Transmittal Letterspea.gov.ph/images/pra_images/pdf/PRA-FS/fs2016/Audited... · 2017-08-07 · Department of Environment and Natural Resources account and its corollary account, both

Republic of the Philippines

COMMISSION ON AUDIT Commonwealth Avenue, Quezon City

ANNUAL AUDIT REPORT

on the

PHILIPPINE RECLAMATION AUTHORITY

For the Year Ended December 31, 2016

i

EXECUTIVE SUMMARY

Introduction

The Philippine Reclamation Authority (PRA), formerly Public Estates Authority (PEA), was created on February 4, 1977 by virtue of Presidential Decree No. 1084. It serves primarily as a clearing house of all reclamation projects in the country and is mandated to be self-sustaining. It has also created assets for the government by converting under-utilized land into valuable and income-generating real estate properties. In addition, PEA is involved in a wide range of projects and delivery of services related to land development and urban renewal, infrastructure projects, as well as financing and construction of buildings, particularly for other government agencies. By virtue of Executive Order (EO) No. 380 issued on October 24, 2004, PEA was renamed Philippine Reclamation Authority. On June 24, 2006, under EO 543, the power of the President of the Philippines to approve reclamation projects was delegated to PRA through its governing board, subject to compliance with existing laws and rules and subject to the condition that reclamation contracts to be executed with any person or entity shall go through public bidding. The corporate powers and functions of PRA are vested in and exercised by a Board of Directors composed of a Chairman, the General Manager/Chief Executive Officer of the Authority and five members, all appointed by the President. PRA has 132 permanent employees as of December 31, 2016. Audit Scope and Objectives

The audit covered the accounts, transactions and operations of PRA for the calendar years 2016 and 2015. It was aimed at expressing an opinion as to whether the financial statements present fairly the Authority’s financial position, results of operations and cash flows, and at determining the Authority’s compliance with pertinent laws, rules and regulations, as well as the efficiency and effectiveness of operations. Financial Highlights

Comparative Financial Position

2016 2015 (As Restated)

Increase (Decrease)

Total Assets 29,703,298,651 31,156,906,563 (1,453,607,912)

Total Liabilities (including Deferred Credits)

11,104,253,246

12,882,854,427

(1,778,601,181)

Total Equity 18,599,045,405

18,274,052,136

324,993,269

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Comparative Results of Operations

2016 2015 Increase (Decrease)

Operating Income 1,092,170,359 3,278,389,158 (2,186,218,799)

Operating Expenses 261,895,056 273,980,464 (12,085,408)

Income from Operations 830,275,303 3,004,408,694 (2,174,133,391)

Other Income 61,106,793 73,960,499 (12,853,706)

Net Profit Before Tax 891,382,096 3,078,369,193 (2,186,987,097)

Income Tax Expense 243,864,460 896,933,004 (653,068,544)

Net Profit 647,517,636 2,181,436,189 (1,533,918,553)

Independent Auditor’s Report of the Financial Statements We rendered a qualified opinion on the fairness of presentation of the financial statements of PRA because we were not able to establish the correctness of the National Government (NG) share in the total amount of P2.694 billion from 1996 to 2016 on the proceeds of the Alabang Stock Farm (ASF) Joint Venture (JV) Project and PRA’s management fee of P227.924 million for the same period computed based on such proceeds because the JV financial statements were not completely examined/validated by PRA as the NG-authorized representative in the Project. Further, the variances and discrepancies in the Joint Venture Profit Share Distribution Reports and the Sales Profile Reports were not yet resolved as disclosed in our audit of ASF Project accounts. Consequently, we were not able to determine whether any adjustments were necessary on the Assets Held-in-Trust – Department of Environment and Natural Resources account and its corollary account, both with balances of P3.416 billion and P3.366 billion as of December 31, 2016 and 2015 (as restated), respectively, and on the management fee account for the year ended December 31, 2016 of P4.400 million and prior years’ (1996-2015) of P223.524 million. Likewise, we were not able to establish the correctness of the 10-90 sharing by the PRA and the UEM-MARA Philippines Corporation on the P2.226 billion income on the JV in the Manila-Cavite Toll Expressway Project covering the years 1998 to 2006 due to the non-submission of project costs incurred by the JV partner. Summary of Significant Observations and Recommendations

Below is a summary of the other significant observations and recommendations with details presented in Part II of the Report: 1. Share on ancillary income from Joint Venture Agreement not collected

We recommended that Management collect PRA’s 9 per cent share on all income generated from the operation of the Manila-Cavite Toll Expressway, including ancillary income. Management is also advised to validate the completeness of the contracts on billboards submitted by the Cavitex Infrastructure Corporation and determine the bases of the agreed-upon advertising rates.

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2. Long-outstanding accounts receivable in the total amount of P2.730 billion

We recommended that Management exert efforts to collect long-outstanding accounts.

Audit Suspensions, Disallowances and Charges As of December 31, 2016, the unsettled balance of audit suspensions/disallowances and charges is P2.018 billion. No Notice of Suspension/Disallowance and Charges were issued in CY 2016. Status of Implementation of Prior Years’ Audit Recommendations Of the 24 audit recommendations embodied in prior years’ Annual Audit Reports, 8 were implemented and 16 were partially implemented.

i

EXECUTIVE SUMMARY

Introduction

The Philippine Reclamation Authority (PRA), formerly Public Estates Authority (PEA), was created on February 4, 1977 by virtue of Presidential Decree No. 1084. It serves primarily as a clearing house of all reclamation projects in the country and is mandated to be self-sustaining. It has also created assets for the government by converting under-utilized land into valuable and income-generating real estate properties. In addition, PEA is involved in a wide range of projects and delivery of services related to land development and urban renewal, infrastructure projects, as well as financing and construction of buildings, particularly for other government agencies. By virtue of Executive Order (EO) No. 380 issued on October 24, 2004, PEA was renamed Philippine Reclamation Authority. On June 24, 2006, under EO 543, the power of the President of the Philippines to approve reclamation projects was delegated to PRA through its governing board, subject to compliance with existing laws and rules and subject to the condition that reclamation contracts to be executed with any person or entity shall go through public bidding. The corporate powers and functions of PRA are vested in and exercised by a Board of Directors composed of a Chairman, the General Manager/Chief Executive Officer of the Authority and five members, all appointed by the President. PRA has 132 permanent employees as of December 31, 2016. Audit Scope and Objectives

The audit covered the accounts, transactions and operations of PRA for the calendar years 2016 and 2015. It was aimed at expressing an opinion as to whether the financial statements present fairly the Authority’s financial position, results of operations and cash flows, and at determining the Authority’s compliance with pertinent laws, rules and regulations, as well as the efficiency and effectiveness of operations. Financial Highlights

Comparative Financial Position

2016 2015 (As Restated)

Increase (Decrease)

Total Assets 29,703,298,651 31,156,906,563 (1,453,607,912)

Total Liabilities (including Deferred Credits)

11,104,253,246

12,882,854,427

(1,778,601,181)

Total Equity 18,599,045,405

18,274,052,136

324,993,269

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Comparative Results of Operations

2016 2015 Increase (Decrease)

Operating Income 1,092,170,359 3,278,389,158 (2,186,218,799)

Operating Expenses 261,895,056 273,980,464 (12,085,408)

Income from Operations 830,275,303 3,004,408,694 (2,174,133,391)

Other Income 61,106,793 73,960,499 (12,853,706)

Net Profit Before Tax 891,382,096 3,078,369,193 (2,186,987,097)

Income Tax Expense 243,864,460 896,933,004 (653,068,544)

Net Profit 647,517,636 2,181,436,189 (1,533,918,553)

Independent Auditor’s Report of the Financial Statements We rendered a qualified opinion on the fairness of presentation of the financial statements of PRA because we were not able to establish the correctness of the National Government (NG) share in the total amount of P2.694 billion from 1996 to 2016 on the proceeds of the Alabang Stock Farm (ASF) Joint Venture (JV) Project and PRA’s management fee of P227.924 million for the same period computed based on such proceeds because the JV financial statements were not completely examined/validated by PRA as the NG-authorized representative in the Project. Further, the variances and discrepancies in the Joint Venture Profit Share Distribution Reports and the Sales Profile Reports were not yet resolved as disclosed in our audit of ASF Project accounts. Consequently, we were not able to determine whether any adjustments were necessary on the Assets Held-in-Trust – Department of Environment and Natural Resources account and its corollary account, both with balances of P3.416 billion and P3.366 billion as of December 31, 2016 and 2015 (as restated), respectively, and on the management fee account for the year ended December 31, 2016 of P4.400 million and prior years’ (1996-2015) of P223.524 million. Likewise, we were not able to establish the correctness of the 10-90 sharing by the PRA and the UEM-MARA Philippines Corporation on the P2.226 billion income on the JV in the Manila-Cavite Toll Expressway Project covering the years 1998 to 2006 due to the non-submission of project costs incurred by the JV partner. Summary of Significant Observations and Recommendations

Below is a summary of the other significant observations and recommendations with details presented in Part II of the Report: 1. Share on ancillary income from Joint Venture Agreement not collected

We recommended that Management collect PRA’s 9 per cent share on all income generated from the operation of the Manila-Cavite Toll Expressway, including ancillary income. Management is also advised to validate the completeness of the contracts on billboards submitted by the Cavitex Infrastructure Corporation and determine the bases of the agreed-upon advertising rates.

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We recommended that Management exert efforts to collect long-outstanding accounts.

Audit Suspensions, Disallowances and Charges As of December 31, 2016, the unsettled balance of audit suspensions/disallowances and charges is P2.018 billion. No Notice of Suspension/Disallowance and Charges were issued in CY 2016. Status of Implementation of Prior Years’ Audit Recommendations Of the 24 audit recommendations embodied in prior years’ Annual Audit Reports, 8 were implemented and 16 were partially implemented.

TABLE OF CONTENTS

Page

PART I AUDITED FINANCIAL STATEMENTS Independent Auditor’s Report………………………………..……. 1 Statement of Management’s Responsibility for Financial

Statements…………………………………..….……………… 4

Statements of Financial Position…………………………….……. 5 Statements of Profit or Loss.......……………………..…………… 6 Statements of Changes in Equity………..……………….….……. 7 Statements of Cash Flows……………………………….………… 8 Notes to Financial Statements……………………………….……. 9 PART II AUDIT OBSERVATIONS AND RECOMMENDATIONS 34 PART III STATUS OF IMPLEMENTATION OF PRIOR

YEAR’S AUDIT RECOMMENDATIONS 42

PART I

AUDITED FINANCIAL STATEMENTS


STATEMENTS OF FINANCIAL POSITION

December 31, 2016 and 2015

(In Philippine Peso)

Note 2016 2015

(As restated)

ASSETS

Current Assets

Cash and cash equivalents 4 4,739,980,628 3,129,344,620

Short-term investments 5 2,960,088,499 5,370,356,056

Trade and other receivables-net 6 3,705,045,662 3,718,556,377

Inventories 7 905,341,003 901,192,163

Prepaid expenses 8 46,176,008 78,072,747

Other current assets 9 222,491 219,358

Total current assets 12,356,854,291 13,197,741,321

Non-Current Assets

Non-current receivables-net 10 3,879,044,175 4,813,228,971

Investments 11 523,885,727 528,112,008

Property and equipment-net 12 148,028,138 153,815,671

Investment property 13 9,369,578,945 9,088,342,945

Other non-current assets 14 9,278,465 9,318,699

Assets held-in-trust 15 3,416,628,910 3,366,346,948

Total non-current assets 17,346,444,360 17,959,165,242

29,703,298,651 31,156,906,563

LIABILITIES AND EQUITY

Current Liabilities

Payables 16 1,587,008,200 2,339,864,570

Inter-agency payables 17 281,470,366 562,310,084

Other liabilities 18 33,365,002 34,382,178

Total current liabilities 1,901,843,568 2,936,556,832

Non-Current Liabilities

Trust agreements 15 3,416,628,910 3,366,346,948

Deferred tax liability 19 1,128,041,394 1,129,277,920

Due to National Treasury 20 114,820,089 115,939,563

Deferred credits 21 4,542,919,285 5,334,733,164

Total non-current liabilities 9,202,409,678 9,946,297,595

Total Liabilities 11,104,253,246 12,882,854,427

Equity 18,599,045,405 18,274,052,136

29,703,298,651 31,156,906,563

See accompanying Notes to Financial Statements.

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STATEMENTS OF PROFIT OR LOSS

For the Years Ended December 31, 2016 and 2015


Note 2016 2015

OPERATING INCOME

Business income 23 769,263,424 3,039,142,454

Income from Joint Venture 24 134,907,349 122,479,364

Rent income 25 101,702,407 89,287,382

Service income 26 83,547,994 25,723,229

General income 2,749,185 1,756,729

1,092,170,359 3,278,389,158

OPERATING EXPENSES

Personal Services

Salaries and wages 60,638,522 55,236,769

Other compensation 42,646,622 38,543,842

Personnel benefits contribution 8,079,820 6,881,745

Other personnel benefits 1,944,418 923,197

113,309,382 101,585,553

Maintenance and Other Operating Expenses

Taxes, insurance premiums and other fees 49,426,016 82,121,612

Professional services 43,638,794 35,891,422

Bad debts, depreciation and amortization 12,397,559 11,913,349

Travelling 7,679,424 7,063,057

Representation 7,024,799 6,695,580

Utilities 6,722,617 6,807,758

Repairs and maintenance 5,403,031 5,670,534

Communication 3,863,224 4,048,602

Supplies and materials 2,606,358 2,708,792

Rent 2,161,383 2,014,880

Training 1,691,868 2,994,498

Advertising 747,715 131,280

Printing and binding 497,210 94,970

Extraordinary and miscellaneous 628,807 718,381

Subscription 237,376 44,153

Program for senior citizens & disabled 206,390 73,056

Membership dues & contribution to organizations 25,000 5,850

Donations 14,000 12,500

Gender and development program 0 559,092

Other maintenance & other operating expenses 27 3,614,103 2,825,545

148,585,674 172,394,911

TOTAL EXPENSES 261,895,056 273,980,464

INCOME FROM OPERATIONS 830,275,303 3,004,408,694

OTHER INCOME (EXPENSES)

Interest income on savings & short-term investments 78,504,495 88,592,512

Gain on disposal of assets 146,857 0

Financial expenses (17,544,559) (14,632,013)

61,106,793 73,960,499

NET PROFIT BEFORE TAX 891,382,096 3,078,369,193

INCOME TAX EXPENSE 28 243,864,460 896,933,004

NET PROFIT 647,517,636 2,181,436,189


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STATEMENTS OF CHANGES IN EQUITY



Paid-up Capital

Revaluation

Surplus

Retained

Earnings Total Equity

(Note 22) (Note 12) (Note 29)

Balances, December 31, 2014 3,248,276,057 45,682,774 13,880,066,731 17,174,025,562

Changes in Equity for 2015

Amortization-revaluation surplus

in property 0 (4,121,754) 4,121,754 0

Deferred tax liability on revaluation

surplus in property 0 1,236,526 0 1,236,526

Net profit for 2015 0 0 2,181,436,189 2,181,436,189

Dividends 0 0 (1,090,718,095) (1,090,718,095)

Correction of prior year's errors (Note 29) 0 0 8,071,845 8,071,845

Balances, December 31, 2015

as restated 3,248,276,057 42,797,546 14,982,978,424 18,274,052,027

Changes in Equity for 2016

Amortization-revaluation surplus

in property 0 (4,121,754) 4,121,754 0

Deferred tax liability on revaluation

surplus in property 0 1,236,526 0 1,236,526

Net profit for 2016 0 0 647,517,636 647,517,636

Dividends 0 0 (323,760,784) (323,760,784)

Balances, December 31, 2016 3,248,276,057 39,912,318 15,310,857,030 18,599,045,405


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STATEMENTS OF CASH FLOWS



Note 2016 2015

(As restated)

CASH FLOWS FROM OPERATING ACTIVITIES

Collection of receivables 857,665,373 1,346,853,202

Collection of income 195,798,176 239,637,870

Receipt of guaranty and tender deposits, performance bond 272,858 116,500

Miscellaneous receipts 2,699,144 3,882,867

Payment of operating expenses (212,283,453) (201,217,933)

Payment of payables (59,646,131) (28,174,976)

Remittance to GSIS/Pag-IBIG/BIR/Philhealth (92,332,600) (83,641,261)

Remittance to PEMPCO and insurance companies (3,751,804) (2,727,489)

Payment of real property tax (47,456,964) (1,286,944)

Net cash generated from operations 640,964,599 1,273,441,836

Income tax paid (384,010,379) (666,581,258)

Net cash provided by operating activities 256,954,220 606,860,578

CASH FLOWS FROM INVESTING ACTIVITIES

Interest on short-term investments 81,761,294 82,013,543

Proceeds from disposal of assets 165,600 54,150

Proceeds from short-term investments 2,410,267,556 (811,813,446)

Disbursement on projects (9,039,629) (12,958,222)

Purchase of property and equipment (3,569,603) (1,301,774)

Advances to PRA employees (35,185,335) (7,763,660)

Net cash provided by (used in) investing activities 2,444,399,883 (751,769,409)

CASH FLOWS FROM FINANCING ACTIVITIES

Remittance of dividends to the BTr (1,090,718,095) (1,208,834,345)

Net cash used in financing activities (1,090,718,095) (1,208,834,345)

NET DECREASE IN CASH AND CASH EQUIVALENTS 1,610,636,008 (1,353,743,176)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,129,344,620 4,483,087,796

CASH AND CASH EQUIVALENTS AT END OF YEAR 4 4,739,980,628 3,129,344,620


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PHILIPPINE RECLAMATION AUTHORITY NOTES TO FINANCIAL STATEMENTS

1. CORPORATE INFORMATION

The Philippine Reclamation Authority (PRA), formerly Public Estates Authority (PEA), was created on February 04, 1977 by virtue of Presidential Decree No. 1084. It serves primarily as a clearing house of all reclamation projects in the country and is mandated to be self-sustaining. It has also created assets for the government by converting under-utilized land into valuable and income-generating real estate properties. In addition, PEA is involved in a wide range of projects and delivery of services related to land development and urban renewal, infrastructure projects, as well as financing and construction of buildings, particularly for other government agencies. By virtue of Executive Order (EO) No. 380 issued on October 24, 2004, PEA was renamed Philippine Reclamation Authority. On June 24, 2006, under EO 543, the power of the President of the Philippines to approve reclamation projects was delegated to PRA through its governing board, subject to compliance with existing laws and rules, and subject to the condition that reclamation contracts to be executed with any person or entity shall go through public bidding.

On October 19, 2007, EO 672 was issued defining and clarifying the responsibilities of the Department of Environment and Natural Resources (DENR) and PRA in the approval and implementation of reclamation projects nationwide. On May 14, 2009, EO 798 was issued transferring the jurisdiction of PRA from the Department of Public Works and Highways to the DENR. PRA has 132 permanent employees as of December 31, 2016.

The registered office address of PRA is at 7th Floor Legaspi Towers 200 Bldg. 107 Paseo de Roxas St., Legaspi Village, City of Makati, Metro Manila.

2. BASIS OF FINANCIAL STATEMENTS PREPARATION

The financial statements of PRA have been prepared in accordance with state accounting principles generally accepted in the Philippines and are presented in Philippine pesos.

3. SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with maturities of 90 days or less from dates of acquisition and that are subject to an insignificant risk of change in value.

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Short-term Investments Short-term investments consist of investments that are readily convertible to known amounts of cash with maturities of over 90 days but not more than one year from the date of acquisition.

Accounts Receivable

Accounts receivable are stated at face value net of allowance for doubtful accounts.

Allowance for doubtful accounts is maintained at a level considered adequate to provide for potentially uncollectible receivables. The level of allowance is provided at various approved rates based on aging of accounts receivable and specific identification. Inventories

Completed buildings are recorded at cost. Expenditures incurred for their further development are added as part of the cost. Reclaimed lands are recorded at cost.

Investments Investments in marketable securities, subsidiaries and stocks are stated at cost.

Investment Property Investment property is recorded using the fair market value model. Appraisal of investment property is made every five years and any gain or loss arising from the change in fair value is recognized in profit or loss. For prudence, the fair value considered is the latest lowest available appraisal of the property.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and any impairment in value, except for building and structures which are stated at appraised value using the revaluation model-elimination method and roads, highways and bridges which are stated at a percentage of their assessed values. Depreciation is calculated on a straight-line basis over the estimated lives of the assets, 50 years for building and structures and 5-10 years for other properties.

The initial cost of property and equipment is comprised of purchase price and any costs directly attributable to bringing the asset to its working condition and location for its intended use. Expenditures incurred after the assets have been put into operation, such as repairs and maintenance and overhaul costs, are normally recognized in profit or loss. Any expenditure that prolongs the future economic benefits expected to be obtained from the use of the property and equipment is capitalized. Any resulting gain or loss from the retirement or disposition of the asset is recognized in profit or loss.

Impairment of Assets

The carrying values of property and equipment, investments and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that

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the carrying values of the assets may not be recoverable. If any such indication exists, and where the carrying values exceed the estimated recoverable amounts, the assets are written down to their recoverable amounts and an impairment loss is recognized in profit or loss. Borrowing Costs Borrowing costs are recorded as expense. These include interest and other financing charges incurred in connection with the borrowing of funds. Revenue Recognition Income from lease-purchase agreements of completed building projects where collectability is reasonably assured is accounted for under the full accrual method. Under this method, the difference between the cost and contract price on installment sale is deferred and accrued as rental income as the installments become due based on the agreed payment schedule. On the other hand, income from installment sale of condominium units, housing units and lots is recognized using the installment method. Under this method, the difference between the cost and contract price on installment sale is deferred but recognized as income from installment sales upon receipt of payment, computed based on the actual amount received multiplied by the gross profit rates of individual sales contract.

Revenues from rent, as well as management and regulatory fees derived from administrative and property management, are recognized when earned. Supervision fees are accrued as earned based on the actual development costs incurred for the period of supervised projects.

4. CASH AND CASH EQUIVALENTS This account consists of: 2016 2015

(As restated)

Cash on hand and in banks 21,457,440 19,624,501 Cash equivalents 4,718,523,188 3,109,720,119

4,739,980,628 3,129,344,620

Cash in banks earn interest at fixed rates based on the prevailing bank deposit rates. Cash equivalents are short-term investments which are made for varying periods of up

to 90 days depending on the immediate cash requirements, and earn interest at the prevailing short-term rates.

5. SHORT-TERM INVESTMENTS This account consists of investments which are made for varying periods of over 90 days but not more than one year depending on the immediate cash requirements, and earn interest at the prevailing short-term rates.

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6. TRADE AND OTHER RECEIVABLES

This account consists of the following:

2016 2015

Trade receivables Accounts receivable 178,090 705,503

Due from NGAs 2,758,737,614 2,759,176,414 Due from GOCCs 920,651,127 927,357,965 Due from subsidiaries 2,537,468 2,094,923

3,682,104,299 3,689,334,805

Non-trade receivables Advances to officers and employees 0 2,575,766 Due from officers and employees 209,961 163,982 Interest receivable 10,315,245 17,497,017 Others 12,416,157 8,984,807

22,941,363 29,221,572

3,705,045,662 3,718,556,377

Accounts receivable account includes collectibles from the buyers of Coastal Plaza Condominium Project (CPCP). Likewise, included under this account are amounts due from various entities representing accrued supervision/regulatory fees equivalent to 2.5 per cent of the development costs of various reclamation projects.

Due from National Government Agencies (NGAs) pertains to the current portion of

receivables from the following: 2016 2015

Department of Public Works and Highways (DPWH)

Department of Transportation and Communications (DOTC)

2,349,092,032

371,768,000

2,349,092,032

371,768,000

Bureau of Internal Revenue (BIR) 35,546,508 35,402,539 Sandiganbayan (SB) 2,331,074 2,913,843

2,758,737,614 2,759,176,414

Receivable from DPWH represents the amount due from the sale of lot located at CBP-1 and CBP-2 pursuant to the Memorandum of Agreement between PRA and DPWH dated December 23, 2014. Receivable from DOTC pertains to the 20 per cent balance on the sale of a 46,471-square meter lot located at CBP-1A pending the transfer of title in DOTC’s name. Due from Government Owned and/or Controlled Corporations (GOCCs) represents the

current portion of the receivable from the Philippine Amusement and Gaming Corporation for the installment sale of lot at CBP-Islands B & C.

Due from subsidiaries pertains to the share of PRA from the earnings of the PEA

Tollway Corporation under the new arrangement of nine per cent of the latter’s gross receipts.

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Due from officers and employees pertains to the current portion of receivables from PRA officers and employees on excess personal usage of corporate cellular phones. Non-trade receivables - others account pertains to the current portion of the contractual mortgage loans for Pabahay 2000 housing units, motor vehicles and computers availed of by PRA officers and employees.

7. INVENTORIES


2016 2015

Reclaimed lands Central Business Park IA 492,487,600 490,402,774 Work in process BASECO Reclamation Project 216,488,975 216,488,975 Offshore Quarrying 19,716,772 19,716,772 Finished goods inventory Coastal Plaza Lots and Condominium Units

176,647,656 174,583,642

905,341,003 901,192,163

Reclaimed lands - CBP IA represents PRA’s share in its Joint Venture Agreement with

Shoemart Inc. recorded at assigned cost.

Work in process - BASECO Reclamation Project represents the disbursements relative to the reclamation, borehole testing, processing of Environmental Compliance Certificate

(ECC) of the project and other related expenses. Work in process - Offshore Quarrying refers to the cost in the conduct of the feasibility and environmental impact studies necessary in securing a Government Seabed Quarrying Permit (GSQP) for the additional 10,000 hectares quarry area in the Municipalities of Rosario, Naic and Ternate, Cavite as well as the Environmental Clearance Certificate covering the 10,000 hectares San Nicholas Shoal-GSQP of PRA and the additional 10,000 hectares for the additional GSQP in support for the fill materials requirement of approved and proposed reclamation projects in Manila Bay. Finished goods inventory - Coastal Plaza Lots and Condominium Units pertains to the value of lots with an area of 15,364 square meters. These properties were appraised by independent appraisers in June 2008. Fair market values range from P3,000 to P6,000 per square meter. It also includes the condominium units returned/repossessed and reverted back to available for sale inventory.

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8. PREPAID EXPENSES

This account consists of: 2016 2015

(As restated)

Creditable withholding VAT 44,176,193 75,879,792 Input VAT 855,320 580,239 Advances to contractors 464,695 868,450 Prepaid office supplies 392,651 138,515 Prepaid insurance 246,213 564,815 Prepaid rent 40,936 40,936

46,176,008 78,072,747

Advances to contractors account represents advance payments to contractors for

mobilization and to suppliers for purchases already paid but not yet delivered.

9. OTHER CURRENT ASSETS

This account substantially pertains to the guaranty deposits with MERALCO for power services connection.

10. NON-CURRENT RECEIVABLES

This account consists of the following: 2016 2015

(As restated)

Non-current trade receivables Accounts receivable 193,730,899 194,622,222 Due from GOCCs 3,274,301,740 4,194,952,867 Due from NGAs 73,712,028 105,641,197 Due from affiliates 3,654,634 3,654,634

3,545,399,301 4,498,870,920 Allowance for doubtful accounts (9,733,387) (9,729,455)

3,535,665,914 4,489,141,465

Non-current non-trade receivables Due from GOCC 184,671,934 184,671,934 Due from LGU 66,369,249 66,369,249 Due from NGAs 35,000,000 35,000,000 Due from officers and employees 647,364 651,316 Others 56,689,714 37,395,007

343,378,261 324,087,506

3,879,044,175 4,813,228,971

Accounts receivable includes the P116.83 million due from R1 Consortium for supervision fees relative to the R1 Toll Expressway and CBP - B & C Projects.

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Trade Receivables - Due from Government Owned and/or Controlled Corporation (GOCC) represents the non-current portion of the receivable arising from the sale of lots to the Philippine Amusement and Gaming Corporation. Trade Receivables - Due from National Government Agencies (NGAs) pertains to the non-current portion of receivables from the following:

2016 2015

Bureau of Internal Revenue (BIR) 71,380,953 100,979,048 Sandiganbayan (SB) 2,331,075 4,662,149

73,712,028 105,641,197

The amounts due from BIR and SB pertain to the Lease with Option to Purchase Agreements for the completed buildings financed and constructed by PRA for these agencies. Trade Receivables - Due from affiliates represents the 70 per cent share in the net

revenue of the Port Center Development Corporation. Non-trade receivables - Due from LGU represents Value-Added Tax (VAT) due from the City Government of Pasay for the property conveyed as payment for PRA’s real property tax obligations pursuant to the Compromise Agreement between PRA and the City of Pasay dated July 25, 2003. Under the Agreement, the City will shoulder all costs and expenses including documentary stamp tax and VAT. Deeds of Conveyance were executed in 2004 to 2010 wherein a total of 12,661.19 square meters were conveyed to the City. In 2011, PRA conveyed 1,153.39 square meters to Pasay City Government in payment of the 2011 real property tax.

Non-trade receivables - others account includes the non-current portion of the

contractual mortgage loans for Pabahay 2000 housing units, motor vehicles and computers availed by PRA officers and employees in the total amount of P42.045 million and P19.168 million as of December 31, 2016 and 2015, respectively.

11. INVESTMENTS

This account consists of investments in:

2016 2015

Joint Venture-MCTEP 514,660,047 518,886,328 Subsidiaries and affiliates 7,000,000 7,000,000 Shares of stocks - service enterprises 2,225,680 2,225,680

523,885,727 528,112,008

Investment in Joint Venture - Manila Cavite Toll Expressway Project (MCTEP) pertains to PRA’s investment in the Project which includes the initial development costs incurred under the 1981 construction contract with the Philippine National Construction Corporation and the subsequent completion and upgrading costs under the 1989 R-1 Consortium contract. The total cost incurred is amortized over a period of 35 years.

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In 1990, a Toll Operation Certificate was issued to PRA by the Republic of the Philippines (RP), through the Toll Regulatory Board (TRB), for the construction, operation and maintenance of R-1 Expressway and R-1 Expressway Extension as toll facilities for 25 years. Subsequently, in 1994, PRA and the Malaysian corporations, Majlis Amana Rakyat (MARA) and Renong Berhad (RENONG) entered into a Joint Venture Agreement (JVA) where they agreed to develop the MCTE, which now includes the C5 Link Expressway, and to operate the same for 35 years. In consideration of their respective obligations, the parties agreed that their proportionate share in the project income shall initially be 10 per cent - 90 per cent in favor of the Malaysian parties and, thereafter, 60 per cent - 40 per cent in favor of PRA. In 1995, RENONG assigned its rights and obligations under the JVA to United Engineers (Malaysia) Berhad (UEM). The Malaysian parties, UEM and MARA, then incorporated and assigned their rights and obligations to UEM-MARA Philippines Corporation (UMPC), which represented them in the Toll Operation Agreement (TOA) executed with the RP and PRA. In 1999, UEM divested its entire equity interest in UMPC to the Coastal Road Corporation (CRC), officially relinquishing all of UEM’s obligations and liabilities in the JVA and TOA.

On August 25, 2006, UMPC entered into a P3.5 Billion Omnibus Loan Agreement with a syndicate of lenders for the construction of Segment 4 of R-1 Expressway Extension of the MCTE Project. One of the conditions of the lenders is that the Project must have a strategic partner which is an Equity Contractor. Thus, the No. 14th Metallurgical Construction Company of China Nonferrous Metal Industry signed an agreement to purchase 40 per cent of UMPC for a P1.5 billion equity.

On November 14, 2006, an Operations and Maintenance Agreement (OMA) was executed between PRA, UMPC and TRB. Under the OMA, the revenue sharing was amended/modified temporarily wherein PRA shall receive 8.5 per cent of gross toll revenue while UMPC shall receive 91.5 per cent of the gross toll revenue absorbing all Operating and Maintenance costs and expenses. PRA’s share shall be increased by 0.5 per cent every periodic Toll Rate Adjustment under the TOA but not to exceed 10 per cent of gross toll revenue. The amended revenue sharing arrangement shall be implemented during the period of the existence of the loan, which is payable for a period of eight years under the Omnibus Loan Agreement of August 25, 2006, and the repayment of the equity of the Equity Contractor, which shall be converted into subordinated debt pari passu with the Lenders for a period which shall not exceed an additional three years after the period of eight years. On May 20, 2010, the PRA Board of Directors approved the extension of the effectivity of the OMA for a period of four years from August 25, 2017 to August 25, 2021, or upon full settlement of the funding obtained, whichever comes first, subject to compliance of several terms and conditions.

On March 5, 2012, the Securities and Exchange Commission approved the application of UMPC for change of corporate name to Cavitex Infrastructure Corporation (CIC). On December 19, 2012, CIC advised PRA that Cavitex Holdings Inc., formerly Coastal Road Corporation, entered into a financing and cooperation agreement with Metro Pacific Tollways Corporation, a wholly-owned subsidiary of Metro Pacific Investments

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Corporation. The agreement involves the issuance of a P6.7 billion bond convertible into non-voting redeemable preferred shares of CHI. Under the said agreement, MPTC will provide management assistance to CIC effective January 2, 2013.

Investment in subsidiaries and affiliates includes PRA’s investment in stocks in the following: PEA Tollway Corporation (PEATC) - This is a wholly-owned subsidiary of PRA

incorporated in 1997 to manage, operate, maintain the MCTEP and to collect toll fees therefrom. Its authorized capital stock consists of 50,000 shares with a par value of P100 per share, of which 20,000 shares had been subscribed and fully paid by PRA. Bay Dredging, Inc. (BDI) - This is a subsidiary where PRA has 40 per cent equity interest. It was incorporated in 1998 to (a) own, lease, or hire dredging equipment suitable for dredging and reclamation under Philippine condition; (b) train and acquire modern, scientific, efficient, and environment-friendly dredging and reclamation technology from experts all over the world; (c) participate in dredging contracts in the Philippines; (d) enter into contracts to reclaim areas planned for reclamation; and (e) enter into contracts to supply dredge fill materials to all reclamation projects. Its authorized capital stock consists of 500,000 shares with a par value of P100 per share, of which 50,000 shares had been subscribed and fully paid by PRA.

Investment in shares of stocks - service enterprises pertains to investment in shares of stocks with MERALCO and PLDT.

12. PROPERTY AND EQUIPMENT


(Amounts stated in thousand pesos)

Building &

Structures

Motor

Vehicles

Furniture & Other

Equipment

Roads, Highways,

Bridges

Total

At December 31, 2015 Cost/Appraised Value 119,877 15,681 18,639 35,718 189,915 Accumulated Depreciation (12,818) (11,262) (12,020) 0 (36,100)

Carrying value, as restated

107,059

4,419

6,619

35,718

153,815

Year Ended December 31, 2016

Opening Carrying Value 107,059 4,419 6,619 35,718 153,815 Disposals/Adjustments-Cost -Accumulated Depreciation

0 0

(1,470) 1,469

(1,427) 1,392

0 0

(2,897) 2,861

Additions/Appraisal Increase 0 0 3,720 0 3,720 Depreciation for the Year (6,409) (841) (2,221) 0 (9,471)

Closing Carrying Value 100,650 3,577 8,083 35,718 148,028

At December 31, 2016

Cost/Appraised Value 119,877 14,211 20,932 35,718 190,738 Accumulated Depreciation (19,227) (10,634) (12,849) 0 (42,710)

Carrying value

100,650

3,577

8,083

35,718

148,028

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Buildings and structures refers to the eight condominium units at the Legaspi Towers 200 with appraised value of P48,000 per square meter, or a total of P119,877,600 as of September 2013, as appraised by Cal-Fil Appraisal and Management, Inc. Revaluation Surplus in the amount of P69.383 million was recorded on January 1, 2014 to reflect the increase in the fair value in Building and Structures. Balances of revaluation surplus as of December 31, 2016 and 2015 are as follows:

2016 2015

Balance, beginning of year 42,797,546 45,682,774 Realization transferred to Retained Earnings (4,121,754) (4,121,754) Amortization of Deferred Tax Liability 1,236,526 1,236,526

Balance, end of year 39,912,318 42,797,546

Roads, highways and bridges includes the roads and open spaces of Seaside Reclamation Project recorded at 50 per cent level of CY 2000 assessed value of P6,000 per square meter.

13. INVESTMENT PROPERTY

Investment property represents lands and other assets held for undetermined future use. This account includes the following:

2016 2015

Three Islands 6,704,979,000 6,704,979,000 Esplanade 1,161,851,864 1,161,851,864 R-1 Landstrips 641,103,970 641,103,970 Bacolod Reclamation 816,084,000 534,848,000 Libertad Channel 29,737,351 29,737,351 R-1 Waste Transfer Station 15,822,760 15,822,760

9,369,578,945 9,088,342,945

Three Islands consists of the 157.844-hectare reclaimed land at various elevation in

Parañaque City recorded at June 2008 appraisal conducted by Cal-Fil Appraisal and Management, Inc. and Asian Appraisal Co., Inc. The islands were valued at P4,000 – P4,500 per square meter or P6,704,979,000. The last appraisal was made in September 2013 by three reputable appraisal companies, namely: (1) Cal-Fil Appraisal and Management Co., Inc.– submerged and unsubmerged areas– P9,391,056,300; (2) Topconsult, Inc.– submerged areas– P6,990,826,747; and (3) Royal Asia– unsubmerged areas– P2,690,360,000. If PRA will adopt the lowest appraisal value from the latest appraisal reports (submerged and unsubmerged), the value of the Three Islands will still be higher than the value per books (or a gain of P285,847,747) as of September 2013. However, if submerged areas shall not be valued, there would be a loss on valuation even if the highest value is used for unsubmerged areas. Based on the latest appraisal reports, PRA opted to retain the value of the said properties as recorded per books considering that the three independent appraisers do not have the same opinions in their respective reports on whether or not to value the submerged areas. However, PRA will record the value of the properties at their current appraised value upon their final disposition.

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Esplanade refers to a green belt along the bay edge of Boulevard 2000 located at the coastal strips of Central Business Park (CBP) 1A, CBP 1 Islands B & C and CBP II with a 50-meter wide open space. The area is registered under the name of PRA. R1 Landstrips pertains to the 154,272-square meter lots in Parañaque City along the Coastal Road area recorded at June 2007 and June 2008 appraisals ranging from P2,200 to P15,000 per square meter with a total value of P632,819,600. It also includes the transfer cost of a 9,770 square meter lot at Manila-Cavite Toll Expressway/Coastal Road and Reclamation Project of P8,284,370. Bacolod Reclamation represents PRA’s land share from the Bacolod Reclamation

Project in Bacolod City with a total area of 90,676 square meters recorded at appraised value of P9,000 per square meter representing share conveyed to PRA as of December 31, 2016. Libertad Channel represents the transfer cost of the 19,199-square meter property in Pasay City from Pasay Hongkong Realty Development Corp. of P29,737,351 inclusive of the cost of relocating informal settlers from the area. R-1 Waste Transfer Station (WTS) represents the value of the WTS property owned by PRA located at Barangay Ilaya, Las Piñas City and is being leased to the City Government of Las Piñas.

14. OTHER NON-CURRENT ASSETS This account consists of:

2016 2015

Restricted funds-PVB 8,248,565 8,248,565 Other receivables 912,564 912,564 Others 117,336 157,570

9,278,465 9,318,699

Restricted funds represents funds at Philippine Veterans Bank used as security for the surety bonds from insurance companies as a requirement in the execution of the awards in various cases against PRA. Other receivables comprises of receivables from BIR San Pablo representing initial cost incurred by PRA for the construction of BIR-San Pablo Building such as architectural design, survey, appraisal, fencing and other expenses. PRA is negotiating for the collection of this account.

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15. ASSETS HELD IN TRUST

This account consists of assets held in trust for: 2016 2015

(As restated)

Dep’t. of Environment and Natural Resources (DENR)

3,416,296,109

3,366,017,055

Ombudsman (OMB) 332,801 329,893

3,416,628,910 3,366,346,948

Assets held-in-trust for DENR represents the National Government’s (NG) equity on the

development of its 244-hectare Alabang Stock Farm (ASF) property which is the subject of the 1993 JVA between the Republic of the Philippines and Filinvest Development Corporation (FDC) then assigned to Filinvest Alabang, Inc. (FAI). PRA renders management services to the project for a management fee of 7.5 per cent of the NG’s share on the excess of revenue over expenses for distribution and supervision services for a supervision fee of 2.5 per cent of the project cost. As of December 31, 2016, FAI has remitted to PRA the amount of P2.553 billion representing 26 per cent NG’s share from the proceeds of the ASF project. Out of this amount, P1.610 billion was remitted to the Bureau of the Treasury (BTr). FAI had also turned over to PRA a total of 21,000 housing units, as follows:

Responsible Agency

No. of housing units

National Housing Authority 14,890 Department of Environment and Natural Resources 3,201 National Home Mortgage Finance Corporation 1,329 Local Government Unit of San Pedro, Laguna 885 PRA employees 493 Nayong Pilipino 100 Bases Conversion and Development Authority 59 Armed Forces of the Philippines 27 Laguna Lake Development Authority 10 Philippine Ports Authority 6

Total 21,000

The JVA also provides a P200 million Escrow Fund to finance the replication of the affected government facilities in the area. The Escrow Fund of P200 million earned interest in the amount of P204.929 million. A total of P291.778 million was disbursed to replicate the affected government facilities and a total of P56.814 million was remitted to the BTr, leaving a balance of P56.337 million as of December 31, 2016.

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Breakdown of PRA’s accountability on the Assets Held-in-Trust for DENR is shown below: 2016 2015

(As restated)

Assets

Cash and Cash Equivalents 1,309,190,596 1,246,613,002 Receivables from Housing Units Sold 138,128,323 141,327,862 Finished Goods Inventory - Saleable Lots 521,023,500 530,392,500 Roads/Open Spaces 1,215,154,500 1,215,154,500 NG Share 398,022,000 398,022,000

3,581,518,919 3,531,509,864

Liabilities

Deferred Credits to Income 165,222,809 165,492,809

Equity

DENR/ASF Share 2,336,796,277 2,336,586,263 Escrow Fund 56,337,408 55,007,946 Income for the Year 1,023,162,425 974,422,846

3,416,296,110 3,366,017,055

PRA had deferred the remittance to the NG of the Cash Held-in-Trust amounting to P792.171 million as share from the proceeds of the Joint Venture for the development of the Alabang Stock Farm pending resolution of the issue on the 175-hectare area declared by the NG as Bird Sanctuary. The value of the said area will be deducted from the dividends due to NG to enable PRA to recoup the value of the assets. NG share refers to the cost of the 265,348-square meter land share of the NG used in the relocation and replication of government facilities and structures inside (onsite) the Alabang Stock Farm Project with the titles in the name of the Republic of the Philippines. On April 19, 2016, DENR formally informed PRA and FAI that the Memorandum of Agreement (MOA) entered into between DENR and Public Estates Authority (PEA), now PRA, dated September 27, 1990, wherein PEA was named, appointed and constituted as DENR’s true and sole attorney-in-fact for the utilization of the subject property for a period of ten (10) years from the date of signing, had expired in September 2000. Considering that said arrangement is no longer in effect, PRA shall no longer act in representation of or in behalf of the DENR on any matter involving the property, particularly on the receipt of the income and other fee pertaining to its management and utilization. On the other hand, FAI is advised to directly transact and coordinate with the Director of the Land Management Bureau (LMB) and DENR on all matters pertaining to the property. On April 26, 2016, a Project Oversight Committee (POC) was constituted by DENR for the management of the said property composed of the Director, DENR-LMB, the Chief, Land Management Division-LMB, the Chief, Legal Division-LMB and three (3) representatives from FDC/FAI. COA was formally informed on PRA’s disengagement

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from ASF project. A terminal report is now being prepared by PRA for final disposition of the matter.

Assets held-in-trust for OMB represents the balance of the funds remitted by OMB to PRA to defray the construction cost on the OMB building. The corresponding credit account of Assets held-in-trust is Trust Agreements presented under Liabilities.

16. PAYABLES

This account consists of:

2016 2015 (As restated)

Dividends payable 812,853,918 1,579,811,229 Accounts payable 774,025,554 759,937,523 Due to officers and employees 128,728 115,818

1,587,008,200 2,339,864,570

Dividends payable represents dividends due to NG out of PRA’s operations for the following periods:

2016 2015

Current year 323,760,784 1,090,718,095 Previous years 489,093,134 489,093,134

812,853,918 1,579,811,229

For CY 2016, PRA declared dividends of P323.761 million. In the same year, PRA remitted P1.091 billion to the BTr representing dividends declared in CY 2015. On September 27, 2007, PRA and Light Rail Transit Authority (LRTA) signed a MOA for the Grant of Right-of-Way by PRA to LRTA over a 27,355-square meter lot located in the City of Parañaque and the Municipality of Bacoor, Cavite for the implementation of the LRT Line 1 South Extension Project. The value of the PRA property for the right-of-way in the amount of P571.586 million was proposed to be charged against PRA’s dividends payable to NG in prior years of P489 million.

Accounts payable comprises of amounts due to the following:


AMARI Coastal Bay Development Corp. 589,499,084 589,499,084 Shoemart, Inc. 85,000,000 85,000,000 Manila Bay Development Corp. 57,097,431 57,097,431 Accrued expenses 42,429,039 28,341,008

774,025,554 759,937,523

Due to AMARI Coastal Bay Development Corp. includes the P300 million initial

reimbursement made by AMARI on PRA’s partially reclaimed land valued at P1.894 billion in accordance with the Joint Venture Agreement dated April 26, 1995. With the

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final declaration by the Supreme Court in 2003 that the Amended Joint Venture Agreement is null and void, the P300 million initial reimbursement was set up as a liability to AMARI. The account also includes the P289.499 million estimated advances by AMARI for relocation expenses in the Three Islands and CBP-1 Projects of PRA, subject to adjustment upon validation of documents related thereto (see Note 30). Due to Shoemart, Inc. refers to the loan availed by PRA from Shoemart, Inc., the

proceeds of which were used to pay the relocation expenses incurred in clearing the CBP-1A area and is payable in land. Due to Manila Bay Development Corporation (MBDC) pertains to the difference

amounting to P52.175 million between MBDC’s claim from PRA for reimbursement of the relocation expenses as against regulatory fee due to PRA pursuant to the Memorandum of Agreement executed between PRA and MBDC dated October 21, 1999. The account also includes the P4.922 million documentary stamp taxes advanced by MBDC.

17. INTER-AGENCY PAYABLES


2016 2015

Due to BIR 280,393,325 561,242,015 Due to GSIS 931,006 913,705 Due to Pag-IBIG 73,497 82,301 Due to PhilHealth 72,538 72,063

281,470,366 562,310,084

Due to BIR account consists of the following:

2016 2015

Income tax 149,358,518 289,504,437 Value-added tax 124,094,671 265,559,060 Withholding taxes 6,940,136 6,178,518

280,393,325 561,242,015

The income tax payable pertains to the balance of income tax due at end of reporting date.

18. OTHER LIABILITIES

The account balance as of December 31, 2016 and 2015 of P33.365 million and P34.382 million, respectively, pertains to guaranty deposits and bidders’ bonds.

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19. DEFERRED TAX LIABILITY


2016

2015

Balances, beginning of year 1,129,277,920 1,130,514,446 Deferred tax on revaluation of property (1,236,526) (1,236,526)

Balances, end of year 1,128,041,394 1,129,277,920

This account is the deferred tax consequence attributable to a taxable temporary difference computed by multiplying the amount of taxable temporary difference by the tax rate. Temporary difference is the difference between the tax basis of an asset or liability and its reported amount in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled, respectively.

20. DUE TO NATIONAL TREASURY


2016 2015

Advances by the NG for the Debt Servicing of the FCDU loan

110,459,528

110,459,528

Cost of Pabahay 2000 Housing Units Availed of by PRA

4,360,561

5,480,035

114,820,089 115,939,563

Advances by the NG for the debt servicing of the Foreign Currency Deposit Unit (FCDU) loan pertains to the advances made by the BTr upon recommendation/approval from the Department of Finance (DOF), the loan being guaranteed by the Republic of the Philippines. Requests for NG advances were resorted to by PRA due to the non-remittance by the Toll Regulatory Board of the amount actually disbursed by PRA for the right-of-way acquisition of the Manila-Cavite Toll Expressway Project.

Pursuant to DOF Memorandum Circular No. 7-97, guarantee fee is one per cent per annum based on the outstanding balance of the guaranteed borrowings. Likewise, pursuant to DOF Order No. 9-87, interest based on the average 364-day Treasury Bill rate is charged on net lending representing payments made by the BTr on the servicing of foreign and domestic loans. The amount of P110.459 million consists of P62.014 million guarantee fee and P48.445 million unsettled portion of the interest on NG advances. The Cost of Pabahay 2000 housing units account is decreased by the collections for the housing units sold which were deposited to the Pabahay bank account under the Asset Held-in-Trust (DENR) account (Note 15).

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21. DEFERRED CREDITS

This account consists of the deferred income on the following:


Receivables on installment sales Lots and Condominium Units 3,965,707,689 4,734,686,501 PRA Housing Program 68,390 68,390 Investments in Joint Venture – MCTEP 521,472,771 522,777,424 Receivables on lease BIR Building Project 39,469,826 64,879,817 Sandiganbayan Building Project 626,689 1,496,676 Unearned rent 12,063,751 10,824,356 Receivables on car loan 3,510,169 0

4,542,919,285 5,334,733,164

Deferred credits on receivables on installment sales refers to the balance of the future income from sale of PRA’s condominium units at Coastal Plaza Condominium, CBP-1A lot (including installment sale to PAGCOR, Notes 6 and 10) and PRA’s Pabahay 2000 Housing Program. Deferred credits on investment in Joint Venture - MCTEP refers to the value of the unreclaimed land used in payment to R-1 Consortium for the upgrading of the R-1 Expressway, which is being amortized as income over the 35-year franchise period (see Note 11). Deferred credits on receivables on lease refers to the balance of PRA’s future income from lease-purchase agreements with the Sandiganbayan and the Bureau of Internal Revenue.

Unearned rent refers to unrealized portion of the amount received from SM Land, Inc. The rent for the 12,121-square meter lot along Libertad Channel, Esplanade area is payable in advance annually every June 21 commencing from the effectivity of the Lease Agreement between PRA and SM Land, Inc. dated June 21, 2013, for a maximum period of 15 years renewable upon mutual agreement of the parties. The lease rate is subject to an escalation clause of 5 per cent annually.

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22. PAID-UP CAPITAL

The details of this account are shown below: 2016 2015

Initial Cash Releases 4,645,933 4,645,933 Equity Releases in Payment of Notes Payable to PNCC

545,116,700

545,116,700

Equity Releases for the Mindanao Railway System Project

5,000,000

5,000,000

Conversion into Equity of the Balance of Notes Payable to PNCC

43,592,980

43,592,980

Conversion into Equity of PRA’s Assumed Obligation with PNB Inclusive of Interest and Charges

2,649,920,444

2,649,920,444

3,248,276,057 3,248,276,057

PRA has an authorized capital stock divided into three million no par value shares pursuant to PD 1084 and 1085 both dated February 4, 1977. Two million shares were subscribed by the NG at a stated value of P734.139 million, payable by the transfer of all its rights and interests in the Manila-Cavite Coastal Road and Reclamation Project (MCCRRP) with a fair value of P729.139 million and the payment of P5 million in cash. By virtue of PD No. 1085, PRA subrogated to the rights of the RP in respect to the 1973 contract entered by the latter with the Philippine National Construction Corporation (PNCC), formerly Construction Development Corporation of the Philippines, on the reclamation works and construction of the MCCRRP. On December 29, 1981, PRA entered into a MOA with PNCC, with the latter giving up in favor of PEA/PRA all its rights and participation in and to the areas of reclaimed land and the latter paying the sum of P1,517.959 million by assuming PNCC’s obligation with PNB of P788.820 million and by issuance of promissory notes of P729.139 million. Payments for the notes shall come from the equity releases from the NG. A total of P545.117 million was released by the BTr in payment for the notes. The balance of the notes of P43.593 million, which was assigned by PNCC to the Asset Privatization Trust (APT), was converted to NG equity in PRA in accordance with Administrative Order (AO) No. 397 issued on May 13, 1998. AO 397 further provided for the recognition by the Committee on Privatization (COP)/APT of PRA’s assumption of PNCC’s obligation with PNB in the amount of P788.820 million together with the accrued interests and charges of P1.861 billion as of June 30, 1986 and the conversion into NG equity in PRA of the resulting obligations as a consequence of the foregoing totaling P2.650 billion.

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23. BUSINESS INCOME

This account consists of income from the following:

2016 2015

Sale of Lots 768,970,951 3,038,791,127 Sale of Housing Units 195,326 264,829 Sale of Coastal Plaza Condominium Units 5,372 6,359 Fines and penalties 91,775 80,139

769,263,424 3,039,142,454

Business income from sale of lots includes sale of reclaimed lands on installment basis to individuals and government entities. Income on sale of lots is realized upon the receipt of the amount due in accordance with installment schedule. Business income from sale of housing units pertains to collections from PEA Pabahay housing loan amortization. Business income from sale of Coastal Plaza Condominium Units refers to the realization of the amount of 13 per cent of collection previously charged to deferred income. Business income - fines and penalties pertains to penalty imposed on late payments of

PEA housing loan program.

24. INCOME FROM JOINT VENTURE

This account pertains to the 9 per cent income share of PRA from the gross toll receipts along the Cavite Expressway, in accordance with the Joint Venture Agreement entered into with Cavite Infrastructure Corporation.

25. RENT INCOME

This account pertains to rental income from the following:

2016 2015

CBP-1A 69,543,482 56,623,123 Bureau of Internal Revenue 25,409,991 27,029,876 PAGCOR 2,264,497 3,036,114 DPWH - Waste Transfer Station (WTS) 3,614,450 1,927,707 Sandiganbayan 869,987 670,562

101,702,407 89,287,382

Rent income from CBP-1A pertains to rent earned from various activities held at PRA’s

CBP-1A property including fun run events, concerts, cycling and other similar activities. Rent income from BIR represents income from the lease-purchase agreement of the BIR-Revenue Computer Center and BIR-Valenzuela buildings.

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Rent income from PAGCOR pertains to income from the lease of two parcels of reclaimed lands to access the Entertainment City. Rent income from DPWH-WTS pertains to income from the lease by the City Government of Las Piñas of the 10,327-square meter portion of the 2-hectare WTS property of PRA in Las Piñas City. Rent income from Sandiganbayan represents income from lease of the Sandiganbayan Centennial Building in accordance with a Memorandum of Understanding dated May 21, 2001.

26. SERVICE INCOME


2016 2015

Reclamation income– Regulatory, processing, filing fees and penalties

79,122,344

15,849,315

Supervision and management fee– Alabang Stock Farm Project 4,425,650 9,873,914

83,547,994 25,723,229

27. OTHER MAINTENANCE AND OTHER OPERATING EXPENSES

This account consists of other non-recurring expenses which are not classified in any of the specific maintenance and other operating expense accounts.

28. INCOME TAX EXPENSE This account is the Corporate Income Tax for the year equivalent to 30 per cent of the Net Profit Before Income Tax excluding income subjected to final tax.

29. RESTATEMENT OF RETAINED EARNINGS AT DECEMBER 31, 2015 Retained Earnings at December 31, 2015 was restated for adjustments on the following: Accrued expenses 8,431,482 Disallowances of prior year’s benefits and allowances 40,234 Property, plant and equipment (234,524) Others (165,347)

8,071,845

Adjustment in accrued expenses represents overstatement in the recording of accrual of expenses in CY 2015.

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30. CONTINGENCIES

Value-Added Tax Assessments On February 5, 2003, PRA received from BIR a Formal Assessment Notice for alleged deficiency in Value-Added Taxes (VAT) for the taxable years 1996 to 1999 in the total amount of P117.363 million including increments. The following transactions were covered by the assessment: (a) the transfer of the 10-hectare undeveloped reclaimed property to Shoemart, Inc. as the transaction was made “in the course of trade or business”, (b) the supervision fee and management fee for services rendered by PRA to the DENR, (c) the refunds made to the buyer of units at the Coastal Plaza Condominium Project, and (d) rental payments for the buildings constructed by PRA for BIR. PRA, in its letters dated March 12 and April 14, 2003, contested the assessment of VAT on the above transactions and requested BIR to reconsider and/or re-evaluate the Formal Assessment. The same was, however, denied through a letter dated July 3, 2003. On August 15, 2003, PRA, through the Office of the Government Corporate Counsel (OGCC), filed a case in the Court of Tax Appeals (CTA). On September 17, 2003, BIR filed a Motion to Dismiss on the ground that the CTA has no jurisdiction over the case. An Opposition and Supplemental Opposition were filed by PRA on September 25, 2003 and October 2, 2003, respectively. On October 16, 2003, the CTA promulgated a Resolution dismissing the petition for lack of jurisdiction. PRA then filed a Motion for Reconsideration on November 6, 2003 which was denied on January 9, 2004. On February 16, 2004, PRA, through the OGCC, filed a Petition (for arbitration/mediation appeal on disputed assessment) before the Department of Justice (DOJ). On March 31, 2004, BIR issued its Final Decision on Disputed Assessment formally assessing PRA of VAT for the taxable year 2000 amounting to P41.529 million including interest and surcharges. On April 29, 2004, PRA filed a Petition for Arbitration with the DOJ. On July 23, 2004, BIR filed an Answer to the Complaint. PRA, through OGCC, filed its Motion to Admit Reply to the Answer of the BIR on August 27, 2004. In a meeting held on June 10, 2005 between BIR and PRA, the former proposed that, during the pendency of the arbitration case, PRA will pay the principal amount of VAT less penalties and interests which was relayed to OGCC on August 5, 2005. Last hearing was held on January 26, 2006. The abovementioned VAT deficiencies for CYs 1996-2000 in the total amount of P69.324 million, exclusive of interest and surcharges, were settled/remitted to BIR in December 2010 after negotiation with the BIR. PRA’s application for the abatement or cancellation of interest and surcharge tax liabilities on the said deficiencies in the amount of P89.034 million was filed on January 4, 2011 and is still pending with BIR, Quezon City.

Henry T. Sy, Jr.

Civil Case No. 05-575 was filed against PRA on June 29, 2005 at the Regional Trial Court of Makati, Branch 149 to compel PRA to execute the necessary deed of conveyance covering the 19,274 square-meter parcel of land located in CBP 1A, relative to the Agreement entered into between PRA and SM Inc. dated May 12, 1994, the Joint Venture Agreement dated August 9, 1994 and the Deed of Undertaking dated June 29, 1995. Under the said Deed of Undertaking, SM Inc. shall advance P85 million to be

30

used for the relocation of squatters at CBP 1A, and PRA shall repay the same with lands at CBP 1A. The case was referred to mediation and was terminated on October 5, 2005. On February 28, 2008, the Judgment was issued in favor of Mr. Henry Sy, Jr. ordering PRA to convey and transfer the title and ownership, including the delivery of possession to Henry Sy. Notice of Appeal was filed by PRA, through OGCC, to the Court of Appeals (CA) on March 26, 2008. The CA, in its resolution dated November 4, 2008, required PRA to file Appellant’s Brief, to which PRA, through OGCC, complied. The appeal is deemed submitted for decision and ordered re-raffled for study and report. On March 10, 2011, the CA directed the parties to manifest, within 10 days from receipt of notice, whether or not supervening events have transpired that would render the resolution of the appeal moot and academic. On March 28, 2011, PRA, through OGCC, filed its Manifestation. On December 13, 2012, PRA and Plaintiff-Appellee Sy filed their Memoranda dated December 11, 2012 and December 12, 2012, respectively. On March 26, 2013, a Motion for Reconsideration was filed by PRA, through OGCC, after the CA’s decision denying PRA’s appeal and affirming the decision of the trial court. On November 25, 2013, PRA filed a Petition for Certiorari before the Supreme Court (SC) after the CA denied PRA’s Motion for Reconsideration. The case is still pending with the SC.

Central Bay Reclamation and Development Corporation (formerly Amari Coastal Bay Development Corporation) This pertains to the claim for reimbursement of Amari in the amount of P11.528 billion relative to the Joint Venture Agreement (JVA) it entered into with PRA on April 25, 1995. The JVA was amended but was subsequently declared null and void by the SC in 2002. Several motions for reconsideration were filed by Amari to set aside the said decision but the SC denied with finality. Instead, the SC recognized Amari’s right for reimbursement on a quantum meruit basis. In December 2009, Amari initially submitted its claim for reimbursement in the amount of P13.386 billion. PRA acknowledged the reimbursement claims of Amari and was able to verify the total amount of P1.004 billion subject to validation by COA. Based on the present petition, after a thorough internal review of documents and re-computation by Central Bay of its claims vis-à-vis the findings of PRA, Central Bay now submits that the correct amount due for reimbursement is P11.528 billion and not merely P1.004 billion as initially determined by PRA. The issue now is whether or not Central Bay (Amari) is entitled to the total amount of P11.528 billion as cost for reimbursement of what it had incurred in implementing the voided JVA/Amended JVA.

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On December 21, 2010, PRA received the Order dated December 15, 2010 of Director Fortunato M. Rubico, Director IV, Commission Secretary of the COA, directing PRA to submit within 15 days from receipt the Answer to the Petition filed by Central Bay (Amari). On January 11, 2011, the OGCC, in behalf of PRA, filed its Entry of Appearance and Motion for Extension of Time to File Answer with COA. Several joint manifestations and motions for extension of time to file answer were filed in various dates, the latest of which was on January 13, 2014. On April 11, 2014, PRA filed its Answer with COA, praying that judgment be rendered recognizing only the amount of P1.027 billion as validated by PRA and dismissing the other claims of Central Bay for lack of basis. A Joint Motion for Judgment based on the Compromise Agreement executed between the parties dated October 14, 2016 was filed by both parties on November 11, 2016. The motion is pending resolution with COA. Lito Potestad, et al. On August 15, 2003, petitioner security guards Lito Potestad, et al. filed a complaint before the Labor Arbiter, National Labor Relations Commission (NLRC) – National Capital Region (NCR) against PRA and ACD Investigation Security Agency, Inc. (ACDISA). They alleged that they were illegally dismissed due to their reassignment from their original posts without any prior notice to vacate and placement to such posts of another set of security guards. On June 28, 2005, the Labor Arbiter ruled that petitioners were illegally dismissed and ordered ACDISA and PRA to jointly and severally pay their back wages, separation pay, salary differentials, 13th month pay, and service incentive leave pay from the time they were illegally dismissed to the date of the decision. PRA appealed to the NLRC whereby the latter, in a Resolution dated April 30, 2007, modified the award of the Labor Arbiter and absolved PRA from payment of back wages and separation pay but found it solidarily liable with ACDISA for the payment of salary differential, 13th month pay, and service incentive leave pay. On June 30, 2009, the Court of Appeals affirmed the NLRC Resolution dated April 30, 2007. The Supreme Court, Third Division, in its Resolution dated June 3, 2009, denied the Petition for Review on Certiorari filed by PRA for failure to show that the Court of Appeals committed any reversible error in the challenged Decision and Resolution. The Resolution of the Supreme Court became final and executory on October 12, 2009. Pursuant to the finality of the decision rendered by the Supreme Court, plaintiffs filed a petition for money claim before the COA for the settlement of PRA’s obligation to pay their salary differential, 13th month pay and service incentive leave pay in the amount of P817,370.26.

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On March 14, 2016, COA issued COA Decision No. 2016-006 granting the petition for money claim of Mr. Lito Potestad, et al in the reduced amount of P777,804.31 without prejudice to the right of PRA to recover the money award from the ACDISA.

PRA is coordinating with ACDISA to verify if Potestad, et al. have not yet claimed payment from ACDISA before any payment will be made.

Other Contingencies

PRA is contingently liable for other lawsuits and claims filed by third parties, the outcomes of which are not presently determinable. In the opinion of Management, the eventual liability under these lawsuits, if any, will not have a material effect on the financial statements.

31. AUTHORIZATION FOR ISSUE

The Board of Directors approved on March 27, 2017 the PRA’s financial statements as of and ended December 31, 2016 and 2015.

32. SUPPLEMENTARY INFORMATION REQUIRED UNDER BIR REVENUE REGULATIONS (RR) 15-2010

In compliance with the requirements set forth by BIR under RR 15-2010, hereunder are the information on taxes, duties and license fees paid or accrued during the taxable year:

i) Philippine Reclamation Authority is a VAT-registered government-owned or controlled corporation with VAT output tax declaration of P131.060 million for the year based on the amount reflected in the sales account of P1.092 billion.

ii) The amount of VAT input taxes claimed are broken down as follows:

a) Beginning of the year 580,239

b) Current year’s purchases:

1. Goods other than for resale or manufacture 1,818,170

2. Services lodged under other accounts 3,987,790 c) Claims for tax credit (5,530,879)

Balance at the end of the year 855,320

iii) Other taxes and licenses

a) Local Community Tax Certificate (CTC) 10,500 b) National BIR Annual Registration 500

11,000

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iv) Amount of withholding taxes paid for the year amounted to:

a) Tax on compensation 10,830,233 b) Creditable withholding taxes 2,067,055 c) Final withholding taxes 1,641,177

14,538,465

v) Corporate income taxes paid

a) Balance of CY2015 289,504,437 b) 1st quarter 2016 5,105,668 c) 2nd quarter 2016 42,098,869 d) 3rd quarter 2016 4,927,694 e) 4th quarter 2016 42,373,711

384,010,379

PART II

AUDIT OBSERVATIONS AND

RECOMMENDATIONS

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AUDIT OBSERVATIONS AND RECOMMENDATIONS

1. Necessary actions in connection with the cessation and turnover of the

management and supervision of the Alabang Stock Farm (ASF) Project to the Land Management Bureau not undertaken On September 20, 1990 a Memorandum of Agreement (MOA) was entered into by Department of Environment and Natural Resources (DENR) and Public Estates Authority (PEA), now Philippine Reclamation Authority (PRA), directing PEA to develop ASF for full realization of its benefits. PEA was designated as the attorney-in-fact to sign, execute and deliver contracts and documents relating to the ASF Project, and collect and receive proceeds thereof. PRA is also designated to render management services to the project for a management fee of 7.5 per cent of the National Government’s (NG’s) share on the excess of revenue over expenses for distribution and a supervision fee of 2.5 per cent of the project cost. The MOA is effective for 10 years from the date of signing, renewable for a similar term by mutual agreement of the parties. On April 19, 2016, DENR wrote PRA informing that the MOA had already expired in September 2000 and that they are ending PRA’s role in the Project. DENR Special Order No. 2016-211, dated April 26, 2016, approved the creation of a Project Oversight Committee (POC) in which the Land Management Bureau (LMB) Director was designated as the chairperson. The created POC will now be responsible for the management and supervision of the Project. The appraised value of the 244-hectare ASF property of P3.6 billion as of April 14, 1993 was initially booked up in PRA’s books of account as Assets Held in Trust – DENR with a corollary account of Trust Agreements – DENR. As of December 31, 2016, the accounts have a balance of P3.416 billion each, with details shown in the ASF Project financial statements, as follows: Assets Cash and Cash Equivalents 1,309,190,596 Receivables from Housing Units Sold 138,128,323 Finished Goods Inventory – Saleable Lots 521,023,500 Roads/Open Spaces 1,215,154,500 NG Share 398,022,000

Total Assets 3,581,518,919 Liabilities Deferred Credits to Income 165,222,809

Assets Held in Trust 3,416,296,110

Equity DENR/ASF Share 2,336,796,277 Escrow Fund 56,337,408 Income for the Year 1,023,162,425

Trust Agreement 3,416,296,110

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Despite the cessation of PRA’s management and supervision services in the Project, the accounts Assets Held in Trust – DENR and Trust Agreements – DENR still remain in the books of PRA and reported in its financial statements.

We have noted that PRA has not taken any further actions geared towards turning over to DENR/LMB the assets, accounts, records and documents regarding the Project. We are also not aware of any communication made by PRA to either DENR or LMB on the matter.

Likewise, PRA has not remitted to the Bureau of the Treasury (BTr) the P1.083 billion National Government’s share in the distributed joint profit from the Project and the P56.337 million remaining balance of the escrow fund for the replication of the buildings and structures of various government agencies affected by the Project. Prior Years’ Audit Observations and Recommendations Remained Unresolved The following prior years’ audit observations and recommendations have not been resolved yet with Filinvest Alabang, Inc. (FAI):

a. Variances and Inconsistencies in the Sales Profile Report provided by FAI (See Part III, No. 1, of this Report)

The variances and inconsistencies include issues in the application and

computation of VAT in sales of lot in previous periods, the agreement between PRA and FAI on “The Levels” and an understatement in total selling price amounting to P93.017 million and P59.455 million for Filinvest Corporate City lots and Palm Pointe, respectively (excluding immaterial amounts), due to inconsistent application of the formula used in computing selling price. These resulted in the inability of PRA to establish the correctness of NG share in the ASF Project.

b. Lack of Supporting Documents for the Land Development Cost in ASF Project FAI did not give PRA supporting documents regarding the actual costs

incurred on land development costs up to the time PRA supervised the ASF Project. This restricted PRA from examining the accuracy of the said cost, which is the basis of PRA’s supervision fee.

We recommended that Management:

a. Ensure that the transactions and the account balances in the ASF Project’s

financial statements are properly accounted for and fully supported;

b. Remit to BTr the NG’s remaining profit share in the Project and the balance of

the escrow fund;

c. Prepare a terminal report regarding PRA’s disengagement from the Project;

d. Coordinate with DENR/LMB for the smooth transition and turnover of assets,

accounts, records and documents relating to the Project; and

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e. Initiate action to resolve prior years’ audit observations and recommendations.

Management commented that the preparation of the terminal report is ongoing and that they will make partial remittance to BTr.

2. Share on ancillary income from Joint Venture Agreement (JVA) not collected

One of the major revenue sources of PRA is its 9 per cent share from the project income arising from the 1994 JVA on the construction and operation of the Manila-Cavite Toll Expressway (MCTE). Aside from toll fees, project income from the JVA includes, among others, income from ancillary facilities and amenities within the Right-of-Way of the Expressway.

During our inspection, we noted the following income-generating ancillary facilities along the MCTE:

a. Billboards and signages; and

b. Structure within the premises of the expressway along the Kawit portion which

is being used as office for non-MCTE-related activities.

Our audit of accounts disclosed that PRA has not received its 9 per cent revenue share on these ancillary facilities. We recommended that Management collect PRA’s 9 per cent share on all income generated from the operation of the MCTE, including ancillary income. Management is also advised to validate the completeness of the contracts on billboards submitted by the Cavitex Infrastructure Corporation (CIC) and determine the bases of the agreed-upon advertising rates.

As a result of the COA observation, CIC remitted on April 25, 2017 PRA’s 9 per cent share in the ancillary income of MCTE amounting to P2.944 million.

3. Grant of car loan to a member of the Board of Directors (BOD) without legal basis and outstanding car loan of former General Manager not settled

Board Resolution No. 4554, Series of 2015 approved the PRA Modified Car Loan Program Guidelines and Mechanics. The loan is payable within a maximum period of six years with 12 per cent interest thereon for the whole period of six years to be added to the loan amount.

Our audit disclosed that, on May 2, 2016, a car loan was granted to a member of the BOD in the principal sum of P2,262,775 plus 12% straight interest for six years, or in the total promissory note amount of P2,534,308, payable in 72 equal monthly instalments.

The car loan granted is without legal basis and violates Executive Order (EO) No. 24, Prescribing the Rules to Govern the Compensation of Members of the Board of Directors/Trustees in Government-owned and Controlled Corporations including Government Financial Institutions (GFIs). The EO specifically enumerates the

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compensation and benefits that the members of the BOD are entitled. Car loan is not among those legally allowed.

We, likewise, noted that the former General Manager (GM) of PRA, availed of a car loan in the total amount of P2,346,400 (principal plus interest). He was able to make only one monthly amortization in the amount of P32,588 which was deducted from his salary. After being separated from PRA, he has neither made any subsequent amortization nor issued post-dated checks to cover the car loan. This is in violation of the following provisions of the PRA Modified Car Loan Program Guidelines and Mechanics to wit:

“Section 5. In case of resignation, retirement (voluntary, early or compulsory) expiration of term, transfer or re-assignment to another government office/agency, the borrowing officer shall have the following options:

a. Pay the outstanding principal loan amount without interest as provided in

Section 2 above within thirty (30) days after the effectivity of his/her resignation, retirement, expiration of term or transfer or reassignment date;

b. Issue post-dated checks covering his/her remaining monthly amortizations;

or

c. Request for the restructuring of his/her loan amortizations, subject to the approval by the General Manager/CEO and under such terms and conditions as the General Manager/CEO may impose under the circumstances.”


a. Revisit the existing car loan policy to protect the interest of PRA;

b. Strictly comply with the provisions of EO 24 and other rules and regulations as

regards benefits that maybe granted to members of BOD; c. Require the board member concerned to immediately pay the outstanding car

loan; otherwise, we will be constrained to disallow it in audit in the absence of legal basis; and

d. Strictly implement the provisions of the PRA Modified Car Loan Program

Guidelines and Mechanics in cases of separation of borrowers from PRA.

Management informed that the last salary of the former GM amounting to P678,850 had been credited as payment for his car loan amortization and that his letter-request for extension of 36 months within which to settle his loan balance to be covered by his personal post-dated checks was already approved by PRA’s present GM.

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The following receivable accounts are long-outstanding:

The receivable from DPWH arose from the sale of lots affected by the NAIA Expressway Project per Memorandum of Agreement (MOA) dated December 23, 2014. On the other hand, the receivable from BCDA pertains to the amount expended by PRA in relation to the Heritage Park Project in which PRA was designated as the Project Manager pursuant to a MOA dated August 9, 1993. And the receivable from R-1 Consortium pertains to unpaid supervision fees from Central Business Park (CBP) B and C and R-1 Expressway Toll Projects. The receivable from Pasay City represents Value Added Tax (VAT) due from the City Government of Pasay for the property conveyed as payment of PRA’s real property tax obligations pursuant to the Compromise Agreement between PRA and the City of Pasay dated July 25, 2003. Under the Agreement, Pasay City will shoulder all costs and expenses including documentary stamp tax and VAT. Receivable from PMO pertains to the security services at the Financial Center Area, Pasay City, advanced by PRA. And receivable from CPA represents PRA’s 70 per cent share in the net revenue of the Port Center Development Corporation, a former affiliate of PRA. And lastly, receivable from Seaoil Petroleum Corporation represents unpaid regulatory fee and penalties from Sea Oil on the total raw and land reclamation.

We recommended that Management exert efforts to collect the long-outstanding accounts. Management commented that follow-up letters were sent and coordination meetings were made with the concerned agencies for collection and billing purposes.

5. Deficiencies noted in the PRA procurement process

Procurement of certain goods/properties were made directly by the requesting units/end-users using alternative methods of procurement. Our review of certain procurement in CY 2016 disclosed that several goods/properties were purchased directly by the requesting units/end-users from suppliers using alternative methods of procurement, e.g., shopping and small value procurement (SVP). The purchases were not referred to the PRA Bids and Awards Committee (BAC) for

Debtors Amount Department of Public works and Highways (DPWH) P2,349,092,032.00 Bases Conversion and Development Authority (BCDA) 187,397,008.58 R-1 Consortium 116,828,072.21 Pasay City 66,369,249.40 Privatization and Management Office (PMO) 5,638,812.29 Cebu Ports Authority (CPA) 3,654,633.55 Seaoil Petroleum Corporation 809,174.28 P2,729,788,982.31

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proper conduct of procurement, thus, violated Section 54 of the Revised Implementing Rules and Regulations (IRR) of RA 9184, Government Procurement Reform Act. The requesting units/end-users paid the suppliers using their personal cash or credit cards and, thereafter, requested for reimbursement. Generally, reimbursements are for business-related expenses incurred and paid for by officers and employees but not for purchase of goods/properties, especially those with material amounts. No Inspection and Acceptance Report (IAR) were issued for goods/properties purchased by the requesting units/end-users as these were neither inspected by the Inspection Officer nor accepted by Property/Supply Custodian. Goods/properties were only presented to the Property/Supply Custodian for the purpose of issuing an Inventory Custodian Slip (ICS) or Property Acknowledgement Receipt (PAR), whichever is applicable. Processing by the BAC of requests for purchase of goods/properties using the alternative modes of procurement takes several days to complete. The 2016 Revised IRR of RA 9184 provides for a minimum period of 26 calendar days to a maximum of 138 calendar days for the procurement of goods thru public bidding. Although the IRR did not mention the reasonable period allowed for the conduct of alternative methods of procurement, it is apparent that it should be significantly shorter than that of a public bidding since there are less procedures to be undertaken. Our review of the procurement of goods/properties thru shopping and SVP showed that the average period to complete the process is 91 calendar days which is longer than the minimum period thru public bidding, thus negating the very purpose for resorting to alternative methods of procurement. Recording in the books of several properties acquired is delayed.

Sec. 44, Chapter 10 of the Government Accounting Manual (GAM) For National Government Agencies - Volume I provides that after the Inspection and Acceptance Report (IAR) is signed by the Inspection Officer and Supply/Property Officer, it should be forwarded to the Accounting Department for the preparation of Journal Entry Voucher (JEV) to recognize in the books the receipt of property. A separate JEV shall be prepared to recognize in the books the payment to the supplier. Review of purchases made for CY 2016 showed that the above-cited provision of the GAM was not complied with. Goods/properties procured thru the BAC were recognized in the books only upon receipt by the suppliers of the payment checks. No assets and liabilities were recognized in the books at the time of inspection and acceptance of the delivery. On the other hand, goods/properties procured directly by requesting units/end-users from suppliers were recognized/recorded only upon reimbursement of the personal advances made.


a. Strictly follow the guidelines in the conduct of alternative methods of

procurement as set forth in the 2016 revised IRR of RA 9184 and PRA’s policy on reimbursements;

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b. Address the issue of long period of processing requests for procurement thru

alternative methods making it significantly shorter than the recommended minimum period allowed for public bidding; and

c. Strictly follow the procedures set in Sec. 44, Chapter 10, GAM For National

Government Agencies for the recognition in the book of inventories and properties acquired.

Management admitted that there were some instances in the past that the requesting units/end-users purchased goods directly from suppliers using alternative methods of procurement and requested for reimbursement. Management will now be strict in processing the requests for reimbursement and will discourage their employees from making direct purchase of goods/properties. Management informed that, on the average, it usually takes the BAC only one week to issue the resolution containing its recommendations to the GM/CEO for the award of procurement contracts under shopping and SVP. Management also acknowledged that there were some delays during the evaluation process and the issuance of award and that they will undertake the following courses of action:

a. Meet with all the members of BAC, Technical Working Group (TWG) and Secretariat to come up with an internal policy with the objective of shortening the period for the processing of procurement through alternative methods; and

b. Review the procurement process from receipt of the Requisition and Issue Slip

to recommendation of award in order to identify which activities may be modified to shorten the processing period.

Management further informed that the Accounting Department will record the property in the books upon receipt and issuance of the Inspection and Acceptance Report and prepare a separate JEV upon payment.

6. Refund of guaranty deposits on terminated internet service contracts not yet applied for

PEA had contracts for internet services for which it had posted guaranty deposits of P4,992. These contracts were already terminated in 2015. We noted, however, that PRA has yet to apply for the refund thereof with the concerned service providers.

We recommended that Management monitor all contracts or subscriptions for internet services so that deposits with the service providers are promptly applied for and refunded.

Management commented that they will coordinate with the service providers for the refund of the guaranty deposits or apply the same to any unbilled accounts.

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Status of Suspensions, Disallowances and Charges As of year-end, the status of audit suspensions, disallowances and charges issued is as follows:

Audit Action Beginning Balance

January 1, 2016 Issued Settled

Ending Balance December 31, 2016

Suspensions 32,164,440.32 0 0 32,164,440.32

Disallowances 67,410,038.62 0 5,065,892.61 62,344,146.01

Charges 1,923,508,081.61 0 0 1,923,508,081.61

2,023,082,560.55 0 5,065,892.61 2,018,016,667.94

Audit suspension in the amount of P32.164 million pertains to the Notice of Suspension issued on the payment made to J.D.Legaspi Construction (JDLC) on December 12, 2007 pursuant to a Court Order dated December 6, 2007 (on Civil Case No. 05-618 decided by RTC Branch 148, Makati City) for the full payment of services rendered by JDLC for the President Diosdado Macapagal Boulevard Project and Soil Boring and Design Works for the Bay Boulevard Project. The November 25, 2015 letter-request of the incumbent PRA COA Supervising Auditor (SA) for opinion on the proper disposition of the Notice of Suspension issued by the former PRA SA was forwarded by the Director of COA-CGS Cluster 4 to the Director of Legal Services in a letter dated December 16, 2015. Unsettled audit disallowances in the total amount of P62.344 million pertain to Notices of Disallowance on the following: (a) P35 million - covering release of check on April 4, 2008 in favor of the Municipality of San Simon, Pampanga for the cost of filling materials which is currently pending appeal before the Commission Proper; (b) P2.841 million - representing reimbursement of extraordinary expenses by the Chairman of the Board of Directors in 2011 which is also pending appeal before the Commission Proper; and (c) P24.503 million - representing various disallowances issued to former members of the PRA Board and incumbent and resigned PRA officers and employees. Some of the disallowances are being settled on a regular basis by the officers/employees found liable. Notice of Charge in the amount of P1.924 billion issued by the Legal Services Sector, Fraud Audit and Investigation Office (FAIO), on September 13, 2012 pertains to the shortfall in the assured income/revenue on the ASF Project relative to the Joint Venture Agreement entered into by the Republic of the Philippines, thru PRA, its authorized representative, and Filinvest Development Corporation (FDC). A Petition for Review was filed by FDC and its assignee, Filinvest Alabang, Inc. (FAI), on March 22, 2013 through registered mail under Registry Receipt No. 06812 addressed to the COA FAIO, now Fraud Audit Office. On April 3, 2013, the case was forwarded to the COA Legal Affairs Office and was thereafter forwarded to the Commission Proper on March 5, 2015 with Case No. 2014-227. The case is pending resolution.

PART III

STATUS OF IMPLEMENTATION OF PRIOR

YEAR’S AUDIT RECOMMENDATIONS

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STATUS OF IMPLEMENTATION OF PRIOR YEARS’ AUDIT RECOMMENDATIONS

Of the 24 audit recommendations embodied in prior years’ Annual Audit Reports, 8 were implemented and 16 were partially implemented.

Reference Observation Recommendations Status of

Implementation

AAR 2015, O & R No. 1, Page 34

1. Inconsistencies and variances noted in the audit of accounts related to Alabang Stock Farm (ASF) Project Variance in the amounts for cost of replication of government facilities and structures as presented in the records of Marketing and Estates Management Office (MEMO) vis-à-vis Accounting Finance Office (AFO) Variances and inconsistencies in the Sales Profile Report

Lack of Supporting Documents for the Land Development Cost in ASF Project

Determine the actual amount disbursed for the replication of Government Structures and Facilities by reconciling the records of MEMO with AFO regarding replication cost as well as the Cash in Bank – Escrow and Escrow Fund in Equity account to determine the cause of the variance between the said accounts; Discuss with FAI the issues on the ASF Project for clarification and take measures to correct deficiencies; and Conduct an independent validation/examination on the supporting documents related to the land development cost of the ASF Project including the

Implemented Management has validated and recorded the disbursement vouchers and supporting documents made in the escrow fund to put closure on the expenses in the replication of government structures. Partially implemented The ASF Committee is in the process of completing and finalizing its validation report to discuss with FAI and resolve the issues on the audit of SPRs submitted by FAI. A meeting with FAI will be scheduled to settle issues raised. Partially implemented Management forwarded to the Auditor the letter of FAI stating that the latter regularly submits report of the amounts deposited

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Implementation

computation of supervision fee on every payment/ remittance.

and set aside including the amounts due as supervision fees to PRA which is subject to validation. This finding was first raised in CY 2009 and reiterated in CYs 2010 to 2015. Reiterated in Observation No. 1, Part II of this Report.

AAR 2015, O & R No. 2, Page 36

2. Non-compliance with the Joint Venture Agreement on MCTEP on the submission of project costs for the revenue sharing of P2.226 billion

Require CIC to submit the actual construction costs for R-1 Expressway duly certified by the appointed independent consultant and approved by TRB, together with the proof of disbursements, to ascertain the actual amount poured in by the Malaysian Parties in the project up to the time of the signing of the Operations and Maintenance Agreement dated November 14, 2006.

Partially implemented In view of the discrepancy between the total project cost of the R-1 Expressway and R-1 Expressway Extension as certified by the Independent Consultant and as indicated in CIC’s audited financial statements, PRA requested for a certification showing the Actual Project Cost to be jointly signed by CIC and the Independent Consultant. PRA will likewise request TRB for a copy of the R-1 Expressway and R-1 Expressway Extension project costs as validated by the Independent Consultant. This finding was first raised in CY 2012 and reiterated in CYs 2013 to 2015.

AAR 2015, O & R No.

3. Continuous erosion of the Bataan

Initiate measures to protect the remaining

Partially implemented

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Implementation

3, Page 37 Shipyard Engineering Company (BASECO) Reclamation Expansion Project

reclaimed land from further erosion and formulate courses of action for the completion of the project; For future reclamation projects and considering the importance of dredge fill materials in any reclamation project, find alternative suitable sources before the start of any reclamation project; and

Management directed Reclamation and Regulation Office (RRO) to conduct infra- bidding of the 20 hectares BASECO reclamation project instead of the temporary protection on the existing land mass to save on cost and time. In December 2016, the Implementation and Regulation Department (IRD) completed the preparation of the bid documents and detailed engineering design of 20 hectares BASECO reclamation. In January 2017, PRA Management directed RRO to revise the project area to 40 Hectares. RRO is now in the process of preparing bidding documents for the hiring of consultant to prepare the detailed engineering design and bidding documents for the 40 hectares Reclamation Project. Implemented IRD is now incorporating in the bidding documents that contractor shall be allowed to source suitable fill materials either from offshore quarry or from inland sources or a combination thereof.

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Implementation

Coordinate with other government agencies concerned for the smooth implementation of the project.

Implemented PRA is now coordinating with DENR, Urban poor of BASECO, HUDCC, PPA, DPWH and other government agencies that may be involved in the conceptualization and planning of BASECO Reclamation expansion for housing purposes. This finding was first raised in CY 2015.

AAR 2015, O & R No. 4, Page 39

4. Unclear balances of assets held-in-trust and trust liability accounts for Office of the Ombudsman (OMB)

Provide the audit team with the necessary documents to establish the completion and acceptance of the project; and Review the provisions of the MOA against the actual fund disposition for any valid claims that would arise then initiate action for the return of the residual fund to the OMB.

Partially implemented A statement of account was sent by PRA to the Office of the Ombudsman last August 26, 2016 requesting payment of unpaid supervision fee in the amount of P3,674,851.39. Partially implemented This finding was first raised in CY 2015.

AAR 2015, O & R No. 5, Page 40

5. Non-adoption of clear accounting policy on materiality threshold in categorizing an item as Property and Equipment

Formulate a policy on how to account small value items taking into consideration the requirements of COA Circular 2005-002.

Implemented PRA is now adopting the guidelines issued by DBM for Circular No. 2016-7 dated July 20, 2016 regarding capitalization threshold for all fixed assets. They will submit to the Auditor the list of all items reclassified pursuant to

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the FY 2016 GAM’s P15,000 threshold. This finding was first raised in CY 2015.

AAR 2015, O & R No. 6, Page 40

6. Delay in the submission of Monthly Bank Reconciliation Statements (BRS) for the Cash in Bank-Local Currency, Current Account

Ensure the timely preparation and submission of the monthly BRS to the COA Resident Auditor.

Partially implemented Management informed that they will coordinate with the depository banks for the early submission of their respective monthly bank statements, together with issued checks, to enable them to prepare BRS on time. This finding was first raised in CY 2015.

AAR 2015, O & R No. 7, Page 41

7. The composition of the PRA GAD Focal Point System (GFPS) is not in accordance with the provision of the law.

Observe the specific guidelines under section 5.a.1. of the PCW Memorandum Circular No. 2011-01 for the structure and composition of the Gender Focal Point System; and

Partially implemented Management commented that the GAD Plan and Budget as well as all the activities being implemented by the current PRA GFPS are being reviewed by the concerned Assistant General Managers and were approved by the General Manager and CEO. The present composition of PRA’s GFPS had proven their ability in carrying out the required tasks and has been doing a very good job although being a member of the team is just in addition to their regular functions. Management believes that the rationale behind

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The 2015 annual GAD Accomplishment Report submitted to the COA Auditor is not duly supported with pertinent documents.

Submit Accomplishment Report to the COA Auditor together with supporting documents required under Section 10.4 of the PCW-NEDA-DBM Joint Circular No. 2012-01.

the required structure and composition of GFPS has been served by their present GFPS Team although they do not occupy the positions as high as the Agency’s Head or Executive Committee. Implemented On March 22, 2016, Management submitted the 2015 Accomplishment Report as reviewed by the Philippine Commission on Women. This finding was first raised in CY 2015.

AAR 2015, O & R No. 8, Page 42

8. Losses on the implementation of the Coastal Plaza Condominium Project (CPCP)

Take measures to ensure the collection of accounts receivable from unit buyers; Collect assessment fees for the maintenance and administrative expenses of the CPCP;

Implemented PRA is currently locating the whereabouts of unit buyers who have not responded to collection letters. Collection letter being sent includes query on the plans of the unit buyers on their units to determine the common sentiment of the unit buyers that would serve as input to PRA’s study on what actions to be undertaken to the CPCP to minimize losses being incurred on the project. Implemented PRA had exerted its best effort to collect from the unit buyers the monthly

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Implementation

Resolve current issues with unit buyers, particularly the construction of the access road, to fully collect the unit purchase price and other receivables; and Insist to the unit owners the organization of the Coastal Plaza Condominium Corporation which shall take over from PRA the management of the CPCP.

membership dues stipulated under Section 6.01.d of the Master Deed with Declarations of Restrictions of the CPCP and several meetings have been held with unit buyers for the implementation of membership dues. However, the buyers refused to pay citing again the failure of PRA to deliver the access road. Implemented As of December 2015, construction of access road was already completed. However, this is not the original service road as detailed in the approved plans and specification but serves the purpose of providing ingress and egress as well. Partially implemented The Estates Management Department will resume discussion with unit buyers in 2016 for the organization of the corporation so that PRA may turn over the administration and maintenance of CPCP. A comprehensive study is being prepared to address the collection of long outstanding receivables. This finding was first

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raised in CY 2015.

AAR 2014, O & R No. 3, Page 38

9. Delayed completion of BREDCO Rawland Reclamation and Horizontal Development of 108 hectares, more or less, of foreshore and offshore areas in Bacolod City

Implement immediately appropriate courses of action regarding illegal reclamation.

Partially implemented On June 10, 2016, DOJ issued a legal opinion relative to the Memorandum of Agreement entered into by and between the Department of Environment and Natural Resources and PRA on August 16, 2012. On July 29, 2016 PRA furnished DENR with the draft Amendment to the MOA of August 16, 2012 for consideration/comment. Per inquiry, the MOA is still pending with DENR up to present. This finding was first raised in CY 2014.

AAR 2014, O & R No. 4, Page 40

10. Some obligations of the parties in the Memorandum of Agreement (MOA) between PRA and the Department of Public Works and Highways (DPWH) regarding the P30-million compensation to PRA not effected even as the construction of NAIA Expressway Project (NAIAX) has already started.

Require initial payment from DPWH for PRA-affected properties;

Partially implemented On March 21, 2017, DPWH sought the advice of DOF, as the government agency responsible for the review, approval, and management of all public sector debt, and the rationalization, privatization and public accountability of the corporations and assets owned, controlled, or acquired by the government. DPWH requested for a meeting/conference with

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Implementation

Prepare a detailed schedule of payment; and Initiate through a Deed of Exchange the acquisition of MBDC- affected properties.

PRA representative to resolve all issues regarding the legality and amount of payment to be made to PRA under the MOA and for the creation of a committee to handle the issues. Partially implemented Partially implemented This finding was first raised in CY 2014.

AAR 2013, O & R No. 3, Page 38

11. Non-recognition by the City Government of Pasay of its liability to PRA

Ascertain the legality, propriety and correctness of the recorded receivable from Pasay City and study the effects of the Supreme Court Decision declaring PRA reclaimed lands exempt from real estate taxes.

Partially implemented Management will coordinate with the City of Pasay for the possible amendment of the Deed of Conveyance and execution of a Deed of Donation or such appropriate contract and offsetting of the VAT paid in future remittances to BIR. This finding was first raised in CY 2013 and reiterated in Observation No. 4, Part 2 of this report.

AAR 2011, O & R No. 3, Page 37

12. Payment to J.D. Legaspi Construction (JDLC) in the amount of P32.164 million was based on Court Order issued and without submission of the supporting documents as

Submit the required supporting documents enumerated in COA Memorandum No. 91-704; claim for liquidated damages for defective and unfinished works.

Partially implemented On January 11, 2016, the Office of the Supervising Auditor received a copy of the letter of the Director, CGS, Cluster 4 to the Director, Legal Affairs Office dated December 16, 2015, forwarding the letter

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required by COA rules and regulations

Discrepancy between the total amount paid by PRA to JDLC amounting to P841.431 million and the amount of P836.462 million determined as reasonable Project Cost by the Special Audit Team of COA

requesting for an opinion on the matter. This finding was first raised in CY 2011.

AAR 2007, O & R No. 8, Page 40

13. Minority investment in Bay Dredging, Inc. (BDI) is not prudent

Evaluate/review the equity investment with BDI with the end view of eventually withdrawing the same.

Partially implemented PRA conducted a meeting with OGCC on May 4, 2016 regarding case build up. A letter was sent to OGCC on May 19, 2016 requesting for an opinion regarding the recent letters of Bay Dredging, Inc. (BDI) stating that it should be directly utilized for certain procurements of PRA instead of undertaking the same through public bidding pursuant to Republic Act No. 9184 and whether BDI can participate as a bidder in bidding out PRA projects/ procurements, considering the circumstance of BDI and the applicable laws, rules and regulations. On July 20, 2016 OGCC issued Opinion No. 119

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series of 2016, stating that PRA is correct in its position that it cannot directly utilize BDI considering that PRA has 40 per cent stake in BDI, which will give BDI undue advantage resulting in conflict of interest. This finding was first raised in CY 2007.