Republic of the Philippines

COMMISSION ON AUDIT
Commonwealth Avenue, Quezon City

MANAGEMENT LETTER

on the

PHILIPPINE AMUSEMENT AND GAMING

CORPORATION

For the Year Ended December 31, 2022

 REPUBLIC OF THE PHILIPPINES
COMMISSION ON AUDIT
CORPORATE GOVERNMENT AUDIT SECTOR
Cluster 6 – Social, Cultural, Trading, Promotional and Other Services
Office of the Supervising Auditor
Audit Group B – Philippine Amusement and Gaming Corporation
4th Floor, PAGCOR Home Annex, Carmen Building
UN Avenue corner Ma. Orosa Street, Ermita Manila

June 8, 2023

Honorable ALEJANDRO H. TENGCO

Chairman and Chief Executive Officer (CEO)
Philippine Amusement and Gaming Corporation
New Coast Hotel Manila
M.H. Del Pilar cor. Pedro Gil Street, Malate, Manila

Dear Chairman and CEO Tengco:

Management Letter on the Audit of

Philippine Amusement and Gaming Corporation
For the year ended December 31, 2022

I. INTRODUCTION

1. Pursuant to Section 2, Article IX-D of the 1987 Constitution of the Philippines and
Section 43 of Presidential Decree (PD) No. 1445, otherwise known as the
Government Auditing Code of the Philippines, we have audited the gaming
revenue accounts, the five percent franchise tax, and 50 percent national
government share on the gross earnings of Philippine Amusement and Gaming
Corporation (PAGCOR) for the period January 1 to December 31, 2022. The audit
was conducted in accordance with the International Standards of Supreme Audit
Institutions and included tests of the accounting records and other related
documents, as well as an evaluation of the design and operating effectiveness of
the controls and other necessary procedures in the circumstances. Those
standards require that we comply with ethical requirements, plan and perform the
audit to obtain a reasonable basis for our conclusions.

2. The audit was conducted to (a) determine the correctness of the gaming revenue
accounts, the five percent franchise tax and the national government share
equivalent to 50 percent of the gross earnings as prescribed under Section 15 of
PD No. 1869 and as amended by Republic Act (RA) No. 9487; and (b) recommend
agency improvement opportunities. Likewise, we were guided by the Specific Audit
Instructions and Supplemental Audit Instructions dated July 7, 2022 and December
27, 2022, respectively, in the conduct of audit of the accounts and transactions of
PAGCOR for Calendar Year (CY) 2022.

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3. Management Letter is issued instead of the standard Annual Audit Report in view
of the Commission on Audit’s limited audit jurisdiction over PAGCOR pursuant to
the Supreme Court (SC) decision in the case of Efraim Genuino vs. Commission
on Audit, GR No. 230818 dated June 15, 2021. COA filed a Motion for
Reconsideration (MR) on the SC decision on November 3, 2021. Awaiting the
resolution of the SC on the MR, Management has invoked the application of the
subject SC decision on the audit of the operations of PAGCOR for CY 2022.

4. The results of audit were communicated through the various Audit Observation
Memoranda and discussed with the concerned officials and personnel of PAGCOR
in an exit conference conducted on June 6, 2023. Management’s comments on
the audit observations and recommendations are incorporated in this Management
Letter, where appropriate.

II. BACKGROUND INFORMATION

Creation and Mandate

5. PAGCOR, a wholly-owned government corporation, was created on

January 1, 1977, by virtue of PD No. 1067-A, which was later amended by PD Nos.
1067-B, 1067-C, 1399, and 1632. These PDs were subsequently consolidated into
one statute on July 11, 1983, under PD No. 1869, also known as the PAGCOR’s
Charter. Its office is located at New Coast Hotel Manila, M. H. Del Pilar corner
Pedro Gil Streets, Malate, Manila.

6. The 25-year franchise of PAGCOR expired on July 11, 2008. However, this was
renewed by Congress for another 25 years, or until July 11, 2033, under RA No.
9487 in which PAGCOR was granted the authority to license gambling, enter into
a joint venture, management, agency, or investment agreements with private
entities, whether as principal or as an agent.

7. Under its Charter, PAGCOR was given a three-pronged mandate:

a. Regulate, operate, authorize, and license games of chance, games of cards,

and games of numbers, particularly casino gaming in the Philippines;
b. Generate revenues for the Philippine Government's socio-civic and national
developmental programs; and
c. Help promote the Philippine tourism industry.

8. PAGCOR operates 10 casino branches in major cities in the country aside from
mini-casinos, slot machine arcades, and PAGCOR clubs. These casinos are
Casino Filipino (CF)-Malate, CF-Winford, CF-Angeles, CF-Bacolod, CF-Iloilo, CF-
Cebu, CF-Davao, CF-Ilocos Norte, CF-Olongapo and CF-Tagaytay.

9. On August 20, 2020 and September 15, 2022, the PAGCOR Board of Directors
(BOD), approved the closure of CF Manila Bay and the conversion on CF Winford
to CF Ronquillo, respectively.

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Organizational Set-up

10. PAGCOR is managed by BOD, appointed by the President of the Philippines. The
new BOD was appointed in August 2022, composed of the following as of December
31, 2022:

Name Membership in the Board

Alejandro H. Tengco Chairman and CEO
Juanito L. Sañosa, Jr. President and Chief Operating Officer
Francis Democrito C. Concordia Director
Jose Maria C. Ortega Director
Gilbert Cesar C. Remulla Director

11. As of December 31, 2022, PAGCOR had a total manpower of 10,234, as presented
below:

Status Number of Personnel

Permanent 9,951
Probationary 189
Job order 73
Consultant 21
Total 10,234

Source of Income from Gaming Operations

12. The components of income from gaming operations reported in the statement of
income are as follows:

Particulars Amount
Income from Licensed casinos P 26,184,366,895.43
Electronic Gaming Machines 18,138,341,197.69
Table Games 5,302,354,202.42
Income from Offshore Gaming operations 2,228,432,452.14
Income from eSabong operations 2,025,110,785.71
Bingo Operations 1,174,627,026.08
Total P 55,053,232,559.47

III. AUDIT OBJECTIVE, SCOPE AND METHODOLOGY

13. The objectives of the audit were as follows:

a. Evaluate the internal controls of the revenue administration to ascertain that

proper safeguards are in place;

b. Determine whether gaming revenues are completely and accurately recorded

in the books;

c. Ascertain whether gaming revenues occurred and recorded in the proper

period;

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 d. Determine whether gaming revenues accounted for, and presented in the
financial statements, are in accordance with the company’s policies, laws,
rules, and regulations; and

e. Ascertain whether the franchise tax and national government share are
accurately and timely remitted to the Bureau of Internal Revenue and Bureau
of the Treasury, respectively.

14. The audit covered January 1 to December 31, 2022.

15. The Audit Team updated its understanding of the different regulatory manuals for
gaming operations.

16. The Audit Team performed the following audit procedures:

a. Evaluated the internal controls over the recognition and measurement of

gaming revenues;
b. Examined/reviewed the billing reports, collections reports, contracts, and
other accounting records; and
c. Examined disbursement vouchers on the payment of five percent franchise
tax and 50 percent national government share.

IV. OVERALL RESULTS OF AUDIT

17. Our audit disclosed the following significant audit observations and
recommendations that need immediate action:

17.1 Accounts Receivable – Others (Gaming Operations) from Philippine

Offshore Gaming Operators (POGOs) denominated in foreign currency
totaling P2.328 billion as of December 31, 2022, were not revalued,
resulting in an understatement of the said account by P237.538 million,
contrary to paragraphs 21 and 23 of the Philippine Accounting Standard
(PAS) 21, thereby affecting the faithful representation of the said account.

We recommended and Management agreed that the Assistant Vice

President (AVP), Accounting Department (AD):

a. Develop/update guidelines on the proper monitoring of accounts

receivable denominated in foreign currencies as a proper accounting
system to monitor the actual foreign currencies due for collection; and

b. Prepare the necessary adjusting entries in accordance with PAS 21.

17.2 Accounts Receivables – Others pertaining to income from gaming

operations reflected negative/abnormal balances totaling P84.765 million
as of December 31, 2022, contrary to paragraph 15 of PAS 1, thereby
affecting the faithful representation of the account in the financial
statements.

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 We recommended and Management agreed that the Vice President (VP),
Finance Group revisit the transactions supporting the recognition of
negative balances and prepare the necessary adjustments.

17.3 Prior period adjustments pertaining to Income from Licensed Casinos for
the CYs 2014 to 2021 totaling P26.431 million were recorded as income
for the current year, not in accordance with PAS 8, resulting in the
overstatement of income by the same amount with the corresponding
understatement of the Retained Earnings account as of December 31,
2021.

We recommended that the AVP-AD prepare the necessary adjusting

entries, in accordance with PAS 8.

17.4 Receivables pertaining to income from gaming operations totaling

P383.611 million that had a zero percent collection rate for more than ten
years were not written off and remained in the books of Corporate Office,
CF-Cebu and CF-Davao, thereby affecting the faithful representation of the
account, contrary to paragraph 5.4.4 of the Philippine Financial Reporting
Standard 9 and COA Circular No. 2016-005 dated December 19, 2016.

We recommended and Management agreed that the:

a. VP, Finance Group: (i) document all the efforts exerted to

collect/recover the dormant accounts; (ii) if collection is no longer
possible, request from COA for authority to write off the balances of
the account duly supported with the necessary documents as required
under COA Circular No. 2016-005 dated December 19, 2016; and (iii)
formulate/update comprehensive guidelines on the disposition of
dormant receivable accounts where settlement/collectability could no
longer be ascertained, in accordance with the said COA Circular.

b. VP, Monitoring and Enforcement Group and AVP, Table Games

Department to submit to this Office the required lacking documents for
the request for authority to write off.

17.5 Two POGOs were still allowed to operate despite continued non-payment
of their financial obligation for more than two months totaling P34.650
million, contrary to Regulation 4, Section 6 of the Offshore Gaming
Regulatory Manual (OGRM), which resulted to accumulation of receivables
arising from offshore gaming operations.

We recommended that the AVP, Offshore Gaming and Licensing

Department revisit the pertinent provisions of the OGRM on the collection
of regulatory fees and the cancellation process of the Offshore Gaming
License, and strictly enforce the same.

17.6 Slot Machine winnings of Satellite Operations Group, CF-Ronquillo, and

CF-Malate are subjected to a 20 percent final withholding tax regardless if
the player/winner is a Nonresident Alien Individual Not Engaged in Trade

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 or Business within the Philippines, contrary to Section 25, Paragraph B of
the National Internal Revenue Code of 1997, as amended.

We recommended and Management agreed that:

a. The Treasury Department amend the Branch Treasury Manual for the
imposition of the 25 percent withholding tax if the winner/player is a
Nonresident Alien Not Engaged in Trade or Business Within the
Philippines; and

b. The Slot Machine Division requires the presentation of an Identification

Card and/or passport of the winner/player to determine the residence
status and aggregate length of presence in the Philippines.

18. The above observations and recommendations are discussed in detail in Part V of
this Management Letter.

V. OBSERVATIONS AND RECOMMENDATIONS

19. The detailed discussion of the observations noted in the course of our audit and
the corresponding recommendations to remedy the same are presented
hereunder:

20. Accounts Receivable-Others (Gaming Operations) from Philippine Offshore

Gaming Operators denominated in foreign currency totaling P2.328 billion
as of December 31, 2022, were not revalued, resulting in an understatement
of the said account by P237.538 million, contrary to paragraphs 21 and 23 of
the Philippine Accounting Standard (PAS) 21, thereby affecting the faithful
representation of the said account.

20.1 Paragraphs 21 and 23 of PAS 21 provide that:

A foreign currency transaction shall be recorded, on initial

recognition in the functional currency, by applying to the
foreign currency amount the spot exchange rate between
the functional currency and the foreign currency at the
date of the transactions.

At the end of each reporting period:

a. foreign currency monetary items shall be translated
using the closing rate;
b. xxx
c. xxx

20.2 Further, Note 3.12 to the Financial Statements states that:

At each subsequent Statement of Financial Position date,

henceforth foreign currency monetary items, such as
Cash in Bank – Foreign Currency and other dollar-

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 denominated receivable and payable accounts are
revalued at month-end, with the difference recognized in
the Corporation’s books as Foreign Exchange Gain and
Foreign Exchange Loss.

20.3 Accounts Receivable-Others (Gaming Operations) for the Corporate

account amounts to P7.250 billion as of December 31, 2022. The account
includes receivables from income from offshore gaming operations,
denominated in various foreign currencies totaling US$45.720 million
translated into the functional currency equivalent to P2.328 billion.

20.4 However, computation of the conversion of the Accounts Receivable from

Philippine Offshore Gaming Operators (POGOs) denominated in foreign
currency using Bangko Sentral ng Pilipinas (BSP) rate of P56.12 as of
December 29, 2022 would amount to P2.566 billion instead of P2.328
billion, thus, resulted in an understatement of P237.538 million, as shown
below:

Table 1 – Accounts Receivable from POGOs

Accounts Accounts
Receivable Exchange Receivable
in US$ Rate in Peso
various
Balance per Books US$45,720,297.71 rate P2,328,285,037.14

Balance using BSP exchange rate 45,720,297.71 56.12 2,565,823,107.49

Understatement P(237,538,070.35)

20.5 In view of the foregoing, non-valuation of Accounts Receivable from

POGOs resulted in an understatement of P237.538 million, thereby
affecting the faithful representation of the said accounts in the financial
statements.

20.6 We recommended and Management agreed that the Assistant Vice

President (AVP), Accounting Department (AD):

a. Develop/update guidelines on the proper monitoring of accounts

receivable denominated in foreign currencies as a proper
accounting system to monitor the actual foreign currencies due
for collection; and

b. Prepare the necessary adjusting entries in accordance with PAS

21.

21. Accounts Receivables-Others pertaining to income from gaming operations

reflected negative/abnormal balances totaling P84.765 million as of
December 31, 2022, contrary to paragraph 15 of Philippine Accounting
Standard 1, thereby affecting the faithful representation of the account in the
financial statements.

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 21.1 Paragraph 15 of PAS 1 on Presentation of Financial Statements provides
that:

15. Financial statements shall present fairly the financial

position, financial performance and cash flows of an
entity. Fair presentation requires the faithful
representation of the effects of transactions, other events
and conditions in accordance with the definitions and
recognition criteria for assets, liabilities, income and
expenses set out in the Conceptual Framework for
Financial Reporting (Conceptual Framework).

21.2 The balance of Accounts Receivable-Others in the Detailed Statement of

Financial Position has a book value of P7.614 billion, with a corresponding
allowance for impairment of P3.139 billion or a carrying amount of P4.475
billion as of December 31, 2022.

21.3 Review of the Schedule of Accounts Receivable-Others (Gaming

Operations) as of December 31, 2022, showed negative/abnormal
balances of receivables from the following gaming operations:

Table 2 – Summary of Negative/Abnormal Balance of Accounts

Receivable-Others (Gaming Operations)

Particulars Amount
Offshore Gaming P 48,226,489.26
Electronic Gaming 31,695,970.47
Electronic Bingo 3,307,438.10
Pop Pera 1,133,143.20
Traditional Bingo 401,919.54
Others 500.00
P 84,765,460.57

21.4 Further, aging of the above accounts receivable showed the following:

Table 3 – Aging of Accounts Receivable-Others (Gaming Operations)

with Negative Balances

Electronic Electronic Traditional

Age Offshore Gaming Bingo Pop Pera Bingo Others
1 to 60
days P8,214,086.85 P12,501,855.19 P1,549,020.06 P932,400.00 P238,312.16 -
61 to
180
days 22,017,610.28 18,689,120.06 403,032.31 - 71,176.62 P500.00
181 to
360
days 7,935,577.78 98,691.77 1,057,357.13 200,743.20 22.15 -
Over
360
days 10,059,214.35 406,303.45 298,028.60 - 92,408.61 -
Total P48,226,489.26 P31,695,970.47 P3,307,438.10 P1,133,143.20 P401,919.54 P500.00

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 21.5 As gleaned from the above table, the bulk of the negative balances arose
from offshore and electronic gaming representing 57 percent and 37
percent, respectively, of the total receivables with negative balances.

21.6 Further examination of the schedule of accounts receivable disclosed

negative entries totaling P10.126 million that resulted in a deduction in the
account balance.

Particulars Amount
Licensed Casinos P 10,019,596.61
Offshore Gaming 106,902.43
Total P 10,126,499.04

21.7 Accounts receivable is an asset which normally has a positive

balance. Negative balances of receivables are deemed liabilities to the
individual or organization, hence the deduction of negative balances
totaling P84.765 million, from the receivables resulted in the
understatement of the account by the same amount.

21.8 We recommended and Management agreed that the Vice President

(VP), Finance Group revisit the transactions supporting the
recognition of negative balances and prepare the necessary
adjustments.

22. Prior period adjustments pertaining to Income from Licensed Casinos for
the Calendar Years 2014 to 2021 totaling P26.431 million were recorded as
income for the current year, not in accordance with Philippine Accounting
Standard 8, resulting in the overstatement of income by the same amount
with the corresponding understatement of the Retained Earnings account
as of December 31, 2021.

22.1 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.

Such errors include the effects of mathematical

mistakes, mistakes in applying accounting policies,
oversights or misinterpretations of facts, and fraud.

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22.2 Further, paragraphs 42 and 46 of the same Accounting Standard states
that:

An entity shall 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.

46. The correction of a prior period error is excluded from

profit or loss for the period in which the error is discovered.
Any information presented about prior periods, including
any historical summaries of financial data, is restated as
far back as is practicable. (emphasis supplied)

22.3 Review of the Income Reports and Win-Loss Reports submitted by

Compliance Monitoring and Enforcement Department – Integrated
Resorts revealed that various income adjustments pertaining to prior years
were recorded in the Income from Licensed Casino account for CY 2022,
totaling P26.431 million. The details of the income adjustments for prior
years are presented in Table 4.

Table 4 - Details of Income Adjustments for CYs 2014 to 2021

Particulars Amount
1 Licensed Casino A Progressive Cost Adjustments on
Table Games for CYs 2014 to 2021 P 13,892,920.28
2 Licensed Casino B Primetime Bigtime Adjustments on Non-High
Roller Live for July to September 2021 1,241,700.00
Primetime Bigtime Adjustments on Non-High
Roller Live for October to December 2021 1,578,800.00
3 Licensed Casino C Progressive Cost Adjustments on
Table Games for CYs 2017 to 2019 7,246,750.77
4 Licensed Casino D Poker adjustments for CY 2020 and 2021 70,391.75
Progressive Cost Adjustments on
Slot Machines for CYs 2016 to 2020 2,400,000.00
Total P 26,430,562.80

22.4 The recording of the aforementioned adjustments for CYs 2014 to 2021 to
current operations resulted in the overstatement of Income from Licensed
Casino account by P26.431 million with the corresponding understatement
of the Retained Earnings account by the same amount as of December
31, 2021.

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 22.5 We recommended that the AVP-AD prepare the necessary adjusting
entries, in accordance with PAS 8.

22.6 Management commented that except for the supposed Progressive Cost
Adjustments on Slot Machines of Licensed Casino A for CYs 2016 to 2020,
all prior period adjustments indicated have valid Internal Audit Department
findings/observations. Revisions to Accounting Department Policies and
Procedures pertaining to Prior Year Adjustments (PYA) per AD Manual
updated December 28, 2015, prescribes that Audit adjustments be taken
up as current adjustments as one of the considerations in the recording of
PYA.

22.7 As a rejoinder, the Audit Team acknowledged the existing Accounting

Department Policies and Procedures pertaining to PYA per AD Manual
updated December 28, 2015. However, it is recommended that the AD
Manual be updated to conform with PAS 8 regarding Prior Period Errors.

23. Receivables pertaining to income from gaming operations totaling P383.611

million that had a zero percent collection rate for more than ten years were
not written off and remained in the books of Corporate Office, CF – Cebu and
CF - Davao, thereby affecting the faithful representation of the account,
contrary to paragraph 5.4.4 of the Philippine Financial Reporting Standard
(PFRS) 9 and COA Circular No. 2016-005 dated December 19, 2016.

23.1 Paragraph 5.4.4 of PFRS 9 provides that:

An entity shall directly reduce the gross carrying amount

of a financial asset when the entity has no reasonable
expectations of recovering a financial asset in its entirety
or a portion thereof. A write-off constitutes a
derecognition event.

23.2 On the other hand, Items 5.4, 5.9, 6.1 and 8.2 of COA Circular No. 2016 –
005 dated December 19, 2016, provide that:

20.7 Dormant Receivable Account – accounts which

balances remained inactive or non-moving in the
books of accounts for ten (10) years or more and
where settlements could no longer be ascertained.

5.9 Write-off of Dormant Accounts - the process of

derecognizing the asset account and the
corresponding allowance for impairment from the
books of accounts and transferring the same to the
Registry of Accounts Written Off (RAWO). This does
not mean condoning/extinguishing the obligation of
the accountable officer/debtor.

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 6.1 All government entities shall conduct regular
monitoring and analysis of receivable accounts to
ensure that these are collected when these become
due and demandable xxx

8.2 The Head of the government entity shall file the

request for authority to write-off dormant receivable
accounts, unliquidated cash advances, and fund
transfers to the COA Audit Team Leader (ATL)
and/or Supervising Audit (SA).

23.3 Review of the Aging of Accounts Receivable-Others (Gaming Operations)

of the Corporate Office with an ending balance of P7.358 billion showed
that the amount of P383.611 million or five percent thereof remained
dormant/non-moving for ten years or more as of December 31, 2022,
details of which are shown in Table 5.

Table 5 - Details of Dormant Accounts Receivable for ten years or

more

Particulars Age Amount

Licensed Casino 16 years P379,579,964.54
Poker 10 to 12 years 3,664,434.12
Electronic Bingo 10 years 576.00
Traditional Bingo 11 years 214.06
Corporate P383,245,188.72
CF-Cebu
Bingo 17 to 18 years 361,410.00
CF-Davao
Bingo 13 years 4,560.00
Total P383,611,158.72

23.4 The enumerated dormant accounts are provided with an allowance for
impairment losses ranging from 1 percent to 100 percent of the outstanding
balance of receivables. PAGCOR’s accounting policy on the impairment of
financial assets is as follows:

Table 6 – Schedule of Provisions for Impairment

Age of Account Provision for Impairment

1 to 60 days 1% of outstanding balance
61 to 180 days 2% of outstanding balance
181 to 360 days 3% of outstanding balance
More than 360 days 5% of outstanding balance
Referred to Legal Group for legal action 80% of outstanding balance
With pending court case 100% of outstanding balance

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 23.5 The details of the dormant accounts and the status of the request for
authority to write off are shown in Table 7 below.

Table 7 – Details of Dormant Accounts and the corresponding Status of the

Request for Authority to Write Off

Account
Name Age Amount Status
Corporate Company A 16 years P 311,460,978.17 With pending court case but no
Licensed request for authority to write off
Casino
No request for authority to write
Company B 16 years 68,118,986.37 off
Poker No request for authority to write
Company C 11 years 2,078,219.52 off
No request for authority to write
Company E 10 years 821,711.81 off
Company F 12 years 764,502.79 Returned request for authority
write off dated October 13,
2022, on the ground of
incomplete documentary
requirements
Electronic Company D 10 years 576.00 No request for authority to write
Bingo off
Traditional Company G 11 years 214.06 No request for authority to write
Bingo off
Sub-total P383,245,188.72
CF-Cebu
Bingo City A 18 years P84,910.00 No request for authority to write
off
Municipality A 17 years 276,500.00
Sub-total P361,410.00
CF-Davao No request for authority to write
Bingo Company H 13 years P4,560.00 off
Total P383,611,158.72

23.6 The Schedule of Dormant receivables submitted by the Management

disclosed that several demand letters were sent to the concerned parties,
however, the same was returned due to unknown addressee, unlocated, or
have moved out.

23.7 Moreover, it can be gleaned from Table 7 that only Poker (Company F) had
requested for authority to write off. However, the said requests were not
processed due to lack or incomplete required documents, as follows:

Required Documents
Poker (Company F) Schedule of Dormant Accounts by Accountable
Officer/Debtor/Government Entity and by account,
certified by the accountant and approved by the Head of
the government entity;

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 Required Documents
Certified relevant documents validating the existence of
the conditions, as applicable, such as:

b.4 Certification from the Securities and Exchange

Commission that the Corporation is no longer active

xxx..

b.7 Certification by Legal Officer of the entity of no

pending case relative to the account

23.8 We also noted that PAGCOR had not updated its guidelines on the
disposition of dormant accounts.

23.9 In view of the foregoing, the existence of dormant accounts which remained
non-moving for ten years or more and the settlement/collectability could no
longer be ascertained but were not written off and remained in the books
affects the faithful representation of the receivable account contrary to
paragraph 5.4.4 of the PFRS 9 and COA Circular No. 2016-005 dated
December 19, 2016.

23.10 We recommended and Management agreed that the:

a. VP, Finance Group: (i) document all the efforts exerted to

collect/recover the dormant accounts; (ii) if collection is no longer
possible, request from COA for authority to write off the balances
of the account duly supported with the necessary documents as
required under COA Circular No. 2016-005 dated December 19,
2016; and (iii) formulate/update comprehensive guidelines on the
disposition of dormant receivable accounts where
settlement/collectability could no longer be ascertained, in
accordance with the said COA Circular and

b. VP, Monitoring and Enforcement Group and AVP, Table Games

Department to submit to this Office the required lacking
documents for the request for authority to write off.

24. Two Philippine Offshore Gaming Operators (POGOs) were still allowed to
operate despite continued non-payment of their financial obligation for more
than two months totaling P34.650 million, contrary to Regulation 4, Section
6 of the Offshore Gaming Regulatory Manual (OGRM), which resulted to
accumulation of receivables arising from offshore gaming operations.

24.1 The OGRM governs the issuance of Offshore Gaming License (OGL) by
the Offshore Gaming Licensing Department (OGLD) to the POGOs, as well
as the regulation and conduct of offshore gaming operations by POGOs
and their accredited Service Providers.

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24.2 Regulation 4, Section 6 of the OGRM prescribes that:

For violation of the Offshore Gaming Regulatory Manual

(OGRM) and/or failure to comply with the lawful orders of
PAGCOR/OGLD, the following demerits and administrative
penalties shall be imposed accordingly:

Administrative Penalties
Demerit 1 st
2 nd
Continued Non-
Violation Points Commission Commission Compliance
13 Failure to remit 15 Notice of Non- Cancellation of
financial demerit and compliance the Offshore
obligations due warning despite Gaming License
PAGCOR for two reminders
(2) consecutive Forfeiture of from CMED
months performance and OGLD
bond shall warrant
the cessation
Deferment of of operations
all transactions
with OGLD
20 Failure of licensee 9 Notice of Non- Cancellation of
to post or Demerit and compliance the Offshore
replenish the Warning within a Gaming License
performance bond month shall
within 72 hours Deferment of warrant the
from forfeiture all transactions cessation of
with OGLD operations

24.3 Schedule of Accounts Receivable – Others (Corporate) showed a balance

of P2.328 billion, representing receivables from POGOs as of December
31, 2022. The amount of P318.307 million, or 14 percent represents
receivables from licensed POGOs. Verification revealed that two licensed
POGOs have failed to remit their financial obligations due to PAGCOR for
more than two consecutive months, as shown in Table 8.

Table 8 – Schedule of Aging of Receivables from Licensed POGOs with an

Outstanding Financial Obligation with PAGCOR for more than two
consecutive months

Number of Days Outstanding

POGOs 61-180 181-360 Over 360 Total
1. POGO A P16,657,800.00 - P12,645,700.00 P29,303,500.00
2. POGO B 835,830.00 4,510,675.00 - 5,346,505.00
P17,493,630.00 P4,510,675.00 P12,645,700.00 P34,650,005.00

24.4 It can be gleaned from Table 8 that the two POGOs have outstanding
payables to PAGCOR for more than two consecutive months in the
aggregate amount of P34.650 million. However, despite the continued
non-compliance to remit financial obligations due to PAGCOR, the licenses

15
 of the subject POGOs were not cancelled, contrary to Regulation 4, Section
6 of the OGRM.

24.5 The Audit Team noted that the two POGOs have no performance bond to
cover their outstanding payables in case of non-payment.

24.6 The non-cancellation of the OGLs of the POGOs that violated the OGRM
for failure to remit financial obligations due to PAGCOR for two consecutive
months resulted to the accumulation of receivables arising from offshore
gaming operations.

24.7 We recommended that the AVP, OGLD revisit the pertinent provisions
of the OGRM on the collection of regulatory fees and the cancellation
process of the OGLs, and strictly enforce the same.

24.8 Management commented that POGO A requested an extension to settle its

financial obligations to PAGCOR on December 15, 2022, and signified its
intent to renew its OGL and proposed a payment scheme to settle its
financial obligations due to PAGCOR. POGO A was given until June 8,
2023, to settle all its outstanding arrears, otherwise, their license will be
suspended. On the other hand, POGO B requested an extension to settle
its financial obligations to PAGCOR. On February 27, 2023, OGLD
approved POGO B’s request for reconsideration. Further, to ensure proper
collection of fees, the OGLD shall recommend the shortening of the period
when the Licensee may be considered delinquent from two consecutive
months to one month.

24.9 As a rejoinder, the Audit Team acknowledged the justifications of the

Management. However, the Audit Team will monitor compliance with the
recommendation together with the supporting documents once submitted.

25. Slot Machine winnings of Satellite Operations Group, CF-Ronquillo, and CF-
Malate are subjected to a 20 percent final withholding tax regardless if the
player/winner is a Nonresident Alien Individual Not Engaged in Trade or
Business Within the Philippines, contrary to Section 25, Paragraph B of the
National Internal Revenue Code (NIRC) of 1997, as amended.

25.1 Section 25 Paragraph B of the NIRC of 1997 as amended mandates that:

(B) Nonresident Alien Individual Not Engaged in Trade or

Business Within the Philippines-

There shall be levied, collected and paid for each taxable

year upon the entire income received from all sources
within the Philippines by every nonresident alien
individual not engaged in trade or business within the
Philippines as interest, cash and/or property dividends,
rents salaries, wages, premiums, annuities,
compensation, remuneration, emoluments, or other fixed

16
 or determinable annual or periodic or casual gains,
profits, and income, and capital gains. A tax equal to
twenty-five percent (25%) of such income. (Emphasis
our) xx

25.2 PAGCOR Treasury Manual effective May 4, 2022, provides that the 20
percent withholding tax indicated in the jackpot slips is paid by the
PAGCOR Treasury Department and taken up in the Branch Capital Report
and will automatically be added to the jackpot amount. It is noted that the
20 percent withholding tax is imposed on the prizes regardless of the
taxpayer’s individual classification i.e. whether the winner is a Non-resident
alien not engaged in trade or business (NRANETB).

25.3 Under the NIRC of 1997 as amended by Republic Act (RA) No. 10963,
otherwise known as the TRAIN Law, RA No. 11256, RA No. 11346, RA No.
11467, and RA No. 11534 (CREATE), there are two classifications of non-
resident alien namely, a) non-resident alien engaged in trade or business
in the Philippines (NRAETB) and b) NRANETB.

25.4 A non-resident alien who stayed an aggregate period of more than 180
days during any calendar year shall be deemed a non-resident alien doing
business in the Philippines. Otherwise, if the individual stays in the
Philippines for an aggregate period of 180 days or less, the individual is
considered a NRANETB. In Bureau of Internal Revenue (BIR) Ruling No.
056-05, the BIR ruled that any calendar year’ covers all the months in the
calendar year covered by the period of assignment of the expatriate in the
Philippines.

25.5 A rate of tax of 25 percent is imposed on the income of a non-resident alien

individual not engaged in trade or business within the Philippines for
interest, cash and/or property dividends, rents, salaries, wages, premiums,
annuities, compensation, remuneration, emoluments, or other fixed or
determinable annual or periodic or casual gains, profits, and income, and
capital gains.

25.6 However, the mandated rate of 25 percent is not imposed by PAGCOR on

the winnings of such alien individuals contrary to Section 25 of the NIRC of
1997, as amended.

25.7 We recommended and Management agreed that:

a. The Treasury Department amend the Branch Treasury Manual for

the imposition of the 25 percent withholding tax if the
winner/player is a NRANETB Within the Philippines; and

b. The Slot Machine Division requires the presentation of an

Identification Card and/or passport of the winner/player to
determine the residence status and aggregate length of presence
in the Philippines.

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 VI. FRANCHISE TAX AND NATIONAL GOVERNMENT SHARE

26. This pertains to the five percent franchise tax and the 50 percent share of the
national government after franchise tax (computed on winnings net of payouts) as
provided under Section 12 of PD No. 1869 (PAGCOR’s Charter), as amended by
RA No. 9487.

27. The franchise tax of eight percent of the gross revenue earnings and 50 percent
government share amounted to P2.715 billion and P26.090 billion, respectively.

VII. STATUS OF IMPLEMENTATION OF PRIOR YEAR’S AUDIT

RECOMMENDATIONS

28. Out of the eight audit recommendations embodied in the 2021 ML, three were fully
implemented, four were partially implemented and one was reconsidered.

Reference Observations Recommendations Actions

Taken/Comments

ML 2021 Audit Income from Offshore a. The Assistant Vice Fully Implemented.
Observation Gaming Operations President (AVP),
(AO) No. 1 amounting to P2.328 Compliance Monitoring
pages 6 to 8 billion, lodged to and Enforcement
Accounts receivable – Department (CMED) I-
Others as of December Gaming (IG), AVP, OGLD
31, 2021, which and AVP, Accounting
increased by P846.179 Department (AD)
million or 57 percent from evaluate/validate the
the last year’s balance accounts receivable
remained uncollected for under protest and provide
more than one year to five the necessary
years, contrary to Section adjustments in the books
4.C, Regulation 6 of the of PAGCOR, if warranted;
Offshore Gaming and
Regulatory Manual, b. The Vice President (VP), Partially Implemented.
depriving the PAGCOR of CMED IG in coordination
funds that could be with AVP, OGLD revisit AR-Others from Offshore
derived therefrom. the effectiveness of Gaming Operations
pertinent provisions in the which remained
OGRM to improve uncollected for more than
collection of regulatory one year but less than 10
fees. years was reduced to
P2.321 million as of
December 31, 2022.
ML 2021 Audit Regulatory fees were not 25.1. The AVP, CMED IG Fully Implemented.
Observation collected from Philippine to strictly comply with
(AO) No. 2 Offshore Gaming Section 4.D on Billing and
pages 8 to 11 Operators which filed Collection of Regulatory
protest against its billed Fee, Regulation 6 on
amount and late filing of Financial Requirement,

18
 Reference Observations
protests were processed,
contrary to Regulation 6,
Section 4.D of the
Offshore Gaming
Regulatory Manual,
thereby resulting in the
loss of revenue for
PAGCOR by US$ 14.305
million or approximately
P717.131 million.
ML 2021 Audit Presence of unmetered
Observation jackpots due to
(AO) No. 3 Electronic Gaming
pages 12 to 15 Machines errors totaling
P594.689 million in three
licensed casinos, not in
accordance with Section
1, Part III - Other
Provisions of Casino
Regulatory Manual for
Entertainment City
Licensees Version 4.0
dated January 2016,
thereby casting doubt on
the reliability and
accuracy of the reported
income from licensed
casinos for the year
ended December 31,
2021.
Recommendations Actions
Taken/Comments
Reporting and Remittance
of the OGRM;
25.2. The AVP, CMED IG Partially Implemented.
and AVP, OGLD revisit the
OGRM and consider the
following:
i.Imposition of a protest
fee from POGOs
before filing any
protest; and
ii.Develop guidelines for
the reportorial
procedures to relevant
government authorities
for the eradication of
illegal online games;
and
25.3. The AVP, CMED IG Reconsidered.
revisit the provisions of the
consultancy contract with Consultancy contract with
the third-party audit the third-party audit
platform regarding platform was terminated
limitations on liabilities for in March 2023.
pecuniary losses.
The AVP, CMED – Integrated Partially Implemented.
Resorts (IR) coordinate with
the Management of licensed Unmetered jackpot was
casinos regarding the reduced to P158.450
reconfiguration of the technical million in three licensed
capabilities of gaming casinos for CY 2022.
machines to take corrective
action (replacement, repair, or
re-certification by a reputable
and independent testing
laboratory), to minimize and/or
eliminate EGM errors.
19
 Reference Observations Recommendations Actions
Taken/Comments
ML 2021 Audit Remote Gaming System The AVP, CMED - IR Partially Implemented.
Observation of a licensed casino of coordinate with the subject
(AO) No. 4 PAGCOR was not licensed casino for the Only three licensed
pages 15 to 17 integrated with the third- finalization of the Data Sharing casinos with remote
party audit platform for Agreement to push thru with gaming operations
online gaming, which is the integration with remained not integrated
not in accordance with PAGCOR’s third-party audit with the third-party audit
Item 8 of the Basic platform to comply with Item 8 platform. The other three
Regulatory Framework of the Basic Regulatory licensed casinos with
for the Remote Gaming Framework for the Remote remote gaming
Platform, thus the Gaming Platform. operations were already
reliability and accuracy of terminated.
the income from
Philippine Inshore
Gaming Operations
lodged in Income from
Licensed Casinos
account amounting to
P108.641 million, cannot
be ascertained for the
year ended December 31,
2021.

ML 2021 Audit Income from gaming The VP, Finance Group Fully Implemented.
Observation operations could not be consider opening deposit
(AO) No. 5 established due to accounts exclusive to income
pages 17 to 19 limitations in accessing from gaming operations of
PAGCOR’s bank PAGCOR and henceforth
statements with the direct the AVP, AD to submit
depository bank for the the bank statements and other
remittances on gaming documents to support
operations, thereby remittances made by
affecting the faithful PAGCOR
representation of the proponents/operators.
gaming revenue
accounts.

VIII. ACKNOWLEDGMENT

29. We wish to express our appreciation to the Management and staff of PAGCOR for
the cooperation and assistance extended to the Audit Team, thus facilitating the
completion of this Management Letter.

20
30. We request that appropriate actions be undertaken on our audit recommendations
and that we be informed of the actions taken thereon by accomplishing the
attached Agency Action Plan and Status of Implementation form and submit it to
us (in hard and electronic copies) within 60 days from date of receipt of this
Management Letter.

Very truly yours,

COMMISSION ON AUDIT

By:

21
Note: The Commission on Audit (COA) did not render an opinion on the financial statements of Philippine Amusement and Gaming Corporation in view of the
Commission's limited audit jurisdiction over PAGCOR pursuant to the Supreme Court (SC) decision in the case of Efraim Genuino vs.Commission on
Audit, GR No. 230818 dated June 15, 2021. A Management Letter was issued instead of the standard Annual Audit Report.
Note: The Commission on Audit (COA) did not render an opinion on the financial statements of Philippine Amusement and Gaming Corporation in view of the
Commission's limited audit jurisdiction over PAGCOR pursuant to the Supreme Court (SC) decision in the case of Efraim Genuino vs.Commission on
Audit, GR No. 230818 dated June 15, 2021. A Management Letter was issued instead of the standard Annual Audit Report.
Note: The Commission on Audit (COA) did not render an opinion on the financial statements of Philippine Amusement and Gaming Corporation in view of the
Commission's limited audit jurisdiction over PAGCOR pursuant to the Supreme Court (SC) decision in the case of Efraim Genuino vs.Commission on
Audit, GR No. 230818 dated June 15, 2021. A Management Letter was issued instead of the standard Annual Audit Report.
Note: The Commission on Audit (COA) did not render an opinion on the financial statements of Philippine Amusement and Gaming Corporation in view of the
Commission's limited audit jurisdiction over PAGCOR pursuant to the Supreme Court (SC) decision in the case of Efraim Genuino vs.Commission on
Audit, GR No. 230818 dated June 15, 2021. A Management Letter was issued instead of the standard Annual Audit Report.