 10 th day of the 2018
Incomes following month in which withholding
was made for eFPS taxpayers; or (b) on
or before the 15th day of the following
month, depending on the industry
grouping for non-eFPS taxpayers.
1601-FQ The return shall be filed and tax paid not RMC No. 27-
(Quarterly later than the last day of the month 2018
) following the close of the quarter.
Quarterly Remittance 1603 The return shall be filed and tax paid not RMC No. 28-
Return of Final Income later than the last day of the month 2018 dated
Tax Withheld on Fringe following the close of the quarter. April 30, 2018
Benefits Paid to
Employees Other than
Rank and File
Withholding Tax on 1600- The return shall be filed and tax paid RR No. 5 -2004, as
Government Money VT/PT within 10 days following the end of the amended dated
Payments month. May 14, 2004
Quarterly 2551 The return shall be filed and tax paid Section 128(A),
Percentage Tax within 25 days after the end of each NIRC, as
Return taxable quarter. amended
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e. For late filing of tax returns with tax due to be paid, the following
penalties, will be imposed in addition to the tax due: (i) surcharge
pursuant to Section 248, NIRC, as amended; (ii) interest pursuant to
Section 249, NIRC, as amended; and (iii) compromise penalty
pursuant to Revenue Memorandum Order No. 7-2015 dated March 23,
2015. This is in addition to fines and possible imprisonment imposable
under Section 255, NIRC, as amended, for failure to file return, supply
correct and accurate information, pay tax withhold and remit tax, and
refund excess taxes withheld on compensation.
20.2. As at December 31, 2021, PHILGUARANTEE reported Inter-agency

Payables of P3.244 billion, P133.091 million of which pertains to the
amounts due to BIR, GSIS, Pag-IBIG and PhilHealth, to wit:
Particulars Amount
Due to BIR 127,178,603
Due to GSIS 4,373,758
Due to Pag-IBIG 1,397,650
Due to PhilHealth 141,131
133,091,142
Due to NGAs 4,208,222
Due to Government Corporations (GCs) 6,257,129
Income Tax Payable 58,682,766
Due to Treasurer of the Philippines 3,041,592,654
3,243,831,913
20.3. Under the Revised Chart of Accounts for GCs (2019) prescribed under
COA Circular No. 2020-002 dated January 28, 2020, the accounts relevant
to this observation are described as follows:
a. Due to BIR – the account is credited to recognize taxes withheld from

officers/employees and other entities other than Value Added Tax and
Income Tax Payable, and is debited for remittance of the taxes
withheld to the BIR and/or adjustments.
b. Due to GSIS – the account is credited to recognize the withholding of

employees’ premium payments and other payables for remittance to
the GSIS, and is debited for remittance of withheld amount and/or
adjustments.
c. Due to Pag-IBIG – the account is credited to recognize the withholding

of employees’ premium payments and other payables for remittance to
the Home Development Mutual Fund, and is debited for remittance of
withheld amount and/or adjustments.
d. Due to PhilHealth – the account is credited to recognize the

withholding of employees’ premium payments for remittance to the
Philippine Health Insurance Corporation, and is debited for remittance
of withheld amount and/or adjustments.
197
20.4. Analysis and verification of the above accounts, specifically our tests of
subsequent payments, disclosed significant net variance of P97.633 million
between the amounts reported as due to the BIR, GSIS, Pag-IBIG and
PhilHealth, and the amounts subsequently remitted to said agencies
pursuant to law. Details follow:
Per Trial Balance Subsequent
and Schedule Remittance Variance
Withholding tax on compensation 2,333,865 2,110,747 223,118
Expanded withholding tax 370,606 404,793 (34,187)
Government money payments 315,554 752,581 (437,027)
Gross receipts tax 114,531,064 28,167,048 86,364,016
Fringe benefit tax 6,708 26,213 (19,505)
Other taxes 12,141,721 0 12,141,721
Due to BIR, per preliminary FS 129,699,518 31,461,382 98,238,136
Adjustments7 (2,520,915) 0 (2,520,915)
Due to BIR 127,178,603 31,461,382 95,717,221
Due to GSIS 4,373,758 3,524,684 849,074
Due to PhilHealth 141,130 281,915 (140,785)
Due to Pag-IBIG 1,397,650 189,717 1,207,933
133,091,141 35,457,698 97,633,443
20.5. The presence of these variances could mean the overstatement or

understatement of the amounts recorded as Due to BIR, GSIS, Pag-IBIG
and/or PhilHealth, which is contrary to the fair presentation mandated by
Paragraph 15 of PAS 1. We note that had the correct withholding
procedures and/or proper accounting been followed, the amounts
recognized as at December 31, 2021 as due to said government agencies
should equal the amount subsequently remitted to said agencies in first
quarter of the succeeding year.
20.6. Alternatively, these variances could mean delayed or non-remittance by

PHILGUARANTEE to BIR, GSIS, Pag-IBIG and/or PhilHealth of the
employees’ premiums, taxes and other amounts withheld pursuant to law.
This would expose the Corporation and concerned personnel to possible
fines, penalties, and other charges. Further, the related expenses may be
disallowed as a deduction in the computation of the corporate income tax.
Section 34(K) of the NIRC, as amended, states that an expense will be
allowed as a deduction for income tax purposes only if it is shown that the
tax required to be deducted and withheld therefrom has been paid to the
BIR.
20.7. Regrettably, the Audit Team cannot independently reconcile the variances
noted and determine their actual nature due to the failure of the concerned
personnel of the CG to promptly respond to our queries and/or submit
pertinent supporting documents. Nevertheless, the accuracy and reliability
of the balances of said accounts as at December 31, 2021 are doubtful,
7
Details of the adjustments made, specifically the type of the withholding taxes affected thereof, are still
to be submitted to the Audit Team for validation.
198
a. Analyze and determine the nature of the amounts reported as Due

to BIR, GSIS, Pag-IBIG and PhilHealth as at December 31, 2021
and reconcile the significant variances noted;
b. Adjust the books as at December 31, 2021 to correct any
overstatement or understatement of the Due to BIR, GSIS, Pag-
IBIG and/or PhilHealth accounts;
c. Promptly remit to the government agencies concerned any

premiums, taxes and other amounts withheld and already due to
them pursuant to law, rules and regulations;
d. Hold the employee responsible for the withholding and remittance

of the subject amounts personally liable for any fines, penalties
and other charges the Corporation may be required to pay for
delayed remittance; and
e. Install appropriate control mechanisms, i.e., regular monitoring

and review, to ensure that premiums, taxes, and other amounts
withheld pursuant to law are timely remitted to the concerned
government agencies and at correct amounts.
20.9. Management agreed to implement the recommendations. FAD and the

Human Resource and Organizational Development Department (HRODD)
will collaborate and coordinate to evaluate the variances noted. Based on
initial review and analysis, the recorded Due to GSIS, PhilHealth and Pag-
IBIG were partially adjusted by P2.756 million, P367,937 and P34,900,
respectively, as at December 31, 2021. Likewise, the policy to determine
accountability for late or non-remittance of statutory deductions, including
withholding taxes, will be crafted.

recommendations.
21. Several deficiencies were noted in the recording of accrued leave benefits as
well as maintenance of leave records, including non-forfeiture of mandatory
leaves not taken during the year, resulting in the misstatement of the Leave
Benefits Payable and Leave Benefits Expenses initially reported as at or for
the year ended December 31, 2021, contrary to Paragraph 16 of PAS 19 –
Employee Benefits (Revised) and the fair presentation mandated by
Paragraph 15 of PAS 1 – Presentation of Financial Statements. The non-
forfeiture of mandatory leaves is also contrary to Section 25 of Civil Service
Commission (CSC) Memorandum Circular (MC) No. 41 dated December 24,
1998, as amended.
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21.1. CSC MC No. 41, as amended, prescribes the Omnibus Rules on Leave for
government employees. Pertinent provisions thereof follow:
a. Section 1 provides that, in general, appointive officials and employees

of the government whether permanent, temporary, or casual, who
render work during the prescribed office hours, shall be entitled to 15
days vacation leave (V/L) and 15 days sick leave (S/L) annually with
full pay without limitation as to the number of days of V/L and S/L that
they may accumulate.
b. Section 25 requires all government officials and employees with 10

days or more V/L leave credits to go on V/L whether continuous or
intermittent for a minimum of 5 working days annually, under the
following conditions:
i. The head of agency shall, upon prior consultation with the

employees, prepare a staggered schedule of the mandatory five-
day V/L of officials and employees, provided that he may, in the
exigency of the service, cancel any previously scheduled leave.
ii. The mandatory annual five-day V/L shall be forfeited if not taken
during the year. However, in cases where the scheduled leave
has been cancelled in the exigency of the service by the head of
the agency, the scheduled leave not enjoyed shall no longer be
deducted from the total accumulated V/L.
iii. Those with accumulated V/L of less than 10 days shall have the
option to go on forced leave or not. However, officials and
employees with accumulated V/L of 15 days who availed of
monetization for 10 days shall still be required to go on forced
leave.
c. Section 22 allows officials and employees in the career and non-career

service whether permanent, temporary, casual, or coterminous, who
have accumulated 15 days of V/L credits to monetize at least ten days
but not more than 30 days thereof in a given year provided that at least
five days is retained after monetization. By way of exception, Section
23 allows the monetization of 50 percent or more of all the
accumulated leave credits, for valid and justifiable reasons.
d. Section 26 states that V/L and S/L shall be cumulative and any part
thereof which may not be taken within the calendar year may be
carried over to the succeeding years. Whenever any official or
employee retires, voluntarily resigns, or is allowed to resign or is
separated from the service through no fault of his own, he shall be
entitled to the commutation of all the accumulated V/L and/or S/L to his
credit without limitation as to the number of days of V/L and S/L that he
may accumulate provided his leave benefits are not covered by special
law.
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21.2. Relatedly, Section 129, Rule XII of the 2017 Omnibus Rules on
Appointments and Other Human Resource Actions (ORAOHRA) provides
that an employee on service extension, or one who has reached the
compulsory retirement age of 65 years but whose service has been
extended for a period not exceeding one year as approved by the CSC,
shall be entitled to 15 days V/L and 15 days S/L annually, provided that the
same are not commutative and cumulative.
21.3. Relative to short-term compensated absences, PAS 19 (Revised) provides

the following guidelines:
a. Paragraph 13 requires an entity to recognize the expected cost of

short-term employee benefits in the form of paid absences which are
accumulating when the employees render service that increases their
entitlement to future paid absences. Accumulating paid absences are
those that are carried forward and can be used in future periods if the
current period’s entitlement is not used in full.
b. Paragraph 16 directs an entity to measure the expected cost of

accumulating paid absences as the additional amount that the entity
expects to pay as a result of the unused entitlement that has
accumulated at the end of the reporting period.
21.4. As at December 31, 2021, PHILGUARANTEE reported Leave Benefits

Payable under Provisions account amounting to P59.222 million. The
amount represents the accrued money value of earned vacation and sick
leave credits of the Corporation’s officers and employees that remained
unused as of the end of the reporting period. Details follow:
Particulars Amount
For BDO Towers Employees 23,905,258
For Jade Building Employees 35,316,774
59,222,032
21.5. Our audit of the account, including review of related processes of both the
HRODD and the FAD, disclosed the following deficiencies:
Accrual Made Using Different Compensation Frameworks
a. The reported Leave Benefits Payable for the BDO Towers and Jade
Building employees were accrued using different compensation
frameworks. We note that the actual rates under the Fourth Tranche of
the Salary Standardization Law V (SSL V) effective January 1, 2019,
the interim compensation framework for PHILGUARANTEE approved
by the President of the Philippines, was used to accrue the money
value of the leave credits for BDO Towers employees.
b. Meanwhile, for Jade Building employees, the estimated rates following

the Compensation and Position Classification System (CPCS) as
approved under EO No. 150 dated October 1, 2021, was used. Item
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I.1, Compensation System of CPCS Implementing Guidelines No.
2021-01 dated January 12, 2022, provides that upon receipt of
authorization to adopt CPCS, GOCCs with substantial compliance to
CPCS requirements upon the approval of EO No. 150 shall
retroactively apply the appropriate salary structures, and the
allowances, benefits and incentives under the CPCS effective October
5, 2021.
c. On this score, we note that PHILGUARANTEE has completely

submitted the documents required by the Governance Commission for
GOCCs (GCG) as at November 25, 2021 as indicated in Annex A of
CPCS Implementing Guidelines No. 2021-01.
d. The use of estimated rates following the CPCS is more in accord with
PAS 19 (Revised). Under said standard, the accumulating paid
absences should be measured at their expected cost, that is, the
additional amount that the entity expects to pay as a result of the
unused entitlement that has accumulated at the end of the reporting
period.
e. Considering all available factors, including the retroactive application of

EO No. 150 and PHILGUARANTEE’s compliance status, the estimated
rates under the CPCS is the reasonable amount that the Corporation is
expected to pay when leave credits are availed of, monetized or paid
upon separation from the service of the employees.
f. As a result, the initially reported Terminal Leave Benefits and Leave

Benefits Payable as of even date or for the year then ended are both
understated by P9.865 million.
Non-forfeiture of Mandatory Leaves Not Taken
g. Mandatory leaves not taken in CY 2021 totaling 335 days were not
forfeited, contrary to Section 25 of the Omnibus Rules on Leave.
Accordingly, these were not deducted from the respective accumulated
leave credits of the concerned 86 employees, mostly from Jade
Building office.
h. Relevantly, no notation in the submitted leave cards indicating that

scheduled leaves were cancelled in the exigency of the service by the
Head of the Agency which would justify said non-forfeiture as provided
under the rules. It is also unusual that scheduled leaves for almost all
of Jade Building office employees are cancelled in the exigency of the
service.
i. Thus, the outstanding V/L credit balances of the said employees as at

December 31, 2021 are overstated. Moreover, the initially reported
Terminal Leave Benefits and Leave Benefits Payable as of even date
or for the year then ended are both overstated by P1.338 million.
Non-accrual of Outstanding Leave Credits of Employees
202
j. The outstanding leave credits of 22 newly hired employees and 5
existing employees with money value totaling P680,317 and P1.337
million, respectively, were not accrued as at December 31, 2021. To
stress, the V/L and S/L shall be cumulative and any part thereof which
may not be taken within the calendar year may be carried over to the
succeeding years.
k. Consequently, the initially reported Terminal Leave Benefits and Leave

understated by P2.017 million.
Errors and Other Inaccuracies Noted in the Leave Records
l. Errors and other inaccuracies, i.e. mathematical errors, were noted in

the submitted leave records rendering the ending leave credit balances
of 151 employees inaccurate. Further, the data on leave credits used
in accruing liability is not updated up to December 31, 2021, for some
employees understating their ending leave credits balances.
m. As a result, the initially reported Terminal Leave Benefits and Leave

understated by P613,792.
Unsecured Leave Records
n. We noted that the leave records for BDO Towers employees are
maintained by the HRODD using excel file only without keeping a print-
out thereof as of a specific period duly signed by concerned officers.
We believe that such set-up leaves much to be desired.
o. Foremost, access to the excel file is not secured and data can be
unintentionally lost during processing or when exposed to malware.
Further, when employees make changes manually, there is always that
risk of introducing errors and compromising accuracy. Identity of those
who made changes therein and when are not likewise documented.
There is also no backup copy readily available in case of
contingencies.
21.6. In sum, the initially reported Terminal Leave Benefits and Leave Benefits
Payable as at December 31, 2021 were both understated by a net amount
of P11.157 million, contrary to Paragraph 16 of PAS 19 (Revised) and the
fair presentation mandated by Paragraph 15 of PAS 1. Details follow:
Overstatement (Understatement)
Terminal Leave Leave Benefits
Deficiencies Benefits Expense Payable
Accrual made using different compensation
frameworks (9,864,642) (9,864,642)
Non-forfeiture of mandatory leaves not taken 1,338,295 1,338,295
203
by employees
Non-accrual of outstanding leave credits of
employees (2,017,081) (2,017,081)
Errors and other inaccuracies noted in the
leave records (613,792) (613,792)
11,157,220 11,157,220
21.7. Further, the recorded outstanding leave credit balances of

PHILGUARANTEE employees are rendered inaccurate increasing the risks
that the following may have occurred or may occur in the future:
a. Approval of paid V/L and/or S/L of officers and employees whose leave
credits are no longer sufficient to cover such availments;
b. Approval of monetization of leave credits of officers and employees

whose leave credits are likewise insufficient to meet the required
balance prescribed under Section 22 of the Omnibus Rules on Leave;
and
c. Over or underpayment of accumulated terminal leave benefits of

officials or employees upon retirement, voluntary resignation, or
separation from the service.
21.8. Upon being informed of the above discrepancies, Management through the
CG and/or HRODD adjusted their records, the books of accounts as well as
the financial statements as at December 31, 2021 to correct the noted
misstatements.
21.9. We recommended that Management, through the CG and the CSG:
a. Regularly conduct the audit of the management and recording of

leave and attendance records of employees to timely detect and
correct deficiencies;
b. Strictly adhere to the rules on mandatory leave under Section 25

of CSC MC No. 41, as amended, particularly the forfeiture of
mandatory leaves not taken during the year;
c. In the interim that the leave records of the BDO Towers

employees are maintained using excel file, improve control and
security over such file, to include among others:
i. Use password known only to the responsible personnel to

decrease the risk of unauthorized access;
ii. To ensure that static copies are available for verification,

save versions of the file as at the end of each month and keep
printed copies of the same duly signed, reviewed and
certified correct by concerned personnel;
204
d. Improve coordination between the HRODD and FAD to ensure
that accurate leave data are used for financial reporting purposes
and that requirements of pertinent laws, rules and regulations as
regards leave benefits are complied with.
21.10. Management commented that those observed to have not fully availed of
their mandatory leaves, and thus supposedly forfeited the same, have duly
filed applications for leave but were disapproved by the head of the agency
due to exigency of service. Thus, the non-forfeiture of mandatory leaves not
taken was proper as it is consistent with Section 25 of the Omnibus Rules
on Leave.
21.11. Moreover, adjustments in the leave records of employees were already

made. The corrected outstanding leave credits and its money value based
on the CPCS rates have been forwarded to FAD for booking. Moving
forward, the HRODD and FAD shall meet to ensure that accurate leave
data are used for financial reporting purposes.
21.12. Lastly, while the procurement of the unified Human Resource Information
System (HRIS) is currently pending, the HRODD shall abide by the
recommendations of COA to improve control and security of its BDO
Towers personnel’s leave records. Once the HRIS is in place, deficiencies
and errors will be minimized, if not totally eliminated.
21.13. As an audit rejoinder, we acknowledge the submission by Management of

copies of the disapproved applications for mandatory leave of the
concerned employees. We noted, however, that almost all of the
applications were filed near the end of the year even if the scheduled leave
were for days in February to November 2021.
21.14. On this score, Section 51 of the Omnibus Rules on Leave provides that all
applications for V/L of absence for one full day or more shall be
submitted five days in advance, whenever possible, of the effective date of
such leave. Since the rule did not distinguish between mandatory and
discretionary V/L, it shall apply equally to both. Where the law or rule does
not distinguish, neither should we.8 Accordingly, the propriety of the
disapproval of the applications for leave is doubtful.
21.15. Further, the courses of action taken and to be undertaken by Management

to comply with the recommendations will be monitored and evaluated
accordingly. We expect that there will be few to no errors and
misstatements noted in the leave records and accounts in the CY 2022
audit.
22. The amounts received as Trust Funds under the Unsecured Small Housing
Loans Guarantee Facility (USHLGF) totaling P20.213 million as at December
31, 2021, were not properly monitored, handled and accounted for, rendering
doubtful and/or difficult compliance with Section 4(3) of PD No. 1445 and
8
Spouses Plopenio v. Department of Agrarian Reform and Land Bank of the Philippines, GR No.
161090, July 4, 2012.
205
Article VI of the standard Terms and Conditions of the Guarantee. As a
further result, the recorded Trust Liability, Interest Income and Retained
Earnings as at or for the year ended December 31, 2021, are misstated by
undetermined amounts, contrary to the fair presentation mandated by
22.1. Section 4(3) of PD No. 1445 mandates that trust funds “may be spent only
for the specific purpose for which the trust was created or the funds
received.” Section 3 thereof defines trust funds as “funds which have come
officially into the possession of any agency of the government or of a public
officer as trustee, agent, or administrator, or which have been received for
the fulfillment of some obligation.”
22.2. Consistent with its mandate as the country’s principal agency for state
guarantee finance, PHILGUARANTEE offers, among others, a guarantee
facility to providers of small housing loans to enable low-income and
underprivileged families to acquire or construct decent housing units. A
sub-program under the retail guarantee facility transferred from the former
HGC, the USHLGF caters to loans intended for any of the following
purposes:
Term of
Loan Amount Loan Purpose
Up to 15
Up to P580,000 years House construction and/or acquisition of lot
Up to P300,000 Up to 5 years Home improvements/repairs
22.3. Under said program, a Trust Fund equivalent to one percent of the
guaranteed loan shall be established upon enrollment in favor of
PHILGUARANTEE to serve as collateral of the guaranteed loan.
Specifically, Article VI of the standard Terms and Conditions of the
Guarantee provides that:
a. The Trust Fund shall be used primarily to pay the guaranteed

obligation and it shall be remitted or deposited to: (i)
PHILGUARANTEE; or (ii) to an escrow account with any entity
licensed by the BSP.
b. If PHILGUARANTEE will manage and invest the Trust Fund, it shall

exercise powers and duties necessary and legal, to preserve and/or
maintain the Trust Fund for the purpose it was created.
c. PHILGUARANTEE shall debit the equivalent value of the defaulted

loan from the Trust Fund. A debit advice shall be sent to the client
within five working days thereafter.
d. Upon termination of the COG, the balance of the Trust Fund, and the
income thereof, if any, shall be released to the client.
206
22.4. As at December 31, 2021, the outstanding volume of guarantees under the
USHLGF9 and the total amount remitted to the Corporation as Trust Funds
thereunder which is recorded as Trust Liability10 follow:
Microfinancing Outstanding Guarantees, Trust Fund Balance,

Institution December 31, 2021 December 31, 2021
MFI A 900,281,153 17,819,995
MFI B 559,617,959 1,196,636
MFI C 16,690,660 708,750
MFI D 13,482,217 322,985
MFI E 1,900,877 27,389
MFI F* 0 105,184
MFI G* 0 32,375
Total 1,491,972,866 20,213,314
*No enrolled loans for guarantee as at December 31, 2021.
22.5. Our audit of the above accounts and review of related documents and
processes revealed the following:
On Monitoring and Handling of the Trust Funds
a. There was failure to monitor the disposition of the amounts received as

Trust Funds under the USHLGF and to keep the same separate from
the general corporate funds. Such monitoring and separation are
warranted to ensure that these funds are spent only for the specific
purpose for which these were received, i.e., pay for the guaranteed
obligation, in compliance with Section 4(3) of PD No. 1445 and Article
VI of the standard Terms and Conditions of Guarantee.
b. Interview with the Vice Presidents of the Housing Accounts Services

Department (HASD) under the HGG, and the FAD, disclosed that no
regular accounting and reconciliation were done, and no detailed
reports were prepared to account for the movements in the Trust
Funds. Said departments are monitoring only the remittances of Trust
Funds to PHILGUARANTEE. In fact, the HASD commented that it is
unsure whether the amounts remitted as Trust Funds were invested in
securities or merely deposited in and commingled with
PHILGUARANTEE’s bank accounts and own funds.
c. Relatedly, no special deposit account exclusively for the amounts

received as Trust Funds under the USHLGF was opened and
maintained. Item IV.B of Board Resolution No. 23-2012 dated July 24,
2012, which approved the Implementing Guidelines of the USHLGF,
explicitly provides that the former HGC shall create a separate special
deposit account exclusive for the purpose of managing and investing
the Trust Funds. The maintenance of such special deposit account
9
Per Housing Guarantee Portfolio Report as of December 31, 2021, provided by the Vice President,
HASD, HGG.
10
Per Accounts Listing as of December 31, 2021, generated from the General Ledger Information System
submitted by the CG.
207
would have facilitated the monitoring and separation of the Trust
Funds.
On Accounting for the Trust Funds
d. The FAD, in coordination with CMD, was not able to separately

account for the income generated by each Trust Fund. Separate
accounting for said income is important for two reasons. First, these
amounts, which presumably have been recorded as Interest Income,
should be recognized as Trust Liability since these do not pertain to
the Corporation which merely acts as trustor. Second, Article VI of the
standard Terms and Conditions of Guarantee requires that the
Corporation return the Trust Fund and the income thereof to the client
upon termination of the COG. Obviously, the Corporation cannot
comply with this requirement if no separate accounting of the income is
done. There is, therefore, a continuing exposure to risk of breach of
contractual obligations.
e. Moreover, verification disclosed that the amount of P4.400 million

received from MFI B on July 7, 2020, as Trust Fund under Official
Receipt No. 32014 for loans guaranteed under Certificate of Guarantee
No. 2020-8898 was inadvertently recorded as receipt of guarantee
premium instead of Trust Liability. Consequently, the same was
erroneously recognized as income pro rata in CYs 2020 and 2021.
22.6. As a result of the above deficiencies, Management’s compliance with

Section 4(3) of PD No. 1445 and Article VI of the standard Terms and
Conditions of the Guarantee to use and maintain the Trust Funds only for
the specific purpose the same were received is doubtful. Interest income
generated by the Trust Funds may have been inadvertently used for other
purposes.
22.7. Further, contrary to the fair presentation mandated by PAS 1, the Trust
Liability account as at December 31, 2021, is understated by the sum of the
total income generated by the Trust Funds as discussed in Paragraph
22.5(d) and the error noted in Paragraph 22.5(e). Moreover, the Interest
Income and Retained Earnings accounts as at or for the year ended
December 31, 2021, are collectively overstated by the same amount.
a. Determine using reasonable and diligent efforts the disposition of

the amounts received as Trust Funds, including the income
generated by each fund from receipt thereof to date;
b. Effect the necessary adjustments in the Trust Liability, Interest

Income and Retained Earnings accounts to correct the error and
deficiencies noted and, thus, reflect the correct account balances
as at or for the year ended December 31, 2021, in accordance with
the requirements of PAS 1 and the Conceptual Framework;
208
c. Formulate policies and procedures, subject to the approval by the
Governing Board, to address the deficiencies noted in the
monitoring, handling and accounting for the Trust Funds, to
include among others:
i. Separate accounting and monitoring of the disposition of the

amounts received as Trust Funds by the concerned
departments, i.e., HASD, FAD and CMD, and maintenance
and/or preparation of the necessary records and monthly
financial reports for this purpose;
ii. Regular reconciliation of the pertinent records maintained by

the concerned departments, at least quarterly, to timely
determine and correct errors and discrepancies;
iii. Expressly providing whether PHILGUARANTEE will manage

and invest the Trust Funds or merely deposit the same in a
separate special deposit account. In either case, appropriate
guidelines and controls, i.e., documentation, authorization,
review, and segregation of duties, among others, should be in
place to ensure that the Trust Funds are used only for the
purpose the same were created; and
d. Submit the monthly financial reports prepared for the Trust Funds
and the result of the regular reconciliation of the records thereon
to the Audit Team for audit.
23. The recorded obligation to NHMFC of P6.257 million as at December 31, 2021,
presented under Due to GCs varies by P3.148 million from that reported by
the NHMFC as its receivable from the former HGC. Thus, the reported Due to
GCs as at December 31, 2021, is doubtful, contrary to the fair presentation
23.1. As at December 31, 2021, PHILGUARANTEE reported P6.257 million as its

obligation to the NHMFC. The amount, presented under Due to GCs, is one
of the liabilities that was transferred from the former HGC as mandated by
EO No. 58. Details follow:
Particulars Amount
NHMFC-assigned accounts 4,555,575
Various 1,701,554
6,257,129
23.2. To validate the above balances as part of the audit of Inter-agency

Payables, the Audit Team initially requested supporting source documents
and records from the CG. However, no such documents were submitted by
concerned personnel to date.
209
23.3. Nonetheless, as an alternative, we reviewed the AAR on the NHMFC for
CY 2020 and found that the latter reported a non-moving and long-
outstanding P1.408 million as its total receivable from the former HGC. 11 As
described, the amount represents the loan balance of the mortgage
assigned to the former HGC (then known as the Home Insurance and
Guaranty Corporation) pursuant to the Credit Insurance Agreement
between the former HGC and NHMFC dated April 30, 1987.
23.4. Thus, there is an apparent discrepancy of at least P3.148 million between

the amount recorded by the Corporation as its liability to NHMFC and that
reported by the latter as its receivable from the former as at December 31,
2021, relative to the NHMFC-assigned accounts, determined as follows:
Particulars Amount
Due to NHMFC per PHILGUARANTEE books 4,555,575
Due from former HGC per CY 2020 AAR on NHMFC 1,407,617
3,147,958
23.5. Moreover, we noted that the liability to NHMFC has been long-outstanding.
It had already been 35 years since the pertinent Credit Insurance
Agreement was executed in 1987. On this score, Section 98 of PD No.
1445 provides for the reversion to Retained Earnings of “any unliquidated
balance of accounts payable in the books of the national government,
which has been outstanding for two years or more and against which no
actual claim, administrative or judicial, has been filed or which is not
covered by perfected contracts on record.”
a. Facilitate the reconciliation of the variance noted as well as the

determination and settlement of the actual amount due to the
NHMFC, including those marked as “various,” i.e.,
correspondence and meetings with concerned officers of the
NHMFC;
b. Adjust the books as at December 31, 2021, to correct any

overstatement or understatement of the Due to GCs account as
regards the recorded obligation to NHMFC, or to revert to
Retained Earnings the unliquidated long-outstanding payable,
where warranted; and
c. Submit to the Audit Team results of its reconciliation, including

copies of supporting documents, and its correspondences and
meetings with the concerned officers of NHMFC.
23.7. Management commented that the review and reconciliation of the account
is currently on-going. The adjustments to correct the account, where
11
Page 77 to 79, AAR on the NHMFC for the Year Ended December 31, 2020 and 2019 which can be
accessed at: https://www.coa.gov.ph/reports/annual-audit-reports/aar-government-owned-and-or-controlled-
corporations/# 199-2451-national-home-mortgage-finance-corporation-1621480776.
210
warranted, will be booked upon completion of the reconciliation and
documentation processes.

recommendations.
24. Receivables with account balances totaling P5.977 billion as at December 31,
2021 are inaccurate due to the presence of abnormal or negative balances in
the books totaling P92.711 million, contrary to Section 111 of PD No. 1445
and the fair presentation mandated by Paragraph 15 of PAS 1 – Presentation
of Financial Statements.
24.1. Audit showed that, as at December 31, 2021, P92.711 million negative or
abnormal balances exist in the General Ledgers/Schedules of Receivable
accounts with account balances totaling P5.977 billion. Details follow:
Account Negative or
Balance, Abnormal
Accounts 12/31/2021 Balances
Sales Contract Receivable 3,567,217,853 76,750,990
Subrogated Claims Receivable 552,741,275 6,324,531
Loans Receivable 491,377,132 737,005
Finance Lease Receivable 133,337,887 389,250
Due from LGUs 8,517,570 334,978
Notes Receivable 900,443,492 77,067
Receivable from Disallowances/Charges 118,452,312 60,106
Accounts Receivable 3,557,442 38,618
Other Receivable – Current 201,439,367 7,998,466
5,977,084,330 92,711,011
24.2. Verification disclosed that majority of these negative or abnormal balances

are caused by the non-recognition of receivable accounts to which the
regular payments of amortizations and other dues received from buyers,
borrowers and/or tenants should have been credited against. The non-
maintenance of SLs as noted in Observation No. 34 likewise contributes to
the accumulation of these balances as the up-to-date information of
payments by buyers/clients/lessees are not readily available.
24.3. Indubitably, the existence of these negative or abnormal balances casts

doubt on the reliability of the recorded receivables. Moreover, this
deficiency indicates an internal control weakness in the handling by the
Corporation of its receivables. Failure to timely reconcile these balances
provides an opportunity for fraud to occur. On this score, we note that the
total of the negative balances increased by P17.805 million from the
P74.906 million observed as at December 31, 2020.
211
24.4. Accordingly, the pertinent Receivable and other related accounts as at
December 31, 2021 are inaccurate, contrary to the fair presentation
required by Paragraph 15 of PAS 1. Further, the deficiency goes against
the highest standards of honesty, objectivity and consistency required in the
keeping of accounts prescribed by Section 111 of PD No. 1445.

a. Investigate, evaluate and reconcile the accounts with negative

balances, and effect the necessary adjustments in the books;
b. Set reasonable timeline and milestones for the evaluation,

reconciliation and adjustment of the accounts to properly
evaluate progress and accomplishments;
c. Maintain up-to-date SLs/sub-ledgers for each buyer/borrower/

tenant; and
d. Monitor existence of negative and abnormal balances from time

to time to eliminate, or at least minimize, the existence of these
balances in the books.
24.6. Management commented that with the output of the IDC, FAD recorded
adjustments in CYs 2021 and 2022 of P1.425 million and P13.600 million
respectively, representing restructuring of loans to correct the negative
balances under the BF Homes Project. The FAD also reclassified a total of
P19.290 million for the Finasia Homes Project in CY 2022. Both projects
now carry a positive balance.
24.7. The FAD, in coordination with the IDC will continue the reconciliation and
evaluation of the other projects with negative balances. The GCG’s
approval of the creation of the Project Accounting Division (PAD) with seven
new plantilla positions will allow FAD to assign dedicated personnel in
charge of the reconciliation, regular monitoring and review of affected
accounts.
24.8. With the on-going ICT Modernization Project, records, including the SLs for
each buyer, borrower, and tenant will be automated with the development
of the ERP. In the meantime, the existing excel files of the SLs of the SCRs
will be uploaded to the FIS which will facilitate the updating and monitoring
of the balances.

recommendations.
25. PHILGUARANTEE’s recorded total receivables from and payables to the

various funds under its trust and/or administration as at December 31, 2021
212
differ from that recorded by said funds as payables to and receivable from
PHILGUARANTEE by P395.384 million and P58.532 million, respectively.
Thus, the reported balances by both the Corporation and the funds under its
trust and/or administration are doubtful, contrary to the fair presentation
25.1. The Corporation acts as trustee and/or administrator pursuant to law or

agreements that result in the holding of funds on behalf of other entities. By
virtue of EO No. 58, the administration of the AGFP, including the penalties
pertaining to it under RA No. 10000, was transferred to the Corporation
effective August 31, 2019.
25.2. Moreover, as successor-in-interest of the former HGC, the Corporation acts

as trustee and/or administrator of the cash flow guarantee component of
the AKPF as well as of the various funds it received from several NGAs
which are intended for the acquisition and construction of resettlement sites
for informal settler families (ISFs) displaced by the infrastructure projects
implemented by the latter agencies.12 Details follow:
Year Trustor Purpose of Project

1992 Department of Public For the acquisition and development of relocation
Works and Highways sites for the affected ISFs from the areas of Estero de
(DPWH) and Housing Vitas and Estero Sunog Apog in Tondo, Manila and
and Urban Development Quezon City to be relocated to Friendship Village
Coordinating Council Resources (FVR-1) and Family Village Resources
(HUDCC) (FVR-2) located in Barangay Tigbe, Norzagaray,
Bulacan and Barangay Kabilang Baybay, General
Mariano Alvarez, Cavite, respectively
1996 DPWH, HUDCC and For the acquisition and development of relocation
National Housing Authority sites for the affected ISFs along the entire stretch of
(NHA) the R-10 Road right-of-way to be relocated to North
Hills Village (NHV), located in Barangay Bitungol,
Norzagaray, Bulacan
1997 Department of For the acquisition of developed relocation sites for

Transportation and the ISFs affected by the construction of the EDSA
Communication LRT-III Depot Project in North Triangle, Quezon City
(DOTC), HUDCC and to be relocated to Montalban Heights, San Jose,
NHA Rodriguez, Rizal
1999 DPWH and HUDCC For the acquisition of developed relocation sites for
the ISFs affected by the Metro Manila Flood Control
projects to be relocated to Barangay Concepcion,
Baras, Rizal
1998 Presidential Management For the construction of 11 medium-rise buildings

Staff (PMS) (MRBs) in C-5 Fort Bonifacio, Taguig City
12
In separate letters both dated December 6, 2021, PHILGUARANTEE informed the Secretary of Public
Works and Highways and the Secretary of Transportation of its decision to unilaterally terminate the Trust
Agreements with DPWH and DOTr. To date, however, there has been no turnover and settlement of
pertinent funds, assets, and liabilities.
213
25.3. For financial reporting purposes, the resources and obligations of these
funds are not consolidated in the financial statements of
PHILGUARANTEE. Instead, separate sets of books of accounts and
financial statements are maintained and prepared, respectively, for each
fund. Only the total assets of the funds are reciprocally presented and
accounted for as non-current assets under “Other Assets” and non-current
liabilities under “Trust Liabilities” in the financial statements of
PHILGUARANTEE.
25.4. As at December 31, 2021, PHILGUARANTEE reported total receivables

from and payables to these funds of P164.237 million and P601.523 million,
respectively. Details follow:
Receivables Payable
Fund Amount Nature Amount Nature

AKPF 97,171,996 Share of AKPF in the 538,155,914 Transfer value of the
Corporation’s cost of acquired lots owned
personnel services and by AKPF which were
maintenance and other previously assigned to
operating expenses for the SSS as partial
the administration of the settlement of the
cash flow guarantee former HGC’s unpaid
component pursuant to guarantee obligations
Section 7 of RA No. to the latter plus the
6846, as amended amounts collected by
and receipted under
the name of the
Corporation and/or the
former HGC on the
account of AKPF
AGFP 58,742,310 Accumulated unpaid 0 Not applicable

costs and expenses
allocated to and charged
against AGFP and the
trust earnings of the
balance of the equity
contribution of the NG to
AGFP due for transfer to
the Corporation pursuant
to EO No. 58 prior to full
remittance thereof
TFs from 8,322,673 Accrued trusteeship fees 63,367,572 Amounts collected by

NGAs and advances to the the Corporation for the
Trust Funds account of the Trust
Funds
164,236,979 601,523,486
25.5. Verification of pertinent records disclosed that PHILGUARANTEE’s

recorded receivables from and payables to the various funds under its trust
214
and/or as at December 31, 2021 do not tally with the amounts recorded by
said funds in their separate financial statements as their total payables to
and receivables from the former. Details follow:
Particulars Amount
Due from the funds per PHILGUARANTEE’s books
AKPF 97,171,996
AGFP 58,742,310
TFs from NGAs 8,322,673
164,236,979
Due to PHILGUARANTEE per funds’ books

AKPF 113,117,808
AGFP 188,640,052
559,621,322
Due to the funds per PHILGUARANTEE’s books
AKPF 538,155,914
601,523,486
Due from PHILGUARANTEE per funds’ books
AKPF 488,763,699
542,991,349
Variance 58,532,137
25.6. Undeniably, the existence of the above variances casts doubt on the
accuracy and reliability of the amounts reported by PHILGUARANTEE and
the funds under its trust and/or administration as their receivables from and
payables to each other, contrary to the fair presentation mandated by
25.7. We reiterated our prior year’s recommendations that Management,

a. Reconcile the recorded receivables and payables between

PHILGUARANTEE and the funds under its trust and/or
administration, and where necessary, effect appropriate
adjustments in their respective books of accounts; and
b. Likewise, install appropriate control mechanisms, i.e. regular

monitoring and review, to ensure that the amounts recorded by
PHILGUARANTEE and the funds under its trust and/or
administration as receivables from and payables to each other
tally.
215
25.8. We further recommended that Management, through the concerned
Groups, set reasonable timeline and milestones for the evaluation,
reconciliation and adjustment of the accounts to properly evaluate
progress and accomplishments.
25.9. Management commented that the reconciliation of the AKPF-related

accounts is on-going. In fact, there was partial remittance in December
2021 of AKPF’s share in expenses to PHILGUARANTEE amounting to
P344.240 million. As to the other accounts, FAD will analyze and reconcile
the accounts in close coordination with the handling units, and the
necessary adjustments will be taken up in the books in CY 2022.
25.10. Based on initial review and analysis, a substantial portion of the noted
discrepancy for the Trust Funds from NGAs pertains to trusteeship fees
payable to PHILGUARANTEE totaling P60.882 million which are not yet
recognized in the Corporation’s books due to low probability of collection
thereof. Likewise, the recommended appropriate control mechanism will be
developed within the year. Monthly monitoring of account balances is
currently being undertaken by FAD.

recommendations.
26. The accuracy and reliability of the reported Other Receivables –

Disallowances/Charges as at December 31, 2021 of P118.452 million are
doubtful due to the unreconciled net discrepancy of P10.404 million noted
between the recorded amount in the books and COA records, contrary to
pertinent provisions of the Rules and Regulations on the Settlement of
Accounts (RRSA) prescribed under COA Circular No. 2009-006 dated
September 15, 2009, as amended, and the fair presentation mandated by
26.1. Pertinent provisions of the RRSA, as amended, as regards the recording of

final and executory COA decisions follow:
a. Section 7.2 lists down the responsibilities of the Agency Accountant as

regards the settlement of accounts which include, among others:
i. Ensure that the audit suspensions, disallowances and charges

including their settlements, are properly monitored and reconciled
with the Statement of Audit Suspensions, Disallowances and
Charges (SASDC) issued by the Auditor in accordance with the
Rules;
ii. The disallowances and charges that have become final and
executory as contained in the Notice of Finality of Decision (NFD)
216
are recorded in the books of accounts and settlements thereof
under the Notice of Settlement of Suspension/Disallowance/
Charge (NSSDC) are dropped therefrom;
iii. The SLs are maintained and properly updated for each
official/employee determined to be liable/responsible for the
amount disallowed, charged or suspended.
b. Section 22 provides that the Chief Accountant shall, on the basis of the
NFD, record in the books of accounts, the disallowance and/or charge
as a receivable.
c. Section 24 states that recorded final disallowance and charges which

are settled shall be dropped from the books of accounts upon receipt
by the Accountant of the NSSDC.
26.2. Audit disclosed that the final and executory disallowances recorded under
the Other Receivable – Disallowances/Charges account as at December
31, 2021 totaling P118.452 million differs by P10.404 million from the
outstanding balance per COA records, including the SASDC as of even
date issued by the Audit Team. Details follow:
Particulars Amount
Other Receivable – Disallowances and Charges per books 118,452,312
Outstanding final and executory disallowances per COA
records 128,856,203
(10,403,891)
26.3. Analysis and verification of pertinent documents and records to reconcile

the noted variance disclosed the following discrepancies:
a. Payments totaling P11.212 million by persons liable relative to the

disallowed Amended Motor Vehicle Plan (AMVP) were directly credited
against the Other Receivable – Disallowances/Charges even without
receiving an NSSDC, therefor, contrary to Section 24 the RRSA.
b. Disallowances of the reimbursable expenses of former members of the

BOD of TIDCORP totaling P825,000 were not recorded in the books
despite receiving NFD No. 2018-001 dated November 26, 2018,
informing the Agency Head of the finality of said disallowances,
contrary to Section 22 of the RRSA.
c. There is a forwarded balance from then HGC of P1.699 million which

cannot be identified and validated. The balance, which dates as far
back as CY 2005, is described as “Unknown-Various Notices of
Disallowance (NDs) reclassified due to the conversion to NGAs
accounts.”
d. Items affecting the account totaling P53,254 and consisting primarily of

various payments appear erroneous, to wit:
217
Particulars Amount
Salary deductions directly credited under the Other
Receivables – Disallowances/Charges account 43,881
Understatement of the amount recorded in the FIS against
the amount per schedule 5,000
Other collections by the former HGC directly
debited/credited under the account 4,373
53,254
e. There is a negative balance of P11,852 for some NDs on travel

expenses as a result of crediting the Other Receivable –
Disallowance/Charge account upon payment by the persons liable
even though there were no prior set-up of receivables. Verification
disclosed that the said NDs have been fully settled. Thus, NSSDCs
have been issued for the settled amounts totaling P10,900. No NSSDC
has been issued yet for the remaining P952 pending receipt of
endorsement/Memorandum from Management informing that the
amount was already settled.
f. The FAD does not regularly reconcile with the SASDC issued by the
Audit Team. Likewise, no SLs are maintained and properly updated for
each official/employee determined to be liable/responsible for the
amount disallowed, charged or suspended. These controls required by
Section 7.2 of the RRSA would have prevented the existence of the
noted discrepancy.
26.4. As a result of the foregoing, the accuracy and reliability of the Other
Receivables – Disallowances/Charges account as at December 31, 2021
are doubtful, contrary to the fair presentation mandated by Paragraph 15 of
PAS 1.
a. Analyze and reconcile the noted discrepancies between the

recorded Other Receivable – Disallowances and Charges and the
outstanding balance per COA records as at December 31, 2021,
including the SASDC issued as of even date, and where
necessary, effect appropriate adjustments in the books;
b. Record in the books the disallowances with issued NFD totaling

P825,000 pursuant to Section 22 of COA Circular No. 2009-006;
c. Identify and provide the basis for the recording in the books of
the forwarded balance of P1.699 million which dates as far back
as CY 2005;
d. Reclassify as Trust Liabilities the settlements made by persons

liable which were directly credited to the Other Receivable –
Disallowances and Charges account even if not supported by
218
duly issued NSSDCs pursuant to Section 23 of COA Circular No.
2009-006;
e. Submit to the Audit Team proof of the settlements referred to

above for appropriate issuance of NSSDCs, particularly, details of
the payments made and the return of the vehicles where
appropriate;
f. Regularly monitor and reconcile the recorded final and executory

disallowances with the SASDC issued by the Audit Team;
g. Maintain and properly update SLs for each official/employee

determined to be liable/responsible for the amount disallowed,
charged or suspended; and
h. Thereafter, strictly comply with pertinent provisions of COA

Circular No. 2009-006 on the recording and dropping of final and
executory disallowances in the books.
26.6. Management commented that it duly notes the recommendations of the

Audit Team. Further, retrieval of the pertinent documents is on-going and
appropriate adjustments will be effected immediately. As regards the
settlements made by persons liable on the AMVP, the pertinent adjustments
were already effected under JV Nos. 4002051 and 42006320.

the subject account remain doubtful pending full compliance with the
recommendations.
27. Transportation equipment costing P3.590 million allegedly donated is still

recorded as Property and Equipment in the separate set of books and
financial statements of the NHV Trust Fund. Thus, the reported Property and
Equipment of said Trust Fund and the reported Trust Liabilities of
PHILGUARANTEE as at December 31, 2021, are both unreliable, contrary to
the fair presentation mandated by Paragraph 15 of PAS 1 – Presentation of
Financial Statements. Further, available supporting documents and records
are insufficient to establish the validity, regularity, and occurrence of the
alleged donation, contrary to Sections 4, 76 and 77 of PD No. 1445.
27.1. Section 4 of PD No. 1445 sets out the fundamental principles which shall
govern the financial transactions and operations of any government
agency. Among these are the following:
a. Trust funds shall be available and may be spent only for the specific
purpose for which the trust was created or the funds received.
b. Government funds or property shall be spent or used solely for public

purposes.
219
c. Disbursements or disposition of government funds or property shall
invariably bear the approval of the proper officials.
d. All laws and regulations applicable to financial transactions shall be

faithfully adhered to.
27.2. On the other hand, Sections 76 and 77 of the same PD provide the
following guidelines as regards receipt and disposition of government
property:
a. Section 76 directs that any government property that is no longer

serviceable or needed by the agency to which it belongs may be
transferred without cost, or at an appraised value, to other agencies of
the government upon authority of the respective heads of agencies in
the national government, or of the governing bodies of government-
owned or controlled corporations, other self-governing boards or
commissions or the government, or of the local legislative bodies for
local government units concerned.
b. Section 77 mandates that when government funds or property are

transferred from one accountable officer to another, or from an
outgoing officer to his successor, it shall be done upon properly
itemized invoice and receipt which shall invariably support the
clearance to be issued to the relieved or outgoing officer.
27.3. Specifically for property and equipment, PAS 16 provides the following
recognition and derecognition guidelines:
a. Paragraph 7 provides that the cost of an item of property, plant and

equipment shall be recognized as an asset if, and only if: (a) it is
probable that future economic benefits associated with the item will
flow to the entity; and (b) the cost of the item can be measured reliably.
b. Paragraph 67 states that the carrying amount of an item of property,

plant and equipment shall be derecognized: (a) on disposal; or (b)
when no future economic benefits are expected from its use or
disposal. Under Paragraph 68, the disposal of an item of property,
plant and equipment may occur in a variety of ways such as by sale,
by entering into a finance lease or by donation. The date of disposal of
an item of property, plant and equipment is the date the recipient
obtains control of that item.
27.4. As at December 31, 2021, the total assets of the NHV Project Trust Fund
as reported in its separate set of financial statements include property and
equipment with carrying amount of P3.590 million. The same consists
solely of a transportation equipment13 which is recorded at gross with no
depreciation provided therefor.
13
An ARC White 1999 Isuzu FTR33PW with Engine, Serial, Key and CS Numbers of 274269,
PABFTR33PLW200074, S8124 and 61EWU, respectively.
220
27.5. Records disclose that the transportation equipment was acquired and
donated immediately thereafter in CY 2000 to the local government of the
Municipality of Norzagaray, Bulacan. The Municipality of Norzagaray, as a
condition for the issuance of certificate of electrical inspection and other
permits to complete the development of the relocation area, required the
former HGC to donate to the Municipality, two garbage trucks to assist the
local government in extending services to the relocatees of the NHV
Project.
27.6. Due to lack of funds, the former HGC advanced the P3.590 million cost of
the transportation equipment which the NHV Project Trust Fund records
and presents as a liability under the Due to GCs account in its separate set
of books and financial statements.
27.7. Our audit of the above item of property and equipment disclosed the
following deficiencies:
Donation Not Adequately Substantiated
a. The donation was supported merely by an unnotarized Deed of

Donation. Said Deed was also not signed by then Mayor of the
Municipality of Norzagaray. Only the then President of the former HGC
signed the Deed. Thus, there is no proof that the local government of
the Municipality of Norzagaray accepted the donation and physically
received the transportation equipment.
b. A duly executed Deed is also vital in determining whether the

fundamental principles governing the financial transactions of
government agencies as laid out under Section 4 of PD No. 1445 were
observed in consummating the donation.
c. It also bears emphasis that under Article 748 of RA No. 386, otherwise
known as the Civil Code of the Philippines, the donation and the
acceptance shall be made in writing if the value of the personal
property donated exceeds P5,000. Otherwise, the donation shall be
void.
d. Moreover, the pertinent Board Resolution approving the donation of

the transportation equipment to the Municipality of Norzagaray was not
furnished to the Audit Team. To stress, Section 76 of PD No. 1445
requires that any government property that is no longer needed by the
agency to which it belongs may be transferred without cost to other
agencies of the government upon authority of the governing bodies of
government-owned or controlled corporations.
e. Likewise, no Property Transfer Report or its equivalent is on file to

support the donation. Such document properly itemizing invoice and
receipt should have been prepared to support the transfer of
accountability over the transportation equipment from one accountable
officer to another as required under Section 77 of PD No. 1445.
221
Recognition of Non-existing Transportation and Equipment
f. The continued recognition of the transportation equipment in the

separate set of books and financial statements of the NHV Project
Trust Fund is likewise improper. Per RPCPPE as at December 31,
2021, the transportation equipment is not in the custody nor located on
the premises of the Corporation.
g. Moreover, the transportation equipment may have already exceeded

its useful life because it had been more than 20 years since it was
acquired and donated. Under COA Circular No. 2017-004 dated
December 13, 2017, motor vehicles, as a guideline, shall be
depreciated over an estimated life span of five to 15 years.
h. Thus, the existence of control over the asset is lacking. It is also

improbable that there will be a flow to the Corporation of future
economic benefits associated with the transportation equipment.
Following Paragraph 67 of PAS 16, the carrying amount of the asset
needs to be derecognized.
i. It has to be stressed, however, that while its derecognition in the books

is proper for financial reporting purposes, accountability for the
transportation equipment shall be extinguished only upon compliance
with the rules laid out under pertinent law, rules and regulations. On
this score, COA Circular No. 2020-006 dated January 31, 2020,
provides guidelines and procedures for the derecognition of non-
existing property and equipment, including those without available
records of accountability.
27.8. Consequently, the validity, regularity and occurrence of the subject

donation cannot be fully ascertained. Specifically, it is uncertain whether the
Corporation has complied with the rules laid out under Sections 4, 76 and
77 of PD No. 1445 relative to the donation.
27.9. Moreover, the reported PPE of the NHV Trust Fund in its separate set of
books and financial statements as at December 31, 2021 as well as the
reported Trust Liabilities of PHILGUARANTEE as of even date, are
unreliable, contrary to the fair presentation mandated by Paragraph 15 of
PAS 1.
27.10. We recommended that Management, through the concerned Groups:
a. Conduct an investigation to establish the validity, regularity and

occurrence of the donation, status of the transportation
equipment, and the accountability/responsibility therefor;
b. Based on the results of the investigation, either: (i) demand from

the accountable personnel to produce the transportation
equipment or pay the depreciated replacement cost thereof; or (ii)
request authority from the COA for the derecognition of the item,
222
pursuant to COA Circular No. 2020-006. Pending the grant of
authority, the said item shall remain in the books of accounts with
appropriate disclosures; and
c. Install appropriate control mechanisms to ensure that disposals

of property comply with law, rules and regulations, and where
applicable, receipt of transferred property are duly acknowledged
by recipients thereof.
27.11. Management commented that an Office Order on the creation of a

committee that will conduct an inquiry to establish the validity, regularity,
and occurrence of the donation, and will determine the status of the
transportation equipment is being finalized. The results of the inquiry will be
endorsed to the committee for the one-time cleansing of PPE account
balances of the Corporation for their disposal. Compliance with established
control mechanisms for the disposal of properties will likewise be ensured.

recommendations.
B. OTHER AUDIT OBSERVATIONS
28. Credit guarantees extended by PHILGUARANTEE, through the Priority Sector

Guarantee Group (PSGG), covering MSME loans totaled P2.381 billion and
P348.652 million only, for CY 2021 and 2020, respectively, which were
significantly lower than the targeted amounts by P1.619 billion and P3.251
billion, respectively, or 40.48 and 90.32 percent short of its targets for even
years. Thus, the corporate objective to contribute to the inclusive growth and
spur regional development is adversely affected.
28.1. As at December 31, 2021, the PSGG handles two credit guarantee facilities
to support the financing needs of MSMEs granted by BSP-supervised
financial institutions consistent with the Corporation’s mandate, as follows:
a. SME Credit Guarantee Facility (SCGF) which covers loans granted to

SMEs engaged in export trade, manufacturing, import substitutes,
trading activities, and industries in the list of Investment Priorities Plan
of the Board of Investments; and
b. MSME Credit Guarantee Program (MCGP), a sub-program under the

SCGF, which covers loans extended to MSMEs affected by the
COVID-19 pandemic.14
14
Under its Resolution No. 244 dated January 25, 2022, the BOD approved the termination of the MCGP,
the inclusion of microenterprises as among the eligible borrowers for guarantee under the SCGF, and
renaming of SCGF to MSME Credit Guarantee Facility.
223
28.2. Under the Corporation’s Corporate Objectives, Priorities and Performance
Measures reported under its COB and Performance Scorecard, the PSGG
targeted total value of outstanding guarantees for CYs 2021 and 2020 of
P4.000 billion and P3.600 billion, respectively. It further aimed to implement
credit guarantee services to 8,000 and 2,000 additional MSME loan
borrowers, respectively, for the same years.
28.3. For CYs 2021 and 2020, PHILGUARANTEE extended credit guarantees to
16 AFIs involving a total of 16,159 and 2,944 MSME borrowers,
respectively and loans totaling P2.381 billion and P348.652 million,
respectively, of which P1.195 billion and P175.119 million are covered by
the guarantees. Breakdown thereof follows:
CY 2021 CY 2020
Guaranteed No. of Guarantee No. of
Bank Loan Amount Amount Borrowers Loan Amount Amount Borrowers
Bank A 107,800,975 53,900,488 481 0 0 0
Bank B 5,000,000 3,000,000 1 3,612,194 2,598,820 2
Bank C 170,910,058 86,060,029 148 25,571,000 12,785,500 19
Bank D 4,070,000 2,305,000 5 0 0 0
Bank E 263,806,406 131,903,203 199 0 0 0
Bank F 1,477,776,283 738,888,142 15,146 283,787,893 141,893,946 2,898
Bank G 7,486,111 3,743,055 4 0 0 0
Bank H 2,940,429 1,470,214 1 580,959 290,480 1
Bank I 11,410,000 6,301,000 5 0 0 0
Bank J 11,232,249 5,616,124 17 0 0 0
Bank K 7,589,337 3,794,669 5 0 0 0
Bank L 1,428,689 714,345 3 0 0 0
Bank M 17,633,189 11,428,184 26 0 0 0
Bank N 8,705,294 4,352,646 18 0 0 0
Bank O 500,000 400,000 1 0 0 0
Bank P 282,600,000 141,300,000 99 35,100,000 17,550,000 24
Total 283100000 141700000 16159 35680959 17840480 2,944
28.4. Analysis revealed that the actual value of outstanding guarantee for the
priority and MSME sectors for CYs 2021 and 2020 are lower than the
targeted values of the PSGG by P1.619 billion and P3.251 billion,
respectively, or 40.48 and 90.32 percent deficit from its targets for even
years. Details follow:
Discrepancy 2021 2020

Targeted value of outstanding guarantee 4,000,000,000 3,600,000,000
Actual value of outstanding guarantee 2,380,889,020 348,652,046
Deficit in Pesos 1,619,110,980 3,251,347,954
Deficit in Percentage 40.48% 90.32%
28.5. Thus, fulfillment by the Corporation of its development financing role to

support MSMEs with the end view of facilitating and promoting socio-
economic and regional development was not fully and completely realized.
224
28.6. Nevertheless, we commend the PSGG for exceeding its targeted number of
additional MSME loan borrowers for both CYs 2021 and 2020 as it was
able to enroll 16,159 and 2,944 additional borrowers under the MSME
credit guarantee programs for even years.
28.7. We recommended that PHILGUARANTEE, through PSGG, exert more

effort in promoting credit guarantees to financial institutions offering
MSME loans to qualified borrowers to enable it to reach its annual
targets and significantly contribute to the inclusive growth and spur
regional development, through:
a. Maximizing PHILGUARANTEE’s website and office facilities in the

promotion of the program and the benefit it offers;
b. Conducting program dissemination campaign to AFIs via online

platform in times of calamities or crises; and
c. Sending PSGG representatives to the AFIs to market the PSGG

program, if warranted by the present situation.
28.8. Management commented that the PSGG initiated several marketing

roadshows to reach a wider audience. The initiative is projected to yield
results in six to 12 months’ time.

evaluated accordingly.
29. Funds which were in excess of normal operating requirements averaging

P109.843 million and P340.142 million monthly in CYs 2021 and 2020,
respectively, remained idle for at least 30 days and were not immediately
invested in government securities, contrary to Section 2 of AO No. 173 dated
June 18, 1990, and Section 17 of DOF Department Order (DO) No. 141-95
dated August 11, 2004, as amended. As a result, the Corporation was
deprived of an estimated P1.473 million and P4.847 million in interest income
in CYs 2021 and 2020, respectively.
29.1. Section 2 of PD No. 1445 declares that it is the policy of the State that all
resources of the government shall be managed, expended, or utilized in
accordance with law and regulations, and safeguarded against loss or
wastage through illegal or improper disposition, with a view to ensuring
efficiency, economy, and effectiveness in the operations of government.
29.2. Section 2 of AO No. 173 and Section 17 of DOF No. 141-95, as amended,
uniformly provide that the idle funds in excess of normal operating
requirements of government-owned or controlled corporations and local
government units shall be invested in medium-term and long-term
government securities or in special short-term government securities and/or
fixed term deposits with the BTr.
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29.3. “Idle funds in excess of normal operating requirements” is defined under
DOF DO No. 141-95, as amended, as the level of funds which an entity can
freely invest in government securities and/or fixed term deposits after
considering provisions for coverage of: (a) such regular and recurring
operating expenses such as salaries and wages, repairs and maintenance,
inventories and supplies, debt servicing, among others, within the context of
the entity’s cash operating cycle; and (b) local counterpart commitments for
capital expenditures within the current fiscal year.
29.4. Notably, Section 5(d) of PD No. 1080, as amended by RA No. 8494,

provides that PHILGUARANTEE shall have the power to invest funds not
needed in its operations, in government treasury bills, notes and bonds
either directly issued or guaranteed by the government or government
financial institutions.
29.5. As at December 31, 2021, PHILGUARANTEE reported a total Cash in

Bank of P25.409 million which are deposited in the 12 bank accounts it
maintains with the LBP and DBP. Details follow:
Particulars Amount
Cash in Bank – LC, Current Account 25,217,143
Cash in Bank – LC, Savings Account 1,000
Cash in Bank – FC, Savings Account 190,506
25,408,649
29.6. Audit of the above and review of the transactions involving the deposit
accounts maintained by the Corporation disclosed that funds which were in
excess of normal operating requirements averaging P109.843 million and
P340.142 million monthly in CYs 2021 and 2020, respectively, remained
idle for at least 30 days and were not immediately invested in government
securities, contrary to Section 2 of AO No. 173 and Section 17 of DOF DO
No. 141-95, as amended.
29.7. As a result, the Corporation was deprived of an estimated P1.473 million

and P4.847 million in interest income in CYs 2021 and 2020, respectively,
to wit:
Estimated
Estimated Assumed Interest
Account Idle Funds Interest Rate15 Income Lost
CY 2021
DBP Current Account No. 1 1,006,178 1.5350% 15,445
LBP Current Account No. 1 65,115,316 1.3390% 871,894
109,843,054 1,472,771
CY 2020
15
The assumed interest rate if the idle funds had been immediately invested in short-term government
securities is the average interest rate of PHILGUARANTEE’s outstanding investment portfolio with LBP or
DBP, as applicable, as at year-end.
226
Estimated
Estimated Assumed Interest
Account Idle Funds Interest Rate Income Lost
LBP Current Account No. 1 101,346,829 1.4250% 1,444,192
LBP Current Account No. 2 230,778,195 1.4250% 3,288,589
340,142,419 4,847,029
449,985,473 6,319,800
29.8. Per inquiry, idle funds have accumulated primarily because of the
organizational and process changes and adjustments required by the
implementation of the merger between PHILGUARANTEE and the former
HGC. Previously, then Treasury Operations Department handled both cash
management and investment functions. However, said functions are
handled by different Departments under the approved Organizational
Structure and Staffing Pattern of PHILGUARANTEE, i.e., CMD under the
BOG and the FID under then Fund and Asset Management Group.16
29.9. Undoubtedly, incurrence by the Corporation of opportunity loss totaling

P6.320 million is inconsistent with the avowed State policy of efficiency,
economy and effectiveness in the operations of the government as
enunciated in Section 2 of PD No. 1445.
a. Improve coordination between the Departments handling and

monitoring cash and investment balances, i.e., FID, CMD and the
FAD, clearly defining their duties and responsibilities as regards
to management of idle funds; and
b. Install appropriate control mechanisms, i.e., use of optimal cash

balance, regular monitoring, adequate fiscal planning, including
careful revenue estimates and related expenditure control, among
others, to ensure that idle funds are immediately invested in
government securities pursuant to AO No. 173 and DOF DO No.
141-95, as amended.
29.11. Management commented that the audit recommendations are duly noted.
As early as the first quarter of CY 2021, the FID, in close coordination with
other business units, commenced the establishment and maintenance of
minimal levels of cash in bank accounts. The fund balances were regularly
accounted for and all cash inflows and outflows are monitored by
institutionalizing the quarterly submission by all business units of their
projected maximum cumulative outflows. Any amounts in excess of
established levels in cash in bank per funds were timely invested.
29.12. Presently, all funds are covered by uniform or standard documentation and
processes whereby any idle funds are identified real-time. Thus, the
preparation and timely execution of investment plans are facilitated. With
16
Now SAMRG. Presently, FID is under the supervision of the CG.
227
the planned development and implementation of ERP, Management will be
better equipped to implement strategies and monitor the cash in bank
balances.

evaluated accordingly. Specifically, we will determine whether the adopted
measures have substantially reduced idle funds in CY 2022.
30. The current structure and staffing pattern of the CG is inadequate to ensure
submission of accurate, reliable, timely and relevant financial reports for the
Corporation and the various funds under its trust and/or administration, as
well as allow segregation of incompatible duties and application of other
control activities as prescribed by the Internal Control Standards for the
Philippine Public Sector (ICSPPS) adopted under COA Resolution No. 2018-
007 dated February 1, 2018.
30.1. Internal control is an integral process that is effected by an agency’s

management and personnel and is designed to address risks and to
provide reasonable assurance that in pursuit of the agency’s general
objectives, i.e. operations, reporting and accountability, compliance and
safeguarding of assets, are being achieved. It has five inter-related
components namely: (a) control environment;17 (b) risk assessment;18 (c)
control activities;19 (d) information and communication;20 and (e)
monitoring.21
30.2. Relative thereto, the ICSPPS as adopted under COA Resolution No. 2018-
007 dated February 1, 2018, provides the applicable guidelines essential
for establishing, implementing, and maintaining effective internal control in
all agencies of the government. It sets out various principles, principal foci,
and attributes22 for an effective internal control system. Thus, it is upon
these guidelines that the internal control systems adopted by the agencies
shall be evaluated.
17
Control environment sets the tone of an agency, influencing the control consciousness of its staff. It is
the foundation for all other components of internal control, providing discipline and structure.
18
Risk assessment is the process of identifying and analyzing relevant risks to the achievement of the
agency’s objectives and determining the appropriate response.
19
Control activities refers to the policies and procedures established to address risks and to achieve the
agency’s objectives. Internal control activities are responses to risk designed to contain the uncertainty of
outcome that has been identified.
20
Information and communication pertain to the effective processes and systems that identify, capture
and report among other things the operational, financial, non-financial, compliance and other related
information in a form/content and timeframe that enable people to carry out their responsibilities.
21
Monitoring is the process that assesses the quality of the internal control system’s performance over
time.
22
Principles represent the essential concepts associated with the five components of internal control and
facilitate management in understanding what constitutes an effective internal control.
Supporting each principle are principal foci representing the important characteristics associated with the
principles, which are intended to provide guidance to management in designing, implementing, and
evaluating internal controls, and in assessing whether relevant principles are present and functioning.
Each principal focus includes attributes intended to assist the users in identifying specific items that
indicate the degree to which internal control is functioning.
228
30.3. Below are some of the principles, principal foci and attributes set out under
the ICSPPS:
Principle Principal Foci Attributes

Control Environment
Management sets the Agency’s policies, procedures The agency adopts and implements
“tone at the top” and practices should promote control policies and measures on
orderly, ethical, economical, the following:
efficient, and effective conduct  Delegation of authority and
of operations. supervision;
 Segregation of functions for
processing, reviewing, recording,
custody and approval;
 Access to resources and
records;
 Completeness and integrity of
transaction documents and
reports;
 Verification of transactions; and
 Reconciliation of records and
data.
Management exhibits Management should establish Personnel have sufficient
commitment to policies and procedures that competence and training necessary
competence current staff receives for their assigned level of
adequate on-going training, responsibility or the nature and
mentoring and supervision. complexity of the agency’s mandate.
Management establishes Management should develop There is an appropriate segregation

appropriate government and communicate policies to of incompatible duties, i.e.,
organizational structure employees to ensure that they separation of accounting for, and
understand or are aware of access to assets.
the following:
 Their duties and
responsibilities;
 How their individual actions
interrelate and contribute
to the agency’s objectives;
 The authority they are
delegated; and
 How and for what they will
be held accountable.
Control Activities
Management designs Controls are complied with by Management establishes policies to
control activities which all employees involved and ensure that duties are logically
are appropriate, not bypassed in the absence divided or segregated among
consistently functioning of key personnel. different people to reduce the risk of
according to plan fraud or inappropriate actions.
throughout the period,
cost-effective,
comprehensive,
reasonable, and directly
related to control
229
Principle Principal Foci Attributes
objectives
Management develops Management develops and Management develops policies and

control activities which undertakes diverse range of procedures including the following:
include a range of diverse policies and procedures  Top level reviews and
policies and procedures needed to address risks in performance;
achieving the agency’s  Authorization and approval
objectives. procedures;
 Segregation of duties;
 Control over access to resources
and records;
 Verifications;
 Reconciliations;
 Reviews of operations,
processes and activities;
 Management of human capital;
 Establishment of controls for
physical assets and vulnerable
assets; and
 Documentation.
Management designs control There is an appropriate segregation

activities at the appropriate of incompatible duties; and
level of the agency’s
organizational structure.
Management designs its control
activities at the agency level,
transaction level or both, depending
on the level of precision needed to
ensure achievement of objectives
and address risks in the operations.
30.4. Our evaluation and review of the structure and processes of the CG as part
of our audit of the accounts and transactions of PHILGUARANTEE,
disclosed the following deficiencies which are contrary to the principles,
principal foci and attributes prescribed under the ICSPPS:
Non-segregation of Incompatible Duties
a. Segregation of incompatible duties is not observed in some situations

where it is warranted. Foremost, personnel handling the accounting and
recording of the accounts and transactions of the funds under the trust
and/or administration of PHILGUARANTEE also handle some accounts
of and/or prepare reports for the Corporation. Details follow:
Accounting Trust Funds Accounts Handled and/or Reports

Personnel Handled Prepared for PHILGUARANTEE
Personnel A AKPF and Trust Investment Property, Sales Contract
Funds from NGAs Receivable; and Deferred Credits
Personnel B AGFP Regulatory and compliance reports
Personnel C AGFP Outstanding guarantees, HGG
230
Accounting Trust Funds Accounts Handled and/or Reports
Personnel Handled Prepared for PHILGUARANTEE
transactions and accruals.
b. Partly attributable to the inadequate manpower complement as

discussed below, such condition increases the risk of fraud or
inappropriate actions as well as the risk of not detecting such problems.
This is further aggravated by the fact that intense supervisory review
and reconciliation of records cannot be performed as compensating
controls due to the workload of superiors.
c. The FID23 was placed under the supervision of the CG pursuant to

Office Order No. 2021-062 dated November 2, 2021. The realignment,
however, allows the key duties of authorization, custody and recording
of investments on an agency level to fall under the control of just one
Group, which is contrary to the segregation of incompatible duties
prescribed by the ICSPPS.
d. We noted that included in the functional description of the FID are the
duties to “invest funds in excess of operating requirements in
accordance with set policies and guidelines” and “handle the
custodianship and management of land titles, tax declarations, bond
certificates, stock certificates and other critical financial documents.”
Such functions are incompatible with the recording function performed
by the CG through the FAD.
e. Management intends to propose to the BOD the creation of a new

department under the BOG to assume the present function of the CG
with respect to the recording of all revenues from the guarantee
operations. Should the plan be pursued, the BOG will have sole control
of all the key stages of the collection cycle. The planned realignment will
likewise allow the key duties of authorization, custody and recording of
collections on an agency level to fall under the control of just one
Group, which again is contrary to the segregation of incompatible duties
prescribed by the ICSPPS.
Inadequate Structure and Staffing Pattern
f. The present structure and staffing pattern appears inadequate to

ensure submission of accurate, reliable, timely and relevant financial
reports for the Corporation and the various funds under its trust and/or
administration. We note that, prior to the merger, then Finance Services
Department had three Financial Accounting Officer positions while the
Controllership Department of the former HGC had six Accountant and
two Accounting Specialist positions.
23
Originally aligned with the Fund and Asset Management Group (now SAMRG) per GCG-approved 2019
Restructuring Plan of PHILGUARANTEE and temporarily aligned to the BOG pursuant to Office Order No.
2020-019 dated April 30, 2020.
231
g. However, the Financial Accounting Division 24 under the FAD, as
restructured, only has four plantilla positions despite the fact that the
Corporation now has (i) an expanded function, thus, new guarantee
programs and significantly increased volume of guarantees and
investments; and (ii) two additional funds under its trust and/or
administration, namely the AGFP and the Electric Cooperative – Partial
Credit Guarantee (EC-PCG) Program.
h. Understandably, two personnel of the Management Information System

(MIS) Reporting Division handles the accounts and transactions of the
AGFP. Meanwhile, the Head of the CG herself temporarily handles the
accounts and transactions of the EC-PCG Program due to the heavy
workload of her subordinates.
i. Resultantly, delays in the submission of required financial reports and

schedules to this Office as well as deficiencies in the maintenance of
subsidiary and other records have been consistently observed since the
implementation of the merger effective as of August 31, 2019. In fact,
we issued only a Management Letter and disclaimed our opinion for the
CY 2019 and 2020 audits, respectively, primarily due to said
deficiencies.
j. Moreover, due to the heavy workload of each personnel of the CG,

some prescribed control activities, i.e., verifications and reconciliation,
were not performed regularly and/or efficiently. New variances and
discrepancies were noted in the records and submitted reports this CY
2021. Meanwhile, those noted in the previous years were either not fully
reconciled or even increased.
k. As a further result, there is less time for supervision, mentoring and

training of personnel. Relative to this, we noted several and recurring
deviations from the requirements of PFRSs, particularly new and
amended standards. This would have been prevented or at least
minimized by adequate and timely training of personnel.
l. Significant of these deviations which were ultimately corrected by CG

upon being informed thereof but are indicative of internal control
weakness as regards possession by personnel of sufficient competence
and training follow:
24
Under the 2019 Restructuring Plan of PHILGUARANTEE, the Financial Accounting Division under the
FAD has the following function description:
a. Develop and implement a system of accounting procedures that will ensure both the submission of
accurate, reliable, timely and relevant financial reports, as well as safeguarding company assets;
b. Responsible in the preparation of timely and accurate financial reports for submission to
Management, regulatory bodies, Bangko Sentral and other financial institutions;
c. Conduct accounts reconciliation and bookkeeping activities;
d. Ascertain compliance with tax regulations and remittance of all required taxes and other statutory
contributions to the government;
e. Certify as to availability of funds for all disbursement requirements of the Corporation;
f. Administer and maintain the Financial Information System requirements of the Corporation; and
g. Maintain and serve as custodian of financial reports, books and other financial records of the
Corporation.
232
i. Derecognition guidelines for financial liabilities prescribed under
PFRS 9 were initially not complied with in recording the approved
settlement agreement of the outstanding guarantee obligations to
the SSS of P4.486 billion. Thus, the Bonds Payable, Other Payable,
Interest Payable, Interest Expense and Gain on Debt Extinguishment
initially reported as at or for the year ended December 31, 2021 was
overstated (understated) by (P2.671 billion), P3.409 billion,
(P146.385 million), (P111.095 million), and (P702.711 million),
respectively.
ii. Effects of the proposed settlement of the obligation to the Subic Bay
Metropolitan Authority (SBMA) were prematurely recognized
resulting in the understatement by undetermined amounts of the
initially reported P3.152 billion balance of the Due to SBMA sub-
account under Other Payables as at December 31, 2021 and 2020,
1.
iii. Likewise, the effects of the changes in foreign exchange rates on

said obligation were disregarded, contrary to PAS 21. Thus, the
Foreign Exchange Gain (Loss) initially reported for the years ended
December 31, 2021 and 2020 was understated by at least
(P191.399 million) and P164.614 million, respectively.
iv. Advance rental of P4.326 million was erroneously recognized as

Prepaid Rent and improperly included in the initial measurement of
Lease Liability, contrary to the measurement requirements of PFRS
16. Further, significant COVID-19-related rent-concessions granted
by a lessor to PHILGUARANTEE were initially not recognized in the
books likewise contrary to the same standard. As a result, the
Prepaid Rent, ROU Asset, net, Lease Liability, Depreciation
Expense and Interest Expense initially reported as at or for the year-
ended December 31, 2021 were misstated, contrary to the fair
Delegation Not Maximized
m. In addition to handling the accounts and transactions of the EC-PCG

Program, the Head of the CG also signs and approves all JVs and DVs
regardless of the amount involved. Consequently, rather than focusing
on high-value and critical transactions and activities, she spends a
significant amount of her time reviewing vouchers even if the amounts
involved are not material agency-level wise. Also, the timely recording
and processing of these transactions, and ultimately the preparation of
required reports, are adversely affected.
n. Given the principles under the ICSPPS, the Head of the CG should
have delegated the accounting for the EC-PCG Program and the review
and/or approval of vouchers below a certain amount. Such delegation
233
not only improves her efficiency but also provides training and
opportunity for growth to her subordinates.
30.5. Thus, the Corporation may be unable to meet its reporting and
accountability objectives of maintaining and making available reliable and
relevant financial and non-financial information and fair disclosure of
information in timely reports to internal as well as external stakeholders.
30.6. Discussion with the CG on the above deficiencies disclosed that it already
requested with the GCG in a letter dated April 22, 2022, the organizational
realignment of the FAD which it hopes, among others, to aid in the timely
and accurate financial reporting due to assignment of reasonable workload
to each personnel and cover the backlog on analysis of previous
transactions of the former HGC that was passed to PHILGUARANTEE.
30.7. The realignment will result in the creation of two divisions, i.e., Corporate
Accounting Division (CAD) and PAD, under the FAD resulting in additional
seven plantilla items. The CAD will be responsible for maintaining high level
corporate accounting system to ensure generation of accurate, reliable,
timely and relevant financial reports. On the other hand, the PAD will be
responsible for the identification, negotiation and documentation of all fund
sourcing-related functions, monitoring, and processing of repayments of
corporate obligations as a result of borrowing, and monitoring of reports
and settlement of debenture bonds issued by the Corporation.
30.8. On June 8, 2022, the GCG substantially approved the requested

organizational realignment of the FAD in its Memorandum No. 2022-11
which the Corporation received on June 16, 2022.
a. Prioritize and/or fast track the completion of required activities for

the recruitment, selection and placement of personnel under the
reorganized FAD;
b. In the interim that segregation of incompatible duties cannot be
observed due to inadequate manpower complement, adopt
compensating controls such as rotation of personnel handling
the funds, requiring or encouraging annual holidays or leave,
detailed supervisory review, if possible, and surprise
reconciliations, among others;
c. Thereafter, ensure that segregation of incompatible duties is

observed by personnel handling the accounting and recording of
the accounts and transactions of the funds under the trust and/or
administration of the Corporation. Thus, they should not be
assigned corporate accounts and transactions;
d. Transfer the FID out of the supervision of the CG to segregate the

incompatible duties of authorization, custody and recording of
investments;
234
e. As regards the plan to create a new department under the BOG to
assume the function of recording all revenues from the guarantee
operations, either:
i. Discontinue the same as it violates the segregation of

incompatible duties prescribed under the ICSPPS; or
ii. Limit the function of the said department to the analysis of

revenues from the guarantee operations retaining the
recording function with the CG;
f. Set a reasonable amount and/or identify transactions whereby

review and/or approval of pertinent DVs and JVs shall be required
from the Head of the CG. Review and approval of transactions
involving amounts below such threshold should be delegated to
subordinates;
g. Assign the task of accounting and recording the accounts and

transactions of the EC-PCG Program to a subordinate with the
Heads of the FAD and the CG performing review and supervision;
and
h. Take action to ensure that the requirements of PFRS, whether

new, amended or not, are considered and evaluated as to their
applicability before journal entries to record transactions are
finalized and posted, to include among others:
i. Regular training of concerned personnel on PFRSs,
particularly on new and amended standards;
ii. Thorough review of journal entries recording complex and

unusual transactions and those involving significant amounts
before finalization and posting; and
iii. Timely reporting to the BOD, or at least to the Audit

Committee, of the list of those journal entries for their
information and oversight.
30.10. Management commented that the approval by the GCG of the proposed
organizational realignment of the FAD will result in additional seven plantilla
positions. With the additional manpower, Management can implement the
recommended segregation of incompatible duties as well other internal
control measures within the FAD.
30.11. To clarify, the current setup of the FID is an interim realignment for
purposes of efficiency as Management has envisioned. It must also be
noted that the FID plays a critical part in the Corporation’s discharge of its
responsibilities as member of the Asset-Liability Management Committee of
Government Financial Institutions recently institutionalized under DOF
Order No. 005-2022 dated February 10, 2022. Management will ensure that
the FID will be subsequently realigned to its appropriate set-up within the
organization.
235
30.12. Management will abide by the recommendation relative to the planned new
department under the BOG. Thus, the function of recording all revenues
from the guarantee operations remains with the CG and the function of the
new department shall be limited to the analysis of the accounts.
30.13. Moreover, the CG is currently assessing the nature and amounts of

transactions that can be delegated to subordinates and those that must be
reviewed and/or approved by the Group Head. The training plan for
personnel of the Group is now being crafted to include PFRSs applicable to
the operations of the Corporation. The same shall be implemented
commencing second semester of CY 2022.

evaluated accordingly. It is hoped that the hiring of personnel to fill the new
plantilla positions will be completed as soon as possible so that the
observed internal control deficiencies can be immediately remedied.
31. PHILGUARANTEE fell short in reaching the allocation limitations on the use
of its net worth for credit guarantees to socialized housing as at December
31, 2021, by P69.972 billion or 97.78 percent, contrary to Section 7 of RA No.
8763. Moreover, misapplication of guarantee premium rates per housing
package and inclusion of rejected accounts in the batch list resulted in a
difference of P8,463 in computed premiums, contrary to the Contracts of
Guarantee and Housing and Urban Development Coordinating Council
(HUDCC) Resolution Nos. 1 and 2, series of 2018.
31.1. Section 2 of RA No. 8763 declares that it is the policy of the State to
undertake, in cooperation with the private sector, continuing nationwide
housing program which will make available at affordable cost decent
housing. In recognition of the role of housing as catalyst of economic
growth and development, it is hereby declared a State policy to strengthen,
promote and support the component activities of housing production and
finance.
31.2. Thus, Section 3 of the same RA provides that the State shall integrate all
laws providing for housing credit guaranty to attain the following objectives,
among others:
a. Ensure continuous funding support to vigorously implement the

government’s programs for urban and rural housing, resettlement, the
development of sites and services, and the renewal of blighted areas;
and
b. Enhance the capability of low-income groups to acquire decent and

low-cost housing units through the introduction of support mechanisms
and facilities which shall render affordable such acquisitions.
31.3. Understandably, Section 7 of the RA No. 8763 set limitations on the use of
the net worth of the Corporation as follows:
236
a. At least 40 percent shall be allocated exclusively for socialized
housing, to be distributed equitably among all the regions, to the extent
practicable;
b. At least 30 percent shall be allocated exclusively for low-cost housing,

to be distributed equitably among all the regions, to the extent
practicable;
c. At least 20 percent shall be allocated exclusively for medium-cost

housing, to be distributed equitably among all the regions, to the extent
practicable; and
d. Not more than ten percent may be allocated for open housing.
31.4. In connection with the above, HUDCC Resolution Nos. 1 and 2, series of
2018, adopted a tiered price ceiling for socialized subdivision projects and
socialized condominium projects and revised the current price ceiling for
socialized subdivision projects and socialized condominium projects as
follows:
a. Socialized Subdivision Projects:
Particulars Price Ceiling

22 sqm with loft of at least 50% of the base structure, or 24 sqm 480,000
b. Socialized Condominium Projects:
Particulars Price Ceiling

For National Capital Region, Cainta and Antipolo City in Rizal;
San Jose Del Monte City in Bulacan, San Pedro City in Laguna;
and Carmona, Imus and Bacoor in Cavite:
22 sqm 700,000
24 sqm 750,000
For other areas:
22 sqm 600,000
24 sqm 650,000
31.5. Analysis revealed that 68.21 percent of the outstanding housing credit
guarantees of the Corporation pertain to low-cost housing. As a result, the
limitations on the use of net worth of the Corporation set for under Section 7
of RA No. 8763 were not observed. Specifically, the actual allocation for
socialized housing was merely 0.89 percent which is far below the 40
percent minimum requirement. Details follow:
Required Limitation Actual Allocation*

Type of No. of Amount Amount Difference
Housing Units (a) Percentage (b) Percentage (a) – (b)
Socialized 13,477 71,560,002,964 40.00% 1,588,259,178 0.89% 69,971,743,786
237
Required Limitation Actual Allocation*
Type of No. of Amount Amount Difference
Housing Units (a) Percentage (b) Percentage (a) – (b)
Low-cost 101,474 53,670,002,223 30.00% 122,021,244,770 68.21% (68,351,242,547)
Medium cost 15,455 35,780,001,482 20.00% 30,312,923,716 16.94% 5,467,077,766
Open housing 9,303 17,890,000,741 10.00% 24,977,579,746 13.96% (7,087,579,005)
178900007410.
Total 139,709 4 100.00% 178900007411 100
31.6. Moreover, audit disclosed several guarantee premiums of AFI A totaling

P10.417 million were incorrectly computed by P2,802 due to erroneous
assignment of premium rates in the calculation. Upon further validation of
the computation of guarantee premiums on certain guarantee enrollments
of AFI B totaling P1.531 million, a difference of P11,266 from the submitted
schedule was observed due to the inclusion of rejected accounts in the
batch list.
31.7. Thus, the guarantee premium rates of the two aforementioned AFIs were
understated by P8,463, computed as follows:
Overstatement
AFI Per PGC Per Audit (Understatement)
AFI A 10,416,582 10,413,780 2,802
AFI B 1,530,589 1,541,854 (11,265)
Total 11947171 11955634 (8,463)
31.8. The differences noted were directly communicated to the Account Officers
and were adjusted accordingly.
31.9. We recommended that Management, through the HGG:
a. Ensure that the limitations on the use of net worth of

PHILGUARANTEE, as mandated by law, are being observed and
followed; and
b. Strictly follow the guarantee rates as stated in the Contracts of

Guarantee in the computation of guarantee premiums.
31.10. Management commented that HGG’s clients are mostly banks whose
lending are focused on low-cost and higher housing packages. The
socialized housing loan borrowers are currently being served by the Pag-
IBIG because it offers longer tenor of payment, no equity required, and
lower interest rates as compared to banks. Further, Pag-IBIG subsidizes
the 3 percent interest rate for socialized housing loans from multi-purpose
loans and its other loan products.
31.11. The socialized housing loans of Pag-IBIG are also enrolled for guarantee
coverage premium-free under the AKFP. From 2017 to 2021, the socialized
loans covered by AKPF guarantee follow:
238
Year No. of Loans/Units Value in Billion Pesos
2017 18,150 6.600
2018 19,354 7.590
2019 15,102 5.710
2020 8,387 3.400
2021 12,057 5.420
Total 73050 28.720
31.12. Nonetheless, a review of the policy and/or mandate on socialized housing

shall be elevated to the BOD and other regulatory agencies for possible
amendment of the housing guarantee allocation.

32. The grant of guarantee coverage to ineligible housing loans totaling P27.226
million deprived the National Government of taxes estimated at P665,178,
contrary to the intent of pertinent provisions of RA No. 8763.
32.1. Section 15 of RA No. 8763 provides that the Corporation, as successor-in-

interest of the former HGC shall guarantee payment of the balance
outstanding and due on the guaranteed principal obligation, plus interest
and yields thereon up to 11 percent per annum for socialized housing
packages; ten percent per annum for low-cost housing packages; 9.50
percent per annum for medium-cost housing packages; and 8.50 percent
per annum for open housing packages.
32.2. Section 19 of the same RA states that the interest and yields earned or
accumulated on mortgage, debentures, bonds, notes, mortgage and asset-
backed securities, interest under a lease, and other credit instruments,
whether issued by the Corporation or covered by its guarantee in favor of
natural or juridical person, in cash or in bonds, shall be exempt from all
taxation to the same extent provided in Section 15. However, the
Corporation shall have the authority to increase the limit of such exemption
once every five years in such varying amounts as shall be reflective of the
social concerns of the State, subject to the approval of the President of the
Philippines upon the recommendation of the Monetary Board of the BSP.
32.3. Relatedly, Article 5.1.5 of the contracts entered by and between the
PHILGUARANTEE and the AFIs requires that the outstanding principal loan
value at the time of enrollment for guaranty must not exceed:
Maximum Loan-to-Collateral
Type of housing package Ratio (LCR)
Socialized 90%
Low-cost 90%
Medium cost 80%
Open housing 70%
239
32.4. Furthermore, Article 5.1.10 of the same contracts provides that the property
must not be located in flood prone, landslide prone or lahar endangered
areas as determined by an appropriate government agency.
32.5. Verification revealed that PHILGUARANTEE extended housing credit

guarantee totaling P178.900 billion outstanding as at December 31, 2021.
This translated to an estimated P18.158 billion worth of tax-exempt interest
income25 of AFIs or an estimated total tax exemption of P4.540 billion 26
enjoyed by the AFIs for CY 2021, computed as follows:
Guaranteed Tax Exemption Tax-exempt Tax

Type of Housing
Loan Amount Threshold Interest Income Exemption
Socialized 71,560,002,964 11.00% 7,871,600,326 1,967,900,082
Low-cost 53,670,002,223 10.00% 5,367,000,222 1,341,750,056
Medium cost 35,780,001,482 9.50% 3,399,100,141 849,775,035
Open housing 17,890,000,741 8.50% 1,520,650,063 380,162,516
Total 178900007410 18158350752 4539587689
32.6. As part of the normal operations of the Corporation, some guaranteed

housing loans are called by the AFIs. For CY 2021, the Corporation
received claims of these nature totaling P172.351 million.
32.7. Review of the called accounts showed that guarantee for P27.226 million
worth of housing loans should have been denied for causes identifiable
prior to the issuance of pertinent COG, such as, failure to attain LCR and
other warranties expressly stated in the Contract. This converted to an
estimated amount of P2.661 million tax-exempt interest income or an
estimated total tax exemption of P665,178 enjoyed by the ineligible
accounts enrolled by the AFIs for CY 2021, computed as follows:
Tax Exemption Tax-exempt Tax

Type of Housing Amount of Loan Threshold Interest Income Exemption
Socialized 0 11.00% 0 0
Low-cost 23,098,311 10.00% 2,309,831 577,458
Medium cost 0 9.50% 0 0
Open housing 4,128,000 8.50% 350,880 87,720
Total 27,226,311 2,660,711 665,178
32.8. It bears stressing that the housing guarantees extended by

PHILGUARANTEE provide tax benefits and exemption from risk capital27 on
the part of AFIs. Thus, the Corporation should ensure that these are not
being inappropriately taken advantage of through the enrollment to
guarantee coverage of ineligible housing loan accounts.
25
Amortization of housing loans not considered. Interest rate is based on tax exemption on interest
threshold under Section 15 of RA No. 8763 and not under the 6 percent legal interest rate.
26
Income tax rate is pegged at 25 percent as prescribed under RA No. 11534 or the “Corporate
Recovery and Tax Incentives for Enterprises” Act.
27
Under Item 47 of Appendix 59 of the Manual of Regulations for Banks, Philippine peso-denominated
exposures to the extent guaranteed by Industrial Guarantee and Loan Fund, Home Guaranty Corporation,
Agricultural Credit Policy Council and PHILGUARANTEE receive zero percent risk weight.
240
a. Strictly evaluate the guarantee enrollments made by the AFIs for

its housing loan borrowers based on the eligibility
criteria/conditions provided in the COG; and
b. Evaluate in a timely manner the proofs submitted to validate the

eligibility of the loans for guarantee coverage. Without prejudice
to the remedies available to the Corporation under Articles XIV
and XV of the standard Terms and Conditions of the Guarantee,
ineligible loans should be promptly excluded from guarantee
coverage and, thus, from exemption from taxes and risk capital.
32.10. Management commented that the processing and evaluation of housing

loans for guarantee coverage are based on the batch list submitted by all
AFIs. Under the COG, enrollment shall be accepted on the strength of the
warranties by the AFIs. Any violations of the warranties shall be determined
during the conduct of the post-audit.
32.11. Upon completion of the audit on newly enrolled accounts, HGG excludes
the accounts found not compliant with the AFI’s warranties. Rest assured
that post-audits are strictly done to exclude non-compliant loan accounts.
32.12. On this score, it must be stressed that the circumstances at the time of call
are different from the time of enrollment. The loans may be eligible for
coverage at the start but may be denied for call payment due to
deterioration of appraisal values and non-submission of documentary
requirements.

evaluated accordingly. Further, the Corporation must increase the number
of post-audits being conducted to identify and exclude those non-compliant
loan accounts in order to minimize the tax benefits and exemption from risk
capital enjoyed by the AFIs on ineligible housing loan accounts.
32.14. In view of the foregoing, we further recommend that Management,

through the HGG, submit to the Audit Team the results and
documentation of the post-audits conducted for verification.
33. No proofs of borrowers’ utilization of the proceeds of the guaranteed loans

under the USHLGF were required from and/or submitted by clients-banks,
contrary to Section 7.2 of Article VII of the standard Terms and Conditions of
the Guarantee. The non-submission of said proofs likewise deprives the
Corporation of the opportunity to timely evaluate, determine and exclude
ineligible loans from guarantee coverage.
33.1. Section 7.2 of Article VII of the standard Terms and Conditions of the
Guarantee under the USHLGF requires client-banks to submit within one
month from the release of the loan a proof of the borrower’s utilization of
241
the proceeds as specified in the loan application as part of the requirements
in the enrollment of loans for coverage.
33.2. Our walkthrough of related processes using the COG with MFI A dated
October 28, 2021, as sample showed that no proof of the borrower’s
utilization of the loan proceeds was submitted by said MFI, contrary to
Section 7.2 of Article VII of the standard Terms and Conditions of the
Guarantee.
33.3. Inquiry with the Vice President, HASD, disclosed that the same is no longer
required from client-banks and this has been the practice since the
USHLGF started. She explained that the former HGC and now
PHILGUARANTEE instead rely on the representations and warranties of
clients under Article IX of the standard Terms and Conditions of the
Guarantee. Under Article XIV of the same reference, violation of the client-
bank of any of the warranties and representations shall be considered a
ground for denial of a guarantee call.
33.4. However, we noted that this practice not only goes against the explicit
proviso under Section 7.2 of Article VII of the standard Terms and
Conditions of the Guarantee but also ignores the nature of the requirement
as a risk management tool as explicitly recognized under Item VI of Board
Resolution No. 23-2012. Evaluation of proofs of borrowers’ utilization of the
loan proceeds would timely alert the Corporation of ineligible loans for
coverage and prevent extending the benefits of the guarantee to ineligible
loans such as exemption from taxes28 and risk capital.29
a. Require the submission by the client-banks of proofs of

borrower’s utilization of the loan proceeds within one month from
the release of the loans pursuant to Section 7.2 of Article VII of
the standard Terms and Conditions of the Guarantee; and
b. Evaluate in a timely manner the proofs submitted to validate the

eligibility of the loans for guarantee coverage. Without prejudice
to the remedies available to the Corporation under Articles XIV
and XV of the standard Terms and Conditions of the Guarantee,
ineligible loans should be promptly excluded from guarantee
coverage and, thus, from exemption from taxes and risk capital.
33.6. Management commented that the validation of the utilization of loan

proceeds under the USHLGF is included in the conduct of post-audit.
Nevertheless, the HASD shall send reminder letters to the concerned client-
banks requiring the submission of proof of loan utilization as provided in the
28
Under Section 19 of RA No. 8763, interest and yields earned or accumulated on mortgage, debentures,
bonds, notes, mortgage, and asset backed securities, interest under a lease, and other credit instruments,
whether issued by the Corporation or covered by its guarantees in favor of natural or judicial persons, in
cash or in bonds, shall be exempt from all taxation to the extent guaranteed.
29
Under Section 314 of the Manual of Regulations for Banks, housing microfinance loans to the extent
guaranteed by the HGC, shall be subject to a zero percent risk weight.
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Section 7.2 of Article VII of the standard Terms and Conditions of the
Guarantee.
33.7. As an audit rejoinder, we stress that the requirement to submit proofs of

borrowers’ utilization of the loan proceeds is an added security feature or
risk management tool under the USHLGF as approved by the BOD in view
perhaps of the increased risk involving loans of such nature. The conduct of
post-audit does not negate its importance and relevance. Accordingly, the
courses of action taken and to be undertaken by Management to comply
with the recommendations will be monitored and evaluated by the Audit
Team.
34. The DC-TP and SCR accounts amounting to P886.567 million and P3.567
billion, respectively, as at December 31, 2021 are not supported with
subsidiary records containing the account details of each individual buyer
within a project, contrary to Sections 111 and 114(2) of PD No. 1445.
34.1. Section 111 of PD No. 1445 provides that 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. Relatedly, Section 114(2) of the same
PD provides that subsidiary records shall be kept, where necessary.
34.2. Audit disclosed that no separate SLs are maintained by the Corporation for
each individual buyer under the DC-TP, OUR-UI-IS and SCR accounts,
contrary to Sections 111 and 114 of PD No. 1445 which mandate the
keeping of SLs and detailed records. SLs are available on a per-project
basis only.
34.3. Inquiry with concerned personnel of both the CG and then Management
Information System Department (MISD) of the former HGC and now
Information Technology Department (ITD) under PHILGUARANTEE
disclosed that the accounting system being temporarily used by the HGG,
the XVision, cannot generate the SLs of individual buyers under the DC-TP
and SCR accounts due to technical limitations. As a workaround, CG
personnel merely prepare working papers in excel format for each project
account to support the necessary adjustments and reconcile the buyers’
transactions recorded under DC-TP, OUR-UI-IS, SCR and other
appropriate accounts.
34.4. However, such working papers cannot assure data security as well as
provide complete transaction details for each buyer at any given time as
compared to an SL which can provide the same with ease, accuracy, and
reliability. On this score, it must be stressed that the accounts of an agency
shall be kept in such detail not only as is necessary to meet the needs of
the agency in monitoring the accounts of individual buyers but also be
adequate to furnish the information needed by fiscal or control agencies of
the government such as COA pursuant to Section 111 of PD No. 1445.
243
34.5. The SLs provide means to reconcile the financial records of the CG with the
buyers’ ledger cards maintained by the RMD under the SAMRG. This
process of reconciliation not only ensures the accuracy and validity of
financial information but also helps in preventing and detecting fraud.
34.6. Thus, the non-maintenance of subsidiary records of DC-TP and SCR

accounts is contrary to Sections 111 and 114(2) of PD No. 1445.
34.7. We reiterated with modifications our prior years’ recommendations

that Management:
a. Through the ITD:
i. Conduct a thorough assessment of the current accounting

system used by PHILGUARANTEE; and
ii. Consider as a priority the inclusion thereof of SLs for each

individual ROPA buyers to assist the CG in keeping and
maintaining a complete and reliable set of books of accounts.
b. Through the CG:
i. Reconcile the working papers maintained by the CG with the

ROPA buyers’ schedules of payment and ledger cards
maintained by the RMD of SAMRG;
ii. Set reasonable timelines and milestones for the reconciliation

and adjustment of appropriate accounts to come up with
correct and reliable individual account balances; and
iii. Submit the results and summary of said reconciliation to the

Audit Team for validation and audit.
a. Through the ITD:
i. Assist the CG in the migration of ROPA buyers’ account

details to the SLs of the accounting system.
i. Coordinate with the CG for the determination of the accurate

and proper account balances of each ROPA buyers in the
books; and
244
ii. Provide the CG with the records, reports, and other
documents necessary to facilitate the inclusion of SLs in the
accounting system.
c. Through the CG:
i. Coordinate with the ITD for the inclusion of SLs containing

the account details of each ROPA buyers in the accounting
system; and
ii. Coordinate with the SAMRG for the determination of the

accurate and proper account balances of each ROPA buyers
in the books to be included in the SLs of the accounting
system.
34.9. Management commented that the inclusion of SLs will be a top priority, and
to be considered as one of the important features of the Enterprise
Resource Planning (ERP) to be developed. The same was already
coordinated with the ITD and the Technical Working Group in charge of the
development of the terms of reference related to the systems to be
procured/developed starting CY 2022.
34.10. A CG team, including ITD personnel, will be created to perform the

migration of the accounts. Likewise, close coordination between CG and
SAMRG will be observed to facilitate the reconciliation of accounts and
records maintained by both Groups.

recommendations.
35. TCT of properties covered by the New JVA with Corporation J as at

December 31, 2021, numbering 1,550 titles and covering a total area of
202,096.42 square meters (sqm.) do not bear the annotation of the Agreement
in favor of PHILGUARANTEE, thus, affecting ownership and rights over the
subject acquired assets, contrary to the requirements of Items 17 and 5 of
Articles III and IV, respectively, of the New JVA.
35.1. Item 17 of Article III of the New JVA notarized on February 7, 2018, states
that Corporation J, at its sole expense, shall cause the annotation of the
JVA on the TCTs of the properties covered thereby and shall shoulder the
expenses for such registration/annotation, which shall be undertaken by the
former HGC.
35.2. Likewise, Item 5 of Article IV of the same JVA provides that among the
obligations of the former HGC under the JVA is to undertake the
registration and annotation of this JVA on the TCTs of the properties
covered thereby, the expenses of which shall be shouldered by Corporation
J.
245
35.3. Audit showed that PHILGUARANTEE is in custody of the 1,550 TCTs of the
properties covered under the New JVA with Corporation J as at December
31, 2021. The said properties cover a total area of 202,096.42 sqm. with
redemption value of P352.022 million, broken down as follows:
Remaining Remaining Area Redemption

Property Number of TCTs (In sqm) Value
Property A 248 24,704 88,020,949
Property B 369 25,694 59,985,149
Property C 392 30,292 45,484,553
Property D 541 121,406 158,531,125
Total 1,550 202,096 352021776
35.4. Further verification showed that the above TCTs are still in the name of
Corporation J and do not bear the annotation of the New JVA. Such
annotation is necessary in order to protect the rights of PHILGUARANTEE
over the subject properties as the same will operate to bind third parties to
the contract.
35.5. Under the Summary of the Consolidated ROPAs schedule as at December

31, 2021, the registration of titles in the name of PHILGUARANTEE and the
annotation of the JVA is currently on-going. Thus, the requirements set
under Items 17 and 5 of Articles III and IV, respectively of the New JVA are
not complied with adversely affecting the rights of PHILGUARANTEE over
the subject properties.
35.6. We recommended that Management, through the SAMRG and the

LSG:
a. Promptly and immediately undertake or complete the registration

and annotation of the JVA on the TCTs of the properties covered;
b. Set reasonable timeline and milestones for the registration and

annotation of the JVA on the TCTs to properly evaluate progress
and accomplishments; and
c. Submit to the Audit Team proofs of registration and annotation of

the JVA on the said TCTs.
35.7. Management informed that the LSG is continuously undertaking the
registration and the annotation of the New JVA on the TCTs of the
properties covered. As at February 9, 2022, a total of 102 titles bear the
annotation of the agreement in favor of PHILGUARANTEE. Likewise,
Management already submitted to the Audit Team photocopies of the two
titles that already have annotations.

evaluated accordingly. We stress, however, that the rights of the
Corporation over the subject properties are not fully protected pending full
compliance with the recommendations.
246
36. Several defective and/or unserviceable items of Property and Equipment
costing P10.654 million remained undisposed as at year-end and are still
reported both in the books and the RPCPPE, contrary to Paragraph 67 of
PAS 16 – Property, Plant and Equipment, and Section 79 of PD No. 1445.
Resultantly, the items are unnecessarily exposed to further deterioration and
decrease in their recoverable amount, if any.
36.1. Section 79 of PD No. 1445 dictates that when government property has
become unserviceable for any cause, or is no longer needed, it shall, upon
application of the officer accountable therefore, be inspected by the head of
the agency or his duly authorized representative in the presence of the
auditor concerned and, if found to be valueless or unsalable, it may be
destroyed in their presence. If found to be valuable, it may be sold at public
auction to the highest bidder under the supervision of the proper committee
on award or similar body.
36.2. To facilitate the disposal of unserviceable property, COA Circular No. 89-
296 dated January 27, 1989, under Item VI thereof, requires the submission
of an inventory report, or the Inventory and Inspection Report of
Unserviceable Property (IIRUP), showing the itemized list and complete
description of the assets.
36.3. In this regard, Paragraph 67 of PAS 16 mandates that the carrying amount
of an item of PPE shall be derecognized on disposal or when no future
economic benefits are expected from its use or disposal.
36.4. Review of the RPCPPE disclosed that 212 items of defective and/or
unserviceable items of Property and Equipment with a total cost of P10.654
million remained undisposed as at year-end, as summarized below:
PPE Classification Quantity Total Cost

Office Equipment 16 871,520
ICT Equipment 172 3,790,088
Communication Equipment 16 400,442
Transportation Equipment 8 5,592,018
Total 212 5992460
36.5. Pursuant to Section 79 of PD No. 1445, the above items should have been
disposed of upon inventory and inspection thereof. On this score, it bears
emphasis that any delay in the disposition of these items would result in the
further deterioration and decrease in their recoverable amount, if any. The
items also consume a significant space at PHILGUARANTEE’s warehouse
and at the Jade Building office.
36.6. In addition, in light of the impending transfer of the Corporation to the

unified corporate office at BPI-Philamlife Building, it is imperative that the
above items be disposed of at the soonest possible time to avoid extending
247
the lease of the Jade Building office where some of the items are currently
stored.
36.7. Furthermore, the defective and/or unserviceable items should have been
derecognized as PPE in the books consistent with PAS 16 and temporarily
classified as Other Assets pending their disposal. Similarly, the items must
also be removed from the RPCPPE and presented instead in a separate
IIRUP as prescribed by COA Circular No. 89-296.
36.8. We reiterated our prior years’ recommendation that Management,

through the CG and the Corporate Services Group (CSG), undertake
the immediate and appropriate disposal of the unserviceable and
defective assets to avoid further deterioration and loss of their value.
36.9. Management commented that the Corporation continuously disposes its

defective and unserviceable assets. In CY 2021, six unserviceable vehicles
were disposed with the total sales value of P698,500. Moreover, other
unserviceable PPE warehoused in Paco, Manila and waste materials stored
at the Pampanga warehouse were sold in April 2022 for P140,800 and
P36,000, respectively.
36.10. Rest assured that the FGSD will continue to dispose all unserviceable PPE
this CY 2022. In fact, the FGSD has conducted public bidding for 25
unserviceable vehicles in May 2022 and as a result, three proposals in the
amount of P351,500 were received. Another round of bidding for the
remaining unserviceable vehicles will be conducted on June 10, 2022.
36.11. As an audit rejoinder, we acknowledge Management’s efforts in disposing

the Corporation’s unserviceable properties as mandated by law. However,
there remains a significant number of unserviceable properties as at
December 31, 2021. Accordingly, the courses of action taken and to be
duly monitored and evaluated.
37. Lack of appropriate internal control measures resulted in erroneously

allocating to the AGFP expenses totaling P3.569 million, contrary to the
Cost/Expense Allocation Policy for Administered/Managed Funds and
Programs of PHILGUARANTEE dated August 22, 2021, and Section 4(3) of PD
No. 1445.
37.1. On August 31, 2021, the BOD of PHILGUARANTEE approved the
Cost/Expense Allocation Policy for Administered/Managed Funds and
Programs dated August 22, 2021, in order to accurately measure and
recognize the expenses/costs in the books of PHILGUARANTEE and the
funds under its trust and/or administration. Said policy summarizes the
methods, measurements, and procedures that the Corporation will use to
allocate costs/expenses to said funds.
37.2. Under the approved policy, allocation of personnel services (PS) expenses
shall be computed based on specific costs directly identified to the AGFP.
Thus, the salaries of all personnel in the Agricultural Guarantee Group and
248
the Agriculture Guarantee Claims Division under the Collections and Claims
Department of the BOG, unless re-assigned to another department or
group, shall be charged to the AGFP.
37.3. For CY 2021, PHILGUARANTEE initially allocated PS expenses, i.e.,

compensation and other allowances and benefits, totaling P23.182 million
to the AGFP. The amount was recorded in the latter’s separate set of books
as a credit to the Due to PHILGUARANTEE account and debit to the
appropriate PS expenses accounts.
37.4. Review of the schedule supporting the allocated amount disclosed that
expenses totaling P3.569 million were inappropriately allocated to and
charged against the AGFP, contrary to the Board-approved Cost/Expense
Allocation Policy for Administered/Managed Funds and Programs. Details
follow:
Discrepancy Amount
Inclusion of employee not assigned to AGFP 1,458,145
Double inclusion of employees 1,132,572
Improper exclusion of employees (2,793,577)
Double charging of PS expenses 428,489
Incorrect PS rates used 288,755
Improper inclusion of PS expenses 3,213,647
Unaccounted difference (158,750)
Total 3,569,281
37.5. Upon being informed of the discrepancy, Management through the CG

adjusted the books of both PHILGUARANTEE and the AGFP. However,
notwithstanding such adjustment, we observed that there was lack of
appropriate control mechanisms in place such as documented review and
approval process, and reconciliation with source documents, among others,
that could have prevented the occurrence of the error.
37.6. On this score, it bears stressing that the inappropriate allocation of expenses
may constitute a violation of Section 4(3) of PD No. 1445 as AGFP funds
under its trust might be used to settle receivables not rightfully due to the
Corporation. Trust funds may only be utilized for the specific purposes for
which they were created.
37.7. Relatedly, our review of the Board-approved Cost/Expense Allocation

Policy for Administered/Managed Funds and Programs disclosed two gaps
which can be potential sources of problems in the future:
a. The approved policy does not state when the allocated cost/expense
should be settled by the AGFP and the AKPF. This provision is
desirable so that allocated expenses are not accumulated and remain
unsettled for a long period of time similar to that of the pre-merger
AKPF. Moreover, the Corporation would be timely compensated for its
efforts and have additional funds for its operations.
249
b. There is no provision relative to how the effect of prior years’
adjustments in the financial statements will affect the allocation,
particularly for the AKPF where the allocation of expenses are
computed using the asset ratio based on prior years’ COA AARs. Such
provision is desirable so that concerned personnel are guided,
accountability is established and consistency is achieved.
a. Install appropriate control mechanisms, i.e., documented review

and approval process, reconciliation with source documents,
among others, to ensure the correctness and validity of amounts
allocated to and charged against the AGFP; and
b. Consider revising or supplementing the Board-approved

Cost/Expense Allocation Policy to address the gaps noted
therein, i.e., no date stated when to settle allocated expenses and
no provision as to effect of prior year’s adjustments on allocated
expenses.
38. Deficiencies noted in handling of receivables from disallowances which are

contrary to pertinent provisions of the RRSA and COA Resolution No. 2015-
031 dated August 20, 2015, as amended by COA Circular No. 2017-021 dated
November 3, 2017:
38.1. Disallowances of PHILGUARANTEE and the AKPF amounting to

P118.452 million and P10.593 million, respectively, remained unsettled
as at December 31, 2021 despite the issued NFDs and COA Orders of
Execution (COEs), contrary to pertinent provisions of the RRSA.
38.1.1. Pertinent provisions of the RRSA, as amended, as regards the

finality and enforcement of COA decisions follow:
a. Section 7.1 enumerates the responsibilities of the Agency

Head as regards the settlement of accounts which include
among others:
i. The Agency Head, who is primarily responsible for all

government funds and property pertaining to his agency,
shall ensure, among others, that the settlement of
disallowance and charges is made within the prescribed
period;
ii. He 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;
iii. He shall enforce the COE by requiring the withholding of

salaries or other compensation due the person liable in
satisfaction of the disallowance or charge; and
250
iv. 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.
b. Section 22 provides that an NFD shall be issued by the

authorized COA official to the Agency Head to notify that a
decision of the Auditor, Director or Commission Proper has
become final and executory, there being no appeal or motion
for reconsideration filed within the reglementary period.
c. Section 23 states that a COE shall be issued to enforce the

settlement of an audit disallowance/charge, whenever the
persons liable therefor refuse or fail to settle them after the
decision becomes final and executory. Under Section 4.12, a
COE is defined as written instruction addressed to the Agency
Head, Attention: Treasurer/Cashier, to withhold payment of
salary and other money due to persons liable, for settlement of
their liability.
38.1.2. Audit disclosed that disallowances of PHILGUARANTEE and the

AKPF amounting to P118.457 million and P10.593 million,
respectively, remained unsettled as at December 31, 2021 despite
the issued NFDs and COEs, contrary to the above provisions of
COA Circular No. 2009-006, as amended.
38.1.3. On this score, we note that various persons liable were able to
retire and/or resign from the service without fully settling their
respective disallowances mainly because the disallowances that
became final and executory were payments under the Early
Separation Incentive Program (ESIP) to former HGC officers and
employees who availed the ESIP in CYs 2004 to 2009. Moreover,
the salary and other money due to persons liable who are
certifying/approving officers and are still in service were not
withheld by the Corporation.
38.1.4. In consonance with COA Circular No. 2009-006, the issued NFDs
and COEs uniformly and clearly provides that the persons liable
are bound to pay the disallowed amount immediately to the Agency
Cashier. Further, failure to pay the disallowance shall authorize the
Agency Cashier to withhold payment of salary and other money
due to persons liable in accordance with the NFD and COE.
38.1.5. Clearly, Management fell short in fulfilling its responsibility to

enforce the issued COEs and collect the final and executory
disallowances from the persons liable, especially those who are
certifying/approving officers and are still in the service.
38.1.6. Without prejudice to the foregoing observations, we acknowledge

the settlements made on the disallowed AMVP totaling P6.600
million for which NSSDCs were issued as at July 31, 2022.
251
38.1.7. We recommended that Management through the concerned
Groups:
a. Strictly comply with the provisions of COA Circular No.

2009-006, as amended, and the issued NFDs and COEs,
particularly:
i. The settlement of disallowances and charges within

the prescribed period;
ii. The withholding of salaries or other compensation due

the person liable in satisfaction of the disallowance or
charge;
iii. The settlement first by employees of the disallowances

and charges for which they are liable prior to
retirement, resignation or transfer to other agencies;
and
b. Exert more efforts to collect the overdue final and

executory disallowances from the persons liable pursuant
to the RRSA, as amended, and the issued NFDs and
COEs, to include, among others:
i. Regular monitoring of the status of settlement of the

final and executory disallowances;
ii. Sending of demand/collection letters to persons liable

who are separated from the service and/or no longer
connected with the agency; and
iii. Initiation of the necessary administrative and/or

criminal action in case of unjustified failure/refusal to
effect compliance by subordinate officials.
38.1.8. Management commented that the availees of the ESIP had already
been informed that the payments thereunder were disallowed by
COA, affirmed by the Supreme Court and became final and
executory. The availees were given 30 days to settle the excess
retirement benefits. These were also endorsed to a collection agent
engaged by then HGC for legal action. However, the hiring of the
collection agent was later on disallowed also by COA. The
collection of final and executory disallowances is now being
handled by the LSG in coordination with the FAD.

will be monitored and evaluated accordingly. We expect that an
appropriate action plan will be developed and/or presented for the
252
collection of the receivables arising from final and executory
disallowances.
38.1.10.We further recommended that Management, through the CG

and LSG, set reasonable timeline and milestones for the
collection of receivables from final and executory
disallowances to properly evaluate progress and
accomplishments.
38.2. Settlement of disallowances through installment payments were

implemented without securing prior authority from the Commission
Proper, through the Prosecution and Litigation Office (PLO), Legal
Services Sector (LSS), contrary to pertinent provisions of COA
Resolution No. 2015-031, as amended by COA Resolution No. 2017-
021.
38.2.1. COA Resolution No. 2015-031, as amended by COA Resolution

No. 2017-021, prescribes the Commission’s policy on settlement of
audit disallowances through installment payments. Relevant
provisions thereof follow:
a. Only disallowed salaries, personnel benefits, allowances or

emoluments classified under the expenditure item of PS shall
be allowed to be settled by installment payment under the
schedule provided therein.
b. For persons liable who are already separated from the service
for whatever reason upon finality of the COA Decision or ND,
or upon issuance of NFD or COE, their liability should be paid
in full to the agency cashier.
c. All requests for installment payment shall be submitted to and

reviewed by the PLO, LSS, through the concerned Auditors
and Cluster/Regional Directors, with appropriate comment,
recommendation, proposed installment schedule and
supporting documents.
d. Upon evaluation, the PLO Director shall approve/grant the

request for installment payment strictly in accordance with the
schedule provided therein, which shall be effective
immediately upon receipt thereof.
e. Requests for installment payment covering cases which are

not covered by the Resolution shall be submitted to the
Commission Proper for its consideration, after evaluation and
recommendation of the PLO, LSS.
38.2.2. Verification disclosed that final and executory disallowances

originally amounting to P2.676 million are being settled by three
certifying/approving officers in monthly installment payments of
P2,000 through salary deduction without the required authority from
253
the Commission Proper. Total of such installment payments made
from February 2020 to December 2021 amounted to P128,000.
38.2.3. On the other hand, one active officer, who is an availee of the
AMVP, is paying in installments through salary deduction and has a
remaining balance of P203,308 as of December 31, 2021.
Moreover, former officers of then HGC, who are among the
persons liable for the disallowed AMVP, failed to settle the whole
amount of their disallowance.
38.2.4. We recommended that Management, through the concerned

Group, require the persons liable to submit a request to the
Commission Proper, through the PLO, LSS, for the installment
payments of the disallowances they are liable for pursuant to
COA Resolution No. 2017-021.
38.2.5. Management commented that, with the assistance of the LSG, the
request for approval of the installment payments will be issued as
soon as possible together with an appeal that mere
certifying/approving officers be absolved from liability.

will be monitored and evaluated accordingly. We also remind
Management that these disallowances are already final and
executory and can no longer be the subject of an appeal.
38.2.7. Under the doctrine of immutability of judgments, a decision that has

acquired finality becomes immutable and unalterable. This quality
of immutability precludes the modification of a final judgment, even
if the modification is meant to correct erroneous conclusions of fact
and law.30
39. PHILGUARANTEE failed to comply with the mandatory requirement of

allocating at least five percent of the agency’s total budget appropriations for
Gender and Development (GAD) programs, activities and projects (PAPs),
contrary to Section 36(a) of RA No. 9710 and Section 6.1 of the PCW-NEDA-
DBM Joint Circular (JC) No. 2012-01. Also, out of the P56.115 million GAD
Plan and Budget (GPB) for CY 2021, only P3.091 million or 5.51 percent was
utilized for actual GAD activities, thus, frustrating the attainment of the
related GAD objectives.
39.1. GAD refers to the development perspective and process that is participatory
and empowering, equitable, sustainable, free from violence, respectful of
human rights, supportive of self-determination and actualization of human
potentials. It seeks to achieve gender equality as a fundamental value that
should be reflected in development choices and contends that women are
active agents of development, not just passive recipients of development.
30
One Shipping Corporation v. Imelda C. Penafiel, GR No. 192406, January 21, 2015.
254
39.2. JC No. 2012-01 issued by the Philippine Commission on Women (PCW),
National Economic and Development Authority (NEDA) and Department of
Budget and Management (DBM) prescribes the guidelines for the
preparation of the Annual GPB and Accomplishment Reports by
government agencies and instrumentalities to implement RA No. 9710,
otherwise known as the “Magna Carta of Women.” Pertinent provisions
thereof follow:
a. Section 2.3 requires all government agencies and instrumentalities to

formulate their annual GPBs within the context of their mandates to
mainstream gender perspectives in their policies, programs, and
projects.
b. In consonance with Section 36(a) of RA No. 9710, Section 6.1

mandates that at least five percent of the agency’s total budget
appropriations shall correspond to activities supporting GAD plans and
programs. For GOCCs, the computation of the minimum five percent
requirement shall be based on their corporate operating budget (COB)
as provided under Item 1.2.2.1.4 of PCW Memorandum Circular (MC)
No. 2020-05 dated September 11, 2020.
c. Section 8.8 provides that once the agency’s budget has been
approved and where budget and program adjustments have to be
made based on final agency budgets, agencies shall submit an
adjusted GPB to PCW. Hence, the adjusted GPB shall be the basis for
implementing the GPB as well as for monitoring and reporting.
39.3. Audit of PHILGUARANTEE’s GAD funds and activities for CY 2021

disclosed the following deficiencies in the planning and implementation
thereof:
a. PHILGUARANTEE failed to comply with the mandatory requirement of

allocating at least five percent of the agency’s total budget appropriations
for GAD PAPs, contrary to Section 6.1 of JC No. 2012-01. The GAD
budget of P56.115 million was only 0.15 percent of the total approved
COB for CY 2021 of P36.539 billion. Notably, the CY 2021 GPB was
not endorsed by the PCW. Item 1.2.5.1 of PCW MC No. 2020-05
provides that the PCW shall endorse the CY 2021 GPB only if the
minimum five percent GAD budget requirement has been met.
b. Likewise, the Corporation did not submit adjusted GPBs to the PCW
based on the approved COB, contrary to Section 8.8 of JC No. 2012-
01. Review of the GPB disclosed that the GAD budget was not
updated to conform to the final agency budget for CY 2021. The DBM-
approved COB of PHILGUARANTEE reflected significant variance as
follows:
Particulars Amount
Total Proposed Budget 36,650,355,000
Total Approved Budget (36,538,561,000)
255
c. Out of the P56.115 million GAD budget, only P3.091 million or 5.51
percent thereof was reported utilized for actual GAD activities, leaving
an unexpended balance of P53.024 million at year-end. Notably, the
actual GAD expenditures decreased by P526,403 from the P3.617
million registered in CY 2020. Details follow:
Particulars Amount
GAD Budget 56,114,943
Actual Expenditures 3,090,605
Unutilized Budget 53,024,338
Utilization Rate 5.51%
d. Review of the GAD AR showed that the significant variance was

caused primarily by the partial or non-implementation of planned
activities, which according to Management were primarily caused by
the adverse effects of the on-going COVID-19 pandemic. Activities
were limited by the impositions of lockdowns and community
quarantines in the country. Details follow:
PLANNED ACCOMPLISHMENT
Activity Budget Outcome Actual Variance
Information campaign 8,368,431 10 briefings or 79,109 8,289,322
through forums, briefings presentations and two
and road shows on the forums or discussions
PAPs of the agency with were conducted and/or
focus on reaching more attended.
women
Event sponsorships, 1,800,000 Two forums or 31,891 1,768,109
participation in exhibits discussions and two
or trade fairs to promote ceremonial signings
the programs for small were conducted and/or
and medium enterprises attended.
Production of 2,000,000 One presentation and 45,206 1,954,794
information materials two forums were
containing information conducted. Printing
on agricultural loan and distribution of
programs of AGFP- 5,000 brochures were
PHILGUARANTEE’s not possible due to the
PLI for the distribution of pandemic.
the information with
focus on reaching more
women in the
agricultural sector
(1) Develop an 3,992,020 Printing and 0 3,992,020

information database for distribution were not
participants; (2) possible due to the
Brochure and flyers for pandemic. As a result,
256
the information materials information and
with questionnaires on advisories were made
credit opportunity and through the official
capital management; (3) website, briefings, and
Create short forum.
advertisements to be
published in the leading
newspaper and to be
aired via television and
internet; (4) Have an
agreement with the GFI
as well as the bank to
have a program on
credit opportunity and
capital management
and develop a kiosk that
can be accessed by
both parties as well as
the client; and (5)
Conduct orientations to
women entrepreneurs
on credit guarantee
Tie-up/Partner with 1,200,000 One ceremony was 14,721 1,185,279

other government attended
agencies and industry
associations in
marketing activities
Installation of special 1,000,000 Installation of 0 1,000,000

lanes with signage, signages was not
chairs and water possible since
dispenser at all activities are limited in
transaction areas of the view of the need to
agency shall be given a observe health
top priority protocols and adhere
to IATF guidelines.
Provide NGO-led 1,000,000 Information and 0 1,000,000

trainings/orientations to advisories were made
educate women to through the official
develop their decision- website, briefings, and
making power over time forum. Minimal
management and attendance in trainings
introduce labor saving and orientation was
technologies that may due to restrictions of
alleviate women’s the IATF.
workload
(1) Sex-disaggregate 2,004,926 Despite the threat of 0 2,004,926

the data of occupants of the pandemic, ways to
properties owned or reach out to the needs
257
managed by of the home buyers
PHILGUARANTEE; (2) were made through
Conduct awareness text messaging, calls
seminars on the and other means to
importance of paying advise them that a
the monthly moratorium was
amortization on or granted on the
before the due date; payment of monthly
and (3) Diligently send amortization by virtue
notices or reminder of Bayanihan Acts.
letters to borrowers who
missed due dates of
monthly payment
(1) Sponsor housing 3,622,520 Sponsorship and 0 3,622,520

fairs, seminars, development of IEC
orientation, and materials and regional
marketing activities to housing finance
be conducted with briefings may be done
financial institutions; despite the pandemic
and (2) Distribution of but through online
information materials platforms.
containing property Sponsorship or
rights of women, participation in
including paying exhibits and trade fairs
homebuyers were very limited for
year due to the
pandemic.
Conduct of on-site 519,200 On-site training was 0 519,200

trainings and hands-on not possible due to the
transactions thru on-line pandemic
payments of monthly
amortization for the
beneficiaries who are
solo parents, PWDs and
IPs especially women
Installation of dedicated 1,000,000 PWDs and the elderly 0 1,000,000

and specifically were among those
designed CRs for the with restrictions to go
use of LGBT, pregnant out per IATF
women, PWDs and guidelines. As such,
elderly online transactions
were allowed. The
installation of CR was
not possible since
activities are limited in
view of the need to
observe health
protocols and adhere
to IATF guidelines.
Conduct Gender 1,500,000 Conduct of GAD 0 1,500,000
258
Sensitivity Training mainstreaming,
(GST) and other GAD- gender analysis and
related trainings to other GAD-related
PHILGUARANTEE men trainings for all
and women employees employees was
deferred. Most of the
GAD related seminars
attended were
conducted by PCW
and DOF.
(1) Attendance to 1,000,000 Nine webinars were 492,152 507,848

trainings or continuing conducted. In line with
education with the implementation of
objective of alert level system,
understanding the minimal webinars
complexities and impact were sponsored and
of gender in personal conducted by PCW,
and professional lives of DOF and other GAD-
individuals as well as related agencies.
groups and society as a
whole; and (2) Apply
GAD in personal and
organizational functions
and leadership.
Installation of special 2,044,900 Installation of special 0 2,044,900

lanes with signage, lanes was not possible
chairs and water since activities are
dispenser at all limited in view of the
transaction areas of the need to observe
agency shall be given health protocols and
top priority adhere to IATF
guidelines.
Conduct of executive 1,000,000 Conducted seminar 12,387 987,613

briefing on gender and for change
development among all management for
the senior management executives. In line with
committee. implementation of
alert level system,
minimal webinars
were sponsored and
conducted by PCW,
DOF and other GAD-
related agencies.
Construction of GAD 1,250,000 Construction not 0 1,250,000

children’s day care possible due to the
center which will pandemic
undergo accreditation
process from DSWD
pursuant to AO No. 29,
s. 2004
259
(1) Development of a 479,700 Conducted orientation 30,607 449,093

dedicated GAD corner to members of the
on the agency website Human Resource
and office premises; (2) Merit Promotion and
Production of IEC Selection Board and
materials in coordination to new employees.
with PCW, CSC, DOLE The distribution of IEC
and other agencies for materials was not
GAD-related reading possible due to the
materials; and (3) pandemic.
Include GAD in the
orientation and briefing
of new employees
Continuing capability 2,000,000 Conducted GST only 191,453 1,808,547
building for members of for the last quarter of
the GAD Focal Point the year
System (GFPS) through
attendance in GAD
workshops and
seminars
35,781,697 897,526 34,884,171
e. Actual costs incurred exceeded the approved budget for two GAD
activities by P273,405, as follows:
Provide trainings on 50,000 Conducted webinars or 267,606 217,606
occupational health and trainings on
safety, particularly to occupational health
address gender and safety
inequalities in the
workplace
Capacity development 1,000,000 75 seminars and 1,055,799 55,799
of concerned personnel activities were
as to data capture, conducted for the
retrieval, storage and whole year
maintenance of the
database
1,050,000 1,323,405 273,405
f. Although three planned GAD activities were implemented, no portion of

the PAPs’ budget was attributed as actual GAD expenditures due to
inability of the Corporation to apply the Harmonized Gender and
Development Guidelines (HGDG) tool in assessing the gender-
responsiveness of said activities. Details follow:
260
Activity Budget
Acquisition of laptops instead of desktops to provide work mobility 8,100,000
and flexibility
Administration of COVID vaccines booster shots to all employees 1,002,000
for additional protection to avoid the spread of the virus and ensure
continuous delivery of functions and attainment of corporate goals
Distribution of COVID prevention kits to PHILGUARANTEE officers 3,408,804
and staff to prevent transmission of the virus and ensure that
functions are effectively delivered
Total 12,510,804
g. Finally, in the attribution of expenses for PAPs, the basic salaries used
for some officers and employees were not consistent with the
approved plantilla and compensation plan of the Corporation, resulting
in the understatement of P57,922 on the reported actual expenses.
39.4. We reiterate that failure to strictly comply with and/or implement completely
the GPB frustrates the attainment of the related GAD objectives. Thus,
PHILGUARANTEE’s effectiveness and efficiency in addressing gender-
related issues of the agency and its personnel, as well as in providing
gender-responsive services to its clients, are negatively impacted.
39.5. While we commiserate with Management during this pandemic and

concede on the adverse effects it unfortunately brought to
PHILGUARANTEE, particularly in implementing its various GAD-related
PAPs, we would like to underscore that several of these activities were
essentially included in prior years’ pre-pandemic GPBs and were likewise
either partially or not implemented. Moreover, the CY 2021 GPB was
prepared during the onset of the COVID-19 pandemic, thus, should have
already considered the effects thereof.
39.6. On this score, Item 1.2.1.3 of PCW MC No. 2020-05 provides that agencies
shall prioritize addressing gender issues brought about by the COVID-19
pandemic that are within their respective mandates as part of their CY 2021
GPB. Thus, in addition to direct GAD activities, agencies are highly
encouraged to use the HGDG tool to ensure the gender-responsiveness of
PAPs to be implemented in response to the COVID-19 pandemic and the
“new normal.”
39.7. Further, while the Corporation may not yet be trained on the use of the
HGDG tool, it could have included the conduct of the said training in its
GPB for CY 2021 as well as sought the assistance of an expert on gender
analysis using the HGDG tool.

through the GFPS:
261
a. Allocate at least 5 percent of the total COB for the implementation
of GAD-related activities as required under Section 6.1 of JC No.
2012-01 on the costing and allocation of the GAD Budget;
b. Strictly conform to the provisions under Section 8 of JC No. 2012-

01 on the submission, review and endorsement of the GPB,
particularly the submission of an updated GPB based on the final
agency budget;
c. Maximize the utilization of the budget allocated for GAD PAPs in

order to attain the objectives for which the funds were provided;
d. Ensure that the implementation of the planned GAD PAPs are

properly monitored, done as per schedule within the budget year,
as approved by PCW; and
e. Ensure the accuracy of the data used in its attribution of

expenses to GAD PAPs through enhanced monitoring and review
of pertinent reports.
39.9. We further recommended that Management, through the GFPS, utilize

the HGDG Tool in attributing a portion or the whole budget of the
major PAPs during the GAD planning and budgeting phase as well as
in determining the actual expenditures that may be attributed to GAD
in order to increase its GAD budget and improve its utilization rate.
For this purpose, send GAD focal person and other personnel
concerned to trainings on the use of the HGDG Tool.
39.10. Management commented that five percent of the Corporation’s COB of

P36.538 billion is around P1.827 billion. This amount is almost six times the
Corporation’s cost of PS, twice its MOOE, nine times its regular capital
outlay and is more than the total of the three. To achieve 100 percent
utilization, PHILGUARANTEE has to spend roughly P162.500 million per
month on GAD-related activities. This could not have been the intention of
the law in pegging the GAD budget to at least five percent of the COB.
39.11. Accordingly, it is submitted that certain budgetary allocations must be

excluded to maintain the sound financial position of the Corporation.
Considering that guarantees, loan releases, investments, and equity
transfer amounting to P35.800 billion were not meant to be spent but to be
invested or as reserve for future needs or contingencies, these items
should be excluded from the base upon which the five percent GAD budget
must be derived.
39.12. For CY 2021, the GAD budget was based only on the MOOE of the
proposed budget of around P930.600 million. Thus, the CY 2021 GAD
budget of P56.115 million which underwent a review process with the PCW
through the Gender Mainstreaming Monitoring System, is 6.03 percent and
6.76 percent of the CY 2021 proposed and approved MOOE budgets,
respectively.
262
39.13. As regards the utilization of the CY 2021 GAD budget, implementation of
some projects was halted due to the on-going COVID-19 pandemic.
Although it was projected that by CY 2021 the virus would have waned, its
unstable nature coupled with the sudden rise of confirmed cases
particularly in the 2nd quarter of CY 2021, made it difficult to conduct in-
person projects and activities such as housing fairs, trade fairs, orientations
and marketing activities. In lieu thereof, on-line briefings and seminars
which are still appropriate for the planned GAD activities were considered.
39.14. It also bears emphasis that the reason for the non-endorsement of the CY
2021 GPB as informed by the PCW was due to the lack of HGDG tools to
assess COVID-related project expenses, especially on the distribution of
COVID kits, administering of COVID boosters, and procurement of laptops.
The absence of HGDG checklists on these projects mean that there would
be no attributable costs to them.
39.15. As regards the use of the HGDG tools, the President and CEO already
approved the conduct of HGDG training to capacitate the incoming
members of the GFPS and other personnel on the use of said tools in
attributing GAD expenses. Said training is expected to be conducted in July
2022.
39.16. Moreover, Management was informed of the non-endorsement of the CY

2021 GPB only on January 17, 2022. It was therefore unnecessary to
adjust the CY 2021 GPB since the focus has now shifted to the
implementation of the CY 2022 GPB. As to the errors noted in the reports,
the responsible personnel was reminded to be mindful and more
circumspect in the attribution of expenses to avoid errors.
39.17. As an audit rejoinder, Item 1.2.2.1.4 of PCW MC No. 2020-05, which is in

consonance with RA No. 9710 and PCW-NEDA-DBM JC No. 2012-01, is
explicit. For GOCCs, the computation of the minimum five percent
requirement shall be based on their COB. The justifications raised by
Management on the need to exclude certain budgetary allocations from the
base upon which the five percent GAD budget must be derived can be
largely addressed by the use of HGDG tools. At best, those are policy
matters that are better raised for consideration of Congress.
39.18. Again, while we acknowledge the adverse effects of the COVID-19

pandemic, we stress that several of the unimplemented GAD activities in
CY 2021 were essentially included in prior years’ pre-pandemic GPBs and
were likewise either partially or not implemented.
39.19. Lastly, the courses of action taken and to be undertaken by Management to

comply with the other recommendations will be monitored and evaluated
accordingly.
40. The GFPS has not formulated and adopted a GAD Agenda for CYs 2020-2025,
or otherwise, to serve as basis for the annual formulation of PAPs to be
263
included in the annual GPB, contrary to the pertinent provisions of PCW MC
No. 2018-04 dated September 19, 2018.
40.1. PCW MC No. 2018-04 provides the guidelines and procedures in the
formulation, implementation, monitoring, and evaluation of the multi-year
GAD Agenda as basis for the annual GPBs of agencies. Pertinent
provisions thereof follow:
a. The GAD Agenda is the agency’s strategic framework and plan on

gender mainstreaming and achieving women’s empowerment and
gender equality. It is a two-part document consisting of the GAD
Strategic Framework (GADSF) and the GAD Strategic Plan (GADSP).
The GADSF outlines the agency’s GAD Vision, Mission and Goals
anchored on the mandate of the agency, while GADSP defines the
strategic interventions, indicators, and targets to be pursued to achieve
GAD goals over a period of time.
b. The head of agency shall approve the GAD Agenda with a timeframe
of six years and issue a policy ensuring its implementation by the
agency’s sub-units. In the formulation of the agency’s annual GPB, the
entries in the GAD agenda such as the gender issue, GAD outcome,
indicator, target, activities, and budget for the specified year shall be
reflected in the annual GPB.
c. A review after three years and an end-term evaluation of the GADSF

and GADSP shall be conducted by the GFPS, and reports shall be
prepared and submitted to PCW. The three-year progress report shall
reflect the status of accomplishments based on the analysis of the
desired results and outcomes, as well as variances, while the end-term
report shall reflect the overall assessment of the implementation of the
GAD agenda based on the goals and desired results/outcomes.
d. The GAD Agenda, progress and end-term reports shall be submitted

by agencies to PCW for the purpose of monitoring, evaluation,
reporting gender equality and women’s empowerment results and as
necessary, provision of technical assistance on its implementation.
40.2. Verification disclosed that Management, through the GFPS, is yet to

formulate and adopt a GAD Agenda for PHILGUARANTEE for CYs 2020-
2025, or otherwise, which is not consistent with the above guidelines of
PCW MC No. 2018-04. We note that it had already been nearly four years
since the mandated amalgamation of five Philippine Guarantee Programs
and Agencies pursuant to EO No. 58.
40.3. It bears stressing that the GAD Agenda serves as the basis for the annual
formulation of PAPs to be included in the GPB. Further, it provides the
monitoring and evaluation framework for assessing GAD results and
outcomes that shall be the basis for strengthening the mainstreaming of a
GAD perspective in the agency’s operations and programs. Thus, the GAD
Agenda provides the agency with direction in setting and monitoring their
264
GAD initiatives to achieve the twin goals of gender equality and women’s
empowerment.
40.4. While Management was able to annually prepare GPBs and GAD ARs, the
lack of a GAD Agenda puts into question the ability of its PAPs and other
initiatives to effectively address identified gender issues in the medium or
long-term, and to strengthen gender mainstreaming in the Corporation.
40.5. We recommended that Management, through the GFPS, formulate and

adopt a GAD Agenda for PHILGUARANTEE for CYs 2020 to 2025, or
otherwise, following the guidelines laid down under PCW MC No.
2018-04.
40.6. Management commented that the GFPS is still in the process of

consolidating its five-year GAD Agenda. In view of the merger between the
former HGC and TIDCORP, the GAD PAPs had to be aligned with the new
programs, processes, and mandates of PHILGUARANTEE, and at the
same time must be consistent with that of the DOF. It is expected that the
GAD Agenda will be consolidated and finalized by the 3rd quarter of CY
2022.
40.7. Moreover, the newly reconstituted GFPS members, most of whom are still
not capacitated in the formulation and implementation of the GAD Agenda,
were introduced to the same only on September 12, 2020. While EO No. 58
was issued on July 23, 2018, the placement of personnel was realized only
on February 1, 2020. The actual merger in 2020 as well as the onset of the
COVID-19 pandemic made it challenging for the Corporation to formulate a
consolidated GAD agenda because it prioritized merger-related and core
business-related activities. At the same time, PHILGUARANTEE ensured
the alignment of its programs, processes, and mandates with the thrusts
and direction of the DOF.

Management to comply with the recommendation will be monitored and
41. No responsibility center (RC) and RC code have been assigned for
PHILGUARANTEE’s GFPS as at December 31, 2021, to account, monitor and
report GAD expenses and other GAD-related financial transactions, contrary
to the requirements of COA Circular No. 2021-008 dated September 6, 2021.31
41.1. COA Circular No. 2021-008 was issued mandating the assignment of RC
for the GFPS to account, monitor and report GAD expenses and other
GAD-related financial transactions. Pertinent provisions thereof follow:
a. Government entities, including GOCCs, shall establish their own

responsibility accounting by creating or assigning RCs and RC codes.
Those with existing RCs shall re-evaluate the existing RCs in their
organizational structure and segregate the identified expenses and
31
Published in the Philippine Star on September 13, 2021.
265
other related financial transactions and expenditures for GAD-related
activities.
b. A separate RC and RC Code for the GFPS assigned by the entity

concerned shall serve as the RC for GAD-related expenses. The RC
for GFPS assigned or created shall be under the office of the agency
head.
c. The RC code assigned for GFPS shall be reflected in the computerized

or manual accounting system implemented by the government entity
concerned. Using the assigned RC and RC code for GFPS, the
government entity concerned shall prepare reports for GAD-related
expenses and other GAD-related financial transactions prescribed in
Item 10.0 of the PCW-NEDA-DBM JC No. 2012-01.
d. The GAD-related reports shall be generated from the computerized or

manual accounting system using the RC code assigned for GFPS.
Government entities using manual accounting system and find it
impractical to establish separate RC for GAD shall maintain an SL for
GAD for each account to record all GAD-related expenses and PAPs,
in order to facilitate the monitoring, accounting and preparation of
GAD-related reports.
41.2. Verification disclosed that as at December 31, 2021, the CG has not
implemented the provisions of COA Circular No. 2021-008. No separate RC
and RC Code for the GFPS were assigned to serve as the RC for GAD-
related expenses. Resultantly, the submitted GAD-related reports were not
generated from the Corporation’s accounting system using the RC code
assigned for GFPS.
41.3. While we understand that the Corporation is currently in the process of

modernizing its ICT infrastructure, thus, making it impractical to reflect in
the FIS the RC code to be assigned for GFPS, interim measures can be
adopted to comply with COA Circular No. 2021-008. As provided under said
COA Circular, SL for GAD for each account can be maintained to record all
GAD-related expenses and PAPs, in order to generate GAD-related reports
that are complete, accurate and reliable.
a. Implement the provisions of COA Circular No. 2021-008 on the

assignment of RC for the GFPS to account, monitor and report
GAD expenses and other GAD-related financial transactions; and
b. Ensure that the requirements of COA Circular No. 2021-008 are

considered in PHILGUARANTEE’s ICT Modernization Project and,
therefore, reflected in its new computerized accounting system.
41.5. Management commented that it had already assigned and established an

RC and RC code for PHILGUARANTEE’s GFPS on April 13, 2022, in
compliance with COA Circular No. 2021-008. The RC code is “010.”
266
evaluated accordingly. Specifically, we will review the use by Management
of the established RC and RC code in the generation of complete, accurate
and reliable GAD-related reports for CY 2022.
42. Compliance with Tax Laws
42.1. The taxes withheld on compensation and benefits, EWT on certain income
payments and withholding tax on government money payments for CY
2021 totaling P42.732 million were remitted to the BIR during the year,
except the amounts withheld for December 2021 which were remitted in the
succeeding month. Details follow:
Expanded Government
Compensation Withholding Money
Month and Benefits Taxes Payments Total
January 2021 1,798,423 325,837 415,896 2,540,156
February 2021 1,774,792 663,688 685,596 3,124,076
March 2021 1,829,968 337,874 612,788 2,780,630
April 2021 2,054,244 538,229 831,262 3,423,735
May 2021 2,373,297 849,495 977,801 4,200,593
June 2021 1,875,330 518,105 980,233 3,373,668
July 2021 1,874,250 653,455 1,065,983 3,593,688
August 2021 1,969,753 658,828 911,901 3,540,482
September 2021 1,995,066 783,317 1,386,756 4,165,139
October 2021 1,923,797 374,373 745,364 3,043,534
November 2021 4,942,784 325,745 480,493 5,749,022
December 2021 2,039,419 404,793 752,581 3,196,793
Total 26,451,123 6,433,739 9,846,654 42,731,516
42.2. However, the accuracy and reliability of the remittances made by the
Corporation of the above withholding taxes are rendered doubtful by the
discrepancy noted in the Due to BIR account as discussed in Observation
No. 20 hereof.
43. Compliance with Rules on Government Mandatory Deductions
43.1. Premiums and loan amortizations due to the GSIS, Pag-IBIG and
PhilHealth for CY 2021 were deducted from the salaries of
PHILGUARANTEE personnel and were remitted within the prescribed
periods, to wit:
Remittance
Deductions
Particulars for CY 2021 January 2022
CY 2021 Employer Employer
Withheld Share Withheld Share
GSIS 24,786,427 22,731,234 15,830,762 2,055,193 1,469,491
HDMF 2,145,176 1,975,459 205,300 169,717 20,000
PHIC 2,893,744 1,446,870 140,957 1,446,874 140,958
267
Remittance
Deductions
Particulars for CY 2021 January 2022
CY 2021 Employer Employer
Withheld Share Withheld Share
Total 29,825,347 26,153,563 16,177,019 3,671,784 1,630,449
43.2. However, the accuracy and reliability of the remittances of the above
mandatory deductions are rendered doubtful by the discrepancy noted in
the Due to GSIS, Pag-IBIG and PhilHealth accounts as discussed in
Observation No. 20 hereof.
44. Status of Suspensions, Disallowances and Charges
44.1. The balance of audit suspensions, disallowances and charges as at

December 31, 2021 for PHILGUARANTEE, including those carried over
from the former HGC, totaled P733.896 million, details as follows:
Balance as at Issued Settlement Balance as at

Particulars 01/01/2021 (NS/ND/NC) (NSSDC) 12/31/2021
NS 546,642,836 0 544,298,610 2,344,226
ND 635,720,510 95,848,043 16,889 731,551,664
NC 0 0 0 0
Total 1,182,363,346 95,848,043 544,315,499 733,895,890
44.2. Out of the outstanding disallowances of P731.552 million, P16.566 million

are already final and executory and for which the corresponding COA
Orders of Execution (COEs) have been issued as detailed below. The
remaining disallowances are under appeal before the Office of the Cluster
Director, Cluster 2 – Social Security, Corporate Government Audit Sector,
under a Petition for Review before the Commission Proper, this
Commission, or under a Petition for Certiorari before the Supreme Court.
ND COE Outstanding
Particulars
No. Date No. Date Balance
2012-002 07/13/2012 Expenses reimbursed by BOD members 2019-016 03/04/2019 324,493
2012-004 09/19/2012 Benefits paid to BOD members 2019-042 07/02/2019 2,161,148
Various Various Payment of ESIP – Batch II - - 14,080,751
Total 16,566,392
44.3. On the other hand, disallowances totaling P305.178 million issued prior to
the effectivity of the Rules and Regulations on Settlements of Accounts are
not included in the above balances but shall continue to be enforced in
accordance with Section 28 of said Rules. Out of the P305.178 million,
P97.757 million are already final and executory, to wit:
ND COE Outstanding
Particulars
2005-001 09/19/2005 Payment of ESIP – Batch I - - 96,056,910
Various Various Conversion to NGAS accounts - - 1,699,753
268
ND COE Outstanding
Particulars
Total 97,756,663
269

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OBSERVATIONS AND RECOMMENDATIONS

1. Collections arising from the disposition of Real and Other Properties

1.1. Paragraph 15 of PAS 1 provides that financial statements shall present

1.2. As disclosed in the CY 2021 Notes to the Financial Statements (NTFS) of

a. Collections from buyers who are still awaiting execution of pertinent

b. Payments of buyers which were deposited directly to authorized

c. Collections that lack appropriate information in the Payment

1.4. Inquiries with concerned personnel of the Comptrollership Group (CG)

1.5. Thereafter, where applicable, another JV will be prepared to amortize the

1.6. Verification of pertinent records revealed that collections from buyers of

1.10. We reiterated our prior years’ recommendations that Management,

a. Formulate an accounting policy, subject to the approval of the

b. Set reasonable timelines and milestones for the reconciliation of

1.11. We further recommended that Management:

a. Through the CG:

i. Ensure the proper recording and crediting of payments made

ii. Ensure that only valid transactions under Paragraph 1.4

iii. Analyze each transaction recorded under the DC-TP account

iv. Coordinate with the Special Asset Management and Recovery

v. Reconcile the balances in the books of accounts with the

b. Through the SAMRG:

i. Coordinate with the CG for the proper recognition of

1.12. Management commented that as at April 4, 2022, the Inter-Department

1.14. As an audit rejoinder, the courses of action taken and to be undertaken by

2.1. RA No. 7656 requires all government-owned and/or controlled corporation

b. “Net earnings” refers to income derived from whatever source, whether

i. Income subject to income tax, as provided in the Annual Income

ii. Income subject to final tax, as provided in the Annual ITR

c. In the interest of the national economy and general welfare, and in

2.2. Relative to liabilities, Paragraph 4.26 of the Conceptual Framework for

Particulars 2021 2020

Particulars 2021 2020

2.9. We recommended that Management, through the CG:

b. Strictly adhere to the provisions of RA No. 7656 and its RIRR on

2.10. Management commented that it referred the matter to the Department of

2.11. Nonetheless, Management believes that the P964.869 million, which

3. Deficiencies and misstatements noted during the review of the contents of

3.1. Several information required to be disclosed by PFRS in the NTFS

3.1.2. Paragraph 10 of the standard provides that a complete set of

3.1.3. Corollarily, Paragraph 15 of PAS 1 provides that the application of

3.1.4. Review of the notes accompanying the financial statements of

Relevant PFRS Required Disclosures

ii. The gross carrying amount at the end of the reporting

3.1.5. Consequently, the fair presentation of the financial statements of

Relevant PFRS Encouraged Disclosures

3.1.7. We reiterated our prior years’ recommendation that

3.1.8. Management commented that it has already instructed the

3.1.9. To improve future disclosure compliances, FAD and ERMO, based

3.1.10. As an audit rejoinder, the courses of action taken and to be

3.2. Several misstatements which understated the total assets and

Revenue is defined under PFRS 15 as the Corporation’s

Review of the CY 2021 NTFS disclosed that other non-

The misclassification is material because regularity of

Accordingly, the reported Service and Business Income and

“Adjustments” in B. Impairment loss of P343.426 million on Investment

Thus, under PAS 18, the amount should have been

Moreover, the CG cannot provide to the Audit Team the

Notes 13 and 17 C. The amounts included under non-current Other Assets

As disclosed in the CY 2021 NTFS, the Corporation acts as