ANNUAL AUDIT REPORT · CF Bacolod Mr. Dan DG Enriquez CF Cebu Mr. Arthur O. Malatag - OIC CF Olongapo Mr. Jose L. Tulio CF Tagaytay Mr. Enrico V. Livelo - OIC CF Davao Mr. Michael

Republic of the Philippines

COMMISSION ON AUDIT Commonwealth Avenue, Quezon City

ANNUAL AUDIT REPORT

on the

PHILIPPINE AMUSEMENT AND GAMING

CORPORATION

For the Year Ended December 31, 2012

PHILIPPINE AMUSEMENT AND GAMING CORPORATION

ANNUAL AUDIT REPORT FOR CY 2012 EXECUTIVE SUMMARY

Introduction

The Philippine Amusement and Gaming Corporation (PAGCOR), with place of business at Hyatt Hotel and Casino Manila, M.H. Del Pilar cor. Pedro Gil Streets, Malate, Manila, is a 100percent government-owned corporation domiciled in the Republic of the Philippines. It was created on January 1, 1977 by virtue of Presidential Decree (PD) No. 1067-A, which was later amended by PD Nos. 1067-B, 1067-C, 1399 and 1632. These were subsequently consolidated into one statuteon July 11, 1983 under PD No. 1869, better known as the PAGCOR’s Charter.

PAGCOR was created with a three-pronged mandate: to regulate all games of

chance, particularly casino gaming in the country; to raise funds for the government’s socio-civic and national developmental efforts; and to help boost the country’s tourism industry. Its 25-year franchise, which expired on July 11, 2008, has been renewed by Congress for another 25 years or until July 11, 2033 under Republic Act No. 9487.

Pursuant to Section 6 of PD 1869, PAGCOR shall be governed and its activities be

directed, controlled and managed by a Board of Directors composed of five (5) members duly appointed by the President of the Philippines.

As of December 31, 2012, PAGCOR’s Board of Directors is composed of the

following:

Hon. Cristino L. Naguiat, Jr. Chairman & Chief Executive Officer

Jorge V. Sarmiento President & Chief Operating Officer

Eugene D. Manalastas Director

Enriquito M. Nuguid Director

Jose S. Tanjuatco Director

The day-to-day operations of PAGCOR are being managed by Hon. Cristino L.

Naguiat, Jr., being the Chief Executive Officer and Atty. Jorge V. Sarmiento as Chief Operating Officer, together with the Vice Presidents and Assistant Vice Presidents of the different departments. The manpower complement of PAGCOR as of December 31, 2012 totaling 11,930 personnel is composed of 10,962 regular, 52 probationary, and 916 contractual employees.

There are 11 Casino Filipino (CF) Branches nationwide which are headed by the following General Managers/Officers-in-Charge who exercise direct control and supervision over the operations of the casinos:

CF Pavilion Mr. Alexander C. Ozaeta - OIC

CF Hyatt Mr. Andres P. Lizares

Airport Casino Filipino Mr. Ernesto A. Francisco

CF Heritage Mr. Danilo S. Cuneta

CF Laoag Mr. Roberto A. de Jesus - OIC

CF Angeles Mr. Roque M. Cervantes

CF Bacolod Mr. Dan DG Enriquez

CF Cebu Mr. Arthur O. Malatag - OIC

CF Olongapo Mr. Jose L. Tulio

CF Tagaytay Mr. Enrico V. Livelo - OIC

CF Davao Mr. Michael M. Cendaña

Financial Profile

For CY 2012, PAGCOR has total assets of P34.397 billion, liabilities of P20.033

billion and equity of P14.364 billion. Funds generated consisted of P27.479 billion from gaming operations, P12.575 billion from other related services and P859.949 million as other income.

Scope of Audit

The audit covered the CY 2012 operations of PAGCOR CorporateOffice and its

eleven (11) casino branches. The audit involved performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depended on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. State Auditor’s Audit Opinion on the Financial Statements

The Auditor rendered an unqualified opinion on the fairness of the presentation of the financial statements of the PAGCOR for the year 2012.

PAGCOR’s Financial Performance

For CY 2012, the PAGCOR Management reported significant financialaccomplishments, as follows:

1) Realized a gross income of P40.883 billion for CY 2012, which was P4.224

billion or 11.52% higher than that of last year.

PAGCOR registered increasing gross revenues for the last ten years, as shown in the table below:

Year Gross Income

2012 P40,883,022,539

2011 36,658,751,728

2010 31,471,681,477*

Year Gross Income

2009 30,313,434,971

2008 29,617,159,473

2007 27,767,180,906

2006 24,291,337,677

2005 23,399,240,756

2004 18,393,830,978

2003 15,742,403,343

* Restated amount in conformity with Philippine Accounting Standards No. 8

The total gross income of P40,883,022,539 generated during the year was

P4,224,270,811 or 11.52% higher than the P36,658,751,728 gross income of last year.It also marked the highest income performance of PAGCOR for the past ten years, thus, providing more funds for the various government programs and projects.

The increase in the gross income of PAGCOR can be attributed to the aggressive

campaign employed by the present Management to attract local and foreign casino players and to the positive performance of the table games and slot machines operations in the different Casino Filipino Branches, satellite casinos and various arcades.

PAGCOR’s programs and projects that contributed to its positive financial

performance include, among others, the opening of new arcades and mini casinos, new sites for eBingo and bingo boutiques, renovation of casinos and various marketing programs and projects such as the following:

National Slot Machine Tournament

Search for Miss Casino Filipino 2012

1st PAGCOR National Photography Contest

Last Quarter Storm for 2012

Celebrity Slots for Charity Challenge

Krismas Karol KantahanKontes (4K) 2012

National Cash or Car Raffle Promo

2) Provided P35.179 million to fund the country’s various socio-civic, infrastructure and national development activities/programs.

With the continued increase in revenues, PAGCOR was able to provide a total of

P35.179 million to fund the following activities/programs of the government during CY 2012:

Government Agencies Amount of

Grant Purpose

East Avenue Medical Center (EAMC)

P1,100,000.00 Procurement of various hospital equipment

Philippine Children’s Medical Center (PCMC)

1,500,000.00 Medicines for chemotherapy, blood component transfusion and other supportive therapy of indigent patients

Philippine National Police (PNP) 4,000,000.00 Procurement of x-ray machine for the PNP General Hospital

Technical Education and Skills Development Authority (TESDA)

6,748,387.00 Additional funding for the P-NoyBayanihan Project, conversion of

Government Agencies Amount of

Grant Purpose

confiscated logs into school desks/armchairs.

TESDA 15,000,632.17 Initial funding assistance for the P-NoyBayanihan NCR production site

Department of Education (DepEd)

4,500,000.00 Public School Principals, Supervisors and Teachers’ (PSTF) Program

Philippine Orthopedic Center (POC)

500,000.00 Construction of healing garden

City of Iloilo 1,830,000.00 Cost of relief goods and temporary shelter of 366 families affected by the fire that hit Iloilo City on January 22, 2012

Total

P35,179,019.17

3) Released the total amount of P15.764 billion as mandated contributions to

various national government agencies.

During CY 2012, PAGCOR released a total amount of P15,764,225,666.64 as mandated contributions to the following:

Recipients Amount

Bureau of the Treasury - Government Share P12,992,295,657.54

Office of the President - Social Fund 2,028,263,779.38

Philippine Sports Commission Income Share 652,614,782.87

Dangerous Drug Board 60,000,000.00

Board of Claims Income Share 28,308,112.85

National Sports Development Fund 2,743,334.00

Total P15,764,225,666.64

For better understanding, the nature of the mandated contributions is briefly described as follows:

Bureau of the Treasury (BTr) – pertains to the 50% government share on the winnings, net of the 5% franchise tax, which is remitted directly to the BTr every month, as mandated under Section 12 of Presidential Decree (PD) No. 1869.

Office of the President – pursuant to Title II, Section 7(a) of PD 1869, the Board of Directors approved the remittance of its “net cash income” to the Office of the President, through the President’s Social Fund (PSF), for its direct handling, effective August 1988. An Ad Hoc Committee was created to devise a formula that would derive the “net cash income” from the net income under the NGAS. This formula was approved by the Board on March 8, 2005, as amended on June 21, 2005, and is being used up to the present.

Philippine Sports Commission (PSC) Income Share – represents the share of PSC in the income of PAGCOR, computed at 5% of winnings, net of 5% franchise tax and 50% government share, in accordance with Section 26 of RA 6847.

Dangerous Drug Board (DDB)– as mandated under RA 9165, PAGCOR remits to DDB a P5-million monthly contribution or a total of P60 million per year for the establishment, operation and maintenance of drug rehabilitation centers in the country.

Board of Claims (BoC) Income Share – pertains to the share of BoC in the income of PAGCOR, computed at 1% of net income, as provided for under Section 9 of RA 7309.

National Sports Development Fund – pursuant to Section 12 of RA 9064, otherwise known as the National Athletes, Coaches and Trainers Benefit and Incentives Act of 2001, South East Asian Games achievers will be given cash incentives by PAGCOR as follows: P100,000 for gold medalists; P50,000 for silver medalists; and P10,000.00 for bronze medalists.

4) Remittedthe total amount of P490.420 million as Host City Income Share

to the different cities and provinces hosting the casinos.

During the year, PAGCOR remitted to the following cities/provinces the total amount of P490,420,000.00 as donations and/or financial assistance for hosting its casinos, also termed as Host City Income Share, the amount of which are as approved by the Board of Directors, to wit:

CITY/PROVINCE TOTAL AMOUNT

REMITTED

City of Angeles P 33,000,000.00

City of Bacolod 15,000,000.00

City of Cebu 48,000,000.00

City of Davao 24,000,000.00

City of Laoag 4,800,000.00

City of Lapu-Lapu 18,000,000.00

City of Manila 149,820,000.00

City of Olongapo 25,000,000.00

City of Paranaque 60,000,000.00

City of Pasay 61,200,000.00

City of Tagaytay 18,000,000.00

Province of Cavite 18,000,000.00

Province of Cebu 6,000,000.00

Province of Ilocos Norte 3,600,000.00

Province of Negros Occidental 6,000,000.00

Total P490,420,000.00

5) Paid taxes amounting to P4.838 billion, thus, providing the much needed

funds for the government.

For CY 2012, PAGCOR paid the total amount of P4,838,432,234 to the Bureau of Internal Revenue (BIR) for its franchise, fringe benefit and corporate income taxes, broken down as follows:

Franchise Tax

PAGCOR P1,373,917,192

Franchisees/proponents 2,343,449,618

Sub-total P3,717,366,810

Fringe Benefit Tax 50,948,610

Corporate Income Tax 1,070,116,814

Total Amount of Taxes Paid P4,838,432,234

6) Remitted P1 billion to the Bureau of the Treasury as cash dividend for

2011 pursuant to Section 3 of RA 7656.

In compliance with Section 3 of RA 7656, PAGCOR remitted P1 billion to the Bureau of the Treasury, as cash dividend, under Check No. LBP000187941 dated January 24, 2012. PAGCOR’s Operational Performance

Likewise, PAGCOR reported the following operational accomplishments:

1) Opened two (2) arcades and four (4) mini casinos.

In the desire to increase its income, PAGCOR opened two (2) arcades and four (4) mini casinos during the year. These are the CF Madison and CF LancasterArcades located at Pioneer Street and Shaw Boulevard, respectively, both in the City of Mandaluyong, while the four mini casinos are the CF Amigo in Amigo Terrace Hotel, Iloilo City, CF Midas in Midas Hotel, Roxas Boulevard, Pasay City, CF Misibis in Misibis Bay Resorts and Hotel in Camarines Sur and the CF Las Isla Mactan in Mactan, Cebu.

2) Upgraded its gaming equipment in order to provide the best services to

its patrons. To provide the best services to its patron/customers, PAGCOR procured 38 iShoe

electronic card dispensers and 38 electronic multi-deck card shufflers for deployment to Metro Manila and big provincial branches. It has also installed 1,406 lease-to-own slot machines in the different casinos nationwide.

3) Turned over 147 completed classrooms and 27,738 school desks to

various public schools.

In fulfillment of its corporate social responsibility programs to address the classrooms and school desks shortage in the different public schools nationwide, PAGCOR was able to accomplish the following:

One hundred forty seven (147) classrooms were completed in 2012; ninety seven (97) by the Department of Education and fifty (50) by the GawadKalinga Foundation from PAGCOR’s One Billion Pesos MatuwidnaDaanSilid-Aralan School Building Project ; and

School desks totalling 27,738 were turned over to the various public schools nationwide, 18,606 of which were turned over for the PNoyBayanihan

Project of the TESDA, in partnership with the Department of Environment and Natural Resources (DENR). These school desks were converted by TESDA from the confiscated logs of the DENR, for which PAGCOR provided the necessary machineries/equipment for the conversion of the seized logs. Three hundred eighty five (385) school desks were converted from the old slot machine stands by the PAGCOR’s in-house fabricating unit at the Imus warehouse.

4) Provided food, gift packs, entertainment and donations to the less

fortunate beneficiaries, renovated some hospital wards and constructed health facilities of selected government hospitals amounting to P16.334 million, through the project dubbed as “Bayanihan: PamaskongHandogng PAGCOR 2012”.

In the spirit of the Yuletide Season, PAGCOR provided services to the less-

fortunates through the project dubbed as “Bayanihan: PamaskongHandogng PAGCOR 2012: 25 days of Christmas, 25 years of PAGCOR”. The project had chosen 25 beneficiaries and wards of chosen organizations or institutions were provided with food, gift packs, entertainment and donations according to the “wish list” of the beneficiaries. The wish list of the beneficiaries includedappliances,equipment, renovations of hospital wards and constructions of health facilities of chosen government hospitals. The total amount of P16,333,969.50 was provided to the following beneficiaries:

Beneficiaries

Donation

(“Wish List”)

Food & Beverage and

Gift Packs

Total

Pasay Youth Homes P 210,046.00 P 78,540.34 P 288,586.34

LingapPangkabataan 381,900.00 381,900.00 763,800.00

AngMulingPagkabuhayngAtingPanginoon Parish 246,660.00 289,390.30 536,050.30

National Children’s Hospital 1,578,800.00 141,368.40 1,720,168.40

Create a Job for the Disabled Association 159,450.00 234,456.10 393,906.10

Street Sweepers N/A 2,048,181.90 2,048,181.90

Philippine Orthopedic Center 730,300.00 274,578.90 1,004,878.90

Servants of Charity 460,100.00 146,008.75 606,108.75

Soldiers Hills Elementary School 372,855.86 115,587.70 488,433.56

Dr. Jose Fabella Memorial Hospital 1,727,113.97 124,728.05 1,851,842.02

Tondo Medical Center 1,445,572.00 95,245.60 1,540,817.60

Metro Manila Development Authority N/A 633,449.00 633,449.00

CF-Angeles a. GK Tabun Indigent Families b. Sama De Laut (Badjao Families) c. Women Association of Bgy. Dapdap, MC d. Angeles Bahay Bata Center

93,390.00

120,940.33

214,330.33

CF-Davao a. Iligan Federation of Different Able Person 102,260.00 69,940.00 172,200.00

b. Interact Club-Dunongni Juan 103,650.00 81,940.00 185,590.00

c. Southern Phil. Medical Center – 270,000.00 137,520.00 407,520.00

Beneficiaries

Donation

(“Wish List”)

Food & Beverage and

Gift Packs

Total

Psychiatry Dept.

CF-Olongapo a. Amelia Heights Elem. School 318,500.00 205,800.00 524,300.00

b. Aetas of Mt. Banawe 0.00 41,750.00 41,750.00

c. Senior Citizens of San Roque 0.00 35,000.00 35,000.00

CF-Bacolod a. Dalayunan Home, Iloilo City Crisis Social Laboratory Center 4,920.65 104,714.45 109,635.10

b. St. Vincent’s Home, Home for the Blind 223,064.01 92,125.37 315,189.38

CF-Cebu a. Rise Above Foundation 181,100.00 284,795.00 465,895.00

b. Albert Schweitzer Foundation Philippines 223,430.00 99,120.00 322,550.00

c. Federation for the Welfare of Persons with Disabilities in Mandaue 151,764.75 426,100.00 577,868.75

CF-Tagaytay a. San Roque Day Care Center, Persons with Disability Affairs Office of Carmona, Malabanan Day Care Center 28,938.00 80,069.88 109,007.88

b. Mother Theresa Espinelli Treasures, St. Anthony’s Boys Village, St. Mary’s House 117,248.14 176,491.43 293,739.57

c. Center for Children in Conflict with Law, Bahay San Rafael Orphanage, Bahay San Jose 225,016.73 94,510.89 319,527.62

CF-Laoag Indigent Families c/o Provincial Social Welfare Development 0.00 363,637.00 363,637.00

Total P9,356,080.11 P6,977,889.39 P16,333,969.50

Summary of Significant Audit Observations and Recommendations

A summary of the significant observations and recommendations for CY 2012 are presented below, details of which were discussed in Part II-A of this Report, to wit: Corporate Office

1) Due to PAGCOR’s inability to undertake the necessary legal action, on-going court litigation and erroneous entry, accounts receivable in the total amount of P458,146,140.17 remained outstanding from one to six years as of December 31, 2012.

We recommended that Management intensify collections of the long outstanding receivables totaling P122,287,440.66 and document the action/s taken thereon, copy furnished the Office of the Auditor. In addition, we also recommended that the Accounting Department effect the necessary adjusting entry to reverse the accrual of income from Fontana in the total amount of P6,524,536.91 and to

submit an update on the status of the case against Legend International Resorts Ltd.

2) Discrepancy of P1,184,569,111.69existed between the balance per books and the results of confirmation of the amount due to the Philippine Reclamation Authority.

Werecommended that the concerned accounting personnel of PAGCOR reconcile its record with that of the PRA in order to establish the correct amount due to PRA as of December 31, 2012. Necessary adjusting entries should be effected accordingly so that the reconciled amount should be the one reflected in the books.

3) A total of 835 check vouchers (CVs) and 84 accounts payable vouchers (APVs) pertaining to CY 2012 transactions, amounting to P675,255,784.47 and P770,463,700.13, respectively,have not been submitted to the Office of the Auditor as of December 31, 2012. We recommended for the immediate submission of the 835 CVs and 84 APVs to the Office of the Auditor. Henceforth, strict compliance with COA Circular No. 95-006 dated May 18, 1995 is hereby enjoined.

4) The inability to reclassify the cost of completed projects overstated the balance of the Construction in Progress - Agency Assets account by P1.831 million and correspondingly understated the appropriate Property Plant and Equipment account by the same amount. Likewise, the accumulated depreciation and expense accounts were understated by the amount of depreciation from the date of completion of the said projects up to December 31, 2012.

We recommended that Management effect the necessary entry to reclassify the completed projects amounting to P1,831,018.67 to the appropriate PPE account in order to fairly present the balances of the subject accounts in the financial statements.The corresponding accumulated depreciation and expense accounts should also be adjusted accordingly.

Casino Filipino and Branches

1) Excess rental deposit with the Provident International Resources Corporation

(PIRC) in the amount of P28,656,433.70was noted in the lease of its building used as Airport Casino Filipino (ACF).

We recommended that PAGCORdemand the immediate return of the excess rental deposit of P28,656,433.70 from PIRC so that they could make use of the said fund. It was also recommended to require PIRC to post yearly surety bond callable on demand as security on the rental deposit for the duration of the Contract of Lease, considering that PAGCOR had already past experiences of uncollected rental deposits.

2) Various deficiencieswere noted in the implementation of the Marketing Cooperation Agreement entered into by PAGCOR (Casino Filipino (CF)-Heritage) with the Hotel Enterprises of the Philippines, Inc. (HEPI).

Validation of the implementation of the Marketing Cooperation Agreement (MCA)entered into by PAGCOR with HEPI disclosed the following: a. The Marketing Unit of CF-Heritage was not involved in the formulation of the

marketing and promotional program for the Midas Casino as can be gleaned from their lack of ready information on the matter. We recommended that CF-Heritage’s Marketing Unit play a more active and participative role in the marketing and promotional activities formulated and implemented by HEPI in Midas Casino, in accordance with the pertinent provision of the subject Agreement.

b. The absence of a penalty provision in the MCA resulted to the non-imposition of penalties for the turnover by HEPI of the gaming facilities beyond the specified time frame.

We recommended that future contracts/agreements to be entered into by PAGCOR include provisions regarding penalties, in the event of non-compliance with the stipulated provisions, so that its interest shall be protected.

c. There was no monitoring by CF-Heritage of HEPI’s compliance with the commitment to spend five percent (5%) of the monthly net gaming revenues exclusively for advertising, publicity, marketing and promotional activities of the Leased Premises and the Casino, hence, there was no assurance that the said commitment was complied with.

We recommended that CF-Heritage validate the marketing and promotional activities undertaken by HEPI in the past year in order to determine compliance with their commitment to spend 5% of their share on the monthly net gaming revenues exclusively for marketing and promotional activities of the Casino. Henceforth, a monitoring system should be put in place to ensure compliance with the said commitment.

3) Overpayments of P16,673,297.78 and P5,837,170.24 to HEPI due to erroneous

basis for the computation of its 35% share in the gaming revenues of the Midas Casino were noted. a. The fees being paid by GAII to PAGCOR for its Junket and Restricted

Gaming Operations were included in the gross gaming revenues subjected to the computation of the 35% share of HEPI, which we found to be incorrect considering the pertinent provisions of the MCA between PAGCOR and HEPI. This resulted to the P16,673,297.78 overpayment to HEPI and the understatement of CY 2012 income of CF-Heritage by the same amount. We recommended that the fees being paid by GAII for its Junket and Restricted Gaming Operations be excluded from the gross gaming revenues

subjected to the computation of the 35% share of HEPI, it appearing that HEPI had no participation in the marketing and promotion of GAII’s gaming operation, particularly during the initial period. Accordingly, the total overpayment of P16,673,297.78 should be refunded by HEPI.

b. Income of CF-Heritage for CY 2012 was understated by P5,837,170.24 and HEPI overpaid by the same amount, representing 35% share on the payments by GAII for rental of the 208.341 sq. m space utilized for its gaming operation. We recommended that the rental income derived from the space occupied by GAII be excluded from the computation of the 35% share of HEPI, considering that it is not a gaming revenue. Accordingly, Management should cause the refund by HEPI of the total amount of P5,837,170.24.

4) CF-Hyatt overremitted P1,781,780.00 to Marina Square Properties, Inc. (MSPI),

representing the peso value of hotel cash coupons issued to qualified Non-Negotiable Chips players which had expired.

We recommended that Management demand immediate refund of the amount of P1,069,068from MSPI, representing 60% share of CF-Hyatt from the peso value of the expired coupons.

5) The inability of Metro Asia Poker & Entertainment, Inc. (MAPEI) to comply with the stipulations contained in the Permit to Operate a Poker Club at CF-Hyatt and absence of contract between PAGCOR (CF- Hyatt) and MAPEI resulted to loss of revenue due to the non-conduct of poker tournament and non-payment of space rentals and utilities.

We recommended that Management facilitate the preparation and approval of the contract with MAPEI to enforce collection of the unpaid space rentals and utilities from June 21 to December 31, 2012. In addition, demand the immediate payment of the P1.2 million receivable from MAPEI, representing penalty for the failure to conduct poker tournament, pursuant to the provision in the Permit to Operate a Poker Club.

6) Accounts Receivable-Others of the CF-Pavilion in the total amount of P5,068,080.04 remained uncollected as of December 31, 2012 due to the failure of Management to enforce collection thereof.

We recommended that the CF-Pavilion Management exert extra effort to collect the above-stated long outstanding receivables. Appropriate legal action should be resorted to, if warranted, to enforce collection thereof.

7) Actual operational expenses incurred by CF-Bacolod during the year exceeded its projected amount by P15,517,687.17 and has significantly increased from the prior year’s amount.

We recommended that Management revisit its policies/guidelines relating to its operational expenses to determine possible cost-cutting measures that need to be implemented to avoid the incurrence of losses from operations in the future.

In addition, ensure that CF-Bacolod spend within its budget, whenever possible, in accordance with sound financial management.

8) Annual rental expense of P5,631,600.00 incurred by CF-Cebu for an unutilized

space covering 361 sq. m. area at the Parkmall Satellite Casino was considered as unnecessary expense

We recommended that Management negotiate with KIT Properties Inc. for the amendment of the existing lease contract and exclude the unutilized 361 square meters in order to save P5,631,600.00on annual rentals. As an alternative action, consider the possibility of sub-leasing the said area to other business establishments such as coffee shops/restaurants, stalls and the like, in order to recover the rental expense being incurred for the subject area.

9) Procurements of goods through the Shopping mode of procurement in the total

amount of P1,158,855.09 were made by CF-Davao without securing price quotations from at least three bona fide suppliers contrary to Section 52.3 of RA 9184. We recommended that Management strictly comply with Section 52.3 of RA 9184 requiring price quotations from at least three bona fide suppliers to ensure that the Branch would obtain the most advantageous price.

Status of Implementation of Prior Year’s Recommendation Of the twelve (12) audit recommendations embodied in the previous year’s Annual

Audit Report, eight (8) were implemented, three (3) were partially implemented and one (1) was not yet implemented. COA-PAGCOR Audit Team

The PAGCOR Corporate Office and the 11 casino branches were audited by Audit

Group B-PAGCOR headed by Ms. Belen B. Ladines, Supervising Auditor. The Audit Team Leaders of the various audit teams comprising the Audit Group are as follows:

Audit Team

Name/Position

Designation

Team 1 – Financial, Revenue and Administration

Elvira C. Aguil State Auditor III

OIC-Audit Team Leader

Team 2 - Disbursement,Property andInter-branch

Celia A. Portugalete State Auditor IV

Audit Team Leader

Team 3 - Regional Operations Mary Ann S. Monta State Auditor IV

Audit Team Leader

Team 4 - Casino FilipinoHeritage Editha D. Melo State Auditor IV

Audit Team Leader

Team 5 - Airport Casino Filipino Ronaldo S. Mendoza State Auditor IV

Audit Team Leader

Team 6 - Casino Filipino Hyatt

Jerry A. Calayan State Auditor IV

Audit Team Leader

Audit Team

Name/Position

Designation

Team 7 - Casino Filipino Pavilion Rebecca B. Aquino State Auditor IV

Audit Team Leader

Casino Filipino Laoag

Luzviminda G. Macalino State Auditor IV

Audit Team Leader

Casino Filipino Angeles and Olongapo

Mario S. Luna State Auditor III

Audit Team Leader

Casino Filipino Bacolod

Ramonito D. Portal State Auditor III

Audit Team Leader

Casino Filipino Cebu Leila Socorro P. Domantay State Auditor III

Audit Team Leader

Casino Filipino Davao

Herman B. Jumilla State Auditor IV

Audit Team Leader

Casino Filipino Tagaytay

Soledad N. Vejerano State Auditor IV

Audit Team Leader

PART I

AUDITED FINANCIAL STATEMENTS

PART II

A. COMMENTS AND OBSERVATIONS

B. STATUS OF IMPLEMENTATION BY

AUDITEE OF PRIOR YEAR’S AUDIT

RECOMMENDATIONS

Republic of the Philippines

COMMISSION ON AUDIT

Commonwealth Avenue, Quezon City, Philippines

INDEPENDENT AUDITOR’S REPORT

The Board of Directors Philippine Amusement and Gaming Corporation PAGCOR Corporate Office 6F Hyatt Hotel and Casino Manila 1588 MH Del Pilar cor. Pedro Gil Streets Malate, Manila

We have audited the accompanying financial statements of the Philippine Amusement and Gaming Corporation (PAGCOR), which comprise the balance sheet as of December 31, 2012, and the statement of income and expenses, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with State accounting principles, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Philippine Amusement and Gaming Corporation as of December 31, 2012, and its financial performance and its cash flows for the year then ended in accordance with State accounting principles.

Supervising Auditor Audit Group B – PAGCOR Cluster VI-Corporate Government Sector April 26, 2013

2011

(As Restated)

Current Assets

Cash and Cash Equivalents 3 9,286,533,729 6,863,073,390

Receivables - Net 4 1,403,440,241 1,405,240,647

Inventories 2.5, 2.6 & 5 446,899,185 358,984,394

Prepayments 6 262,103,643 354,660,281

Total Current Assets 11,398,976,798 8,981,958,712

Non-Current Assets

Investments 7 43,175,380 142,855,380

Receivables 8 55,728,618 58,728,618

Property, Plant and Equipment - Net 2.7 & 9 19,825,449,900 18,141,721,970

Other Assets 10 3,074,098,873 3,194,689,258

Total Non-Current Assets 22,998,452,771 21,537,995,226

TOTAL ASSETS 34,397,429,569 30,519,953,938

Current Liabilities

Accounts Payable 11 1,991,813,590 1,971,575,737

Inter-Agency Payables 12 4,863,151,739 3,713,195,011

Intra-Agency Payables 13 & 25d 100,486,215 132,712,430

Other Liability Accounts 14 978,575,205 809,727,085

Total Current Liabilities 7,934,026,749 6,627,210,263

Non-Current Liabilities

Long-Term Liabilities 15 12,062,886,232 11,289,018,017

Deferred Credits 16 36,184,500 39,825,170

Total Non-Current Liabilities 12,099,070,732 11,328,843,187

TOTAL LIABILITIES 20,033,097,481 17,956,053,450

EQUITY 14,364,332,088 12,563,900,488

TOTAL LIABILITIES AND EQUITY 34,397,429,569 30,519,953,938

The notes on pages 7 to 28 form part of these financial statements.


B A L A N C E S H E E T

December 31, 2012

(In Philippine Peso)

(With corresponding figures for 2011)

Notes 2012

ASSETS

LIABILITIES AND EQUITY

2011

(As Restated)

Income from Gaming Operations 2.4 & 2.9 27,478,517,174 25,010,269,224

Income from Other Related Services 2.9 & 18 12,575,084,035 11,128,370,783

Other Income 2.9 & 19 859,949,211 543,032,395

Gain (Loss) on Foreign Exchange 2.8 (30,527,881) 15,956,178

Total Income 40,883,022,539 36,697,628,580

Expenses

Operating Expenses 2.9 & 20 19,383,902,600 16,497,038,895

5% Franchise Tax 22 1,373,925,859 1,250,506,808

20,757,828,459 17,747,545,703

Contributions to the Government 24

50% Government Share 22 13,052,295,657 11,879,814,676

Office of the President 2,028,263,779 1,873,899,213

5% Philippine Sports Commission's Share 652,614,783 593,990,734

Subsidy to LGUs: Host Cities' Share 490,420,000 493,620,000

1% Board of Claims' Share 28,308,113 40,263,393

Income Tax 23 1,070,116,814 960,262,380

Mandated Contribution to the

National Government - Others 2,743,334 26,457,679

Total Contributions to the Government 17,324,762,480 15,868,308,075

Total Expenses 38,082,590,939 33,615,853,778

NET INCOME 2,800,431,600 3,081,774,802



Notes 2012


STATEMENT OF INCOME AND EXPENSES

For the year ended December 31, 2012


2011

(As Restated)

Capital Stock 71,430,752 71,430,752

Restricted Capital

Balance, Beginning 4,447,100,376 3,181,351,337

Current Appropriations (395,624,799) 1,265,749,039

Balance, End 4,051,475,577 4,447,100,376

Retained Earnings

Balance, Beginning 26 7,959,862,905 6,143,837,142

2011 Cash Dividends Remitted to National Treasury (1,000,000,000)

Current Appropriations

Slot Machine Demo Units - Net of Reversions (379,662,000)

Acquisition of Other Property, Plant & Equipment 395,624,799 (886,087,039)

Total Current Appropriations 395,624,799 (1,265,749,039)

Net Income for the Year 2,800,431,600 3,081,774,802

Balance, End 10,155,919,304 7,959,862,905

Appraisal Capital 17 85,506,455 85,506,455

TOTAL EQUITY 14,364,332,088 12,563,900,488


STATEMENT OF CHANGES IN EQUITY



Notes 2012



Cash Flows from Operating Activities

Income from Casino Customers 27,234,263,240 24,781,303,164

Income from Chip Washing Operations,

Non-casino Customers and Other Income 13,439,562,332 11,505,192,344

Interest Income 193,091,518 182,703,814

Payments to Employees, Suppliers, Lessors and Other Creditors (20,133,998,762) (17,220,186,204)

50% Government Income Share (13,181,574,202) (11,496,812,611)

Other Mandated Contributions (4,358,881,713) (3,709,809,099)

Other Operating Disbursements (net of non-cash transactions) 3,001,722,803 851,922,024

Taxes Remitted to Bureau of Internal Revenue (2,052,268,570) (1,039,892,182)

Interest Paid on Loans (186,319,966) (224,645,714)

Gain / (Loss) on Foreign Exchange 2.8 (30,527,881) 15,956,178

Net Cash Provided by Operating Activities 3,925,068,799 3,645,731,714

Cash Flows from Investing Activities

Proceeds from Sale/Disposal of Property, Plant and Equipment 250,539 622,970

Purchase of Property, Plant and Equipment/Stocks (1,501,858,999) (1,467,961,227)

Net Cash Used in Investing Activities (1,501,608,460) (1,467,338,257)

Cash Flows from Financing Activities

Payment of Loans - (1,042,216,607)

Net Cash Used in Financing Activities - (1,042,216,607)

Net Increase in Cash and Cash Equivalents 2,423,460,339 1,136,176,850

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3 6,863,073,390 5,726,896,540

CASH AND CASH EQUIVALENTS AT END OF YEAR 3 9,286,533,729 6,863,073,390



CASH FLOW STATEMENT

2012




2011Note

7

PHILIPPINE AMUSEMENT AND GAMING CORPORATION NOTES TO FINANCIAL STATEMENTS

(All amounts in Philippine Peso unless otherwise indicated)

1. General Information The Philippine Amusement and Gaming Corporation (PAGCOR), with business address at Hyatt Hotel and Casino Manila, M. H. Del Pilar cor. Pedro Gil Streets, Malate, Manila, is a 100 percent government-owned and controlled corporation domiciled in the Republic of the Philippines. It was created on January 1, 1977 by virtue of Presidential Decree (PD) No. 1067-A. This was amended under PD Nos. 1067-B, 1067-C, 1399 and 1632whichwere subsequently consolidated into one statute, PD No. 1869 (PAGCOR’s Charter), on July 11, 1983. PAGCOR was created with a three-pronged mandate: to regulate all games of chance, particularly casino gaming in the country, to raise funds for the government's socio-civic and national developmental efforts, and to help boost the country's tourism industry.PAGCOR’s 25-year franchise, which expired on July 11, 2008, has been renewedby Congress for another 25 years or until July 11, 2033 under Republic Act No. 9487. PAGCOR operates 11 casino branches in major cities in the country, aside from slot machine arcades and PAGCOR clubs. These casinos are Casino Filipino (CF)-Heritage in Pasay City, CF-Hyatt and CF-Pavilion in Manila, CF-Paranaque,CF-Angeles,CF-Bacolod, CF-Cebu, CF-Davao, CF-Laoag, CF-Olongapo, and CF-Tagaytay.

2. Summary of Significant Accounting Policies

2.1 Basis of Accounting

From July 15 to December 31, 1986, PAGCOR followed the accrual basis of accounting. However, in 1987 the Corporation shifted to the modified cash basis of accounting on account of its commitment to directly transfer its net cash income to the Social Fund under the Office of the President. Under this method of accounting, the company recognized winnings, rental and other income when collected, regardless of when they were earned. Likewise, operating and other expenses were generally recognized when paid regardless of when they were incurred. Capital expenditures were also charged outright to expenses so that depreciation was no longer provided. Subsequently, in compliance with (a) COA Circular No. 2004-002 dated April 29, 2004 - Prescribing the Chart of Accounts Under the New Government Accounting System (NGAS) for Government-Owned and/or Controlled Corporations and (b) COA Circular Letter No. 2004-001 dated May 7, 2004 - Accounting Guidelines and Procedures on the Adoption of the Chart of Accounts under the New Government Accounting System (NGAS) by Government-Owned and/or Controlled Corporations, PAGCOR adopted the NGAS and shifted from the modified cash to accrual basis of accounting effective January 1, 2005.

8

2.2 Combined Financial Statements The combined financial statements of PAGCOR reflect the financial position and results of operations of the Home Office and its branches. Inter-branch accounts have been eliminated in the consolidation.

2.3 Presentation Currency PAGCOR’s financial statements are presented/reported in Philippine peso, its functional currency, or the currency of the primary economic environment in which the company operates.

2.4 Revenue Recognition Income is generally recognized when realized or earned, except for revenues where the accrual method is impractical, such as table games and slot machine winnings, since these cannot be measured reliably until cash is actually received.

2.5 Inventory Procedure and Valuation Method Supplies and materials purchased for stock, whether they are consumed or not within the accounting period, are recorded using the Perpetual Inventory System. The cost of inventory issued and its ending balance is computed using the Moving Average Method.

2.6 Change in Accounting Policy for Chips and Tokens Under the modified cash basis of accounting adopted by PAGCOR prior to CY 2005, purchases of chips and tokens were immediately charged to expense upon payment. Subsequently, when PAGCOR shifted to the accrual basis of accounting under NGAS on January 1, 2005, purchases of chips and tokens were capitalized under the account Other Property, Plant and Equipment: Chips and Tokens. This accounting policy was further amended in CY 2007when all chips and tokens actually on hand at the Corporate Vaults and Tokens Storeroom as of September 30, 2007 were taken up in PAGCOR’s books of accounts as Other Supplies Inventory: Chips and Tokens. The book value of said inventory was determined based on the following:

a. Physical count per Finance and Treasury Department’s (FTD’s) Location

Summary Report generated from its Vault Inventory System for Chips and Tokens as of September 30, 2007.

b. Insurable value per unit of chips and tokens based on FTD’s memo to Accounting Department (AD) dated September 5, 2007 on the subject Supplies Inventory – Vault Inventory System Interface (SIS-VIS), submitting to AD the summary of estimated purchase cost of chips and tokens used by FTD in computing insurable value as of May 23, 2007.

9

Insurable value per unit was adopted by PAGCOR as basis since no complete records of the acquisition costs of chips and tokens are available. Insurable value is either the actual acquisition cost, if available, or an estimated cost based on the latest purchase price for similar items.

After the booking as inventory of chips and tokens on hand at Corporate as of September 30, 2007, all issuances starting October 1, 2007 are now being charged to the receiving branches using weighted average cost and taken up as Other Supplies Expenses: Chips and Tokens. Any returns from the branches to Corporate are added back at zero cost to the quantity on hand at FTD.

2.7 Property, Plant and Equipment Depreciation Method-As required under NGAS, particularly COA Circular No. 2003-007 dated December 11, 2003, the straight line method of computing depreciation for property, plant and equipment is followed by PAGCOR. Subsequent Acquisitions - Except for the initial set-up of existing property, plant and equipment following the shift from modified cash to accrual basis of accounting on January 1, 2005, property, plant and equipment are recorded at historical cost. Estimated Useful Lives - PAGCOR has generally complied with COA Circular No. 2003-007 on the Revised Estimated Useful Life in Computing Depreciation for Government Property, Plant and Equipment (PPE). However, in view of the nature of the company’s business and specialized equipment used (e.g. CCTV, slot machines and gaming tables), different estimated useful lives for certain assets have been adopted. The Commission on Audit’s approval has been sought on this in PAGCOR’s memo to COA - PAGCOR dated October 29, 2004. The schedule of estimated useful lives of PPE is shown below:

Particulars Estimated Useful Life (in years)

Buildings 30 *

Leasehold Improvements 30, or term of lease, or expiry of PAGCOR’s franchise on July 11,

2033, whichever is shorter

Office Equipment 5 to 10

Office Furniture and Fixtures 10

Gaming Furniture and Fixtures 4 to 10

Communication Equipment 10

Firefighting Equipment and Accessories 10

Medical, Dental and Laboratory Equipment 10

Military and Police Equipment 10

Sports Equipment 10

Gaming Equipment 4 to 5

Bingo Equipment 5

Other Machinery and Equipment 10

10

Particulars Estimated Useful Life (in years)

Transportation Equipment 7 to 10

Other Property, Plant and Equipment - Others 5

* For subsequent acquisitions after PAGCOR’s shift to the New Government Accounting System (NGAS)/Accrual Basis of Accounting effective January 1, 2005, estimated useful life is 30 years. Existing buildings and structures as of December 31, 2004 were set up in the books of accounts in January, 2005 using appraised values and estimated remaining useful lives, per Appraisal Reports of Land Bank of the Philippines dated August 6 and 7, 2004, which ranged from 25 to 35 years for buildings and from 20 to 32 years for other structures.

2.8 Foreign Exchange Transactions Foreign currency transactions, such as dollar table winnings, are recorded on initial recognition in PAGCOR’s functional currency (Philippine peso) by applying to the foreign currency amount the exchange rate between the functional currency and the foreign currency at the date of the transaction, which is defined as the date on which the transaction first qualifies for recognition in accordance with Philippine Financial Reporting Standards (PFRS). In the case of dollar pit winnings, this is the actual date on which the winnings are generated from the tables. At each subsequent balance sheet date thenceforth, foreign currency monetary items, such as Cash in Bank – Foreign Currency anddollar-denominated Treasury Capital and Guarantee Deposits Payable accounts are revalued/translated using the closing rate (spot exchange rate at the balance sheet date), with the difference recognized in our books as Foreign Exchange Gain or Foreign Exchange Loss.

2.9 Change in Accounting Policy on Recording of Various Income and Related Expenses

Effective January 1, 2009, in compliance with COA recommendations and as provided under PAS 1, expenses relative to Bingo Operations, Hotel Operations, Gasoline Service Operations, Entertainment, and other revenue-generating activities are no longer offsetagainst the income account but recorded separately under the corresponding proper accounts. Moreover, effective January 1, 2010, for alignment to PAGCOR income definition, various income accounts and categories were created, renamed and reclassified, as follows:

11

From To

Business Income Income from Gaming Operations

1. Winnings - Table Games

1. Winnings - Table Games

2. Winnings - Slot Machines

2. Winnings - Slot Machines

3. Winnings - Dollar Pit

3. Winnings - Dollar Pit

4. Winnings - Intercity/Casino Link

4. Winnings - Intercity/Casino Link

5. Winnings - Electronic Gaming

5. Winnings - Electronic Gaming

Other Business Income: Income from Other Related Services

6. Bingo Operations In-House

1. Bingo Operations In-House

(a) Regular

(a) Regular

(b) Instant Bingo I

(b) Instant Bingo I

(c) Instant Bingo II

(c) Instant Bingo II

(d) Pop Pera

(d) Pop Pera

(e) Mobile

(e) Mobile

2. Bingo Operations - Franchisees

7. Bingo Franchisees - Traditional

(a) Traditional

8. Bingo Franchisees - Electronic

(b) Electronic

9. Management Fees

3. Management Fees

10. Rent Income

4. Rent Income

5. Others

(a) Internet Gaming Operations

(b) Licensed Casinos

(c) Mobile Gaming Operations

(d) Poker Operations

(e) Income from SM Demo Units

Other Income

11. Entertainment

1. Entertainment

12. Gasoline Service Operations

2. Gasoline Service Operations

13 Hotel Operations

3. Hotel Operations

14. Others 1]

4. Minimum Guaranteed Fee

5. Reimbursement of Manpower Costs

Other Income

1. Interest - Peso Accounts

6. Interest - Peso Accounts

2. Interest - Dollar Accounts

7. Interest - Dollar Accounts

3. Dividend Income

8. Dividend Income

4. Miscellaneous Income

9. Miscellaneous Income

5. Other Fines and Penalties

10. Other Fines and Penalties

Gain/Loss

1. Gain/Loss on Foreign Exchange (FOREX)

11. Gain/Loss on Foreign Exchange (FOREX)

2. Gain/Loss on Sale of Disposed Assets 2]

3. Gain/Loss on Sale of Securities 2]

1] For deletion

2] For classification under Miscellaneous Income

Effective July 1, 2010, the Income from In-House Bingo Operations was reclassified as part of Income from Gaming Operations subject to five percent Franchise Tax, 50percent Government Share and five percent PSC Share. Management Fees pertains to the payment received by PAGCOR, equivalent to a certain percentage of winnings, for the operation of Clark Development Corporation’s casino in CF-Mimosa and for the Pachinko/Pachisuro operations that lasted up to March 2011 at CF-Paranaque. The Management Fees of CF-Mimosa were reclassified as part of Income from Gaming Operations: Winnings-Table Games Peso or Winnings-Dollar Pit, subject to five percent Franchise Tax, 50 percent Government Share and five percent PSC Share effective July 1, 2010.

12

3. Cash and Cash Equivalents

Cash and Cash Equivalents include time deposits with maturities of three months or less and treasury fund capital for PAGCOR’s gaming operations.

Particulars 2012 2011

Cash on Hand 266,911,420 303,133,797 Cash in Bank – Local Currency 7,793,660,063 5,431,718,628 Cash in Bank – Foreign Currency 393,865,693 482,736,847 Treasury Fund Capital 832,096,553 645,484,118

Total Cash and Cash Equivalents 9,286,533,729 6,863,073,390

a. Cash on Hand – This consists of collections and deposits made by Collecting

Officers, amount of cash advances granted to Regular and Special Disbursing Officers for payment of salaries and disbursements made in payment of authorized official expenditures, including Intelligence Fund and Discretionary Fund. It also includes Petty Cash Funds and various revolving funds maintained in the Home Office and branches.

b. Cash in Bank – Local/Foreign Currency - This account represents the bank

accounts with the Philippine National Bank, Philippine Veterans Bank, Philippine Postal Savings Bank and Land Bank of the Philippines maintained by the Home Office and branches. It includes placements in time deposits which can be pre-terminated when necessary.

c. Treasury Fund Capital - This account pertains to the cash capital for gaming

operations kept in the vault of the branches’ Treasury and back-up capitaldeposited in the banks.

4. Current Receivables, Net

This pertains to the current portion of amounts owed to PAGCOR, as follows:


(As Restated)

Receivable Accounts Officers and Employees 3,228,026 5,820,691 Others 1,336,733,532 1,319,900,964 Allowance for Doubtful Accounts–Others (345,805,463) (336,832,376)

Net 994,156,095 988,889,279

Due from Officers and Employees 95,107,431 94,348,547 Interests Receivable 5,807,764 5,418,156

Total Receivable Accounts 1,095,071,290 1,088,655,982

Inter-Agency Receivables Due from GOCCs – SSS 2,675,126 2,910,600

Total Inter-Agency Receivables 2,675,126 2,910,600

Other Receivables Advances to Officers and Employees 5,215,293 6,839,841 Others 300,478,532 306,834,224

Total Other Receivables 305,693,825 313,674,065

Total Current Receivables - Net 1,403,440,241 1,405,240,647

13

In conformity with Philippine Accounting Standard (PAS) No. 8, the currentreceivables accounts are restated as follows: Unrestated Amount as of December 31, 2011 5,828,895 Bingo sales adjustment (8,204)

Restated as of December 31, 2011 – Accounts Receivable – Officers and Employees

5,820,691

Unrestated Amount as of December 31, 2011 1,286,518,001 Collectibles from franchisees, poker licensees and junketoperators 33,382,963

Restated as of December 31, 2011 – Accounts Receivable – Others

1,319,900,964

Unrestated Amount as of December 31, 2011 (344,183,984) Adjustment pertaining to prior year’s collectibles 7,351,608

Restated as of December 31, 2011 – Allowance for Doubtful Accounts – Others

(336,832,376)

Unrestated Amount as of December 31, 2011 80,953,921 Disallowed benefits 13,394,626

Restated as of December 31, 2011 – Due from Officers and Employees

94,348,547

Unrestated Amount as of December 31, 2011 305,828,517 Receivables from separated personnel, concessionaires and others 1,005,707

Restated as of December 31, 2011 – Other Receivables – Others 306,834,224

a. Accounts Receivable–Officers and Employees – This account represents

amounts due from officers and employees for the sale of bingo and show tickets.

b. Accounts Receivable–Others – This refers to trade receivables from other companies, individuals and organizations, such as gasoline/oil withdrawals by the National Parks Development Committee and amounts due from bingo franchisees, poker operators and licensed casinos.

c. Due from Officers and Employees – This includes the personal accounts of officers and employees such as employee-funded death benefits and meal charges.

d. Interests Receivable – This represents accrued interest income from Peso and Dollar time deposits as of December 31, 2012.

e. Due from GOCCs– This account pertains to the amount advanced by PAGCOR for the maternity and sickness benefits of officers and employees from the Social Security System.

f. Advances to Officers and Employees – This pertains to cash advances granted for official travel and other special purpose/time-bound undertakings to establish the accountability of the recipient.

14

g. Other Receivables – This account consists of amounts due from the following:


(As Restated)

Car Plan / Comprehensive Insurance 194,089,280 196,031,537 Healthcare 73,638,583 67,134,709 National Broadcasting Network 15,000,000 15,000,000 Adriatico Consortium, Inc. 7,667,520 7,667,520 Employee-Funded Mutual Assistance Fund 2,619,606 4,103,685 Waterfront Cebu City Hotel 336,407 500,900 Manila Pavilion Hotel - 4,966,830 Others 7,127,136 11,429,043

Total Other Receivables 300,478,532 306,834,224

5. Inventories This account consists of the following inventories:


(As Restated)

Chips and Tokens 198,691,652 172,547,543 Gaming Supplies 104,168,914 54,803,175 Other Supplies 29,410,137 24,066,444 Finished Goods 21,077,235 4,745,726 Work-In-Process 20,291,767 16,591,174 Spare Parts 19,739,627 22,286,837 Food Supplies 17,180,601 14,337,760 Office Supplies 16,297,011 20,220,641 Raw Materials 5,965,258 11,481,626 Construction Materials 5,238,774 6,205,544 Merchandise 4,999,065 9,197,212 Accountable Forms 1,805,586 664,499 Drugs and Medicines 1,591,531 1,097,043 Medical, Dental and Laboratory Supplies 442,027 739,170

Total Inventories 446,899,185 358,984,394

In conformity with PAS No. 8, the inventory accounts are restated as follows: Unrestated Amount as of December 31, 2011 24,047,358 CF-Bacolod reclassification/stock adjustment 19,086

Restated as of December 31, 2011 – Other Supplies Inventory 24,066,444

Unrestated Amount as of December 31, 2011 22,282,848 Adjustment on stocks of SMD/reconciling items 3,989

Restated as of December 31, 2011 – Spare Parts Inventory 22,286,837

15

Unrestated Amount as of December 31, 2011 14,263,050 CF-Davao reclassification/stock adjustment 74,710

Restated as of December 31, 2011 –Food Supplies Inventory 14,337,760

Unrestated Amount as of December 31, 2011 20,032,681 CF-Heritage and Corporate reclassification/adjustment 187,960

Restated as of December 31, 2011 –Office Supplies Inventory 20,220,641

Unrestated Amount as of December 31, 2011 8,899,700 CF-Pavilion & Bingo Department reclassification/adjustment 297,512

Restated as of December 31, 2011 – MerchandiseInventory 9,197,212

Unrestated Amount as of December 31, 2011 1,215,096 CF-Parañaque reclassification/stock adjustment (118,053)

Restated as of December 31, 2011 – Drugs and Medicines Inventory

1,097,043

Unrestated Amount as of December 31, 2011 771,687 CF-Parañaque reclassification/stock adjustment (32,517)

Restated as of December 31, 2011 – Medical Dental and Laboratory Supplies Inventory

739,170

The following issuances from inventory during CY 2012were recognized as expense and charged to various accounts:

Particulars Amount

Food Supplies 83,608,034 Office Supplies– Gaming 68,754,365 Other Supplies – Others 68,115,677 Merchandise 45,917,949 Office Supplies 45,580,111 Other Supplies – Chips and Tokens 16,830,253 Construction Materials 6,622,590 Medical, Dental and Laboratory Supplies 3,907,148 Drugs and Medicines 2,831,578 Spare Parts 1,175,992 Other Supplies – Bingo 424,698 Accountable Forms 345,864

Total Issuances from Inventory 344,114,259

6.Prepayments

This account includes the following:


(As Restated)

Deferred Charges (Current) 120,268,483 76,332,337 Rent 77,120,162 204,002,751

16


(As Restated)

Advances to Contractors 11,052,115 11,052,115 Insurance 10,901,394 16,756,965 Others 42,761,489 46,516,113

Total Prepayments 262,103,643 354,660,281

7. Investments

This pertains to the following:


A. Investments in Stock Wack-Wack Golf and Country Club 20,500,000 20,500,000 Rockwell Land Corporation 4,222,000 4,222,000 Cebu Golf and Country Club 2,500,000 2,500,000 Alabang Country Club 2,167,500 2,167,500 Tagaytay Highlands International Golf Club 1,475,000 1,475,000 The Orchard Golf and Country Club 1,350,000 1,350,000 Alta Vista Golf and Country Club/Vista MarBeach Resort 1,070,000 1,070,000 Baguio Country Club/Golfers Club Shares,Inc. 1,067,000 1,067,000 Tagaytay Midlands Golf Club 950,000 950,000 Riviera Golf and Country Club 910,000 910,000 Manila Southwoods Golf and Country Club 900,000 900,000 Banyan Tree Nasugbu Evercrest 800,000 800,000 Fairways and Bluewater Resort and Country Club 704,000 704,000 Eagle Ridge Golf and Country Club 640,000 640,000 Mimosa Golf and Country Club 622,500 622,500 Subic Leisureworld, Inc. (Subic Bay Golf &Country Club 800,000 480,000 Apo Golf and Country Club 400,000 400,000 Tagaytay Royale Estate 148,500 148,500 Greenland Sports Resort 70,000 70,000 Romeo G. Guanzon Recreation Center 50,000 50,000 Philippine Columbian Association 32,000 32,000

Total Investments in Stock 41,378,500 41,058,500

B. Other Investments and Marketable Securities DBP – Money Placements - 100,000,000 Philippine Long Distance Telephone Co. 1,783,500 1,783,500 Pilipino Telephone Corporation 13,380 13,380

Total Other Investments and Marketable Securities 1,796,880 101,796,880

Total Investments 43,175,380 142,855,380

In conformity with PAS No. 8, the Investment in Stocks account is restated as follows: Unrestated Amount as of December 31, 2011 41,304,900 Cost revaluation of stock at Subic Bay Golf and Country Club (246,400)

Restated as of December 31, 2011 – Investment in Stocks 41,058,500

17

8. Non-Current Receivables This account consists of the following:


Grand Boulevard Hotel – Rental Deposits 42,247,047 42,247,047 Romeo Bauzon – advance rental and deposits

and payment of real estate tax 12,794,281 12,794,281 Century Resort Hotel Corporation-financial

accommodation for the construction of the rent-free basement parking area

-

3,000,000 Pryce Plaza – rental deposits 687,290 687,290

Total Non-Current Receivables 55,728,618 58,728,618

9. Property, Plant and Equipment Property, Plant and Equipment (PPE) includes the following:

In conformity with PAS No. 8, PPE and accumulated depreciation accountsare restated as follows:

Particulars Land and

Improvements

Buildings and Other Structures

Leasehold Improvements

Construction in Progress

Furniture and Equipment

Total

COST

Jan. 1, 2012 15,094,980,743 97,322,165 494,737,458 26,896,874 6,107,222,664 21,821,159,904

Additions 333,682,890 - 37,144,035 56,809,549 2,328,470,482 2,756,106,956

Disposals/Retirement - - - - (21,816,091) (21,816,091)

Reclassification - - (77,489) (9,166,300) (339,861,706) (349,105,495)

Dec. 31, 2012 15,428,663,633 97,322,165 531,804,004 74,540,123 8,074,015,349 24,206,345,274

ACCUMULATED DEPRECIATION

Jan.1, 2012

291,617

19,308,122

161,855,564

-

3,497,982,631

3,679,437,934

Depreciation 456,936 3,108,842 80,689,053 - 911,108,906 995,363,737

Disposals/Retirements - - - - (67,132,320) (67,132,320)

Reclassifications - - - - (226,773,977) (226,773,977)

Dec. 31, 2012 748,553 22,416,964 242,544,617 - 4,115,185,240 4,380,895,374

NET BOOK VALUE, December 31, 2012 15,427,915,080 74,905,201 289,259,387 74,540,123 3,958,830,109 19,825,449,900

NET BOOK VALUE,December 31, 2011 (As Restated) 15,094,689,126 78,014,043 332,881,894 26,896,874 2,609,240,033 18,141,721,970

Land and Improvements

Buildings and Other Structures

Leasehold Improvements

Construction in Progress

Furniture and

Equipment Total

Unrestated Cost Dec. 31, 2011 Various

18

10. Other Assets

This account consists of the following:


(As Restated)

Other Assets – Real Estate for Employees’ Housing 1,140,827,118 1,163,832,299 Miscellaneous Deposits 785,839,866 794,375,579 Deferred Charges (Non-Current) 783,839,286 848,293,433 Advances to Provident Fund 216,114,729 353,949,173 Other Assets – Fixed Assets for Disposition 122,455,244 11,811,245 Other Assets – Intangible Assets 114,355,600 102,870,820 Accumulated Amortization – Intangible Assets (89,432,970) (80,653,451) Guaranty Deposits - 110,160 Others 100,000 100,000

Total Other Assets 3,074,098,873 3,194,689,258

In conformity with PAS No. 8, various other assets accounts are restated as follows:

Unrestated amount as of December 31, 2011 1,163,843,764 Adjustment on capitalized amount (11,465)

Restated as of December 31, 2011 – Real Estate for Employees’ Housing 1,163,832,299

11. Accounts Payable These consist of the following:

Particulars 2012 2011 (As

Restated)

Accounts Payable - Contractors/Suppliers 571,710,153 430,006,975 Proponents 356,108,994 324,264,828 Others 614,866,578 887,052,104 Due to Officers and Employees

Unclaimed Salaries and Wages 12,063,675 11,377,356

Adjustments 15,094,980,743

-

97,322,165

-

489,572,066

5,165,392

26,896,001

873

6,107,173,894

48,770

21,815,944,869

5,215,035

Restated Cost Dec. 31, 2011 15,094,980,743 97,322,165 494,737,458 26,896,874 6,107,222,664 21,821,159,904

Unrestated Accumulated Depreciation,Dec. 31, 2011 291,617 19,308,122 161,855,564

- 3,497,982,631 3,679,437,934

Various Adjustments - - - - - -

Restated Accumulated Depreciation, Dec. 31, 2011

291,617 19,308,122 161,855,564 - 3,497,982,631 3,679,437,934

RESTATED NET BOOK VALUE, Dec. 31, 2011 15,094,689,126 78,014,043 332,881,894 26,896,874 2,609,240,033 18,141,721,970

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Particulars 2012 2011 (As

Restated)

Bonuses and Other Employees’ Benefits 415,479,312 290,035,291

Salaries and Other Employees’ Benefits 739,422 6,488,690 Interests Payable 20,845,456 22,350,493

Total Accounts Payable 1,991,813,590 1,971,575,737

In conformity with PAS No. 8, payable accounts are restated as follows: Unrestated amount as of December 31, 2011 411,769,975 Payable to suppliers, contracted obligations and voided APVs 18,237,000

Restated as of December 31, 2011 – Accounts Payable – Contractors/Suppliers 430,006,975

Unrestated amount as of December 31, 2011 323,129,486 Adjustments on maintenance costs chargeable to the proponent 1,135,342

Restated as of December 31, 2011 – Accounts Payable – Proponents 324,264,828

Unrestated amount as of December 31, 2011 897,630,871 Voided APVs/TFC replenishment/reimbursement (10,578,767)

Restated as of December 31, 2011 – Accounts Payable-Others 887,052,104

Unrestated amount as of December 31, 2011 11,498,715 Last salary adjustments (121,359)

Restated as of December 31, 2011 – Due to OE: Unclaimed Salaries 11,377,356

Unrestated amount as of December 31, 2011 298,600,802 Closing of provision for bonuses and other benefits (8,565,511)

Restated as of December 31, 2011 – Due to OE: Provision for Bonuses 290,035,291

12. Inter-Agency Payables

This account pertains to the following:


(As Restated)

Due to Other National Government Agencies 2,358,277,894 496,554,954

Due to Bureau of Internal Revenue 1,376,037,458 1,961,456,668

Due to National Treasury 1,087,861,277 1,216,489,635 Due to Other Government-Owned and/or-

Controlled Corporations 29,921,079 28,606,114 Due to Pag-IBIG 7,613,898 6,789,630

Due to PHILHEALTH 3,440,133 3,298,010

Total Inter-Agency Payables 4,863,151,739 3,713,195,011

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In conformity with PAS No. 8, Due to Other National Government Agencies (NGAs), Due to National Treasury and Due to Bureau of Internal Revenue (BIR)are restated as follows:

Unrestated amount as of December 31, 2011 496,559,098 In-House bingo income adjustments (4,144)

Restated as of December 31, 2011 – Due to Other NGAs 496,554,954

Unrestated amount as of December 31, 2011

952,157,488 Franchise and Withholding tax (Expanded, GMP, VAT) Adjustments 82,789 Fringe Benefits and Corporate Income tax 1,009,216,391

Restated as of December 31, 2011 – Due to Bureau of Internal Revenue 1,961,456,668


1,216,572,522 In-House bingo income adjustments (82,887)

Restated as of December 31, 2011 – Due to National Treasury 1,216,489,635

Unrestated amount as of December 31, 2011 28,613,744 Refund on Contributions (7,630)

Restated as of December 31, 2011 – Due to Other GOCCs 28,606,114


3,300,023 Refund on Contributions (2,013)

Restated as of December 31, 2011 – Due to Philhealth 3,298,010

Aging of the Due to Bureau of Internal Revenue account as of December 31, 2012 is presented below:

Nature Balance Date

Remitted* Reference Code

Amount Remitted

Franchise Tax 897,157,372 18-Jan-13/ Various Dates

321300006815082/ Manual Payments

859,840,818 37,307,567

Compensation 19,378,858 17-Jan-13 011300006766779 36,747,283

Expanded 46,737,608 09-Jan-13 021300006746791 201300006747133

15,892,939 30,964,858

GMP VAT

633,712 105,338

08-Jan-13 171300006744208 638,360 105,338

Fringe Benefits 11,219,814 09-Jan-13 041300006752018 11,219,814

Income Tax* 400,804,756

TOTAL

1,376,037,458

992,716,977

* For remittance on or before April 15, 2013

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13. Intra-Agency Payables

This account pertains to the following:

14. Other Liability Accounts

Theseinclude the following:


(As Restated)

Guaranty Deposits Payable 136,139,982 109,341,698

Other Payables 842,435,223 700,385,387

Total Other Liability Accounts 978,575,205 809,727,085

In conformity with PAS 8, the other liability accountsare restated as follows:

Unrestated amount as of December 31, 2011 700,758,744 Adjustments on consultancy fees, payments for unaccounted assets (428,418) Adjustments on employee contributions 55,061

Restated as of December 31, 2011 – Other Payables-Others 700,385,387

15. Long-term Liabilities

PAGCOR has the following long-term liabilities:


(As Restated)

Guaranty Deposits Payable 378,913,568 353,276,446 Others 11,683,972,664 10,935,741,571

Total Long-term Liabilities 12,062,886,232 11,289,018,017

a. Guaranty Deposits Payableconsists of deposits made bysuppliers, bingo

franchisees and others, as required by PAGCOR, to ensure the delivery of supplies or services and are refundable upon fulfillment of the contract. Also included are cash deposits from proponents of certain gaming operations.

b. Others – This refers to the following outstanding obligations of PAGCOR:

1. Philippine Reclamation Authority for the purchase of real estate

property at the Central Business Park I, Bay City, Paranaque:

i) 40hectare parcel of land located at Islands B and Cper Deed of Conditional Sale dated November 29, 2007(P5,549,662,063)


Due to PAGCOR Retirement Fund 100,000,000 132,226,215 Due to Retired/Separated Employees 486,215 486,215

Total Intra-Agency Payables 100,486,215 132,712,430

22

ii) Additional 161,937 sq.m. parcel of land also located at Islands B and C(P3,120,621,247)

iii) 15-hectare parcel of land located at Nayong Pilipino Theme Park,

MIA Road, Pasay City (P1,534,235,294).

2. Procurement of Slot Machines Under Two-Year Payment Arrangement PAGCOR entered into contract with suppliers of stand-alone slot machines for the procurement of slot machines. Payment of the contract price shall be the amount equivalent to 15% of PAGCOR’s net income / win from the operations of the delivered machines based on the schedule stated in the contract. The first monthly payment shall be due 45 days after installation. At the end of the 24 months, if the accumulated payment has not reached the total contract price / sale amount, PAGCOR shall pay in full the remaining balance, if and when no patent and latent defects are noted. As of December 31, 2012, the total outstanding balance of the contract price for these slot machines amounted to P1,479,454,060at the following Casino Filipino Branches:

Branch

Amount

Airport 388,047,667

Angeles 35,969,390

Bacolod 162,110,542

Cebu 342,216,080

Heritage 245,633,065

Hyatt 28,242,588

Olongapo 16,038,489

Pavilion 211,702,344

Tagaytay 49,493,895

Total 1,479,454,060

16. Deferred Credits

This account pertains to the amount collected for revenues not yet earned, set-up of development cost of Imus and Alfonso Housing Project payable by employee-availees over five years and 10 years, respectivelytraining accountabilities of PAGCOR employees, and set-up of lost assets for restitution. In conformity with PAS No. 8, the deferred credits account is restated as follows: Unrestated amount as of December 31, 2011 39,827,570 In-House bingo income adjustments (2,400)

Restated as of December 31, 2011 – Other Deferred Credits 39,825,170

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17. Appraisal Capital

This refers to the increase in the value of buildings and other structures as a result of the appraisal conducted by Land Bank of the Philippines per its Appraisal Reports dated August 6 and 7, 2004, for initial set-up purposes following the shift from modified cash to NGAS/accrual basis of accounting.

18. Income from Other Related Services

This account is composed of the following:


(As Restated)

Income from Other Related Services

Bingo Operations - Franchisees 3,543,932,979 2,669,483,208

Management Fees - 3,516,058

Rent Income 326,389,829 183,887,823

Others

Internet/Mobile Gaming Operations 1,762,307,416 1,532,375,548

Licensed Casinos 6,215,450,275 5,549,262,111

Poker Operations 230,745,758 258,955,068

Income from SM Demo Units 496,257,778 930,890,967

Total Income from Other Related Services 12,575,084,035 11,128,370,783

Effective July 1, 2010, the Income from In-House Bingo Operations was reclassified as part of Income from Gaming Operations subject to five percent Franchise Tax, 50percent Government Share and five percent PSC Share.

Management Fees pertains to the payment received by PAGCOR, equivalent to a certain percentage of winnings, for the operation of Clark Development Corporation’s casino in CF-Mimosa and for the Pachinko/Pachisuro operations that last up to March 2011 at CF-Paranaque. The Management Fees of CF-Mimosa were reclassified as part of Income from Gaming Operations: Winnings-Table Games Peso or Winnings-Dollar Pit, subject to five percent Franchise Tax, 50 percent Government Share and five percent PSC Share effective July 1, 2010.

19. Other Income


(As Restated)

Other Income

Entertainment 1,263,570 4,778,339

Hotel Operations 63,523,202 69,666,068

Minimum Guaranteed Fee 8,738,203 5,398,714

Reimbursement of Manpower Costs 148,914,145 175,590,855

Interest Income 193,481,125 185,163,518

24


(As Restated)

Dividend Income 24,850 39,642 Miscellaneous Income 431,789,922 94,500,284 Other Fines and Penalties 12,214,194 7,894,975

Total Other Income 859,949,211 543,032,395

Entertainment Income refers to the ticket sales for entertainment shows. Effective January 1, 2009, in compliance with COA recommendations and as provided under PAS 1, related expenses are no longer offset against the income account but recorded separately under the corresponding proper accounts.Moreover, effective January 1, 2010, the recognition of income from PAGCOR’s own expenses was discontinued.

20. Operating Expenses

This account consists of the following:

Particulars Note 2012 2011

(As Restated)

Personal Services

Salaries and Wages 1,597,927,211 1,545,610,562 Other Compensation 1,629,192,009 2,006,246,762 Personnel Benefits Contribution 187,133,964 185,290,276 Other Personnel Benefits 4,760,128,108 4,068,568,783

Total Personal Services 8,174,381,292 7,805,716,383

Maintenance and Other Operating Expenses

Marketing Expenses 3,507,285,237 2,706,481,561 Subsidies and Donations 2,265,654,273 1,198,024,989 Rent Expenses 21 1,955,486,597 1,586,236,399 Non-Cash Expenses 1,043,012,124 923,520,437 Utility Expenses 582,588,605 507,621,368 Professional Services 400,662,505 381,030,831 Supplies and Materials Expenses 293,970,615 276,840,399 Confidential, Intelligence, Extraordinary and Miscellaneous Expenses 254,845,561 263,848,765 Taxes, Insurance Premiums and Other Fees 155,667,774 126,142,964 Entertainment Expenses 142,786,217 108,801,799 Repairs and Maintenance 129,983,165 121,295,035 Other Maintenance and Operating Expenses 66,323,305 52,005,144 Advertising Expenses 56,457,023 52,940,493 Traveling Expenses 41,554,882 37,754,600 Public Relations Expenses 34,290,119 35,948,197 Representation Expenses 33,255,238 47,701,288 Communication Expenses 32,874,521 34,891,910 Training and Scholarship Expenses 10,924,623 10,385,279

Transportation and Delivery Expenses 10,020,557 6,697,336 Membership Dues and Contributions 2,415,169 2,336,826

25

Particulars Note 2012 2011

(As Restated)

Subscription Expenses 2,356,050 2,353,614 Printing and Binding Expenses 731,980 303,050

Total Maintenance and Other Operating Expenses 11,023,146,140 8,483,162,284

Financial Expenses 186,375,168 208,160,228

Total Operating Expenses 19,383,902,600 16,497,038,895

Effective January 1, 2009, in compliance with COA recommendations and as provided under PAS 1, related expenses are no longer offset against the income account but recorded separately under the corresponding proper accounts.Moreover, effective January 1, 2010, the recognition of income from PAGCOR’s own expenses was discontinued.

21. Rent Expenses

Lease payments under PAGCOR’s operating leases are recognized as expense on a straight-line basis over the lease term in line with PAS 17 (Leases).

22. Franchise Tax and Government Share This pertains to the five percent franchise tax and the 50 percent share of the government after franchise tax (computed on winnings net of payouts) as provided under Section 12 of Presidential Decree No. 1869 (PAGCOR’s Charter), as amended by Republic Act No. 9487. PAGCOR income was classified into three categories:

1. Income (winnings) from Gaming Operations – pertains to revenues generated

by PAGCOR-operated land-based gaming facilities where PAGCOR is the House, e. g., main casinos, arcades, PAGCOR Clubs.

2. Income from Other Related Services – pertains to revenues generated from operations where PAGCOR is not the House, e. g., income share from its licensees.

3. Other Income – refers to revenues earned from other sources aside from those classified as gaming operations and other related services.

23. Corporate Income Tax

PAGCOR voluntarily remitted to the Bureau of Internal Revenue (BIR) its income tax of P657,182,917.91 for November 1, 2005 to December 31, 2010 and P960,262,380.46 for CY 2011 in December 2011 and March 2012, respectively.

26

The voluntary remittance is in consonancewith the Supreme Court Resolution that was issued on May 31, 2011 regarding the following issues:

a. The exclusion of PAGCOR from the enumeration of GOCCs exempted from corporate income tax is valid and constitutional and;

b. BIR Revenue Regulation No. 16-2005 insofar as it subjects PAGCOR to 10% VAT is null and void for being contrary to the National Internal Revenue Code (NIRC) of 1997, as amended by Republic Act No. 9337.

Remittance of corporate income tax pertaining to CY 2012 is up-to-date incompliance withthe NIRC and BIR Revenue Memorandum Circular (RMC) No. 8-2012thatwas issued on February 29, 2012. The Corporate income tax for CY 2012amounting to P1,070,116,814 is broken down as follows:

Period Amount 1st Quarter P 91,550,000 2nd Quarter 361,816,449 3rd Quarter 215,945,609 4th Quarter 400,804,756

Total P1,070,116,814

24. Contributions to the Government

a. The share of the National Government from PAGCOR income is computed at 50 percent of winnings net of payouts, after the five percent franchise tax and is remitted directly to the Bureau of the Treasury.

b. Contributions to the Office of the President pertains to the net cash income being

remitted to the President’s Social Fund. c. The Philippine Sports Commission’s share from PAGCOR income is computed at

five percent of winnings, net of payouts, after the five percent franchise tax and 50 percent Government share.

d. Cities and provinces hosting the casinos are granted donations/financial

assistance in amounts approved by the Board of Directors. e. Gasoline Station Training and Loan Fund (GSTLF) refers to PAGCOR’s

contribution of P300 million required under Section 10 of RA 8479, Downstream Oil Industry Deregulation Act of 1998. PAGCOR has already allocated the entire amount of P300 million, P60 million of which has been remitted to the Department of Energy, leaving a balance of P240 million for release upon liquidation of the previous remittance.

f. The Board of Claims’ Share from PAGCOR income is computed at one percent of

net income as mandated under RA No. 7309. g. Contributions to Other Government Agencies refers to financial and other forms

of assistance granted by PAGCOR to national government agencies not falling

27

under any of the subsidies to national government agencies mandated by law, such as the National Sports Development Fund of the Philippine Sports Commission.

25. Retirement Plan

a. Approval of PAGCOR’s Modified Retirement/Separation Benefit Plan

PAGCOR’s Modified Retirement/Separation Benefit Plan (MRSBP) was approved by the Board of Directors on February 27, 2002. It is a Defined Benefit Plan, under which amounts to be paid as retirement benefits are determined actuarially by reference to a formula usually based on employees’ remuneration and/or years of service. On April 27, 2006, the Bureau of Internal Revenue confirmed the PAGCOR’s Retirement Plan to be a “reasonable retirement benefit plan” within the contemplation of Section 32 (B) (6) (a) of the Tax Code of 1997 and, accordingly, the retirement benefits to be received by the employee-member shall be exempt from all taxes; the income of the Trust Fund from its investments are exempt from income tax; and the contributions of the company to the retirement fund are deductible from its gross income.

b. Funding Requirement Based on Actuarial Valuation

To ensure adequate funding for future availments under the MRSBP, PAGCOR contracted E.M. Zalamea Actuarial Services, Inc. to determine the amount to be set aside. Based on its actuarial valuation report dated February 29, 2012 for the valuation date December 31, 2011, PAGCOR should set aside the following amounts for the Retirement Fund: i) Past Service Liability (PSL) - P10,234,164,258.00 ii) Annual Normal Cost (ANC) - P562,311,522.00for CY 2012 and from CY 2013

onwards, the actuarial funding rate of 38.50percent based on covered payroll shall be used until the next actuarial valuation.

c. Setting up of Retirement Fund

PAGCOR’s Board approved on May 11, 2005 the setting up of a Retirement Fund with an initial funding/seed money of P60 million to be handled by Provident Fund Management Department as Fund Manager. This Fund is intended to cover funding requirements for employees availing themselves of the MRSBP.

d. Status of Retirement Fund

As of December 31, 2012, the total amount of P6,084,786,348 including the initial funding of P60,000,000, has already been set up, i.e. recognized as expense and liability. Of this amount, P5,984,786,348 has been remitted to the Retirement Fund managed by the Provident Fund Management Department, leaving a balance of P100,000,000 for remittance.

28

26. Retained Earnings

In compliance with PAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors), the Retained Earnings as of January 1, 2011has been restated as follows:

Particulars Amount

Unrestated Balance, January 1, 2011 6,129,427,021 2010 Income from Other Related Services adjusted in 2012 (5,148,928) 2005and 2007 Other Maintenance and Operating Expenses adjusted (236,230) 2006 and 2010Other Income adjusted in 2012 (93,255) 2007to 2010 Subsidies and Donations adjusted in 2012 17,427,235 2010Membership, Dues & Contributions to Organizations adjusted in 2012 675,075 2007 to 2009 Public Relations adjusted in 2012 561,700 2005, 2006, 2009 and 2010 Professional Services adjusted in 2012 356,168 2009 to 2010Advertising Expense adjusted in 2012 260,000 2005, 2007, 2009 and 2010Supplies expense adjusted in 2012 243,752 2005 and 2008 to 2010Repairs and Maintenance adjusted in 2012 150,373 2008 and 2010 Marketing Expenses adjusted in 2012 90,960 2009 Representation Expense adjusted in 2012 42,750 2009 Personal Services adjusted in 2012 30,000 2009and 2010Bad Debts Expenses adjusted in 2012 20,045 2009 Communication Expenses adjusted in 2012 19,404 2010 Transportation and Delivery Expenses adjusted in 2012 7,724 2009 and 2010 Travelling Expenses adjusted in 2012 2,575 2009 Financial Expenses adjusted in 2012 773

Retained Earnings, January 1, 2011 (As Restated) 6,143,837,142

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PART II A. COMMENTS AND OBSERVATIONS

A1.Observations and Recommendations – Corporate Office

1) Due to PAGCOR’sinability to undertake the necessary legal action, on-going

court litigation and erroneous entry, accounts receivable in the total amount of P458,146,137.21remained outstanding from one to six years as of December 31, 2012.

1.1 Analysis of the Accounts Receivable-Others account having a balance of

P1,176,031,166.80 as of December 31, 2012 disclosed that the total amount ofP458,146,137.21or 38.96% has beenoutstanding from one to six years, as shown below:

Name of Debtor Date of

Transaction

Amount

Bingo Franchisees:

Bestworld Gaming & Ent. Inc. (BWGEI) 06-30-2006 P36,452,055.74

Bingo Royale, Inc. (BRI) 06-30-2006 5,219,394.64

Cabanatuan City Gaming Corp. (CCGAC) 06-30-2006 466,948.96

Greenhills Recreational Corp. (GRC) 06-30-2006 4,132,537.48

Seville Leisure Corporation (SLC) 06-30-2006 4,342,707.84

Centennial Sports and Dev. Corp. (CSDC) 06-30-2006 2,105,666.93

Kea Square Shopping & Fun Center (KEA) 06-30-2006 684,639.91

Sub-total P53,403,951.50

Casino Licensees:

Subic International Hotel 09-02-2006 68,118,986.37

Legend International Resorts, Ltd. 06-30-2006 311,460,978.17

Fontana 12-31-2008 6,524,536.91

Casa Blanca 12-31-2011 11,029,291.61

Sub-total P397,133,793.06

Poker Licensees -Offsite

Ace Technologies, Inc. - Mandaue 12-31-2011 P1,052,933.32

Ace Technologies, Inc. - Davao 01-31-2010 1,499.19

Ace Technologies, Inc. - Metrowalk 10-31-2010 347,192.85

Asia Poker Corporation 12-31-2011 3,966,190.01

Chadahands Entertainment 04-20-2011 43,935.75

Community Gaming Network 05-21-2011 5,711.06

Executive Poker & Gaming Corp. 12-31-2011 233,290.15

Full House Revelry & Amusement Inc. 01-31-2010 27,210.44

Global Amusetech Phil. Inc. 11-09-2011 273,627.69

Palace International Poker & Gaming Corp. 01-31-2010 764,502.79

Strotenberg Leisure Park & Hotel 10-31-2011 138,868.61

Subic Pearl Card Club Corp. 10-31-2011 683,149.04

Tight Aggressive Group Inc. 12-14-2011 10,727.88

Titan Gaming International Corp. 12-31-2010 55,696.64

Vanskaps Management Group Inc. 06-14-2011 3,857.23

Sub-total P7,608,392.65

Total P458,146,137.21

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1.2 Verificationof the above accounts revealed the following:

a) No action has been taken to intensify collection of the long outstanding receivables totalling P122,287,440.66. Interviews conducted disclosed that the possibility of collection of the said receivables was remote, considering that the Legal Department of PAGCOR has not yet filed a case to collect from the following franchisees/licensees:

Franchisee/Licensee

Date of Transaction

Total

Bingo Franchisees June 30, 2006 P53,403,951.50

Casino Licensee-Subic Int’l Hotel September 2, 2006 68,118,986.37

Poker Licensee - Palace Int’l l Poker & Gaming Corporation

November 30, 2009 to January 31, 2010

764,502.79

Total

P122,287,440.66

b) The receivable from Fontana amounting to P6,524,536.91 pertained to

the accrual of the income share of PAGCOR from the casino operations of Fontana on December 31, 2008. Subsequent payment was credited to income instead of receivables.

c) There is an on-going court litigation to collect the outstanding account of Legend International Resorts Ltd. amounting to P311,460,978.17, the outcome of which is still uncertain as of this date.

1.3 We recommended that Management intensify collections of the long

outstanding receivables totaling P122,287,440.66 and document the action/s taken thereon, copy furnished the Office of the Auditor. In addition, we also recommended that the Accounting Department effect the necessary adjusting entry to reverse the accrual of income from Fontana in the total amount of P6,524,536.91 and to submit an update on the status of the case against Legend International Resorts Ltd.

1.4 The Vice-President, Corporate and Legal Services Department (CLSD), submitted the following status of the P53.404 million receivables from the Bingo Franchisees:

GRC

Demand letter could not be served since it has already ceased operations

BWGEI

A demand letter was also sent but was returned because it was already closed and non-operational in its given corporate address

BRI

The CLSD has filed criminal complaints for 24 counts of violation of BP 22

31

CSDC, KEA and SLC

Legal actions against these Bingo franchisees may no longer be viable. It is unlikely for reportedly non-operational entities, such as the subject grantees, to have sufficient resources to satisfy PAGCOR’s claims. Be that as it may, CLSD will be sending final demand letters to them. The matter will also be referred to the Board of Directors for their proper disposition

CCGAC & GRC

A legal action to collect the arrears from these Bingo franchisees may still be viable. Hence, CLSD is presently collating and completing the necessary documents to support PAGCOR’s complaint against them

1.5 Moreover, the Asst. Vice-President of the Accounting Department of

PAGCOR informed that the accrual of income share from the casino operations of Fontana amounting to P6,524,536.91 was already reversed/closed per JEV Nos. 1754767 and 1754180.

2) A total of 835 check vouchers (CVs) and 84 accounts payable vouchers (APVs) pertaining to CY2012 transactions, amounting to P675,255,784.47 and P770,463,700.13, respectively, have not been submitted to the Office of the Auditor as of December 31, 2012.

2.1 Records showed that 835 CVs and 84 APVs paid thru debit advice during the

year, with aggregate amounts of P675,255,784.47 and P770,463,700.13, respectively, were not yet submitted to the Office of the Auditor as of December 31, 2012, contrary to paragraph 6.5 of COA Circular No. 95-006 dated May 18, 1995, which provides that:

“6.5 The official involved in the daily recording of transactions in the books of accounts shall turn over the receipts and the disbursements records with all paid vouchers and disbursements evidencing the transaction to the Auditor within ten (10) days from the date of receipt of said documents.”

2.2 In view of the Management’s failure to submit the said vouchers within the

prescribed period, we were not able to conduct the mandatory post-audit of the transactions covered by the subject unsubmitted CVs and APVs. Although this has no material effect on the fair presentation of the affected accounts in the financial statements as of December 31, 2012, the propriety of the transactions covered by the subject CVs and DVs must be established in order to determine the appropriate audit action.

2.3 We recommended for the immediate submission of the 835 CVs and 84 APVsto the Office of the Auditor. Henceforth, strict compliance with COA Circular No. 95-006 dated May 18, 1995 is hereby enjoined.

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2.4 Management informed that only 24 CVs and 2 APVs, having a total amount of P3,656,203.50 and $301,459.14, respectively, remained unsubmitted as of the date of this report.

2.5 As a rejoinder, our records showed that 25 CVs with a total amount of

P5,358,216.01 and two APVs amounting to $301,459.14were still unsubmitted as of the date of the preparation of this report.

3) Discrepancy of P1,184,569,111.69 existed between the balance per books and the results of confirmation of the amount due to the Philippine Reclamation Authority.

3.1. Results of confirmation of the balance of Other Long-Term Liability-Others

account, particularly the amount due to the Philippine Reclamation Authority (PRA) as of December 31, 2012, disclosed a discrepancy of P1,184,569,111.69 casting doubt on the validity of the amount of liability to PRA recorded in the books as of the same date.

3.2 In the course of our audit, we confirmed the balance due to PRA as of

December 31, 2012, pursuant to Section 59 of Presidential Decree (PD) 1445, which emphasizes, among others, that in the audit of liabilities, the auditor shall seek to establish that all obligations of the agency have been accurately recorded.

3.3 In its reply, the PRA confirmed the amount of P11,389,087,715.38 as the

balance due to them as of December 31, 2012, broken down as follows:

Principal P10,004,400,956.60

Property tax at Coastal Plaza 58,527.36

Interest 1,384,628,231.42

Total P11,389,087,715.38

3.4 However, the amount appearing in the books of PAGCOR as of the same date is P10,204,518,603.69, thereby having a discrepancy of P1,184,569,111.69, which casts doubt on the validity of the said recorded amount.

3.5 We recommended that the concerned accounting personnel of PAGCOR reconcile its record with that of the PRA in order to establish the correct amount due to PRA as of December 31, 2012. Necessary adjusting entries should be effected accordingly so that the reconciled amount should be the one reflected in the books.

3.6 Management submitted a report accounting for the P1,184,569,111.69

discrepancy. It showed that the major cause of the discrepancy was the inclusion by PRA of the interests due for the whole period of the loan in its recorded receivable. PAGCOR, on the other hand, recognized as payable only the principal amount of the loan and charged to expenses the interests due from the said liability.

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4) The inability to reclassify the cost of completed projects overstated the balance of the Construction in Progress-Agency Assets accountby P1,831,018.67 and correspondingly understated the appropriate Property Plant and Equipment (PPE) account by the same amount. Likewise, the accumulated depreciation and expense accounts were understated by the amount of depreciation from the date of completion of the said projects up to December 31, 2012. 4.1 Analysis of the Construction in Progress (CIP)–Agency Assets account

disclosed that itsbalance of P7,017,549 as of December 31, 2012 is overstated by P1,831,018.67, or 26.09%, due to the failure to reclassify completed projects to the appropriate PPE account. It also resulted in the understatement of the corresponding accumulated depreciation, depreciation expense as well as of the subject PPE accounts.

4.2 In the course of our audit, we conducted interview with the concerned

Project Engineer in order to determine the status of the projects included in the CIP-Agency Assets account. He verbally confirmedthat the following projects had long been completed:

Particulars

Amount

Relocation of AGA Office at PAGCOR House P604,994.35 ARU –Renovation –ARU- Transport Office 680,696.05 Entrance Gate & Guardhouse –Tagaytay 456,394.37 Supply & Installation, Modular Partition (HRDD-MSASPU) ___88,933.90 P1,831,018.67

4.3 Further verification disclosed that the Certificates of Project Completion and Turn-over for the subject completed projects have long been prepared by the Engineering Department. However, the same were not yet reclassified to the appropriate PPE account due to the lack of coordination with the Accounting Department resulting in the misstatement of the affected accounts.

4.4 We recommended that Management effect the necessary entry to reclassify the completed projects amounting to P1,831,018.67 to the appropriate PPE account in order to fairly present the balances of the subject accounts in the financial statements. The corresponding accumulated depreciation and expense accounts should also be adjusted accordingly.

4.5 Management informed that upon receipt and validation of the pertinent

Certificates of Project Completion and Turn-over, which they just recently received, they reclassified the amount of P1,831,018.67 from the CIP-Agency Assets account to the appropriatePPE accounts under Journal Entry Voucher No. 1754113 dated April 23, 2013.

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A2. Observations and Recommendations – Casino Filipino and Branches

1) Excess rental deposit with the Provident International Resources Corporation (PIRC)in the amount of P28,656,433.70 was noted in the lease of its building used as Airport Casino Filipino (ACF).

1.1 Section III (a) of the Contract of Lease entered into by PAGCOR with PIRC

on March 5, 2009 provides that a cash deposit equivalent to six (6) months lease rental at P29,850,450.95 per month, or a total amount of P179,102,705.70, shall be paid by PAGCOR to PIRC upon the execution of the contract.

1.2 On October 1, 2010, a “Letter-Agreement” was signed by PAGCOR and

PIRC whereby the latter agreed to reduce the rental rate to P25,074,378.80 per month effective July 1, 2010. Accordingly, the six-month cash deposit should now only be P150,446,272.00, or an excess rental deposit of P28,656,433.70.

1.3 Considering that the rental deposit is interest-free, as provided for in the

Contract of Lease, PAGCOR is deprived of the opportunity to use the said amount for investment and earn additional income or to use it for its operations and social programs and projects.

1.4 We also noted that the rental deposit of P179,102,705.70 represented

substantial amount of ACF funds deposited with the lessor. The Contract of Lease did not provide a provision that shall give sufficient protection to PAGCOR for the safe and timely return of the rental deposit upon termination or expiration of the lease period, as the contract explicitly provides under Section III(a) thereof that the said rental deposit shall not be applied to the payment of any rentals.

1.5 We recommended that PAGCOR demand the immediate return of the

excess rental deposit of P28,656,433.70 from PIRC so that itcould make use of the said fund. It was also recommended to require PIRC to post yearly surety bond callable on demand as security on the rental deposit for the duration of the Contract of Lease, considering that PAGCOR had already past experiences of uncollected rental deposits.

1.6 Management explained that the balance of P28,656,433.70 was a result of

the reduction of rent. The P179,102,705.70 previously paid rental deposit was in compliance with the contract terms. A better commercial solution is to apply the balance to the remaining lease period, if mutually agreed upon. They also assured during the exit conference that they would include in the forthcoming lease contracts of PAGCOR a provision to the effect that all rental deposits may be applied to the remaining lease period.

1.7 Furthermore, Management averred that requiring the lessor to post a bond is

not an industry practice in leases, as it is not an infrastructure project contemplated under RA No. 9184. Besides, lessor has already performed its obligations when it delivered leased premises to PAGCOR. COA

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requirement was not originally contemplated under the lease contract. Insisting now may expose PAGCOR to contractual breach.

1.8 As a rejoinder, we believe that in view of unfortunate instances of unreturned

cash deposits on rentals experienced by PAGCOR in the past, posting of guarantee bond by the lessor would protect the interest of PAGCOR. Although posting of guarantee bond is not an industry practice in leases, it may be enforced thru a supplemental contract pursuant to Section XXXIV of the Contract of Lease, which provides that, “In the event that facts and circumstances arise or are discovered which render this Agreement disadvantageous to the government or that the project is not socially acceptable, the parties hereto agree to immediately renegotiate its terms and conditions and/or discontinue operation”.

2) The services of FOOD2OUTSOURCE, INC to provide food and beverage to the ACF wasavailed of without an approved Memorandum of Agreement (MOA) and/or Contract.

2.1 Analysis of the marketing expenses incurred by the ACF during CY 2012in

the total amount of P581,198,526.81 revealed that P70,756,711.97, or 12.17%, represented payments made to FOOD2OUTSOURCE, INC. for costs of food and beverages served to the officers, guests, players and other persons involved in the casino operations of ACF.

2.2 Further verification revealed that the services of FOOD2OUTSOURCE, INC

was availed of without an approved Memorandum of Agreement (MOA) and/or Contract, which was disadvantageous to ACF as there was no clearly defined terms of reference that would protect its interest, considering the magnitude of transactions with the said food provider.

2.3 We recommended thatManagement submit a written justification and/or

explanation on the absence of a MOA/Contract with FOOD2OUTSOURCE, INC. and on the reason/s for the unusual delay in the preparation and approval thereof, considering that the said food provider was in operation for almost two (2) years already.

2.4 Management explained that restaurant operators inside ACF closed

operations except Le Buffet Restaurant, which was owned and operated by Phil. Special Services Corp. (PSSC) a sister company of Provident Investment Resources Corporation (PIRC), on which PAGCOR had a MOA. On July 1, 2011, Le Buffet Restaurant was replaced by FOOD2OUTSOURCE, INC., another sister company of PIRC.

2.5 Management also informed that PIRC furnished them with a copy of its

Secretary’s Certificaterelative to the Board Resolution allowing the FOOD2OUTSOURCE, INC., its sister company, to operate the Le Buffet Restaurant situated at the ACF in the PIRC building, in lieu of PSSC, also its sister company, which has temporarily ceased from its restaurant operations since July 1, 2011.

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2.6 The General Manager of ACF informed further that they have already requested a budget allocation of P5.9million per month, or P70.8 million per year, for the food and beverages consumption of their guests. They shall undergo the public bidding process once they receive the approval of the Board of Directors.

3) Various deficiencies were noted in the implementation of the Marketing

Cooperation Agreemententered into by PAGCOR (Casino Filipino (CF)- Heritage) with the Hotel Enterprises of the Philippines, Inc. (HEPI).

3.1 Validation of the implementation of the Marketing Cooperation Agreement

(MCA)entered into by PAGCOR with HEPI disclosed the following:

3.1.1 The Marketing Unit of CF-Heritage was notinvolved in the formulation of the marketing and promotional program for the Midas Casino as can be gleaned from their lack of ready information on the matter.

3.1.1.1 The MCA provides, among others, that PAGCOR and HEPI

shall cooperate and use their best efforts to market and promote the Casino within and outside the Philippines and to maximize the gaming revenues of the Casino. Towards this end, the parties shall cooperate in the planning, preparation and execution of all advertising, publicity, promotional and marketing activities for the leased premises and the casino. HEPI, as PAGCOR’s marketing partner, shall formulate the advertising, publicity, promotional and marketing plans of the casino.

3.1.1.2 In our letter dated January 25, 2013, we requested for

information on the Marketing Program adopted, including Advertising, Publicity and Promotions for Midas Casino. However, despite a follow-up Memorandum dated February 13, 2013, the Office of the Auditor has not yet received the same.

3.1.1.3 As a partner of HEPI in the marketing and promotion of

Midas Casino, we believe that it is imperative that CF-Heritage, through its Marketing Section, should be abreast with every marketing, advertising and promotional program being undertaken by HEPI, in accordance with the above-mentioned provision of the MCA.

3.1.1.4 We recommended that CF-Heritage’s Marketing Unit

play a more active and participative role in the marketing and promotional activities formulated and implemented by HEPI in Midas Casino, in accordance with the pertinent provision of the subject Agreement.

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3.1.1.5 Management acknowledged the lack of monitoring done on the marketing and promotional activities adopted by HEPI. However, they committed to validate the activities undertaken in 2012 and participate in the formulation, evaluation and review of future activities of HEPI for Midas Casino. This task shall be handled by the Branch Marketing Committee.

3.1.2 The absence of a penalty provision in the MCA resulted to the

non-imposition of penalties for the turnover by HEPI of the gaming facilities beyond the specified time frame. 3.1.2.1 While the Agreement specified that HEPI shall provide the

subject gaming equipment, facilities and amenities and have the same ready for commercial gaming operations not later than one hundred twenty (120) days from the date of the execution of the MCA, or April 7, 2012 in this particular case, the gaming area was turned over and actual commercial operation of the Casino started on May 18, 2012 only, or forty (40) days after the stipulated date in the Agreement.The said delay merits an imposition of penalty, however, we noted that the MCA lacked provision to that effect, which we find to be disadvantageous on the part of CF-Heritage, as it cannot be compensated for whatever loss it may incur as a consequence of any form of delay.

3.1.2.2 We recommended that future contracts/agreements to

be entered into by PAGCOR include provisions regarding penalties, in the event of non-compliance with the stipulated provisions, so that itsinterest shall be protected.

3.1.2.3 The General Manager of the CF-Heritage explained that

HEPI did not fail to turnover the gaming facilities within thetime frame given because the Chairman of the Board of HEPI was able to get a board approval from PAGCOR dated October 11, 2012 for partial acceptance of portions already turned over since PAGCOR has already utilized the said portions for gaming operation.

3.1.2.4 As a rejoinder, we wish to emphasize that results of

verification proved otherwise. As stated in the MCA, HEPI shall provide the gaming equipment, facilities and amenities and have the same ready for commercial gaming operations not later than 120 days from date of execution of the contract. The MCA was executed on December 8, 2011 and that the facilities should have been turned over on April 7, 2012. However, actual turnover was only made on May 18, 2012, or 40 days delayed.

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3.1.3 There was no monitoring by CF-Heritage of HEPI’s compliance with the commitment to spend five percent (5%) of the monthly net gaming revenues exclusively for advertising, publicity, marketing and promotional activities of the Leased Premises and the Casino. Hence, there was no assurance that the said commitment was complied with.

3.1.3.1 As provided for in the MCA, the parties agreed to share the

monthly gross gaming revenues of the Casino, net of 5% franchise tax, with sixty five percent (65%) accruing in favor of PAGCOR, while the thirty five percent (35%), after deducting PAGCOR’s administrative expenses amounting to P9,360,000, shall accrue in favor of HEPI, with the commitment to spend five percent (5%) of the monthly net gaming revenues exclusively for advertising, publicity, marketing and promotional activities of the Leased Premises and the Casino.

3.1.3.2In our Memorandum dated February 13, 2013, we requested

for a monitoring report on HEPI’s compliance with its commitment to spend 5% of its net monthly gaming revenues for marketing and promotional activities of the Casino for CY 2012. However, none has been submitted to the Office of the Auditor. Verbal inquiries from the Accounting, Internal Audit and Marketing Sections, on whether or not they are performing any monitoring activity on the said commitment, produced negative replies.

3.1.3.3 Records showed that HEPI’s net share from the gaming

revenues of Midas Casino from December 2011 to December 2012, after deducting PAGCOR’s administrative expenses of P9,360,000, amounted to P160,895,095.08, broken down as follows:

MONTH AMOUNT

2011

December P 4,585,751.18

2012

January 2,399,386.35

February 3,782,461.29

March 6,117,201.93

April 6,573,511.68

May 3,178,778.32

June 23,804,846.18

July 20,614,540.78

August 8,547,629.59

September 17,453,425.28

October 19,670,995.82

November 14,093,357.65

December 30,073,209.03

Sub-total P156,309,343.90

Total P160,895,095.08

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3.1.3.4 As provided for in the MCA, HEPI should have spent a total amount of P8,044,754.75 (5% of P160,895,095.08) for advertising, publicity, marketing and promotional activities of the Casino. In the absence of any monitoring by CF-Heritage, there was no assurance that HEPI complied with the said commitment.

3.1.3.5 We recommended that CF-Heritage validate the marketing and promotional activities undertaken by HEPI in the past year in order to determine compliance with their commitment to spend 5% of their share on the monthly net gaming revenues exclusively for marketing and promotional activities of the Casino. Henceforth, a monitoring system should be put in place to ensure compliance with the said commitment.

3.1.3.6 Management admitted the absence of monitoring by CF-

Heritage on HEPI’s commitment to spend 5% of its net revenue share for the marketing, advertising and promotional activities of the Casino. They committed to do it in the future and assigned the task to the Branch Senior Accountant.

3.1.3.7 The General Manager of the CF-Heritage further stated that

they understand the need to consistently monitor HEPI’s marketing activities relative to the subject commitment so that they will be assured that the saidprovision in the MCA is being complied with at all times.

4) Overpayments of P16,673,297.78 and P5,837,170.24 to HEPI due to erroneous basis for the computation of its 35% share in the gaming revenues of the Midas Casino were noted.

4.1 Verification of the basis of the computation of the 35% share of HEPI from

the gaming revenues of the Midas Casino disclosed that it included the fees being paid by Global Asian Investments, Inc. (GAII) to PAGCOR for its Junket and Restricted Gaming Operations and the rental income derived from the space it occupied, resulting in the overpayments of P16,673,297.78 and P5,837,170.24, respectively, on the income share paid to HEPI, as discussed below:

4.1.1 The fees being paid by GAII to PAGCOR for its Junket and Restricted Gaming Operations were included in the gross gaming revenues subjected to the computation of the 35% share of HEPI, which we found to be incorrect considering the pertinent provisions of the MCA between PAGCOR and HEPI. This resulted to the P16,673,297.78 overpayment to HEPI and the understatement of CY 2012 income of CF-Heritage by the same amount.

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4.1.1.1 The main consideration for the 35% share of HEPI on the monthly gross gaming revenues of the Casino under the subject Agreement was its commitment to market and promote the Leased Premises and the Casino and provide the gaming equipment, facilities and amenities.

4.1.1.2 However, Section II.2(b) of the Agreement with GAII

provides that, “AGENT hereby agrees and warrants to shoulder the rental expenses due on the Gaming Rooms including the gaming equipment and paraphernalia contained therein, such as, but not limited to gaming tables, card shuffling machines, surveillance equipment, etc., as well as all other consumable items to be utilized for the gaming operations to be conducted therein.”

4.1.1.3 Furthermore, HEPI could not have possibly undertaken the

marketing and promotion of GAII’s gaming operation, particularly during the initial period, since the Main Casino of Midas, which was the primary consideration for the Marketing Cooperation Agreement, was turned over by HEPI to PAGCOR on May 18, 2012 only, while operations of GAII started as early as December 23, 2011. In addition, GAII gets its own players without the need of the marketing and promotional activities of HEPI.

4.1.1.4. Accordingly, HEPI was overpaid by a total amount of

P16,673,297.78, representing 35% share on the gross revenues from the Restricted International and Junket Gaming operations of GAII for CY 2012, as shown in the table below, and income of CF-Heritage was understated by the same amount, to wit:

Period

GROSS REVENUE

TOTAL

35% HEPI

SHARE

Deduction For Use of

Chips

Net Payments to

HEPI Restricted Int’l.

Gaming

Junket

12/23/11- 12/31/11

2012

January February March April May June July August

P11,804,412.63

1,030,736.26 352,290.91 3,651,687.49 3,824,825.74

(176,986.51) - - -

P763,664.29

2,572,200.00 2,889,834.17 5,093,204.66 4,105,080.54 2,609,640.00 2,536,980.00 2,516,040.00

-

P12,568,076.92

3,602,936.26 3,242,125.08 8,744,892.15 7,929,906.28 2,432,653.49 2,536,980.00 2,516,040.00

-

P4,398,826.92

1,261,027.69 1,134,743.78 3,060,712.25 2,775,467.20 851,428.72 887,943.00 880,614.00

-

P14,766.49

50,862.35 50,862.35 50,862.35 50,862.35 50,862.35 50,862.35 50,862.35 50,862.35

P4,384,060.43

1,210,165.34 1,083,881.43 3,009,849.90 2,724,604.85 800,566.37 837,080.65 829,751.65

(50,862.35) Sept. October Nov. Dec.

- - - -

305,012.03 1,649,040.00 1,757,969.00 2,138,404.42

305,012.03 1,649,040.00 1,757,969.00 2,138,404.42

106,754.21 577,164.00 615,289.15 748,441.55

50,862.35 50,862.35 50,862.35 50,862.35

55,891.86 526,301.65 564,426.80 697,579.20

Sub-total P8,682,553.89 P28,173,404.82 P36,855,958.71 P12,899,585.55 P610,348.20 P12,289,237.35

TOTAL

P20,486,966.52

P28,937,069.11

P49,424,035.63

P17,298,412.47

P625,114.69

P16,673,297.78

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4.1.1.5 We recommended that the fees being paid by GAII for its Junket and Restricted Gaming Operations be excluded from the gross gaming revenues subjected to the computation of the 35% share of HEPI, it appearing that HEPI had no participation in the marketing and promotion of GAII’s gaming operation, particularly during the initial period. Accordingly, the total overpayment of P16,673,297.78 should be refunded by HEPI.

4.1.1.6 In his letter dated March 26, 2013, the General Manager of

the CF-Heritage informed that they referred the matter to the Vice President, Corporate Legal & Services Department (CLSD) of PAGCOR, for his legal opinion and/or advice. They will submit their comments after receipt of the response thereon.

4.1.1.7 We wish to put on record that we have not yet received the

requested comments on the above observation as of the date of the preparation of this report.

4.1.2 Income of CF-Heritage for CY 2012was understated by P5,837,170.24and HEPI overpaid by the same amount, representing 35% share on the payments by GAII for rental of the 208.341 sq. m space utilized for its gaming operation.

4.1.2.1 Out of the total area being leased by HEPI to PAGCOR at

the rate of P1,800.00 per sq. m., GAII occupies 208.341 sq. m. and paid rentals to PAGCOR at the rate of P5,000.00 per sq. m., or P16,677,629.26 during the year. This amount was fully subjected to the 35% share of HEPI under the MCA, contrary to the provision thereof that the parties shall share in the monthly gross gaming revenues of the Casino. The rental income earned by PAGCOR from GAII cannot be considered as part of gaming revenue subject to the 35% HEPI share.

4.1.2.2 Furthermore, it is worth mentioning that while HEPI has

already been paid by PAGCOR for rental of the space occupied by GAII at the rate of P1,800.00 per sq. m., it was again made to share in the rental paid by GAII to PAGCOR for the same space at the rate of P5,000.00 per sq. m., which was not provided for in the Contract of Lease nor in the MCA with HEPI.

4.1.2.3 We recommended that the rental income derived from

the space occupied by GAII be excluded from the computation of the 35% share of HEPI, considering that it is not a gaming revenue. Accordingly, Management

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should cause the refund by HEPI of the total amount of P5,837,170.24.

4.1.2.4. In his letter dated March 26, 2013, the General Manager of

the CF-Heritage informed that they referred the matter to the Vice President, Corporate Legal & Services Department (CLSD) of PAGCOR for his legal opinion and/or advice. They will submit their comments after receipt of the response thereon.

4.1.2.5 We wish to put on record that we have not yet received the

requested comments on the above observation as of the date of the preparation of this report.

5) CF-Hyatt overremitted P1,781,780.00 to Marina Square Properties, Inc.

(MSPI) representing the peso value of hotel cash coupons issued to qualified Non-Negotiable Chips players which had expired.

5.1 Section II.2 of the Memorandum of Agreement between the MSPI and

PAGCOR (CF-Hyatt) provides that, “Each cash coupon shall be valid for a period of ninety (90) days from date of issue. PAGCOR shall indicate on each coupon its expiration date upon issuance thereof to the player. Any extension in the period of validity shall be subjected to the discretion/approval of PAGCOR”.

5.2 Sometime in 2005, CF-Hyatt embarked on Non-Negotiable Chips (NNC)

program, which was a form of chipwashing wherein a player uses non-negotiable chips or “dead chips” solely for wagering at the gaming table. The player is entitled to a rolling commission or discount everytime he exchanges his cashable (live) chips. The rolling commission is a combination of cash rebates and hotel coupons at the rates approved by the Board of Directors.

5.3 The hotel coupons were provided by MSPI, in denominations of P1,000.00,

P200.00 and P100.00, which can be redeemed exclusively at the Hyatt Hotel Manila,in exchange for availment of hotel amenities such as room accommodation, food and beverages.

5.4 Verification disclosed that the peso value of the hotel cash coupons issued

to qualified NNC players was remitted by CF-Hyattto MSPIon a monthly basis, which took care of paying the Hyatt Hotel Manila for the coupons redeemed with them. From 2005 to June 2010, total amount remitted was P432,628,180.00.

5.5 Further verification revealed that hotel coupons issued in June 2010, having

peso value of P1,781,780.00 and which were already remitted to MSPI, had expired since the 90-day validity period has lapsed. Accordingly, there is no way that these expired coupons could be redeemed. Hence, there was an excess remittance of P1,781,780.00 made to MSPI, computed as follows:

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YEAR

TOTAL AMOUNT REMITTED TO

MSPI

TOTAL AMOUNT OF USED

COUPONS SURRENDERED

BY MSPI

TOTAL

2005 P64,858,980

2006 92,173,100

2007 101,592,800

2008 90,933,900

2009 59,797,000

2010 23,272,400

432,628,180 432,628,180

2009 130,336,700

2010 72,599,900

2011 226,928,000

2012 981,800

430,846,400 (430,846,400)

OVERREMITTANCE 1,781,780

5.6 As can be gleaned from the above table, there was an over remittance of

P1,781,780 to MSPI. Since this was previously taken up as a negative adjustment to the winnings, which were subjected to the 60:40 sharing agreement with MSPI, the 60% share of PAGCOR on the expired hotel coupons was P1,069,068.

5.7 We recommended that Management demand immediate refund of the

amount of P1,069,068from MSPI, representing 60% share of CF-Hyatt from the peso value of the expired coupons.

5.8 The General Manager of CF-Hyatt informed that they interposed no

objection on our findings/exceptions, particularly on the refund of P1,069,068 by MSPI. They referred the matter to Mr. Chris Lam, CEO of MSPI, in their

letter dated July 26, 2012, but they have not yet received any reply.

6) The inability of Metro AsiaPoker& Entertainment, Inc. (MAPEI) to comply with the stipulations contained in the Permit to Operate a Poker Club at CF-Hyatt and absence of contractbetweenPAGCOR (CF-Hyatt)and MAPEI resulted to loss of revenue due to the non-conduct of poker tournament and non-payment of space rentals and utilities.

6.1 Paragraphs c, f and o, Section II of the Terms and Conditions embodied in

the Permit to Operate a Poker Club at CF-Hyatt granted to MAPEI provides that:

“The Licence Poker Operator (LPO) shall: c. Submit for PAGCOR’s approval its intended table limits and rake

schedule for its poker gaming tables as well its tournament schedules at the Poker Club. Any changes or modification shall be done only with the approval of and in coordination with PAGCOR.

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f. Shoulder the space rental and utilities expenses, such as electricity and water usage, as well as telephone and other similar charges incurred by the Poker Club.

o. LPO shall conduct a monthly tournament/s with a minimum of P200,000

guaranteed prize pool. Failure of the LPO to conduct such tournament shall result to a penalty of P200,000 per month. PAGCOR shall be entitiled to 25% of the tournament entry fees and all other revenue generated from the tournament (entry fees, administration fees, service charge, etc.)”.

6.2 Upon the request of MAPEI to resume its operations, a Permit to Operate a Poker Club at CF-Hyatt was granted by PAGCOR for a period of one (1) year effective June 21, 2012. It was allowed to start its operationson the same day that the permit was approved by the Board of Directors.

6.3 However, we noted the absence of a separate contract that should have

embodied the following essential stipulations:

a) Signatories of the contracting parties, including authority to bind the parties they represent;

b) The total floor area to be occupied by MAPEI for its poker operation and the agreed rate of rental;

c) The total monthly rental to be paid by MAPEI to PAGCOR and the date it will become due and payable without need of demand from PAGCOR; and

d) The imposition of penalty charges in the event of delay in payments and the amount to be paid.

6.4 In addition to the absence of contract with MAPEI, verification revealed that

MAPEI failed to submit to PAGCOR the pre-approved tournament schedules, table limits and rake schedules, which was one of the requirements in the Permit to Operate a Poker Club.

6.5 Hence, no poker tournament was ever conducted since the time it started

operation resulting to loss of revenue to PAGCOR. Although the Accounting Section recognized a P1.2 million receivable from MAPEI for the period July 1, 2012 to December 31, 2012 for not organizing the poker tournament,pursuant to the provisions in the said Permit, the subjectamount remained unsettled.

6.6 Moreover, we also noted that the subject Permit provided that MAPEI shall

shoulder the space rental and utilities expenses, such as electricity and water usage, as well as telephone and other similar charges incurred by the Poker Club. However, no payment was made since there was no separate contract specifying the total monthly rental to be paid by MAPEI to PAGCOR and the date that it shall become due and payable.

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6.7 As a result, MAPEI continued its operation at the CF-Hyatt without paying space rentals and utilities in utter disregard of the pertinent provision in the Permit to Operate a Poker Club.

6.8 We recommended that Management facilitate the preparation and

approval of the contract with MAPEI to enforce collection of the unpaid space rentals and utilities from June 21 to December 31, 2012. In addition, demand the immediate payment of the P1.2 million receivable from MAPEI, representing penalty for the failure to conduct poker tournament, pursuant to the provision in the Permit to Operate a Poker Club.

6.9 The General Manager of CF-Hyatt informed that the matter was referred to

the PAGCOR Board of Directors. However, it was deferred and instructions were given to the Gaming Licensing Development Department (GLDD) and CF-Hyatt to evaluate the suspension/cancellation of MAPEI’s license.A joint recommendation was submitted to GLDD on May 16, 2013 regarding the collection of MAPEI’s account arrearages.

6.10 As regards the Contract of Sublease for the period June 21, 2012 to June

20, 2013, this was already signed by MAPEI’s Mr. Mariano So, Jr. and currently with the Corporate Legal Services Department for the signature of the Chief OperatingOfficer.

7) Existing guidelines, procedures and practices in the marketing program of CF–Pavilion, involving free bet collaterals,contained inadequacies in documentation, recording and monitoring, resulting in loss of resources.

7.1 Records showed that the Marketing & Casino Customer Relations

Department (MCCRD) of PAGCOR issued the Revised Guidelines on the Production, Issuance and Use of Bonus Bet Certificates/Coupons in 2003. It was stated therein that the Bonus Bet Certificate and the corresponding Coupon(s) shall together be used as marketing tools to attract current and potential customers to visit and play at Casino Filipino. The manner of distribution can vary from a raffle, a pre-qualification, or even an invitation to special events, activities, and occasions. This shall jointly be agreed upon by the MCCRD and Casino Filipino branch concerned.”

7.2 In 2011, the continuation of “Check in and Win” marketing program was

approved by the PAGCOR Board to tap the hotel clientele as potential casino guests and strengthen friendly business relations with partner hotels. The mechanics included the issuance of P500 worth of Free Bet Coupons (FBC) and P600 worth of Double Your Money Certificates (DYMC) to all qualified guests of partner hotels at Casino Filipino branches, as well as the budget allocation of P400,000 for marketing collaterals, chargeable to MCCRD’s budget for the months of January, April, July and October 2012.

7.3 Review of the “Revised Guidelines on the Production, Issuance and Use of

Bonus Bet Certificates/Coupons” disclosed several gaps and control breakdowns, as follows:

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a. Non-inclusion in the policy of specific guidelines or procedures regarding the maintenance of records for receipts, issuances and turnover of certificates and coupons, which could serve as transactions documents and records for better monitoring and accountability for all events with free bet collaterals for concerned branch Sections/Units;

b. Absence of standard and/or specific requirement on written documentation/recording of transmittal/receipt of certificates and coupons which could aid in the accounting, record keeping and monitoring of receipts, issuances and turnover for concerned Sections/Units in the branch;

c. Non-compliance with the periodic monitoring and reporting requirement to serve as valuable information in the evaluation of specific marketing programs/events;

d. Lack of adequate dissemination of delegated responsibilities by the Senior Marketing Officer to his subordinates to provide necessary instructions and proper accountability in the implementation of the delegated function;

7.4 These control gaps and breakdowns resulted in the following:

a. Inadequacy of records on free bet certificates and coupons transactions, b. Undocumented issuances and returns of certificates and coupons and

unorganized filing system of unissued and issued bet certificates and coupons for completed events or marketing programs;

c. Unaccounted issuances of certificates and coupons, including transacted coupons at the gaming tables; and

d. Delay in or absence of evaluation of the results of various marketing programs;

7.5 Moreover, our audit of available documents and records pertaining to the

Check-in and Win marketing program from January to May 2012 disclosed the following:

a) Custody of bet certificates:

On safekeeping and recording - no available monitoring report or its equivalent for free bet certificates;

On requisition - no available request form or its equivalent for bet certificates;

On turnover to hotel host/partner - no available transmittal receipt;

b) Issuance of bet certificates:

Inconsistent information on hotel guests in the acknowledgement forms from hotel host/partner and Concierge Section, e.g., absence of name or signature of hotel guests;

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c) Disposition of bet coupons and certificates:

No transmittal letter from Concierge Section for the unissued FBCs and received Bet Certificates;

No marking or hole on the unissued bet coupons and certificates;

No transmittal letter from the Treasury Section to the Concierge Section to signify the turnover of transacted bet coupons at the gaming tables.

d) Irregular monitoring and reporting on the progress of the program

e) Deficiencies in the handling of FBCs

691 pieces of unaccounted free bet coupons issued to Concierge Section;

2,250 transacted free bet coupons without corresponding certificates; and

2,941 free bet coupons issued to guests without corresponding certificates

7.6 We recommended that Management revisit the Revised Guidelines on

the Production, Issuance and Use of Bonus Bet Certificates/Coupons to determine existing controls in the custody, issuance, disposition, monitoring and reporting of free bet certificates and coupons that need to be enhanced in order to prevent recurrence of gaps and control breakdowns discussed above.

7.7 We also recommended that Management conduct investigation on the 691 unaccounted bet coupons, 2,250 transacted FBCs without corresponding certificates; and 2,941 FBCs issued to guests without corresponding certificates to pinpoint the branch personnel responsible therefor. Appropriate administrative action should be taken, if warranted by the circumstances.

7.8 Management informed that the Pavilion Audit Group (PAG) was mobilized to

undertake a special audit on the FBCs issued in connection with the Check-in and Win Promo and some of their recommendations that the branch has since been consistently applying are the following:

- Safekeeping of FBCs in a locked cabinet located inside the Senior

Casino Hosts’ Office; - Maintenance of transmittal receipts duly acknowledged by recipients to

document transactions; - Preparation of accountability report to monitor the total FBCs and Check-

in and Win certificates in circulation.

7.9 Likewise, Management acknowledged the recommendations of COA to be used as reference in its ongoing re-evaluation of the existing guidelines on the use of these marketing collaterals.

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8) Accounts Receivables-Others of the CF-Pavilion in the total amount of P5,068,080.04remained uncollected as of December 31, 2012 due to the failure of Management to enforce collection thereof.

8.1 Analysis of the aging schedule for Accounts Receivable–Others account of

the CF-Pavilion disclosed that the aggregate amount of P5,068,080.04 remained uncollected as of December 31, 2012, P4,693,413.47 or 92.61% of which has been outstanding for more than two years, broken down as follows:

Account Name

Nature of Transaction

Amount

Remarks

Metro Asia Poker Entertainment Inc.

Minimum guarantee fee/rent/utilities/interest

P4,489,213.22

Alamo Transport Leasing Services, Inc.

Car rental

66,131.25

Batas Mauricio

Bingo Fiesta 2007

69,000.00

With pending legal case

FGU Insurance Co.

Repair – Nissan Sentra

48,469.00

Joel Carpio Cimatu

Participation SJG-536

12,600.00

Philippine Chamber of Food Manufacturer, Inc.

Receivable May 2010

8,000.00

Total

P4,693,413.47

8.2 We also noted that the balance of the Other Receivables account consisted

of outstanding receivables from terminated/separated employees representing overpayment of salaries. This was the outcome of the failure of Management to strictly adhere to the Civil Service Commission’s issuance relative to the required five (5) days leave credits to be maintained by each employee, which was the subject of our audit observation in 2010.

8.3 We recommended that the CF-Pavilion Management exert extra effort

to collect the above-stated long outstanding receivables. Appropriate legal action should be resorted to, if warranted, to enforce collection thereof.

8.4 Management informed that they had already instituted the necessary actions

to collect from their debtors. Several demand letters have been sent; court cases have already been filed against some of them and arrangements for the full settlements of the two bingo accounts are currently underway. Through these concerted efforts, the balance of Accounts Receivables-Others was reduced from P4,693,413.47 as of December 31, 2012 to P3,478,479.12 as of February 28, 2013. Likewise, MAPEI, whose account comprises the bulk of the receivables, has already made partial settlement of its obligation.

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9) Actual operational expenses incurred by CF-Bacolod during the year exceeded its projected amount by P15,517,687.17 and has significantly increased from the prior year’s amount. 9.1 Verification disclosed that the Branch has a projected operational expenses

of P514,990,403.59 for CY 2012. However, the total amount actually incurred during the year was P530,508,090.74, resulting in an over expenditures of P15,517,687.17.

9.2 Moreover, we also noted that the operating expenses of CF–Bacolod showed a material increase of P127,945,874.44 or 31.55% when compared with that of last year, while the corresponding increase in revenue is only 20.61%.

9.3 The table below showed the items of expenses that had significantly

increased from those of last year, to wit:

Expense Account

2012

2011

Increase

% of Increase

Traveling Expense - Local

P 3,678,296.67

P 2,776,597.72

P 901,698.95

32.47

Other Supplies Expense

3,081,339.56

2,647,874.99

433,464.57

16.37

Electricity Expenses –Casino Premises

37,226,237.43

25,018,319.52

12,207,917.91

48.80

Entertainment Expense

3,331,898.67

2,983.165.16

348,733.51

11.69

Rent Expense – Casino Premises

51,316,729.71

12,736,983.46

38,579,746.25

302.90

Transportation &Delivery Expense

2,213,647.11

1,421,529.51

792,117.60

55.72

Marketing Expenses

69,686,924.66

56,747,558.72

12,939,365.94

22.80

Consultancy Services – Consultancy Fees

240,000.00

20,000.00

220,000.00

1,100.00

Other MOOE - Others

1,716,510.25

1,362,874.91

353,635.34

25.95

9.4 Analysis of the Comparative Statement of Income of CF–Bacolod for CYs

2012 and 2011 revealed that it incurred a net loss of P6,904,482.93 for 2012 as compared with the last year’s net income of P32,621,353.70, thereby showing a significant decrease of P39,525,836.63 or 121.16%.

9.5 The overexpenditures of P15,517,687.17 and the material increase in the

operating expenses incurred during the year contributed to the P39,525,836.63 decrease in the net income of CF-Bacolod for 2012.

9.6 We recommended that Management revisit its policies/guidelines

relating to its operational expenses to determine possible cost-

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cutting measures that need to be implemented to avoid the incurrence of losses from operations in the future. In addition, ensure that CF-Bacolod spend within its budget, whenever possible, in accordance with sound financial management.

9.7 The Branch Manager of CF-Bacolod explained that some of their branch

operational expenses increased due to the expansion of Amigo Arcade-Iloilo last January 17, 2012, with the objective of increasing additional revenue for their operations.

9.8 As a rejoinder, we wish to emphasize that the projected operating

expenses of CF-Bacolod had already taken into account the anticipated increases in theexpenses relative to the expansion of Amigo Arcade-Iloilo, when it was formulated and approved by the Board of Directors. Still, the actual amount incurred exceeded its budget.

10) Long overdue accounts of the CF-Bacolod totalling P1,041,230.59, representing 75% of the P1,385,899.73 balance of Accounts Receceivable-Others account, remained uncollected for more than one year as of December 31, 2012 due to the inability of Management to enforce collection thereof.

10.1 We reviewed the Accounts Receivable–Others account of CF-Bacolod,

having a balance of P1,385,899.73 as of December 31, 2012. We noted that it included long overdue accounts in the total amount of P1,041,230.59, representing 75% thereof. The said long outstanding receivables remained uncollected for more than one year due to the inability of Management to enforce collection thereof, thus, depriving CF-Bacolod the use of the said fund for its operations.

10.2 Records showed that majority of these outstanding receivables pertained to unpaid room accommodations, food and beverages of hotel patrons and customers, as well as unpaid costs of meals served during functions and seminars held in the hotel. Apparently, these are transactions emanating from the hotel operations of the CF-Bacolod.

10.3 We recommended that Management exert extra effort to collect the

long outstanding receivables of P1,041,230.59. Send demand letters to concerned persons in order to enforce collection thereof. Moreover, revisit the existing policy of CF-Bacolod relative to the extension of credit to its hotel patrons and customers in order to determine whether there are certain lapses resulting to accumulation of unpaid accounts.

10.4 Management informed that several accounts remained uncollected despite several follow ups. Some of these hotel guests are escapers and cannot be located anymore. Also, some of these accounts were already referred to their Legal and Accounting Department-Corporate for proper action. Demand letters were likewise sent to concerned company and individual to enforce collection.

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11) Annual rental expense of P5,631,600.00incurred by CF-Cebu for an

unutilized space covering 361 sq. m. area at the Parkmall Satellite Casino was considered as unnecessary expense.

11.1 Records showed that on December 17, 2010, PAGCOR (CF-Cebu) entered into a Contract of Sublease with KIT Properties, Inc., a domestic corporation, for the sublease of a commercial space located at Parkmall Hotel to house the operation of the ParkmallSatellite Casino. The monthly rental was P3,664,440.00 for a 3,016 square meter space or P1,215.00/sq.m.

11.2 Included in the monthly rental is an area of 361 square meters located at the

second floor balcony/corridor of the building. For a while, Management used this corridor area for its bingo game sessions, but later, an area inside the main facility was allotted permanently for bingo games. As a result, the said area of 361 sq. meters has relatively remained unutilized and non-productive, with CF-Cebu spending at least P5,631,600.00 annually, computed as follows:

Annual Rent (361 sq. m. x P1, 215.00 x 12 months)= P5,263,380.00 Common Usage Service Area (361sq.m.x P85.00 x 12) = ___368,220.00

P5,631,600.00

11.3 Par. 3.2 of COA Circular No. 85-55A dated September 8, 1985 defines unnecessary expenditure as one that is not essential or that which can be dispensed with without loss or damage to property. The issuance of this guideline was meant to guide management on how to prevent wastage in the use and disposition of its resources as a result of unsound exercise of discretion. In line with this circular, the annual rental of P5,631,600.00 being paid to KIT Properties, Inc. was considered as unnecessary expenditures.

11.4 We recommended that Management negotiate with KIT Properties Inc.

for the amendment of the existing lease contract and exclude the unutilized 361 square meters in order to save P5,631,600.00on annual rentals.As an alternative action, consider the possibility of sub-leasing the said area to other business establishments such as coffee shops/restaurants, stalls and the like, in order to recover the rental expense being incurred for the subject area.

11.5The Officer-in-Charge of the CF-Cebu explained that the existing contractwith

Kit Properties, Inc. specifically includes the balcony as one of the leased premises. The balcony is part and parcel of the building and it serves as ingress and egress at the second floor of the casino, which is being exclusively used by the casino patrons. To fully utilize the area, the branch will offer it to possible concessionaires who will sub-lease the area. The selection process for concessionaires will go through RA 9184.

12) Procurements of goods through the Shopping mode of procurement in the total amount of P1,158,855.09 were made by CF-Davao without securing

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price quotations from at least three bona fide suppliers contrary to Section 52.3 of RA 9184.

12.1 Examination of check vouchers from January 1 – December 31, 2012,

disclosed that procurement of goods totalling P1,158,855.09 were made through Shopping. However, there were no price quotations from at least three (3) bona fide suppliers, contrary to Section 52.3of RA 9184.

12.2 Section 52.1 of RA 9184 defines Shopping as a method of procurement of

goods whereby the procuring entity simply requests for the submission of price quotations for readily available off-the-shelf goods or ordinary/regular equipment to be procured directly from suppliers of known qualifications. It was specified under Section 52.3 of the same regulation that at least three (3) price quotations from bona fide suppliers shall be obtained.

12.3 Details of the procured items were as follows:

Supplier/Payee

Particulars

Total Amount of Purchases

for 2012

Elohim Bakeshop Snacks for Casino customers P 592,890.00

Jic N Jac Snacks for Casino customers 75,175.00

Kentrix Marketing Snacks for Casino customers 127,100.00

Bill Juice Ko Day Snacks for Casino customers 120,600.00

Crykent Auto Repair Shop

Preventive maintenance and various repair of PAGCOR vehicles

98,591.00

Sealors Car Aircon Services

Repair and cleaning of aircon units of PAGCOR vehicles

20,310.00

ARJ Printing Marketing Collaterals 2,980.00

Ad Image Outdoor Printing

Tarpaulin for 6 stag derby

1,050.00

Poje Printing press Printing of various office forms 7,596.45

Vitalab Diagnostic Center Pre-employment medical charges 12,645.00

St. Peter Prof. Services Pre-employment medical charges 3,500.00

UM Medical and Multitest Diagnostic Center

Pre-employment medical charges

24,504.00

Cagayan de Oro Polymedic General Hosp.

Annual Medical Examination of BINGO personnel

16,220.00

Integral Business Machines and Allied Services

General cleaning and repair of typewriters

4,310.00

Daniel Merchandising Repair of bundy clock 3,003.35

MINVETS Security Agency

Retraining of security guards

39,702.69

Ace Logistics

Freight charges for touch screen monitor

3,577.60

RCS Logistics

Freight Charges of transferred personnel

5,100.00

Total

P1,158,855.09

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12.4 The absence of quotations from at least three bona fide suppliers manifesteddisregard of the above-stated provision of RA 9184. CF-Davao was also not assured of the most advantageous prices for its procurements.

12.5We recommended that Management strictly comply with Section 52.3of R.A. 9184 requiring price quotations from at least three bona fide suppliers to ensure that the Branch would obtain the most advantageous price.

12.6 The Branch Manager, as well as the Procurement Officer of CF-Davao, explained that in order to minimize marketing expenses, they served light snacks, coffee or juice for free in the gaming area. But these were sourced from suppliers whom customers preferred based on taste and quality.

12.7 On the issue regarding repair of motor vehicles, they accredited a motor vehicle shop after initially evaluating prices and reliability of service as they found it impractical to bring their vehicles from one shop to the other for check up and assessment of repairs to be done. This was done for labor services only, which they found to be generally similar on most of the auto repair shops. Procurements of spare parts were done through shopping.They took note of our recommendations and promised to do their best to comply.

12.8 We appreciate Management’s commitment to abide with the procurement law. We accept their justifications but this should not be taken as a precedent. Strict compliance with the pertinent provisions of RA 9184 is hereby enjoined.

13) Winnings were not deposited intact by CF-Angeles in violation of Section 69 of P.D. 1445.

13.1 Verification of the Win/Loss Report of Oriental Pavilion, Guiguinto, Bulacan, a proponent of PAGCOR, Angeles City, revealed that collections/winnings were not deposited intact with the authorized government depository banks, in violation of Section 69 of P.D. 1445, which provides that:

“Public officers authorized to receive and collect moneys arising from taxes, revenues or receipts of any kind shall remit or deposit intact the full amounts so received and collected by them to the treasury of the agency concerned”.

13.2 The following matrix of collections and deposits for the sample month of July 2012 showed that winnings were deposited after two days or more, which was not in accordance with the frequency of deposits prescribed under Section 111 of the Government Accounting and Auditing Manual (GAAM), Volume I, to wit:

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COLLECTIONS

DEPOSITS

AMOUNT

UNDEPOSITED

Date Amount Date Amount

July 2, 2012 P 670,177.50 P 670,177.50

July 3, 2012 1,105,653.00 July 4, 2012 P 670,177.50 1,105,653.00

July 4, 2012 881,471.00 July 5, 2012 1,105,653.00 881,471.00

July 5, 2012 824,232.50 July 6, 2012 881,471.00 824,232.50

July 7, 2012 613,446.50 July 7, 2012 824,232.50 613,446.50

July 8, 2012 481,167.00 1,094,613.50

July 9, 2012 823,323.00 July 10, 2012 1,094,613.50 823,323.00

July 10, 2012 642,771.00 July 11, 2012 823,323.00 642,771.00

July 11, 2012 791,093.00 July 12, 2012 642,771.00 791,093.00

July 12, 2012 716,040.50 July 13, 2012 791,093.00 716,040.50

July 13, 2012 1,043,703.00 1,759,743.50

July 14, 2012 559,710.00 2,319,453.50

July 15, 2012 423,648.00 July 16, 2012 2,319,453.50 423,648.00

July 16, 2012 400,222.50 July 17, 2012 423,648.00 400,222.50

July 17, 2012 623,636.50 July 18, 2012 400,222.50 623,636.50

July 18, 2012 383,759.50 July 19, 2012 623,636.50 383,759.50

July 19, 2012 697,068.50 July 20, 2012 383,759.50 697,068.50

July 21, 2012 677,203.50 July 23, 2012 1,374,272.00 NONE

July 22, 2012 529,357.50 529,357.50

July 23, 2012 553,349.00 July 24, 2012 529,357.50 553,349.00

July 24, 2012 716,443.00 July 26, 2012 553,349.00 716,443.00

July 26, 2012 674,105.00 July 27, 2012 716,443.00 674,105.00

July 27, 2012 971,801.00 1,645,906.00

July 28, 2012 737,234.00 2,383,140.00

July 30, 2012 651,109.50 July 31, 2012 3,034,249.50 NONE

13.3 As can be gleaned from the table above, the concerned accountable officers are retaining part of their collections and did not deposit intact the total amount of cash collected. Total collections for July 2-3, 2012 amounted to P1,775,830.50, however, the amount deposited on July 4, 2012 was only P670,177.50 leaving the collection on July 3, 2012 amounting to P1,105,653.00 undeposited. This practice of not depositing the whole amount continued as a cycle and exposed the government funds to possible loss, illegal use and/or misappropriation.

13.4 We recommended that the CF-Angeles Management strictly comply

with the above-stated provision of Section 69 of P.D. 1445 in order not to expose government funds to possible loss, illegal use and/or misappropriation.

13.5 Management explained that there were instances when winnings for a certain day are being withheld to augment the cash capital of the vault to cover the increment of jackpot prizes and payouts for the SM Progressive Machines. However, the same are immediately deposited the following day when cash

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in vault is replenished after the cash stacker counting. To resolve the foregoing predicament and to rectify the practice, the Board Management Panel, in its meeting last December 21, 2012, approved the increase of the Vault Capital of VIP Club Oriental Pavilion from P4M to P5M, effective immediately.

14) Inadequate provision for allowance for doubtful accounts by CF-Tagaytay resulted to the overstatement of the net realizable value of Accounts Receivable-Others and understatement of expenses by P505,222.49.

14.1 We reviewed the Allowance for Doubtful Accounts provided for the long

outstanding accounts Receivable-Others of CF-Tagaytay during CY 2012. We noted that the amount provided was understated by P505,222.19 following the existing policy of Management in the computation thereof, to wit:

“Review the aged schedule of Accounts Receivable - Others for specific accounts that are identifiable as credit risks or highly uncollectible, e.g. already with pending court cases or have been referred to Corporate and Legal Services Department (CLSD) for legal action. The outstanding balances of these accounts shall then form part of the Allowance for Doubtful Accounts to be set up/maintained as follows:

Status of Accounts Provision to be Established Referred to CLSD for legal action 50% of outstanding balance or

otherappropriate percentage as may be determined depending on the specific circumstances of the case.

With pending court case 80% of the outstanding balance

14.2 As can be gleaned from the Aging Schedule of Accounts Receivable–Others as of December 31, 2012, the Allowance for Doubtful Accounts provided for the unsettled account of W & W Foods Corporation was only P 56,135.51, or 5% of the total outstanding balance of P1,122,715.99.

14.3 Considering that the Branch has already endorsed the subject account to the

CLSDon June 28, 2012, the allowance that should have been provided was

50%,or P561,358.00 pursuant to the above-stated policy. 14.4Accordingly, the Allowance for Doubtful Accounts was understated by

P505,222.49 resulting in the understatement of expenses and overstatement of Accounts Receivable–Others by the same amount as of December 31, 2012.

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14.5We recommended that Management provide additional Allowance for Doubtful Accounts in the amount of P505,222.49 to reflect the balance of the Accounts Receivable at its current net realizable value.

14.6Management informed that the Accounting Section shall provide additional

Allowance for Doubtful Accounts amounting to P505,222.49 early this year.

Summary of Unsettled Suspensions and Disallowances

The unsettled audit suspensions and disallowances as of December 31, 2012 amounted to P157,321,338.31 and P109,557,474.93, respectively, as shown in the table below, details of which are presented in Annex A hereof, to wit:

Particulars Quantity Amount

1. Notice of Suspensions

a) Suspensions which have not yet matured into disallowance

3

P 75,200,000.00

b. Suspensions which have matured into disallowance, but no ND has been issued yet as of December 31, 2012

6

82,121,338.31

Total Notices of Suspensions 9 P157,321,338.31

2. Notice of Disallowances

With pending appeal or with unexpired period of appeal

10

P109,557,474.93

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B. STATUS OF IMPLEMENTATION OF PRIOR YEARS’ AUDIT RECOMMENDATIONS

AUDIT OBSERVATIONS RECOMMENDATIONS STATUS

2011

CORPORATE

1. Discrepancy of ₱34.545 million existed for Property Plant and Equipment (PPE) accounts between the General Ledger balances and the total amount per Physical Inventory Report as at year-end. The discrepancy consisted of PPE items which could not be located / found.

a. Submit to the Office of the COA Supervising Auditor the list of PAGCOR employees who are accountable of the lost items;

b. PGSD should submit to Accounting Department the waybills for the transfer of PPE items to effect the adjustments; and

c. For lost items, require the accountable officer to file a request for relief from property accountability with the Commission on Audit (COA).

Partially Implemented.

2. La Filipina Uygungco

Corporation, Lessor, incurred a delay of 56 days in the turnover of the leased premises to PAGCOR. Thus, the Lessor was overpaid by the equivalent amount of

₱5.69 million which was already paid as part of the advance lease rental paid to the lessor.

The amount of overpayment of

₱5.69 million should be applied as rental payment after the exhaustion or application of the total advance payment paid to the Lessor.

Implemented.

3. Time frame for delivery of

leased premises was not specified in the Contract of Lease of PAGCOR with Cloud 9 Holdings, Inc.

Issue a supplemental contract stating the date of delivery to the lessee of the leased premises fully developed/fitted out.

Implemented.

4. Interests of ₱2.391 million for delayed / non-payment on due dates of PAGCOR’s income share from Oxford Princes Casino and Casa Blanca Casino in the amount

of ₱1.659 million and ₱0.732

a. Charge/bill interests in the

amount of ₱1,659,254 and

₱732,619, respectively, to Oxford Princes Casino and to Casa Blanca Casino pursuant to the Authority and License to Operate granted

Implemented.

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million, respectively, were not charged by the Monitoring Teams as required under the Authority/ License to Operate issued by PAGCOR. This resulted in the understatement of other income and other receivable accounts by the same amount.

by PAGCOR and record the interest receivable in the books of accounts; and

b. Take appropriate and necessary actions to ensure that the licensees remit the required income share in accordance with the Authority/License to Operate.

BRANCHES 5. The reported rent income at

CF-Hyatt for the years 2011 and 2010 was computed based on net win / loss (gross winnings less non-negotiable chips commission and incentives) and not on gross winnings, as provided under Section 4.1(ii) of the MOA by and between the Fortune gate Holiday Philippines, Inc. (FHPI) and PAGCOR. This resulted in the understatement of income by $1.506 million or

₱65.481 million.

Issue a demand letter to FHPI to pay immediately the amount

of ₱83,175,290 representing erroneous computation of

rentals due of ₱65,840,983 and

unpaid rental of ₱17,334,307 as of December 31, 2011.

Implemented.

6. The procurement of bottled

mineral water at the three CF branches was made thru shopping notwithstanding the amount involved exceeded the threshold provided under Section 10 of the Revised Implementing Rules and Regulations of Republic Act No. (RA) 9184.

a. Justify the mode of

Procurement selected for the drinking water;

b. Include the procurement of bottled water in the Annual Procurement Plan(APP); and

c. Comply with Section 10 of

RA 9184 in the procurement of bottled water. If the total amount in the APP is more than the threshold amount of

₱500,000, procurement should be through competitive bidding.

Implemented.

7. Overpayment of rentals

totaling ₱3.125 million was made at CF-Cebu as of

a. Renegotiate the lease

agreement in order to adjust and bring down the monthly

Partially Implemented. The matter was referred to

59


December 31, 2011 from the lease of the Parkmall and Crown Regency Satellite

Casinos, and ₱10,074,732 more will be paid annually in excess of what is necessary, due to the inclusion of common-use areas, including areas exclusively occupied by the lessor for their own business interest.

rental to be paid only on areas actually occupied;

b. Allocate rental for common-use areas on an equal-sharing basis; and

c. Refund the overpayment of

₱3,124,855 as of December 31, 2011 which may be made through deduction from future rentals.

the Corporate and Legal Services Department.

8. The former Senior Treasury

Head at CF-Pavilion was issued clearance for retirement notwithstanding the unclaimed insurance coverage for the loss representing unreturned

stolen chips valued at ₱2.7 million as settlement for his accountability and responsibility thereof, contrary to the provision of Section 73 of PD 1445.

a. Provide the COA Audit

Team Leader, CF-Pavilion, with an update on the claim of insurance and submit relevant documents pertaining to the insurance claim, stating how much was paid by the insurance and how much was the unpaid balance;

b. Provide written explanation on the issuance of retirement clearance to the former STH notwithstanding the pending insurance claim

for the stolen ₱2.7 million worth of chips; and

c. Require the filing of request

for relief from accountability with documents required under Section 499 of the GAAM, Volume 1 and Coa Memorandum No. 92-751 dated February 24, 1992, for the difference, if any of the amount per PAGCOR claim and amount paid by insurance provider.

Implemented.

9. Hotel bills totaling ₱0.442 million incurred for bookings made for paying customers / guests at year-end were unrecorded due to varied payment procedure and lack of coordination in handling hotel bookings, resulting in

a. Direct the Concierge Section

to coordinate with the Finance Section whenever there are payments received from paying customers/ guests to facilitate the recording of transaction in the books of accounts.

Implemented.

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overstatementof Other Payables – Others account and Marketing Expense accounts as at year-end.

b. Instruct the Accounting

Section to adjust the Other Payables – Others and Marketing Expense accounts once the names and actual amounts paid by paying customers / guests are found to be accurate.

c. Institute remedial measures

that will prevent the recurrence of the same in the future.

10. CF-Bacolod incurred as

overpayment of lease rental to L’fisher Hotel amounting

to ₱239,977.85 due to erroneous application of rental per square meter.

Apply the overpayment of

₱239,977.85 to its succeeding lease rental payments.

Implemented.

2010

CORPORATE

1. Accounting and property

records for property, plant and equipment (PPE) in the Corporate Office and in the branches were not reconciled.

a. The General Ledger balance of

₱1,276,569,954 of the PPE accounts at the Corporate Office compared to the Physical Inventory Report in the total amount of

₱1,197,188,953 as of December 31, 2010 showed a difference known as Listed but Not Found (LBNF) PPE items

amounting to ₱79,381,001.

b. Property and equipment with a total cost of

₱53,204,818 at CF Pavilion remained

a. Conduct inventory-taking of

all property in the last quarter of the year so that adjustments thereof will be reflected in the books of accounts at the end of the year.

b. Property Section should submit all documents pertaining to the delivery and transfer of all property to the branches and all supporting papers for the LBNF items.

c. Accounting Department

should record all deliveries and transfers of the property and effect the adjustments immediately to facilitate the reconciliation of PPE accounts with the physical inventory report.

Reiterated in the 2011 Audit Observations and Recommendations

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undocumented and/or unaccounted for, resulting in erroneous balance of the Property, Plant and Equipment account as of year-end.

c. The correctness of the net

balance amounting to

₱81,071,123 of property, plant and equipment as well as their existence could not be established due to the failure of the CF Davao to conduct a complete physical inventory and non-reconciliation of accounting and property records at the Branch.

d. The balance of PPE amounting to

₱140,195,494 and its related account at CF Tagaytay was doubtful due to discrepancies between the accounting and property records.

2.Payment for Baler movie

tickets in the total amount of

₱26,700,000 was charged mostly to Marketing Expenses and was not properly supported with documents.

a. Payment for 89,000 Baler

movie tickets in the total

amount of ₱26,700,000 was not fully charged to the Player Tracking System (PTS) points of 12 casino branches as approved by the PAGCOR Board. Instead, payment was also charged to Marketing Expenses of the agency.

Re-evaluate the payment and make a stand whether or not to confirm the payment charged to other accounts without Board approval. Further audit action will depend on the stand of the present Board.

Submit the following documents:

a. Request & Issue Voucher

b. Delivery and Acceptance

Report c. Inspection Report

d. Distribution list duly

acknowledged by the recipients

Not Implemented

With pending case at the Office of the Ombudsman for Malversation and Violation of Anti-Graft and Corrupt Practices Act. Notice of Disallowance (ND) No. 2011-002(08) dated June 30, 2011 was issued.

62


b. The payment of

₱26,700,000 was not supported with the necessary supporting documents as required under Section 168 of the Government Accounting and Auditing Manual (GAAM).

e. Stubs of the Baler movie

passes

f. Contract entered into by and between PAGCOR and BIDA Foundation, Inc./BIDA Production, Inc. for the purchase of BIDA tickets

ANNEXA

Summary of Unsettled Suspensions and Disallowances

Presented below is the status of the audit suspensions and disallowances as of

December 31, 2012:

1. Notice of Suspensions a. Summary of Audit Suspensions which have Matured into Audit Disallowance

NS NO. PERSONS

LIABLE NATURE OF

SUSPENSION AMOUNT

EXPIRATION OF THE 90-

DAY PERIOD

2010

2010-029(09)

Mr. Efraim C. Genuino, et.al.

Non-compliance with COA Circular 2007-001 dated October 25, 2007

P20,438,130.00 4/18/2011*

2011-006(2004-

2009)

Mr. Efraim C. Genuino, et.al


26,744,471.21 11/25/2011*

2011

2011-003(10)

Asenso Manileno Foundation


31,237,500.00

11/17/2011

2011-011(10)

Tribal Communities Association


1,654,000.00

12/15/2011

2011-013(10)

Asenso Manileno Foundation


1,040,000.00

12/19/2011

2012

2012-010(11)

Rheumatology Educational Trust Foundation, Inc.

Incomplete supporting documents

1,007,237.10

11/20/2012

Total

P82,121,338.31

b. Summary of Audit Suspensions Which Have Not Matured Yet into Disallowance

NS NO. PERSONS

LIABLE NATURE OF

SUSPENSION AMOUNT

EXPIRATION OF THE 90-

DAY PERIOD

2012-013(11)

Mr. Henry T. Reyes, et.al.


P31,000,000.00 2/17/2013

2012-014(11)



32,500,000.00 2/17/2013

2012-012(12)



11,700,000.00* 2/17/2013

Total

P75,200,000.00

*Settled under NSSDC No. 2013-001 dated January 15, 2013

* Included in one of the cases filed by the PAGCOR present management against the previous management, re: DOJ Case IS No. XV-INV-11G-00248 for Plunder, Malversation and Violation of the Anti-Graft and Corrupt Practices Act.

2. Notice of Disallowances

ND NO. PERSONS

LIABLE NATURE OF

DISALLOWANCE AMOUNT in PhP Status

2011-01(06/07)

PHILWEB Erroneous application of percentage in computing the software license fee remitted to RTG Holdings Ltd.

P 57,926,133.63 CGS –C Decision No. 2012-009 dated Nov. 16, 2012. Petition for Review filed on January 9, 2013.

2011-02(08)

BIDA Foundation, Inc.

The approval of the Board to charge the total cost of P26.7M to Player Tracking System was not followed

26,700,000.00 With appeal at the Office of the Cluster C Director, Corporate Government Sector

2011-03(10)

Philippine Amateur Swimming Association (PASA)

Irregular expenditure 315,683.30 With appeal at the Office of the Cluster C Director, Corporate Government Sector

2011-04(10)

Philippine Amateur Swimming Association (PASA)

Irregular expenditure 680,658.00 With appeal at the Office of the Cluster C Director, Corporate Government Sector

2012-001(08/09)

Magallanes Village Association, Inc. (MVAI); Mr. Efraim C. Genuino

Illegal expenditure 550,000.00 Issued another Notice of Disallowance ND No. 2013-001(08/09) dated February 20, 2013 upon confirmation that the subject property was not a public property.

2012-003(08)

Ms. Ester P.Henandez; Florante Romey Sr.Foundation, Inc.

Irregular expenditure 16,000,000.00 ND was issued on December 28, 2012. Appeal period has not yet prescribed.

2012-004(09)

Ms. Ester P.Henandez; Negros Oriental and Sports Cultural Foundation, Inc.

Irregular expenditure 3,200,000.00 ND was issued on December 28, 2012, Appeal period has not yet prescribed.

2012-006(10)

Ms. Ester P.Henandez; Samahan ng mga Mag-aaral ng Mababang Paaralan ng Elemntary ng Bagong Silang, Los Banos

Irregular expenditure 3,000,000.00 ND was issued on December 28, 2012, Appeal period has not yet prescribed.

2012-005(09)

Ms. Ester P.Henandez; MOP Development Foundation, Inc.

Irregular expenditure 750,000.00 ND was issued on December 28, 2012, Appeal period has not yet prescribed

2012-007(10)

Ms. Ester P.Henandez; Lanao Foundation, Inc.; c/o Yahiya M. Macabangon

Irregular expenditure 435,000.00 ND was issued on December 28, 2012, Appeal period has not yet prescribed.

Total

P109,557,474.93

Documents

ANNUAL AUDIT REPORT · CF Bacolod Mr. Dan DG Enriquez CF Cebu Mr. Arthur O. Malatag - OIC CF Olongapo Mr. Jose L. Tulio CF Tagaytay Mr. Enrico V. Livelo - OIC CF Davao Mr. Michael