EXECUTIVE SUMMARY INTRODUCTION

The Cavite Economic Zone (CEZ), formerly known as the Cavite Export Processing

Zone (CEPZ) is located in General Trias Drive, Barangay Tejeros, Rosario Cavite. It was created by virtue of Letter of Instruction No. 1083 dated May 30, 1980, but its actual operation started on March 26, 1986.

On February 21, 1995, Republic Act No. 7916, otherwise known and cited as the Special Economic Zone of 1995, was enacted. It is an act providing for the legal creation, operation, administration and coordination of Special Economic Zones in the Philippines, thus creating for this purpose, the Philippine Economic Zone Authority (PEZA). The Act was a consolidation of House Bill No. 14295 and Senate Bill No. 1061.

Its thrust is to actively encourage, promote, induce and accelerate a sound and balance industrial, economic and social development of the country in order to provide jobs to the people especially those in the rural areas; increase their productivity and their individual and family income and thereby improve the level and quality of their living condition thru productive foreign investments.

At present, the Cavite Economic Zone is considered as the biggest recognized/registered zone in the Philippines, among the four public ecozones being managed by the Philippine Economic Zone Authority (PEZA), not only in terms of income but also in the number of enterprises it serves.

As of December 31, 1999, the total workforce of CEZ, Rosario, Cavite was 89 while the total number of locators/enterprises was 221. It is still headed by its dynamic Zone Administrator, Atty. Raymundo T. Nagrampa.

The income of the Cavite Economic Zone depends primarily on its land and building rentals. As of December 31, 1999, it constitutes P183,788,247 or 38.08% of its total operating and service income amounting to P 482,624,745.

Although the Operating and Service Income-Government Service represents 50.25% of the Ecozone income, it cannot be treated as the main source of income, considering that this account also includes the locators power and water payments which are just commensurate to their actual consumption in a given period. On the other hand, the total expenses incurred for Calendar Year 1999 totalled P90,883,604. SCOPE OF AUDIT

An annual audit was conducted on the accounts and operations of the Cavite Economic

Zone for the calendar year ended December 31, 1999. The objectives of the audit encompassed both financial transactions and operations of the agency during the year. The audit was

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undertaken to ascertain the propriety of disbursements, the reliability of the financial statements and the adequacy of the books of accounts and subsidiary records. It was likewise conducted to determine whether the agency utilized its resources in an economical and efficient manner and whether desired results were obtained as envisioned.

Moreover, the results of the Value for Money Audit (VFM) undertaken during the year

will be covered by a separate report.

The approved Test Audit Days Scheme (TADS) was applied in the post audit of its disbursement and collection accounts. The assistance of a COA Technical Audit Specialist was requested to facilitate inspection/evaluation of various infrastructure projects, major repairs and equipment procured. OPINION IN THE STATE AUDITORS REPORT ON THE FINANCIAL STATEMENTS

The Audit team rendered a qualified opinion on the fairness of the presentation of the

financial statements as the validity, existence and correctness of the recorded Fixed Assets account with net book value of P 1,142,826,313 could not be ascertained due to the failure of the Ecozone to complete the physical inventory of its fixed assets account and submit the related inventory report. Moreover, the required disposal of all unserviceable properties was not undertaken. SUMMARY OF SIGNIFICANT FINDINGS AND RECOMMENDATIONS AND FAVORABLE OBSERVATIONS

For the exception cited above, it was recommended that the completion of the physical inventory and the submission of the related inventory report as well as the prompt correction/adjustment of any confirmed discrepancy be made. Moreover, proper disposal of unserviceable properties should also be considered and given preferential attention.

In addition, the following are the other significant findings and their corresponding

recommendations:

1. The collectibility and validity of the accounts receivable amounting to P 3,397,997 which remained outstanding for more than five years could not be ascertained due to the absence of complete records of the legitimate authorized companys representatives/owners and/or their unknown whereabouts.

Intensify efforts to trace/locate the whereabouts of the legitimate owners/representatives of those companies which already ceased their operations for prompt collection of long outstanding receivables. Institute legal actions to effect immediate payment of all collectibles, if warranted.

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2. The agency failed to provide an allowance for doubtful accounts for long outstanding receivables, thus overstating both the assets and income accounts.

Coordinate with the PEZA, Head Office to set/provide yearly allowance for doubtful accounts in order to reflect the true value of the accounts receivable and net earnings realized for the year.

3. There were no clear policy guidelines on the limitation set for the maximum

allowable number of companies to be escorted on a given date, thus resulting to multiple monthly claims of escort fees ranging from P 7,000.00 to P 46,800.00 per Escort Police.

Make representation with the PEZA Head Office to expedite the issuance of a clear-cut policy guidelines on the limitation set for the maximum allowable number of companies to be escorted on a given date and for possible hiring of additional Escort Police to cope with the present workload.

4. The agency has no written policy regarding the grace period to be given to

delinquent locators, thus, the 2% monthly penalty charges stipulated in the Registration Agreement were not strictly imposed and/or uniformly applied to all delinquent Registrants.

Make representation with the PEZA Board of Directors to issue a resolution as to the number of days to be given as the grace period to delinquent locators and impose strictly the 2% penalty charges as provided for in the Registration Agreement.

5. Official Receipts (ORs) were issued by other unauthorized/not bonded

personnel of the Finance Division, contrary to Section 66 of the Government Accounting and Auditing Manual Volume I, thus numerous errors were noted in the post-audit of the ORs and the accuracy and correctness of the amount collected could not be easily ascertained.

Assign or designate additional bonded collecting officers to permanently assist in the issuance of ORs. Moreover, instruct them to turn over their collections to the Cashier at the end of each day as required under Section 65 of the Government Accounting and Auditing Manual Volume I.

Likewise, require the bonded collecting officers to indicate in the Official Receipts the nature/breakdown of the amount collected including the bill numbers. Segregate the Official Receipts for payment of escort fees, since it is a trust liability under a separate fund.

6. There was an accumulated discrepancy of approximately 23,121 square meters

between the CEZ Engineering actual land area survey and the signed Registration Agreements of seven locators, thus reliability of the bills sent to said

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locators could not be easily determined. Moreover, no Supplemental Registration Agreements were prepared/signed to support the noted differences, thus possibility of resistance on the part of the locators to pay the amount billed which were more than what were stipulated in the agreements/contracts.

Coordinate with the PEZA Head Office to resolve the discrepancy in the preparation of RAs or issue Supplemental Agreement for the seven locators, if necessary. Set a meeting with the Representative of Saisho Onkyo, Inc. to settle the interest due on the additional 10,000 square meters lot.

7. The present billing system is designed to accept and print current billing only,

thus Registrants were not promptly informed/reminded of their previous unpaid bills including penalty charges, thus, adversely affecting the collection efficiency of the Ecozone.

Consider the possibility of having additional billing personnel and adopting the computerized system of billing to include the unpaid balance, penalty charges and recording of collections to facilitate verification of account and enhance collection efficiency.

Although several unfavorable findings were noted during the audit, it is worth

mentioning that remakable/commendatory activities undertaken by the Zone Administrator and his staff were also considered in the evaluation of the agencys year end accomplishments.

It is worth mentioning that during the post-audit of the 1999 transactions, we noted that there were only minimal audit suspensions and disallowances incurred. Out of the total disbursements amounting to P 90,883,604 , only P 576,576.99 or .63% was suspended/disallowed during the year.

Moreover, the agency has been withholding and remitting taxes on salaries, goods and services as required under National Internal Revenue Rules and Regulations and COA Memorandum No. 91-692 dated January 21, 1991.

We discussed our findings and recommendations with the Zone Administrator and

concerned personnel during the exit conference and they assured us of the immediate implementation of the recommendations presented. Management views and reactions were incorporated in the report, where appropriate.

STATUS OF IMPLEMENTATION BY AUDITEE OF THE PRIOR YEARS AUDIT RECOMMENDATIONS

Of the eight recommendations contained in the 1998 Annual Audit Report, three were fully

implemented, and five remained unimplemented.