Transmittal Letters - nfa.gov.ph

REPUBLIC OF THE PHILIPPINES

COMMISSION ON AUDIT

Commonwealth Avenue, Quezon City

ANNUAL AUDIT REPORT

on the

NATIONAL FOOD AUTHORITY

For the Years Ended December 31, 2020 and 2019

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EXECUTIVE SUMMARY

INTRODUCTION The National Grains Authority (NGA) was created under Presidential Decree (PD) No. 4 dated September 26, 1972, otherwise known as the National Grains Industry Development Act, with the mandate of promoting the integrated growth and development of the grains industry covering rice, corn, feed grains, and other grains like sorghum, mongo and peanut; providing food security in the staple cereals in times and places of calamity or emergency, natural or man-made; and promoting the stabilization of supply and prices of staple cereals both at the farm gate and consumer levels. On January 14, 1981, PD No. 1770 reconstituted the NGA into National Food Authority (NFA) and widened the agency’s social responsibilities and commodity coverage to include, in addition to grains, other food items like raw or fresh fruits and vegetables and fish and marine, manufactured, processed or packaged food products, which were collectively referred to as non-grains commodities. On May 31, 1985, Executive Order (EO) No. 1028 was issued to deregulate NFA’s non-grains marketing activities. This resulted in the termination of NFA’s non-grains trading activities and the return of feed grains and wheat importation to the private sector as well as the lifting of price controls/ceilings on rice and corn. Pursuant to EO No. 116 dated January 30, 1987, the NFA was detached from the Office of the President (OP) and was realigned under the Department of Agriculture (DA) to respond to policy changes with emphasis on private sector participation towards strengthening a freer, market-oriented enterprise economy and tend towards liberalization, privatization and deregulation. Under EO No. 398 dated January 31, 1997, NFA was tasked to undertake procurement of sugar when necessary. Further, EO No. 22 issued in September 1998, authorized NFA to perform marketing operation of other basic food items. On May 5, 2014, pursuant to EO No. 165, the NFA, together with the National Irrigation Administration, Philippine Coconut Authority (PCA), and Fertilizer and Pesticide Authority (FPA), were transferred from DA to the OP to enhance and coordinate their efforts in fulfilling their respective mandates. These agencies were under the oversight supervision of the Office of the Presidential Assistant for Food Security and Agricultural Modernization (OPAFSAM) of the OP. Under EO No. 1 dated June 30, 2016, NFA, among other agencies under the OPAFSAM, was reassigned to the Office of the Cabinet Secretary of the OP. EO No. 1 was amended by EO No. 62 dated September 17, 2018 which authorized the transfer of NFA, PCA, and FPA, back to the DA. In accordance with Republic Act (RA) No. 11203, An Act Liberalizing the Importation, Exportation and Trading of Rice, Lifting for the Purpose the Quantitative Import Restriction on Rice and for Other Purposes, dated February 14, 2019, NFA’s function was limited to buffer stocking. The law took away NFA’s commercial functions and regulatory powers. The corresponding Implementing Rules and Regulations (IRR), published on April 8, 2019, mandated NFA to maintain sufficient rice buffer stock to be

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sourced solely from local farmers in response to the emergencies and in support of disaster relief programs of the government. On January 7, 2020, in compliance with the IRR of RA No. 11203, the Governance Commission for Government-Owned or Controlled Corporations (GCG) En Banc approved the restructuring plan of NFA through GCG Memorandum Circular (MC) No. 2019-13. As approved in Item 3, Annex A of the said GCG MC, NFA has 22 organizational units in the Central Office (CO), 15 Regional Offices (ROs), and 45 Branch Offices (formerly, Provincial Office [PO]) nationwide with corresponding 2,644 plantilla positions. FINANCIAL HIGHLIGHTS (In Million Pesos) I. Comparative Financial Position

2020 2019

Increase/ (Decrease)

Assets 73,811.158 86,238.195 (12,427.037) Liabilities 203,817.523 238,956.290 (35,138.767) Equity deficiency (130,006.365) (152,718.095) 22,711.730

II. Comparative Financial Performance

2020 2019

Increase/ (Decrease)

Revenues 14,699.681 18,412.597 (3,712.916) Current operating expenses 30,137.673 34,930.892 (4,793.219)

Deficit from current operations (15,437.992) (16,518.295) (1,080.303)

Sale of Assets 0.266 - 0.266 Gains 0.756 206.651 (205.895) Losses (7.981) (102.347) 94.366 Financial assistance/subsidy 36,250.000 12,980.800 23,269.200

Net surplus/(deficit) for the period 20,805.049 (3,433.191) (24,238.240)

III. Budget and Actual Expenditures

Budget Utilization Difference

Personnel services 5,531.830 3,060.556 2,471.274 Maintenance and other operating expenses 2,721.097 2,600.225 120.872 Capital outlay 922.233 440.485 481.748 Capital gains tax and documentary stamps 69.000 277.152 (208.152) Financial expenses 5,869.000 2,808.380 3,060.620 Others: Procurement 14,678.000 12,281.555 2,396.445 Payment of obligations 51,573.024 52,211.224 (638.200) Investment outlay - 47.082 (47.082)

81,364.184 73,726.659 7,637.525

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SCOPE OF AUDIT

Our audit covered the examination, on a test basis, of the accounts and financial transactions of NFA for the period January 1 to December 31, 2020 in accordance with the International Standards of Supreme Audit Institutions (ISSAI) to enable us to express an opinion on the fairness of the presentation of the financial statements for the years ended December 31, 2020 and 2019. Our audit was also made to assess compliance with laws, rules, and regulations, as well as, adherence to prescribed policies and procedures. AUDITOR’S OPINION

We rendered an adverse opinion on the fairness of presentation of the financial statements in view of the following: 1. Non-elimination of the Intra-Agency Receivable and Payable accounts at year-end overstated the total Assets by P51.040 billion or 224.15 per cent and total Liabilities by P49.467 billion or 32.05 per cent, thereby, casting doubt on the reliability and accuracy of the account balances presented in the financial statements. 2. Journal entry vouchers (JEVs) for the adjustment and/or reconciliation of the balances of accounts amounting to P30.542 billion were not substantiated, thereby, casting doubt on the propriety of the balances of the accounts.

For the observations, which caused the issuance of an adverse opinion, we recommended that Management require the Finance Department to: 1.1 Prioritize the reconciliation of intra-agency accounts to eliminate the reciprocal accounts and arrive at reliable balances; 1.2 Strictly monitor compliance with NFA Standard Operating Procedure (SOP) No. FS-GP13, with emphasis on the regular preparation of schedule of interbranch transactions and Monthly Reconciliation Statement to identify variances, if any, within the reporting period and immediately coordinate with other offices to resolve the differences as basis for necessary adjustments;

1.3 Ensure that policies and guidelines on interbranch transactions are strictly observed, especially the sanctions provided in NFA SOP No. FS-GP13 as deterrent to the accumulation of variances; and

1.4 Require all the Accountants of CO, ROs, POs, and Operating Units (OUs) to conduct a nationwide reconciliation of the Intra-Agency Receivable and Intra-Agency Payable accounts to eliminate the balances of the reciprocal accounts at year-end. Ensure that all adjustments are supported with proper documents.

2.1 Submit all JEVs, as well as, the corresponding supporting documents related to the adjustments and/or reconciliations made;

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2.2 Reverse all journal entries, adjustments or reconciliations that cannot be supported or substantiated;

2.3 Avoid making any journal entry, adjustments or reconciliations without securing first the supporting documents to substantiate the transactions; and

2.4 Religiously submit the mandated reports within the prescribed period. OTHER SIGNIFICANT AUDIT OBSERVATIONS AND RECOMMENDATIONS

3. NFA has no specific policy to implement Rule 8.3.2 of the IRR of RA No. 11203 in the disposition of good quality rice through donation during state of calamity which may affect its buffer stocking requirement and the legitimacy of the donation. 3.1 We recommended that Management consider formulating a policy on the disposal of good quality rice through donation so as to ensure the legitimacy of the donation to the victims of calamities/disasters, whether caused by fortuitous events or man-made. 4. The rice inventory levels in the NFA National Capital Region and other ROs/POs were not consistently maintained resulting in way below the required level of buffer stock requirements in almost all months of Calendar Year 2020, thus, might compromise the agency’s capability to carry out its mandate of responding effectively and immediately during disaster and emergency situations.

4.1 We recommended that Management:

a. Strengthen the local procurement level to ensure at all times the availability of the required buffer stock levels to attain the Agency’s mandate under RA No. 11203 to immediately and effectively respond in times of calamities/ disasters;

b. Formulate a more applicable plan of rice procurement and allocation that is

aligned to the buffer stocking mandate of NFA and responsive to the needs of the local government units and other government agencies during calamities/disasters so as to avoid overstocking/understocking; and

c. Establish a monitoring system to closely oversee the compliance of the

POs/ROs with the Daily Consumption Report so as to avoid understocking that could hamper the immediate and effective response in times of disaster and emergency situations.

UNSETTLED AUDIT SUSPENSIONS, DISALLOWANCES AND CHARGES As of December 31, 2020, NFA had a total unsettled Notices of Suspension of P11.153 million, Notices of Disallowance of P202.452 million, and Notices of Charge of P2.682 million.

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STATUS OF IMPLEMENTATION OF PRIOR YEARS’ AUDIT RECOMMENDATIONS Of the 194 audit recommendations embodied in the prior years’ Annual Audit Reports, eight were fully implemented while eight were no longer doable, hence, deleted from the Status. Three recommendations, which were reiterations of prior years’ recommendations, were also excluded from the Status. Lastly, 150 recommendations were partially implemented; seven were not implemented; and 18 were revised and reformulated to be more specific, doable and measurable.

PART I - AUDITED FINANCIAL STATEMENTS

PART II - OBSERVATIONS AND

RECOMMENDATIONS

PART III - STATUS OF IMPLEMENTATION OF

PRIOR YEARS’ AUDIT RECOMMENDATIONS

PART IV - ANNEXES

From To

Agency sign-off:

Note: Status of Implementation may either be (a) Fully Implemented, (b) Ongoing, (c) Not Implemented, (d) Partially Implemented, or (e) Delayed.

This template shall be used for Current Year's audit recommendations and Prior Years' recommendations as contained in the Parts II and III, respectively, of the Annual Audit Report.

Name and Position of Agency Officer Date

Agency Action Plan

Target Implementation DateAction Plan

Person/Dept.

Responsible

Ref. Audit Observations

Name of the Agency and Address

AGENCY ACTION PLAN AND STATUS OF IMPLEMENTATION

Audit Observations and Recommendations

For the Calendar Year 20____

As of __________________

Audit RecommendationsStatus of

Implementation

Reason for Partial/Delay/Non-

Implementation, if applicable

Annex A

This template shall be used for Current Year's audit recommendations and Prior Years' recommendations as contained in the Parts II and III, respectively, of the Annual Audit Report.

Name of the Agency and Address

AGENCY ACTION PLAN AND STATUS OF IMPLEMENTATION

Audit Observations and Recommendations

For the Calendar Year 20____

As of __________________

Action Taken/

Action to be Taken

TABLE OF CONTENTS

Page Part 1 Audited Financial Statements

Independent Auditor’s Report 1 Statement of Management Responsibility for Financial Statements 4 Statements of Financial Position 5 Statements of Financial Performance 6 Statements of Changes in Net Assets/Equity 7 Statements of Cash Flows 8 Statement of Comparison of Budget and Actual Amounts 9 Notes to Financial Statements 10 Part II Observations and Recommendations 83 Part III Status of Implementation of Prior Years’ Audit

Recommendations 128

Part IV Annexes

A.1 – Deficiencies Noted in Contracts Procured by NFA Regional Offices IV, VI, X and XV - Caraga in Calendar Year 2020

A.2 – Contracts of NFA National Capital Region (NCR) Regional Office Belatedly Submitted to COA for Auditorial and Legal Review in CY 2020

B – Deficiencies Noted During the Ocular Inspection of NFA

Warehouses in CY 2020

184

189

190

Note 2020 2019

Current assets

Cash and cash equivalents 7 2,843,080,106 2,907,899,478

Financial assets 8 397,442,692 551,948,262

Receivables, net 9 3,532,054,792 4,614,420,443

Intra-agency receivables 10 51,040,316,275 57,214,311,953

Inventories, net 11 11,626,960,302 17,168,868,677

Other current assets 12 219,837,956 215,089,153

69,659,692,123 82,672,537,966

Non-current assets

Financial assets 13 516,826,381 516,826,380

Investment property 14 15,833,340 14,009,519

Property, plant, and equipment - net 15 2,451,148,701 2,233,882,139

Intangible assets 16 3,420,278 2,044,810

Other non-current assets 12 1,164,237,167 798,894,559

4,151,465,867 3,565,657,407

73,811,157,990 86,238,195,373

LIABILITIES

Current liabilities

Financial liabilities 17 75,387,188,387 68,321,161,513

Inter-agency payables 18 69,226,518,294 73,369,226,690

Intra-agency payables 19 49,466,585,046 57,214,034,765

Trust liabilities 20 1,000,132,255 1,028,321,713

195,080,423,982 199,932,744,681

Financial liabilities 17 7,850,665,918 38,089,154,181

Deferred credits/unearned income 21 75,083,054 934,391,369

Provisions 22 811,350,300 -

8,737,099,272 39,023,545,550

203,817,523,254 238,956,290,231

EQUITY DEFICIENCY (Total Assets Less Total Liabilities) (130,006,365,264) (152,718,094,858)

EQUITY DEFICIENCY

Contributed capital 35 5,000,000,329 5,000,000,329

Accumulated surplus/(deficit) 36 (135,006,365,593) (157,718,095,187)

EQUITY DEFICIENCY (130,006,365,264) (152,718,094,858)

Non-current liabilities

TOTAL LIABILITIES

The Notes on pages 10 to 82 form part of these financial statements.


STATEMENTS OF FINANCIAL POSITION

As at December 31, 2020 and 2019

(In Philippine Peso)

ASSETS

TOTAL ASSETS

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Note 2020 2019

Revenue 24

Service and business income 14,579,598,043 18,345,178,197

Share, grants, and donations 2,277 37,878

Miscellaneous income 120,080,862 67,380,958

14,699,681,182 18,412,597,033

Current operating expenses

Personnel services 25 3,866,120,446 2,741,564,887

Maintenance and other operating expenses 26 2,049,271,405 1,745,142,242

Financial expenses 27 3,797,107,979 7,136,472,965

Direct costs 28 19,578,780,534 23,120,725,158

Non-cash expenses 29 846,392,519 186,986,747

30,137,672,883 34,930,891,999

Deficit from current operations (15,437,991,701) (16,518,294,966)

Sale of assets 30 265,803 -

Gains 31 756,415 206,651,128

Losses 31 (7,981,631) (102,347,625)

Financial assistance/subsidy 32 36,250,000,000 12,980,800,251

Net surplus/(deficit) for the period 20,805,048,886 (3,433,191,212)


STATEMENTS OF FINANCIAL PERFORMANCE




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Accumulated

surplus/(deficit)

(Note 36)

Contributed

capital

(Note 35) Total

BALANCE AT JANUARY 1, 2019, as restated (153,363,902,823) 5,000,000,329 (148,363,902,494)

CHANGES IN NET ASSETS/EQUITY FOR CY 2019

Add/(deduct):

Deficit for the period (3,433,191,212) - (3,433,191,212)

Prior period errors (6,115,014,203) - (6,115,014,203)

Other adjustments 5,194,013,051 - 5,194,013,051

BALANCE AT DECEMBER 31, 2019 (157,718,095,187) 5,000,000,329 (152,718,094,858)

CHANGES IN NET ASSETS/EQUITY FOR CY 2020

Add/(deduct):

Surplus for the period 20,805,048,887 - 20,805,048,887

Prior period errors 5,792,835,862 - 5,792,835,862

Other adjustments (3,886,155,156) - (3,886,155,156)

BALANCE AT DECEMBER 31, 2020 (135,006,365,594) 5,000,000,329 (130,006,365,265)



STATEMENTS OF CHANGES IN NET ASSETS/EQUITY



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Note 2020 2019

CASH FLOWS FROM OPERATING ACTIVITIES

Cash Inflows

Receipt of notice of cash allocation 32 36,250,000,000 7,000,000,000

Collection of income/revenues 13,828,209,624 18,316,502,669

Collection of receivables 582,665,849 139,299,915

Receipt of inter-agency fund transfers 193,540,216 2,288,832,739

Receipt of intra-agency fund transfers 51,866,020,480 54,019,873,096

Trust receipts 1,327,938,720 770,576,229

Other receipts 963,593,326 771,442,185

Adjustments 104,402,041 86,948,532

105,116,370,256 83,393,475,365

Cash Outflows

Payment of expenses 4,571,862,324 3,863,683,650

Purchase of inventories 12,459,755,227 14,196,573,914

Grant of cash advances 1,670,111,561 1,020,704,801

Prepayments 6,735,233 5,532,996

Refund of deposits 220,789,448 10,753,951

Payment of accounts payable 107,219,204 21,196,078,452

Remittance of personnel benefit contributions and mandatory deductions 1,066,376,871 1,307,594,520

Release of inter-agency fund transfers 30,002,343 839,342,804

Release of intra-agency fund transfers 51,777,889,489 55,310,378,711

Other disbursements 424,840,348 129,354,051

Adjustments 29,698,544 5,872,222

72,365,280,592 97,885,870,072

Net cash provided by/(used in) operating activities 32,751,089,664 (14,492,394,707)

CASH FLOWS FROM INVESTING ACTIVITIES

Cash Inflows

Proceeds from sale/disposal of property and equipment 27,876,604 712,457

Proceeds from sale of other assets 343,542 -

Receipt of cash dividends 50,000,000 -

Proceeds from matured/return of investments 209,445,142 123,637,727

287,665,288 124,350,184

Cash Outflows

Purchase/construction of investment property 97,000 -

Purchase/construction of property and equipment 443,254,776 283,100,566

Investment 47,082,000 55,644,101

Grant of loans 274,000 -

490,707,776 338,744,667

Net cash used in investing activities (203,042,488) (214,394,483)

CASH FLOWS FROM FINANCING ACTIVITIES

Cash Inflows

Proceeds from domestic and foreign loans 26,195,764,729 49,886,071,936

26,195,764,729 49,886,071,936

Cash Outflows

Payment of long-term liabilities 52,211,224,112 27,460,268,312

Payment of interest expense (BTR/NG debt) 6,450,046,302 5,652,728,773

Financial charges 142,185,982 68,636,598

58,803,456,396 33,181,633,683

Net cash provided by/(used in) financing activities (32,607,691,667) 16,704,438,253

INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (59,644,491) 1,997,649,063

Effects of exchange rate changes on cash and cash equivalents (5,174,881) (73,394,334)

CASH AND CASH EQUIVALENTS, January 01 2,907,899,478 983,644,749

CASH AND CASH EQUIVALENTS, December 31 7 2,843,080,106 2,907,899,478


STATEMENTS OF CASH FLOWS




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Difference

Actual amounts on final budget

Note Original Final comparable basis and actual

RECEIPTS

Corporate funds

Services and Business Income 17,102,447,000 17,102,447,000 13,762,779,961 3,339,667,039

Other Income - - 64,373,100 (64,373,100)

Other Corporate Receipts - - 3,067,741,865 (3,067,741,865)

Assistance and Subsidy

Buffer Stocking 5,600,000,000 5,600,000,000 5,600,000,000 -

Conversion of NG Advances to Subsidy 30,650,000,000 30,650,000,000 30,650,000,000 -

Others

Net lending 26,643,749,000 26,643,749,000 26,195,764,729 447,984,271

Investments 287,665,288 (287,665,288)

79,996,196,000 79,996,196,000 79,628,324,943 367,871,057

PAYMENTS

Personnel services 5,531,830,000 5,531,830,000 3,060,556,305 2,471,273,695

Maintenance and other operating expenses 2,721,097,000 2,721,097,000 2,600,224,537 120,872,463

Capital outlay 922,233,000 922,233,000 440,484,632 481,748,368

Capital Gains Tax and Documentary Stamps 69,000,000 69,000,000 277,151,773 (208,151,773)

Financial Expenses 5,869,000,000 5,869,000,000 2,808,380,342 3,060,619,658

Others

Procurement 14,678,000,000 14,678,000,000 12,281,555,173 2,396,444,827

Payment of obligations 51,573,024,000 51,573,024,000 52,211,224,111 (638,200,111)

Investment Outlay - - 47,082,000 (47,082,000)

81,364,184,000 81,364,184,000 73,726,658,873 7,637,525,127

NET RECEIPTS/PAYMENTS 38 (1,367,988,000) (1,367,988,000) 5,901,666,070 (7,269,654,070)



STATEMENT OF COMPARISON OF BUDGET AND ACTUAL AMOUNTS

For the Year Ended December 31, 2020


Budgeted amounts

9

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NOTES TO FINANCIAL STATEMENTS

(All amounts in Philippine Peso unless otherwise stated)

1. CORPORATE INFORMATION

The National Grains Authority (NGA) was created by Presidential Decree (PD) No. 4 dated September 26,1972 and became the National Food Authority (NFA) through PD No. 1770 dated January 14, 1981 with the original mandate to promote the integrated growth and development of the grains industry; to provide food security in the staple cereals in times and places of calamity or emergency, both natural or man-made; and stabilize supplies and prices of staple cereals both at the farm gate and consumer levels.

On May 12, 1975, PD No. 699 mandated the agency to perform other functions, such as the development, culture or production of grains, and the establishment, acquisition and/or operations of grains processing, handling storage, and transport facilities.

On June 11, 1978, PD No. 1485, further amended certain provisions of the National Grains Industry Development Act. The law was known as the National Grains Authority Act. On January 14, 1981, PD No. 1770 reconstituted the NGA into the National Food Authority. The decree widened the agency’s social responsibilities and commodity coverage to include other food items like raw or fresh fruits and vegetables and fish and marine manufactured, processed, or packaged food products. On May 31, 1985, Executive Order (EO) No. 1028 deregulated the NFA’s non-grains marketing activities, that resulted in the termination of NFA’s non-grains trading activities. The feedgrains and wheat importation was returned to the private sector and the price controls/ceilings on rice and corn was lifted. At the end of calendar year (CY) 1986, all the Kasama sa Diwa (KADIWA) stores were closed.

On January 30, 1987, EO No. 116 detached the NFA from the Office of the President (OP) and was put under the Department of Agriculture (DA) to respond to policy changes. On January 31, 1997, EO No. 398 mandated the NFA to procure sugar if necessary. On June 30, 2016, EO No. 1, reassigned the NFA to the Office of the Cabinet Secretary of the OP. On September 17, 2018, EO No. 62 transferred the NFA to the DA.

On February 14, 2019, Republic Act (RA) No. 11203 or the Rice Tariffication Law titled “An Act Liberalizing the Importation, Exportation, and Trading of Rice, Lifting for the Purpose the Quantitative Import Restriction on Rice and for Other Purposes”.

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The law removed the quantitative restriction on rice imports and replace it with a general tariff. On March 5, 2019, Rule 3.1 of the Implementing Rules and Regulations (IRR) of the Act removed NFA’s regulation and importation function. NFA retained its mandate of ensuring food security through buffer stocking to be sourced solely from local farmers in response to emergencies and in support of disaster relief programs of the government. The IRR also provides that the NFA submit to Governance Commission for GOCCs (GCG) a Restructuring or Reorganization Plan which is responsive to the requirement of NFA to execute its key function of managing buffer stocks and ensuring its financial stability. Also, an organizational modification plan on the transfer of Food Development Center (FDC) from NFA to DA took effect last December 31, 2019. On January 7, 2020, the Restructuring Plan of the NFA was approved per GCG Memorandum No. 2019-13.

On September 4, 2020, Memorandum from Executive Secretary approved the Separation Incentive Package (SIP) for all the affected employees. SIP will be given in addition to the regular retirement benefits allowed under existing laws, rules, and regulations. NFA has 15 Regional Offices (ROs) and 86 Provincial Offices (POs). The GCG newly approved NFA Structure maintained the 15 ROs and reduced the 86 POs to 45 Branch Offices with authorized plantilla positions of 2,644. To date, NFA is implementing the said Restructuring/Reorganizational Plan. The NFA Head Office is in NFA Compound, Visayas Avenue, Barangay Vasra, Diliman, Quezon City, Philippines. The financial statements (FS) of NFA was authorized for issue by the NFA Council on February 11, 2021 as shown in the Statement of Management Responsibility for Financial Statements signed by the Secretary of Agriculture/Chairman of the NFA Council, the NFA Administrator/Vice-Chairperson of the NFA Council, and the Department Manager, Finance Department.

2. STATEMENT OF COMPLIANCE AND BASIS OF PREPARATION OF FS

The FS have been prepared in compliance with the International Public Sector Accounting Standards (IPSAS) and the accounting policies have been consistently applied throughout the year presented.

The FS have been prepared under the historical cost, unless stated otherwise. The Statements of Cash Flows are prepared using the direct method. The FS are presented in Philippine Peso, which is also the country's functional currency.

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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis of Accounting

The FS are prepared on an accrual basis in accordance with the IPSAS.

3.2 Financial Instruments

a. Financial Assets

i. Initial recognition and measurement

Financial assets within the scope of IPSAS 29 - Financial Instrument: Recognition and Measurement are classified as financial assets at fair

value through surplus or deficit, held-to-maturity investments, loans and receivables or available-for-sale financial assets, as appropriate. The NFA determines the classification of its financial assets at initial recognition. The NFA's financial assets include Cash and Cash Equivalents; Trade and Non- trade Receivables. (See Notes 3.3 and 7)

ii. Subsequent measurement

The subsequent measurement of financial assets depends on their classification.

1. Financial assets at fair value through surplus or deficit

Financial assets at fair value through surplus or deficit include financial assets held for trading and financial assets designated upon initial recognition at fair value through surplus and deficit. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term.

2. Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Losses arising from impairment are recognized in the surplus or deficit.

3. Held-to-maturity

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity when NFA has

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the positive intention and ability to hold it to maturity. After initial measurement, held-to-maturity investments are measured at amortized cost using the effective interest method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The losses arising from impairment are recognized in surplus/deficit.

iii. Derecognition

NFA derecognizes a financial asset or, where applicable, a part of a financial asset or part of similar financial assets when:

1. The contractual rights to the cash flows from the financial asset

expired or waived; and 2. NFA has transferred its contractual rights to receive the cash flows

of the financial assets, or retains the contractual rights to receive the cash flows of the financial assets but assumes a contractual obligation to pay the cash flows to one or more recipients in an arrangement that meets the conditions set forth in IPSAS 29 Financial Recognition and Measurement; and either the entity has:

transferred substantially all the risks and rewards of ownership of the financial asset; or

neither transferred nor retained substantially all the risks and rewards of ownership of the financial asset, but has transferred the control of the asset

iv. Impairment of financial assets

NFA assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include the following indicators: 1. The debtors or a group of debtors are experiencing significant

financial difficulty

2. Default or delinquency in interest or principal payments

3. The probability that debtors will enter bankruptcy or other financial reorganization

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4. Observable data indicates a measurable decrease in estimated future cash flows (e.g., changes in arrears or economic conditions that correlate with defaults)

b. Financial liabilities


Financial liabilities within the scope of IPSAS 29 are classified as financial liabilities at fair value through surplus or deficit or loans and borrowings, as appropriate. The entity determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings, plus directly attributable transaction costs. The NFA determines the classification of its financial liabilities at initial recognition. The NFA’s financial liabilities include Accounts Payable, Due to Officers and Employees, Notes Payable, Interest Payable, and Loans Payable - Domestic and Foreign. (See Note 17)


The measurement of financial liabilities depends on their classification.

1. Financial liabilities at fair value through surplus or deficit

Financial liabilities at fair value through surplus or deficit include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through surplus or deficit. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IPSAS 29. Gains or losses on liabilities held for trading are recognized in surplus or deficit. (IPSAS 29.10, IPSAS 29.49(a), IPSAS 29.64)

2. Loans and borrowing

After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Gains and losses are recognized in surplus or deficit when the liabilities are derecognized as well as through the effective interest method amortization process.

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Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate.

iii. Derecognition

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in surplus or deficit.

c. Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. (PPSAS 28.47)

d. Fair value of financial instruments

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.

3.3 Cash and Cash Equivalents

Cash and cash equivalents comprise cash on hand and cash deposits in banks. Cash on hand includes cash with collecting officers. For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short-term deposits.

3.4 Provision for Allowance for Impairment Loss - Accounts Receivable

Allowance for Impairment Loss - Accounts Receivable was set at a level adequate to provide for potential uncollectible amount of receivable derived from the computations based on percentages and aging of accounts receivable as follows: 25 per cent for accounts aged one year to less than two years, 50 per cent for accounts aged two years to less than three years, 75 per cent for accounts aged three years but less than four years and 100 per cent for accounts aged four years and above.

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3.5 Inventories


The cost of inventories shall comprise all costs of purchase, costs of conversion (materials, labor and overhead) and other costs incurred in bringing the inventories to their present location and condition, excluding abnormal amounts of wasted materials, labor, other production and selling costs, administrative overheads that do not contribute to bringing inventories to their present location and condition. Trade discounts, rebates, and other similar items are deducted in determining the costs of purchase. (Paragraphs 18, 19 and 25, IPSAS 12) Inventories held for consumption of NFA are measured at cost upon initial recognition. To the extent that inventory is received through non-exchange transactions (for no cost or for a nominal cost), the cost of the inventory is its fair value at the date of acquisition.


Inventories shall be measured at the lower of cost and net realizable value. However, where inventories are acquired through a non-exchange transaction, their costs shall be measured at their fair value as at the date of acquisition; (Paragraphs 15-16, IPSAS 12)

iii. Cost formulas

The weighted average method shall be used for costing inventories. This method calls for the re-calculation of the average cost of all items in stock after every purchase. Therefore, the weighted average cost is the total cost of all units subsequent to the latest purchase, divided by their total number of units available. Inventories that are held for consumption are recognized as an expense when deployed for utilization or consumption in the ordinary course of operations of the NFA.

3.6 Investment Property

Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the replacement cost of components of an existing investment property at the time that cost is incurred if the recognition criteria are met and excludes the costs of day-to-day maintenance of an investment property. Investment property acquired through a non-exchange transaction is measured at its fair value at the date of acquisition. Subsequent to initial recognition, investment properties are measured using the cost model and are depreciated over its estimated useful life. (No buildings were reclassified.

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Hence, no useful estimated useful life was used for subsequent measurement.) (See Note 14) Investment properties are derecognized either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit or service potential is expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in the surplus or deficit in the period of derecognition. Transfers are made to or from investment property only when there is a change in use.

The NFA uses the cost model for the measurement of investment property after initial recognition.

3.7 Property, Plant, and Equipment (PPE)

a. Recognition

An item is recognized as PPE if it meets the characteristics and recognition criteria as a PPE. The characteristics of PPE are as follows:

i. Tangible items;

ii. Held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and

iii. Expected to be used during more than one reporting period

An item of PPE is recognized as an asset if:

i. It is probable that future economic benefits or service potential

associated with the item will flow to the entity;

ii. The cost or fair value of the item can be measured reliably; and

iii. The cost is at least P15,000.

b. Measurement at recognition

An item recognized as PPE is measured at cost. A PPE acquired through non-exchange transaction is measured at its fair value as at the date of acquisition. The cost of the PPE is the cash price equivalent or, for PPE acquired through non-exchange transaction its cost is its fair value as at recognition date.

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Cost includes the following:

i. Its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates;

ii. Expenditure that is directly attributable to the acquisition of the items; and

iii. Initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired, or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.

c. Measurement after recognition

After recognition, all PPE are stated at cost less accumulated depreciation and impairment losses. When significant parts of PPE are required to be replaced at intervals, NFA recognizes such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major repair/replacement is done, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized as expense in surplus or deficit as incurred.

d. Depreciation

Each part of an item of PPE with a cost that is significant in relation to the total cost of the item is depreciated separately. The depreciation charge for each period is recognized as expense unless it is included in the cost of another asset.

i. Initial recognition of depreciation

Depreciation of an asset begins when it is available for use such as when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. For simplicity and to avoid proportionate computation, the depreciation is for one month if the PPE is available for use on or before the 15th of the month. However, if the PPE is available for use after the 15th of the month, depreciation is for the succeeding month.

ii. Depreciation Method

The straight line method of depreciation is adopted.

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iii. Estimated Useful Life

The NFA uses the Schedule on the estimated useful life of PPE by classification under NFA Standard Operating Procedure (SOP) No. FS-GP21 dated September 07, 2004, which is also within the prescribed schedule prepared by Commission on Audit (COA).

iv. Residual Value

The NFA uses a residual value equivalent to at least five per cent of the cost of the PPE.

e. Impairment

An asset’s carrying amount is written down to its recoverable amount, or recoverable service amount, if the asset’s carrying amount is greater than its estimated recoverable service amount.

f. Derecognition

The NFA derecognizes items of PPE and/or any significant part of an asset upon disposal or when no future economic benefits or service potential is expected from its continuing use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the surplus or deficit when the asset is derecognized.

3.8 Intangible Assets

a. Recognition and measurement

Intangible assets are recognized when the items are identifiable non-monetary assets without physical substance; it is probable that the expected future economic benefits or service potential that are attributable to the assets will flow to the entity; and the cost or fair value of the assets can be measured reliably. Intangible Assets acquired separately are initially recognized at cost.

b. Development Costs

Development costs on an individual project are recognized as intangible assets when the NFA can demonstrate:

i. The technical feasibility of completing the asset so that the asset will be

available for use;

ii. Its intention to complete and its ability to use or sell the asset;

iii. How the asset will generate future economic benefits or service potential;

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iv. The availability of resources to complete the asset; and

v. The ability to measure reliably the expenditure during development.

3.9 Changes in accounting policies and estimates

The NFA recognizes the effects of changes in accounting policy retrospectively. The effects of changes in accounting policy were applied prospectively if retrospective application is impractical. The NFA recognizes the effects of changes in accounting estimates prospectively through surplus or deficit. The NFA correct material prior period errors retrospectively in the first set of financial statements authorized for issue after their discovery by:

a. Restating the comparative amounts for prior period(s) presented in which

the error occurred; or

b. If the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and net assets/equity for the earliest prior period presented.

3.10 Foreign currency transactions

Foreign currency liabilities are booked up at peso equivalents at the time of availment. Payments are taken up at current foreign exchange (Forex) rate. Gain or loss on Forex is recognized and charged to current operations. Outstanding loan and dollar bank account balances at the end of the year are restated using the Bangko Sentral ng Pilipinas (BSP) closing rate at the last banking day of the year and any gain/loss is recorded accordingly.

3.11 Revenue from Non-exchange transactions

a. Recognition and Measurement of Assets from Non-Exchange Transactions

An inflow of resources from a non-exchange transaction, other than services in-kind, that meets the definition of an asset were recognized as an asset if the following criteria were met:

i. It is probable that the future economic benefits or service potential

associated with the asset will flow to the entity; and

ii. The fair value of the asset can be measured reliably. An asset acquired through a non-exchange transaction is initially measured at its fair value as at the date of acquisition.

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b. Recognition Revenue from Non-Exchange Transactions

An inflow of resources from a non-exchange transaction recognized as an asset is recognized as revenue, except to the extent that a liability is also recognized in respect of the same inflow. As NFA satisfies a present obligation recognized as a liability in respect of an inflow of resources from a non-exchange transaction recognized as an asset, it reduces the carrying amount of the liability recognized and recognizes an amount of revenue equal to that reduction.

c. Measurement of Revenue from Non-Exchange Transactions

Revenue from non-exchange transactions is measured at the amount of the increase in net assets recognized by the entity, unless a corresponding liability is recognized.

d. Measurement of Liabilities on Initial Recognition from Non-Exchange Transactions. The amount recognized as a liability in a non-exchange transaction is the best estimate of the amount required to settle the present obligation at the reporting date.

e. Gifts and Donations

NFA recognizes assets and revenue from gifts and donations when it is probable that the future economic benefits or service potential will flow to the entity and the fair value of the assets can be measured reliably. Goods in-kind were recognized as assets when the goods were received, or there is a binding arrangement to receive the goods. If goods in-kind were received without conditions attached, revenue is recognized immediately. If conditions were attached, a liability is recognized, which is reduced and revenue recognized as the conditions were satisfied.

On initial recognition, gifts and donations including goods in-kind were measured at their fair value as at the date of acquisition, which were ascertained by reference to an active market, or by appraisal. An appraisal of the value of an asset is normally undertaken by a member of the valuation profession who holds a recognized and relevant professional qualification. For many assets, the fair value are ascertained by reference to quoted prices in an active and liquid market.

f. Transfers

NFA recognizes an asset in respect of transfers when the transferred resources meet the definition of an asset and satisfy the criteria for recognition as an asset, except those arising from services in-kind.

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g. Services in Kind

Services in-kind were not recognized as asset and revenue considering the complexity of the determination of and recognition of asset and revenue and the eventual recognition of expenses.

h. Transfers from other government entities

Revenues from non-exchange transactions with other government entities and the related assets were measured at fair value and recognized on obtaining control of the asset (cash, goods, services, and property) if the transfer is free from conditions and it is probable that the economic benefits or service potential related to the asset will flow to the NFA and can be measured reliably.

3.12 Revenue from Exchange Transactions

a. Measurement of Revenue

Revenue is measured at the fair value of the consideration received or receivable.

b. Rendering of services

The NFA recognizes revenue from rendering of services by reference to the stage of completion when the outcome of the transaction can be estimated reliably. Where the contract outcome cannot be measured reliably, revenue is recognized only to the extent that the expenses incurred are recoverable.

c. Fines and Penalties

The NFA recognizes revenue from fines and penalties on the late deliveries of items purchased through importation or local purchases when earned.

d. Interest income

Interest income is accrued using the effective yield method. The effective yield discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. The method applies this yield to the principal outstanding to determine interest income each period.

e. Dividends

Dividends or similar distributions are recognized when the NFA's right to receive payments is established.

3.13 Budget Information

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The annual budget is prepared on a cash basis and is published in the government website. A separate Statement of Comparison of Budget and Actual Amounts (SCBAA) are prepared since the budget and the financial statements are not prepared on comparable basis. The SCBAA is presented showing the original and final budget and the actual amounts on comparable basis to the budget. The annual budget figures are those approved by the governing body both at the beginning and during the year following a period of consultation with the public.

3.14 Borrowing Costs

For loans borrowed directly by NFA, the allowed alternative treatment is used.

3.15 Employees’ Benefits

The employees of NFA are member of the Government Service Insurance System (GSIS), which provides life and retirement insurance coverage. The NFA recognizes the undiscounted amount of short-term employee benefits, like salaries, wages, bonuses, allowance, etc., as expense unless capitalized, and as a liability after deducting the amount paid.

3.16 Measurement of Uncertainty

The preparation of FS in conformity with IPSAS requires management to make estimates and assumptions that affect the reporting amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of the revenues and expenses during the period. Items requiring the use of significant estimates include e.g., the useful life of capital assets, estimated employee benefits, rates for amortization, impairment of assets, liability for contaminated sites, etc. Estimates were based on the best information available at the time of preparation of the financial statements and were reviewed annually to reflect new information as it becomes available. Measurement uncertainty exists in these financial statements. Actual results could differ from these estimates.

4. CHANGES IN ACCOUNTING POLICIES

NFA adopted the following new accounting policies: 4.1 IPSAS 1 - Presentation of FS

Previous FS Terminology (5) Prescribed Terminology of FS (6)

Balance Sheet Statement of Financial Position

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Statement of Income and Expense Statement of Financial Performance

Statement of Changes in Equity Statement of Changes in Net Assets/Equity

Cash Flow Statement Statement of Cash Flows

Notes to Financial Statements Notes to Financial Statements

Statement of Comparison of Budget and Actual Amounts

4.2 IPSAS 2 - Cash Flow Statements

The NFA presented the Statement of Cash Flows that classifies the cash flows during the period from operating, investing, and financing activities.

4.3 IPSAS 12 - Inventories

The NFA recognized the reclassification of all PPE below the capitalization threshold of P15,000 to Semi-Expendable Account including PPEs issued prior to January 1, 2016. Those PPE items below the capitalization threshold of P15,000 is recognized as Semi-Expendable Machinery and Equipment Inventory and Semi-Expendable Furniture, Fixtures, and Books Inventory which were coded as 50203210 and 50203220 respectively in the Revised Chart of Accounts (RCA). These accounts were originally classified in the electronic New Government Accounting System (e-NGAS) Account as Other Supplies Inventory account coded as 765. These will be recognized as expenses upon issuance to the end-user.

4.4 Adoption of the RCA for Government Corporations (GCs) classified as Non-

Government Business Enterprises (Non-GBEs) per COA Circular No. 2015-010 dated December 1, 2015.

The NFA is already adopting the use of the RCA for GCs classified as non-GBEs with an eight-digit account coding structure.

The accounts were reclassified in conformity with the RCA prescribed under COA Circular No. 2015-010 dated December 01, 2015 and COA Circular No. 2016-006 dated December 29, 2016. NFA has been using the RCA since CY 2017. For CY 2020, accounts are reclassified according to the Updated RCA for GCs (CY 2019) per COA Circular No. 2020-002 dated January 28, 2020.

5. RISK MANAGEMENT OBJECTIVES AND POLICIES

Risk Management Framework presents information about the NFA’s exposure to risks, and the NFA’s objectives, policies, and processes for measuring and managing those risks.

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5.1 Risk Management Framework

The NFA Council has overall responsibility for the establishment and oversight of NFA’s risk management framework. Section 7 - Mandate and Responsibility for NFA’s Performance, of NFA’s Code of Corporate Governance, sufficiently provides that NFA Council, is responsible for providing policy directions, monitoring, and overseeing Management actions, as articulated in its Charter per PD No. 4 and other relevant legislation, rules, and regulations. The mandated functions and responsibilities include, but not limited to:

1. Determine important policies that bear on the character of NFA to foster its

long-term success, ensure its long-term viability and strength, and secure its sustained competitiveness;

2. Determine the organizational structure of NFA, defining the duties and responsibilities of its Executive Officers and employees and adopting a compensation and benefit scheme that is consistent with the Government Owned or Controlled Corporations (GOCC) Compensation and Position Classification System (CPCS) developed by GCG and formally approved by the President of the Philippines;

3. Ensure that personnel selection and promotion shall be on the bases of merit and fitness and that all personnel action shall be in pursuit of the applicable laws, rules, and regulations;

4. Provide sound written policies and strategic guidelines of NFA’s operating budget and major capital expenditures and prepare the annual and supplemental budgets of NFA;

5. Comply with all reportorial requirements, as required in the Charter, as well as applicable laws, rules and regulations; and

6. Enhance NFA’s relation to stakeholders.

In view of the foregoing and in accordance with GCG Memorandum Circular No. 2012-07 (Code of Corporate Governance and Section 16 of Code of Corporate Governance Resolution No. 75-2014-K), the Council has created the NFA’s Executive Committee, Audit Committee and Risk Management Committee, Governance Committee, and Nomination and Remunerations Committee, where each committee is composed of at least three members knowledgeable in audit, accounting and finance while the Executive Committee is headed by the Administrator, plus three other members who shall serve on ad hoc basis (Resolution No. 77-2k3). The three members shall be called upon by the Chairman depending on the agenda where their line of interest and expertise are required.

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The Risk Management Committee (with at least one member having a background in finance and investment) is specifically responsible for the following:

1. Performing oversight risk management functions specifically in the areas

of managing credit, market, liquidity, operational, legal, reputational, and other risks of NFA, and crisis management, which shall include receiving from Senior Management periodic information on risk exposures and risk management activities;

2. Developing the Risk Management Policy of NFA, ensuring compliance with the same and ensure that the risk management process and compliance are embedded throughout the operations of NFA, especially at the Council and Management level; and

3. Providing quarterly reporting and updating the Council on key risk management issues as well as ad hoc reporting and evaluation of investment proposals.

5.2 Risk Mitigation Plan of NFA for CY 2020

Risk mitigation plan presents the risk management strategies and controls established during the year to meet performance targets/goals and operational mandate. The identified perspective/strategic measure and its risk definition, risk category and the mitigation plan for managing those risks, are presented as follows:

a. Social Impact

Perspective/Strategic Measure: Buffer Stocks Maintained

Risk Definition Risk Category Mitigation Plan

Acquisition of required Buffer Stock is dependent on the prevailing ex-farm price in the market. The farmers will be discouraged to sell their palay to NFA if the price of ex-farm in the market is higher than the NFA Support Price.

Most importantly, farmers would sell, where and when it is

Policy implementation risk and procurement risk (i.e., If the NFA support price will not be flexible to be competitive with the high prevailing price of palay in the market, the farmers will not be encouraged to sell their palay to NFA).

Flexibility in the determination of NFA support price to be competitive with the prevailing price of palay in the market.

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most convenient for them.

Non-availability of palay to be procured i.e., no harvest; the harvest was destroyed by typhoon.

Procurement risk - As NFA's mobile procurement proved to be more costly to sustain viability in its operations, NFA ceased/ limits its mobile procurement.

NFA recommended that government through the Philippine International Trading Corporation (PITC) import about 300,000 metric tons of rice from the Association of Southeast Asian Nation Countries, to augment the present rice stocks of the government.

During calamities such as the Corona Virus 2019 (COVID-19) pandemic, the demand for NFA rice exceeds the supply or stock inventory of NFA. This lessens the volume of NFA buffer stock. Thus, we will not be able to meet our target of 15-day rice buffer stocking.

Policy implementation risk (i.e., if the NFA continues to release stocks to government institutions for its COVID-19 relief operations, the NFA Buffer Stock will be depleted, and we will not be able to meet our target of 15-day rice buffer stocking.

The NFA revised its procurement and distribution targets for the second semester of CY 2020.

1. The distribution target for July to December 2020 is reduced by 60 per cent or reduced from the original target of 5,540,000 bags to 2,273,000 bags to attain the 15-day rice buffer stock.

2. The target volume of procurement for the second semester of CY 2020 was increased by seven per cent from the original 11,725,000 bags to 11,834,400 bags.

Perspective/Strategic Measure: Stocks maintained in safe and consumable condition.


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If NFA will be forced to buy wet and/or low quality palay, it may not be able to maintain the good quality standard of its stocks.

Policy implementation risk

NFA should maintain its policy of buying only clean and dry palay.

b. Stakeholders

Perspective/Strategic Measure: Timely release of stocks in times of emergencies and calamities.


There will be delay in the releasing of stocks as required if the available stocks are not sufficient to cater the requested volume.

Schedule risk Be able to release the stocks within the prescribed period if there are enough stocks.

Perspective/Strategic Measure: Client Satisfaction Survey (CSS)

Percentage of Satisfied Customers (Farmers)

Percentage of Satisfied Customers (Business Organizations)


Conduct of CY 2020 CSS for palay farmers for the main cropping season (September-December) and business organizations (government institutions and private entities). Data collection method is intercept for farmers and face-to-face/ telephone interview for business organizations. - Probability of not meeting the CSS performance target due to the COVID-19 pandemic:

High - The impact can highly affect NFA’s ability to achieve one or more of its objectives or targets. High impact can be defined as severe budget variance, significant harm to NFA’s image, large operational impact, long-term operational interruption, and qualified/unmodified audit findings.

1. Information dissemination regarding the conduct of survey to targeted respondents; 2. Project Team members and survey customers are enjoined to observe health protocols (such as physical distancing, wearing of face masks and face shields, hygiene practices, etc.) as mandated by the Department of Health (DOH), Inter-Agency Task Force for the Management of Emerging

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1. No survey respondents visiting the office to transact business; 2. Not meeting the required number of respondents for the survey; 3. Cannot obtain accurate data and relevant information; 4. Irregular schedules/ non-availability of target respondents; and

5. Field personnel/ project team affected by the NFA Restructuring Plan.

Infectious Diseases (IATF-MEID), and other relevant bodies. 3. Coordinate with Local Government Units (LGUs) and other agencies concerned on the community quarantine status in the area; 4. Provide interviewers and respondents with health kits supplies (face shields, hand sanitizers, face masks and alcohol); 5. Provide Team Members with connectivity tools (cellphone / cellphone load) and transportation for the duration of the survey.

c. Financial

Perspective/Strategic Measure: Decrease in variable cost of palay/rice


Increase in the variable costs; no control over the increases of variable costs of palay and rice during the COVID-19 pandemic.

Financial Risk Allocate additional fund for the increase of variable costs.

d. Learning and Growth

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Perspective/Strategic Measure: Attain International Organization for Standardization (ISO) 9001:2015 Certification


May not be able to complete the stages of ISO Certification due to the greater degree of attention given to operations because of the COVID-19 pandemic, decrease mobility of employees due also to COVID-19 pandemic, focus on the implementation of the NFA Restructuring Plan as mandated by the IRR of RA No. 11203, changes in the functions and staffing pattern of all NFA offices and availability of ISO certifying body vis-a-vis RA No. 9184.

Schedule Risk Requested exemption on ISO Certification requirement from GCG and Department of Budget and Management (DBM).

Perspective/Strategic Measure: Establishment of Competency Framework


Limitation in the identification of competencies for new positions based on the new mandate and functions of the agency, i.e., in terms of manpower and skill / expertise due to restructuring.

Human resources risk

Identify the new functions of the new positions vis-à-vis the new Agency mandate.

5.3 NFA’s Major Remarkable Accomplishments

a. Palay Procurement

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The palay procurement target of NFA from January 1 to December 31, 2020 is 18,723,950 bags or 936,198 Metric Ton (MT) of palay equivalent to P17.788 billion at P19 per kilogram (kg). During the said period, NFA accomplished 71.92 per cent of its target through procurement from various individual farmers and farmers’ organizations/associations/cooperatives at 13,467,644.6 bags or 673,382.23 MT equivalent to P12.794 billion (Annex “A-1”). From March 16 to December 31, 2020 or during the inception of the COVID-19 pandemic, NFA’s palay procurement target is 17,324,870 bags or 866,243.5 MT, equivalent to P16.459 billion. Annual procurement for the said period is 11,426,911 bags or 571,345.6 MT equivalent to P10.856 billion. (Annex “A-2”).

b. Rice Distribution

Rice distribution target from January 1 to December 31, 2020 is 6,733,000 bags or 336,650 MT at P25per kg, equivalent to P8.416 billion. A total of 11,761,674.8 bags or 588,083.74 MT of government rice equivalent to P14.702 billion was supplied to the consumer market, Department of Social Welfare and Development (DSWD), LGUs, legislators, and various government and other relief agencies, surpassing NFA’s target by 174.69 per cent. (Annex “A.1”). From March 16 to December 31, 2020, the rice distribution target is 5,393,000 bags or 269,650 MT equivalent to P6.741 billion. A total of 5,790,162 bags or 289,508 MT of rice amounting to P7.237 billion was issued to various government1 and other relief agencies for distribution to the families affected by the pandemic. (Annex “A.2”).

c. Positioning of Stocks

NFA formulated a plan where surplus provinces disperse its stocks to provinces with stock deficits. This is done to ensure that the rice inventory is maintained at an optimal level. Likewise, provinces considered as most vulnerable to calamities and emergencies are given priority. During the first implementation of the Enhanced Community Quarantine (ECQ) at the National Capital Region (NCR), NFA provincial offices conducted weekly rice caravans at NFA-NCR. This was done to meet the rice requirements of DSWD, Office of the Civil Defense (OCD), National Disaster and Risk Reduction Management Committee (NDRRMC), LGUs, Philippine National Police (PNP), legislators, and other government and relief agencies.

The rice distributed in Metro Manila to the families affected by the COVID-19 pandemic is sourced from the following provinces:

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Caravan Date No. of Trucks

Approximate No. of Bags

Source Provinces

1st March 30, 2020 30 21,000 Ilocos Region, Cagayan Valley, and Central Luzon

2nd April 8, 2020 20 14,000 3rd April 15, 2020 14 9,800 4th April 22, 2020 35 24,500 5th April 29, 2020 35 24,500 6th May 06, 2020 29 20,300 Northern and Central Luzon 7th May 13, 2020 27 27,000 Ilocos Region, Cagayan Valley, and

Central Luzon

d. NFA Services during COVID-19 Pandemic

To assure the public of continuing NFA operations, NFA personnel in all ROs and POs are available 12 hours a day, seven days a week to serve the rice purchase requests. When the government implemented the community quarantine, NFA assigned skeleton workforce to ensure continuity of NFA services to the public. Work arrangements have been set at 50 per cent workforce reporting to the office while the other 50 per cent works from home (WFH). The schedule shifts weekly to comply with the physical distancing protocol of keeping the required distance of at least one meter. From March 16 to December 31, 2020, total purchases made in relation to the COVID-19 pandemic was at P3,733,399.56.

6. PRIOR PERIOD ADJUSTMENTS

Fundamental adjustments of prior years are corrected using Prior Years’ Charges to Cost of Sales, Expenses, Other Income, and Sales, while errors affecting current year’s operations are charged to current year’s accounts.

Net surplus/(deficit) for CY 2019, as reported (3,433,191,212) Add/(deduct) prior period errors: Sales 250,179,864 Cost of sales (345,369,853) Other income: Service income 1,367,859 Business income (4,025,466) Miscellaneous income 8,251,978 Other non-operating income 2,983,056 Expenses: Personnel services 50,818,208 Maintenance and other operating expenses (MOOE) 4,116,369 Financial expenses 7,199 Non-cash expenses (214,016,062) Losses 2,230,173 (243,456,675)

Net surplus/(deficit) for CY 2019, as restated (3,676,647,887)

The following are the adjustments made for CY 2020 (pertaining to errors prior to CY 2019):

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Particulars

CY 2018

CY 2017

CY 2016

CY 2015

CY 2014 and prior years

Total

Sales 754,084,300 (1,532,860) 180,751,493 3,658,888 637,327,240 1,574,289,061 Cost of sales (282,358,525) (204,714,651) (163,584,183) (161,773,595) 312,887,438 (499,543,516) Other income: Service income 11,779,437 66,058 10,010 (282,732) 51,343,911 62,916,684 Miscellaneous income 928,726 195,284 (27,402) 26,050 23,478,749 24,601,407 Other non-operating income 829,517 - 165,530 (4,677) 60,461,897 61,452,267 Gains - 1,641 4,458 - - 6,099 Expenses: Personnel services (61,922,472) (27,632,494) (2,906,546) (761,528) (16,857,629) (110,080,669) MOOE (159,881,056) 208,157,224 (19,873,222) (3,913,169) (5,177,639,423) (5,153,149,646) Financial expenses 8,400 - (11,000) (21,696) 11,742 (12,554) Non-cash expenses 2,085,958 (206,349) (288,608) 18,431,936 (3,854,777) 16,168,160

Total adjustments prior to CY 2019 265,554,285 (25,666,147) (5,759,470) (144,640,523) (4,112,840,852) (4,023,352,707)

7. CASH AND CASH EQUIVALENTS

This account consists of the following:

2020 2019

Cash on hand 1,073,504 16,942,014 Cash in bank - local currency 2,749,237,145 2,792,836,914 Cash in bank - foreign currency 92,769,457 98,120,550

2,843,080,106 2,907,899,478

7.1 Cash on Hand

Represents the undeposited collection in the custody of the Cashier and Special Collecting Officer as of the end of accounting period, December 31. The decrease in Cash on hand is attributed to the strict implementation of SOP-GMPR33, Return of unused Cereal Procurement Fund (CPF) by the Special Disbursing Officer (SDO).

7.2 Cash in Bank – Local Currency

Includes current and savings account that are deposited in various banks of central, regional and provincial offices such as Development Bank of the Philippines (DBP), Land Bank of the Philippines (LBP), and Philippine National Bank (PNB). This account consists of General Operating Fund (GOF), CPF, Rice Collection Account, and e-Gov account. GOF Account is used for general and regular transactions of the office while CPF account is mainly used for paddy procurement and for Cooperative Development Incentive Fund (CDIF) withdrawals of Farmers Organization and/or Cooperative. For the RCA, it is where all sales of rice are deposited and transferred to NFA CO RCA account.

7.3 Cash in Bank – Foreign Currency

Cash in bank in foreign currency is a dollar savings account deposited in LBP – NFA Branch. The foreign currency account amounting to US$1,931,771.8 is revaluated using the December 31, 2020 closing rate of ₱48.023/$1.00 from the BSP. While the December 31, 2019 balance of US$1,937,800.94 was

34

revaluated using December 31, 2019 closing rate of ₱50.635/$1.00 from the same source.

7.4 Restricted Cash

Restricted cash for CY 2020 amounted to P623,837,472.

8. FINANCIAL ASSETS

8.1 Reconciliation of Current Investments

Time Deposit Other Financial

Assets Total

Balance, January 1, 2020 164,285,248 387,663,013 551,948,261 Re-investment of excess fund from payment of NFA CO building

- 47,082,000 47,082,000

Increase in investment due to discount/ interest earned during the period

4,151,723

3,205,445

7,357,168

Withdrawal of Investment due to partial payment of NFA CO building - (208,944,737) (208,944,737)

Balance, December 31, 2020 168,436,971 229,005,721 397,442,692

8.2 Investment in Time Deposits

Investment in Time Deposit in the amount of P 168,436,971 is a Time Deposit of Corn Development Fund in DBP which consist of 92 days at 1.75 per cent in the amount of P15,854,257 and 360 days at two per cent in the amount of P152,582,714.

8.3 Other Financial Assets

2020 2019

LBP trust - building 174,675,607 171,860,339 DBP trust - building 54,330,114 215,802,674 229,005,721 387,663,013

9. RECEIVABLES


2020 2019

Accounts receivables 36,545,085 15,898,985 Loans receivables 22,259,615 31,260,550 Inter-agency receivables 453,618,084 943,529,666 Other receivables 3,019,632,008 3,623,731,242

3,532,054,792 4,614,420,443

9.1 Accounts Receivables

35

Accounts 2020 2019

National Government Agencies (NGAs) 390,865,859 390,942,928 LGUs 130,763,318 136,885,705 GOCCs 51,871,320 51,872,592 Private corporations (PCs) 11,522,208 11,619,406 Farmers 4,869,326 4,936,082 Employees 281,693 276,760 Retailers 225,082 230,732 Erap Sari-Sari Store (ESSS) operators 26,337 26,337 Less: Allowance for impairment loss (553,880,058) (580,891,557) 36,545,085 15,898,985

Accounts Receivable consist mainly of dormant accounts from rice loans of government and private institutions, GOCCs, private corporations, retailers, employees, and farmers. Accordingly, an Allowance for Impairment is provided for the receivables. The increase is attributable to sale on account of rice from different institutions, while the decrease is attributable to the collection of Accounts Receivable during the current year.

9.2 Aging of Accounts Receivables

Accounts

Grand total

Less than

one year

1-2

years

2-3

years

3-4

years

4-10

years

Over

10 years

NGAs 390,865,859 1,665,220 128,700 - 37,596,528 41,541,441 309,933,970 LGUs 130,763,318 375,000 80,000 150,000 97,519,114 15,313,768 17,325,436 GOCCs 51,871,320 - - - - 372,100 51,499,219 PCs 11,522,208 307,373 202,500 - - 227,034 10,785,301 Retailers 225,082 - 2,500 3,234 - 61,789 157,559 ESSS operators

26,337 - - - - - 26,337

Employees 281,693 31,239 600 - - 23,848 226,006 Farmers 4,869,326 - - - - - 4,869,326

590,425,143 2,378,832 414,300 153,234 135,115,642 57,539,980 394,823,154

Allowance for impairment loss

553,880,058

-

103,575

76,617

101,336,732

57,539,980

394,823,154

The NFA recognizes impairment losses based on the results of the specific/individual and collective assessment of its credit exposures. Impairment has taken place when there is a presence of known difficulties in the servicing of cash flows by counterparties, infringement of the original terms of the contract has happened, or when there is an inability to pay principal or interest overdue beyond a certain threshold. These and the other factors constitute observable events and/or data that meet the definition of an objective evidence of impairment

9.3 Loans Receivables

36

2020 2019

Japan International Cooperation Agency (JICA)*

2,423,356 8,023,069

Private Sector Modernization Scheme (PSMS) 6,873,511 6,566,459 Post-Harvest Facilities (PHF) 1,038,416 1,137,416

Farm Level Grain Centers (FLGC)* 21,204,02

3 17,360,763

Allowance for impairment loss (9,279,691

) (1,827,157)

22,259,615

31,260,550

* The increase/decrease of accounts are due to the reconciliation of balances of National versus Consolidated RO/PO.

Loans receivables from PSMS Beneficiaries are secured by land titles which are kept at Finance Department – Budget Division. The Allowance for Impairment Loss – Loan receivables account is due to the set-up of the following regions:

Accounts Region 4 Region 6 Region 8 Region 9 Total

JICA 226,488 345,493 18,792 - 590,773 PSMS 2,004,671 901,555 202,981 78,455 3,187,662 PHS 532,243 - - 349,550 881,793 FLGC 4,619,463 - - - 4,619,463

7,382,865 1,247,048 221,773 428,005 9,279,691

9.4 Inter-Agency Receivables

2020 2019

Due from GOCCs 219,519,588 155,213,698 Due from NGAs 219,456,548 773,552,275 Due from LGUs 14,641,948 14,763,693 453,618,084 943,529,666

9.4.1 Due from GOCCs consists of the following:

2020 2019

GSIS 120,100,330 119,360,812 GSIS - Proceeds from damaged stocks 41,608,456 - Quedan Guarantee Fund Board (QGFB) 35,602,034 35,617,034 GSIS - Proceeds from Marine Insurance 21,972,917 - PITC 355,773 355,773 Food Terminal, Inc. (FTI) (38,170) (38,170) Grains Insurance Corporation (GRAINSCOR) (81,752) (81,751) 219,519,588 155,213,698

The increase in GSIS account was due to the recognition of the insurance claims-sinking barge.

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The PITC account represents Unclassed Vessel Surcharged pertaining to the CY 2002 importation of 16,200MT Indian long grain white rice which unloaded in Cebu thru ex-vessel MV Chung Gin 2 in the amount of US$7,034.85. A series of demand letters were made to collect the account.

The FTI and GRAINSCOR accounts are for balance verification and reconciliation.

9.4.2 Due from NGAs consists of the following:

2020 2019

Department of Transportation (DOTr) 198,238,700 738,889,70

0 DA 7,663,856 6,972,589 DA - Intra-agency Fund 6,380,485 6,380,485 DSWD – ASEAN Plus Three Emergency Rice Reserve (APTERR)

2,077,903

1,352,908

DA - Certified Seeds 1,859,403

1,852,331

East Asia Rice Released 1,734,978

- Bureau of Customs (BOC) 1,211,822 1,180,751

National Disaster Coordinating Council 515,735

316,985

DSWD 509,653

11,259,420

Department of Interior and Local Government (DILG) 432,437

432,437

Bureau of Postharvest Research and Extension (BPRE) 110,655

114,122 DBM - Procurement Service

38,897

4,304,549

Bureau of Internal Revenue (BIR) 24,010

183,667 Department of Education (DepEd) 22,650 22,650 Bureau of Agricultural Statistics 21,927 43,854

Bureau of Soils and Water Management 3,420

6,841 Department of Education, Culture and Sports (DECSS) – Food for School Program

-

222,736

OCD - 16,250 Less: Allowance for impairment loss (1,389,983) -

219,456,548 773,552,27

5

Decrease in Due from NGAs - DOTr account was due to total collection made amounting to P540,651,000, Breakdown as follows: P513,618,450 per Official Receipt (OR) No. N0951755 dated January 2, 2020 and P27,032,550 per OR No. N0490062 dated July 22, 2020. The DBM - PS account represents unutilized amount due to price adjustments or unavailability of procured supplies and materials.

The BPRE account represents unliquidated balance from DA funded program for the Mechanical Dryer/Grains Production Enhancement Program (GPEP) Post Harvest Facility Assistance Fund.

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9.4.3 Due from LGUs consists of the following:

2020 2019

Nueva Ecija 13,478,718 13,478,718 Pampanga 708,029 708,029 Aurora 400,000 400,000 Bukidnon 55,201 75,201 National Farmers Advisory Council (NFAC) - 101,745 14,641,948 14,763,693

The Provincial Government of Nueva Ecija account represents unliquidated balance from DA funded program for the Mechanical Dryer/GPEP Post Harvest Facility Assistance Fund. The NFAC account represents unliquidated advances for the Grains and Irrigation Water Assessment and Farmers Consultative Workshop. This account was reclassified from Due from LGUs - NFAC to its correct account, Other Receivables – Private Institution per NFA Central Office (CO) JEV-0000-20-12-001116 dated December 28, 2020.

9.5 Other Receivables

2020 2019

Due from officers and employees 1,641,109,762 1,898,101,576 Receivables - disallowances/charges 27,694,959 20,007,623 Other receivables 1,350,827,287 1,705,622,043 3,019,632,008 3,623,731,242

9.5.1 Due from Officers and Employees consists of the following:

2020 2019

NFA Stock Accountable Officer's Accountabilities without Stock Examination (Stocks and empty sacks MTS) – Past - (Title I)

1,139,585,648

1,077,049,243

Due From Officers And Employees - Accountabilities with COA Examination - (Title III)

178,110,725

178,110,725

NFA Stock Accountable Officer's Accountabilities – For Tolerable Allowance (TOLA) Computation - (Title IV)

138,494,874

181,411,516

NFA Stock Accountable Officer's Accountabilities – Stocks – with Unresolved Appeal - (Title VI)

116,761,384

153,408,891

Final Shortages - Still Connected with NFA (Title VII) - Grains

107,129,666 110,822,841

NFA Stock Accountable Officer's Accountabilities with Management Examination-(Title II)

70,479,818

98,070,627

NFA Stock Accountable Officer's Accountabilities - On Going – (Title I)

66,013,540

34,128,878

NFA Stock Accountable Officer's Accountabilities – Stocks - with TOLA Computation - (Title V)

34,888,877

4,001,723

Shortage - NFA Accountable Officers (Cash) 20,166,584 20,642,793 NFA Accountable Officers (KADIWA) 12,379,542 33,287,595 Educational Loan Assistance 8,026,339 7,728,520 Special Vehicle Loan 3,492,360 6,553,644 Final Shortages - Still Connected with NFA (Title VII) - MTS 2,320,240 2,423,599 Special Loan Assistance 1,382,323 1,579,393 Special Loan Assistance P20,000 1,264,174 129,951 Refund of Excess/Overpayment of PS 581,247 391,635

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GRAINSCOR 515,935 26,757 Communications 294,235 278,280 Loss of supplies and materials 133,419 4,901 Loss of fixed assets 30,054 91,707 Final shortages - still connected with NFA (Title VII) – Grains/MTS

-

(13,286,363)

Private institutions/corporations/individuals - 1,244,720 Less: Allowance for impairment loss 260,941,222 - 1,641,109,762 1,898,101,576

The Due from Officers and Employees account represents different collectibles from officers and employees, such as advances of travelling expenses. Educational Loan granted to officers and employees payable in six monthly installments, Special Loan Assistance, Stock Shortages which are net of tolerable allowance and are for collection from concerned accountable officers. Those who are still in service are paying regularly but at an amount based on their capacity pay. Those who are no longer in the service were recommended for either filing of court action or write off if warranted. Due from Stock Accountable Officers (SAOs) are categorized into:

NFA SAO Stock Shortages Without Examination – Past Accountabilities – This include cases with proper cut-off but not yet 100 per cent examined and/or pending for examination.

NFA SAO Stock Shortages Without Examination – Ongoing Accountabilities –This include cases with no cut-off of accountability yet with or without shortages set-up.

NFA SAO Stock Shortages with Management Examination – This include cases/accountabilities already encoded in the New Computerized Stock Examination and TOLA Computation System which are 100 per cent completed, the required certifications are already submitted, the inventory of accountable forms are properly accounted for, the computer generated examination and reports are already final, verified by Provincial Accountant and noted by the Provincial Manager and forwarded or about to be forwarded to the concerned SAO for review and confirmation as of report date. Also include accountabilities with final examination or 100 per cent completed and the results are either shortage but considered auto-offset, or overage (therefore, no TOLA is computed).

NFA SAO Stock Shortages with Examination but for TOLA Computation – This include cases/accountabilities submitted by Provincial Office for TOLA computation.

NFA Stock Shortages with TOLA Computation – This include cases/accountabilities wherein the result of TOLA computation is for review of the SAO and is under the 30 working days prescribed period to appeal.

Final Shortages With/Without Resolved Appeal – No Longer Connected – This include cases/accountabilities of SAO no longer connected with NFA wherein TOLA computations (either with shortages or offset) were conducted either in the RO or CO and appeals resolved by the Regional Tolerable Allowance Committee (TAC) or National TAC. It also includes

40

cases with shortages net of TOLA without appeal and/or the 30 working days prescribed period had lapse.

9.5.2 Receivables - Disallowances/Charges consists of the following:

2020 2019

Traveling 218,168 6,847,581 Salaries and wages 635,206 543,958 Allowances 2,625,228 1,610,897 Representation 434,568 422,319 Supplies and materials 1,268,362 31,363 Food incentive 14,494,942 10,551,505 Others 8,018,485 - 27,694,959 20,007,623

The Receivables-Disallowances/Charges account includes disallowance in audit of the salaries and wages, allowances, and travel of NFA employees which are being paid through salary deduction.

9.5.3 Other Receivables consists of the following:

2020 2019

Final shortages - no longer connected with NFA (Title VIII)

1,588,292,104

1,542,635,947

Private Institutions 168,861,695 143,693,509 Separated NFA employees 12,326,728 12,348,243 NFA employees 4,650,231 586,374 MTS receivable from Other Agencies/Offices/Organizations

2,807,007 4,238,224

Advances made by POs 2,201,969 1,906,193 COA personnel 999,669 1,042,946 GOCCs 4,970 Corn Marketing Assistance Program (2,194.) - Others 5,884,251 -

1,786,026,431 1,706,451,436

Less: Allowance for impairment loss 435,199,144 829,393 1,350,827,287 1,705,622,043

Other Receivables account consists of receivables from private institutions, corporations, contractors, or individuals other than those arising from trade.

10. INTRA-AGENCY RECEIVABLES

2020 2019

Due from CO 25,865,284,2323 26,307,573,517 Due from RO 5,150,754,777 5,612,509,524 Due from Operating Units (OUs) 20,024,277,265 25,294,228,912 51,040,316,275 57,214,311,953

41

Intra-Agency Receivables and Payables represent the receipt and issuance of funds and other assets like supplies, inventories, equipment, etc. for use in NFA CO, ROs, and POs and are recorded as receivables (Due from) in the issuing office and payables (Due to) by the receiving office.

Monthly/Quarterly reconciliation of interbranch accounts are prepared. Reconciled accounts are being reverted and closed to Equity accounts after the originating office acknowledges and confirms the reconciliation of accounts with NFA ROs/POs.

11. INVENTORIES

This account consists of:

2020 2019

Inventory held for sale Merchandise inventory 2,245,412,859 4,513,555,114 Allowance for impairment loss - merchandise inventory (20,098,091) (41,986,211)

Carrying Amount, December 31, 2020 2,225,314,768 4,471,568,903

Inventory held for manufacturing Raw materials 8,935,384,441 12,293,666,100 Allowance for impairment loss - raw materials (66,371,411) (82,215,930)

Carrying amount, December 31, 2020 8,869,013,030 12,211,450,170 Work In process 169,168,936 143,681,673

Inventory held for consumption 346,536,500 324,453,184 Semi-expandable machinery and equipment 14,732,907 15,277,582 Semi-expendable furniture and fixtures 2,194,161 2,437,165

11,626,960,302 17,168,868,677

11.1 Inventory Held for Sale

2020 2019

Merchandise inventory (MI) 2,245,412,859 4,513,555,114 Less: Allowance for impairment less

(20,098,091) (41,986,211)

2,225,314,768 4,471,568,903

The decrease can be attributed to the distribution and donations in response to government relief operation in times of emergencies and calamities. This was done to meet the rice requirements of DSWD, OCD, NDRRMC, LGUs, PNP, legislators, and other government and relief agencies.

11.2 Inventory Held for Manufacturing

2020 2019

Raw materials (RM) 8,935,384,441 12,293,666,100 Less: Allowance for impairment loss

66,371,411 82,215,930

8,869,013,030 12,211,450,170

Work-in-process (WIP) 169,168,936 143,681,673 9,038,181,966 12,355,131,843

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RM inventory consists of palay procured and stored on hand. The decrease in RM is due to continuous milling operation for roll-over of inventory and in response to government relief operations.

WIP inventory consists of RM (palay) for milling or is in the process of milling.

11.3 Inventory Held for Consumption

This account consists of supplies which are used in the ordinary course of NFA operations such as the following:

Balance, 01/01/20

Additions/ acquisitions/

expensed/ adjustments

during the year

Balance, 12/31/20

Office supplies 13,721,070 (1,313,390) 12,407,680 Accountable forms, plates, and stickers 20,719,146 (2,383,796) 18,335,350 Less: Allowance for impairment - Accountable forms, plates, and stickers

- (977) (98)

Non-accountable forms 62,184 (18,145) 44,039 Drugs and medicine 562,552 (128,236) 434,316 Medical, dental, and laboratory supplies 3,598,067 (3,313,316) 284,751 Fuel, oil, and lubricants 1,562,007 (108,953) 1,453,053 Agricultural supplies 30,845,405 15,720,209 46,565,614 Less: Allowance for impairment loss - agricultural supplies

(153,322) 124,396 (28,926)

Construction materials 3,811,677 (414,777) 3,396,900 Linens and beddings 256,043 54,528 310,571 Electrical supplies and materials 1,072,533 1,385,703 2,458,236 Housekeeping/cleaning supplies - 50,720 50,720 Other supplies and materials inventory 248,395,823 12,428,471 260,824,294 324,453,184 22,083,316 346,536,500

11.4 Semi-expendables

These are tangible items costed below the capitalization threshold of P15,000. These are recognized as expenses upon issue to the end-user.

Balance, 01/01/20

Additions/ Acquisitions/

Expensed/ Adjustments

during the year

Balance, 12/31/20

Semi-expendable - office equipment

1,098,230 (128,817) 969,413

Semi-expendable – Information Technology (IT) equipment

581,593 (63,761) 517,832

Semi-expendable - communication equipment

12,082,285 (23,133) 12,059,152

Semi-expendable - disaster response and rescue equipment

130,700 (71,800) 58,900

Semi-expendable - medical equipment

13,400 9,376 22,776

Semi-expendable - sports equipment

14,795 - 14,795

Semi-expendable - technical and scientific equipment

957,033 (316,130) 640,903

Semi-expendable - kitchen equipment

165,632 - 165,632

43

Semi-expendable - other machinery and equipment

233,913 49,591 283,504

Semi-expendables – Machinery and Equipment

15,277,581 (544,674) 14,732,907

Semi-expendables –Furniture and Fixtures

2,437,166 (243,005) 2,194,161

12. OTHER ASSETS 12.1 Current and Non-current Other Assets

2020 2019

Current other assets Advances Advances for operating expenses (OpEx) - 7,500 Advances for payroll 39,910 - SDO 1,480,901 8,149,687 Advances to officers and employees 89,115 410,522

1,609,926 8,567,709

Prepayments Advances to contractors 4,629,299 37,360,236 Prepaid rent 3,924,125 3,924,125 Prepaid insurance 2,997,024 1,796,634 Other prepayments 964,168 2,736,961

12,514,616 45,817,956

Deposits Guaranty deposits 58,617,207 58,617,883

Other assets 147,096,207 102,085,605

Non-current other assets Other assets 1,164,703,805 799,276,014 Less: Accumulated impairment losses 466,638 381,455

1,164,237,167 798,894,559

1,384,075,123. 1,013,983,712

Advances for OpEx account includes the amount granted to Disbursing Officer for operating expenses of different departments of NFA – Home Office not maintaining complete set of books. Advances for Payroll is use to recognize the amount granted to regular disbursing officer for payment of salaries, wages, honoraria, allowances, and other personnel benefits. Advances to SDO account includes the amount granted to Accountable Officer (AO) for special purpose/time-bound undertakings.

44

Advances to Officers and Employees account includes the amount granted to officers and employees for official travels to be liquidated within a specified period and/or within 30 calendar days upon arrival from travel.

12.2 Prepayments

The decrease in Advances to Contractors is attributable to the progress payment to Legazpi Premium Development Corporations based on percentage of completion of CO Building. The balance consists of P1,282,681 in CO, and P3,346,618 in field offices (FOs). Prepaid rent represents rental to Amberland Corporation, Solid Triangle Sales Corp., and Sugar Regulatory Administration (SRA) in the amount of P2.026 million, P1.712 million, and P0.159 million respectively at the CO, and P0.027 million at the FOs.

Prepaid insurance represents set-up for the insurance premium of various NFA Service Vehicles.

2020 2019

Internet (Website) 658,334 2,459,207 Registration fees 40,684 277,754 NTC 265,150 -

964,168 2,736,961

Other prepaid expenses represents prepayment for Internet Security Gateway Appliance for Data Center, various Land and Transportation Office Registration Fees, and others.

12.3 Guaranty deposits

These are deposits in the following utilities and facilities:

2020 2019

Facilities 52,182,181 52,192,181 Light and water 3,434,521 3,200,981 Court cases 1,508,842 1,508,842 Containers 1,008,660 1,209,574 Telephone installation 308,357 317,159 Lease equipment 174,646 189,146

58,617,207 58,617,883

12.4 Current other assets

2020 2019

Items in transit 623,281 201,739 Items in transit - grains 144,409,111 84,083,804 Items in transit - Empty Sacks (MTS) (87,559)* 9,457,249 Miscellaneous inventory 137,575 537 Commodity in trust 582,782 578,980

45

Miscellaneous inventory - cereal sweepings 137,105 137,105 Miscellaneous inventory - damaged grains (1,733,057)** 211,033 Miscellaneous inventory - damaged non-grains 1,654,234 184,916 Miscellaneous inventory - fertilizer 35,756 35,756 Miscellaneous inventory - by-products - 901 Stock held in trust 1,336,980 1,340,612 Equipment and implement - Agro-processing and Marketing Project Office (APMPO)

- 5,852,973

147,096,208 102,085,605

*For reclassification by Region 8 P137,509.36 to Items in transit

**For reclassification by Region 8 P137,038.34 and R13 P1,733,057.31 to Merchandise Inventory - damaged grains

12.5 Non-current other assets

2020 2019

Junked assets 8,365,766 11,083,649 Miscellaneous assets - non-performing 48,399,183 49,412,407 Equipment and implement - APMPO 5,852,972 - Other receivables 415,700,765 - Other receivable - Government Agencies (13,641,725)* 9,108,275 Other receivable - GOCCs 1,267 1,267 Other receivable - private institutions 700,025,577 729,670,416 1,164,703,805 799,276,014

Less: Allowance for impairment loss 466,638 381,455

1,164,237,167 798,894,559

*For reclassification by Region 13 to Other Receivables.

Other assets account includes the equipment and implements –APMPO which represents the inventory of equipment to be utilized solely for the improvement/modernization and installation of farmers’ equipment such as rubber rolls, mechanical dryers, and rice mill components.

13. NON-CURRENT INVESTMENT 13.1 Reconciliation of Non-Current Financial Assets

Investment in stocks

Other investments

Total

Balance, 01/01/20 501,375,787 15,450,594 516,826,381

Balance, 12/31/20 501,375,787 15,450,594 516,826,381

13.2 Investment in Stocks

2020 2019

FTI 500,000,000 500,000,000 Gasifier and Equipment Manufacturing Corporation 1,242,000 1,242,000

Philippine Long Distance Company 67,157 67,157

Celebrity Sports Plaza 35,000 35,000 Manila Electric Company 31,630 31,630 501,375,787 501,375,787

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Investment in Stocks in FTI in the amount of P500 million was recognized in the books of NFA pursuant to Section 8 of PD No. 1770 dated January 14, 1981, which provided that the investments and loans as well as related obligations incurred by the Human Settlements Development Corporation (HSDC) in the FTI shall be transferred to NFA. On September 22, 2020, Dividend income of P50 million was received from FTI per OR No. 00492502.

13.3 Other Investments

2020 2019

Center for International Trade Expositions and Missions 14,745,735 14,745,735 NFA Employees Association 407,200 407,200 DBP Trust 179,158 179,158 Quezon City Sports Club 70,000 70,000 Capitol City Sports Club 22,500 22,500 Philippine Columbian Association 16,000 16,000 Kutowato 10,000 10,000

15,450,593 15,450,593

14. INVESTMENT PROPERTY

14.1 Investment Property - Land

Particulars Land

Balance, 01/01/20 14,009,519 Other changes: Reclassification from PPE-Land to Investment Property - Land of Region 13

1,867,780

15,877,299

Other changes: Reclassification from Investment Property - Land to PPE - Land of Region 11

(43,959)

Balance, 12/31/20 15,833,340

In compliance with IPSAS 16, this account was used to classify Land and Building for the purpose of earning rentals or for capital appreciation or both.

14.2 Breakdown of Investment Property - Land

Region Amount

NCR 11,716,080 Southeastern Mindanao Region 2,611,683 Southern Tagalog Region 741,373 Western Mindanao Region 540,342 Western Visayas Region 211,200 Ilocos Region 12,662 15,833,340

47

15. PROPERTY, PLANT, AND EQUIPMENT (PPE)

Additions/acquisitions/adjustments include items that were acquired during the year, capitalized expenditures and receipt of assets and transfers to and from the CO, ROs, and POs. CY 2020

Land Land

improvements*

Building and other

structures**

Furniture, fixtures and equipment,

books***

Construction in progress

Total

Cost, 12/31/19 290,703,340 314,020,082 2,810,287,372 2,097,418,573 307,436,789 5,819,866,156 Additions/acquisitions/disposals/ transfers/adjustments

(194,020,819)

40,906,853

(148,109,772)

(159,712,274)

317,678,949

(143,257,063)

Cost, 12/31/20 96,682,521 354,926,935 2,662,177,600 1,937,706,299 625,115,738 5,676,609,093

Accumulated depreciation and depletion, 12/31/19

-

195,519,373

1,708,910,997

1,680,778,668

-

3,585,209,038

Depreciation and depletion, CY 2020 - 11,281,471 62,239,288 65,709,773 - 139,230,532 Adjustments - (683,979) (264,164,830) (234,936,727) - (499,785,536) Accumulated depreciation and

Depletion, 12/31/20

-

206,116,865

1,506,985,455

1,511,551,714

-

3,224,654,034 Accumulated impairment loss, 12/31/19

-

-

374,633

400,346

-

774,979

Impairment loss, CY 2020 - 7,816 81,804 167,513 - 257,133 Adjustments, derecognition/disposal, CY 2020

-

(7,816)

(76,445)

(141,493)

-

(225,754)

Accumulated impairment loss, 12/31/2020

-

-

379,992

426,366

-

806,358

Accumulated depreciation/depletion and impairment loss, 12/31/20

-

206,116,865

1,507,365,447

1,511,978,080

-

3,225,460,392

Net Book Value, 12/31/20 96,682,521 148,810,070 1,154,812,153 425,728,219 625,115,738 2,451,148,701

*Includes Leasehold Improvements-Land amounting to P25,161,244 **Includes Leasehold Improvements-Building amounting to P4,885,367 ***Composed of Machineries and Equipment, Communication Equipment, Disaster Response and Rescue Equipment, Medical Equipment, Sports Equipment and Technical and Scientific Equipment, Furniture and Fixtures, Books, Office Equipment, Information

and Communication Equipment, Technology Equipment, Kitchen Equipment, Electric Equipment, Motor Vehicle, Other Transportation Equipment, and Other PPE. 15.1 Land

Changes in Land account was due to the following reasons: a. Addition of P40,000 was made by Region 12 for the payment of relocation survey

of lot boundaries and pegging of standard size concrete monuments of Lot 4005, PLS-218 at Brgy. Kilada, Matalam, Cotabato.

b. Reclassification from Investment Property-Land to PPE-Land of Region 11 amounting to P43,960.

c. Transfer of CO of Lot#54 occupied by FDC 14,720 square meters (sqm.) valued at P191,814,029 to DA in relation to RA No. 11203 in CY 2020.

d. Reclassification from PPE-Land to Investment Property-Land of Region 13 amounting to P1,867,780.

48

e. Derecognition of Region 15 for NFA titled lot with a land area of 20,758 sqm. valued at P422,969.

CY 2019

Particulars Land Land

Improvements*

Building and Other

Structures**

Furniture, Fixtures and Equipment,

Books***

Construction in Progress

Total

Cost, 12/31/18 304,712,236 299,347,518 2,693,997,647 2,143,977,787 73,830,663 5,515,865,851 Additions/acquisitions/disposals/transfers/ adjustments/reclassification

(14,008,896)

14,672,564

116,289,725

(46,559,215)

233,606,127

304,000,305

Cost, 12/31/19 290,703,340 314,020,082 2,810,287,372 2,097,418,572 307,436,790 5,819,866,156

Accumulated depreciation and depletion 12/31/18

- 180,371,569 1,591,502,471 1,674,006,139

- 3,445,880,179

Depreciation and depletion – CY 2019 - 11,471,482 62,203,829 89,062,778 - 162,738,089

Adjustments - 3,676,321 55,204,697 (82,290,249) -

(23,409,231)

Accumulated depreciation/depletion ,12/31/19 - 195,519,372 1,708,910,997 1,680,778,668 - 3,585,209,037

Accumulated impairment. loss, 12/31/18 - 37,268

577,911 71,310 -

686,489

Impairment loss, CY 2019 - 3,894 5,795,449 540,804 - 6,340,147

Adjustments, derecognition/disposal, 2019 - (41,162) (5,998,727) (211,768) -

(6,251,657)

Accumulated impairment loss, 12/31/2019 - - 374,633 400,346 -

774,979

Accumulated depreciation/depletion and impairment loss, 12/31/19

-

195,519,372

1,709,285,630

1,681,179,014

-

3,585,984,016

Net Book Value, 12/31/19 290,703,340 118,500,710 1,101,001,742 416,239,558 307,436,790 2,233,882,139

*Includes Leasehold Improvements-Land amounting to P24,482,734 **Included Leasehold Improvements-Building amounting to P4,577,317

***Composed of Machineries and Equipment, Communication Equipment, Disaster Response and Rescue Equipment, Medical Equipment, Sports Equipment and Technical & Scientific Equipment, Furniture and Fixtures, Books, Office Equipment, Information and Communication Equipment, Technology Equipment, Kitchen Equipment, Electric Equipment, Motor Vehicle, Other Transportation Equipment, and Other PPE.

16. INTANGIBLE ASSETS

Computer Software

Other Intangible Assets -

Development in Progress

Total

Carrying amount, 01/01/20 113,550. 1,931,260 2,044,810 Additions/acquisitions - 1,415,668 1,415,668 113,550 3,346,928 3,460,478 Amortization recognized impairment loss (40,200) - (40,200)

Carrying amount, 12/31/20 73,350 3,346,928 3,420,278

Gross amount, 01/01/20 14,024,881 1,931,260 15,956,141 Transfer of computer software of FDC to DA (884,453) - (884,453) Additions/acquisitions - 1,415,668 1,415,668

Gross amount, 12/31/20 13,140,428 3,346,928 16,487,356 Accumulated impairment loss (13,067,078) - (13,067,078)

Balance, 12/31/20 73,350 3,346,928 3,420,278

16.1 Computer Software

This account amounting to P14,024,881 was reclassified from IT Equipment and Software - Software/Lotus/FoxPro/Virus Scan Account to conform with the RCA classification as per COA Circular No. 2016-006 dated December 29, 2016.

16.2 Other Intangible Assets - Development in Progress

49

It pertains to Electronic Integrated Financial and Operations Management Information System (e-IFOMIS). It is a web enabled on-line information system consisting of NFA operations and financial transactions that are linked together accessing one database. This encompasses automated and manual processes, procedures, controls, data, hardware/software, and support personnel dedicated to the operation and maintenance of the systems, functions. The project also includes multiple applications that are integrated thru a common data-based or are electronically interfaced as necessary to meet defined data and processing requirements.

50

17. FINANCIAL LIABILITIES 17.1 Payables


2020 2019

Current Non-current Current Non-current

Accounts payables 1,065,966,602 - 910,771,206 - Due to officers and employees 1,191,383,380 - 374,283,138 - Notes payable 50,495,000,000 - 50,495,000,000 -

Interest payable 1,395,730,931 -

4,616,502,686

- Loans payable-domestic 21,225,500,000 7,801,236,020 11,911,500,000 38,026,619,395 Loans payable-foreign 12,607,474 50,429,898 13,104,483 62,534,786

75,386,188,387 7,851,665,918 68,321,161,513 38,089,154,181

17.2 Accounts Payable

Accounts Payable account includes expenses due for payment to supplier of goods and services which are already incurred but not yet paid during the current year such as general services, telephone bills, security services, handling, trucking, repairs and maintenance projects, utilities, purchased of goods or services on account, and other obligations in connection with the agencies’ operation/trade/business, as follows:

2020 2019

Grains direct procurement 28,685,298 74,490,243 Private institutions/contractors 1,000,475,015 793,448,897 Philippine Long Distance Telephone Company (PLDT), Smart, Globe etc.

36,806,289

42,832,066

1,065,966,602 910,771,206

Grains Direct Procurement account is payables to farmers and farmers’ organization delivered and accepted but not yet paid. 17.3 Due to Officers and Employees

Due to Officers and Employees account are recognized upon the incurrence of liability to officers and employees for salaries, benefits, and other emoluments including the authorized expenses paid in advance by the officers and employees. A significant increase on this account is due to accrual of personnel services such as salary differential, overtime differential, terminal leave benefit, Collective Negotiation Agreement (CNA) Incentive, other payable to employees including Group Hospitalization Insurance Program (GHIP), Provident Fund, and Self-Administered Bereavement Assistance Program (SABAP). Below are the details:

2020 2019

Personnel services and MOOE 1,123,847,986 298,618,701 Provident fund (employer's share) 41,763,634 48,474,082 40 per cent Cost of Living Allowance (COLA) differential

16,980,765

17,044,893

Calamity loan assistance program 5,502,081 5,497,868

51

2020 2019 Payment of shortage under protest 2,186,847 3,493,441 Hospitalization assistance program 611,267 256,439 Bereavement assistance program 307,056 733,634 Remuneration 183,744 187,137

Group accident insurance premium - (3,823)

Executive health program - (19,234) 1,191,383,380 374,283,138

The significant increase in Personnel Services and MOOE is due to set up of SIP under RA No. 11203 for the affected employees.

17.4 Notes Payable


2020 2019

DBP 27,495,000,000 27,495,000,000 LBP 23,000,000,000 23,000,000,000

50,495,000,000 50,495,000,000

17.5 Interest Payable


Accounts 2020 2019

Banco De Oro Unibank, Inc. (BDO) 13,734,875 54,939,500 Bank of the Philippine Island (BPI) 7,218,750 28,875,000 China Banking Corporation (China Bank) 3,946,250 15,785,000 DBP 201,580,563 161,110,539 LBP 220,444,556 175,269,766 Metrobank 880,688 3,522,750 Mizuho Corporate Bank, Ltd. 206,938 827,750 PNB 1,443,750 5,775,000 Bureau of the Treasury– (BTr) net lending

945,470,835 4,168,326,700

CY 1995 Japanese Rice Loan 803,726 2,070,681 1,395,730,931 4,616,502,686

The decrease in Interest Payable is due to payment deducted from the conversion of Net Lending to Subsidy amounting to P3.5 billion.

17.6 Current Loans Payable – Domestic


Particulars 2020 2019

10-year notes/loans from different banks syndicated by DBP and LBP dated November 28, 2011; due date - November 28, 2021:

52

Particulars 2020 2019 BDO 7,135,000,000 3,710,200,000 BPI 3,750,000,000 1,950,000,000 China Bank 2,050,000,000 1,066,000,000 DBP 2,500,000,000 1,300,000,000 LBP 2,000,000,000 1,040,000,000 Metropolitan Bank & Trust Company 457,500,000 237,900,000 Mizuho Corporate Bank, Ltd. 107,500,000 55,900,000 PNB 750,000,000 390,000,000

18,750,000,000 9,750,000,000

10-year notes/loans syndicated by DBP dated October 29, 2014; due date - October 29, 2024:

LBP 180,000,000 180,000,000 DBP 180,000,000 180,000,000

360,000,000 360,000,000

LBP dated December 23, 2009; due date - December

23, 2021 (payable in 40 equal quarterly amortizations to start at the end of the 9th quarter), interest: three months, Philippine Dealing System Treasury Fixing (PDSTF) + fixed spread of one per cent with quarterly repricing

540,000,000 540,000,000 dated January 7, 2010; due date- December 23,

2021 (payable in 40 equal quarterly amortizations to start at the end of the 9th quarter), interest: three months, PDSTF + fixed spread of one per cent with quarterly repricing

512,500,000

410,000,000

dated January 14, 2010; due date- December

23, 2021 (payable in 40 equal quarterly amortizations to start at the end of the 9th quarter), interest: three months, PDSTF + fixed spread of one per cent with quarterly repricing

562,500,000

450,000,000



500,000,000

400,000,000

2,115,000,000 1,800,000,000

Corn Development Fund for the Dryermat and Corn Center Project

1,000,000

1,500,000

21,226,000,000 11,911,500,000

17.7 Current Loans Payable – Foreign

This account consists of foreign loans as follows:

2020 2019

CY1995 Japanese Rice Loan 12,607,474 13,104,483

Total 12,607,474 13,104,483

53

Loans Payable – Foreign represents CY 1995 Japanese Rice Loan - ¥541.355 million dated August 16, 1995. The rate of interest was two per cent per annum on the 1st to 10th year initial grace period and three per cent per annum from 11th to 30th year. With 10 years grace period, the annual installments of Y27.068 million started on July 31, 2006 to July 31, 2025; and overdue interest of 0.023 per cent per day for a period from the following dater after the due date to the day of actual payment. The balance of principal loan as at December 31, 2020 amounted to ¥135,338,655 with conversion rate of $1 = P48.023/¥0.009699.

18. INTER-AGENCY PAYABLES This account consists of the following:

2020 2019

Due to BIR 37,913,833 41,406,848 Due to GSIS 11,887,418 69,875,528 Due to Pag-IBIG 421,727 1,127,749 Due to PhilHealth 311,390 605,536 Due to NGAs 1,261,113,409 956,797,267 Due to GOCCs 38,819,079 36,631,606 Due to LGUs 14,321,035 5,395,336 Due to National Treasury 67,861,730,403 72,257,386,820 69,226,518,294 73,369,226,690

18.1 Due to BIR

Due to BIR account represents the unremitted taxes withheld from officers/employees, contractors, and other entities, as follows:

2020 2019

Value added tax 17,087,992 13,987,871 Expanded tax 8,484,914 8,315,035 Employees withholding tax 6,617,248 10,850,695 Percentage tax 5,199,447 7,133,800 Final tax 349,055 193,703 Contractors tax 151,145 440,325 Franchise tax 23,330 315,792 Sales tax 15,573 169,627 Registration tax (14,871)* - 37,913,833 41,406,848

*For reclassification of Region 13

18.2 Due to GSIS

Due to GSIS account represents unremitted employees’ premium payments and other payables to the GSIS, as follows:

54

2020 2019

Marine insurance 7,905,004 9,689,515 Life and retirement premium 3,291,886 5,258,400 Unlimited optional insurance premium 161,493 28,449 Consolidated loan 152,148 1,497,665 Enhanced salary loan 144,876 1,636,414 GSIS financial assistance loan 69,579 1,683,320 Salary loan 67,587 417,866 Real estate loan 65,553 83,212 Emergency loan assistance 56,930 340,923 Policy loan 25,111 220,696 Optional insurance premium 23,311 58,328 Travel accident insurance 11,573 22,375 Educational assistance 6,481 37,341 Ecard 4,929 12,320 Ecard cash advance 4,793 3,777 Employees' compensation commission 4,662 4,500 Genesis plan 3,088 5,675 Stocks purchases 313 312 Fly now pay later 178 179 Ecard plus 1 12,190 College education insurance (1,036)* (1,253) Edu-Child tie up w Prudential Plans Inc. (4,566)* 7,083 Hospital insurance plan (19,110)* (18,260) Term insurance premium (23,200)* (23,200) Fire insurance premium (64,165)* (42,559) Unclassed vessel charges - 29,751,712 Overage premium rice - 19,110,939 Third-party liability - 66,582 Vehicle insurance premium - 8,293 Study now pay later - 2,734

11,887,418 69,875,528

*For verification and reclassification of Region 13 and Region 8

Compliance with GSIS law, RA No. 8291 The NFA complied with Section 14.1 of RA No. 8291 which provides that each government agency shall remit directly to GSIS the employees’ and the government agency’s contributions within the first 10 days of the calendar month following the month to which the contributions apply. Below is the summary of remittances of employees’ premium contributions and employer’s share for CY 2020 and CY 2019 are as follows:

2020 2019

Withheld Remitted Withheld Remitted

Life and retirement premiums, employees share

116,219,628

112,927,742

129,559,134

127,648,897

Government share - 154,789,169 - 171,305,232

Total 116,219,628 267,716,911 129,559,134 298,954,129

55

18.3 Due to Pag-IBIG

Due to Pag-IBIG account represents unremitted employees’ premium payments and other payables to the Home Development Mutual Fund (HDMF), as follows:

2020 2019

Premium 311,473 652,466 Multi-purpose loan 74,998 366,694 Modified 2 premium savings 24,600 12,600 Real estate loan 5,352 23,616 Calamity loan 4,805 71,348 Provident loan 499 1,025

421,727 1,127,749

18.4 Due to PhilHealth

Due to PhilHealth account represents unremitted employees’ premium payments to the Philippine Health Insurance Corporation (PHIC) at year-end. In compliance with PhilHealth Circular No. 2019-0009 a new table for contribution was implemented resulting to increase in premium payment of the members. The maximum contribution increased from P1,375 to P1,800.

Year Monthly Basic Salary Premium Rate

Monthly Premium

2019 P10,000.00 2.75 per cent P275.00 P10,000.01 to

P49,999.99 P275.00 to P1,375.00

P50,000.00 P1,375.00 2020 P10,000.00 3 per cent P300.00

P10,000.01 to P59,999.99

P300.00 to P1,800.00

P60,000.00 P1,800.00

The decrease in Due to PhilHealth is the result of remitting contributions to PhilHealth and due to the implementation of NFA restructuring pursuant to RA No. 11203 or the Rice Tariffication Law. Some of the affected employees (Co-Terminus with the Incumbent (CTI’s) and Abolished) availed of the early retirement and separated from service.

18.5 Due to NGAs


2020 2019

BOC 1,211,993,519 900,323,650 DA 45,918,184 45,640,869 DSWD 2,408,410 - Australian Imported Rice 386,046 386,046 Office of the Government Corporate Counsel (OGCC) 336,000 336,000 Department of Trade and Industry (DTI) 57,000 57,000 Department of Transportation and Communication (DOTC) 14,250 -

56

Department of Science and Technology (DOST) - 10,053,702

1,261,113,409 956,797,267

BOC account represents Customs Duties (set-up of tariff expenses) on the importation of sugar in CYs 1999 to 2002 and rice for CY 2018. Verification of accounts is on-going.

DSWD account amounting to P2,408,410 represents balance of ASEAN Plus 3 Emergency Rice Reserve and Pamaskong Handog Program which is presented only in CY 2020 and not in CY 2019. This is due to reconciliation of National Trial Balance versus Consolidated Trial Balance of Regions. DOST account decreased due to return of unexpended balance of fund for the project on “Heavy Metals & Pesticide Residue in Rice and Corn” P6,955,035 and “Mycotoxin in Rice and Corn” P3,098,667.

18.5.1 Due to NGAs – DA


2020 2019

Chinese yellow corn 11,078,611 11,078,611 DSWD donated US rice 10,726,027 12,354,036 Rapid seed supply financing project 8,853,444 8,755,939 Donated Vietnam rice 5,758,668 5,758,668 Certified seeds program 2,016,520 1,375,730 Agricultural Credit Policy Council (ACPC) 1,261,020 1,261,020 Shallow tube WWll 1,237,933 1,245,534 National Agricultural & Fishery Council - Commercial Crop Program

734,063 734,063

Bureau of Agricultural Research (BAR) 652,207 596,717 Corn block farming 639,141 639,140 Rural field unit 612,166 612,166 DA 482,999 (1,147,524) President’s social fund 455,000 475,000 Grains production enhancement program 376,691 376,692 Philippine rice post production 366,929 366,714 Ginintuang masaganang ani 252,979 252,980 National Post Harvest institute for Research and Extension (NAPHIRE) - Special Vehicle Loan Fund

184,135

184,135

National Agricultural & Fishery Council - Consultative Fund 171,876 182,091 Corn Plus Program 57,475 57,475 Agricultural Development Fund 300 474,995 Bureau of Soil and Water Management - 6,687

45,918,184 45,640,869

18.5.2 Bureau of Agricultural Research

This account consists of the following: 2020 2019

Effect of climate change on levels of arsenic and cadmium 652,207 596,717

652,207 596,717

18.5.3 Agricultural Credit Policy Council

57

This account represents collections from Field Offices for Intensified Rice Production (IRP) and National Soy Bean Production Program (NPP) Loans Receivables since November 1995. 18.5.4 National Post Harvest and Research Institute

This account represents Special Vehicle Loan Fund from NAPHIRE since prior to CY 2005.

18.6 Due to GOCCs


2020 2019

SRA 23,479,962 22,477,318 GRAINSCOR 7,439,526 7,453,541 Quedan and Rural Credit Guarantee Corporation (QUEDANCOR)

3,503,614 4,131,181

Philippine Coconut Authority (PCA) 3,336,072 1,369,405 Philippine Amusement Gaming Corporation (PAGCOR) 452,623 546,728 Philippine Charity Sweepstakes Office (PCSO) 290,564 290,564 GSIS 137,912 - PITC 125,488 125,488 Philippine Ports Authority (PPA) 62,412 184,015 Philippine Crop Insurance Corporation (PCIC) 37,371 37,371 National Home Mortgage Finance Corporation (NHMFC) 16,592 16,592 LBP (63,057) - Water District - (597)

38,819,079 36,631,606

The SRA account represents set-up of payables to SRA for the office space rental, water consumption, and electrical consumption. The PCA account represents set-up of payables to PCA for the office space rental, water consumption, and electrical consumption. The NHMFC account represents unremitted set-up of payables for the housing loan of NFA employees.

The PCSO account existed prior to CY 2007 and had been dormant since then with no available documents to be found. The PITC account represents set-up of payables to PITC Pharma Inc. for the purchase of assorted medicines. This account is subject for reconciliation.

The PCIC account existed prior to CY 2007 and had been dormant since then with no available documents to be found. 18.7 Due to LGUs


2020 2019

Abra 378,121 378,798

58

Palay Marketing Assistance Program for Legislators and Local Government Units (PALLGU)

13,942,914

4,608,525

Corn Marketing Assistance Program (CMAP) - 231,512 Ilocos Norte - 176,500

14,321,035 5,395,335

Ilocos Norte and CMAP accounts were adjusted based on the reconciliation of National Account Balances versus Consolidated RO/PO Balances. 18.8 Due to National Treasury


2020 2019

LBP-Net Lending Program 57,234,971,273 62,326,324,112 BTR-Guarantee Fee 9,954,030,649 9,386,472,897 COA Audit Services 609,786,712 481,640,542 BTR-USPL 480 Iron Fortified Rice 46,223,010 46,223,010 USPL 480 Rice 9,534,832 9,534,832 USPL Title I 7,840,255 7,840,255 Countrywide Development Fund 881,582 881,582 Priority Development Assistance Fund 40,000 40,000 China Rice I 37,940 37,940 Fidelity Bond - 7,500 Australian Rice (1,615,850) (1,615,850)

67,861,730,403 72,257,386,820

The BTr-Net lending program account represents net advances availed from BTr in the settlement of various maturing loan obligations of NFA. The Guarantee Fee account represents set-up of payables for the outstanding balance of loan availments of NFA to various creditors. The COA account represents set-up of payables for the audit services made by COA as follows:

Year Covered CY 2020

2013 61,467,366 2014 61,569,794 2015 80,784,047 2017 118,765,489 2018 128,844,741 2019 30,209,105 2020 128,146,170

609,786,712

The USPL 480 Iron Fortified Rice account represents unremitted amount to the BTr for the sale on the purchased 2,850 MT or 57,000 bags of US Iron-Fortified Rice.

59

The Countrywide Development Fund account represents cash allotment given to various legislators for the purchase of rice for distribution to their assigned beneficiaries, to wit:

2020 2019

Adiong, Mamintal 52,000 52,000 Bondoc, Egmedio 237,500 237,500 Caloocan 181,357 181,357 Cezar, Homobono 300,000 300,000 Gonzales, Pacita 52,450 52,450 Mercado, Orlando 47,625 47,625 Mercado, Roger 10,650 10,650 881,582 881,582

Countrywide Development Fund, USPL 480 Title I, Australian Rice, and China Rice accounts occurred since CY 1988 and still for profiling of accounts.

19. INTRA-AGENCY PAYABLES


2020 2019

Due To OUs-Province 20,258,538,940 20,076,970,596 Due To CO Home Office Account (HOA)

23,977,683,712

32,708,095,436

Due To RO 5,230,362,394 4,428,968,733

49,466,585,046 57,214,034,765

Intra-Agency Receivables and Payables represent the receipt and issuance of funds and other assets like supplies, inventories, equipment, etc. for use in NFA CO, ROs, and POs and are recorded as receivables (Due from) in the issuing office and payables (Due to) by the receiving office.

Monthly/Quarterly reconciliation of interbranch accounts are prepared. Reconciled accounts are being reverted and closed to Equity accounts after the originating office acknowledges and confirms the reconciliation of accounts with NFA ROs/POs.

20. TRUST LIABILITIES This account consists of the following:

2020 2019

Trust liabilities 365,157,228 412,948,753 Guaranty/security deposits payable 89,032,845 211,670,116 Customers' deposits payable 520,955,569 403,702,844 Disallowance/charges 24,986,613 -

60

1,000,132,255 1,028,321,713

Trust liabilities account pertains to payable due to institution, corporation, or individual. Also includes the retention fee from various suppliers that were contracted by the office to perform services and/or for delivery of such goods. The account includes, among others, the following: a. NFA Employees Association (EA) account represents deductions/collections

from employees for loans and contributions to NFA-EA which are remitted to them before month-end of the applicable billing period.

b. Provident Fund account represents deductions/collections from employees for

contributions and loans to NFA Provident Fund, Inc. which is remitted to them before month-end of the applicable billing period. This account is a savings, mutual benefit and retirement plan established by NFA for officials and employees in the active service with a contribution of employees and government share of two per cent and four per cent of basic monthly salary, respectively.

c. Dispatch Held in Trust account represents set-up of payables for charges that

the contractor/supplier pays to the cargo handler for extra use of its services. This account will be closed upon the accomplishment of the unloading of goods and distributed based on the percentage claim of the cargo handler and NFA as stipulated in the contract (60 per cent Cargo Handler and 40 per cent NFA).

d. Multi-purpose Cooperative account represents deductions/collections from

employees for loans and contributions to NFA-Multipurpose Cooperative which are remitted to them before month-end of the applicable billing period.

e. Insurance Proceeds/Premium account represents unpaid set-up of insurance

premiums of NFA and employees’ contribution like SABAP, Group Accident Insurance Premium (GAIP), and Group Term Life Insurance Premium (GTLI).

f. Retention Fee account represents the unrefunded 10 per cent percent of the

amount due to the contractor that is deducted from the amount due and retained by the client. The purpose of retention is to ensure that the contractor properly completes the activities required of them under the contract.

g. The Lingap Para sa Mahihirap Program account represents unliquidated balance

of this program. This has a total funding of P400 million as stated in the terminal report for the program. The fund was disbursed through programs classified as Unrestricted Funds for Legislators Identified Beneficiaries (LIBs) and the Restricted Funds for Priority Beneficiaries (PBs), in trust to NFA.

Guaranty/Security Deposit Payable account pertains to the liability arising from receipt of cash to assure the office that the winning bidder will enter the contract and the contractor will perform on the terms of the contract. Customers’ Deposit Payable account includes advance payment made by the retailers and other institutions in exchange of delivery of stocks. Part of this account is the remaining payment of DSWD for subsequent withdrawal of stocks by

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authorized municipality of social welfare and development officer as instructed by concerned provincial offices. Disallowance/charges is the amount withheld from the SIP under RA No. 11203 of affected employees with Notice of Disallowance – under appeal. The account includes, travelling, allowances, food incentive, insurance, hospitalization, executive health care program, shortage under protest – grains and others.

21. DEFERRED CREDITS/UNEARNED INCOME

This account consists of Other Deferred Credits:

2020 2019

Difference between replacement cost and book value 64,348,409 44,417,388 Overages - MTS 5,915,953 3,685,595 Overages - grains 3,515,827 113,296,255 Donated assets 456,031 34,997,114 Warehouse rentals 321,825 1,074,265 Registration and licensing 297,065 (334,429) FDC collections 127,060 (6,374,072) ESSS operator 78,899 (5,958,769) Price differential - Special projects 21,985 (24,991) GAP equipment - (2,527)

75,083,054 184,775,829

Difference between Replacement Cost and Book Value account is used to recognize income from setting up of receivable from SAO with final shortages and defaulting miller contractor at replacement cost. An increase is due to recognition of income when settlement has been made. For review of SOP on Replacement Cost Overages - grains account pertains to overages of stocks during bag-to-bag count of an outgoing/cut-off of accountabilty of a SAO. A decrease is due to, when the said SAO is cleared of his accountabilities (examined and with TOLA)

Overages - MTS account pertains to overages of empty sacks during bag-to-bag count of an outgoing/cut-off of accountabilty of a SAO. Debit this account when the said SAO is cleared of his accountabilities (examined and with TOLA).

Donated assets account pertains to donations received by NFA with Deed of Donation with condition. Warehouse rentals account pertains to advance payment for the used of NFA Owned Warehouses. Debit this account to recognize income from Other Service Income-Facility Service - Warehouse/Storage Fees

22. PROVISIONS

2020 2019

Leave benefits payable 811,350,300 749,615,540

811,350,300 749,615,540

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Leave Benefits Payable account represents accrual of the money value of leave credits for NFA employees in compliance with IPSAS 19.

23. NON-CURRENT LIABILITIES This account includes the following: 23.1 Non-Current Loans Payable – Domestic


Particulars 2020 2019

10-year notes/loans from different banks syndicated by DBP and LBP dated November 28, 2011; due date - November 28, 2021:

BDO - 10,559,800,000 BPI - 5,550,000,000 ChinaBank - 3,034,000,000 DBP - 3,700,000,000 LBP - 2,960,000,000 Metropolitan Bank & Trust Company - 677,100,000 Mizuho Corporate Bank, Ltd. - 159,100,000 PNB - 1,110,000,000

- 27,750,000,000

10-year notes/loans syndicated by DBP and LBP dated October 29, 2014; due date - October 29, 2024:

LBP 3,600,000,000 3,780,000,000 DBP 3,600,000,000 3,780,000,000

7,200,000,000 7,560,000,000

LBP dated December 23, 2009; due date -

December 23, 2021 (payable in 40 equal quarterly amortizations to start at the end of the 9th quarter), interest: three months, PDSTF + fixed spread of one per cent with quarterly repricing

- 540,000,000



-

512,500,000

dated January 14, 2010; due date - December

23, 2021 (payable in 40 equal quarterly amortizations to start at the end of the 9th quarter), interest: three months, PDSTF + fixed spread of one per cent with quarterly repricing -

562,500,000

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Particulars 2020 2019 dated January 14, 2010; due date - December


-

500,000,000

- 2,115,000,000 Corn Development Fund for the Dryermat and Corn Center Project

-

1,000,000

DBP - Minprocor Acquired assets from Minprocor properties 91,200,000 91,200,000 Human Settlements Development Corporation - P553.824 million, payable in 25 years (quarterly payment) 509,093,711 509,093,711 Agrarian Credit Line 205,000 205,000 Ministry of Agriculture and Food - interest of three per cent per annum payable every six months. Department of National Agricultural Productivity Program (NAPP) loan granted to NFA for procurement operations 120,684 120,684

7,800,619,395 38,026,619,395

23.2 Non-Current Loans Payable – Foreign

This account consists of foreign loans as follows:

2020 2019

CY 1995 Japanese Rice Loan 50,429,898 62,534,786 50,429,898 62,534,786

Loans Payable – Foreign represents CY 1995 Japanese Rice Loan - ¥541.355 million dated August 16, 1995. The rate of interest was two per cent per annum on the 1st to 10th year initial grace period and three per cent per annum from 11th to 30th year. With 10 years grace period, the annual installments of ¥27.068 million started on July 31, 2006 to July 31, 2025; and overdue interest of 0.023 per cent per day for a period from the following dater after the due date to the day of actual payment.

The balance of principal loan as at December 31, 2020 amounted to ¥135,338,655 with conversion rate of $1=P48.023/¥ 0.009699.

24. SERVICE, BUSINESS AND OTHER INCOME This account includes the following: 2020 2019

Service Income Fines and penalties* 398,210 165,982,423

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2020 2019 License fees 155,400 32,527,750 Clearance/certification 42,217 59,721 Registration fees 640 32,525,847 Registration plates, tags, and stickers - 183,866 Processing fees - 134,985 Permit fees - 35,600 Other service income 13,094,133 24,503,969

13,690,600 255,954,161

Business Income Sales 14,504,913,825 18,074,363,599 Dividend income 50,000,000 - Interest income 9,750,432 14,392,357 Other fines and penalties – business

income 890,935 48,032

Other business income 352,251 106,172 Fidelity insurance income - 313,875

14,565,907,443 18,089,224,035

Shares, Grants, and Donations Income from grants and donations in

kind 2,277

29,901

Income from grants and donations in cash

- 7,977

2,277 37,878 Miscellaneous Income Miscellaneous income 118,838,277 66,719,440 Proceeds from insurance and

indemnities 1,242,585

661,518

120,080,862 67,380,958

14,699,681,182 18,412,597,033

*Fines and Penalties of P48,032 in 2019 is presented to its correct account which is Other Fines and Penalties – Business Income (as per Statement of Financial Performance) Effective March 5, 2019, all permits, licenses, registrations ceased to be given by NFA to importers, traders, warehouse operators, wholesalers, retailers, among others, pursuant to Rule 3.1 of IRR of RA No. 11203. Likewise, removing the rice imporation from the NFA activities pursuant to RA No. 11203 or the Rice Tariffication Law resulted to the cessation of service fee on importation. Dividend income was the dividend received from FTI. The significant increase in Miscellaneous income is attributable to sale of by-products amounting to P94,038,912 in CY 2020 compared to CY 2019 which is P17,684,539 only.

25. PERSONNEL SERVICES This account includes the following:

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2020 2019

Salaries and Wages Salaries and wages - Regular 1,291,329,214 1,439,545,932

1,291,329,214 1,439,545,932

Other Compensation Year-end bonus 221,795,371 240,350,947 Personnel Economic Relief Allowance (PERA) 86,458,426 95,765,267 Hazard pay 44,277,931 7,774,939 Overtime and night pay 33,995,039 42,161,473 Clothing/uniform allowance 22,180,500 24,214,100 Cash gift 18,281,204 19,933,500 Representation allowance 11,419,754 11,697,352 Transportation allowance (TA) 10,977,054 11,269,721 Longevity pay 5,469,870 10,792,294 Subsistence allowance 1,210,075 2,830,775 Laundry allowance 183,839 430,873 Quarter allowance 20,250 30,750 Honoraria 2,600 - Other bonuses and allowances 70,035,208 212,870,904

526,307,121 680,122,895

Personnel Benefits Contributions Retirement and life insurance contributions 154,789,169 172,282,935 Provident/welfare fund contributions 39,527,352 51,122,358 PhilHealth contributions 18,527,805 17,107,058 Employees compensation insurance premiums 4,383,380 4,824,206 Pag-IBIG contributions 4,352,337 5,025,342

221,580,043 250,361,899

Other Personnel Benefits Terminal leave benefits 156,417,638 288,458,440 Retirement gratuity 8,990,297 2,971,857 Other personnel benefits 1,661,496,133 80,103,864

1,826,904,068 371,534,161

3,866,120,446 2,741,564,887

Salaries and Wages, Other Compensation, and Terminal Leave Benefits decreased due to the implementation of NFA restructuring pursuant to RA No. 11203 or the Rice Tariffication Law. Some of the affected employees (CTI’s and abolished) availed of the early retirement and were separated from service.

Also, FDC and its employees were transferred to DA effective December 31, 2019 in compliance with the provisions of the IRR of RA No. 11203. On January 7, 2020, GCG issued Memorandum Order No. 2019-13 relative to the Restructuring of NFA wherein only 2,644 plantilla positions from the existing 4,436 plantilla positions were approved. Also, stated in the memorandum that the implementation of the approved organization structure and staffing pattern shall commence within two months from the approval of NFA’s Separation Incentive Package (SIP) by the Office of the President. On September 4, 2020, NFA received a Memorandum from the Office of the Executive Secretary approving the SIP for NFA affected employees.

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A significant increase in Other Personnel Benefits is due to the recognition/accrual of approved separation benefits for the affected officials and employees in relation to the implementation of NFA Restructuring Plan pursuant to the Memorandum of the Executive Secretary on the Approval of SIP of NFA affected employees dated September 4, 2020. The SIP is on top of other retirement and/or separation benefits under existing laws and regulations.

PhilHealth contribution increased because of the new rate imposed by PhilHealth from 2.75 per cent in CY 2019 to three per cent in CY 2020 through issuance of PhilHealth Circular No. 2019-0009 published last November 23, 2019.

Hazard pay includes hazard pay for TRSD Science and Technology Personnel under Magna Carta for Scientists, Engineers, and Researchers (RA No. 8439) and hazard pay of NFA personnel who physically reported to work on a skeleton workforce to ensure continuous and responsive delivery of government service during enhanced community quarantine brought by COVID-19 pandemic per Administrative Order No. 26 dated March 23, 2020.

26. MAINTENANCE AND OTHER OPERATING EXPENSES This account includes the following:

2020 2019

Traveling expenses Travelling expenses-local 48,310,921 63,876,305 Travelling expenses-foreign 264,927 1,269,275

48,575,848 65,145,580

Training expenses 751,187 737,350

Supplies and Materials Expense Fuel, oil, and lubricants expenses 33,342,507 40,418,364 Office supplies expenses 29,112,412 30,926,240 Agricultural and marine supplies expenses 23,948,262 21,132,776 Other supplies and materials expenses 11,994,224 14,213,216 Drugs and medicine expenses 11,267,631 12,325,728 Accountable forms, plates, and stickers expenses 3,132,858 5,882,243 Semi-expendable machinery and equipment expenses 5,418,075 3,618,711 Linens and beddings expenses 158,247 1,850,313 Semi-expendable furniture, fixtures, and books 885,720 1,497,750 Medical, dental, and laboratory supplies expenses 1,588,451 601,408 Non-accountable forms expenses 32,467 76,082 Electrical supplies and materials expenses 620,437 - Housekeeping/cleaning supplies expenses 1,161,745 -

122,663,036 132,542,831

Utility Expense Electricity expenses 70,385,509 79,607,321 Water expenses 10,759,930 10,750,971 Other utility expenses 59,545 26,034

81,204,984 90,384,326

Communication Expense Internet subscription expenses 7,036,182 8,861,095 Telephone expenses 7,006,315 9,897,206 Postage and courier services 2,135,078 2,854,090 Cable, satellite, telegraph, and radio expenses 671,022 797,955

16,848,597 22,410,346

Awards/Rewards, Prizes, and Indemnities

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2020 2019 Awards/rewards expenses 2,372,139 3,144,308 Prizes 41,000 3,000

2,413,139 3,147,308

Survey expenses - 54,055

Confidential, Intelligence and Extraordinary Expenses Extraordinary and miscellaneous expenses 3,557,684 3,424,034

3,557,684 3,424,034

Professional Services

Auditing services 128,146,170 30,209,105 Consultancy services 2,947,560 1,355,619 Other professional services 1,454,068 825,112 Legal services 20,960 207,007

132,568,758 32,596,843

General Services Security services 380,666,917 348,824,036 Other general services 51,968,455 36,420,231 Janitorial services 12,822,410 17,700,453 Environment/sanitary services 1,044,586 3,753,931

446,502,368 406,698,651

Repairs and Maintenance Buildings and other structures 35,530,583 11,091,749 Transportation equipment 22,803,925 20,792,296 Machinery and equipment 10,488,539 10,893,149 Semi-expendable machinery and equipment 1,133,415 680,327 Land improvements 769,915 2,270,610 Other property, plant, and equipment 241,352 57,751 Leased assets improvement 205,148 - Infrastructure assets 200,216 134,500 Furniture and fixtures 178,386 297,314 Semi-expendable furniture, fixtures, and books 57,820 89,644 Leased assets - 360,747

71,609,299 46,668,087

Taxes, Insurance Premiums and Other Fees Insurance expenses 36,172,165 29,503,725 Taxes, duties, and licenses 14,123,737 2,458,860 Fidelity bond premium 9,597,981 9,098,070

59,893,883 41,060,655

Other Maintenance and Operating Expenses Other maintenance and operating expenses 288,421,976 258,282,477 Loss of assets 271,834,463 106,784,318 Documentary stamps expenses 255,256,428 343,996,610 Rent/lease expenses 90,405,677 70,966,786 Donations 72,475,036 4,623,649 Transportation and delivery expenses 71,367,583 97,117,206 Representation expense 7,512,718 11,374,958 Major events and conventions expenses 3,690,080 4,726,296 Printing and publication expenses 633,939 997,739 Subscription expenses 602,112 831,717 Membership dues and contributions to organizations 445,210 505,841 Advertising expenses 37,400 64,581

1,062,682,622 900,272,178

Total Maintenance and Other Operating Expenses 2,049,271,405 1,745,142,242

Due to COVID-19 pandemic, the government issued travel restrictions/limitations through IATF Resolutions as preventive measure to contain and avoid further spread of virus.

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Increase in Consultancy services was due to the contract of services for consultant on the study of NFA’s Buffer Stock commissioned by NFA Council. Increase in Taxes, duties, and licenses was due to payment of Real property tax. The earthquake last April 22, 2019 tainted the structural integrity of the rental office at SRA Building prompting the NFA-CO employees to transfer to NFA owned L-Shaped Building located at Visayas Ave., Quezon City. But due to limited space at L-Shaped Building, NFA rented a space at 4th floor of PCA for GMOD Office and Executive Offices. The increase in Loss of Asset can be attributed to the Stock/MTS liquidation and TOLA computation of Stock/MTS accountabilities of SAOs. Donations account pertains to government relief operation in times of emergencies and calamities, such as Taal Volcano Eruption, COVID-19 pandemic, typhoons, and earthquakes. Documentary stamps are levies on documents evidencing the acceptance, assignments, sale or transfer of an obligation, risk of property incident to it, usually collected at the time of registration of the documents with the concerned authority.

27. FINANCIAL EXPENSES

2020 2019

Interest expenses 3,229,274,547 6,124,190,934 Guarantee fees 567,557,752 1,011,939,507 Bank charges 268,129 342,524 Other financial expenses 7,551 - 3,797,107,979 7,136,472,965

The decrease in Interest Expenses account is due to the conversion of the balance of Loans Payable into Subsidy. Guarantee fees equivalent to one percent of the amount loaned from private entities and documentary stamp taxes paid on new incurred obligations charged by the BTr on guarantees extended to NFA to cover obligations contracted.

28. COST OF SALES

Cost of sales for the CY 2020:

Quantity (Nkg.) Unit Cost Amount

Local well milled rice 489,740,420 33.01 16,166,201,976 Imported Rice-25 per cent brokens 60,069,540 35.77 2,148,913,445 Local regular milled rice 36,057,818 35.02 1,262,722,723 Damaged grains inventory 28,467 33.10 942,390 585,896,245 33.42 19,578,780,534

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Cost of sales for the CY 2019:

Quantity (Nkg.) Unit Cost Amount

Imported rice-25 per cent brokens 684,327,599 32.27 22,083,732,844 Local well milled rice 20,256,640 33.95 687,782,464 Local regular milled rice 9,926,822 34.40 341,502,059 Imported rice-15 per cent brokens 202,990 37.22 7,554,665 Imported rice-20 per cent brokens 3,200 32.62 104,395 Damaged grains inventory 1,332 36.59 48,730 714,718,583 32.35 23,120,725,158

An increase in the Cost of sales of Local well milled rice and Local regular milled rice is the effect of the new mandate of NFA, whereas procurement of palay should be sourced solely from local farmers. The decrease in the quantity sold is due to the minimal issuance to accredited retailers.

29. NON-CASH EXPENSES

2020 2019

Depreciation Buildings and other structures 62,112,241 61,626,600 Machinery and equipment 54,364,252 74,240,111 Land improvements 10,992,107 11,181,864 Transportation equipment 9,248,028 12,736,111 Furniture, fixtures, and books 1,689,342 1,541,942 Leased assets improvement 416,412 866,847 Other PPE 408,151 544,614

139,230,533 162,738,089

Amortization Intangible assets 40,200 52,372 40,200 52,372

Impairment Loss Loans and receivables 7,865,652 2,176,982 Other receivables 692,934,376 - Inventories 5,979,442 15,593,974 PPE 257,133 6,340,147 Other assets 85,183 85,183

707,121,786 24,196,286

846,392,519 186,986,747

The transfer of PPE accounts of FDC to DA particularly Building, Machinery, and equipment resulted in the decrease of corresponding depreciation account. The Impairment loss – Other receivables amounting to P692,934,376 is due to the set-up of Region 4 for stock accountable officers.

30. OTHER NON-OPERATING INCOME

Accounts 2020 2019

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Sale of assets – Garnished/confiscated /abandoned/seized goods and properties

265,803 -

265,803 -

31. GAINS AND LOSSES These accounts consist of the following:

2020 2019

Gains Gain on Forex - 205,112,612 Gain on sale of PPE 43,622 839,479 Gain on sale of assets -

unserviceable property 712,793

699,037

Total gains 756,415 206,651,128

Losses Loss on Forex (5,179,586) (100,876,091) Loss on sale/redemption/transfer of

investment (105,136)

-

Loss on sale of PPE (2,696,909)

(1,471,534)

Total losses (7,981,631) (102,347,625)

(7,225,216) 104,303,503

Gain/Loss on foreign exchange is the recognized gain/loss on the revaluation of foreign denominated liabilities at financial statement date.

32. FINANCIAL ASSISTANCE/SUBSIDY


2020 2019

Subsidy from National Government (NG) for the implementation of the buffer stocking program

Special Allotment Release Order (SARO)-BMB-C-20-0000654

2,979,200,000

-

SARO-BMB-C-20-0007991

4,020,800,000

-

Less: Remittance of P1.4B to BTr, Negative SARO) No. BMB-C-20-0012332 recalled by the DBM per their letter dated November 19, 2020 as funding source for various releases made to the department/agencies/GOCCs for the implementation of the COVID-19 measures of the government.

(1,400,000,000)

- Conversion of NG advances into subsidy –

SARO-BMB-C-20-0011670

30,650,000,000 -

SARO-BMB-C-19-0001543 -

1,064,808,000

SARO-BMB-C-19-0003385 -

242,501,000

SARO-BMB-C-19-0005025 -

5,692,691,000 Subsidy to cover customs duties on rice importation

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SARO-BMB-C-19-0010066 -

3,520,487,756

SARO-BMB-C-19-0013501 -

2,460,312,495

36,250,000,000

12,980,800,251

33. RECONCILIATION OF NET CASH FLOWS FROM OPERATING ACTIVITIES TO SURPLUS/(DEFICIT)

2020 2019

Surplus/(deficit) for the year 20,805,048,887 (3,433,191,212)

Non-cash income/expenses Depreciation 139,230,533 162,738,089 Amortization 40,200 52,372 Impairment loss 707,121,786 24,196,286 Interest expense 3,229,274,547 - Dividend income (50,000,000) - Gain of foreign exchange - (205,112,612) Gain on sale of PPE (43,623) (839,479) Income from payment-in-kind (2,074,947) - Difference between replace cost and book value (5,269,813) - Overages (2,090,464) - Sale of assets – unserviceable property (712,793) (699,037) Sale of assets – garnished/confiscated/abandoned/

seized goods and properties

265,803

- Loss on foreign exchange 5,179,586 100,876,091 Loss on sale/redemption/transfer of investment 2,696,909 - Loss on sale of PPE 105,136 1,471,534 (Increase)/decrease in asset accounts: Receivables 1,082,365,651 (380,477,736) Intra-agency receivables 6,173,995,678 - Inventories 5,541,908,375 (13,438,979,090) Other current assets (4,748,803) 26,774,669 Other non-current assets - 500,194,512 Increase/(decrease) in liability accounts: Accounts payable 155,195,395 (4,677,630,326) Due to officers and employees 817,100,242 69,559,877 Interest payable (3,220,771,755) - Loans payable - domestic 9,314,000,000 - Loans payable - foreign (497,008) - Inter-agency payables (4,142,708,396) 25,507,037,580 Intra-agency payables (7,747,449,718) - Trust liabilities (28,189,458) 354,503,310 Other deferred credits - 742,339,516 Other adjustments (17,882,286) (19,845,209,051)

Net cash flows from operating activities 32,751,089,664 (14,492,394,707)

34. RELATED PARTY TRANSACTIONS As at December 31, 2020, the NFA Council is composed of the following:

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Position Name Position from

other Agencies

Chairperson Mr. William D. Dar Acting Secretary, DA Vice-Chairperson Ms. Judy Carol L. Dansal Administrator, NFA Member Mr. Benjamin E. Diokno Governor, BSP Alternate Member Mr. Francisco G. Dakila, Jr. Deputy Governor, BSP Member Ms. Cecilia C. Borromeo President and CEO, LBP Alternate Member Mr. Elcid C. Pangilinan First Vice President, LBP Member Mr. Carlos G. Dominguez III Secretary, Department of

Finance (DOF) Alternate Member Ms. Rosalia V. de Leon National Treasurer, DOF Member Mr. Ramon M. Lopez Secretary, DTI Principal Representative Atty. Ruth B. Castelo Undersecretary, DTI Member Mr. Ernesto M. Pernia Secretary, National Economic

and Development Authority (NEDA)

Alternate Member Ms. Mercedita A. Sombilla Assistant Secretary, Regional Development, NEDA Director, Agriculture and Natural Resources and Environment Staff

Member Atty. Salvador C. Medialdea Executive Secretary, OP Alternate Member Atty. Ricardo P. Bernabe III Undersecretary, Office of

Executive Secretary Member Mr. Rolando Joselito D. Bautista Secretary, DSWD Alternate Member BGen. Felicisimo C. Budiongan (Ret.) Undersecretary, DSWD Member Mr. Edwin Y. Paraluman Farmer Sector

Representative

No remuneration was given to the NFA Council for CY 2020. 34.1 Key Management Personnel Remuneration and Compensation

The key management personnel of NFA are the Administrator, Deputy Administrator for Marketing Operations, Deputy Administrator for Finance and Administration, Assistant Administrator for Marketing Operations, and Assistant Administrator for Finance and Administration. The remuneration of key management personnel during the year is as follows:

2020 2019

Salaries and wages 7,277,886 7,050,975 Other allowance and benefits 4,723,231 4,392,525

12,001,117 11,443,500

35. CONTRIBUTED CAPITAL

From CYs 1980 to 2007, total capital contribution of the NG to NFA amounted to P5.00B. This account is already reconciled with the records of the BTr.

35.1 Capital Management

The primary objective of the NFA’s capital management is to ensure that resources of the agency are geared towards the attainment of its mandate. It is to maintain at

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any given time a national rice buffer stock equivalent to at least 15 but not to exceed 30 days of the nation’s rice consumption requirement strategically positioned nationwide to address needs in times of emergency situations and to sustain the disaster relief programs of the government during natural and/or man-made calamities. NFA manages its net assets/equity by establishing controls in collection of its trade receivables and other sources of revenues, monitoring status of projects and periodic reporting of funds and disbursements while maintaining compliance to rules, regulations, and other legal requirements.

NFA is not subject to externally imposed capital requirements.

36. ACCUMULATED SURPLUS/(DEFICIT) (WORK IN PROGRESS) As at December 31, 2020, Accumulated Deficit amounted to P135.006 billion. While, as at December 31, 2019 Accumulated Deficit amounted to P154.915 billion, as restated.

Accumulated deficit, January 1, 2019, as reported (153,363,902,823)

Prior period errors in CY 2019, as reported (6,115,014,203)

Adjustments made for CY 2020 (pertaining to errors prior CY

2019)

(4,023,352,707)

Accumulated deficit, January 1, 2019, as restated (163,502,269,733)

Net deficit for CY 2019, as reported (3,433,191,212)

Add/(deduct) to net surplus/deficit): prior period errors

Sales 250,179,864

Cost of sales (345,369,854)

Other income

Service income (SI) 1,367,859

Business income (BI) (4,025,467)

Miscellaneous income 8,251,978

Other non-operating income (ONI) 2,983,056

Expenses:

Personnel services (PS) 50,818,208

MOOE 4,116,370

Financial expenses (FE) 7,199

Non-Cash Expenses (NCE) (214,016,062)

Losses 2,230,174 (243,456,675)

Net deficit for CY 2019, as restated (3,676,647,887)

Other adjustments:

Contingent capital

Cash shortage (98,354)

Disallowances (1,205,223)

Stock shortage (4,163,906)

Reconciled Inter Branch Accounts

Head Office Clearing Account (HOCA) 8,217,132,462

Regional Office Clearing Account (ROCA) (695,958,634)

Regional Office Transaction Account - Branch

Office Transaction Account (ROTA BOTA)

6,254,666,521

Regional Office Provincial Office (ROA POA) (1,506,891,546) 12,263,481,320

Accumulated deficit, December 31, 2019, as restated (154,915,436,300)

Add/(deduct)

Net surplus for CY 2020 20,805,048,887

Other adjustments:

Contingent capital

Cash shortage 21,665

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Disallowances 597,832

Stock shortage 9,172,010

Reconciled inter branch accounts

Central Office Clearing Account Branch Office

Clearing (COCA BOCA)

(341,945,911)

HOCA (697,452,676)

ROCA 1,744,228,394)

ROTA BOTA (1,619,573,438)

ROA POA 8,973,943 (895,978,181)

Accumulated deficit, December 31, 2020 (135,006,365,594)

The following are the identified adjustments made for CY 2020 pertaining to errors prior to CY 2019:

Particulars

2018

2017

2016

2015

2014 and prior years

Total

Sales 754,084,300 (1,532,860) 180,751,494 3,658,888 637,327,240 1,574,289,062

Cost of sales (282,358,525) (204,714,650) (163,584,183) (161,773,595) 312,887,438 (499,543,515)

Other income:

SI 11,779,437 66,058 10,010 (282,732) 51,343,911 62,916,684

Miscellaneous Income

928,726 195,284 (27,402) 26,050 23,478,749 24,601,407

ONI 829,517 - 165,530 (4,677) 60,461,897 61,452,267

Gains - 1,641 4,458 - - 6,099

Expenses:

PS (61,922,472) (27,632,494) (2,906,546) (761,528) (16,857,629) (110,080,669)

MOOE (159,881,056) 208,157,224 (19,873,222) (3,913,169) (5,177,639,423) (5,153,149,646) FE 8,400 - (11,000) (21,697) 11,742 (12,555)

NCE 2,085,958 (206,349) (288,608) 18,431,937 (3,854,777) 16,168,161

Total Adjustments prior to CY 2019

265,554,285

(25,666,146)

(5,759,469)

(144,640,523)

(4,112,840,852)

(4,023,352,705)

37. EVENTS AFTER REPORTING PERIOD

37.1 Non-Adjusting Events

Implementation of NFA Restructuring Plan

Pursuant to the NFA Restructuring Plan approved by the GCG and to ensure the smooth transition of NFA functions and operations, the following shall govern the implementation of the new NFA structure effective January 1, 2021:

I. Central Office

FROM TO

1. Office of the Administrator 1. Retained 2. Office of the Deputy

Administrator for Marketing Operations

2. Merged New Office Name: Office of the Deputy Administrator

3. Office of the Deputy Administrator for Finance and Administration

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FROM TO 4. Office of the Assistant

Administrator for Marketing Operations

3. Office of the Assistant Administrator for Operations

5. Office of the Assistant Administrator for Finance and Administration

4. Retained

6. Office of the Council Secretary 5. Retained 7. Internal Audit Services

Department 6. Internal Audit Department

8. Legal Affairs Department 7. Retained 9. Corporate Planning and

Management Services Department

8. Retained

10. Grains Marketing Operations Department

9. Merged New Office Name: Operations Coordination Department

11. Technical Research and Services Department

12. Budget, Treasury and Fund Management

10. Merged. New Office Name: Finance Department 13. Accounting Services Department

14. General Services Department 11. Merged. New Office Name: Administrative and General Services Department

15. Human Resources Department

16. Public Affairs Department 12. Created as a Division under the Office of the Administrator

II. NFA Field Offices

Regional Office

(Retained) Branch Office (New) Provinces (Old)

1. Region 1 (Ilocos Region)

1. Ilocos Norte Branch 2. La Union Branch 3. Eastern Pangasinan Branch

1. Ilocos Norte, Abra, Ilocos Sur 2. La Union, Benguet 3. Eastern Pangasinan, Western Pangasinan

2. Region II (Cagayan Valley)

4. Isabela Branch 5. Cagayan Branch 6. Nueva Vizcaya Branch

4. Isabela 5. Cagayan, Allacapan/Apayao, Kalinga 6. Nueva Vizcaya, Ifugao, Mt. Province, Quirino

3. Region III (Central Luzon)

7. Nueva Ecija Branch 8. Bulacan Branch 9. Pampanga Branch 10. Tarlac Branch

7. Nueva Ecija, Aurora 8. Bulacan 9. Pampanga, Bataan, Zambales 10. Tarlac

4. Region IV (Southern Tagalog)

11. Batangas Branch 12. Laguna Branch 13. Occidental Mindoro Branch

11. Batangas, Romblon 12. Laguna, Infanta 13. Occidental Mindoro,

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Regional Office


14. Oriental Mindoro Branch 15. Palawan Branch 16. Quezon Branch

Mamburao 14. Oriental Mindoro 15. Palawan 16. Quezon, Marinduque

5. Region V (Bicol Region)

17. Albay Branch 18. Camarines Sur Branch 19. Sorsogon Branch

17. Albay, Catanduenes 18. Camarines Sur, Camarines Norte 19. Sorsogon, Masbate

6. Region VI (Western Visayas)

20. Iloilo Branch 21. Negro Occidental Branch 22. Capiz Branch

20. Iloilo, Antique 21. Negros Occidental 22. Capiz, Aklan

7. Region VII (Central Visayas)

23. Cebu Branch 24. Bohol Branch 25. Negro Oriental Branch

23. Cebu 24. Bohol 25. Negros Oriental, Siquijor

8. Region VIII (Eastern Visayas)

26. Leyte Branch 27. Northern Samar Branch

26. Leyte, Biliran, Southern 27. Norther Samar, Eastern Samar, Western Samar.

9. Region IX (Wester Mindanao)

28. Zamboanga City Branch 29. Zamboanga Del Sur Branch (Pagadian)

28. Zamboanga City, Zamboanga Sibugay 29. Zamboanga del Sur, Zamboanga del Norte

10. Region X (Northern Mindanao)

30. Bukidnon Branch 31. Misamis Oriental Branch 32. Lanao Del Norte Branch

30. Bukidnon 31. Misamis Oriental, Camiguin 32. Lanao Del Norte, Misamis Occidental

11. Region XI (Southern Mindanao)

33. Davao Del Sur Branch (Digos) 34. Davao Oriental Branch (Mati) 35. Davao Del Norte Branch (Tagum)

33. Davao Del Sur, Davao City 34. Davao Oriental 35. Davao Del Norte, Compostela Valley

12. Region XII (Central Mindanao)

36. Sultan Kudarat Branch (Tacurong) 37. North Cotabato Branch (Kidapawan) 38. South Cotabato Branch (Marbel)

36. Sultan Kudarat 37. North Cotabato 38. South Cotabato, General Santos City/Sarangani

13. Region XIII (National Capital Region)

39. Central District Office 40. East District Office

39. Central District, Batanes, North District 40. East District, Cavite, South District

14. Region XIV (ARMM)

41. Maguindanao Branch 42. Lanao Del Sur Branch 43. Basilan Branch

41. Maguindanao 42. Lanao Del Sur 43. Basilan, Sulu, Tawi-Tawi

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Regional Office


15. Region XV (CARAGA)

44. Agusan Del Sur Branch 45.Surigao Del Sur Branch

44. Agusan Del Sur, Agusan Del Norte 45. Surigao Del Sur, Surigao Del Norte

38. BUDGET INFORMATION IN FINANCIAL STATEMENTS

The approve budget covers the CY 2020.

The difference between the final budget and the actual amounts on a comparable basis as presented in the SCBAA is due to ongoing implementation of projects.

The budget and accounting base differ. The budget is approved on a cash basis by functional classification whereas the financial statements are prepared on accrual basis using a classification based on the nature of expenses in the Statement of Financial Performance. The reconciliation between the actual amounts on a comparable basis as presented in the Statement of Budget and Actual Amount and actual amounts in the Statement of Cash Flow for the year ended December 31, 2020 is presented in the following table. The Financial statements and budget documents are prepared for the same period. There is a basis difference: the budget is prepared on cash basis and the financial statements are prepared in the accrual basis. Timing Difference

1 2 3 4 5 6 7 (1-2) 4+5+6

Variance accounted for

Per sashflows

SCBAA

Variance

Basis difference

Timing difference

Entity difference

Total

Receipts Operating 105,116,370,256 53,144,894,926 51,971,475,330 104,402,041 1,052,809 51,866,020,480 51,971,475,330 Investing 287,665,288 287,665,288 - - - - - Financing 26,195,764,729 26,195,764,729 - - - - -

Total 131,599,800,273 79,628,324,943 51,971,475,330 104,402,041 1,052,809 51,866,020,480 51,971,475,330

Payments Operating 72,365,280,592 17,957,549,036 54,407,731,556 2,212,205,228 417,636,839 51,777,889,489 54,407,731,556 Investing 490,707,777 487,566,632 3,141,145 274,000 2,867,145 - 3,141,145 Financing 58,803,456,395 55,281,543,205 3,521,913,190 - 3,521,913,190 - 3,521,913,190

Total 131,659,444,764 73,726,658,873 57,932,785,891 2,212,479,228 3,942,417,174 51,777,889,489 57,932,785,891

Net receipts/ payments

(59,644,491)

5,901,666,070

(5,961,310,561)

(2,108,077,187)

(3,941,364,365)

88,130,991

(5,961,310,561)

39. SUPPLEMENTARY INFORMATION REQUIRED BY BIR

39.1 Revenue Regulation (RR) No. 15-2010

In compliance with RR No. 15-2010, amending RR No. 21-2002 “In addition to the disclosures mandated under the IPSAS, and such other standards and/or conventions as may heretofore be adopted, The Notes to FS shall include

78

information on taxes, duties, and license fees paid or accrued during the taxable year.”

RR No. 21-2002 prescribing additional procedural and/or documentary requirements in connection with the preparation and submission of FS accompanying income tax returns (ITR) was amended under RR 15-2010. The amendment that became effective on December 28, 2010 requires inclusion in the notes to FS, information on taxes, duties, and license fees paid or accrued during the year in addition to what is required under the IPSAS and such other standards and/or conventions.

Below is the additional information required by RR No. 15-2010. This information is presented for purposes of filing with BIR and is not required as part of the basic FS. a. Taxes and licenses

2020 2019

Real estate tax 11,485,737 180,585

BIR annual registration fees 500 500

11,486,237 181,085

b. Withholding Taxes

The amount of withholding taxes paid/accrued for the year amount to:

2020 2019

Tax on compensation and benefits

115,212,668 117,004,295

Creditable withholding taxes (expanded, percentage, and value-added tax)

235,767,615 297,077,398

Final withholding taxes 69,651,280 36,518,769

420,631,563 450,600,462

c. Documentary Stamp Tax (DST) for CY 2020

The DST paid/accrued on the following transactions are:

Amount DST Thereon

Loan instruments - CO 126,449,981,331 255,246,170 Various transactions in FO - 10,258

126,449,981,331 255,256,428

d. Tax Case

As of December 31, 2020, the NFA has the following real property tax cases:

79

Status Amount

Actives cases and trial on going 106,139,962

Granted petition 13,900,753

120,040,715

Active cases and trial on going: a. Pending before the Regional Trial Court (RTC)(14

cases, seven have Temporary Restraining Order (TRO/Writ of Preliminary Injunction)

74,849,579

b. Pending before the Court of Tax Appeals (eight cases, three have order granting for the Motion for Suspension of Collection of Taxes)

15,606,492

c. Pending before the Court of Appeals (one case – NFA’s petition was granted by RTC but responded LGU filed an appeal)

9,942,731

d. Pending before the Supreme Court (NFA vs. Kidapawan, G.R No. 236114)

5,741,160

39.2 RR No. 19-2011

RR No. 19-2011 was issued to prescribe the new BIR Forms that will be used for income tax filing covering and starting with December 31, 2011. In case of the entities using BIR Form 1702, the taxpayer is now required to include as part of its notes to the audited FS, which will be attached to the ITR, the schedules and information is presented for the purposes of filing with the BIR and is not required part of the basic FS. The amount of revenues and income, and deductible cost and expenses presented below are based on relevant tax regulations issued by the BIR, hence, may not be the same as the amount of revenues reflected in CY 2019 Statement of Financial Performance. Moreover, the legal basis of tax relief/exemption of NFA is expressly stated in PD Nos. 4 and 1770. The following are the schedules prescribed under the existing revenue issuances applicable to the NFA as of December 31, 2020. a. Service and business income

Accounts

Per Financial Statement

Accounts

Per Income Tax Return

Sales 14,504,913,825 Sales 14,504,913,825

b. Cost of Sales

Accounts

Per Financial Statement

Accounts


Cost of sales 19,578,780,534 Cost of Sales 19,578,780,534

c. Non-operating and Taxable Other Income

80

Accounts Per Financial

Statement

Accounts Per Income Tax Return

Subsidy from NG 36,250,000,000 Other Income 36,447,558,377 Service income 13,690,600 Business income 14,565,907,443 Less: Sales and interest income (14,495,163,392) Shares, Grants, and Donations 2,277 Miscellaneous income 120,080,862 Sale of assets 265,803 Net gains and losses (7,225,216)

36,447,558,377 36,447,558,377

d. Allowable Deductions


Statement Accounts


Interest expenses 3,229,274,547 Interest 3,229,274,547

Salaries and wages 1,291,329,214 Salaries, wages, and allowances

3,644,540,403

Other compensation 526,307,121 Other personnel Benefit 1,826,904,068

3,644,540,403 3,644,540,403

Security services 380,666,917 Security services 380,666,917

Personnel benefit contributions 221,580,042 SSS, GSIS, PhilHealth, HDMF, and other contributions

221,580,042

Depreciation 139,230,533 Depreciation 139,230,533 Transportation and delivery expenses 71,367,582 Transportation and travel 119,943,430 Travelling expenses 48,575,848

119,943,430 119,943,430

Utility expenses 81,204,984 Communication, light, water 98,053,581 Communication expenses 16,848,597

98,053,581 98,053,581

Supplies and materials expenses 122,663,036 Office supplies 89,320,529 Less: Fuel, oil, and lubricants expenses (33,342,507)

89,320,529 89,320,529

Rent/lease expenses 90,405,677 Rentals 90,405,677

Fuel, oil, and lubricants expenses 33,342,507 Fuel and oil 33,342,507

Legal services 20,960 Professional services 129,621,198 Auditing services 128,146,170 Other professional services 1,454,068

129,621,198 129,621,198

Insurance expenses 36,172,165 Insurance 36,172,165

Impairment loss - Inventories 5,979,442 Losses 6,321,758 Impairment loss - PPE 257,133 Impairment loss - Other assets 85,183

6,321,758 6,321,758

Janitorial services 12,822,410 Janitorial and messengerial services

12,822,410

Taxes, duties, and licenses 14,123,737 Taxes and licenses 23,721,718 Fidelity Bond Premium 9,597,981

23,721,718 23,721,718

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Statement Accounts


Confidential, intelligence, and extraordinary expenses

3,557,684 Entertainment, amusement, and recreations

3,557,684

Impairment - Loans and receivables 7,865,652 Bad debts 700,800,028 Impairment – Other receivables 692,934,376

700,800,028 700,800,028

Consultancy services 2,947,560 Management and consultancy fees

2,947,560

Amortization 40,200 Amortizations 40,200

Guarantee fees 567,557,752 Others 1,596,529,461 Other MOOE 288,421,976 Loss of assets 271,834,463 Documentary stamps expenses 255,256,428 Donations 72,475,036 Repairs and maintenance 71,609,299 Other general services 51,968,455 Representation expenses 7,512,718 Major events and conventions expenses 3,690,080 Awards/rewards and prizes 2,413,139 Environment/sanitary services 1,044,586 Training expenses 751,187 Printing and publication expenses 633,939 Subscription expenses 602,112 Membership dues and contributions to organizations

445,210

Bank charges 268,130 Advertising expenses 37,400 Other financial charges 7,551

1,596,529,461 1,596,529,461

Annex A.1

SUMMARY OF ACCOMPLISHMENTS – PROCUREMENT AND DISTRIBUTION January 1 to December 31, 2020

Areas

Covered (Cities /

Target Actual

Volume

Price per

bag

Budget Allocation /

Volume

82

Program/ Project/

Activity (PAP)

Target Beneficiaries

Provinces / Municipalities)

(Bags of 50 kg)

Expected Collection (Pesos)

(Bags of 50 kg)

Price per bag

Budget Utilized/Amount

Collected (Pesos)

% Accomplishment

Procurement Farmers Nationwide (Regions 1-12, NCR,

BARMM, and CARAGA)

18,723,950

P950* 17,787,752,500 13,467,644 P950* 12,794,262,377 72

Distribution LGUs, Legislators, DSWD and

other Government Institutions

Nationwide (Regions 1-12, NCR,

BARMM, and CARAGA)

6,733,000 P1,250** 8,416,250,000 11,761,675 P1,250** 14,702,093,450 175

*Based on NFA Approved Support Price at P19/kg subject to Equivalent Net Weight (ENW) Table **Assuming all rice were sold to LGUs and other Government Institutions (at P1,250/ bag or P25/kg) January to September – Based on Monthly Performance Evaluation Report (MPER) (updated AO November 4, 2020) Decreased by two per cent on January-to date accomplishment was due to NFA Region IV’s corrected palay procurement volume for the month of January 2020.

Source: NFA Grains Situation Report as of December 31, 2020.

Annex A.2

SUMMARY OF ACCOMPLISHMENTS – PROCUREMENT AND DISTRIBUTION During the COVID-9 Pandemic, March 16 to December 31, 2020

Program/ Project/

Activity (PAP)

Target Beneficiaries

Areas

Covered (Cities /

Provinces / Municipalities)

Target Actual

Volume (Bags of 50

kg)

Price per

bag

Budget Allocation / Expected Collection (Pesos)

Volume

(Bags of 50 kg)

Price per

bag

Budget

Utilized/Amount Collected (Pesos)

% Accomplishment

Procurement Farmers Nationwide (Regions 1-12, NCR,

BARMM, and CARAGA)

17,324,870

P950* 16,458,626,500 11,426,911 P950* 10,855,565,450 66

Distribution LGUs, Legislators, DSWD and

other Government Institutions

Nationwide (Regions 1-12, NCR,

BARMM, and CARAGA)

5,393,000 P1,250** 6,741,250,000*** 5,790,162 P1,250** 7,237,700,000 107

*Based on NFA Approved Support Price at P19/kg subject to ENW Table The additional 5,474 bags on the November Procurement Report were due to adjustments made by Regions IV, X, XI, and BARMM. **Assuming all rice were sold to LGUs and other Government Institutions (at P1,250/ bag or P25/kg) ***No budget allocation specific for COVID-19. Source: NFA Grains Situation Report and Rice Sales to LGUs, Legislators, DSWD, and others as of December 31, 2020.

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PART II - OBSERVATIONS AND RECOMMENDATIONS A. FINANCIAL 1. The non-elimination of the Intra-Agency Receivable and Payable accounts at year-end overstated the total Assets by P51.040 billion or 224.15 per cent and total Liabilities by P49.467 billion or 32.05 per cent, thereby casting doubt on the reliability and accuracy of the account balances presented in the financial statements (FS).

1.1 Section 111 of Presidential Decree (PD) No. 1445, the Government Auditing Code of the Philippines, provides that: (1) the accounts of an agency shall be kept in such detail as is necessary to meet the needs of the agency and at the same time be adequate to furnish the information needed by fiscal or control agencies of the government; and (2) the highest standards of honesty, objectivity and consistency shall be observed in the keeping of accounts to safeguard against inaccurate or misleading information.

1.2 NFA Standard Operating Procedures (SOP) No. FS-GP13 dated April 21, 1997, as amended by SOP No. FS-GP13.A dated December 18, 2008 and SOP No. FS-GP13.B dated October 24, 2014, provides the guidelines and procedures on interbranch accounting and defined the responsibilities of officers and employees concerned in reporting, recording and monitoring of interbranch transactions. Section III of the same issuance further provides the following:

Failure on the part of responsible officials to act immediately or to send necessary information regarding interbranch transactions to concerned offices shall be considered a violation of this SOP, and shall in accordance with P.D. 807 and R.A. 6713, subject them to the administrative offense of violation of Reasonable Office Rules and Regulations and shall, upon conviction, suffer the penalty of reprimand, suspension or dismissal, as the case may be.

1.3 The intra-agency accounts are reciprocal accounts that serve as clearing accounts for Intra-Agency Receivables and Payables. For NFA, intra-agency accounts consist of Due from Central Office (CO), Regional Offices (ROs) and Operating Units (OUs) as Receivable accounts; and Due to CO, ROs and OUs as Payable accounts. These reciprocal intra-agency accounts are used to record the transfer of funds, supplies, stocks of rice, property, and equipment from/to the CO/ROs/OUs; recognition or charging of income/expenses attributable from/to the different offices/units; and for the liquidation, write-off, and/or adjustments. Thus, these reciprocal accounts should have been offset with each other during combination and therefore should have zero balances in the FS at year-end. 1.4 As of December 31, 2020, the balances of the Intra-Agency Receivable and Payable accounts as presented in the condensed Statements of Financial Position of the NFA amounted to P51.040 billion and P49.467 billion, respectively. The various adjustments taken up in the books of the NFA CO and its ROs/District Offices (DOs)/Provincial Offices (POs) in Calendar Year (CY) 2020 resulted in a decrease of the unreconciled accounts by P6.174 billion or 10.79 per cent and P7.747 billion or 13.54

84

per cent for the Intra-Agency Receivable and Payable accounts, respectively, compared to the CY 2019 balances, details in Table 1.

Table 1 – Balances of the Intra-Agency Receivable and Payable accounts as of December 31, 2020 and 2019

Account 2020 2019 Increase/(Decrease)

Due from CO P 25,865,284,233 P 26,307,573,517 (P 442,289,284) Due from OUs 20,024,277,265 25,294,228,912 (5,269,951,647) Due from ROs 5,150,754,777 5,612,509,524 (461,754,747)

Total P 51,040,316,275 P 57,214,311,953 (P 6,173,995,678)

Percentage of Decrease 10.79

Due to CO P 23,977,683,712 P 32,708,095,436 (P 8,730,411,724) Due to OUs 20,258,538,940 20,076,970,596 181,568,344 Due to ROs 5,230,362,394 4,428,968,733 801,393,661

Total P 49,466,585,046 P 57,214,034,765 (P 7,747,449,719)

Percentage of Decrease 13.54

1.5 Despite the previous years’ audit recommendations, comparison of the balances of Intra-Agency Receivables against the Intra-Agency Payables by ROs shows a total variance amounting to P1.574 billion, as presented in Table 2.

Table 2 – Comparison of Intra-Agency Receivables and Intra-Agency Payables

Office/RO Intra-Agency Receivable

Intra-Agency Payable

Variance

CO P 6,661,521,190 P 6,064,634,120 P 596,887,070 I 1,197,484,398 1,181,893,551 15,590,847 II 3,540,312,841 3,734,391,756 (194,078,915) III 1,492,578,002 359,703,863 1,132,874,139 IV 2,040,782,792 2,083,534,139 (42,751,347) V 1,838,035,822 1,224,455,752 613,580,070 VI 426,956,977 136,283,586 290,673,391 VII 49,911,095 118,635,970 (68,724,875) VIII 567,540,818 1,183,486,176 (615,945,358) IX 71,854,821 240,624,468 (168,769,647) X 791,778,351 578,346,730 213,431,621 XI 3,698,598,862 701,939,387 2,996,659,475 XII 3,383,554,647 5,013,131,149 (1,629,576,502) XIII 23,764,256,546 23,159,448,934 604,807,612 XIV 1,501,280,785 3,651,077,376 (2,149,796,591) XV 13,868,328 34,998,089 (21,129,761)

Total P 51,040,316,275 P 49,466,585,046 P 1,573,731,229

1.6 Records disclosed that most of the unreconciled balances are aged 10 years to more than 20 years. The reasons for the non-reconciliation of these accounts were non-receipt/delayed receipt of advices, lack of response to and from the offices concerned, and absence of records. These have been pointed out in previous years’ audit but were not corrected in the current year. 1.7 The balances of the total Assets and total Liabilities as at December 31, 2020 should have been P22.771 billion and P154.351 billion, respectively. However, these were presented in the FS in the total amount of P73.811 billion and P203.818 billion, respectively, due to the inclusion of the balances of Intra-Agency Receivable and Payable accounts of P51.040 billion and P49.467 billion. As a consequence, the

85

balances of the total Assets and total Liabilities as at December 31, 2020 were overstated by 224.15 per cent and 32.05 per cent, respectively, as shown in Table 3, thereby, providing misleading information on the actual financial condition of the agency.

Table 3 - Reciprocal Accounts as Assets and Liabilities in the CY 2020 FS

Particulars Amount Percentage of Increase

Total Assets P 73,811,157,990 Intra-Agency Receivables 51,040,316,275

Should be Total Assets 22,770,841,715 224.15

Total Liabilities 203,817,523,255 Intra-Agency Payables 49,466,585,046

Should be Total Liabilities P 154,350,938,209 32.05

1.8 The Intra-Agency Receivable and Intra-Agency Payable accounts are not considered as assets and liabilities of the agency. Assets and Liabilities, among others, are defined in Paragraph 7 of International Public Sector Accounting Standards (IPSAS) 1 on Presentation of Financial Statements, as follows:

Assets are resources controlled by an entity as a result of past events and from which future economic benefits or service potential are expected to flow to the entity. Liabilities are present obligations of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits or service potential.

1.9 Thus, Intra-Agency Receivables are not classified as assets as they do not generate net cash inflows to the agency and have no future economic value or service potential such as cash, investments, accounts receivable, inventory, supplies, land, buildings, equipment, and vehicles.

1.10 On the other hand, Intra-Agency Payables are not liabilities such as loans, accounts payable, deferred revenues, mortgages and accrued expenses. Likewise, Intra-agency Payables are not the agency’s legal financial debts or obligations that arise during the course of business operations which will be settled over time through the transfer of economic benefits including money, goods or services.

1.11 The continuing existence of these unreconciled intra-agency accounts in the books of NFA does not only account for the long existing overstatement and understatement of affected accounts carried over in the current balances, but also a manifestation of non-compliance over the years by responsible personnel in NFA offices with the guidelines and procedures on interbranch accounting provided under NFA SOP No. FS-GP13.

1.12 We recommended that Management require the Finance Department to:

a. Prioritize the reconciliation of intra-agency accounts to eliminate the reciprocal accounts and arrive at reliable balances;

86

b. Strictly monitor compliance with NFA SOP No. FS-GP13, with emphasis on the regular preparation of schedule of interbranch transactions and Monthly Reconciliation Statement to identify variances, if any, within the reporting period and immediately coordinate with other offices to resolve the differences as basis for necessary adjustments;

c. Ensure that policies and guidelines on interbranch transactions are

strictly observed, especially the sanctions provided in NFA SOP No. FS-GP13 as deterrent to the accumulation of variances; and

d. Require all the Accountants of CO, ROs, POs and OUs to conduct a

nationwide reconciliation of the Intra-Agency Receivable and Intra-Agency Payable accounts to eliminate the balances of the reciprocal accounts at year-end. Ensure that all adjustments are supported with proper documents.

1.13 Management informed that the recommendations regarding the intra-agency accounts are being implemented. Reciprocal accounts for the months of July to December 2020 were closed to government equity accounts reducing the balances of reciprocal accounts by P1.481 billion for Due from OUs/ROs and Due to CO of the same amount and P1.791 billion for Due from CO and Due to OUs/ROs of the same amount.

1.14 In addition, reciprocal accounts were further reduced as there were another set of advices with schedule for closure to government equity which were not yet included in the April 2021 Trial Balance in the amount of P2.182 billion for Due from OUs/ROs and Due to CO of the same amount and P3.353 billion for Due from CO and P3.307 billion for Due to OUs/ROs.

1.15 Management also informed that they are constantly reiterating to their coordinators and field office accountants the importance of adherence with the SOP on interbranch transactions.

1.16 Further stated that conduct of nationwide reconciliation of the Intra-Agency Receivable and Intra-Agency Payable accounts by the accountants of CO, ROs, and POs/OUs to confirm and verify the existence of the accounts will be put on hold until the COVID-19 pandemic ceases in compliance with the Inter-Agency Task Force for the Management of Emerging Infectious Diseases guidelines on meetings/gatherings. 2. Journal entry vouchers (JEVs) for the adjustment and/or reconciliation of the balances of accounts amounting to P30.542 billion were not substantiated, thereby, casting doubt on the propriety of the balances of the accounts.

2.1 An adjusting journal entry occurs at the end of an accounting period to record any unrecognized income or expenses for the period. It can also refer to financial reporting that corrects a mistake made previously in the accounting period. On the other hand, reconciliation is a process that compares two sets of records to check that figures are correct and in agreement. It also confirms that accounts are consistent, accurate, and complete.

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2.2 Paragraph 7 of IPSAS 3 defines, among others, prior period errors as, omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:

(a) Was available when financial statements for those periods were

authorized for issue; and (b) Could reasonably be expected to have been obtained and taken into

account in the preparation and presentation of those financial statements.

Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud.

2.3 Section 4.16 of the Rules and Regulations on Settlement of Accounts (RRSA), as prescribed under COA Circular No. 2009-006 dated September 15, 2009, defines disallowance as, the disapproval in the audit of a transaction, either in whole or in part. The term applies to the audit of disbursements as distinguished from “charge” which applies to the audit of revenues/receipts. 2.4 The generally accepted principles on the preparation and presentation of financial statements provide that information thereon must possess the quality of reliability, i.e., free from material error and bias and can be depended upon by its intended users.

2.5 Review of the submitted Statements of Changes in Net Assets/Equity (SCNAE) as of December 31, 2019 and 2020 disclosed that, adjustments in the total amount of P30.542 billion, inclusive of unreconciled figures of P13.928 billion and P(4.374) billion, respectively, were not substantiated, details of which are summarized in Table 4.

Table 4 – Adjustments on Prior Period Errors

Adjustments CY 2019 CY 2020

Total Per SCNAE Unreconciled Per SCNAE Unreconciled

Prior period errors P 6,115,014,203 P 2,441,730,284 P 5,792,835,862 P (4,909,469,774) P 9,440,110,575 Other adjustments* 5,194,013,051 11,486,103,595 3,886,155,157 535,810,713 21,102,082,516

P 11,309,027,254 P 13,927,833,879 P 9,678,991,019 P (4,373,659,061) P 30,542,193,091

* Shortages/Disallowances and Intra-agency Accounts

2.6 It should be noted that the Section 100 of PD No. 1445 requires disbursing officers in any government agency to render monthly reports of their transactions to be submitted not later than the fifth day of the ensuing month to the auditor concerned. Moreover, Section 122 of PD No. 1445 provides sanctions on the failure of officials concerned to submit the documents and reports, to wit:

Submission of reports. Whenever deemed necessary in the exigencies of the service, the Commission may under regulations issued by it require the agency heads, chief accountants, budget officers, cashiers, disbursing officers, administrative or personnel officers, and other responsible officials of the various agencies to submit trial balances, physical

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inventory reports, current plantilla of personnel, and such other reports as may be necessary for the exercise of its functions. (2) Failure on the part of the officials concerned to submit the documents and reports mentioned herein shall automatically cause the suspension of payment of their salaries until they shall have complied with the requirements of the Commission. Xxxx

2.7 Likewise, Section 7 of the RRSA provides for the responsibilities of Agency Head and Accountants, as follows:

7.1 Responsibility of the Agency Head

7.1.1 The head of the agency, who is primarily responsible for all government funds and property pertaining to his agency, shall ensure that: (a) the required financial and other reports and statements are submitted by the concerned agency officials in such form and within the period prescribed by the Commission; (b) the settlement of disallowances and charges is made within the prescribed period; (c) the requirements of transactions suspended in audit are complied with; and (d) appropriate actions are taken on the deficiencies noted as contained in the AOM [Audit Observation Memorandum].

Xxxx

7.2 Responsibility of the Agency Accountant

7.2.1 The Chief Accountant, Bookkeeper or other authorized officials performing accounting and/or bookkeeping functions of the audited agency shall ensure that: a) the reports and supporting documents submitted by the

accountable officers are immediately recorded in the books of accounts and submitted to the Auditor within the first ten (10) days of the ensuing month;

b) Xxx; c) the audit suspensions, disallowances and charges, including

their settlements, are properly monitored and reconciled with the SASDC [Statement of Audit Suspensions, Disallowances and Charges] issued by the Auditor in accordance with these Rules [RRSA];

Xxxx

2.8 The combined financial statements reflect the assets, liabilities, revenues and expenses of the CO and ROs. The 15 ROs maintain separate books of accounts and

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prepare their respective financial reports. The DOs/POs, which are under the supervision of the ROs, are responsible for the preparation of their respective financial reports, which are submitted to the ROs for combination. The financial reports of the individual RO, which consists of the financial report of the RO and its DOs/POs, are then submitted to the CO for combination. 2.9 Analysis, verification and comparison of the account balances as at December 31, 2020 in the Statements of Financial Position from the combined Trial Balances (TBs) of the ROs and CO, against the totals of the accounts in the individual TB of the ROs and CO disclosed zero or no variance, as shown in Table 5.

Table 5 - Totals of Individual TBs vs. Combined TBs per RO

Accounts Totals of

Individual TBs of ROs and CO

FS (Combined TBs

per RO) Variance

Assets P 73,811,157,990 P 73,811,157,990 P - Liabilities 203,817,523,255 203,817,523,255 - Equity (130,006,365,265) (130,006,365,265) -

2.10 Further scrutiny of the variances between totals of individual TBs and combined TBs from prior years revealed that movement/reconciliation in the amounts of P1.121 billion and P388.448 million for CYs 2019 and CY 2020, respectively, were ultimately reconciled or eliminated in CY 2020. Comparison of the variances for CYs 2018 to 2020 is presented in Table 6.

Table 6 - Variances for CYs 2018 to 2020

Accounts 2018 2019 2020

Assets P 754,516,483 P 194,224,321 P - Liabilities 543,101,184 234,986,093 - Equity 211,415,299 (40,761,771) -

2.11 Relatively, the movement of the variances from CYs 2018 to 2020 is shown in Table 7.

Table 7 - Movement in Variances from CYs 2018 to 2020

CY 2019 CY 2020

Account Amount Percentage Account Amount Percentage

Assets P 560,292,162 74.26 Assets P 194,224,322 100 Liabilities 308,115,092 56.73 Liabilities 234,986,093 100 Equity 252,177,070 119.28 Equity 40,761,771 100

Total P 1,120,584,324 74.26 Total P 388,448,644 100

2.12 The significant amount of adjustments on prior period errors, adjustments on shortages and disallowances, and inter-RO TB reconciliation without substantiation is alarming as the balances presented is prone to manipulation or further errors without any checks or audit. In addition, the propriety of the adjustments made is questionable without any supporting documents submitted in order to validate the said entries.

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2.13 Section 111 of PD No. 1445 provides that the accounts of an agency shall be kept in such detail as is necessary to meet the needs of the agency and at the same time be adequate to furnish the information needed by fiscal or control agencies of the government. Further, the highest standards of honesty, objectivity and consistency shall be observed in the keeping of accounts to safeguard against inaccurate or misleading information.

2.14 In CY 2020, Management submitted Reconciliation Statements on the nationwide intra-agency reconciliation conducted in CY 2019. However, such Reconciliation Statements were not supported with complete documents to substantiate the adjustments made on the intra-agency transactions such as remittance advices and references to record the adjustments made.

2.15 In a letter dated January 13, 2021 requiring submission of the complete documents, Management initially requested for a time extension for their submission. However, Management submitted JEVs and supporting documents pertaining only to ROs IX and XIV. A subsequent communication dated March 4, 2021 was sent requesting for the full compliance of the request. However, as of to date, Management was not able to comply fully with the mandated requirements to substantiate the reconciliation made in CY 2019.

2.16 Scrutiny of the supporting documents submitted revealed that out of the P16.157 billion intra-agency adjustments or reconciliations made in CY 2019 (from CYs

2018 to 2019) as shown in Table 8, only P2.865 million or 0.02 per cent pertaining to RO IX and XIV in the amounts of P2.248 million and P0.617 million, respectively, were substantiated.

Table 8 – Intra-agency Adjustments/Reconciliations Made in CY 2019

Intra-Agency Accounts Variance

2018 2019 Decrease

Receivables P 300,176,526,838 P 57,214,311,953 P 242,962,214,885 Payables 300,174,796,608 73,369,226,690 226,805,569,918

Variance P 1,730,230 (P 16,154,914,737) P 16,156,644,967

2.17 The Management is consistently reminded of the well enshrined responsibility to substantiate any adjustments or transactions entered in the books of the agency. 2.18 Moreover for the CY 2020 audit, as of May 31, 2021, the Management has been delayed in the submission of the JEVs, vouchers, and other supporting documents. This situation hinders from pursuing a thorough audit of the accounts. 2.19 The delayed/non-substantiation of adjustments and/or reconciliations by Management cast doubt on the propriety of adjustments/reconciliations made, thereby, affecting the reliability of the balances reported in the FS.

2.20 We recommended that Management require the Head of the Finance Department to:

a. Submit all JEVs as well as the corresponding supporting documents related to the adjustments and/or reconciliations made;

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b. Reverse all journal entries, adjustments or reconciliations that cannot

be supported or substantiated; c. Avoid making any journal entry, adjustments or reconciliations

without securing first the supporting documents to substantiate the transactions; and

d. Religiously submit the mandated reports within the prescribed period.

2.21 Management requested that COA-NFA field offices be the one to undertake the review of the complete supporting documents of JEVs pertaining to the adjustments made since all the related documents were submitted to their respective offices on a per RO/Branch Office. 2.22 As an audit rejoinder, we emphasized that the personnel in-charge are duty bound to ensure that the transactions are supported with complete documentation prior to their processing, approval and recording of the transactions, and submission of the JEVs to the Auditor for post-audit purposes. 3. The existence, accuracy, and completeness of the balances of the Property, Plant and Equipment (PPE) accounts with carrying amount of P2.451 billion at year-end cannot be ascertained due to the: (a) variances totaling P191.783 million between the book balances and per inventory counts in CO, RO in National Capital Region (NCR), and ROs II, V, and XI, and Bangsamoro Autonomous Region in Muslim Mindanao (BARMM); (b) undisposed unserviceable properties amounting to P4.446 million in ROs II, III, and V; (c) negative carrying amount of P1.042 million for PPE items in the books of NCR RO; (d) non-recording of depreciation expenses amounting to P0.947 million in CO and RO VI; (e) unrecorded properties in NCR RO and ROs I, III, and XII; and (f) incomplete documentation of various entries relative to the transfers of PPE from CO to POs, thus, affecting the fairness of presentation of the balances in the FS. 3.1 Section 58 of PD No. 1445 on the audit of assets provides that [t]he examination and audit of assets shall be performed with a view to ascertaining their existence, ownership, valuation and encumbrances as well as the propriety of items composing the respective asset accounts, determining their agreement with records; proving the accuracy of such records; ascertaining if the assets were utilized economically, efficiently and effectively; and evaluating the adequacy of controls over the accounts. 3.2 IPSAS 17 prescribes the standards on the recognition, measurement at recognition, measurement after recognition, depreciation, impairment, derecognition and disclosure requirements dealing with transactions and events affecting PPE. 3.3 As of December 31, 2020, the PPE account was valued at cost in the amount of P5.676 billion. Its accumulated depreciation amounted to P3.225 billion, thus, the carrying amount presented in the Statements of Financial Position amounted to P2.451 billion.

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Variance of P191.783 million between the balances recorded in the books and physical inventory report/property records 3.4 Reconciliation of accounting records with the physical count is a basic control over physical assets as it provides the necessary check on the completeness and accuracy of accounting and property records and determines the existence and condition of items comprising the PPE account. 3.5 NFA issued SOP Nos. GS-PD19 and GS-PS01 dated March 24, 2003 and January 10, 2019, respectively, on the Fixed Assets/Property, Plant and Equipment Inventory and Monitoring and Control System, to monitor the movement and condition of the assets and update the documentation, reporting and accounting systems. The SOPs provide, among others, the reconciliation of the physical inventory count with the book balances. 3.6 Comparison of the balances of PPE account per accounting records with the results of the physical inventory counts revealed a variance of P191.783 million, shown in Table 9.

Table 9 - Variance on PPE Balances between Accounting Records and Inventory Reports/Property Records

Office Per Books Per Inventory

Report/Property Records

Variance

CO P 413,391,045 P 643,532,594 P 230,141,549 NCR - RO, Central DO (CDO), and North DO (NDO)

210,432,968 180,531,501 (29,901,467)

RO II 598,835,081 597,291,417 (1,543,664)

RO V and Albay PO 84,042,063 78,629,419 (5,412,644)

RO XI - Davao City and Davao del Sur POs 87,629,838 86,895,778 (734,060)

BARMM 15,256,541 14,489,882 (766,659)

Total P 1,409,587,536 P 1,601,370,591 P 191,783,055

3.7 As shown in Table 9, the bulk of unreconciled accounts amounting to P230.142 million pertain to the accounts at the CO. As observed in previous years’ audits, the reconciliation between accounting and property records had not been fully implemented. The significant amount of variance between the balance per books and the annual physical inventory report indicates the possibility of erroneous recording of PPE transactions, missing recorded property items or undocumented PPE items. 3.8 In NCR RO, only P15.734 million or 37.19 per cent is included in the Report on the Physical Count of Property, Plant and Equipment (RPCPPE), rendering the remaining P26.564 million or 62.81 per cent unaccounted at year-end. The variance is due to non-reconciliation of the property and accounting records after the conduct of annual physical inventory. The difference can also be attributed to the PPE accounts of the Metro Transport Office which have long been incorporated in the books of the RO, but still not included in the NFA Inventory Property Report (IPR) for the year. Despite prior years’ audit recommendations, the Finance and Administrative Sections’ records of the RO were not reconciled. Alternative audit procedures to substantiate the

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unaccounted items were not performed due to the absence of subsidiary records and incomplete documentation. 3.9 In NCR CDO, comparison of book balances with the physical inventory count of PPE showed a variance of P0.649 million. Inquiry with the Accounting personnel disclosed that the variance could be attributed to the costing in the books of the DO which was based on the insurable assets as of November 2020. Also, the recorded P90,000 difference in the Other PPE account pertains to the cost of the two convenience stores relative to a program implemented by NFA several years ago that was no longer included in the inventory report since they were demolished due to road widening. 3.10 In NCR NDO, comparison of the balance of the PPE account per accounting record and inventory report/schedule disclosed a difference of P6.926 million which could be attributed to the difference of P9.848 million due to the reclassification of parcels of land recorded under Investment Property-Land account; and various equipment included in the Schedule of Unserviceable Properties in the total amount of P2.922 million which are still carried in the PPE account pending inspection and disposition. The unserviceable properties include one of the two rice fortification equipment received from NCR South DO (SDO) in CY 2018 amounting to P2.500 million. 3.11 In RO II, the details of the variance between the RPCPPE and IPR cannot be identified because the Supply Office and the Accounting Office did not use the same PPE account description. The Property Unit used account classifications different from those stated in the Revised Chart of Accounts (RCA) for Government Corporations (GCs) prescribed/updated under COA Circular No. 2020-002 dated January 28, 2020. Said Unit still used the report generated by the Property Information System programmed at the NFA CO which contains old account classification of PPE while the Accounting Office used the account titles prescribed in the said Circular. Account title and property description used by both the accounting and property records should be identical/the same in order to determine its exact features. 3.12 In ROs V and XI, and BARMM, the noted discrepancies were mainly caused by unreconciled reports prepared by the Accounting Sections and RPCPPE prepared by the Inventory Committees/Property Sections. Undisposed unserviceable properties 3.13 Section 79 of PD No. 1445 states that [w]hen government property has become unserviceable for any cause, or is no longer needed, it shall, upon application of the officer accountable therefore, be inspected by the head of the agency or his duly authorized representative in the presence of the auditor concerned and, if found to be valueless or unsalable, it may be destroyed in their presence. If found to be valuable, it may be sold at public auction to the highest bidder under the supervision of the proper committee on award or similar body in the presence of the auditor concerned or other duly authorized representative of the Commission, after advertising by printed notice in the Official Gazette, or for not less than three consecutive days in any newspaper of general circulation, or where the value of the property does not warrant the expense of publication, by notices posted for a like period in at least three public places in the locality where the property is to be sold. In the event that the public auction fails, the

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property may be sold at a private sale at such price as may be fixed by the same committee or body concerned and approved by the Commission. 3.14 As of December 31, 2020, unserviceable properties totaling P4.446 million remained in the books of ROs II, III, and V, contrary to Section 79 of PD No. 1445, broken down as follows:

Office Amount

RO II P 3,052,421 RO III - Bulacan Branch Office 541,043 RO V - Catanduanes PO 541,043 RO V - Camarines Norte PO 311,635

Total P 4,446,142

3.15 In RO II, unserviceable properties/equipment costing P3.052 million were not disposed exposing properties to further deterioration, loss and obsolescence and continue occupying space in the premises of the agency, not to mention their being eyesore. 3.16 In RO III, the unserviceable properties amounting to P0.541 million are fully depreciated, defective and beyond economic repair. Several items found in the stockroom and warehouses were no longer used for more than a decade, occupied bigger space and are showing signs of deterioration. 3.17 In RO V, the unserviceable properties of P0.541 million in Catanduanes PO were not excluded from the PPE accounts for the year ended December 31, 2020 because the Inventory and Inspection Report of Unserviceable Property (IIRUP) and the physical inventory report for the year ended December 31, 2020 were not yet prepared. This is a deviation from the provisions of COA Circular Nos. 2015-007 and 2015-010 dated October 22, 2015 and December 1, 2015, respectively, prescribing the utilization of the Government Accounting Manual on Revised Chart of Accounts. Hence, an overstatement of the account in the same amount. In Camarines Norte PO, the disposal of unserviceable properties amounting to P311,635 has not been undertaken, hence, may result in the further deterioration of the properties. Negative carrying amount of some items amounting to P1.042 million 3.18 PPE accounts with negative carrying amount totaling P1.042 million in the books of NCR RO are indicative of errors in recording the transactions, thus, casting doubt on the accuracy and completeness of the presented PPE balance.

Account Cost Accumulated Depreciation

Carrying Amount

Other Structures P - P 98,140 P (98,140) Machineries 403,857 1,347,545 (943,687)

Total P 403,857 P 1,445,684 P (1,041,827)

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Non-recording of depreciation expense 3.19 IPSAS 17 on accounting for PPE and their corresponding depreciation provides that [t]he estimation of the useful life of the asset is a matter of judgment based on the experience of the entity with similar assets. The agency/entity is in the best position to estimate the expected useful life. Xxx

3.20 Audit of the PPE accounts of the CO and RO VI showed unrecorded depreciation expenses in the total amount of P0.947 million, viz:

Office Amount

CO P 725,016 RO VI - Aklan 222,230

P 947,246

3.21 The unrecorded depreciation expenses are attributed to the following:

a. No journal entries were made in the CO for the depreciation expenses amounting to P33,987 for a technical equipment for the month of December 2020 and for an information technology/software equipment amounting to P0.691 million for the months of November and December 2020; and

b. Non-provision of depreciation expenses amounting to P222,230 since the

acquisition of the following PPEs in RO VI:

Date Acquired

PPE Description Acquisition

Cost

03/27/2017 Personal Computer, HP Prodesk 400 P 43,705 12/23/2019 Aircon, Koppel Floor Mounted Split Type 3TR 79,005 10/28/2020 Leather Sala Set 26,000 10/28/2020 L Type Sala Set 17,300 10/28/2020 Executive Chair 15,000 10/28/2020 Three seater Sala Set 18,000 10/28/2020 Floor Polisher 23,220

Total P 222,230

3.22 The non-provision of depreciation expense understated the Accumulated Depreciation and Depreciation Expense accounts and overstated the total assets and income of the NFA for the period. Unrecorded properties 3.23 Review and verification of related documents showed that as of December 31, 2020, there were properties not taken up in the books of the NFA due to lack of proper documentation, shown in Table 10.

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Table 10 - Unrecorded Properties as of December 31, 2020

Office Unrecorded Property Audit Observations

NCR RO Land - unknown value; Motor vehicle worth P420,000

The land where the NCR RO main office is located was neither recorded in the books of the RO nor included in the RPCPPE. Only land improvements amounting to P1.107 million are recorded in the books of the RO. The cost of the main building, which already existed when NFA occupied the property, was not recorded in the books. The recorded office building valued at P9.575 million pertains to the constructed additional L-shape building and the repairs and improvements made thereon. In previous years’ audits, Management claimed that the said property was donated to NFA and that corresponding processes for the transfer of the property to NCR RO were already undertaken. However, recent inquiry with the RO Accountant disclosed that the property was actually a donation to the Republic of the Philippines not to NFA. Despite repeated requests for documents, nothing has been furnished to the Audit Team to date. Similarly, the registration of a motor vehicle acquired in CY 2008 costing P420,000 is not in the name of the NCR RO. The motor vehicle is included in the RPCPPE but not recorded in the books of the RO.

RO I - Kalinga PO

Donated parcel of land - 20,000 square meters

The donated parcel of land with an area of 20,000 square meters situated in Rizal, Kalinga was not yet recorded in the books of accounts because of undetermined market value.

RO III - Nueva Ecija Branch Office (NEBO)

Parcel of Land -P6,931,447

Donated parcels of land situated in Talavera, Nueva Ecija amounting to P6.931 million remained unrecorded/unrecognized in the NEBO’s books of accounts. Inquiry with NEBO officials disclosed that they have no copy of documents regarding the donation of the property except for the Transfer Certificate of Title (TCT). Scrutiny of the said TCT revealed that a parcel of land with an area of 5,000 square meters, more or less, situated in Brgy. Valle, Municipality of Talavera, Province of Nueva Ecija was registered in the name of NFA under TCT No. N-45716. One of the warehouses owned by NFA NEBO, which is the Farm Legend Grain Center (FLGC) Warehouse, is situated on this lot.

RO XII - General Santos

Two infrastructure projects – P0.719 million

These two infrastructure projects with a total amount of P0.719 million were completed within CY 2020. These completed projects should have been reclassified in a proper asset account – Building, as it was already operational, and an equivalent depreciation of the asset account should be taken up in the books of accounts.

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Incomplete documentation in the transfer of PPE accounts

3.24 Rule 3.4.2 of Joint Memorandum Circular No. 01-2019, series of 2019, of the Department of Agriculture (DA), the National Economic Development Authority (NEDA) and the Department of Budget and Management (DBM), implementing Republic Act (RA) No. 11203, An Act Liberalizing the Importation, Exportation and Trading of Rice, Lifting for the Purpose the Quantitative Import Restriction on Rice, and for Other Purposes, dated February 14, 2019, provides, among others, that the DA and NFA shall formulate the guidelines and organizational modification plan on the transfer of the Food Development Center (FDC) from the NFA to the DA. 3.25 The FDC, including its PPE accounts amounting to P244.193 million, were transferred to the DA, through a letter dated November 23, 2020 of the NFA Administrator to the DA Secretary. The transfer was recognized by NFA under e-IFOMIS JEV-0000-20-11-001021 dated November 3, 2020. However, transfer of accountabilities has not been acknowledged by the DA as of this date. Such transfer has a substantial effect in the NFA’s PPE balance as of December 31, 2020.

3.26 Furthermore, review of JEVs related to the transfer of PPE accounts of the CO to its ROs/POs in CY 2020 showed incomplete documentations, such as absence of Fixed Assets Issuance Report (FAIR) and Fixed Assets Receiving Report (FARR), and disclosed errors in the adjusting journal entries made, as summarized in Table 11.

Table 11 - Transfers of PPE accounts from CO to ROs/POs

Reference Particulars Amount Remarks

JEV-0000-20-05-000664 dated May 29, 2020

To recognize the transfer of warehouse equipment to RO IV for one unit of motorized knapsack sprayer (Cifarelli mistblower) per FAIR No. 053506 dated March 24, 2020, FARR No. 040132 dated April 23, 2020 and RO JEV No. 2020-05, Property Code: 2020-NFA-TRS-WE-007

P 36,400 Entry made by: RO V - Technical and Scientific Equipment; CO - Other Machinery and Equipment

JEV-0000-20-07-000814 dated July 31, 2020

To recognize receipt from RO XV (Caraga) of one unit of Asus Laptop for Dir. Lemuel Pagayunan’s use per FAIR No. 038043 dated July 30, 2020 and Caraga JEV No. 2020-07-0021 dated July 30, 2020, Property Code: 2012-NFA-MSD-DP-T-425, SN S090798

15,364 No FARR attached

No signature in the Received portion of the FAIR

JEV-0000-20-07-000797 dated July 31, 2020

To recognize transfer of office and IT equipment to La Union PO (LUPO) per FAIR No. 055013 dated July 4, 2019, FARR No. 040885 dated July 10, 2019, and La Union JEV No. 19-11-0110 dated November 30, 2019; three units of HP computer set PRO 3000 (Property Codes: 2010-NFA-MSD-DP-B-1097, 2010-NFA-MSD-DP-B-1114,

141,744 Late recording of FAIR and FARR in CY 2019

No signature in the Received by portion of the FAIR

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Reference Particulars Amount Remarks

2010-NFA-MSD-DP-B-1088); one unit of Acer Veriton PC (Property Code: 2007-NFA-MSD-DP-B-594); one unit of Hanabishi aircon (Property Code: 2014-NFA-GSD-OE-C-199); and four units of steel filing cabinet.

JEV-0000-20-08-000456 dated August 31, 2020

To recognize transfer of one unit of Asus X490FL laptop to RO XI per FAIR No. 055078 dated June 29, 2020 and FARR No. 011479 dated July 21, 2020, Property Code: 2020-NFA-MSD-DP-T-655, SN K5N0CX04V004219

38,750 The RO JEV has no signature in the Approved by portion

JEV-0000-20-08-000462 dated August 31, 2020

To recognize transfer of one unit of motorized knapsack sprayer (Cifarelli mistblower) to RO XV per FAIR No. 053508 dated March 24, 2020, Property Code: 2020-NFA-TRS-WE-D-005, SN 03F5801

36,400 Entry made by: RO XV - Technical and Scientific Equipment; CO - Other Machinery and Equipment

FAIR has no signature in the Received by portion

JEV-0000-20-08-000465 dated August 31, 2020

To recognize transfer of one unit of motorized knapsack sprayer (Cifarelli mistblower) to RO X per FAIR No. 053511 dated March 24, 2020, Property Code: 2020-NFA-TRS-WE-D-008, SN 03F59VE

36,400 Entry made by RO X - Technical and Scientific Equipment; CO - Other Machinery and Equipment

JEV-0000-20-08-000466 dated August 31, 2020

To recognize transfer of one unit of motorized knapsack sprayer (Cifarelli mistblower) to RO XI per FAIR No. 053512 dated March 24, 2020, Property Code: 2020-NFA-TRS-WE-D-009, SN 03F58NR

36,400 Entry made by: RO XI - Technical and Scientific Equipment; CO - Other Machinery and Equipment

FAIR has no signature in the Received by portion

P 341,458

3.27 As a consequence, the above-cited lapses/deficiencies affect the fairness of the presentation of the balances of PPE and related accounts in the financial statements. 3.28 We recommended that Management require the Accounting Sections and the Property Sections of CO and its ROs/DOs/POs to:

a. Conduct thorough verification and reconciliation of the property and

accounting records on a regular basis to determine the other cause/s

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of discrepancies, so that necessary corrections/adjustments can be effected in both records to arrive at the correct balances;

b. Cause the immediate disposal of unserviceable properties; c. Re-assess/verify and reconcile the carrying amounts of PPE accounts

with negative balances and understated depreciation expenses; and d. Submit the necessary documents relative to the transfer of FDC

accounts to the DA and other PPE accounts transferred from the CO to ROs/POs.

3.29 CO Management committed to reconcile the records and take appropriate actions on the observed lapses/deficiencies. 3.30 NCR RO Management informed that the teams tasked for the reconciliation of the PPE accounts are exerting their best efforts to look and dig for every available document (JEVs, FARR, FAIR, Report on Physical Inventory Count, etc.) that could be used in the reconciliation of the accounts. The RO and Branch Accounting Sections are continuously analyzing documents and prior recording of entries relative to the occurrence of abnormal balances of the Fixed Assets account to be able to present its true balance. On the unrecorded land and building, the RO is still in the process of securing the necessary documents relative to the unrecorded properties, particularly the transfer of ownership of the land from the Republic of the Philippines to NFA NCR RO. 3.31 In RO I, Kalinga PO Management acknowledged and agreed to determine the fair value of the donated land and recognize the same in the books of accounts. 3.32 RO II Management informed that the disposition of the remaining unserviceable properties is in process already and will be completed by end of CY 2021. The Accounting and the Supply Office assured to reconcile their reports in accordance with the PPE descriptions provided in the RCA for GCs. A PPE Ledger Card (PPELC) will also be prepared for monitoring of all related expenses, additions, dispositions, and other information about the PPE. The Supply Officer was also instructed to evaluate the unserviceable properties and prepare a report for evaluation by the Branch’s PPE Disposal Committee for recommendation to the RO for the assets’ disposition and derecognition of the same from the books of accounts. 3.33 In RO III, NEBO Management committed to coordinate with the CO on the booking up of the cost of the donated land because the latter was the one who transacted with the Local Government Unit (LGU) of Talavera and the journal entry will be sourced from them. 3.34 RO V Management acknowledged the audit observations and committed to fast track the preparation of PPELCs, observe proper coordination between Accounting and Supply Officer and perform the periodic reconciliation of their respective records to ensure that all discrepancies will be addressed. 3.35 In RO XI, the Management of Davao City commented that the net difference of P0.892 million was attributed to the increase in the machinery and equipment; while the

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Management of Davao del Sur PO averred that the net difference of P1.101 million was attributed to the misclassification of office equipment. 3.36 RO XII - General Santos PO commented that non-reclassification of completed project to proper asset account was due to missing summary of expenses report submitted by the Facilities Management Division (FMD) which is one of the requirements for reconciliation and closing of the CIP account. As at date, it has already requested a copy of said summary of expenses report from FMD. 3.37 As an audit rejoinder, the Audit Teams will monitor the implementation of the audit recommendations in CY 2021 audit. 4. Uncollected overdue receivables amounting to P255.832 million from various private and government companies/individuals and former NFA officials/employees who are already deceased and/or resigned/separated from the service remained dormant for 10 years and more due to lack of documentation and absence of updated information on collection. Non-implementation of existing guidelines and measures for dormant accounts pursuant to COA Circular No. 2016-005 and NFA SOP FS-FA13 affects the fair presentation of the balance of various Receivable accounts. 4.1 COA Circular No. 2016-005 dated December 19, 2016 prescribes the guidelines and procedures on the write-off of dormant accounts which include, among others, dormant receivables arising from regular trade and business transactions. Dormant receivable accounts are accounts with balances that remained inactive or non-moving in the books of accounts for 10 years and more and where settlement/collectability could no longer be ascertained. 4.2 Likewise, NFA SOP FS-FA13 dated May 18, 2008 provides the guidelines on the writing-off of dormant/uncollectible accounts receivables. The receivables may be recommended for write-off for the following reasons: (a) Death of respondent employee; (b) Unknown whereabouts of the respondent employee, and that he/she cannot be located despite extra-diligent efforts to find him/her; (c) Incapacity to pay or insolvency of the respondent employee; (d) The account has remained unpaid and outstanding for more than 10 years despite diligent efforts to collect exerted by NFA; and (e) The account unpaid and outstanding does not exceed P10,000. 4.3 As of December 31, 2020, receivables amounting to P255.832 million from various private and government companies/individuals and former officials/employees who are already deceased and/or resigned/retired/separated from the service, remained dormant in the books of the NFA. These outstanding balances have not been cleared for 10 years and beyond, due to non-reconciliation, inadequate monitoring and absence of documentation, thus, rendering the existence, accuracy and valuation of the accounts unreliable. The status of the dormant/outstanding accounts in NFA offices are shown in Table 12.

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Table 12 - Status of Dormant Balances of Various Receivable Accounts

Office Particulars No. of Years

Dormant Amount

CO Insurance claims, damages, hangar helicopter fees, rice loan, etc. of private companies 16 - 47 P 23,303,661

Kadiwa, calamity loans, other receivables of retired/separated NFA employees 43 12,326,728

Shortages and penalties of various millers 35 - 47 5,632,926 Kadiwa, educational loans, telephone charges and rice allowance

disallowance of former COA-NFA employees 14 - 46 457,622 Cash advances for the travel of other government agency employees 13 187,725 Fund transfer for the Grains and Irrigation Water Assessment and

Farmers Consultative Workshop of Philippine Farmers Advisory Board (formerly National Farmers Advisory Council [NFAC]) 10 and beyond 101,744

Receivable from active employee, subject to further verification 10 5,086

42,015,492

NCR RO Other Receivables 10 and beyond 77,287,423 Accounts Receivable 10 and beyond 6,551,693 Due from National Government Agencies (NGAs) 10 and beyond 4,297,438 Due from Officers and Employees 10 and beyond 3,306,507 Receivables - Disallowances and Charges 10 and beyond 2,075,141

93,518,202

RO I Western Pangasinan PO (WPPO)

Receivables from NGAs such as National Disaster Coordinating Council (NDCC) and from farmers 10 and beyond 6,394,550

Ilocos Norte PO (INPO)

Receivables from NGAs such as NDCC and from farmers 10 and beyond 4,010,026

Eastern Pangasinan PO (EPPO)

Receivables from NGAs such as NDCC and from farmers 10 and beyond 2,539,750.00

12,944,326

RO III NEBO Receivables from millers-contractors 10 and beyond 6,693,437 Final shortage of resigned warehouse supervisors 10 and beyond 2,870,444 Loan Receivables - Others 10 and beyond 1,313,990 Due from LGU for “Erap Food Security Warehouse” (EFSW) 10 and beyond 400,000 Department of Social Welfare and Development (DSWD)/Priority

Development Assistance Fund of Senator Pangilinan 10 and beyond 40,500 Resigned NFA employees 10 and beyond 7,096 Central Luzon RO (CLRO)

Former NFA CLRO employees 10 and beyond 19,602

11,345,069

RO IV Batangas Accounts Receivable, Loans Receivable, etc. 10 - 37 18,359,189 Marinduque Receivable from NGA, LGU, and Congress 10 and beyond 7,602,100

25,961.289

RO V National Disaster Risk Reduction and Management Council (NDRRMC), DSWD, etc. 10 and beyond 41,414,132

RO VII Receivable from Government-owned or Controlled Corporation (GOCC) – Government Service Insurance System (GSIS) 10 and beyond 19,038,172

Receivable from former employee who is already deceased 10 and beyond 615,043 Audit disallowance 10 and beyond 91,153

19,744,368

RO IX Zamboanga del Norte Receivable from DSWD, Office of the Civil Defense (OCD) and LGU 10 - 34 4,694,889 Zamboanga City Accounts Receivable - Trade and Business 11 - 41 3,397,029

8,091,918

RO XV (Caraga) Agusan del Sur PO Shortage from defaulting milling contractor 31 and beyond 797,541

Total P 255,832,337

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4.4 The significant dormant balances in various receivable accounts in the books of the NFA affected the overall validity of the reported balances at the end of the year due to uncertainty in collectability and validity of the receivables. Clearing of dormant accounts had been made by Management as a continuing activity which had been going on for years. 4.5 We would like to emphasize that although the balances pertained to prior periods, the present Management has to exercise its fiscal responsibility, which shall be to the greatest extent shared by all those exercising authority over the financial affairs, transactions and operations of the Agency.

4.6 We recommended that the Finance Department and/or RO/Branch Accounting Sections to:

a. Continuously send demand letters to the last known addresses of debtors and employees/personnel who are no longer connected with NFA;

b. Exhaust all possible legal remedies for the collection of long

outstanding accounts, particularly those of private entities; c. Coordinate with government offices concerned for possible

collection/reconciliation of accounts; d. Ensure that the retiring/resigning/transferring employees have already

settled their money and property accountabilities before the issuance of the agency clearances;

e. Periodically review the receivables by preparing Aging Schedule, at

least on a quarterly basis, to determine the inactivity of the accounts so as to take appropriate and immediate action thereon; and

f. Consider the applicability of the guidelines and procedures

prescribed under COA Circular No. 2016-005 on the writing-off of dormant accounts.

4.7 Management of CO commented that they are continuously sending demand letters to various employees and other debtors to their known addresses. As regards the settlement of the accountabilities of the retiring/resigning/transferring employees, Management informed that they will be required to issue a notarized authority to deduct from their receivables from NFA before the issuance of their agency clearance. Moreso, the NFA continuously exerts its effort to collect the receivable from the Philippine Farmers Advisory Board (formerly NFAC) and sent various communications since September 2019. 4.8 RO I Management commented that the money claims of NFA to the OCD and NDRRMC are with the COA Commission Secretary pending reply of respondent NDRRMC. Request for write-off of the receivables from various farmers in Western Pangasinan PO were already submitted to the COA Audit Team on May 17, 2018, and follow-up letters were received by the latter on January 28, 2019 and March 14, 2019.

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4.9 RO III Management informed that, for CY 2020, they were not able to do their plan of visiting the debtors due to pandemic. On the other hand, the Management of NFA NEBO agreed with the Audit Team’s recommendations and committed that extra efforts will be exerted to locate and require the debtors to liquidate or settle their accounts. 4.10 During the exit conference, RO IV Management, informed that they will constantly coordinate with the CO regarding the collection of outstanding receivables from the National Government. CO Management informed that, the petition for money claim was already filed with the Commission Secretariat and they are awaiting for the decision. Likewise, the approval of the CO will be sought in requesting authority from the COA to write-off the dormant accounts, pursuant to COA Circular No. 2016-005 dated December 19, 2016. 4.11 In RO IV, Batangas PO commented that they will consider requesting for the write-off of applicable dormant accounts. Also, they will follow-up with Legal Affairs Department (LAD) on the status of the case of two employees with final stock shortages. In a message transmitted by Management to the Accounting Division of the CO dated February 26, 2021, Management requested an update on the status of the Accounts Receivable from the National Disaster Coordinating Council and certain legislators. 4.12 In RO IX, Zamboanga City PO commented that the receivable accounts existed since time immemorial and that they are experiencing difficulty in locating the related documents. There is only one account with documents maintained on file. For small value accounts, they will try their best to collect and for other accounts, they will request for write-off. They will also regularly update the Audit Team on their actions taken. On the other hand, the Zamboanga del Norte PO Management commented that they will vigorously pursue the collection of receivables pertaining to LGU Siocon, Zamboanga del Norte and be able to advise the debtor where to properly address its request for condonation of interest and penalties. 4.13 As audit rejoinder, the Audit Teams will monitor the implementation of the audit recommendations by the offices concerned in CY 2021 audit. 5. The accuracy and reliability of the reported balance of the Customers’ Deposits Payable account of the NFA CO as of December 31, 2020 amounting to P130.238 million cannot be ascertained due to incomplete documentation, discrepancy of P4.277 million between the balance per books and the result of confirmations, and the inclusion of unidentified deposits from various legislators amounting to P5.00 million which remained dormant for 20 years. 5.1 The Customers’ Deposits Payable consists of advance payments made by various NGAs, LGUs, government employees, private individuals and non-government organizations to the NFA CO for the rice to be withdrawn from various NFA ROs/POs. 5.2 Paragraph 3.2 of COA Circular No. 99-004 dated August 17, 1999 prescribing, among others, the accounting guidelines for accounts payable, reiterated the rules and regulations such that all obligations shall be supported by valid claims and Payable - Unliquidated Obligations which have been outstanding for two years or more and against which no actual claims, administrative or judicial, has been filed or which is not covered

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by perfected contracts on records should be reverted to the Cumulative Results of Operations Unappropriated (CROU). 5.3 Section 1 of Executive Order (EO) No. 109 dated June 10, 1999 requires that [a]ll 1995 and prior years documented accounts payable and all undocumented accounts payable regardless of the year they were incurred shall be reverted to the Cumulative Result of Operations of the National Government. Henceforth, all documented accounts payable which remained outstanding for two years shall be reverted to the Cumulative Result of Operations of the National Government. Likewise, the practice of booking up undocumented accounts payable shall be strictly prohibited. 5.4 Further, the DBM and COA Joint Circular No. 99-06 dated November 13, 1999 provides the guidelines and procedures relative to the reversion of Accounts Payable, pursuant to EO No. 109 and guidelines required in the releases of funds for legitimate obligations that may arise after the reversions of APs. The Joint Circular covers all NGAs and GOCCs maintaining a General Fund and Special Account in the General Fund and shall apply to all APs of all funds, except Fiduciary Funds. The guidelines likewise provide the reversion of documented/undocumented accounts payables determined to be legitimate and outstanding for two years. 5.5 Similarly, EO No. 87 dated August 13, 2019 directs that all accounts payable which remained outstanding for two years or more in the books of NGAs be reverted to the accumulated surplus or deficit of the General Fund, or the cumulative result of operations of the National Government. Incomplete documentary requirements 5.6 Section 4(6) of PD No. 1445 requires that, [c]laims against government funds shall be supported with complete documentation. 5.7 The reported balance of P130.238 million in the Customers’ Deposits Payable account as of December 31, 2020 in the CO cannot be substantiated due to non-submission of the approved JEVs and supporting documents such as Memorandum of Agreement (MOA) or Contract of Sale, Official Receipt (OR) Number, Wire Authority, Warehouse Stocks and Issue (WSI) and liquidation report for the advance payment, details shown Table 13.

Table 13 - Breakdown of Customers’ Deposits Payables in the CO

Particulars Balance

Government Agencies/Instrumentalities P 106,022,096 Legislators 21,185,115 Private/Non-Government Entities 2,415,400 Private Individuals 615,200

Total P 130,237,811

5.8 Non-submission of the JEVs and its supporting documents was attributed to lack of coordination between the Grains Marketing and Operations Department (GMOD) and the Finance Department (FD) with regard to the execution of MOA and the issuance of rice stocks. Inquiry with the FD personnel disclosed that GMOD did not furnish the FD with the copy of MOA and other related documents to support the receipts of payment

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and the issuance of rice stocks. The absence of complete documentation supporting the receipts of payment and issuance of rice stock is not in accordance with Section 4(6) of PD No. 1445 and precluded the determination of the accuracy of the reported balance of the account. Discrepancy of P4.277 million between the balance per books and the result of confirmations 5.9 The confirmation sent to two NGAs showed variances totaling P4.277 million between the balance per NFA books of accounts and per confirmation as of December 31, 2020 shown in Table 14, thus, rendering the recorded balances doubtful, as follows:

Table 14 – Variance Between Book and Confirmed Balances

Agency Per NFA

Books Confirmed

Balance Variance

Office of the Presidential Adviser on Peace Process (OPAPP) P 7,166,250 P - P 7,166,250

DSWD - National Resource and Logistics Management Bureau (NRLMB) 45,000,000 47,889,722 (2,889,722)

Total P 52,166,250 P 47,889,722 P 4,276,528

5.10 Confirmation with the OPAPP disclosed that the amount of P6.549 million was deposited directly for the account of NFA for the bulk purchase of rice for its relief distribution activities. However, per NFA books the amount of P7.166 million was recorded as advances. The rice were fully withdrawn from NFA warehouses but the Accounting Division of NFA CO was not notified by GMOD, thus, the amount deposited was not derecognized from the books of NFA. The difference of P0.617 million will be subject for verification and reconciliation in the CY 2021 audit. 5.11 On the other hand, DSWD-NRLMB confirmed that they paid the amount of P47.890 million for their relief distribution activities. The discrepancy of P2.890 million between the records of NFA and the amount confirmed by DSWD-NRLMB was due to the amount paid to various ROs which were not reported to NFA CO. Unidentified deposits from various legislators amounting P5.00 million which remained dormant for 20 years 5.12 Customers deposits from various legislators amounting to P10.072 million, charged against the Special Allotment Release Orders (SAROs), includes unidentified deposit of P5.000 million from legislators in ROs IX and X which remained dormant for one to 20 years. The inability of the FD to identify the legislators and the recording of the related transactions without documentation are indications that reconciliation of the accounts were not regularly performed by the Field Operating Units (FOUs) and the FD. Details of the accounts are summarized in Table 15.

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Table 15 – Customers Deposits of Various Legislators

which Remained Dormant for one to 20 Years

SARO No. Transaction Year Balance

01-01381 2010 P 2,218,750 D-03-01177 2011 - 2014 192,645 D-03-01389 2001 250,000 01-04857 2001 50,000 01-05438 2001 506,980 D-04-4954 2014 275,702 D-04-00653 2014 - 2019 1,294,188 01-00020 2001 5,000,000 GMOD-IMD-2K13-L-009 GMOD-IMD-2K13-L-022 GMOD-IMD-2K13-L-023 GMOD-IMD-2K14-A-071

2013 - 2019 283,750

P 10,072,015

5.13 Review of the Subsidiary Ledgers (SLs) revealed that there are no reference JEV and OR numbers to easily identify the legislators and the actual receipt of cash. The SLs show that, the balance of the account was transferred from the previous records to the current SLs without looking into the details of the recorded transactions. 5.14 We recommended that Management:

a. Require the FD to:

i. prepare JEVs corresponding to the issuance of stocks to various

clients and submit to the Office of the Auditor all the approved JEVs and supporting documents, such as MOA, WSI, and the corresponding relevant documents from ROs/POs; and

ii. reconcile its records with that of the OPAPP and the DSWD-NRLMB;

b. Instruct the GMOD, ROs, FOUs, and the FD to coordinate regularly

regarding the receipts of payment and issuance of rice stocks to ensure the proper accounting and documentation of customers’ deposits;

c. Coordinate with ROs IX and X in identifying the legislators and the

reference SAROs. As an alternative action, obtain the necessary information from the DBM. Otherwise, return to the National Treasury all unutilized funds deposited by the legislators who are no longer in the service; and

d. Consider the applicability of the guidelines and procedures

prescribed under COA Circular No. 99-004, EO Nos. 109 and 87, and DBM and COA Joint Circular No. 99-06 on the reversion of accounts payable.

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5.15 The FD Acting Manager of CO commented that they are now in the process of gathering copies of JEVs and will forward the same to the Audit Team once completed. They also submitted liquidation reports to OPAPP and DSWD-NRLMB and will coordinate with ROs IX and X for the reconciliation of the unidentified accounts. The FD averred that the reconciliation of the account is taking time due to the difficulty in locating and retrieving the documents since these transactions occurred in CY 2001 which emanated from the FOUs. 6. The existence and correctness of the balances of Inventory Held for Consumption (IHC) account in the amount of P346.536 million could not be ascertained due to: (a) non-submission of consolidated Report on the Physical Count of Inventories (RPCI) and its reconciliation with the balance per books; (b) positive difference of P3.058 million between the balance per books and inventory report in BARMM and the negative difference of P1.968 million in CO and RO XV; (c) inventory items recorded in the books as “For Reconciliation” and “For Reclassification” in the amount of P0.667 million; (d) improper maintenance of Supply Ledger Cards (SLCs) and Stock Cards (SCs); and (e) incomplete physical inventory of supplies by some ROs/POs. 6.1 IHC account is used to recognize the cost or value of purchased/acquired office supplies, accountable and non-accountable forms, drugs and medicines, agricultural and marine supplies inventories, etc. which are used in the ordinary course of NFA operation. This account is credited for issuance to end-users, transfers, loss, or other disposal. Non-submission of consolidated RPCI and its reconciliation with the balance per books 6.2 Section 13, Chapter 8, Government Accounting Manual (GAM), Volume I, provides that the Inventory Accounting System consists of the system of monitoring, controlling and recording of acquisition and disposal of inventory. Physical count/inventory, which is required semi-annually, is an indispensable procedure for checking the integrity of property custodianship. 6.3 Section 17, Chapter 8, GAM, Volume I, requires that the RPCI shall be used to report the physical count of supplies by type of inventory as at a given date. It shows the balance of the inventory items per card and per count and shortage/overage, if any. The RPCI shall be prepared semi-annually by the Inventory Committee. 6.4 In RO XV - Caraga, the RPCI was not prepared using the prescribed format. Further, in Agusan del Sur PO, physical count was conducted on the inventories of the PO but the RPCI was not prepared because the Property/Supply Officer was not aware of RPCI preparation and its submission.

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Positive difference of P3.058 million between the balance per books and inventory report in BARMM and the negative difference of P1.968 million in the CO and RO XV - Caraga or a net positive difference of P1.090 million

6.5 Examination of the IHC account disclosed positive discrepancy of P3.058 million in BARMM and negative discrepancies of P1.968 million in NFA CO and RO XV – Caraga, as presented in Table 16.

Table 16 - Accounting Records vs. Physical Inventory Reports

Account Title Per Books

Per Inventory Report

Variance

NFA CO

Office Supplies Inventory P 846,517 P 903,065 P (56,548)

Accountable Forms Inventory 3,335,203 5,416,138 (2,080,935)

Drugs and Medicine Inventory 188,553 153,419 35,134

Fuel, Oil and Lubricants Inventory 957,081 405,993 551,088

Electrical and Materials Inventory 22,878 22,570 308

Other Supplies Inventory 402,279 416,078 (13,799)

5,752,511 7,317,263 (1,564,752)

RO XV (Caraga) - Agusan del Norte

Accountable Forms 124,107 40,188 83,919

Agriculture and Marine Supplies Inventory 4,586 492,593 (488,007)

128,693 532,781 (404,088)

BARMM

Office Supplies Inventory 688,908 54,594 634,314

Janitorial Supplies - 720 (720)

Computer Supplies - 136,250 (136,250)

Accountable Forms 179,174 59,353 119,821

Agricultural and Marine Supplies Inventory 452,251 - 452,251

Other Supplies and Materials Inventory 1,989,241 - 1,989,241

3,309,574 250,917 3,058,657

Total P 9,190,778 P 8,100,961 P 1,089,817

6.6 In the CO, considering that the physical count of the inventory was conducted on January 19, 2021, the acquisitions and transfers of IHC from January 1-19, 2021 were considered to establish the actual physical inventory as of December 31, 2020. As can be gleaned from Table 16, there are unreconciled differences between the balances per books and per inventory report resulting in net unreconciled difference of P1.565 million. 6.7 The difference is primarily brought about by the variance of P2.081 million on Accountable Forms inventory which includes accountable forms with total value of P43,750 that were damaged by a typhoon in CY 2019, but was not derecognized from the books. The difference of P2.031 million cannot be accounted for as of audit date. Also, a report and request for relief from accountability relative the damaged accountable forms was not submitted to the Auditor as required under Section 73 of PD No. 1445, viz:

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Credit for loss occurring in transit or due to casualty or force majeure. (1) When a loss of government funds or property occurs while they are in transit or the loss is caused by fire, theft, or other casualty or force majeure, the officer accountable therefor or having custody thereof shall immediately notify the Commission or the auditor concerned and, within thirty days or such longer period as the Commission or auditor may in the particular case allow, shall present his application for relief, with the available supporting evidence. Whenever warranted by the evidence credit for the loss shall be allowed. An officer who fails to comply with this requirement shall not be relieved of liability or allowed credit for any loss in the settlement of his accounts.

Inventory items recorded in the books as “For Reconciliation” and “For Reclassification” in the amount of P0.667 million 6.8 Further, there were still inventory items recorded in the books as “For Reconciliation” and “For Reclassification” totaling P0.667 million as of year-end. Based on the accounting records, there was a decrease of P0.599 million from the P1.266 million balance of the account as of CY 2019. We noted, however, that the adjustments made for the reduction of the accounts were either not supported with or lacks proper supporting documents. 6.9 IHC of NFA CO in the amount of P4.842 million was allegedly transferred to the DA as of May 26, 2021. However, there was no acknowledgment from DA of the said IHC accountabilities, thereby casting doubt on the accuracy and validity of the transfer. Improper maintenance of SLCs and SCs 6.10 Section 17, Chapter 8, GAM, Volume I, requires the preparation and maintenance of the records, forms and reports for supplies and materials. Item c thereof provides that:

Supplies Ledger Card (SLC) (Appendix 57) - shall be used to record materials received, issued and the balance both in quantity and amount at any time. It shall be maintained by the Accounting Division/Unit for each kind of supplies and materials. The IAR [Inspection and Acceptance Report], RIS [Requisition and Issue Slip], RSMI [Report of Supplies and Materials Issued], PO [Purchase Order] and DR [Delivery Receipt] serve as the original sources of information for making entries on the card.

6.11 Likewise, GAM, Volume II, lays down the various accounting books, registries, records, forms, and reports, as well as the related instructions on how to utilize and accomplish the same, including the SLC, as provided in Appendix 57 thereof, to wit:

xxx C. Transactions shall be posted promptly from source documents. D. The agency shall conduct physical count of inventories every

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semester. The semestral physical inventory of supplies shall be reconciled with the SLCs and controlling accounts and Supply and/or Property records. Any discrepancies shall be immediately verified and adjusted.

6.12 Sections 6 and 9, Chapter 8 of GAM, Volume I, provide the specific guidelines and procedures on acquisition, issue, disposal and impairment of inventory as well as the maintenance of records for supplies and materials, including semi-expendable property, as follows:

Sec. 6. Xxx. The Accounting Division/Unit shall be responsible in computing the cost of inventory on a regular basis in the Supplies Ledger Card (SLC) xxx. Xxx. Sec. 9. Xxx. [For check and balance] The system requires accounting records to show the amount of inventory on hand at all times through the maintenance of the SLC xxx by the Accounting Division/Unit and Stock Card (SC) xxx by the Supply and/or Property Division/Unit for each item in stock. [Hence, the balance in quantity per SC should always reconcile with the SLC of the Accounting Unit.] Xxx.

6.13 Section G of SOP GS-PD25 dated December 13, 2018 requires the preparation and maintenance of records, forms and reports, including, among others, Supplies and Materials Issuance Report (SMIR). Test of transactions showed that SMIRs were not attached to the JEVs in recognizing the issuance of IHC to POs/ROs. Incomplete physical inventory of supplies in RO IX 6.14 In RO IX - Zamboanga Sibugay PO, the existence of warehouse supplies and materials, pallets and tarpaulin canvass as of December 31, 2020 amounting to P1.624 million could not be ascertained due to the absence of physical inventory. Likewise, the damaged items due to wear and tear or items consumed were not properly accounted as expenses, thus, affecting the asset and equity accounts.

6.15 Due to the foregoing deficiencies noted, the existence and correctness of the balances of IHC account in the amount of P346.536 million cannot be ascertained.

6.16 We recommended that Management:

a. Require the Accounting personnel and the Property Officer to

reconcile the balances per accounting and supply records and henceforth, perform periodic reconciliation of both records and to effect the necessary adjustment in the books to come up with a reliable balance of IHC account;

b. Require the Accounting Services Department (ASD) and General

Services Department (GSD) to strictly adhere to SOP GS-PD25 for the proper documentation of IHC issued to POs/ROs;

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c. Require the Property Officer to use the format of SLC prescribed

under Section 17, Chapter 8 of GAM, Volume I, and install a sound internal control system on the preparation and maintenance of the SLC to ensure better control and monitoring of the correct inventory balances;

d. Require the submission of the incident report on the loss of the

property to support the request for relief from accountability for the damaged accountable forms;

e. Submit supporting documents pertaining to “For reconciliation” and

“For Reclassification” of IHC for proper audit of the accounts; f. Submit documents on the acknowledgment by the DA of the transfer of

IHC by the NFA; g. Require the Inventory Committee of Zamboanga Sibugay PO to

conduct complete physical count on the inventory of warehouse supplies and materials, pallets and tarpaulin canvass to establish accurately the existence of these inventory items; and

h. Require the Accounting personnel of Zamboanga Sibugay PO to

account in the books the corresponding expenses due to damaged and spoiled inventories discovered during the inventory taking.

6.17 CO Management committed to comply with the prescribed format of Section 17 of GAM, Volume 1 (Appendix 57). Likewise, they will strictly observe Section G of SOP GS-PD25 for the proper documentation of IHC. The supporting documents for the adjustment of the "For Reconciliation" and "For Reclassification" account will be submitted in CY 2021 and coordination with the DA regarding their acknowledgement for the transfer of IHC will be made. The FD-Accounting together with the Administrative and General Services Department (AGSD)-Property Office will strictly monitor/reconcile the balances per accounting and supply records. 6.18 Caraga RO informed that they have already reconciled the office supplies inventory while the unreconciled amount of the agricultural supplies had been identified. However, the accountable forms inventory has yet to be reconciled because of the frequent vacancy of the Supply Officer position due to the implementation of the Separation Incentive Program in accordance with RA No. 11203, which caused the stoppage of the inventory taking. Lastly, the Management promised to implement the audit recommendations.

6.19 Agusan del Sur PO committed to adhere to the audit recommendations, prepare and submit the RPCI, and will maintain SCs and SLCs.

6.20 Zamboanga Sibugay PO affirmed and adhered to the audit recommendations in the conduct of physical inventory and will make proper adjustments to ascertain the correctness of the balances.

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6.21 Albay PO acknowledged the audit observations and committed to gradually work back and reconcile said variances and prepare the Stock Reconciliation Statement regularly. They also committed that the write-down of inventories recognized as expense/loss in the period where actual damage is determined shall be disclosed in the Notes to FS. OTHER OBSERVATIONS 7. The procurement for 23 contracts awarded by NCR and ROs IV, VI, X and XV - Caraga with an aggregate cost of P271.964 million in CY 2020 were not in accordance with the requirements of certain provisions of RA No. 9184 and its Revised Implementing Rules and Regulations (IRR), casting doubt on the veracity of the transactions. Moreover, the late submission of the contracts within five working days from the date of execution is contrary to COA Circular No. 2009-001 and precluded the conduct of timely review/evaluation of the contracts and prompt communication of any observations noted in the course of audit. 7.1 Paragraph 3.1.2 of COA Circular No. 2009-001 dated February 12, 2009 requires the submission of the copies of, but not limited to, the following documents supporting the contract:

a. Invitation to Apply for Eligibility and to Bid; b. Letter of Intent; c. Eligibility Documents and Eligibility Data Sheet; d. Eligibility Requirements; e. Results of Eligibility Check/Screening; f. Bidding Documents (Sec. 17.1, IRR-A,RA 9184); g. Minutes of Pre-bid Conference, if applicable; h. Agenda and/or Supplemental Bid Bulletins, if any; i. Bidders Technical and Financial Proposals; j. Minutes of Bid Opening; k. Abstract of Bids; l. Post Qualification Report of Technical Working Group; m. BAC [Bids and Awards Committee] Resolution declaring winning

bidder; n. Notice of Post Qualification; o. BAC Resolution recommending approval; p. Notice of Award; q. Contract Agreement; r. Performance Security; s. Program of Work and Detailed Estimates; t. Certificate of Availability of Funds, Obligation Request; u. Notice to Proceed v. Such other documents peculiar to the contract and/or to the mode of

procurement and considered necessary in the auditorial review and in the technical evaluation thereof.

7.2 In CY 2020, the NCR RO and ROs IV, VI, X and XV - Caraga entered into a total of 23 contracts for implementation of various projects totaling P271.964 million. Details in Table 17.

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Table 17 – Contracts Procured in CY 2020

Office No. of Contracts Contract Amount

NCR RO 11 P 56,284,797 RO IV 1 176,772,102 RO VI - Negros Occidental PO 1 198,000 RO X 1 500,000 RO XV - Caraga 9 38,209,247

Total 23 P 271,964,146

7.3 Auditorial review of the contracts entered into by ROs IV, VI, X, and XV - Caraga disclosed deficiencies in the preparation of the Annual Procurement Plan (APP), conduct of post-qualification, procurement timelines, and mode of procurement, among others, as discussed in Annex A.1. 7.4 Paragraph 3.1.1 of COA Circular No. 2009-001 requires that, [w]ithin five (5) working days from the execution of a contract by the government or any of its subdivisions, agencies or instrumentalities, including government-owned and controlled corporations and their subsidiaries, a copy of said contract and each of all documents forming part thereof by reference or incorporation shall be furnished to the Auditor of the agency concerned. 7.5 In NCR RO, review and verification of documents disclosed that copies of perfected contracts entered into by the RO with various suppliers were belatedly submitted to the Auditor ranging from four days to 229 days, as shown in Annex A.2. This precluded the Auditor from conducting timely auditorial review and prompt detection/correction of possible deficiencies.

7.6 The deficiencies/lapses noted affected the timely implementation of the contract; the conduct of proper and complete review and evaluation of the same; and prompt communication of any observations noted in the course of audit. 7.7 It is noteworthy to mention that Paragraph 4.1 of COA Circular No. 2009-001 states that, [a]ny unjustified failure of the officials and employees concerned to comply with the requirements herein imposed shall be subject to the administrative disciplinary action provided in (a) Section 127 of Presidential Decree No. 1445; (b) Section 55, Title I-B, Book V of the Revised Administrative Code of 1987; and (c) Section 11 of Republic Act No. 6713.

7.8 We recommended that Management instruct the procurement offices concerned to:

a. Strictly comply with the requirements of RA No. 9184 and its Revised

IRR, specifically the preparation of APP, conduct of post-qualification, procurement timelines, and mode of procurement; and

b. Ensure that copy of the contracts and all documents forming part thereof are submitted to the Audit Team concerned within the period prescribed under COA Circular No. 2009-001.

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7.9 Management of NCR RO commented that delays in the submission of contracts were due to the prolonged lockdowns, select community quarantine and the like; the passage of RA No. 11203 which reduced the manpower of NFA; and the tedious work in the Regional BAC (RBAC) and voluminous documents being handled by the personnel concerned greatly affected their ability to comply with the submission of contracts on time. Management assured that they will do their best to comply with the requirements of COA Circular No. 2009-001 considering that they have a new set of RBAC members, Technical Working Group (TWG), and Secretariat. 7.10 Management of RO IV commented that the implementation of the uniform Terms of Reference (TOR) of all biddings conducted in the RO, as well as the computation of ABC, are scrutinized by the NFA CO. The approved budget incorporates all direct cost involved as well as related expenditures intended for the procurement of services including profits due to the winning bidder. The profit margin may vary depending on the bid as long as it is within the ABC.

7.11 Management of RO VI, Negros Occidental PO, explained that shopping was the mode adopted in the procurement of the wooden pallet boards since they were readily available in March 2020 as it is the excess order of Iloilo PO. Canvass was made in Iloilo and Bacolod City and found out that the supplier has the lowest quotation.

7.12 As audit rejoinder, with respect to NCR RO, we wish to stress that we requested the submission of the contracts even before the lockdowns and community quarantines were declared due to the COVID-19 pandemic.

7.13 We will strictly monitor the compliance with the provisions of RA No. 9184 and its RIRR, and the timely submission of the perfected contracts, together with all the supporting documents, including the detailed breakdown of estimates of the contract, for the timely conduct of auditorial, legal and technical review. 8. NFA has no specific policy to implement Rule 8.3.2 of the IRR of RA No. 11203 in the disposition of good quality rice through donation during state of calamity which may affect its buffer stocking requirement and the legitimacy of the donation. 8.1 PD No. 4, Proclaiming the Creation of the National Grains Authority and Providing Funds Therefore, as amended, granted NFA the power to sell, lease, mortgage, pledge or otherwise dispose of the property, assets or undertaking of the Authority or any part thereof as the Authority may deem fit. 8.2 Section 8, Article VIII of the NEDA, DA and DBM Joint Memorandum Circular No. 01-2019, (series of 2019) on the IRR of RA No. 11203, an Act Liberalizing the Importation, Exportation and Trading of Rice, Lifting for the Purpose the Quantitative Import Restriction on Rice and for Other Purposes, provides the following:

Rule 8.2 The NFA Council shall promulgate rules, regulations, and procedure involving the acquisition, maintenance, and distribution of buffer stocks.

Xxx

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Rule 8.3.2 The NFA shall maintain the optimal level of buffer stocks at all times, except to make releases in response to emergencies, in support of disaster relief programs of the government, or to dispose stocks, as necessary before the quality of rice deteriorates/become unacceptable/unsafe. Xxx Rule 8.7 The NFA shall engage the DSWD and LGUs in distributing the buffer stock during emergency situations. In lieu of cash subsidy for the purchase of rice, the NFA through DSWD, may distribute actual rice to intended beneficiaries in areas where it is logistically efficient to do so.

8.3 Records disclose that NFA donated good quality rice to various LGUs totaling P72.475 million in CY 2020 for distribution to the victims of calamities, details as shown in Table 18.

Table 18 – Details of the Donated Good Quality Rice to LGUs in CY 2020

Office Nature of Expenses Amount

CO Administrative expense P 20,576,638 RO II Food Security and Stabilization expense 51,898,398

Total P 72,475,036

8.4 Management invoked that the legal basis of the donations are the provisions of PD No. 4, as amended by PD No. 1485, and the IRR of RA No. 11203. 8.5 Although NFA is authorized to donate rice during calamity, verification of the database of NFA policies shows that there was no Standard Operating Procedure (SOP) in the disposition through donation of good quality rice. The existing NFA SOPs pertain only to the disposition of In-Warehouse Damaged Grain Stocks and Dockage (SOP No. GM-DS03) and Mill and Buy Scheme for Aging/Excess Palay Stocks (SOP No. GM-DS05). The absence of agency policy on the disposition of good quality rice through donation during state of calamity may affect its buffer stocking requirement and the legitimacy of the donation. 8.6 We recommended that Management consider formulating a policy on the disposal of good quality rice through donation so as to ensure the legitimacy of the donation to the victims of calamities/disasters, whether caused by fortuitous events or man-made. 8.7 Management in a letter dated June 28, 2021 informed that it is not the policy of NFA to undertake rice donation in its past years of operations. Hence, at present, there is no specific SOPs or Guidelines pertaining to the release of NFA rice, through donation, to the intended LGU beneficiaries. But with the implementation of the Rice Tariffication Law, one of NFA’s new mandates is to distribute rice during calamities. In 2020, coupled with the widespread of COVID-19 pandemic and various calamities that struck the country, it is inevitable that the Agency extended assistance through rice donations to the adversely affected LGUs.

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8.8 In the absence of SOP or guidelines on rice donations to serve as basis, the NFA Management sought the approval of the NFA Council, the highest policy-making body of NFA. The approval of the NFA Council took effect upon the issuance of a Council Resolution for the grant of such rice donation. The release of NFA stocks under this circumstance, on the other hand, follows the existing NFA rules and regulations regarding the issuance of NFA rice stocks. It is worth noting that, in the issuance of the Authority to Issue (AI) to branch office/s concerned, it was emphasized that only good quality NFA rice stocks shall be released to LGU beneficiaries to avoid negative publicity. 8.9 Management, however, highly recognized the recommendation of the Audit Team for the formulation of policy with regard to the disposition of good quality rice through rice donation. As such, this may be raised to the NFA Committee and TWG created to review and craft SOP on Marketing Operations. 9. The non-compliance with some provisions on warehouse custody, piling system, storage structure and specification, and good warehouse keeping, among others, specified in SOP No. GM-WH07, otherwise known as NFA’s warehousing policies and procedures could result in losses due to stock/grain damages/deterioration and could cause environmental and health hazards. 9.1 Proper handling and storage of palay and rice stocks are necessary to maintain and preserve their quality. For this purpose, NFA SOP No. GM-WH07 dated January 10, 1995 was issued prescribing the warehousing policies and procedures which covers, among others, warehouse custody, piling systems, storage structures, good warehouse-keeping, stock maintenance and preservation standards and warehouse safety that guides NFA personnel and workers towards an effective storage management. 9.2 Ocular inspection of the NFA warehouses conducted in CY 2020 revealed that some POs/DOs did not strictly observe certain provisions and requirements of NFA SOP No. GM-WH07, as discussed in Annex B.

9.3 We recommended that the AGSD:

a. Enjoin the Facility Management Section and personnel concerned to

strictly implement/observe the provisions of SOP No. GM-WH07; b. Facilitate the immediate repair of the warehouse defects to prevent

further warehouse deterioration and undue damage to the stocks, which could result in losses to NFA;

c. Consider the utilization of advance technologies such as CCTVs and

other structures at warehouses to monitor activities inside the warehouses; and

d. Ensure the regular fielding of the agency engineering team to conduct

inspection of all facilities to determine their physical conditions so that necessary/appropriate action/s can be immediately provided.

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9.4 Management of NFA ROs/DOs/POs commented that the observations are well-taken and findings on deficiencies will be addressed accordingly and immediately. All WSs and personnel concerned are reminded to strictly adhere to existing SOPs on good warehouse keeping. Requests for the installation of CCTVs in the warehouses are being coordinated with the CO. Management assured that all recommendations will be given attention and the deficiencies in warehouse structure/condition will be regularly addressed by undertaking continuous repairs and maintenance.

9.5 As audit rejoinder, Management’s action to implement the audit recommendations shall be monitored in CY 2021 audit. 10. The rice inventory levels in the NFA NCR and other ROs/POs were not consistently maintained resulting in way below the required level of buffer stock requirements in almost all months of CY 2020, thus, might compromise the agency’s capability to carry out its mandate of responding effectively and immediately during disaster and emergency situations.

10.1 The NFA is responsible for ensuring continuous supply of affordable and safe staple food in all areas of the country at all times, especially in times of natural calamities/emergencies. 10.2 With the passage of RA No. 11203, the regulatory powers of NFA including its importation activities were repealed. Its mandate was limited to rice buffer stocking in order to have sufficient supply of rice in times of calamity or emergency. The stocks shall be sourced solely from local farmers.

10.3 Rule 8.3 of the IRR of RA No. 11203 stipulates that, prior to the approval and adoption by NFA Council of the results and recommendations of the commissioned independent study to inform and accordingly revise the rules, regulations and procedures involving the acquisition, maintenance, and operations of buffer stocks, NFA shall adopt an optimal level of rice inventory equivalent to 15 to 30 days of national rice consumption requirements.

10.4 Under the Marketing Plan of the NFA, the Daily Consumption Requirement (DCR) of each NFA Office in every RO was determined as basis in computing the number of rice bags for the required 15-day and 30-day buffer stocks.

10.5 Verification of the Summary of Weekly Stock Receipts, Issues and Balances submitted by the WSs in NCR and other ROs/POs shows that the required buffer stocks based on each office’s DCR were not consistently maintained in CY 2020, as summarized in Table 19.

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Table 19 – Summary of Noted Deficiencies Regarding Maintenance of the Buffer Stocks

in CY 2020

NFA Office Daily Consumption Requirement (in Bags)

No. of Months with Excess

Level

No. of Months Below Stock

Level

Range of Deficit (No. of Days)

NCR NDO 266,400 (January-May) 0 12

9.021 to 28.576 days 532,800(June)

266,400 (July-December)

EDO 337,500 (January-May) 0 12 11.385 to 35.508 days 675,000(June)

337,500(July-December)

SDO 336,600 (January-May) 0 12 10.203 to 29.374 days 673,200 (June)


Batanes Provincial Unit (BPU)

1,800(January-May) 4 8 1.008 to 9.933 days 3,600 (June)


RO I Benguet 125,760 (January-June) 0 12 11 to 24 days 157,200(July)

125,760 (August-December)

Western Pangasinan

170,400(January-June) 3 8 2-25 days 426,000(July)

170,400(August-December)

Eastern Pangasinan

55,560 (January-June) 11 1

19 days

277,800 (July) 55,560 (August-December)

RO IV Infanta 22,200 (January-December) 0 12 2 days Quezon 42,000(January-December) 0 10 1.45-10.51 days

RO VII Cebu 18,940 (January-December) 0 12 11-15 days

RO XI Davao 100,500 (January-May) 0 12

10-29 days

201,000 (June) 105,000(July-December)

RO XIII Agusan Del Norte 79,800 (January-December) 0 12 5.53-13.32 days Surigao Del Norte 68,711(January-December) 0 12 16-19 days

10.6 The NDO does not have palay procurement, it just relies on the allocation/receipt of imported and local rice from other POs. However, in CY 2020, the allocation/receipt of imported local rice from other POs were not enough to compensate the increased demand for NFA rice by the LGUs and accredited retailers in the affected areas. 10.7 The NCR EDO received the amount of P10,000 Cereal Procurement Fund from the CO but it was unable to procure palay due to lack of supply in the market and/or palay offered to EDO did not meet specification requirements of NFA. Moreover, the low allocation/receipt of imported and/or local rice from other POs and the dispersals made to other ROs attributed to the low buffer stock levels of the office.

10.8 The NCR SDO experienced deficits during the year caused by significant distribution/sales to the DSWD and retailers of 254,246 bags even if there were transfer-in/dispersal to the DO of 244,673 bags. The inventory at the end of CY 2020 of 10,450 bags was still deficit by 326,150 bags.

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10.9 In Batanes PO, the inconsistencies in the inventory levels of stocks in its warehouse could be attributed to the failure of the NCR RO to meet its target dispersal operations for the PO which posted only an accomplishment of 83.33 per cent for CY 2020.

10.10 In RO I Eastern Pangasinan PO (EPPO), the NFA 2008 palay support price of P17.00 per kilogram was increased to P19.00 per kilogram for clean and dry palay. This had a great impact in the increase in the number of the farmers/cooperatives selling their produce to NFA, thus, contributed to the rice overstocking in NFA EPPO at year-end. 10.11 In RO IV, the required rice stock levels mostly in all months of CY 2020 were not maintained because the PO was unable to reach the target of 42,000 bags for the year, since the actual accomplishment of palay procurement was only 4,765.08 or 11.35 per cent of the total target. Some of the contributory factors that affected in the procurement of palay are: (a) some farmers sold their palay to private traders due to long hours of waiting to be attended by NFA; and (b) the declaration of enhanced community quarantine, which affected the procurement operations. 10.12 The inability of the POs to maintain the required buffer stock requirement as provided under the approved Annual Marketing Plan could expose the cities/ municipalities under its jurisdiction to risk of supply shortage and eventually higher prices of commercial rice in the market and also affect its capability to immediately address the rice supply and demand situation specially during times of emergencies and calamities.

10.13 Likewise, maintaining stocks way above the required quantity exposed the stocks to risk of deterioration/damage, again, to the disadvantage of the government. 10.14 We recommended that Management:

a. Strengthen the local procurement level to ensure at all times the availability of the required buffer stock levels to attain the Agency’s mandate under RA No. 11203 to immediately and effectively respond in times of calamities/disasters;

b. Formulate a more applicable plan of rice procurement and allocation

that is aligned to the buffer stocking mandate of NFA and responsive to the needs of the LGUs and other government agencies during calamities/ disasters so as to avoid overstocking/understocking; and

c. Establish a monitoring system to closely oversee the compliance of

the POs/ROs with the DCR so as to avoid understocking that could hamper the immediate and effective response in times of disaster and emergency situations.

10.15 Management of NDO commented that, for CY 2020, they solely depended on the rice allocations coming from ROs I to IV considering that NDO has no palay procurement. It is informed that they have been constantly communicating with NCR RO for the immediate transfer of local rice allocation from different ROs in order to maintain the required buffer stock levels and ensure the availability of stocks at all times so as to sustain the disaster relief program of the government during emergency situations

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brought about by natural and man-made calamities, based on NFA’s role under RA No. 11203.

10.16 Management of EDO and SDO informed that the voluminous requests from the LGUs and relief-giving institutions brought the DOs’ inventory levels below the minimum 15 days buffer for the whole year and the maximum 30 days buffer ending the month of June. Rice inventories were sourced from ROs I to IV. Inasmuch as they want to spare and transfer their excess inventories to NCR, they cannot do so since they also have to serve rice requirements of their respective LGUs affected by the community quarantine due to COVID-19 pandemic. There was also a time when milling operations were not fully maximized due to limited workforce and even transporting services were affected because of strict quarantine restrictions. In spite of these, they were able to respond to LGUs and relief institutions requests as it sourced stocks from other NCR DOs. They regularly conduct supply and demand assessment and religiously coordinate with the NCR RO and source provinces to ensure the availability of NFA rice at all times.

10.17 With regard to the replenishment of inventory in BPO, they are updated about the status and level of inventory stored in the warehouse. In CY 2020, the PO was able to respond during disasters and emergency situations even if they failed to maintain the 15-day requirement at any given time or 30-day requirement during the lean month. They promised to undertake their best effort to maintain the required level of buffer stocks and closely monitor the compliance on the said observations and recommendations.

10.18 Davao RO’s rice stocks were low due to the rice tariffication law that restricted NFA from importing rice. They averred that the supply of locally produced palay depends on the cropping season and that not all harvested palay can be procured by NFA as private traders also buy locally-produced palay. They elaborated that aside from rice importation and palay supply constraints, they also considered the storage and dispersal cost in maintaining the required buffer stocks. Nonetheless, as the need arises, intra-agency transfers of rice stocks are available from other POs within the RO. Further, Management commented that they will strengthen its local procurement to ensure availability of required buffer stocks through creating new marketing programs to encourage local farmers to sell their harvests to NFA.

10.19 Management of RO IV assured that all measures are being undertaken to ensure the availability of buffer stock to immediately respond to the rice requirements during emergencies and calamities including milling of old palay stock at the Candelaria Warehouse and the intensive palay procurement activities like UGNAYAN meeting with farmers and farmers’ organization. They are taking appropriate measures to beef up the inventory to meet the rice requirements in times of emergencies/disasters, such as: (a) massive palay procurement campaign, (b) simultaneous palay milling operations, and (c) regular communication/coordination with the RO with regard to availability of stocks for possible transfer.

10.20 Management of Cebu PO commented that the PO, being a non-procurement province, is dependent from source RO’s availability of milled rice and schedule of dispersal bases on the approved marketing plan. Management was able to respond on time to all the rice requirement of the province during emergencies/calamities occurred in CY 2020. In fact, in response to COVID-19 pandemic, the branch was able to release 146,448 bags of local rice from March 23, 2020 to December 31, 2020.

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10.21 Management of RO XIII informed that they are not following the national level because they also want to avoid stocks deterioration due to excessive stocks. Although the buffer stock was not in accordance with the mandated requirement, during the emergencies in CY 2020, the office was able to manage demands of LGUs and other government agencies that needed the rice inventories for relief operations.

10.22 As audit rejoinder, The Audit Teams will monitor the compliance with the approved buffer stock levels in CY 2021 audit. 11. The CY 2020 GAD Plan and Budget (GPB) of NFA amounting to P460.660 million was not endorsed by the Philippine Commission on Women (PCW), as required under Paragraph 8.6 of Joint Circular (JC) No. 2012-01 issued by the PCW-National Economic and Development Authority (NEDA)-DBM due to the submission to PCW of the GPB beyond the prescribed deadline and non-administration of Harmonized Gender and Development Guidelines (HGDG) to determine the actual cost of programs, activities and projects (PAPs) attributed to GAD, thus, there was no assurance that the PAPs indicated therein were aligned to the gender issues under the Philippine Plan for Gender-Responsive Development (PPGD) 1995-2025, nor were the activities conducted supportive or responsive to the gender issues of the Agency and its clients. Despite the non-endorsement of its CY 2020 GPB, NFA implemented some of the GAD PAPs costing P115.441 million equivalent to 0.001 per cent or less than the required five per cent of the approved Corporate Operating Budget (COB) for Fiscal Year (FY) 2020. It included the amount of P94.430 million for the attributed PAPs of ROs IV and XIV. 11.1 Section 1 of Executive Order (EO) No. 273 dated September 8, 1995, on the adoption of PPGD 1995-2025, referred to in the EO as Plan, directed all government agencies, department, bureaus, offices and instrumentalities to: (a) take appropriate steps to ensure the full implementation of the policies/strategies and programs/projects outlined in the Plan; and (b) institutionalize GAD efforts in government by incorporating GAD concerns as spelled out in the plan in their planning, programming, and budgeting processes. 11.2 Section 31 of the General Appropriation Act (GAA) of FY 2020 requires all agencies of the government to formulate a GAD Plan designed to address gender issues within their sectors concerned or mandate and implement the applicable provisions under RA No. 9710 or the Magna Carta of Women, Convention on the Elimination of All Forms of Discrimination Against Women, the Beijing Platform for Action, the Philippine Plan for Gender-Responsive Development (1995-2025) and the Philippine Development Plan (2017-2022).

11.3 PCW-NEDA-DBM JC No. 2012-01 prescribes the guidelines and procedures for the formulation, development, submission, implementation, monitoring and evaluation including accounting of results of agency annual GPBs and GAD Accomplishment Report (AR), relevant provisions of which are as follows:

3.5 Agency GAD Focal Point System (GFPS) xxx shall coordinate the preparation of the agency GPB and the GAD Accomplishment Report

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(AR), monitor its implementation and report on its results. Xxx. To enable them to perform their roles, it is important that the GFPS members are provided with the required gender capacity, such as the application of gender analysis tools. 4.4 Institutionalizing GAD Database/Sex-disaggregated Data. The agency shall develop or integrate in its existing database GAD information to include gender statistics and sex-disaggregated data that have been systematically produced or gathered as inputs or bases for planning, budgeting, programming, and policy formulation. 7.0 Schedule to be observed in GAD Planning and Budgeting:

i. September (2 years before budget year) - PCW issues notification letters to all line departments or central offices for the submission of their annual GPB and GAD ARs to PCW.

v. January (1 year before budget year) - Submission of reviewed

GPBs and ARs to PCW.

vii. March - Xxx central offices submit revised GPBs to PCW. PCW approves and endorses all revised GPBs and returns them to the concerned offices for submission to DBM xxx.

Xxx

8.6 PCW shall endorse agency GPBs only under the following conditions: 8.6.1 if they are reviewed by the mother or central office;

10.1 Xxx. The agency GFPS shall prepare the annual GAD AR based on the PCW-endorsed GPB xxx following the form prescribed in Annex B. Xxx

11.4 PCW Memorandum Circular (MC) No. 2019-002 dated August 1, 2019 provides the deadline of submission of encoding and submission to PCW of FY 2020 GPBs of GOCCs through the GMMS to PCW on September 30, 2019. PCW shall endorse the FY 2020 GPB if the agency complies with all the requested revisions (if any) in the GPB within the prescribed deadline. 11.5 Likewise, PCW MC No. 2021-01 dated January 20, 2021 as revised by MC No. 2021-003 dated March 15, 2021 provides the deadline for submission of the FY 2020 GAD AR and the administration of HGDG in determining actual cost/expenditure attributed to GAD, pertinent provisions are as follows:

1.0 All line departments, constitutional bodies, judicial and legislative bodies, attached agencies/bureaus, other executive offices (OEOs) and government owned-and/or controlled corporations (GOCCs) shall submit their FY 2020 GAD AR to PCW through the PCW Gender Mainstreaming Monitoring System (GMMS) on or before March 19, 2021.

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5.0 To attribute the expenditure of a major agency program/project to GAD in the FY 2020 GAD AR, agencies shall accomplish the Harmonized Gender and Development Guidelines (HGDG) Project Implementation and Management, and Monitoring and Evaluation (PIMME) checklist (HGDG Boxes 16 & 17) or the Facility Implementation, Management, and Monitoring and Evaluation (FIMME) checklist (HGDG Box F2), whichever is applicable, to assess the gender-responsiveness of the implementation of the program/project. 7. Concerned agencies shall print the final GAD AR with PCW’s

remarks and observations for signature, and submit signed copies to PCW and their respective COA Audit Team.

11.6 On the other hand, Item V of COA Circular No. 2014-001 dated March 18, 2014 requires that [t]he audited agency shall submit a copy of the of the Annual GAD Plan and Budget (GPB) to the COA Audit Team assigned to the agency within five (5) working days from the receipt of the approved plan from the PCW or their mother or central offices, as the case maybe. Likewise, a copy of the corresponding Accomplishment Report shall be furnished the said Audit Team within five (5) working days from the end of January of the succeeding year. 11.7 Records show that NFA was not able to submit its GPB for CY 2020 on September 30, 2019. Based on uploaded GPB in the GMMS on October 7, 2019. PCW facilitated the review of NFA GPB for CY 2020 despite late submission of the document and was allowed three revisions from October 28 to December 16, 2019. Although, NFA resubmitted the revised GPB on December 23, 2019, it was not endorsed by PCW to DBM for approval. The non-endorsement of PCW to DBM of the NFA GPB is an indication that NFA may not have addressed the gender issues identified under the PPGD 1995-2025. 11.8 Despite the non-endorsement by the PCW to DBM of NFA’s CY 2020 GPB, NFA implemented some of the GAD PAPs totaling P115.441 million, which is equivalent only to 0.001 percent or less than the required five per cent of the approved COB FY 2020. Based on the report of the Accounting Services Department, the GAD expenses incurred by the NFA CO and ROs amount to P115.441 million, details are summarized in Table 20.

Table 20 – Summary of GAD Expenses Incurred by NFA in CY 2020 RO/Office Reported Expenses

I P 85,938.50 II 88,573.62 III 2,325,531.96 IV 51,487,388.24 V 12,913,659.16 VI 713,817.88 VII 52,276.45 VIII 675,184.52 IX 685,471.32 X 43,087.46

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RO/Office Reported Expenses

XI 1,834,857.11 XII 1,185,570.00 XIII 45,625.50 XIV 42,942,934.87 XV 21,810.75 CO 339,354.53

Total P 115,441,081.87

11.9 In the absence of the NFA GPB duly endorsed by the PCW and non- administration of HGDG to assess the effectiveness of the GAD expenditures attributed NFA PAPs, there was no assurance that the projects and activities carried out were supportive and responsive to the gender issues of NFA and its clients. 11.10 Review of the GAD AR showed lack of GFPS awareness in the use of HGDG tool in attributing agency major programs to the GAD budget during planning stage and in determining the actual expenditure that can be attributed to the GAD budget during the preparation of the GAD AR. The NFA GAD AR for CY 2020 was not supported by neither HGDG Boxes 16 and 17 nor HGDG Box F2 to determine the actual cost/expenditure of agency’s PAPs that can be attributed to GAD which can be used as a tool in assessing the agency score on gender-responsiveness of its program/project being implemented during the year. 11.11 We recommended that Management:

a. Strictly comply with the provisions of PCW-NEDA-DBM Joint Circular

No. 2012-01 to ensure that the programs, projects and activities are aligned with GAD-related undertakings for the optimal realization of the intent of the applicable law, rules and regulations.

b. Direct the GAD focal person to:

i. Prepare the Annual GPB and submit together with the GAD AR to PCW for endorsement within the deadlines set; and

ii. Submit to the Audit Team copy of the duly endorsed GPB

within five working days from receipt thereof and GAD AR within five working days from the end of January of the following year.

c. Establish a GAD database as source of information for gender-

responsive, planning and policy formulation; d. Include in the GPB the attendance of GFPS to seminars and capacity

development trainings on GAD in order for them to be able to establish a GAD Database and know the advantage of the use of HGDG tool in budgeting and preparation of GAD AR; and

e. Attribute expenditures for GAD related activities to complete at least

five per cent of the COB.

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11.12 Management commented that the NFA GPFS submitted its CY 2020 GPB for endorsement to the PCW thru the GMMS on October 7, 2019 before the deadline of encoding/submission of the CY 2020 GPB on October 31, 2019. The draft was returned by PCW on October 28, 2019 for revision and was again returned on November 1 and December 16, 2019. The GPB dated December 23, 2019 was submitted thru the GMMS. Despite non-reply of the validator of PCW on the NFA GPB, it is to be noted that the Agency’s 2020 GPB was reviewed by PCW and the gender issues to be addressed by the Agency were also assessed to ensure that these issues align with the mandate of the Agency.

11.13 NFA’s preparation of the CY 2020 GAD AR is through the consolidation of the ARs submitted by all the ROs and Branch Offices. Likewise, the report by the CO Finance Department was also included in the consolidation of this report. This process required a longer period since the Secretariat has to wait for reports from all offices before commencing with the preparation of the GAD AR.

11.14 With the implementation of the NFA Restructuring and imposition of different quarantine levels in the country specifically the Modified Community Quarantine (MECQ) from January to May 2020, the submission of the ARs from field offices was delayed. Moreover, PCW issued MC No. 2021-01 dated January 20, 2021 which stated that the new deadline of submission/encoding in the GMMS of the 2020 GAD AR for GOCCs was moved to March 19, 2021. Hence, the 2020 GAD AR was submitted to the Audit Team on March 10, 2021, which is within the deadline of submission of GAD AR. However, the PCW GMMS was only open for one day. Management explained that, in their previous experience, the PCW allowed them to encode the GAD AR within seven days. Despite their continuous communication with the PCW validator they have yet to receive confirmation when the system will be opened for encoding.

11.15 Likewise, the HGDG was not fully utilized because there is a need for the newly instituted GFPS and TWG to be orientated on its functions and use. The previous members of the GFPS and TWG had retired from government service because of the implementation of the NFA Restructuring.

11.16 As the NFA had submitted its CY 2020 GAD GPB for review by PCW, the PAPs that were identified are supportive and responsive to the gender issues of NFA and its clients. Moreover, despite the quarantine restrictions due to COVID-19 pandemic, NFA CO and field offices still strived to continue with its GAD activities within the allowed restrictions imposed by the IATF.

11.17 The Human Resource Information System (HURIS) functions not only as its employee database but also as its sex-disaggregated database. The information gathered from this database is used for planning NFA-GAD’s PAPs.

11.18 Management committed to strictly adhere to the provisions of PCW-NEDA-DBM JC No. 2012-01, which ensures that the identified PAPs address the gender issues.

11.19 As audit rejoinder, we maintain that the non-endorsement of the NFA GPB for CY 2020 by PCW to the DBM is attributed to the submission/uploading of the agency’s GPB beyond the September 30, 2019 deadline set by PCW. It is worthy to mention that NFA is not among the pilot agencies enumerated in PCW MC No. 2019-002 required to submit on October 31, 2019 the GPB for CY 2020 using the GMMS Version 3 platform.

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COMPLIANCE WITH TAX LAWS

12. NFA properly withheld the required Percentage/Final, Expanded Withholding and Value Added Taxes from the purchase of goods and services and taxes on compensation income from salaries of officials and employees. The total taxes withheld amounting to P420.632 million were remitted to the Bureau of Internal Revenue within the prescribed period, thereby contributed to the National Government to collect funds needed for its operations (Note 18.1). COMPLIANCE WITH RA NO. 8291, GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS) LAW 13. NFA substantially complied with Section 14.1 of the IRR of RA No. 8291, which provides that each government agency shall remit directly to the GSIS the employees’ and government agency’s contributions within the first 10 days of the calendar month following the month to which the contributions apply. The summary of remittances of employees’ premium contributions and employer’s premium contributions for CY 2020 is shown below:

Withheld Remitted Balance

Life and retirement premiums, employees share P 116,219,628 P 112,927,742 P 3,291,886 Government share – 154,789,169 –

Total P 116,219,628 P 267,716,911 P 3,291,886

13.1 The difference of P3.292 million between the amount withheld and remitted corresponding to the Life and Retirement premiums for the month of December 2020 was remitted on January 10, 2021. COMPLIANCE WITH RA NO. 10606, NATIONAL INSURANCE ACT (PHILHEALTH) 14. NFA considerably complied with the requirements of RA No. 10606 in deducting and remitting the PhilHealth premium payments of the officials and employees to the Philippine Health Insurance Corporation. In compliance with PhilHealth Circular No. 2019-0009 a new table for contribution was implemented increasing the monthly premium from a minimum of P300 to a maximum of P1,800 for CY 2020, as follows:

Monthly Basic Salary Premium Rate Monthly Premium

P10,000.00 3 per cent P300.00 P10,000.01 to P59,999.99 P300.00 to P1,800.00 P60,000.00 P1,800.00

COMPLIANCE WITH RA NO. 9679 (PAG-IBIG) 15. In accordance with the requirements of RA No. 9679, NFA properly deducted the Pag-IBIG fund contribution and payment of loans from the salaries of the officials and employees. As of December 31, 2020, a total of P421,727 employees’ premiums and other payables were unremitted to the Home Mutual Development Fund, details as follows:

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Particulars Amount

Premium 311,473 Multi-purpose loan 74,998 Modified 2 premium savings 24,600 Real estate loan 5,352 Calamity loan 4,805 Provident loan 499

421,727

UNSETTLED AUDIT SUSPENSIONS, DISALLOWANCES AND CHARGES 16. As of December 31, 2020, the total unsettled audit suspensions, disallowances and charges amounts to P216.287 million, as follows:

Beginning Balance

Adjustment Adjusted

Beginning Balance

Issuance Settlement

Ending Balance

Suspensions P 104,778,317 P - P 104,778,317 P 5,509,535 P 99,134,761 P 11,153,091 Disallowances 200,423,162 5,919,566 206,342,728 1,791,679 5,682,610 202,451,797 Charges 1,769,702 912,000 2,681,702 – – 2,681,702

P 306,971,181 P 6,831,566 P 313,802,747 P 7,301,214 P 104,817,371 P 216,286,590

16.1 The status of the audit disallowances is as follows:

Status Amount

With Appeal/Unsettled P 135,371,335 With Corporate Government Sector Decision 52,817,905 With Notice of Finality of Decision 11,332,637 With COA Order of Execution 2,929,920

P 202,451,797

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PART III - STATUS OF IMPLEMENTATION OF PRIOR YEARS’ AUDIT RECOMMENDATIONS

Of the 194 audit recommendations embodied in the Calendar Year (CY) 2019 and prior years’ Annual Audit Reports (AARs), eight were fully implemented while eight were no longer doable, hence, deleted from this Status. Three recommendations which were reiterations of prior years’ recommendations were also excluded from this Status. Lastly, 150 recommendations were partially implemented; seven were not implemented; and 18 were revised and reformulated to be more specific, doable and measurable as follows:

Observations and Recommendations Actions Taken/Comments

CY 2019 AAR 1. The presentation of the Financial Statements (FS) and the accompanying Notes of the NFA are still not fully compliant with the disclosure requirements of the International Public Sector Accounting Standards (IPSAS), among others, IPSAS 1 on Presentation of FS thus, the presentation of the FS and the accompanying Notes did not adequately provide the users of the FS with relevant information in understanding the NFA’s financial status.

We recommended that Management instruct the Accountant to comply with the disclosure requirements of the pertinent IPSAS provisions to have fair presentation of the account balances in the FS.

Partially implemented

2. Non-reversal of temporary entries for unreconciled items and errors in combination resulted in the discrepancies amounting to P194.224 million, P234.986 million and P40.762 million in the balances of the Assets, Liabilities and Government Equity accounts, respectively, between the balances of the accounts presented in the Statements of Financial Position from the combined Trial Balances (TBs) of the NFA Regional Offices (ROs) and Central Office (CO) and the totals of the accounts in the individual TB of the NFA ROs and CO, thus, affecting the fair presentation of the affected accounts.

We recommended that Management require the National Accountant to


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meticulously reconcile the variances between the FS and the Combined TBs per RO, and prepare adjusting entries accordingly to come up with reliable balances of the accounts presented in the financial statements.

The variances were eliminated. However, no supporting Journal Entry Vouchers (JEVs) or other documents were submitted by the Management to substantiate the full reconciliation.

3. Unreconciled variance of P72.728 million between book balance and results of physical inventory count; improvements to land, buildings and other structures made to undocumented property of the NFA - National Capital Region (NCR) RO totaling P10.956 million; non-classification of parcels of land intended for divestment as Investment Property account in two Provincial Offices (POs); and non-conduct/incomplete annual physical inventory, among others, affected the reliability and existence of the Property, Plant, and Equipment (PPE) account with carrying amount of P 2.234 billion. We recommended that Management require the Accounting Services Department (ASD) and General Services Department (GSD) of CO and ROs/POs to:

a. Conduct a thorough verification and reconciliation of the property and accounting records on a regular basis to determine the other cause/s of discrepancies so that necessary corrections/adjustments can be affected in both records to arrive at the correct/reconciled balances;

Revised and reformulated under Part II – Observations and Recommendations No. 3 of this Report

b. Secure documents to prove ownership of the “donated” land to protect the rights/ownership of the NFA-NCR to the improvements made to land, buildings and structures;

Not implemented

c. Determine and address the causes of non-conduct/incomplete conduct of annual physical inventory. Direct the Inventory Committee to regularly conduct annual physical count of all the PPE owned by the agency and prepare the


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Report on the Physical Count of PPE without delay and submit a copy to the Office of the Auditor; d. Require Property Officers and the Accounting Units to maintain in standard format the Property Cards and PPE Ledger Cards, respectively, and conduct the periodic reconciliation of their records to avoid misstatement or incorrect balances of the PPE accounts;


e. Require the Inventory Committee to tag all the properties for easier identification;


f. Ensure that all inventoriable assets are assigned with property numbers and included in the inventory report to safeguard agency’s assets;


g. Require that all movements/transfers of PPE from one Accountable Officer to another be reported to the Property/Supply Officer so that he can immediately update the physical inventory reports in order; and


h. Prepare the necessary adjusting entries for the PPE sub-accounts that have negative balances.


4. Non-conduct of physical inventory count on inventories of P18.839 million; the variance of P8.038 million and 13,280 pcs. of accountable forms between accounting and supply records; and non-maintenance of adequate/updated records/non-preparation of reports affected the reliability and existence of the Inventories Held for Consumption account of P324.453 million. We recommended that Management require the:

a. ASD and General Services Department (GSD) to reconcile balances per accounting and supply records and henceforth, perform periodic reconciliation


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of both records and to effect the necessary adjustment in the books in order to come up with a reliable balance of the Inventories Held for Consumption account; and b. Regional and Provincial Managers concerned to:

b.1 Require the Inventory Committee to conduct physical count on inventories, submit the Report on the Physical Count of Inventories and reconcile the inventory report with the accounting and property records;


b.2 Require the Accounting Unit to maintain/update the Supply Ledger Cards and the Property Unit to maintain Stock Cards to ensure check and balance and better control and monitoring of the inventories; and


b.3 Turn over the custody of the agricultural supplies inventories to the GSD to ensure sound internal control as regards consumption/usage and issuance of the same.

Not implemented

5. The maintenance and utilization of the Cereal Procurement Fund (CPF) in 12 POs such as: (a) underutilization of CPF and non-remittance of the unutilized CPF to the NFA-CO - P101.668 million; (b) incomplete documentation for CPF replenishment- P94.231 million; and (c) use of CPF for purposes other than palay procurement- P300,000 could hamper the agency’s palay procurement activities and cause the management to fall short in achieving its objective of maintaining the required buffer stocks that will be used during disasters/calamities. We recommended that Management:

a. Require the Provincial Managers concerned to instruct their Senior Accounting Specialist to strictly assess the completeness of the supporting


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documents submitted by the Special Disbursing Officers pertaining to the replenishment of cash advances for the procurement of palay to facilitate the verification of information and the determination of the validity and propriety of payments; b. Formulate more realizable estimates for budget requests based on duly assessed provincial procurement target to utilize CPF effectively and efficiently and be able to attain the required buffer stock needed for food security. In addition, intensify the procurement activities by encouraging farmer participation through information dissemination before the start of main crop season and deploying more procurement teams in the areas where harvesting season is on-going; and


c. Return to NFA CO the unutilized CPF at the end of the procurement season/year in accord with the provisions of NFA Standard Operating Procedure (SOP) No. GM-PR33 and the directive issued by the NFA – Budget, Treasury and Fund Management Department Manager on December 19, 2019 which was communicated by the Regional Manager thru a wire message to all Provincial Managers on December 20, 2019.


6. The rice inventory levels in NFA-NCR and other POs from January to December 2019 were not consistently maintained resulting in way above or below the mandated buffer stock requirements of 15 days in each month and 30 days in July resulting in excess stocks that exposed a larger quantity of undistributed stocks stored longer than necessary to risk of deterioration/damage which could result in losses and increase in storage/maintenance cost. On the other hand, the rice inventory below the mandated buffer stock could compromise its capability to effectively and immediately respond in times of disaster

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and emergency situations. We recommended that Management: a. Strengthen the local procurement level to ensure at all times the availability of the required buffer stock levels to attain its mandate under Republic Act (RA) No. 11203 of 2019, The Rice Tariffication Law, to respond to the rice requirements during calamities;


b. Formulate a more applicable plan of rice procurement and allocation that is aligned with the mandate of NFA, specifically on buffer stocks and at the same time responsive to the needs/preferences and buying capacity of majority of the rice consumers to avoid the occurrence of excess stocks over buffer requirement;


c. Ensure that warehousing policies and procedures are strictly observed to avoid damage/deterioration of stocks and eventual losses and higher maintenance costs to NFA; and


d. Dispose/disperse stocks immediately to other NFA POs needing the same.


7. Non-compliance with some provisions of the NFA’s warehousing policies and procedures on warehouse custody, piling system, storage structure and specification, and good warehouse-keeping could result in losses due to stock/grain damages and deterioration as well as cause environmental and health hazards. We recommended that Management:

a. Address the deficiencies noted on warehouse custody, piling system, storage structure and specifications and warehouse keeping and henceforth, strictly comply with the provisions of NFA SOP No. GM-WH07;


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b. Ensure that the agency engineering team be regularly fielded to conduct inspection of all facilities for early detection of their physical conditions so that the necessary action can be immediately provided;


c. Facilitate the immediate repair of the warehouse defects particularly the cracks on the floors, leaks and holes on the roofs, to prevent further warehouse deterioration and damage to the stocks, which could result in losses to NFA; and


d. Consider the utilization of advance technologies such as Closed-Circuit Televisions at all NFA warehouses to monitor the activities inside the warehouse.


8. The CY 2019 Gender and Development (GAD) Plan and Budget (GPB) of NFA amounting to P460.734 million was not endorsed by the Philippine Commission on Women (PCW), as required under Item 8.6 of Joint Circular (JC) No. 2012-01 issued by the PCW-National Economic and Development Authority (NEDA)-Department of Budget and Management (DBM), due to the submission to PCW of the GPB beyond the prescribed deadline. Thus, there was no assurance that the programs, activities and projects (PAPs) indicated therein were aligned with the gender issues under the Philippine Plan for Gender-Responsive Development (PPGD), 1995-2025. Despite the non-endorsement of its CY 2019 GPB, NFA carried out some of the GAD PAPs costing P94.230 million. Moreover, NFA had no fully established GAD database/sex-disaggregated data. In the absence of CY 2019 GPB duly endorsed by PCW and a fully established GAD database/sex-disaggregated data, there is no assurance that the activities conducted were responsive to the gender issues of the Agency and its clients and

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reflective of the current gender related issues. We recommended that Management: a. Strictly comply with the provisions of PCW-NEDA-DBM JC No. 2012-01 to ensure that the programs, projects and activities are aligned with GAD-related undertakings for the optimal realization of the intent of the applicable law, rules and regulations.


b. Direct the GAD focal person to:

b.1 Prepare the Annual GPB and submit together with the GAD Accomplishment Report (AR) to PCW for endorsement within the deadlines set; and


b.2 Submit to the Audit Team copy of the duly endorsed GPB within five working days from receipts thereof and GAD AR within five working days from the end of January of the following year.


c. Establish a GAD Database as the source of information for gender-responsive, planning and policy formulation; and


d. Include in the GPB the attendance of GAD Focal Point System to seminars and capacity development trainings on GAD in order for them to be able to establish a GAD Database and know the advantage of the use of Harmonized Gender and Development Guidelines tool in budgeting and preparation of GAD AR.


CY 2018 AAR 9. The presentation of the Financial Statements (FS) and the accompanying Notes of the NFA are not fully compliant with the disclosure requirements of the International Philippine Public Sector Accounting Standards (IPSAS), among others, IPSAS 1 on Presentation of FS

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and IPSAS 33 on the First Time Adoption of Accrual Basis IPSAS, thus, the presentation of the FS and the accompanying Notes did not adequately provide the users of the FS with relevant information in understanding the NFA’s financial position, performance, and cash flows. We recommended that Management require the National Accountant to submit the documents or Journal Entry Vouchers to support and/or substantiate the effect of the transition to IPSAS to verify the reliability and/or correctness of the adjustments.

Partially implemented The Management has submitted Journal Entry Vouchers (JEVs) to support and/or substantiate the effect of transition. However, the entries were not effected in the FS. In addition, the JEVS submitted have no supporting documents to substantiate the entries made.

10. The balances of the Assets, Liabilities, and Government Equity accounts presented in the Statements of Financial Position from the combined Trial Balances (TBs) of the NFA Regional Offices (ROs) and Central Office (CO), differed by P754.516 million, P543.101 million and P211.415 million, respectively, against the totals of the accounts in the individual TB of the NFA ROs and CO, thus, affecting the fair presentation of the affected accounts.

We recommended that Management require the National Accountant to account for the causes of the abnormal balances and thereafter, prepare adjusting entries.

Partially implemented The Management was able to identify some of the causes of the abnormal balances. Entries were also affected However, there are still remaining unreconciled and abnormal balances appearing in the accounts. Thus, the Management was not able to fully account the root causes of the abnormal and/or unreconciled balances.

11. The reliability and existence of the PPE account with carrying amount of P2.069 billion could not be established due to, among others: (a) unreconciled variance of P122.668 million between the book balance and the physical inventory count; (b) discrepancy of P1.931 million in

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the Construction in Progress account balance with Electronic National Government Accounting System (eNGAS) and balance with FS due to the transfer/reclassification of the amount to another account without preparation and posting of the journal entry in the books; (c) unrecorded/undocumented parcels of land; (d) non-reclassification of three parcels of land in NCR-North District Office (NDO) intended for divestment to Investment Property account; and (e) non-conduct of annual physical inventory. We recommended that Management require the Accounting Services Department (ASD) and Property Division of CO and ROs/POs to: a. Create an appraisal committee to come up with the appraised value of the parcels of land owned by NFA based on its classification whether commercial, industrial or residential lot to reflect the correct valuation of the properties; and

Partially implemented Appraisal committee has been created. However, appraised value of the parcels of land owned by NFA has not been determined to date.

b. Record the motor vehicle in the books of NCR, transfer its registration in the name of NFA-NCR, and insure it with the Government Service Insurance System.

Partially implemented NFA-NCR is still in coordination with NFA-Central District Office.

12. An aggregate amount of P501.928 million investments did not reconcile with confirmed balances, were without supporting documents and no longer existing in the books of the investees as at December 31, 2018 due to the inability of the Management to strictly monitor its investments, thereby adversely affecting the reliability of the year-end balance of Non-Current Financial Assets account. We recommended that Management require the ASD to:

a. Vigorously coordinate with the Asset Privatization Trust, Bureau of the Treasury (BTr), and Department of Agriculture (DA) for the return of NFA’s

Partially implemented Management performed the coordination with DA. However, no documents were

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investment in Gasifier and Equipment Manufacturing Corporation (GEMCOR);

retrieved pertaining to the investment in GEMCOR.

b. Coordinate with Food Terminal, Inc. (FTI), Manila Electric Company (MERALCO) and Development Bank of the Philippines (DBP) for the reconciliation of the Investment account balances; and

Partially implemented Management performed the coordination with FTI. Correcting entry was already made for MERALCO account last 2018. Reconciliation for FTI and MERALCO on-going.

c. For Philippine Long Distance Telephone Co., Kutowato, Capitol City Sports and Country Club, DBP-Trust, and NFA-Employees Association, exert utmost efforts to retrieve/obtain documents to support the balances presented in the books, and to reconcile with the investees the difference between the book and confirmed balances.

Partially implemented Per inquiry with the ASD, Management will prepare request to the COA to derecognize these accounts since NFA has no available documents to present to the investee in order to redeem the investment.

13. The reliability and existence of the Inventory Held for Consumption and Semi-Expendable Property accounts of P297.749 million and P16.736 million, respectively, or totaling P314.485 million could not be ascertained due to among others: (a) discrepancy of P24.013 million between accounting and supply records; (b) inexistent items totaling P10.043 million (c) non-conduct/incomplete physical count; and (d) non-maintenance of adequate records/non-preparation of reports.

We recommended that Management require the concerned Regional and Provincial Managers to make the accountable officers liable for the missing and non-existent inventories and semi-expendable properties.

Partially implemented There is on-going reconciliation at NFA-Cavite Provincial Office (CPO) and South District Office between their Accounting and Property Sections’ records to arrive at the correct balances.

14. The reliability of the Inter-Agency Payables - Due to the National Treasury account balance of P46.019 billion as at December 31, 2018 is uncertain due to the dormant accounts and abnormal/negative balance of P54.983

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million and P1.616 million, respectively, and the absence of necessary supporting documents to substantiate the account balance. The huge amount of guarantee fee of P3.354 billion or 40.06 percent of the total guarantee fee of P8.374 billion remained outstanding for over five years. On the other hand, Interest Payable – Net Lending account significantly increased by P1.232 billion or 98.40 per cent of the total increase in Interest Payable of P1.252 billion coupled with unsettled interests on advances made to NFA by the BTr of P2.290 billion or 65.02 percent of the total interest payable of P3.522 billion for over one year to over three years, indicated the inability of NFA to manage its obligations. We recommended that Management: a. Coordinate and confirm with the BTr for the establishment of the correct amount of NFA obligations so that necessary adjusting entries can be made; and

Partially implemented Accountants are regularly reminded to fast track reconciliation of the accounts.

b. Settle outstanding advances, including the interest and guarantee fees.

Partially implemented Accountants are regularly reminded to fast track reconciliation of the accounts. The NFA Council requested DBM for conversion of outstanding BTr advances and interest amounting to P40.652 billion into subsidy through Council Resolution No. 936-2019 F dated June 19, 2019. DBM already issued Special Allotment Release Order No. BMB-C-20-0011670 dated June 15, 2020 in the amount of P30.650 billion which was sourced from the Unprogrammed Appropriation – Budgetary Support to Government Corporations under Fiscal Year 2020 General Appropriations Act.

15. The Intra-agency Receivables and Intra-agency Payables accounts presented in the Statements of Financial Position with significant balances

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amounting to P300.177 billion and P300.175 billion, respectively, were not eliminated at year-end due to non-reconciliation of accounts; thus, bloating the total assets from P13.681 billion to P313.858 billion or 2,194.09 per cent and total liabilities from P162.047 billion to P462.222 billion or 185.24 per cent, thereby, providing misleading information to the users of the financial statements. We recommended that Management: a. Direct the concerned Accountants to prioritize the reconciliation of Intra-agency accounts in order to have reliable balances and strictly monitor compliance with NFA Standard Operating Procedure (SOP) No. FS-GP13, with emphasis on the regular preparation of schedule of inter-branch transactions and Monthly Reconciliation Statement to identify variances, if any, within the reporting period and immediately coordinate with other offices to resolve the differences and prepare the necessary adjustments;

Partially implemented There are still noted variances. While a nationwide reconciliation of intra-agency transactions was conducted, there were JEVS drawn to support adjustments made, which were not supported with valid and complete documents.

b. Ensure that policies and guidelines on inter-branch transactions are strictly observed, especially the sanctions provided in NFA SOP No. FS-GP13 as deterrent to the accumulation of variances;

Partially implemented Management coordinated with concerned offices through phone calls to expedite the process. In NFA-NCR, regular preparation of Monthly Schedule of Interbranch transactions is undertaken.

c. Consider the applicability of COA Circular No. 2016-005 dated December 19, 2016 on the guidelines and procedures on the write-off of dormant accounts; and

Partially implemented Request for write off will be done upon completion of all the necessary documents. Management is exerting best effort to retrieve documents.

d. Consider the conduct of a nation-wide reconciliation of the Intra-Agency Receivables and Intra-Agency Payables accounts by all the Accountants of CO, ROs and POs/OUs in order to confirm and verify the existence and balances of

Partially implemented A nationwide reconciliation of Intra-Agency Receivables and Intra-Agency Payables accounts was conducted However, variances were still noted.

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the accounts.

Coordination with NFA-CO and other ROs thru memos is being made to facilitate reconciliation of Home Office Clearing Account accounts.

16. The provision for the money value of the earned leave credits of NFA officials and employees for CY 2018 and prior years was not recognized in the books as required in Paragraph 22 of IPSAS 19, thus the Liabilities and Accumulated Surplus/(Deficit) accounts presented in the financial statements do not faithfully represent the obligation of NFA for estimated leave benefits of its officials and employees amounting to P44.344 million as at December 31, 2018. We recommended that Management require the:

a. Human Resource Management Department to regularly update the leave balances of NFA officials and employees in CO and ROs to come up with reasonable estimate of the amount of provision for the Leave Benefits Payable at any reporting period; and

Partially implemented RO I has fully implemented the recommendation while other Regions are still updating their Subsidiary Ledgers.

b. ASD to verify the balance and compute for the money value of earned leave credits and prepare the necessary journal entries to recognize the liability and expenses for CY 2018 and prior years.

Partially implemented Monthly updating of SL and schedules are being prepared while RO I has fully implemented the said recommendation.

17. The rice inventory levels in NFA-NCR and other POs in almost all months of CY 2018 were way below the required level of buffer stocks of 15 days in each month and 30 days in July during the year. Hence, NFA was exposed to rice supply shortages and higher prices of commercial rice in the market, thereby, affecting its ability to achieve its mandate of providing stable supply and prices at all times and could compromise its capability to effectively and immediately respond in times of disaster and emergency

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situations. We recommended that Management strengthen the local procurement level to ensure at all times the availability of the required buffer stock levels to attain the mandate under Republic Act No. 11203, the Rice Tariffication Law, to respond to the rice requirements during calamities.

Revised and reformulated under Part II – Observations and Recommendations No. 11 of this Report.

18. The inability to undertake the necessary legal actions on shortages of Stock Accountable Officers (SAOs) by NFA Management as required in NFA existing policies and guidelines resulted in the accumulation of the stock shortages to P2.931 billion, that includes P0.960 billion pertaining to SAOs who were no longer connected with NFA. In addition, there are shortages amounting to P1.669 billion without computation of final Tolerable Allowance (TOLA) due to missing/ incomplete warehouse/stock reports and the absence of prescribed time frame to complete stock examination in NFA policy on stock examination and TOLA computation. Hence, the final amount of shortages for collection could not be determined, thus, depriving NFA on the use of uncollected shortages to finance its programs and operations. We recommended that Management:

a. Require the Legal Affairs Department (LAD) of the Central Office to fast track the resolutions of the cases filed against SAOs; enforce collection of their shortages; and for SAOs no longer connected with NFA, continuously send demand letters to their last known addresses and follow up cases filed at the Ombudsman;

Partially implemented The Management continued the policy of “No filing of Motion to Reset Hearing”, and that witnesses are available on the day of their presentation in court. Documents pertaining to SAO Shortages were not available in certain field offices. In coordination with NFA-LAD on the status of the cases and possible courses of actions to be taken to enforce collection.

b. Instruct the DOs/POs to exert utmost efforts to enforce/hasten the collection of


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the final shortages of SAOs still connected with NFA; and

The Management is continuing its implementation and close monitoring of Compromise Agreement and encourages submission of reasonable terms of offer. However, terms of offer of SAO may not be acceptable to the Compromise Agreement – Technical Working Group (CA-TWG).

c. Revisit SOP No. GM-WH13 and prescribe appropriate timeframe so that the final shortages could be established within a reasonable period and immediate collection of shortages could be facilitated.

Partially implemented As a result of the compromise agreements of the SAOs in paying their shortages, NFA-NCR has collected P0.823 million in CY 2018. The Office will be coordinating with the LAD at NFA-CO for the possible collection of the receivables from SAOs who are no longer connected with NFA and who are already deceased.

19. The completion of the contract amounting to P5.041 million for the Construction of NFA Records Center Extension Building was delayed due to unwarranted issuance of suspension order equivalent to 55 calendar days and additional delay of 294 calendar days. The Certificate of Completion was already issued and the retention money was released to the contractor, although the construction defects were not rectified by the contractor, thus depriving the Agency of the intended use of the project. Moreover, the delay due to unwarranted issuance of suspension order and additional delay resulted in imposable liquidated damages amounting to P66,861 which was not deducted from the final payment to the contractor. We recommended that the Management:

a. Direct the Legal Affairs Department and the Internal Audit Service Department to:

a.1 File appropriate charges against NFA personnel who issued Certificate of Completion and release the

Not implemented No appropriate charges filed against NFA

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retention money despite the defects to be rectified by the contractor; and

officials responsible in the release of retention money. While defects noted such as leak on the rooftop slab have been rectified by the contractor, defective smoke detectors were not replaced.

a.2 Demand the contractor to correct all the defects noted at no extra cost to NFA or file appropriate charges for non-completion of the contract in a proper and workmanlike manner.

Not implemented

20. Some provisions of the NFA’s warehousing policies and procedures on warehouse custody, piling system, storage structure and specification, and good warehouse-keeping were not strictly observed at NFA warehouses which could result in environmental and health hazards and losses due to grain damage/ deterioration and theft/pilferage of stocks.

We recommended that Management ensure that Warehouse Supervisor shall be assigned to one warehouse only to enable him to fully exercise the diligence of a good father of a family in the custody of warehousing.

Partially implemented A memorandum will again be issued to all warehouse personnel for the fundamental standards on Stock Quality Maintenance/ Good Warehouse Keeping.

21. The delayed and inadequate response and/or action of NFA-CO during the recent 6.1 magnitude earthquake that struck large portions of Central Luzon manifested the lack of an established Disaster Preparedness, and Disaster Mitigation and Awareness dissemination contrary to the goals and objective of R.A. No. 10121, otherwise known as the Philippine Disaster Risk Reduction and Management (DRRM) Act of 2010”. Furthermore, the obsolescence of the NFA Disaster Preparedness Manual and SOP No. SP-OT01 adversely affected the NFA’s operations as a whole, and its mandate to immediately respond to calamities and disaster. We recommended that Management:

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a. Update the existing Disaster Risk Reduction Management Plan (DRRMP) and SOP No. SP-OT01 to align with the requirements under R.A. No. 10121; and


b. Thoroughly disseminate the updated DRRMP and SOP No. SP-OT01 to all levels of organization and require them their respective DRRMP.


2017 AAR

22. The reliability of the year-end balances of the Cash In Bank (CIB) – Local Currency and Foreign Currency accounts totaling P1.230 billion included in the Cash and Cash Equivalents account of P1.242 billion could not be ascertained due to, among others: (a) non-submission for audit purposes of the documents to substantiate the fund transfers made by NFA-HO to NFA ROs and Operating Units (OUs) in the total amount of P4.303 billion for the General Operating Fund (GOF) and Cereal Procurement Fund (CPF); and (b) lack of supporting documents to monthly fund transfers of collections from sale of imported rice totaling P1.716 billion made through automatic and electronic sweeping. In addition, CIB account was maintained with unauthorized depository bank, contrary to Section 5.2 of Department of Finance (DOF) - Department Circular (DC) No. 001-2015 dated June 1, 2015. We recommended that Management:

a. Require the Accountants to support the Journal Entry Vouchers (JEVs) with documents showing from whose retailers’ accounts the transfers of funds to the NFA-CO accounts were made and that the transfers were reconciled with the monthly collections of particular retailers; and

Partially implemented Continuous monitoring is undertaken. A schedule of daily deposit and remittance to NFA–Central Office based on the Bank Statements is submitted as documentary support on the transfer of funds.

b. Cause the transfer of bank balances maintained in unauthorized depository


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bank to Authorized Government Depository Banks (AGDBs) pursuant to DOF-DC No. 001-2015 dated June 1, 2015.

As of Dec. 31, 2020, NFA - Central Office still maintained bank accounts with PNB – CA for payroll GOF and NFA legal cases.

23. Recognition of the Tax Expenditure Subsidy (TES) for CY 2017 in the absence of a Special Allotment Release Order (SARO) from the Department of Budget and Management (DBM) was not in accordance with DOF-DBM Joint Circular No. 1 dated April 30, 2014 and PPSAS 23, on Revenue from Non-Exchange Transaction, thereby resulting in the overstatement of Subsidy Income from National Government and Inter-agency Receivables - Due from National Government Agencies accounts in the amount of P1.782 billion and affecting the fair presentation of the said accounts in the financial statements as at December 31, 2017.

We recommended that Management instruct the NFA HO-ASD to make the necessary amendment of the pro-forma accounting entries in NFA SOP No. FS-FA14 dated December 6, 2016, on the Implementing Guidelines on the Accounting, Recognition of Customs Duties as Tax Subsidy on Rice Importation.

Partially implemented The NFA SOP has not been revised. Moreover, HO-ASD has not made any adjustments to properly take up TES in the books of accounts for CY 2017.

24. The existing Inventory Accounting System for supplies and materials and semi-expendable property as provided under NFA SOP No. GS-PD16 dated April 1, 1999 was not strictly implemented in view of various deficiencies, among others: (a) unreliable/ inaccurate records; (b) poor maintenance of Stock Cards; (c) incomplete/non-conduct of physical inventory by some ROs/POs; and (d) non-compliance with the use of the prescribed Report on the Physical Count of Inventories form; thus, the existence and correctness of the balances of Inventory Held for Consumption and Semi-expendables Machinery and Equipment accounts of P342.138 million and

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P17.651 million, respectively, or totaling P359.789 million could not be ascertained. Moreover, there is a disparity amounting to P4.198 million in the NFA - HO Inventories Held for Consumption and Semi-expendable Machinery and Equipment accounts between the reported year-end balance in the books of P18.062 million and actual physical inventory of P13.864 million that could not be verified due to the afore-mentioned deficiencies. We recommended that Management: a. Manage and/or maintain necessary volume of supplies and materials inventory for stock and issue by applying the average consumption based on the historical data of the Agency; and

Partially implemented It has been noted that some supplies and materials are sometimes out of stock.

b. Properly communicate the process adopted by NFA-HO to the FOs with regard to the requisition and issue of Inventory Held for Consumption and Semi-Expendable Machinery and Equipment, to have a holistic approach for the entire Agency.

Partially implemented Management informed that the process adopted by NFA-HO had been communicated to FOs.

25. The existence of dormant/non-moving accounts for 20 to 32 years totaling P600.619 million and absence of necessary supporting documents rendered the Financial Liabilities-Payables-Loans Payable-Domestic account year-end balance of P82.122 billion unreliable. Further, recorded payments for the foreign loans amounting to P722.974 million for principal and P323.174 million for interest cannot be validated due to non-issuance of official receipts by the Creditor. We recommended that Management:

a. Exert all efforts to secure the supporting documents to facilitate the review of the long outstanding loans payable, and prepare the necessary adjusting entries;

Partially implemented Some documents were secured for the accounts of Human Settlements Development Corporation and Minprocor.

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b. Obtain copies of documents from the creditor evidencing payments on the loans and the corresponding interests; and

Partially implemented Ongoing retrieval of other supporting documents for Agrarian Credit Loan and Ministry of Agriculture and Food.

c. Make necessary measures and arrangements for the settlement of the long outstanding loans accounts.

Partially implemented NCR Regional Finance regularly performs strict monitoring of current balances to avoid accumulation of dormant accounts. NCR will consider the recommendation on the reversion of accounts payable regarding dormant accounts.

26. The reliability of Financial Liabilities-Inter-Agency Payables-Due to National Treasury account amounting to P39.301 billion as at December 31, 2017 is doubtful due to the existence of dormant/long outstanding accounts and abnormal/negative balance of P54.983 million and P1.616 million, respectively, and absence of necessary supporting documents. Moreover, outstanding guarantee fees of P8.212 billion and interest on advances amounting to P2.290 billion or 79.16 per cent of the total Payables-Interest Payable of P2.893 billion included amounts which remained unsettled for over one year to over three years and onwards, thereby depriving the National Government (NG) of the use of the funds to supplement its other priority goals, programs and projects. We recommended that Management:

a. Require the ASD to fast track the retrieval of the supporting documents in order to undertake an in-depth analysis, verification and full extent of validation of dormant accounts, including the account with negative balance, so that necessary adjusting entries can be made; and

Partially implemented. Management has on-going retrieval of the supporting documents/agreements to support the balances.

b. Follow-up the status of its request for the possible transfer of NFA’s obligation to NG; if not granted, settle outstanding

Partially implemented The NFA Council already requested the

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advances, including the interest and guarantee fees; and if unable to settle due to limited funds, request negotiation on possible payment plan with the Corporate Account Group-Department of Finance.

conversion of BTr advances and interest amounting to 40.652 billion into subsidy through Council Resolution No. 936-2019 F dated June 19, 2019.

27. The lack of determination of NFA Management to undertake the necessary legal actions on the shortages of Stock Accountable Officers (SAOs) aggregating P184.198 million, recorded under Receivables-Other Receivables- Due from Officers and Employees account, as required in NFA existing policies and guidelines had hampered the immediate recovery or settlement of the receivables, thereby, depriving the Agency of additional funds to finance its operation. We recommended that Management:

a. Revisit the existing warehousing policies and procedures (SOPs) to identify the causes of the incurrence of shortages and strengthen the measures that will prevent and/or address the same;

Partially implemented Management has communicated with NFA POs and FOs on efforts to revise existing NFA SOPs.

b. Set up the Agency level monitoring and evaluation of the implementation of the NFA SOPs and guidelines on the settlement of shortages particularly on the issuance of demand letters to SAOs with established shortages within the prescribed period, filing of the appropriate administrative, criminal and civil cases, and collection of shortages;

Partially implemented Through the concerted efforts of LAD and the FOs, collections from SAOs as of November 30, 2019 amounted to P49.063 million of which P22.211 million were from approved Compromise Agreement.

c. Prioritize the liquidation of accountabilities of SAOs who are still in active service, especially those who are nearing retirement, and leverage on the role of Senior Accounts Specialist/Accountant, to regularly deduct from all benefits and other resources accruing the SAO for the payment of shortages, in order to ensure NFAs welfare over the interest of SAOs;

Partially implemented Liquidation of SAO’s still in the service is being done. To date, one SAO has fully liquidated with Final TOLA result. Also, Palawan PO was able to collect additional P1.004 million.

d. Persistently follow up the early resolution of the cases of concerned


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accountable officers to effect immediate collection of their shortages;

LAD and the FOs were able to collect from those who have approved Compromise Agreement.

e. Initiate/File a Petition for a Writ of Preliminary Attachment against the properties of the concerned SAOs to secure the satisfaction of any judgment;

Partially implemented The filing of cases against the properties of the SAO is only possible if there is already a final judgement in favor of NFA establishing the liability of the SAO. However, to date all the criminal cases are still pending.

f. Closely monitor all pending administrative and criminal cases filed against erring SAOs so that information can be readily gathered and appropriate actions can be instituted, if warranted; and

Partially implemented Hearing schedules in criminal cases are scheduled by the courts and the handling lawyers can only request for early settings but the delay in trial and resolution of cases are attended with a lot of factors which are already beyond control of the handling lawyer.

g. Revisit and/or modify NFA SOP to consider the delegation of authority to a lower level Management regarding the evaluation and approval of compromise agreement proposal of the SAOs on the payment of their final stock shortages, to facilitate the process and hasten settlement.

Partially implemented To ensure close monitoring of pending cases and strictly no filing of motion to re-set hearing. Make sure that handling lawyers are ready every hearing schedule and witnesses are present as the case may be. As for the Compromise Agreement, the CA-TWG has been effectively Implementing the SOP therein.

28. Liberal implementation by Management of NFA’s policies and procedures had caused stock shortages recorded under Other Non-Current Assets-Other Assets in the total amount of P2.008 billion to remain uncollected for more than five years, as the determination of final shortages and enforcement of collection/settlement thereof could not be pursued due to missing/incomplete documents, slow-paced stock examination and computation of Tolerable Allowance (TOLA) and non-exhaustion of other remedies to collect from concerned SAOs.

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We recommended that Management: a. Require the Stock Examination Group to expedite the conduct of stock examination and adhere to the provisions of NFA SOP No. GM-WH13 on the use of secondary documents when warranted to facilitate the examination, and to immediately submit the Stock Examination Report (SER) to the Regional Tolerable Allowance Committee (RTAC) for TOLA computation;

Partially implemented Instructed all FOs to fast track examination.

b. Instruct the RTAC to speed up the TOLA computation to establish the final shortages of the SAOs/Warehouse Supervisors (WSs) so that settlement/collection of the amounts could be pursued and the balance of the accountabilities that could not be ascertained be minimized/reduced;

Partially implemented Instructed all FOs to fast track TOLA computation.

c. Revisit NFA SOP No. GM-WH13 where no timeline was set for the stock examination and TOLA computation and prescribe appropriate timeframe so that the final shortages could be established within a reasonable period and immediate collection of shortages could be facilitated;

Partially implemented Coordinated with the concerned departments.

d. Enforce the sanctions provided in the Special Provisions of NFA SOP No. GM-WH13 which states that “Violation of the provisions of this SOP shall subject the offender to penalties provided for under applicable and reasonable NFA and Civil Service rules,” to oblige the persons responsible to strictly implement the NFA SOPs on stock examination and TOLA computation;

Partially implemented Coordinated with the concerned departments and FOs.

e. Exhaust all available remedies, such as filing of civil or small value claims, to collect the shortages of SAOs separated from service;

Partially implemented Coordinated and instructed the concerned departments and FOs

f. Require the Stock Examination Group to exert all efforts to locate missing


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documents to establish final shortages of SAOs; and g. Assign a regular/permanent employee in the Stock Examination Group to fast track the stock examination and preparation of SER.


29. The validity/propriety of the P249.565 million payments made for the 11,891.28 Metric Tons (MT) rice importation under the contract executed by NFA with one of the suppliers in August 2017 could not be fully determined due to the absence of Journal Entry Vouchers (JEVs) and documents supporting said payments. Moreover, there is a discrepancy of P0.778 million between NFA’s computation of P3.281 million and Audit Team’s computation of P4.059 million of penalty for late delivery of the 12,301.23 MT rice importation amounting to P262.542 million.

We recommended that Management impose the correct penalties against the suppliers of imported rice on late deliveries in accordance with the provisions stipulated in the Contract and GAFTA 122.


30. In NDO and EDO, the Warehouse Stock Issues (WSIs) were not properly accomplished according to the guidelines provided under NFA SOP No. GM-WH11 dated January 29, 2001, that could lead to unverified information and errors in computations of filler issuances and result in undetected fictitious transactions or intentional errors to cover unscrupulous activities within the warehouses.

We recommended that Management require the Managers of NDO and EDO to instruct the concerned WSs to:

a. Submit to COA all original copies of the cancelled WSIs, for audit purposes; and

Not implemented

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b. Submit WSI No. 25045009 for audit purposes to the Audit Team of EDO.


31. The propriety of the gasoline, oil and lubricants expenses amounting to P3.241 million for CY 2017 could not be determined due to non-submission of the Monthly Report of Official Travels supported with properly accomplished and duly approved Driver’s Trip Tickets, Monthly Report of Fuel Consumption and Journal Entry Vouchers (JEVs) recording the gasoline, oil and lubricant expenses in the books, contrary to existing government rules and regulations. Moreover, gasoline, oil and lubricants expenses increased by P0.514 million in CY 2017, which did not conform to Administrative Order (AO) No. 103 which requires, among others, the reduction of at least 10 per cent in the consumption of fuel, water, office supplies, electricity and other utilities. We recommended that Management:

a. Require the HO-General Services Department (GSD) to submit to the Office of the Auditor the Monthly Report of Official Travels supported with properly accomplished and duly approved Trip Tickets and Report of Fuel Consumption, for audit purposes; and

Partially implemented NFA regularly submits documents to COA. However, not all required documents were submitted.

b. Require the HO-Accounting Services Department (ASD) to submit to the Office of the Auditor signed/approved JEVs taking up gasoline, oil and lubricants expenses duly supported with relevant/proper documents for audit purposes.


32. Foreign travel expenses increased by P2.019 million or 200 per cent from last year’s expenses mainly due to the increase in the number of participants to the foreign trainings/conferences, in view of the NFA’s commitment to the World Trade Organization (WTO) and in preparation for its hosting the ASEAN Summit, which is not in conformity with

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the Department of Budget and Management (DBM) Budget Circular (BC) No. 2017-5 dated December 11, 2017, mandating the judicious and prudent use of government funds. We recommended that Management: a. Strictly observe DBM Budget Circular No. 2017-5 on the judicious and prudent use of government funds to ensure that no irregular, unnecessary, extravagant, excessive and unconscionable expenses shall be incurred by the Agency; and


b. Minimize the practice of sending more than one officer in foreign conferences and seminars, if not totally avoided.

Partially implemented The Audit Team is consistently monitoring NFA’s compliance with the recommendation.

33. The warehousing policies and procedures on warehouse custody, piling system, storage structure and specification, and good warehouse-keeping were not strictly observed at NFA warehouses that could lead to environmental and health hazards and losses due to grain damage/deterioration and theft/pilferage of stocks. We recommended that Management instruct the concerned Provincial Managers to:

a. Require warehouse personnel to:

a.1 Attend training/re-orientation on warehousing policies and procedures at least every two years as provided in the SOP; and


a.2 Install proper signage in order to prevent the occurrence of accident or casualty;


b. Conduct regular monitoring of the compliance by the warehouse personnel of the provisions of NFA SOP No. GM-WH07; and


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c. Cause the immediate disposal of all unserviceable empty sacks (MTS), pallets and machineries stored at the warehouses.


34. The actual net kilograms (nkgs.) of stock sold with filler transactions and the balances of stocks at any given month could not be accurately determined due to: (a) the unaccounted receipts of the excess kilograms from withdrawals of stocks weighing more than the required gross weight in North District Office (NDO); and (b) the discrepancies between the total number of bags issued as fillers in the Stock Reports and its total equivalent to nkgs based on the Warehouse Stock Issues (WSIs) in Cavite Provincial Office (CPO) and Central District Office (CDO). We recommended that Management require the Managers of NDO, CPO and CDO to:

a. Ensure strict monitoring and accounting of the filler transactions of warehouses, i.e. from the recording of the fillers in the WSIs, preparation of the Empty Sack Receipts (ESRs), WSIs for ESRs and Authority to Issues (AIs) to the recording of the transactions in the Stock Reports and in the books; and

Partially implemented Reconciliation is being done. Awaiting instructions from NFA-NCR/HO.

b. Investigate discrepancies noted in the issuance of fillers between Stock Reports and WSIs, and impose appropriate sanctions against erring Warehouse personnel, if warranted.


35. Despite the absence of written policy, the shortages in filled bags or number of bags of stocks were subject to Tolerable Allowance (TOLA) computation in the liquidation of the accountabilities of the Stock Accountable Officers (SAOs) in CPO and in four POs in RO No. I, thereby giving undue advantage to SAOs and resulted in unrecouped loss of assets on

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the part of the Agency. We recommended that Management require the Managers of concerned POs to: a. Discontinue the practice of granting TOLA on shortages in filled bags or number of bags of stocks in the absence of written policy; and

Partially implemented NFA-CPO has already discussed the matter with NFA-NCR. Waiting for further instructions.

b. Instruct the Senior Accounting Specialists (SAS) to record in the books of accounts the receivable from SAOs representing the money value of the shortages in bags of stocks using the replacement cost-intentional losses, if warranted.


36. The NFA Disaster Preparedness Manual and SOP No. SP-OT01 devised/ formulated several years ago are no longer aligned to the goals and objectives of Republic Act (RA) No. 10121, otherwise known as the Philippine Disaster Risk Reduction and Management Act of 2010” that might affect/limit the ability of NFA to respond to disasters risks in consonance with the National Disaster Risk Reduction and Management Plan. We recommended that Management:

a. Adopt a Disaster Risk Reduction and Management Framework and Plan in congruence with the National Disaster Risk Reduction and Management Framework and Plan in order for NFA to be equipped and be responsive in times of disaster or calamity;

Partially implemented In CY 2019, NFA approved and disseminated its PSCP. However, NFA-HO still has not adopted a concrete DRRM Framework and Plan.

b. Require the concerned personnel of NFA to conscientiously prepare or craft the Agency Annual DRRM Plan and Budget in accordance with the provisions of; and


c. Henceforth, constantly update/revise Partially implemented

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the SOP and Manual on Disaster Risk Reduction and Management to be always in tune with the current situation and/or time. 37. Machineries, warehouse equipment, stock warehouses and parcels of land of four POs were idle and unutilized due to technical defects, lack of manpower training, absence of local procurement and expansion-development programs; thus, defeating the purpose of these assets, and resulting in the inefficient and ineffective utilization thereof.

We recommend that Management, if found to be unnecessary due to obsolescence and/or the cost of repair or maintenance is excessive, recommend for the early disposition to avoid further deterioration and, possibly, to obtain economic value from the disposition.


CY 2016 AAR 38. The balance of the Merchandise Inventory (MI) account as of December 31, 2015 was not restated to recognize the customs duties (CDs) for CY 2015 and prior years of P24.329 billion as required in Philippine Accounting Standards (PAS) 1 and 8; thus, the comparative balances of the account as of December 31, 2015 and 2016 of P15.886 billion and P13.155 billion, respectively, are not correctly presented in the Balance Sheet. In addition, the adjustments to recognize the CDs for prior years and those for CY 2016 amounting to P25.780 billion were effected only in the consolidated financial statements as at year-end, but not in the separate books of the Field Offices (FOs), thus the affected accounts in their individual financial statements as of December 31, 2016 remained unadjusted. Moreover, the non-recognition of handling and transportation costs amounting to P5.224 million and other deficiencies such as transcription error, omission, error in costing and non-recording of dispersal

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loss of P492,592; all these cast doubt on the fair presentation of the MI account in the financial statements. We recommended that Management require the HO-ASD to:

a. Ensure that the MI account as of December 31, 2016 to be presented in the CY 2017 comparative financial statements be adjusted in the individual books of the FOs to reflect the CDs taken up in the consolidated financial statements as of December 31, 2016;

Partially implemented Coordination with NFA-CO had already been made, awaiting further instructions.

b. Henceforth, strictly comply with PAS 1 on the proper presentation of MI account in the financial statements to ensure comparability with the financial statements of previous periods and PAS 8 on correction of material PYs errors;

Partially implemented Management has conducted area conferences and discussions on the implementation of Revised Chart of Accounts, Government Auditing Manual, Philippine Public Sector Accounting Standards (PPSAS) relevant COA Circulars with the accountants and budget officers of the field offices.

c. On the issue on inexistent inventory and abnormal quantities, we recommended that Management immediately conduct reconciliation of the Inventories and effect the necessary adjustments in the books to come up with the correct balance of the MI account; and

Partially implemented Reconciliation of the MI accounts is a continuing activity. Adjustments are immediately effected to correct some of the inventory accounts.

d. Ensure compliance with the pertinent accounting standards especially on the presentation of the financial statements.


39. The validity, existence and collectability of the Accounts Receivable (AR)-Trade of P1.393 billion cannot be ascertained due to the dormant accounts, non-availability of supporting documents, and the absence of updated information on collections; thus affecting the faithful presentation of the account in the financial statements. Moreover, the amount of P540.651 million for the NFA’s receivable from Department of Transportation (DOTr) from the sale of

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parcel of land, where the office and warehouses of SDO were formerly located, was erroneously taken up under the account instead of Due from National Government Agencies (NGAs); thereby overstating the account by the same amount. We recommended that Management: a. Require the ASD to fast track the reconciliation of the receivables from NGAs, GOCCs and LGUs with the collections received at the NFA-HO. Accordingly, advise the ROs/POs on the results thereof for updating the recorded receivables in the respective regional and provincial books of accounts where receivables were recorded;

Partially implemented Management is exerting best effort in locating documents to facilitate reconciliation/adjustment of the dormant accounts.

b. Continue to vigorously pursue the collection efforts through demand letters and collaboration meetings and strictly enforce the provisions of the MOAs with the NGAs and LGUs, particularly the payment terms; and

Partially implemented Collected from DOTR the amount of P513.618 million under OR No. 0951755 dated January 02, 2020. The Management had requested the write-off of the dormant accounts. Also, A petition for money claim from Department of Education and NDRRMC was filed with COA-Central Office. In NFA-NCR, on-going reconciliation and confirmation by sending letters to verify collectability of the receivables.

c. Conduct in-depth analysis and verification of the receivables and determine those deemed uncollectible after all the efforts have been exerted, for possible write-off in accordance with COA Circular No. 2016-005 and NFA SOP No. FS-FA13.

Partially implemented In-depth analysis and verification of accounts receivable balances of local government units and other receivables are on-going. Those deemed uncollectible are prepared for application for write-off upon meeting all necessary requirements.

40. The validity, existence and collectability of the inter-agency receivables totaling P241.268 million cannot be ascertained due to various dormant accounts, insufficient documents

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and negative results of confirmation, thus, affecting the fairness of presentation of the balances in the financial statements. We recommended that Management: a. Require the ASD to fast track the analysis and reconciliation of the receivable accounts. For those reconciliation or recovery which are already remote or nil after all the efforts have been exerted, request for write-off in accordance with COA Circular No. 2016-005;

Partially implemented Profiling of accounts is being undertaken for every account to determine those with possibility of collection and for request of write-off.

b. Pursue an extensive collection policy for the accounts due to the NFA and intensify efforts to collect long outstanding accounts; and

Partially implemented Profiling of accounts is being undertaken for every account to determine those with possibility of collection and for request of write-off.

c. For the agencies which still have transactions with NFA, coordinate with their authorized official/s in order to finally collect these receivable accounts.

Partially implemented NFA has filed money claims with the COA Commission Proper.

41. Stock shortages taken up in the books under Other Assets account amounted to P2.791 billion, most of which remained outstanding for more than five years, and cannot be reclassified to Due from Officers and Employees due to missing/incomplete warehouse/stock reports and the slow-paced stock examination and computation of TOLA, thus adversely affecting the determination of the final shortages of the concerned SAOs and enforcement of collection/settlement from them could not be pursued.

We recommended that Management include stock examination, TOLA computation and collection targets in the Agency Annual Plans and Targets, particularly those SAOs who are deceased/separated or had resigned and with huge amounts of, long overdue and outstanding stocks accountabilities, as a

Partially implemented Lack and/or missing warehouse documents and limited manpower contributed to the delay in the completion of stock examination.

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means of not only gauging the efficiency of stock examinations and TOLA computation of concerned personnel but also on the collection of stock shortages from these SAOs. 42. Uncollected overdue receivables amounting to P76.026 million from various companies, private individuals and former NFA officials/employees who died, resigned or retired from the service, remained dormant for five to 10 years and more due to lack of documentation and the failure of the concerned officials to undertake measures for the proper disposition of the dormant accounts pursuant to COA Circular No. 2016-005 and NFA SOP No. FS-FA 13, thus rendering the accuracy and existence of the reported balances doubtful. We recommended that Management:

a. Institute all appropriate measures to document the receivables and continuously send demand letters to all concerned to enforce collection of the dormant receivable accounts; and


b. For those with remote or nil recovery, require the Accountant to take appropriate action to have the accounts written-off pursuant to existing laws, rules and regulations.


43. Lapses in accounting, monitoring and control of supplies and materials such as: a) the non-reconciliation of the balance per books and inventory reports; b) incomplete conduct of physical inventory; c) poor maintenance of Stock Cards (SCs) by Supply Officers; and other deficiencies, contrary to pertinent provisions of the MNGAS, Volumes I and II, and the non-alignment of NFA SOP No. GS-PD16 to MNGAS resulted in unreliable balance of P419.251 million Inventory for Consumption accounts at year-end.

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We recommended that Management re-visit the provisions of NFA SOP No. GS-PD16 to identify the provisions that need to be revised/amended and those lacking provisions in order to align these to the provisions in the MNGAS.

Partially implemented The balance of Inventory report does not reconcile with the balance of Accounting Records.

44. The validity and accuracy of the balance of Accounts Payable amounting to P2.371 billion as of December 31, 2016 are doubtful due to existence of long outstanding accounts amounting to P130.015 million; dormant accounts amounting to P2.741 million, accounts with abnormal/negative balances amounting to P489,570, and other deficiencies noted in recording transactions. We recommended that Management:

a. Consider the applicability of the guidelines and procedures prescribed under DBM- COA Joint Circular No. 99-06 dated November 13, 1999 on the reversion of accounts payable; and


b. Require the ASD to analyze, verify and validate the dormant and abnormal/negative accounts and prepare necessary adjusting entries.


45. Trust liability accounts totaling P268.057 million in the books of HO have remained dormant for the past 10 years, rendering the existence of the obligation of NFA in the total amount of P558.916 million as of December 31, 2016 doubtful. We recommended that Management:

a. Require the thorough verification of the nature or purposes of the projects, with long outstanding balances, and determine the status whether already completed, discontinued or abandoned;

Partially implemented NFA ASD was able to settle and submit terminal reports to COA for project Arsenic, Cadmium, Tupig and Mango in an aggregate amount of P3.461 million.

b. Fast track the reconciliation of the balances against relevant records,


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determine the actual existence and proper valuation of accounts, ascertain and validate discrepancies between the recorded amounts and the actual existing balances; c. Make the necessary adjustments in the books to determine actual balances and cause remittance to the concerned agencies;


d. Require the ASD and IASD to reconcile their records on Lingap Para sa Mahihirap Project Fund, effect the necessary adjustments which are adequately documented in order to reflect the correct balance, and submit fund utilization report indicating the summary of expenses and status of the report of accomplishments certified by the Accountant; and

Partially implemented Management is continuing its retrieval of documents/ reconciliation with accounting records in other NFA Field Offices.

e. In coordination with concerned SAs request for COA’s authority to write-off dormant accounts in accordance with COA Circular No. 2016-005.


46. The balance of Deferred Credits account of P598.940 million as at December 31, 2016 is unreliable as this still includes dormant balances of P16.827 million in HO and several FOs with stocks that remained unwithdrawn for five years and more, and overages of Stock Accountable Officers (SAOs) of P178.328 million whose final accountabilities have not been established. We recommended that Management prioritize the in-depth analysis to clear the long outstanding balances in the Deferred Credits account and instruct the concerned HO departments/offices and ROs to include, among others, the following:

a. Gather documents supporting the transactions pertaining to the advance payment of the legislator and on the

Partially implemented Profiling of accounts is being prioritized by

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conduct of stock examinations on SAOs with overages;

the FOs. Coordination has been made; awaiting further instructions from NFA HO/ NCR.

b. Identify from the Deferred Credits subsidiary ledgers the warehouse accountable officers and their overages incurred per physical inventory count per year and take note of those who retired or were separated from service; and

Partially implemented Conducting thorough reconciliation of the unwithdrawn rice stocks paid in advance by other government agencies.

c. Obtain information and guidance on the following:

c.1 Appropriate disposition of the advance payment made by the legislators since the stocks apparently have already been long withdrawn;

Partially implemented NFA NCR-Batanes Provincial Unit (BPU) will still coordinate with NFA-HO regarding the advance payment of the former legislator.

c.2 Status of accountability of the warehouse accountable officers; and

Partially implemented Field Offices are instructed to fast track to process examination of accountabilities/TOLA computation.

c.3 Appropriate disposition of the long outstanding overages of retired/separated SAOs with or without final TOLA computation.

Partially implemented Field Offices are instructed to send demand letters to retired/separated SAOs.

47. The NFA officers and employees in HO and some POs in NCR, Regions IV-B and IX designated as authorized signatories in the issuance of checks, approval of Disbursement Vouchers (DVs) and Stock Accountable Officers (SAO) were not bonded, while the fidelity bond of Collecting and Disbursing Officers in Cavite PO and CDO, and SAO in Zamboanga del Norte PO were inadequate to cover their accountabilities for collections and disbursements; thus, exposing NFA of not being indemnified in case of loss due to improper or unauthorized use or misapplication of public funds and property and for all losses attributable to negligence in the keeping thereof.

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We recommended that Management: a. Conduct immediate review of the fund accountability of concerned accountable officers including those designated/ authorized to sign and approve the DVs per NFA GMO No. AO-2015-05-003 dated May 29, 2015 and post the corresponding fidelity bond corresponding to their accountabilities; and

Partially implemented Management has posted fidelity bonds for some signing/approving officers.

b. Henceforth, conduct regular review of fund and property accountabilities of accountable officers, including those officers who are authorized signatories and counter signatories in the issuance of checks and approval of DVs, to determine the appropriate amount of their fidelity bonds, in consonance with the requirements of Section 101 of PD 1445, and Sections 4.1 and 4.3 of the General Provisions of Treasury Circular No. 02-2009, on the bonding of officers and employees.


48. The NFA-HO and ROs/POs officials and employees hired before July 1, 1989 were granted Group Hospitalization Insurance Program (GHIP), Group Accident Insurance Program (GAIP) and Executive Health Care Program (EHCP) in the total amount of P10.097 million, without authority from the Department of Budget and Management (DBM), Office of the President (OP) or legislative issuances. Moreover, the GAIP is considered a duplication of the insurance provided by the Government Service Insurance System (GSIS) under life insurance and other insurance coverage of government employees, which is prohibited in Commonwealth Act No. 186, as amended by Republic Act (RA) Nos. 4968 and 8291. Hence, the payments made for these allowances/benefits are considered irregular.

We recommended that Management Not implemented

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refrain from granting allowances or benefits without the required authority, appropriate funding and already included in the insurance provided by the GSIS.

A letter of appeal was submitted to COA by NFA requesting to set aside AOM No. HO-2017-16 (2016). However, same insurance programs were still granted to the officials and employees. In CGS Cluster V Decision No. 2020-010 dated March 5, 2020, the Appeal Memorandum dated August 15, 2018 of Ludovico J. Jarina, et. al., of NFA, from ND No. 18-003 (2016) dated July 5, 2018 on the payment of premiums for GHIP, GAIP, and EHCP for CY 2016 in the amount of P2,318,309 was denied for lack of merit.

49. The Property and Equipment of CDO, NDO and SDO totaling P9.476 million were not covered by insurance with the GSIS during the year as required in RA No. 656, as amended by PD No. 245, thus, exposing the Agency to the risk of non-indemnification for the uninsured properties in case of damage or loss due to fire, earthquake, storm or other fortuitous event. In addition, the annual inventory report of physical assets, insurance and bonding of risks with the General Insurance Fund (GIF) as required under COA Circular No. 92-390 was not submitted to the COA Auditor for verification; thus, it could not be determined if all insurable properties/assets of CDO and NDO were adequately covered by insurance. Moreover, other properties of SDO costing P26.769 million were insured at amounts more than their costs that caused the NFA to incur unnecessary expense of P15.080 million.

We recommended that NDO and CDO submit a list of the uninsured PE amounting to P2.682 million which the Administrative Section claimed as PE with acquisition cost of less than P10,000 that were not included in the list of insurable PE, for verification of the Audit Team.


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50. Accumulated cash shortage in the total amount of P2.061 million was established on the cash and accounts of the designated Collecting Officer of NFA Abra PO for undeposited collections; thus, resulting in the loss of government funds. We recommended that Management require the:

a. Provincial Manager of Abra PO to file appropriate charges against the defaulting Accountable Officer (AO); and

Partially implemented A compromise agreement has been entered on November 07, 2017 per Memorandum 2017-LAD-LD-K-006. As of November 30, 2019, a total of P1.052 million was collected. In addition, cash shortage of P2.141 million was recorded on October 2019 as a result of reconciliation between Abra PO and Central Office.

b. HO Management constantly follow up the filing of appropriate charges against the erring accountable officer.


51. The rice inventory levels in NFA-NCR and other ROs/POs from January to December 2016 were not consistently maintained resulting in way above or below the mandated buffer stock requirements of 15 days in each month and 30 days in June resulting in excess stocks ranging from 421 to 1,513,305 bags that could expose a larger quantity of undistributed stocks stored longer than necessary to risk of deterioration/decline in quality and value. On the other hand, the inventory level below the mandated buffer stock could compromise the NFA’s capability to effectively and immediately respond in times of disaster and emergency situations. Moreover, the rice inventory level of NCR which was way above the required level of buffer stocks in almost all months of CY 2016 resulted in loss of P360.368 million due to price reduction in auction.

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We recommended that Management adopt necessary measures to address problems causing excessive stocks such as: (a) carry-over stocks from previous year importation, (b) unprogrammed receipt of other provinces/districts’ allocations due to problems of warehouse space availability, (c) influx of commercial rice in the market and presence of low price good quality rice resulting in low demand for NFA rice, and (d) those causing stock deficit levels such as low procurement operations, minimal rice receipts from other provinces, non-arrival of complete allocation of imported rice and non-availability of warehouses to be leased, among others.

Partially implemented Management assured COA that a prudent and periodic assessment of the grain situation in the province will be undertaken to determine the most appropriate inventory level, at the least cost, to ensure food security and price and supply stabilization in the province.

52. The First-in, First-out (FIFO) policy on the issuance of stocks from the warehouses required in NFA SOP No. GM-WH07 dated January 10, 1995 was not strictly enforced resulting in aging, deterioration and higher carrying/ maintenance costs of the stocks on hand.

We recommended that Management ensure that the FIFO policy is strictly observed to avoid overstocking, stock deterioration, additional carrying/ maintenance costs and opportunity loss to NFA, and require the Provincial Operations Officer to thoroughly review and evaluate the warehouses’ Pile Layout, Grains Situationer Reports and other data as basis in the identification of specific pile for withdrawal of stocks prior to recommending approval to the Provincial Manager of the AI.


53. The actual net kilograms (nkgs) of stocks sold with filler transactions and the balances of stocks at any given month cannot be accurately determined due to: a) the emptied bags from issued filler stocks that were not documented by a separate Authority to Issue (AI) and Warehouse Stock Issue (WSI) required in NFA SOP No. GM-DN10.A in NDO and five POs; b) the discrepancy between the

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total number of bags issued as fillers in the Stock Reports and its total equivalent to net kilograms (nkgs) based on the WSIs in NDO, CDO and four POs; c) the unaccounted receipt of excess kgs. from withdrawals of stocks in NDO and Eastern Pangasinan PO; and d) WSIs with erasures/alterations and incomplete information that resulted in erroneous stock reports. We recommended that Management: a. Evaluate existing control measures in warehouse operations and institute additional controls, including the review of the documentation of receipts of excess kgs from issuances of stocks weighing more than 50 kgs/bag;

Partially implemented NFA has issued memos to follow guidelines and policies on filler transactions. Further, it implemented measures to prevent repetition of the act in future transactions.

b. Require the strict monitoring and accounting of the filler transactions of warehouses starting from the recording of the fillers in the WSIs up to the recording of the transactions in the Stock Reports and in the accounting records/books;

Partially implemented Reconciliation is being done.

c. Ascertain the accuracy of the reported number of filler bags issued and account for the difference per stock report and its equivalent kgs per issued WSIs; and


d. Initiate investigation to determine personnel responsible for possible fraudulent activities, particularly in the issuances of fillers, so that appropriate measures and sanctions are enforced on those found guilty of fraudulent acts.


54. The reliability of recorded filler stocks in Ilocos Norte and Ilocos Sur POs of 34,901.87 nkgs or equivalent to approximately 698.04 bags for all rice varieties could not be ascertained due to some admissions and allegations that filler stocks were not received or fully received by concerned retailers or buyers, thereby defeating the purpose and intent of the issuance of filler stocks.

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We recommended that Management conduct an investigation on the issues raised on filler transactions and file appropriate charges against erring personnel, if warranted.

Not implemented NFA has instructed all the warehouse Supervisors to adhere to the procedures, rules and regulations on warehouse operations. Reminders were also given during meetings.

55. Warehouse Stock Issue (WSI) receipts issued by several WSs of Eastern and Western Pangasinan POs were tampered, thus, showing a larger amount of fillers than what was actually issued to customers.

We recommended that Management:

a. Restudy the NFA policies on TOLA to discourage the practice of the SAOs of maximizing the benefit thereof as TOLA is not intended for unauthorized transactions;


b. Direct the Regional Manager of Region I to:

b.1 Conduct investigation on the falsification of WSIs regarding the issuance of stock fillers, and immediately relieve erring personnel while investigation is on-going to avoid influencing the investigating team and manipulation of record; and


b.2 Elevate to NFA higher authorities the evaluation of TOLA granted to SAOs for possible reduction to minimize the opportunity to unauthorized withdrawals of excessive fillers; and


c. Require the Legal Affairs Department (LAD) to file appropriate administrative charges to erring WSs/SAOs and all other personnel involved in the commission of offense, if warranted. The above recommendations are without prejudice to the institution of proper complaint in a court having jurisdiction with the offense


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after a full investigation on the matter. 56. Marinduque PO shouldered all the losses on stock dispersal by sea amounting to P690,977 due to absence of provisions regarding tolerable limit on dispersal given to private-hauler contractors and truckers as provided in NFA SOP No. GM-DL03 dated January 1, 1991 and as amended by NFA SOP Amendment/Addendum No. GM-DL03.C dated May 31, 2000, hence, additional expenses on the part of NFA. On the other hand, in Batanes PU, there was over recognition of dispersal losses because the gain in weight of stocks during dispersal from NCR source warehouse to imaginary warehouse was not considered in recording the dispersal losses at Batanes destination warehouse as weight gain was not covered by specific accounting treatment in the NFA SOPs, resulting in the overstatement of operating expense by P72,633 and understatement of income by the same amount in CYs 2014-2016.

We recommend that Batanes PU Management revisit the NFA SOPs on Dispersal Operations specifically on stock dispersal, and coordinate with the NCR RO for proper accounting treatment over recognition of dispersal/weight losses, as well as dispersal/weight gain without specific accounting recognition in the NFA SOPs.

Partially implemented NFA-BPU has already coordinated with NFA-NCR regarding the issue wherein NFA-NCR is currently conducting an evaluation/assessment of the dispersal operations for proper recognition of dispersal losses.

57. The quantified losses of stocks due to theft on three instances at the NCR warehouses from CYs 2001 to 2013 were not deducted in the Stock Examination Reports (SERs) of SAOs due to the absence of specific guidelines, resulting in erroneous SERs and computation of TOLA. Also, the TOLA system’s computation of factors affecting grains storage might no longer address the current conditions in the warehouses that could result in inappropriate computation of TOLA.

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We recommended that Management revisit the existing policy on New Computerized Stock Examination and TOLA Computation, in particular, the appropriate treatment of losses due to theft in the SER and computation on factors affecting grains storage embedded in the TOLA system and identify the needed amendments in the policy to ensure the accurate computation of TOLA.

Partially implemented NFA-NCR has elevated this matter to the Internal Audit Services Department-Central Office through NCR-ORM-RF-G-02 dated July 4, 2017.

58. The non-compliance with the guidelines of the Institutionalized Farmers as Distributors (IFAD) Program, which included: a) the issuance of rice allocation to two delisted/dissolved cooperatives; b) 29 unregistered cooperatives with the Cooperative Development Authority (CDA) as of December 31, 2015; c) 122 cooperatives without Certificate of Good Standing issued by CDA, and d) acceptance of Special Power of Attorney (SPA) at the Farmers Organization’s/Farmers Association’s chosen withdrawal point of IFAD rice allocation, could deprive the intended beneficiaries of the opportunity to participate and avail of the benefits of the Program. We recommended that Management:

a. Determine the appropriate measures to address the following issues and concerns in the implementation of IFAD Program:

a.1 Inadequacy of verification of LOIs and supporting documents conducted at the source POs;


a.2 Allowing the use of SPA despite the prohibition in the CY 2015 IFAD Program guidelines;

Allowing the use of SPA despite the prohibition in the CY 2015 IFAD Program guidelines;

a.3 Change in withdrawal point and the cost-benefit to farmer beneficiaries in withdrawing the


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allocation from NCR instead of at respective provinces vis-a-vis

transportation costs and optimization of income; a.4 Indications of fraud, such as, submission of spurious documents by unregistered/ non-operating cooperatives to avail the benefits of the NFA IFAD Program; and


a.5 The intended/legitimate FOr/FA-beneficiaries were being deprived of the benefits of the Program;


b. Conduct evaluation of the IFAD Program vis-a-vis the following:

b.1 Effectiveness of existing controls in the implementation of the Program; and


b.2 Duplication of benefits derived on other NFA Programs intended for the farmers/organizations, as inputs for the HO’s program development strategy in further improving the economic and social well-being of the farmers;


c. Investigate the non-compliance with the CY 2015 IFAD Program guidelines as cooperatives from different regions/provinces were allowed to participate despite deficiencies in supporting documents of their LOIs and IFAD participant-farmers’ organizations/ cooperatives from different regions/ provinces were allowed to withdraw stocks by presenting SPA; and


d. Refrain from issuing IFAD allocations to FOrs/FAs not rated/classified as “Good Standing” by the CDA or not registered with the Authority or any regulatory agencies mentioned in NFA SOP No. GM-DN29 and; henceforth, ensure that FOrs/FAs are duly registered/in good standing status before issuing IFAD


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allocations. 59. Storage fees in the total amount of P323,375 were not collected by CDO, Misamis Occidental and Quezon POs contrary to Item No. 6 of NFA SOP GM-DN09.A, as amended, thus depriving the NFA of additional income.

a. We recommended that Management require the management of:

a.1 CDO to hold liable/institute appropriate sanction on responsible personnel for non-collection of P120,546 storage fees for IFAD stocks withdrawn after the deadline, and henceforth, strictly implement the withdrawal of stocks within the deadline set and/or the collection of storage fees for stocks withdrawn after such deadline; and


a.2 Misamis Occidental PO to collect storage fees from the concerned buyers/retailers as required in Item 6 of NFA SOP No. GM-DN09.A, as amended.


b. Revisit the guidelines on setting the deadline for stock withdrawals and collection of storage fees and define the conditions where the collection of fees may be given consideration.


60. Only the amount of P58.138 million or 52.28 per cent of the P111.205 million funds received under the Yolanda Rehabilitation and Reconstruction Program was obligated as of December 31, 2016; thus, adversely affecting the warehousing activities of the affected POs particularly the condition and quality of the stored stocks due to congestion. In addition, the repair/rehabilitation/ reconstruction projects amounting to P34.227 million were obligated after December 31, 2014 which is beyond the effectivity of the Special Allotment Release Order (SARO); thus the

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expenses incurred became irregular. We recommended that upon obtaining authority from proper authorities, Management prioritize the implementation of the remaining projects which were not started/completed as at year-end.


61. The difference in Corn Development Fund (CDF) balance between NFA’s books of accounts and bank statement had increased by P4.145 million or 450.54 per cent, from P0.920 million as of December 31, 2015 to P5.065 million as of December 31, 2016, thus casting doubt on the reliability of the year-end balance of the Other Payables-CDF account of P161.154 million.

We recommended that Management instruct the ASD to exert extra effort to reconcile the CDF’s book balance with the balance per bank to come up with the correct balance.

Partially implemented ASD is on-going reconciliation of the account balances. The variance in CDF balance is now reduced to P0.455 million as of Dec. 31, 2017. About P0.224 million of the P455 million were identified as payment of expanded withholding taxes, withholding tax on honorarium, office supplies and travel expenses chargeable to CDF fund but paid under NFA GOF fund. The transactions of the CDF were temporarily suspended effective August 2019 by the NFA Administrator pending review of its activities and projects

62. No complete set of separate books of accounts were maintained for CDF contrary to the provisions of NFA SOP No. TS-ES22 dated February 14, 2008, thus, detailed transactions involving sources and uses of funds balance cannot be easily determined/monitored.

We recommended that Management require the CDF Committee Secretariat to strictly adhere to the provisions of NFA SOP No. TS-ES22 on the maintenance of a complete set of books for CDF in order to regularly monitor the receipts and utilization of the fund and to facilitate

Partially implemented On-going preparation of the separate books of accounts Reconciliation of CDF accounts still in progress by ASD staff.

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determination of its balance as at any given period. CY 2015 AAR

63. NCR-CDO and NDO did not conduct bag to bag count with 100 per cent weighing when the WSs replaced each other contrary to the provisions of NFA SOP No. GM-WH12. Thus, the accuracy of the balances of the stocks transferred could not be determined and any shortage/overage incurred by the former WS could be carried over to the incumbent WS. Likewise, the risk of mix-up of the receipts and issuances could result from housing their stocks at the same warehouses.

We recommended that NCR-CDO and NDO Management:

a. Refrain from having change of WS/accountable officer without the conduct of a bag to bag count and 100 per cent weighing to establish the actual balances of stock accountabilities at time of transfer; and


b. Facilitate the immediate transfer of each accountable officer’s stocks to his assigned warehouse or the transfer of stocks to the accountable officer occupying the warehouse where his stocks are still located to avoid mix-up of stock transactions.


64. In Cebu PO, the errors and/or misstatements in reporting the weight of imported rice received resulted in an unusual increase in the average weight per bag at the time of issue as against the reported average weight at the time of receipt at an estimated amount of at least P1.416 million. We recommended that Management:

a. Instruct the Cebu PO to monitor and account the final overage in the


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accountability of the WS in Warehouse 113 considering the notable difference to ensure proper recognition of the overage in the financial records and proper liquidation of his accountability; and b. Consider the use of digital weighing platform scale in all warehouses that would automatically produce receipts indicating the actual weight in order to eliminate human factor and discretion in the declaration of weight in all transactions in the warehouse.


65. The palay procured by Nueva Ecija PO of about 32,695 bags to 49,507 bags and by Aurora PO of still undetermined quantity from October to December 2015 classified and paid as good quality were confirmed as storm damaged palay (SDP) based on the initial result of the quality analysis of palay samples conducted by the Regional Standard Quality Assurance Office (RSQAO) and joint effort of TRSD in HO and the Central Luzon Regional Office (CLRO) QAO. Thus, the possibility that the Agency had paid higher amount than the actual/true value of the palay procured cannot be discounted.

We recommended that Management uphold an impartial investigation that will lead to the filing of administrative/criminal charges against those erring Nueva Ecija PO’s officials and employees identified to have participated and contributed in the commission of the anomaly in palay procurement, including those individuals or groups from the private sector who possibly connived in committing such crime.


66. The maximum weekly rice allocation to various retailers as determined in the NFA SOP No. GM-DN09 was not observed in NCR-CDO, thus, casting doubt on whether the intentions of the allocation system was served and could lead to diversion of stocks.

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We recommended that strict monitoring be made especially on retailers who are given excessive weekly rice allocations to prevent diversion or the selling of NFA rice whether as NFA rice or commercial rice to either accredited or non-accredited retailers.


67. Storage fees of P1.318 million for CY 2015 alone were not imposed on rice sold but unwithdrawn within the prescribed period in NCR-SDO, contrary to Item 6 of NFA SOP No. GM-DN09.A, as amended, thus understating the Service Income account for the same amount while at NCR-NDO, the accuracy and completeness of the income and penalties collected from the market stall rentals at the Valenzuela Gulayang Bayan Center (VGBC) in CY 2015 cannot be ascertained in the absence of perfected contracts of lease for 75 tenants. Moreover, the one-month contracts of lease which were renewed monthly have exceeded two years, contrary to Section 533 of the GAAM, Vol. I and COA Circular No. 88-282A dated April 18, 1988.

We recommended that Management require the NCR-SDO to instruct responsible officers and employees to collect and record the amount of P1.318 million storage fees due from accredited retailers in CY 2015. Henceforth, strictly comply with the provisions in Item 6 of NFA No. SOP GM-DN09.A, as amended.


68. The objective of providing marketing and post-harvest facilities to farmer-members of Irrigators’ Associations (IAs) in Regions VIII and X under the fourth component of Irrigated Rice Production Enhancement Project (IRPEP) was not fully attained due to (a) failure to repair the two warehouses in Region X; (b) underutilization of Farmers’ Kiosks (FKs) in the absence or slow internet connection in the location of FKs, lack of receptiveness of farmers toward the system and distant location of FKs to the

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farmers; and (c) only 69.51 per cent of the targeted 3,641 participants from Communal Irrigators’ Associations (CIAs) were trained on Collective Marketing System (CMS), thus depriving the intended farmer-beneficiaries of the benefits to be derived from the project. We recommended that Management submit Liquidation Report for Audit Team’s validation and issuance of Credit Notice as required by the DA and return the remaining project fund balance of P2.258 million to the DA considering that the budget for IRPEP implementation pertained only to CYs 2011 to 2015.


69. Expenses amounting to P181,824 incurred for the trainings and seminars conducted in CY 2015 were not adequately supported contrary to Section 4(6) of PD No. 1445 and COA Circular No. 2012-001, thus the propriety/validity of the expenses could not be fully established. In addition, the non-monitoring of procured IT equipment and furniture and fixtures costing P1.018 million during the implementation of IRPEP is not in consonance with Section 1, Item No. 3 of COA Circular No. 94-013, which rendered the accountability and existence of these properties doubtful.

We recommended that Management Instruct the ASD, Regions VIII and X to account all the properties procured under IRPEP including the determination of their location and status to facilitate the eventual transfer of these properties to NFA.


70. Honoraria in the total amount of P1.090 million were granted to CDF Secretariat/Committee members in CY 2015 despite the absence of documents showing the specific activities undertaken by them, in addition to their regular functions, contrary to the provisions of DBM Budget Circular No. 2007-2 dated October 1, 2007. Thus, the propriety of

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the claims for honoraria could not be fully established. We recommended that Management revisit the provisions of NFA SOP No. TS-ES22 on the grant of honoraria, particularly the rate and documentation of claims to prove entitlement in relation to the provisions of DBM Budget Circular No. 2007-2 and COA Circular No. 2012-001.

Partially implemented Payment of Honoraria was suspended effective August 2019 by the NFA Administrator pending review of its activities and projects.

71. Lack of clear guidelines on the extension of grants to proponents in excess of P0.500 million may result in inconsistent application in their approval. In addition, the absence of provisions in the MOA executed with grantees particularly stating the procedures and rules on their liquidation may result in delayed liquidation/non-liquidation thereof.

We recommended that Management ensure that the procedures as well as the documentary requirements in the liquidation of inter-agency fund transfers/grants provided in COA Circular No. 2012-001 and other existing laws, rules and regulations are complied with by the grantees.


CY 2013 AAR

72. The Cereal Procurement Fund (CPF) in 2013 of P7.890 billion was not fully maximized for the procurement of palay of which the unutilized amount of P1.019 billion or 12.9 per cent of the total available funds could have been used to procure 1.172 million bags of palay for the buffer stock of NFA. This condition resulted from the shortfall of 415,779 MT or 53.3 per cent of the targeted volume of procurement and the setting of very low procurement target compared to the palay production of more or less 368,788,120 bags or 18,439,406 MT. We recommended that Management:

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a. Evaluate the procurement performance of the ROs/POs with low accomplishments to determine the necessary assistance and measures needed to improve the implementation of the procurement program; and

Partially implemented NFA conducts Semestral Review and Planning for Marketing Operations regularly.

b. Formulate strategies to increase the procurement of palay, and encourage participation from farmers by ensuring that NFA’s assistance are accessible to farmers like the post-harvest facilities that they can use to minimize post-harvest losses.

Partially implemented Management increased the buying rate of palay and provide CDIF incentive to farmers.

73. The causes of the total variance of 449,696.58 nkgs, with equivalent value of P11.170 million, between the stocks (rice) received by six POs of NFA RO VIII of 28,213,880.47 nkgs as reported in the stock records and accounting records of 28,663,577.05 nkgs remained not detected due to non-preparation of the Monthly Reconciliation Statement of the Stock Reports against the Stock Book and Physical Inventory Report, rendering the quantities reported unreliable. We recommended that Management:

a. Require the Stock Examination Committee of the Provincial Office to immediately conduct the examination on the concerned Stocks and Grains Operation Officer (SGOOs)/WSs to establish accountability for the variances; and

Partially implemented Stock examination of the former Warehouse Supervisor is not yet complete due to lack of manpower.

b. Include in the policies on dispersal, the regular reconciliation between records of the issuing and receiving offices and prepare a quarterly reconciliation report for submission to the Provincial Manager so that solutions to problems can be timely instituted to ensure that balances reported are accurate.


74. Control procedures or activities on complete documentation and proper

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authorization in the distribution of rice for the Typhoon Yolanda relief operations were not adequately implemented at NFA-CDO and NFA-SDO which could result in possible losses to NFA. We recommended that the CDO and SDO Management see to it that the control procedures on complete documentation and proper authorization in the delivery of stocks for relief operations are properly implemented by enjoining the responsible officials and personnel to prepare the contracts on credit sales for DSWD’s conforme on the actual issuances based on WSIs and DRs; and, thereafter, immediately bill and/or promptly reconcile with their records, as appropriate, to enable immediate collection.

Partially implemented All billing statements related to Typhoon Yolanda relief operation were already submitted to DSWD/DND. Billings were already settled except that for DND/NDRRMC. Bills/reconciliations were made and documents were submitted.

75. Despite the issuance of billing statements, a total of 37,765 bags of rice worth P50.983 million out of the 225,136 bags released by Region VIII to various government agencies and private institutions for relief operations to the victims of super Typhoon Yolanda remained unpaid as of year-end. Moreover, there were rice releases not supported with Memorandum of Agreement (MOA), Deed of Undertaking and Purchase Orders, while a total of 800 bags of rice purchased by two LGUs from Eastern Samar remained not withdrawn as of December 31, 2013.

We recommended that Management request the concerned LGUs to coordinate with DSWD for the immediate settlement of their unpaid accounts, and enforce from the concerned national government agencies payment of their obligations to NFA.

Partially implemented In Southern Leyte PO billing statements were issued to the concerned LGUs with unpaid accounts. Follow up letter after the first demand letter was issued to the LGUs were also sent.

76. The lease of privately-owned property at the NFA-NCR for use of the district offices grains storage amounted to P275.075 million for the past three years, or an average of P91.692 million per year, which based on historical cost

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of a 90,000-bag capacity of NFA-owned warehouse in Cavite, can already be considered more than sufficient to build own facility, thereby reducing storage expenses. We recommended that Management conduct cost-benefit analysis on the viability of constructing NFA-NCR warehouses vis-a-vis cost of leasing

warehouses.

Partially implemented NFA to conduct cost-benefit analysis and feasibility study for proper recommendation to the Regional Office to purchase a lot and construct a warehouse.

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Annex A.1

Deficiencies Noted in Contracts Procured by NFA Regional Offices IV, VI, X and

XV - Caraga in Calendar Year (CY) 2020

Regional Office (RO)

Name of Project Contract Amount

Noted Deficiencies/Lapses

IV Procurement of Warehouse Handling (and Allied) Services

P 176,772,102 The contract was awarded to the contractor without adequate post-qualification, contrary to Section 34.3 of the Revised Implementing Rules and Regulations [IRR] (RIRR) of Republic Act (RA) No. 9184, thus, the basis for the assessment as responsive bid was not established.

The Agency was not able to submit the detailed breakdown and supporting documents of the Approved Budget for the Contract (ABC), particularly the basis of computation on the total required number of moves of 34,713,508 in each location area and the 15 per cent profit margin amounting to P20.633 million that were imputed in the ABC, Section 3.1.2 of Commission on Audit (COA) Circular 2009-001 dated February 12, 2009, thus, the basis on how the ABC was derived at could not be determined.

The requirement for the submission of the proof of semi-annual payment of social benefits of the laborers as stated in the Special Conditions of the Contract does not support the propriety and validity of the monthly payment of handling services to be made by the agency.

VI Negros Occidental Provincial Office (PO)

Procurement of wooden pallet boards through shopping

198,000 The purchase of 130 pieces of wooden pallet boards for use of the different warehouses in Negros Occidental was done thru shopping, not in conformity with Section 52.1 and Annex H of the 2016 RIRR of RA No. 9184.

The items were not included in the Annual Procurement Plan (APP) of the Agency, contrary to Section 7.1 of the 2016 RIRR of RA No. 9184.

X Reconstruction of

perimeter fence of GID Valencia Warehouse

500,000 The Bids and Awards Committee (BAC) of NFA Bukidnon did not prepare and submit Procurement Monitoring Report (PMR) to the Government Procurement Policy Board.

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The procurement is not included in the APP, contrary to Section 7 of the 2016 RIRR of RA No. 9184.

Absence of BAC Resolution resorting to negotiated procurement despite non-compliance with the requirements in Section 53 of the 2016 RIRR of RA No. 9184.

XV - Caraga

Supply of Labor and Materials for the Re-Roofing, Conversion of Rotary Ventilator to Ridge Vent, Replacement of Worn-Out C-Purlins and Corrugated G.I. Sheet Walling and Extension of Canopies of NFA-Duplex Warehouse at Tandag, Surigao del Sur Province

12,246,566 Lacking documentary requirements such as: • Program of Works supported with

Detailed Quantity and Cost Estimates/Derivation of Unit Cost

• Certification of the Head BAC Secretariat of posting the Supplemental Bid Bulletin in conspicuous places within the premises of the agency

• Complete set of approved plans/drawings

• Construction Schedule and S-Curve • Manpower Schedule • Construction Safety and Health

Program approved by Department of Labor and Employment

The pre-bid conference was conducted on April 13, 2020 or just five days from the Philippine Government Electronic Procurement System (PhilGEPS) posting of the Invitation to Bid (ITB), contrary to Section 22.2 of the RIRR which requires that “xxx but not earlier than seven calendar days xxx”.

The contract was perfected on June 25, 2020 which was four days delayed from the required timeline of 10 calendar days from receipt of the Notice of Award (NOA), which was on June 11, 2020.

The notice to observers of the change in schedule of bid opening was served on May 13, 2020. The original schedule of the opening of bids was on May 11, 2020. The notification of the change of schedule should be done before the date of the original schedule.

Negotiated

Procurement Through Emergency Cases of Private Milling Services for NFA Caraga RO for

10,664,475 The ABC was not supported with Detailed Quantity and Cost Estimates/Derivation of Unit Cost

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CY 2020

Supply of Labor and Materials for the Construction of Solar Dryer Pavement at NFA-Mabua Duplex Warehouse, Tandag, Surigao del Sur



• Certification of the Head of BAC Secretariat of posting the Supplemental Bid Bulletin in conspicuous places within the agency premises


• Construction Schedule and S-Curve, Manpower Schedule, Construction Method, Equipment Utilization Schedule and Program Evaluation and Review Technique – Critical Path Method

The pre-bid conference was conducted on April 13, 2020 or just five days from the PhilGEPS posting of the ITB, contrary to Section 22.2 of the RIRR which requires that “xxx but not earlier than seven calendar days xxx”.

The contract was perfected on June 25, 2020 which was four days delayed from the required timeline of 10 calendar days from receipt of the NOA which was on June 11, 2020.

The notice to observers of the change in schedule of bid opening was served on May 13, 2020. The original schedule of the opening of bids was on May 11, 2020. The notification of the change of schedule should be made before the date of the original schedule.

Supply of Labor and

Materials for the Construction of Solar Dryer Pavement at NFA-GID Warehouse, Bayugan, Agusan del Sur




• Complete set of approved plans/ drawings

The Pre-bid conference was conducted

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on April 13, 2020 or just five days from the PhilGEPS posting of the ITB, contrary to Section 22.2 of RIRR which requires that “xxx but not earlier than seven calendar days xxx”.

The notice to observers of the change in schedule of bid opening was served on May 13, 2020. The original schedule of the opening of bids was on May 11, 2020. The notification of the change of schedule should be made before the date of the original schedule.

The contract was perfected on July 6, 2020 which was beyond the required timeline of 10 calendar days from receipt of the NOA which was on June 11, 2020.

Supply and Delivery

of 195,000 pcs. 50 kg. Capacity Brand New Woven Polyproplene Empty Sacks Requirement for Rice of NFA Caraga RO

1,907,000 Lacking documentary requirements such as: • PPMP • Minutes of the Pre-Bid Conference • Approved Budget for the Contract was

not supported with Detailed Quantity and Cost Estimates/Derivation of Unit Cost

Supply of Labor and

Materials for the Tiling of NFA RO, Libertad, Butuan City

539,175 Lacking documentary requirements such as: • Program of Works supported with




The contract agreement was not dated which precludes the Auditor in ascertaining whether it was executed within the required timeline or not.

The notice to observers of the change in schedule of bid opening was served on May 13, 2020. The original schedule of the opening of bids was on May 11, 2020. The notification of the change of schedule should be done before the date of the original schedule.

Procurement of 5,190,000 The ABC was not supported with Detailed

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Trucking Services Requirement for the Transfer of 40,000 bags Local Milled Rice to NFA RO VIII through Negotiated Procurement (Emergency Cases) Amidst COVID19 Pandemic

Quantity and Cost Estimates/Derivation of Unit Cost.

Negotiated

Procurement Through Emergency Modality for Hauling Services for the transfer of more or less 15,000 bags Local Milled Rice from Various Warehouses in Caraga RO to RO VIII

1,859,000 The ABC was not supported with Detailed Quantity and Cost Estimates/Derivation of Unit Cost.

Supply and Delivery

of CY 2020 Pesticides Requirement of Caraga RO POs

2,031,200 The contract agreement was not dated which precludes the auditor in ascertaining whether it was executed within the required timeline or not.

P 215,679,349

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Annex A.2

Contracts of NFA National Capital Region (NCR) Regional Office (RO) Belatedly

Submitted to COA for Auditorial and Legal Review in CY 2020

Name of Project Amount of

Contract Date of Contract Date Submitted No. of Days

Delayed

Supply, delivery, installation, testing and commissioning of two units brand new 80-ton capacity pitless type electronic truckscale with truckscale house and roller weight shed at North District Office [DO] (NDO) and East DO (EDO)

8,510,700 November 20, 2020 January 15, 2021 41

Rental Service for six units of reconditioned photocopying machines for the year 2020

159,600 December 4, 2020 January 15, 2021 35

Small value procurement of services for the conduct of relocation/verification survey of NFA lot 3395-B and 3355-E situated at Barangay Lapidario Trece Martirez City, Cavite

121,300 November 20, 2020 January 5, 2021 39

Procurement of Shipping Services under containerized shipment for the transfer of 5,000 bags of NFA rice and office supplies to NFA Batanes

512,000 October 26, 2020 November 10, 2020 8

“TOSS COIN” activity for the procurement of security services for NFA-NCR (including Central Office (CO), Visayas Compound, Batanes Unit Office and installation at Taguig) for the period March 31, 2020 3:01 p.m. to December 31, 2020 3:00 p.m.

18,783,376 August 24, 2020 November 10, 2020 71

Procurement of warehouse handling (and allied) services for grains for NCR and Batanes Unit Office for the period September 16 – December 31, 2020

26,574,902 September 7, 2020 January 5, 2021 113

Small value procurement of services for the conduct of relocation of Novaliches property located at Quirino Highway, San Bartolome, Novaliches, Quezon City

93,500 July 29, 2020 October 8. 2020 125

Conduct of geotechnical investigation for the truckscale at EDO and NDO

160,000 June 26, 2020 October 8, 2020 99

Provision of kitchen @ RO 3rd floor; Completion of conversion/repair and repainting of offices @ 3rd floor to staffhouse

11,590 24,525 90,044

June 18, 2020 September 24, 2020 116

Small value procurement for the supply and delivery of pesticide requirement of NCR RO for the 1st and 2nd quarters of 2020

423,360 February 14, 2020 October 8, 2020 229

Procurement of shipping services under containerized scheme for the transfer of 6,000 bags NFA rice and various office supplies and materials and equipment to Basco, Batanes for the 1st quarter of 2020

819,900 January 20, 2020 January 31, 2020 4

P 56,284,797

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Annex B

Deficiencies Noted During the Ocular Inspection of NFA Warehouses in CY 2020

POs/DOs NFA SOP Provision Noted Deficiencies

Custody of Warehouse

NCR NDO, East DO (EDO), SDO, and Cavite PO (CPO) RO II RO III Quezon Laguna Agusan del Sur Surigao del Sur

7. All laborers working and assigned in the warehouses shall be required to wear identification cards. The identification card shall be controlled by the PO.

The wearing of identification cards for regular employees and workers provided by the labor contractor are not required, making it difficult to determine the legitimacy of the persons allowed access to the warehouse premises.

LUPO Quezon

3. There shall be one Senior Grains Operations Officer (GOO) - Warehouse Supervisor (WS) assigned for every warehouse. However, duplex or triplex type warehouses shall be considered as one warehouse.

Seahorse and Benemerito warehouses in Aringay, La Union and Agoo, La Union, respectively, were assigned to only one Senior GOO-WS. Also, Ormita 1, 2 and 3 warehouses, all located in Bangar, La Union, are under the custody of only one Senior GOO-WS.

The WSs in NFA Quezon were given multiple assignments.

Piling System

LUPO 2. The pallets should be covered with jute sheets or unserviceable empty sacks to prevent any spillage of grains accumulating beneath.

In Seahorse and Benemerito warehouses, rice stocks were placed on pallets without putting jute sheets or empty sacks as cover piling

NCR, NDO, EDO, SDO and CPO WPPO Agusan del Sur RO II

4. The Senior GOO-WS shall decide on the height of piles in terms of bags of 50 kilograms net weight capacity or the corresponding standard weight for imported cereals. Basis shall be the warehouse ceiling height and capacity. The following are sample standards which may be adopted: For 50 kilogram net weight capacity - 20 bags per height pile

Pile levels of stocks in some warehouses were 20 layers. This exposed the stocks to heat coming from the roof.

The warehouses did not comply with the prescribed maximum allowable safe height of pile of sacks.

The maximum allowable safe height of 18 to 25 sacks of palay was not observed in various NFA warehouses. The pile height of palay reaches more than 30 sacks during the physical inventory count. This practice caused the collapse of stock piles in three of the warehouses in Cagayan PO.

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NCR, NDO, EDO, SDO and CPO RO II Agusan del Sur Surigao del Sur

13. An updated bin card shall be attached to every pile.

There were piles with no bin card and if ever there were bin cards attached, they were not updated. In such case, the purpose of the bin card, which is to monitor the movement and balance of the stocks in every pile at any point in time, was not served. The stock levels could not be easily determined if stock/bin cards are not properly maintained.

Storage and Specification

NCR CDO, SDO and CPO LUPO WPPO RO II RO III Camarines Sur

2. The roof structure must be well ventilated under normal condition. It should be provided with air vents or windows so that there is a continuous flow of air inside the warehouse. 2.1 Vents shall be provided near the floor level, at the top of the walls near the grid line and at the top of the roof and ridge. When the openings are properly proportioned, the air inside the warehouse will come from the lower vents to the roof vents.

Humidity inside the warehouse and grains temperature were not monitored and controlled regularly; high moisture and warm temperature in grains allow for the rapid growth of insects and fungi.

Vents are not screened; birds and rodents could enter freely. Vents are provided only at the middle part of the walls, not conducive for ventilation.

NCR CDO, NDO, EDO and CPO LUPO WPPO Laguna Agusan del Norte Agusan del Sur

3. The flooring of the warehouse should be adequately strong. It should be free from cracks where moisture from the ground may affect the stored grains. Moisture sealing compound or asphalt should be provided to fill the floor cracks against moisture.

The cracks on the floors of the warehouses were still unrepaired despite prior years’ audits, thus, exposing the stored rice to ground moisture.

NCR NDO, EDO and CPO Agusan del Norte Agusan del Sur

4. The warehouse structure should as much as possible be kept insect, rodent and bird proof. 4.1 To make the structure rodent and bird proof, a 1/4 inch opening mesh wire shall be provided on all openings or vents and in space between the roof and the vents. If possible, the doors must be provided with screen doors aside from the regular warehouse door. This is to provide some security when warehousing activities are at its minimum.

The doors and openings/vents of the warehouses were either not screened or have deteriorated screen wires allowing rats and birds to freely enter the warehouses which may cause spillage, infestation and contamination.

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LUPO NCR CPO RO II Quezon

9. Piles shall be tight, neat and squared off.

Some piles were not squared off as required under Section B.9 of SOP No. GM-WH07

RO II 12. A one-meter space shall be provided between piles, between piles and walls, between piles and posts to facilitate cleaning and application of pest control measures.

The one meter space between piles, between piles and walls, and between piles and posts were not consistently observed to facilitate cleaning and application of pest control measures

Good Warehouse Keeping

NCR CDO, SDO and CPO RO II RO III Laguna Camarines Sur Agusan del Sur

1. Prior to storage, the inside and immediate surroundings of the warehouse shall first be cleaned thoroughly, free from the unnecessary materials like pieces of lumber, old machines and parts. This removes hiding and breeding places of rats, insects and pests.

Floorings were dusty and dirty, and animal manures littered on the floor on some of the warehouses; dogs and cats are loitering inside the warehouses which could be hazardous to health and environment. Unserviceable equipment and unused pallets are stored in the warehouses. Excrements of either insect/rodents at empty pallets besides the wall and near the piles can be found.

Warehouse Hygiene and Sanitation

NCR CPO LUPO WPPO Camarines Sur Agusan del Sur RO II

1. Inspection of roofings for any holes, leakages or damages must be regularly made.

The roof insulations in GTW-New are already damaged. The roofs of the leased warehouses have several holes and damages that may contribute to flooding during heavy rains and typhoons. There were leaking roofs/gutters that damaged the quality of stocks. During one of the ocular inspections conducted in one of the warehouses in Cagayan PO, it was observed that a number of bags of rice were no longer fit for human consumption as these were already damaged by rain water. The piles where the leaks are directed were only covered with canvas to prevent from being wet. Basins and galvanized iron sheets were also placed under the leaking roofs. Per inquiry with NFA

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Northwestern Cagayan - Apayao NCA personnel, roof sealant/cements were applied to cover leakages, however, there were too many and some cannot be properly located.

LUPO RO II RO III Camarines Sur

Pests, webs, dirt and foul smell were noted on some areas within the warehouses, proof that cleanliness is not being observed.

NCR CDO and CPO RO II RO III

4. Cracks and crevices shall be properly filled up with cement plaster to remove places where dust, dirt, residue, etc. can accumulate and where insects can breed.

There were cracks on the floors that might cause moisture and damaged the quality of the stored grains.

NCR CPO 6. Xxx After cleaning the sides and top of the pile, the pile must be covered with mended unserviceable empty sacks (MTS) on top and at least half of the sides to protect the pile from direct attack of birds and insects.

The pile was not covered with MTS either in top or side portion.

NCR CDO, SDO and CPO

7. Pallets should be swept of accumulated grain residues, stuck dust, and cobwebs soon after the piles are vacated. Through sweeping is necessary, however, hosing with water is desirable to thoroughly clean planks and timbers followed immediately by sun drying, spraying and fumigation of pallets. Unused pallets should be removed from the warehouse and kept in a separate storehouse together with other unused items.

No separate storehouse for unused pallets and other unused items Damaged/confiscated stocks were still in the area.

NCR CPO 9. Xxx Empty sacks should be

stored in separate storehouse if not required for immediate use.

No separate storehouse for unused MTS.

NCR CDO and BPU

14. There shall be observance of the "NO SMOKING" and "NO SPITTING" policy inside the warehouse. Signs to the effect shall be posted in conspicuous places around the warehouse.

Some people are seen smoking inside the warehouse and cigarette butts were on the floor.

No "No Smoking" signage seen. Only "No Spitting" and "No Urinating" were seen but are placed in an inconspicuous area.

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Stock Maintenance and Preservation Standards

RO II 6. Laborers shall be discouraged and prevented from using hook or "gancho" to prevent destroying of containers and to avoid spillages.

The laborers and warehouse personnel in NCA continue to use hook or “gancho” which destroys stock containers that cause rice and palay spillages.

Warehouse Safety NCR EDO LUPO RO II Camarines Sur NCR CPO

6. Necessary fire extinguishers must be furnished and all necessary steps for fire prevention taken. There should strictly be "NO SMOKING" in the warehouse.

Expired fire extinguishers in the warehouses were not yet replaced. No fire extinguishers and smoke detection alarms were installed at the warehouse. Only signage such as “No Smoking”, “No Spitting”, “Observe Cleanliness” and “No Gantso Allowed” seen in the warehouse.

NCR CPO RO II Camarines Sur Agusan del Sur Surigao del Sur

7. All personnel directly exposed to warehouse operations, including Job Orders (JOs) must be required to use dust masks for health protection.

In NCR PO, not all laborers are wearing dust masks, while in RO II, Camarines Sur, Agusan del Sur and Surigao del Sur POS, the use of dust masks for health protection was not strictly followed and provided to personnel directly exposed to warehouse operations

LUPO EPPO WPPO Quezon Masbate

F.6 Use of Warning Signs and Color Codes - Color or signs to bring a personnel's attention to hazardous situations shall be adopted to prevent accidents. Signs shall be so designated to add to the overall appearance of the warehouse.

Absence of Closed-Circuit Televisions (CCTVs), smoke alarm detectors, warning signs, color codes and hazard signs were noted in the warehouses

Warning signs and color codes were not observed in LUPO, WPPO, Quezon and Masbate warehouses.

Warehouse Operations during Inventory Count NCR CPO Northwestern Cagayan - Apayao NCA Alacapan

GM-WH12.A (addendum) 2. Physical inventory count of grains stocks and its by-products and MTS in all NFA warehouses shall be conducted semi-semi-annually, specifically from May 16-31 and from November 16-30 of each year, to ascertain physical existence of inventory as reflected in the financial statements. The actual quantity of stocks per physical count shall be compared with the stock balance per stock

During the conduct of physical inventory count, warehouse operations were not suspended by the WSs. Failure to undertake physical inventory count as scheduled, thus, actual existence of the grain stocks as of the prescribed period was not determined.

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report as of actual count date. The variance between the two, if any, shall be the basis of the accounting unit in setting up the allowance for inventory variance.

Transmittal Letters - nfa.gov.ph

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Transcript of Transmittal Letters - nfa.gov.ph