44

STATUS OF IMPLEMENTATION OF 2008 AUDIT RECOMMENDATIONS

Of the twelve (12) audit recommendations, four (4) were implemented, four (4) were partiallyimplemented and four (4) were not implemented as shown in the table below:

Recommendations Implemented PartiallyImplemented

NotImplemented

1. PPE & Inventories-Incomplete InventoryTaking

Management should undertake physicalinventory of the agency’s assets to ensurethat the records accurately reflect propertyon-hand and in use, pursuant to theprovisions of COA Circular No. 80-124dated January 18, 1980 in relation to Sec.102 of P. D. 1445. In order to facilitatethe conduct of an inventory, it is furtherrecommended that MIAA create a taskforce for the purpose. A copy of theupdated, detailed and reconciled report,duly approved by the head of the agency,should be provided the COA as requiredunder the above-mentioned circular.

1(reiterated inthecommentsandobservationportion)

2. Land - Absence of evidence ofownership on land valued at P1.2 billion

The Accounting Division and the Businessand Real Estate and InvestmentDevelopment Division (BRIDD) should exertefforts to reconcile differences in theirrecords and to submit to the Office of theAuditor a properly reconciled InventoryReports duly approved by the head of theAuthority in accordance with Section 102 ofP. D. 1445 and for the Management to takesteps to acquire the titles of theaforementioned lots to prove legalownership of the lands.

1(reiterated inthecommentsandobservationportion)

3. Accounts Receivables - Doubtful validity

Management should exert extra effort toupdate and reconcile the receivablebalances per general and subsidiary ledger;

1(reiterated inthecomments

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Recommendations Implemented PartiallyImplemented

NotImplemented

analyze the credit balances per subsidiaryledger; account for the breakdown ofreceivables-output taxes; and submit toCOA the details of the funds transferred toDPWH.

andobservationportion)

4. Inadequate allowance for doubtfulaccounts

A review should be made on the Authority’spolicy of providing an allowance for doubtfulaccounts of only 10% of the receivablebalances.

1(reiterated in

thecomments

andobservation

portion)

5. Non-settlement of AccountsReceivables-Disallowance

Management should enforcecompliance/settlement of the auditdisallowance.

1(reiterated inthecommentsandobservationportion)

6. Unliquidated cash advances

Management should enforce liquidation ofthe cash advances.

1

7. Other Assets - Non-moving accounts

Management should exert extra effort toclean its accounts.

1(reiterated inthecommentsandobservationportion)

8. Use of old rental rates deprived theAuthority additional revenue

Management should exert extra effort tosecure the approval of the DOTC Secretaryon the proposed rental rates taking intoconsideration the pronouncement on theissue and implement collection of new ratesto increase the Authority’s revenues, takinginto account that rental rates are meant togenerate income and some profits for theuse of the property in contrast to fees andcharges, which are meant to recoveradministrative costs for the servicesrendered.

1(reiterated in

thecomments

andobservation

portion)

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Recommendations Implemented PartiallyImplemented

NotImplemented

9. Payment of honorarium and overtime tothe members of Bids and AwardsCommittee and the members ofTechnical Working Group despite theprohibitions

Management should submitjustification/explanation for the deviationfrom existing rules and regulations on thepayment of overtime and honorarium toBAC and TWG members and to cause therefund of the total amount of overtimepayment of P1.9 million and the excess ofthe amount paid for honorarium of P1.4million over the total collections ofP953,117.77.

1

10. Non-adherence to Sections 497 of GAAMon submission of incident report to theOffice of the Auditor as regard theequipment damaged by accident ornegligence of employees and 489 asregard insurance of properties

Management should strictly adhere to theprovisions of Sections 489 and 497 of theGAAM Vol. 1 to protect the interests of theAuthority and avoid unnecessary losses.Management should also pursue theinvestigation of this incident to determinethe persons liable and the extent of theirliability and to file the correspondingcharges against them.

1

11. Composition of BAC

Management should submitjustification/explanation why the actions ofthe BAC should not be considered illegal asa result of non-conformity to the provisionsof the IRR of R. A. 9184. (Qualifications ofmembers of BAC)

1

12. Approved funds for GAD projects werenot fully utilized 1

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Recommendations Implemented PartiallyImplemented

NotImplemented

In the preparation of the Annual GAD Plan,Management should undertake activitiesand projects utilizing the funds earmarkedin order to achieve the goals of theprogram. We further recommended that inthe preparation of the Annual GAD Plan,Management should focus not only onwomen’s issues but on men’s as well. Wealso suggested thatissues/projects/activities that depict theordinary problems like employment, health,education, etc. when gender discriminationis very evident for both sexes should alsobe included. Attendance in GAD relatedprojects, activities and programs shouldinvolve a large number of participants tomaximize the desired or expected benefitsto both genders. For this, GADactivities/projects should also consider andelicit the participation of the residents in thearea.

Total 2 8 2

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COMMENTS AND OBSERVATIONS

1. Incomplete physical inventory and non-submission of detailed lists/schedules ofcertain property and equipment and improper classification of certain buildings

Physical inventory as of December 31, 2009 was not completed and detailed lists/scheduleswere not provided for the following property and equipment accounts:

Property and Equipment Account In thousand PesosAirport Equipment 2,461,213Machineries 1,261,936Furniture and Fixtures 309,232Communication Equipment 236,457IT Equipment and Software 153,847Firefighting Equipment 134,687Other Property, Plant and Equipment 55,375Office Equipment 31,225Medical, Dental and Laboratory Equipment 16,772Total P 4,660,744

In the absence of physical inventory together with reconciliation of balances per count andper books, the existence of the assets and the correctness of recorded balances of theseproperty and equipment accounts could not be ascertained. Likewise, the correctness of theaccumulated depreciation amounting to P4.142 billion as of December 31, 2009, whichimpacted the valuation of these property and equipment at year-end, could not beestablished.

On the other hand, leased out buildings are not properly classified. Under InternationalAccounting Standards (IAS)16 – “Property, Plant and Equipment”, buildings or a portion ofthe building that is used by the entity in its operations is included in property, plant andequipment, while buildings that are being leased out to others under operating leases andgenerates cash flows independently of the other assets held by an entity should beclassified under investment property.

Recommendation

We recommend that Management complete the physical inventory of its assets to ensurethat the records reflect property on hand and in use, pursuant to the provisions of COACircular No. 80-124 dated January 18, 1980 in relation to Section 102 of PD 1445, and thatthey comply with PAS/IAS 16 by ensuring that only those properties used in operations areincluded in the property and equipment account.

Management comment

Management commented that a committee was created to conduct the physical count of theAuthority’s property and equipment and to undertake reconciliation thereof. Still on-goingare the physical inventory of furniture and fixtures and fixed assets. Due to the extent of theprocedure and inherent limitations of the physical count, the work completion is expected toconclude until August 31, 2010.

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Our rejoinder

The deadline to submit inventory report as of December 31 to the Auditor is not later thanJanuary 31 of each year pursuant to Section 490 of Government Accounting and AuditingManual, Volume I.

2. Incomplete report on the physical count of inventories and non-reconciliation ofvariance

Management conducted an inventory of supplies and materials for 2009. However, we werenot able to validate the correctness of the inventory costs and quantities on hand at year-end because inventory sheets for each item of the inventory and the grand summary of allinventory sheets which will be used as our basis for testing the accuracy of inventory listingswere not submitted. Moreover, the variance of P14.596 million between the inventorybalances per books of P 22.683 million and per count of P37.279 million were notreconciled.

The inadequacy of records did not permit us to apply alternative procedures to validate theexistence and correctness of balances.

Recommendation

We recommend that Management reconcile the variance between the balances per physicalcount and per books and that the Office of Auditor be furnished with the properlyaccomplished inventory sheets.

Management Comment

Management acknowledged our recommendation and informed us that they are continuingthe process of reconciling the variance between the balances per physical count and perbooks. A copy of the accomplished inventory sheets will also be furnished the Office of theAuditor as soon as they are finished with the undertaking.

3. Variance in the area of land and untitled land

Total area of MIAA lands as per report of the Business and Real Estate Investment andDevelopment Division (BRIDD) as of June 30, 2009 differs by 84,122 sq. m. when comparedwith the total area per records of the Accounting Division, as shown below:

Titled lands with OCTs/TCTs in the custody of BRIDD 5,112,962 sq. m.With pending reconstitution of missing owner’s duplicate OCTs/TCTs, lands

expropriated/purchased by RP/BAT/MIAA subject to final determinationof cases, and purchased by BAT/MIAA but still under mother titles 637,200 sq. m.

Unregistered/untitled lands under MOA between MIAA and DENR (subjectto final survey by DENR) 564,406 sq. m.

Total per BRIDD’ s records 6,314,568 sq. m.Total per Accounting Division’s records 6,230,446 sq. m.Variance 84,122 sq. m.

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Of the reported 6.3 million sq. m. per BRIDD’s records, only 5.1 million sq. m. are evidencedby TCTs. The remaining 1.2 million sq. m. are untitled.

Land title refers to that upon which ownership is based. Under the law, a certificate of title isthe best evidence of ownership. It is the evidence of the right of the owner or the extent ofhis interest, and by which means he can maintain control and as a rule assert to exclusivepossession and enjoyment of the property (page 3, Registration of Land Titles and Deeds,Pena, Pena Jr., Pena, 1994 Edition).

Recommendation

We recommend that Management require the Accounting Division and the Business andReal Estate and Investment Development Division (BRIDD) to reconcile the differences intheir records. Management should also take steps to have the lands titled in the name ofthe Authority to prove legal ownership of the lands.

Management Comment

Management explained that due to their continuing efforts, the difference in land records of196,780 sq. m. as of April 2009 was considerably reduced to 84,122 sq. m. as of December31, 2009.

4. Deficiencies in accounting for accounts receivables

We noted the following in the audit of receivables:

a) Our comparison of the subsidiary ledger (SL) against the general ledger (GL) of tradeaccounts receivables disclosed a variance of P9.886 million, as follows:

(in thousand pesos)Total per subsidiary ledger P 2,983,675Total per general ledger 2,993,561Variance P 9,886

As of December 2009, withholding taxes on 4th quarter of 2009 collections amounting toP19.247 million were not taken up in the general ledger but were alreadycredited/deducted against the subsidiary ledger accounts of concessionaires. Thiscontributed to the difference between the SL and the GL balances. An accountingmanual to guide employees on the recording of certificates of withholding taxes receivedby the Authority is not provided to guide its employees on the timely recording of the saidcertificates.

b) Our verification disclosed that some receivable accounts have credit balances totalingP48.651 million, P46.437 million of which represents retroactive adjustment on rentalcharges through issuance of credit memoranda (CM) pertaining to the increase that wasinvalidated by the Supreme Court decision on FEDAVOR case. Severalconcessionaires requested for offsetting arrangement against their future billings. TheCredit Memoranda should not be deducted from accounts receivable but should be set-up as accounts payable. The practice misstates receivable and payable accountbalances reported at the end of each year.

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c) Our confirmation disclosed that out of the P40.097 million fund transferred to DPWH-NCR (Due from NGAs-DPWH account), P263,063 does not appear in the books of theDPWH and that the amount received remained unliquidated because DPWH-NCR failedto submit the required Statement of Liquidation to the MIAA. Funds transferred toDPWH-NCR were intended for the implementation of various road construction projects.The non-recording of liquidation reports and non-confirmation of the portion of theamount resulted in overstatement of A/R-Due from NGAs account.

Recommendation

We recommend that Management:

a) exert extra effort to update and reconcile the receivable balances per general andsubsidiary ledger and provide a Manual on Collection Process that ensures the timelyrecording of certificates of withholding taxes;

b) recognize receivable credit account balances as payables; andc) demand for liquidation of advances and reconciliation of accounts with the DPWH-NCR.

Management Comment

Management informed that in their continued effort to reconcile the GL and SL balances ofAR-Trade Non-Government entities, particularly Due from NGAs (Trade & Non-Trade) andDue from GOCCs, they were able to reduce the difference to P9.8 million as compared tolast year of P48 million. They also assured that the reconciliation process is an on-goingconcern of the Accounting Office to further reduce the difference. They will also adopt, as apolicy, the requirement for concessionaires to submit withholding tax certificates togetherwith their monthly payments.

On accounts with credit balances, Management informed that these credit balances will beadjusted accordingly in their books of accounts. Likewise, they will follow-up the liquidationof cash advances granted to DPWH.

5. Inadequate allowance for doubtful accounts on trade receivables

Generally accepted accounting principles require that trade receivables be valued at theirface amount minus allowance for doubtful accounts. The Allowance for Doubtful Accounts(ADA) shall be provided in an amount based on the collectibility of receivable balances andevaluation of such factors as aging of the accounts, collection experience of the agency,expected loss experience and identified doubtful accounts.

31

As of December 31, 2009, the Authority’s trade receivables are as follows:

In thousand pesosPresented under Current Assets

From - Non-Government Entities 2,382,056- National Government Agencies 20,240- Government Owned and Controlled Corporations

CAAP (formerly ATO) 538,927Others 52,338

2,993,561Allowance for Doubtful Accounts (633,384)

2,360,177

Presented under Non-Current AssetsFrom - Philippine Airlines (net of current portion) 1,380,061

Allowance for Doubtful Accounts ( 138,006)1,242,055

Net 3,602,232

We have noted that the Authority does not have a documented accounting policy on theprovision for doubtful accounts. However, as a practice, the Authority provides allowancefor doubtful accounts at ten percent (10%) of the total Trade Accounts Receivable, currentand non-current and 100% on accounts determined to be totally bad debts. A 10% ADA isalso provided for receivables from CAAP and on long-term receivables from PAL. However,in CY 2009, monthly ADA was provided/computed at 1% of billed A/R- Trade, Due fromNGAs and GOCCs. Also, an additional allowance of P272.497 million, or 90% ofidentified/selected non-moving accounts totaling P302.774 million, was also recognized.

Table below shows the aging of A/R from non-government entities:

In thousand pesosCurrent P 613,23430 days 180,19460 days 114,68590 days 70,12991-120 days 58,424Over 120 days 73,938Year 2008 45,888Year 2007 5,841Year 2006 10,119Prior years (2005 & prior) 1,206,921

P 2,379,373

We find the allowance provided on long outstanding accounts as inadequate consideringthat the risk of non-collectibility of these accounts is high. CAAP is even disputing theamount due from them.

32

Recommendation

We recommend that Management review its practice of providing an allowance for doubtfulaccounts of only 10% of the receivable balances, and that they formulate an accountingpolicy that would best reflect the realizable amounts of the receivables.

Management Comment

Management informed that additional allowance for doubtful accounts was alreadyrecognized in June 2010.

Our rejoinder

We reiterate our recommendation for Management to formulate an accounting policy onprovision for doubtful accounts.

6. Uncollected accounts from CAAP

The Authority bills the Civil Aviation Authority of the Philippines (CAAP), then AirTransportation Office (ATO), for electricity consumed by its Manila Control Tower andCommunication Center, which are both located at the NAIA Terminal Complex. However,CAAP refuse to pay the bills justifying that the services they rendered are essential andindispensable to NAIA operations by invoking Section 3, Part 2 of the MIAA’s RevisedAdministrative Order No. 1 series of 2000.

Total bills amounted to P538.927 million as of December 31, 2009. The Authority informedCAAP that until such time that the MIAA Board has decided with finality on the issue, billingfor electricity consumption shall continue.

The non-collection of the accounts from CAAP results in losses to the Authority for payingfor CAAP’s utility consumption.

Recommendation

We recommend that Management negotiate with CAAP for the settlement of the accountsand enforce collection thereof.

Management comment

Management informed that they sent several communications to ATO/CAAP demandingpayment for their arrears. ATO/CAAP explained that the operation of the control towercaters to the air traffic operations of the NAIA terminals; thus, the Authority is directlybenefitting thru CAAP’s operations and must share the operational costs. The EngineeringDepartment of the MIAA was asked to determine the actual load consumption of the vitalfacilities servicing the areas mentioned by ATO/CAAP. In a letter dated October 24, 2007 ofthe then GM Cusi, CAAP was informed that the Electro-Mechanical Department was taskedto evaluate CAAP’s request and will submit recommendations to the MIAA Board ofDirectors. To date, discussion between MIAA and CAAP is still on-going to determine theactual load consumptions to charge to CAAP and the portion to be shouldered by MIAA.

33

7. Unliquidated fund transfer to the City of Paranaque

The Authority transferred funds to the City of Paranaque for the purchase of hospitalequipment on February 22, 2008 for P38.436 million. The grant of cash advance was inaccordance with the Memorandum of Agreement (MOA) entered into by and between theCity of Paranaque and MIAA. This was authorized by the MIAA Board of Directors by virtueof Resolution No. 2007-099. Pursuant to the MOA, the amount advanced will be treated asdonation to the City of Paranaque upon liquidation.

Our confirmation revealed that out of the P38.436 million, P36.186 million was alreadydisbursed. However, no liquidation report was received from the City of Paranque to date;thus, the disbursement from the funds were not recorded.

The non-recording of the disbursement transaction resulted in the overstatement of Asset-A/R Due from LGUs and retained earnings accounts.

Recommendation

We recommend that Management require the submission of liquidation report from the CityGovernment of Paranaque and record the same immediately. Likewise, we recommend thatManagement require the return of the unexpended balance with the interest thereon.

Management Comment

Management explained that the documents submitted by the City of Paranaque were theFund Utilization Report showing a balance of P6,820,000 and a letter dated January 20,2010 informing the Authority of a transaction which was paid and recorded in their journalson December 15, 2009 amounting to P4,750,000. To date, Management has not receivedany of the required documents to process the liquidation of the cash advance.

Management also explained that, under paragraph II.3 of the Memorandum of Agreement(MOA) with the City of Paranaque, the liquidation of the cash advance can be made “onlyupon submission to MIAA of duly post-audited vouchers and supporting documents, afterwhich a Deed of Donation shall be executed by MIAA in favor of the LGU”. In a letter datedMarch 22, 2010 to the City of Paranaque, Management requested for the submission ofpost-audited vouchers and other supporting documents.

8. Non-recognition of provision for estimated liabilities

Paragraph 14 of PAS/IAS 37 on “Provisions, Contingent Liabilities and Contingent Assets”provides that “A provision shall be recognized when:

(a) An entity has a present obligation (legal or constructive) as a result of a pastevent;

(b) It is probable that an outflow of resources embodying economic benefits will berequired to settle the obligation; and

(c) A reliable estimate can be made of the amount of the obligation.

If these conditions are not met, no provision shall be recognized.”

34

We have noted that the Authority, contrary to the requirement of PAS/IAS 37, did notrecognize in its books the following obligations:

(a) Claims for refund of rentals estimated at P1.231 billion by Philippines Airlines, MacroasiaAirport Services Corp and Macroasia Catering Services pertaining to the increase thatwas invalidated by the Supreme Court for lack of publication. The MIAA Board, underBoard Resolution No. 2010-026, approved the application of these claims by thelessees against their future rental charges;

(b) Claims for Real Estate Taxes by the City Governments of Paranaque and Pasay on allportion of airport lands and buildings that are leased to private parties after the SupremeCourt ruled that airport lands and buildings of the Authority are exempted from realestate taxes except for portions that are leased to private parties.

The non-provision resulted in the overstatement of retained earnings, understatement of realestate tax expenses and understatement of liabilities.

Recommendation

We recommend that Management comply with the requirements of PAS/IAS 37 by ensuringthat appropriate provision for estimated liabilities has been set up at year end for all itsobligations. Management should also take inventory of properties leased to private entitiesfor purposes of determining estimated real estate tax.

Management Comment

Management explained that claims for refund of rentals by Philippine Airlines and Macroasiaamounting to P1.231 billion were approved by MIAA Board in February 2010 but executionthereof is subject to the approval of the OGCC. To date, they are still awaiting action fromOGCC. The claim for refund was, however, disclosed in the Notes to Financial Statements.

As to the real estate taxes, Management explained that they will set up the provision uponreceipt from the Cities of Pasay and Paranaque an updated assessment which conforms torecent decisions of the Supreme Court to ensure accuracy of amounts to be set up asliability. They, however, took note of the recommendation to conduct inventory of propertiesleased to private entities for purposes of determining real estate tax liabilities and by way ofcounterchecking the assessments to be issued by the Cities of Pasay and Paranaque.

Our Rejoinder

We wish to inform that disclosure in the Notes to Financial Statements does not correct thenon compliance with the requirement of PAS/IAS 37. Further, PAS/IAS 37 requires that aprovision should be recognized when it is possible that a reasonable estimate could bemade instead of waiting for information on the exact amount.

9. Incorrect accounting for sale of bid documents

Income from sale of bid documents together with other income sources, like fees fromcontractor/supplier registry, protest fees, etc. shall be considered as sources of funds for

35

payment of honoraria and overtime pay to those government personnel authorized to collectsaid allowance pursuant to Budget Circular 2007-3.

In prior years, the Authority recorded collection from sale of bid documents as MiscellaneousIncome. However, in CY 2009, the same transaction was recorded as Other Payables.

Liability is recognized when an entity has a present obligation which is legally enforceableas a consequence of a binding contract or statutory requirement. Collection from sale of biddocuments does not result in incurrence of a present obligation, thus, recognition of liabilityis not proper.

The deviation by the Authority from its prior years’ practice resulted in understatement ofincome and overstatement of liabilities by P7.197 million.

Recommendation

We recommend that Management recognize sale of bid documents as income.

Management Comment

Management explained that the previous practice of recording 50% of the sale on biddocuments to Miscellaneous Income resulted in a shortage of availability of funds to coverfor payment of honorarium to their BAC members. They further contended that in CY 2008,their attention was called when their recorded sale of bid documents fell short whencompared with the amount paid for the honoraria and overtime of BAC members. Hence,they have held in trust all proceeds of sale of bid documents and recorded the same topayable account for their BAC honorarium equivalent to 25% of their basic pay pursuant toRA 9184.

Our rejoinder

We remain firm on our position that sale of bid documents should be recognized as Incomeand not Other Payables. The practice of recognizing collection from sale of bid documentsas funds held in trust is without basis.

10. Non-moving advances to contractors

Other Non-Current Assets account includes advances to contractors amounting to P58.867million which have been outstanding for more than 5 years.

We have noted that the amount originated from transactions related to the T2 DevelopmentProject. The project is already operational; thus, all the transactions relative to itsconstruction is deemed completed. Hence, advances granted to contractors must havealready been recouped.

Recommendation

We recommend that Management analyze the account and, accordingly, make thenecessary adjustments.

36

Management comment

Management commented that the amount has been included in the schedule of dormantaccounts submitted to COA on June 19, 2008.

Our rejoinder

The submission to COA of schedule of dormant accounts is not a remedy to the clearing ordisposition of the Authority’s dormant/non-moving accounts. We, therefore, reiterate ourrecommendation.

11. Delayed implementation of adjusted rental rates

The Authority was constrained to use the old rental rates based on Resolution No. 97-51dated May 19, 1997, rates which are unrealistic because they pertain to twelve years ago.This was because the Supreme Court declared null and void the increases under MIAABoard Resolution Nos. 98-30 and 99-11 for not complying with the required notice of hearingas well as the approval of the DOTC Secretary. For these lapses, the MIAA has to refund tothe lessees some P381 million for the invalidated increases charged against them, exclusiveof VAT, and claims of Philippines Airlines, Macroasia Airport Services Corp and MacroasiaCatering Services estimated at P1.231 billion.

The MIAA Management conducted public hearing after the issues and concerns wereaddressed and recommended the adoption of increased rates based on the Consumer PriceIndex. The MIAA Board passed Resolution No. 2008-022 on the proposed Rental Rates atthe General Aviation complex and other MIAA-owned Properties. In a letter dated February3, 2009, DOTC approved the rates with the request that a copy be filed with the University ofthe Philippines Law Center in consonance with Section 3, Chapter 2, Book VII of ExecutiveOrder No. 292 which states that “Every agency shall file with the University of the PhilippinesLaw Center three certified copies of the rule adopted by it”.

We have noted that the Authority filed with the UP Law Center only on August 17, 2009 acertified copy of the approval of the new rates. We believe that the Authority has alreadycomplied with the required notice of hearing and DOTC approval as early as February 2009.Therefore, had the Authority filed immediately a copy of the approval of the new rates, thenew rental rates could have been implemented as early as March 2009, or after fifteen daysfrom filing pursuant to Section 4, Chapter 2 of EO 292, instead of September 15, 2009. Asconsequence, the Authority was deprived the opportunity to earn additional revenue duringthe year.

We have noted, likewise, that the new rental rates effective September 15, 2009 were billedonly in January 2010. No accrual was made for additional rental earned for September 15,2009 to December 31, 2009 resulting in the understatement of rental income earned in 2009by not less than P17.9 million.

Moreover, the DTI commented that the increase in rates had been brought down to themodest levels while the NEDA noted that the rates appear to be even lower when thecurrent effective rates are adjusted using the actual inflation figures published by the NSO.

37

Recommendation

We recommend that Management be more circumspect and prudent in its future actions sothat lapses such as those that happened in the past will not recur and so that just andreasonable revenues are not brought to naught.

Management comment

Management explained that that they ensured that all legal processes were followed beforethe increase in rental rates was implemented.

12. No clear guideline or agreement as to the recovery of investment in PIADP

The Authority has been tasked to be the principal funder of the Panglao International AirportDevelopment Project (PIADP) pursuant to Executive Order No. 341 dated August 4, 2004and Memorandum Order No. 282. As principal funder of the PIADP, MIAA shall provide thenecessary funds needed for the construction and operation of the Panglao InternationalAirport and, for this purpose, shall create a Project Management Office, hereinafter referredto as the Panglao PMO.

MIAA’s investment to PIADP amounted to P6.757 million as of December 31, 2009. InResolution No. 2008-008, the MIAA Board approved the recommendation of MIAAManagement to extend financial support to PIADP amounting to Three Billion Pesos.

The use of funds to finance the Panglao International Airport Development Project (PIADP)may drain the resources of the Authority when there is no clear guideline or agreement thatincome to be generated from this venture shall accrue to the Authority, or that the amountdisbursed shall be repaid, as the case maybe.

Recommendation

We recommend that Management clarify with proper authorities as to the recoupment of theAuthority’s investment and/or the ownership of PIADP.

Management comment

As a government institution with corporate powers, MIAA needs to explore businessinvestment strategies that may substantially benefit itself partially or totally to also sustainthe purpose of its existing original mandate, i.e. upgrading of NAIA facilities. As per thelatest approval of the National Economic Development Authority (NEDA), the country’sgoverning economic planning agency, the PIADP has been found to be financially viabledue to potential movements that maybe accommodated by the airport in the future. Hence,more than the President’s directive, MIAA sees the P3 billion funding assistance to theproject as an investment or business strategy which maybe immediately recovered with theproceeds.

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Our rejoinder

As business investment, it is not clear how the MIAA can recover its investment inasmuchas there is no pronouncement as to the ownership and management of the PanglaoInternational Airport. Hence, we reiterate our recommendation for Management tocoordinate with the proper authorities to address the issues raised specifically on theownership of the PDIAP or recoupment of MIAA’s P3 billion investment.

13. Non-withholding of correct taxes

The withholding of tax on rental payments and payments to contracts and suppliers forservices is required under Section 57 (B) of the Tax Code as implemented by RevenueRegulation No. 2-98.

Based on the letter from the BIR, the Authority failed to withhold the correct amount of taxon income payments based on the matching of Alpha List of Payees with the paymentsrecorded in the Journal Vouchers Payable. As a result, the Authority was assessed for taxdeficiency for taxable year 2004 amounting P4.290 million due to the failure to withhold thecorrect amount of withholding tax. Payment of the tax deficiency was made on October 30,2009.

Non-compliance with tax laws resulted in a loss to the Authority equivalent to the P 4.29million it paid to the BIR but for which it should have not been held liable had it withheld thesame from the payments made to contractors and suppliers.

Recommendation

We recommend that Management be meticulous in the processing of claims for paymentparticularly in the withholding of taxes to avoid payment of deficiency tax.

Management comment

Management took cognizance of our recommendation.

14. Deficiencies in advertising concession

14.1. No public bidding before the award of contracts

Based on MIAA Revised Administrative Order No. 1 series of 2000, Part VI, Section6-Advertising fees are as follows:

a. Indoor advertisement atTerminal 1

Highest bid price but not less than P3.5M/annum

b. Indoor advertisement at ICT &Domestic Terminals

Highest bid price but not less than approvedgovernment estimate

c. Outdoor advertisement Highest bid price but not less than1) Lighted billboards or

displaysP249.60 m²/mo.

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2) Unlighted billboards 144.00 m²/mo.3) Circulars, posters 96.00 m²/mo.

d. Pushcarts advertisement Highest bid price but not less thanP362.50/pushcart/month

We have noted that no bidding was conducted before the award or grant ofadvertising concession privileges to the following:

1. Digichive Philippines, Corp. for 60 advertising sites at IPT 1 at the rate of P5million per annum; or P416,666 per month;

2. Etcetera (Adstrat, Inc.) for a total area of 520.16 square meters at P249.60 persquare meters or P129,831.94 per month under a contract that expired lastSeptember 2009;

3. Pilsigns for 6 sites at P4,979.42 per site or P29,876.52 and 1 display standee forP1,221.04 or P31,097.56 per month. No contract is existing at present;

4. Silvercraft/Primesites Advertising Corp for 37 advertising sites at IPT 1 forP4,979.42 per site or P184,238.54 per month.

The lack of bidding deprived the Authority the opportunity to solicit the mostadvantageous contract price to the government.

14.2. Non-recognition of revenue on exchange of goods and services

Paragraph 12 of PAS/IAS 18 provides that when goods are sold or services arerendered in exchange for dissimilar goods or services, the exchange is regarded astransaction which generates revenue. The revenue is measured at the fair value ofthe goods or services received, adjusted by the amount of any cash or cashequivalents transferred. When the fair value of the goods or services receivedcannot be measured reliably, the revenue is measured at the fair value of the goodsand services given up, adjusted by the amount of any cash or cash equivalentstransferred.

Our audit disclosed that the Authority did not report revenue from the exchange ofgoods and services in current and prior years generated from the following:

a. RS CONCEPTS, INC. RS Concepts Inc. was granted advertising concession for2 years at 20 aerobridges of IPT 1 in exchange for the repair and renovation ofIPT 1 13 terminal tunnels based on the contract signed on August 20, 2009 only.The contract duration should have been for 2 years from December 19, 2007 toDecember 18, 2009.

b. SLEIPNER Ent., Inc. Contract with Sleipner Ent, Inc. was entered on December2007. Based on Article 1 of the contract, SLEIPNER Ent., Inc. shall provide,manage and supply: a) 1,500 units of Wantzl Travel 300 trolleys; b)12 unitsWanzl Porter Trolley 2000; and such number of guide rails as maybe agreed bythe parties at no cost. Article 2 provides that: Upon expiration of the term of theagreement, ownership of all trolleys and guiderails shall transfer to First Party.

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On the other hand, MIAA agrees and authorizes the Second Party to use and/orutilize the trolleys and guiderails for advertising display. Management wasauthorized by the MIAA Board under Resolution No. 2007-81 to enter intoagreement with Sleipner Enterprises, Inc.

c. Little Vin-Vin Food Corp. (LVVFC). The agreement provided that LVVFC shallprovide 1,000 pushcarts at Terminal 2 in exchange for a 3-year advertisingdisplay privilege on those carts. Contract with LVVFC expired last November2007. At the end of the agreement, the ownership of the pushcart/trolleys shallautomatically vest upon MIAA without right of reimbursement upon the FIRSTPARTY (LVVFC). Based on the letter dated January 20, 2004, LVVFC offered tosupply 1,200 pushcarts in exchange for exclusive rights to pushcartsadvertisement but the contract was for 1,000 carts only. Per inquiry, no newcontract was signed after the expiration thereof. No bills were rendered in favorof LVVFC during the year.

The lack of approved policy by the Authority on advertising concession coveringexchange transactions, which is compliant with Philippine Accounting Standards,could have caused the non-compliance with the accounting standard.

The non-recognition of revenue on exchanges of goods and services as discussedabove resulted in the understatement of income and expenses that are related to theexchange transactions.

14.3. Lack of monitoring on the compliance with the terms and conditions of thecontract

Digichive was awarded a contract for indoor and outdoor advertisement at Terminal2 after a bidding was conducted. The contract cost was P13.5 million per annumfixed amount or 30% of its annual gross revenue derived from advertising revenue atTerminal 2.

Pursuant to 2.2 of the contract, the LESSEE shall submit to the LESSOR every 3months from the commencement date of the contract a Sworn Statement of its grossrevenue for the 3-month period derived from the Advertising Concession and copy ofits books of accounts to determine deficiencies, if any, in the payment of the rent.

We have noted that the Authority billed Digichive a fixed amount of P1.125 millionper month (or the equivalent of P13.5 million per annum). No Sworn Statement ofDigichive or Report regarding the monitoring made by the Authority on the grossrevenue of Digichive as a basis for determining deficiencies in the payment of rentwas presented.

Recommendation

We recommend that Management:

a) conduct a bidding before entering into advertising concession contracts to get themost advantageous contract price for the government;

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b) come up with an accounting policy covering exchange transactions on advertisingconcession to guide its employees in the proper accounting thereof;

c) monitor compliance with the terms and conditions of the contract as basis fordetermining deficiencies in rental payments made; and

d) submit the following requested documents:

1. status report on the compliance by the parties (MIAA and RS Concepts Inc.)with the terms and conditions of the contract, stating, among others, the datewhen the company started enjoying ads privileges including the areas covered;

2. cost-benefit analysis for the 3 concession contracts;3. data specifying the 4-year contract period of agreement with Sliepner duly

supported by the proof of delivery/receipt of trolleys.4. Clarification for awarding/signing the contract with LVVFC for 1,000 units of

trolleys only instead of 1,200.5. Information whether Little Vin-Vin Food Corp. (LVVFC) still posts ads on the carts

after the expiration of the contract;6. Copy of journal entry voucher recording the pushcarts from LVVFC in the books

of accounts.

Management Comment

Management informed that Digichive Philippines Corporation has submitted SwornStatement of their monthly sales for the period January 1, 2008 to December 31, 2009 andthe same has been forwarded to IASO for audit.

Our rejoinder

Management should determine, bill and collect noted deficiencies in rental payment.

15. Renewal of contracts for services without public bidding

The Authority has continuously renewed services contracts through the passage of BoardResolutions after the original contracts have expired. This practice deviates from theprovisions of Section 529 of the Government Accounting and Auditing Manual (GAAM) Vol.1 and Section 3b of the Revised Implementing Rules and Regulations (IRR) of theGovernment Procurement Reform Act (R. A. 9184) which provide that:

“Sec. 529, GAAM, Vol. 1 – Prohibition against renewal/entering into contractsfor public service for furnishing of supplies, materials and equipment withoutpublic bidding. – No contracts for public service or for furnishing supplies, materialsand equipment to the Government or any of its branches, subdivisions, agencies orinstrumentalities shall be renewed or entered into without public bidding, exceptwhen justified by any of the grounds provided for in Section 1 of the Executive Order301 s. 1987. In addition thereto, a purchase thru repeat order may be made from thesame supplier for the same items subject to the following conditions provided for inSec. 448 hereof.”

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Sec. 3b), Revised IRR of the R. A. 9184 – Governing Principles on GovernmentProcurement: Competitiveness by extending equal opportunity to enable privateparties who are eligible and qualified to participate in public bidding.”

Management’s non-observance of the prohibition on renewal of contracts without the benefitof public bidding has resulted in extensions of contracts that have long expired. TheAuthority lost the possible advantages by foregoing open competition. One such advantageis the lowest price that would be secured from the participating bidders. Also, public biddingwill preclude suspicion of anomalies in the execution or even renewal of contracts. Allparticipating bidders will have opportunity in securing awards of contracts.

Recommendation

We recommend that Management strictly adhere to the provisions of Sec. 529, GAAM, Vol.1 and Sec 3b Revised IRR of R. A. 9184.

Management comment

Management explained that the multi-year contracts apply to janitorial and security services.The term of the contracts are for a period of 1 year, renewable yearly for a maximum of 3years at the option of MIAA. The yearly renewal is subject to the satisfactory performance ofthe contractor. Multi-year contracts are allowed under Appendix 14 of the amended IRR ofRA 9184 as approved under GPPB Resolution No. 24-1007 dated September 28, 2007.

Our rejoinder

While multi-year for contracts on services are allowed for a maximum of three years, saidcontracts are renewed either on a month to month basis or every six months after the lapseof the third year.

16. Summary of unsettled suspensions, disallowances and charges

Audit disallowances as of December 31, 2009 amounted to P57.635 million. These consistof Notices of Disallowance issued from 1995 to 2008, P44.79 million pertains to payment ofsigning bonus in 2003 which was disallowed by the Legal and Adjudication Office,Commission on Audit, Quezon City in 2006. The disallowance was appealed and is nowpending with the Commission Proper. It is noteworthy to mention that the amount ofP30,000 was settled by one of the parties liable who retired from the service.

Notice of Disallowance was also issued in 2008 disallowing in audit the payment of 10%contingency and 5% excess in profit in the amount of P676,686.78 in connection with thesupply of labor and materials in the installation of heat rejection film for Terminal 2. Norequest for reconsideration nor appeal was filed.

17. GAD programs/projects not directly related to the real objectives of GAD

In our evaluation of the GAD activities and accomplishments for the year 2009, it wasobserved that majority of the programs/projects targeted were not directly related to the realobjectives of GAD (Gender and Development).

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GAD’s proposed activities must revolve around issues and concerns that affect the genderof people in the community in the course of their interaction with one another, with theenvironment as they move and go about their daily activities. In the process gender biasesor discriminations come into play resulting in the marginalization of a particular group.Problems that cropped up have to be addressed and resolved to prevent conflict ofinterests. Activities should be designed to maintain gender equality and create harmoniousrelationship among members of society.

In our analysis of the submitted action plan containing the various projects/activitiesundertaken by the GAD Committee, we noticed that some of them were supposed to beundertaken by other government agencies like the Bureau of Immigration and Department ofHealth and the PNP. Victims of human trafficking, persons with diagnosed kidney problemsand establishment of proper decorum or behavior for arriving and departing passengers aremajor functions of the aforesaid agencies. Constructing structures such as Dialysis Center,Half-way House and other structures are not the primary concern of the MIAA’s GADCommittee.

It is suggested that the GAD Committee focuses its interest and concern to issues/problemsthat exacerbate gender biases and its manifestation in matters pertaining to hiring, workingconditions, deployment of resources and recognition of individual’s worth within the MIAA’sjurisdiction. From this point, the GAD Committee can formulate plans/programs designed tocounter the negative effects and transform them into positive and productive activitiesbeneficial to everyone.

Funds allocated for the construction of structures that are not GAD oriented may bechanneled to projects that are directly associated with Gender and Development.

Recommendation

We recommend that Management concentrate on activities/projects that are directly relatedto gender problems arising at the MIAA community. In the formulation of policies and plans,the GAD Committee should be guided with proper planning, in-depth analysis of theproblems at hand and good budgeting procedures to maximize the resources allocated tothe various projects contemplated for the year.

Measurement of good accomplishment is gauged not on the quantity of projects undertakenbut on the quality and impact of targeted programs to be realized at the end of the year forthe benefit of all personnel of MIAA.

Management comment

Management submitted their GAD targeted programs and accomplishments for 2009.

Our rejoinder

We enjoin Management to focus on the activities/projects envisioned under the GADProgram.