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EXECUTIVE SUMMARY

INTRODUCTION
The Cavite Economic Zone (CEZ), formerly known as the Cavite Export Processing
Zone (CEPZ) is located in General Trias Drive, Barangay Tejeros, Rosario Cavite. It was
created by virtue of Letter of Instruction No. 1083 dated May 30, 1980, but its actual operation
started on March 26, 1986.
On February 21, 1995, Republic Act No. 7916, otherwise known and cited as the Special
Economic Zone of 1995, was enacted. It is an act providing for the legal creation, operation,
administration and coordination of Special Economic Zones in the Philippines, thus creating for
this purpose, the Philippine Economic Zone Authority (PEZA). The Act was a consolidation of
House Bill No. 14295 and Senate Bill No. 1061.
Its thrust is to actively encourage, promote, induce and accelerate a sound and balance
industrial, economic and social development of the country in order to provide jobs to the people
especially those in the rural areas; increase their productivity and their individual and family
income and thereby improve the level and quality of their living condition thru productive
foreign investments.
At present, the Cavite Economic Zone is considered as the biggest recognized/registered
zone in the Philippines, among the four public ecozones being managed by the Philippine
Economic Zone Authority (PEZA), not only in terms of income but also in the number of
enterprises it serves.
As of December 31, 1999, the total workforce of CEZ, Rosario, Cavite was 89 while the
total number of locators/enterprises was 221. It is still headed by its dynamic Zone
Administrator, Atty. Raymundo T. Nagrampa.
The income of the Cavite Economic Zone depends primarily on its land and building
rentals. As of December 31, 1999, it constitutes P183,788,247 or 38.08% of its total operating
and service income amounting to P 482,624,745.
Although the Operating and Service Income-Government Service represents 50.25% of
the Ecozone income, it cannot be treated as the main source of income, considering that this
account also includes the locators power and water payments which are just commensurate to
their actual consumption in a given period. On the other hand, the total expenses incurred for
Calendar Year 1999 totalled P90,883,604.

SCOPE OF AUDIT
An annual audit was conducted on the accounts and operations of the Cavite Economic
Zone for the calendar year ended December 31, 1999. The objectives of the audit encompassed
both financial transactions and operations of the agency during the year. The audit was

undertaken to ascertain the propriety of disbursements, the reliability of the financial statements
and the adequacy of the books of accounts and subsidiary records. It was likewise conducted to
determine whether the agency utilized its resources in an economical and efficient manner and
whether desired results were obtained as envisioned.
Moreover, the results of the Value for Money Audit (VFM) undertaken during the year
will be covered by a separate report.
The approved Test Audit Days Scheme (TADS) was applied in the post audit of its
disbursement and collection accounts. The assistance of a COA Technical Audit Specialist was
requested to facilitate inspection/evaluation of various infrastructure projects, major repairs and
equipment procured.

OPINION IN THE STATE AUDITORS REPORT ON THE FINANCIAL STATEMENTS


The Audit team rendered a qualified opinion on the fairness of the presentation of the
financial statements as the validity, existence and correctness of the recorded Fixed Assets
account with net book value of P 1,142,826,313 could not be ascertained due to the failure of the
Ecozone to complete the physical inventory of its fixed assets account and submit the related
inventory report. Moreover, the required disposal of all unserviceable properties was not
undertaken.

SUMMARY OF SIGNIFICANT FINDINGS AND RECOMMENDATIONS AND


FAVORABLE OBSERVATIONS
For the exception cited above, it was recommended that the completion of the physical
inventory and the submission of the related inventory report as well as the prompt
correction/adjustment of any confirmed discrepancy be made. Moreover, proper disposal of
unserviceable properties should also be considered and given preferential attention.
In addition, the following are the other significant findings and their corresponding
recommendations:

1. The collectibility and validity of the accounts receivable amounting to P


3,397,997 which remained outstanding for more than five years could not be
ascertained due to the absence of complete records of the legitimate authorized
companys representatives/owners and/or their unknown whereabouts.
Intensify efforts to trace/locate the whereabouts of the legitimate
owners/representatives of those companies which already ceased their operations
for prompt collection of long outstanding receivables. Institute legal actions to
effect immediate payment of all collectibles, if warranted.

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2. The agency failed to provide an allowance for doubtful accounts for long
outstanding receivables, thus overstating both the assets and income accounts.
Coordinate with the PEZA, Head Office to set/provide yearly allowance for
doubtful accounts in order to reflect the true value of the accounts receivable and
net earnings realized for the year.
3. There were no clear policy guidelines on the limitation set for the maximum
allowable number of companies to be escorted on a given date, thus resulting to
multiple monthly claims of escort fees ranging from P 7,000.00 to P 46,800.00
per Escort Police.
Make representation with the PEZA Head Office to expedite the issuance of a
clear-cut policy guidelines on the limitation set for the maximum allowable number
of companies to be escorted on a given date and for possible hiring of additional
Escort Police to cope with the present workload.
4. The agency has no written policy regarding the grace period to be given to
delinquent locators, thus, the 2% monthly penalty charges stipulated in the
Registration Agreement were not strictly imposed and/or uniformly applied to
all delinquent Registrants.
Make representation with the PEZA Board of Directors to issue a resolution as to
the number of days to be given as the grace period to delinquent locators and
impose strictly the 2% penalty charges as provided for in the Registration
Agreement.
5. Official Receipts (ORs) were issued by other unauthorized/not bonded
personnel of the Finance Division, contrary to Section 66 of the Government
Accounting and Auditing Manual Volume I, thus numerous errors were noted in
the post-audit of the ORs and the accuracy and correctness of the amount
collected could not be easily ascertained.
Assign or designate additional bonded collecting officers to permanently assist in
the issuance of ORs. Moreover, instruct them to turn over their collections to the
Cashier at the end of each day as required under Section 65 of the Government
Accounting and Auditing Manual Volume I.
Likewise, require the bonded collecting officers to indicate in the Official
Receipts the nature/breakdown of the amount collected including the bill numbers.
Segregate the Official Receipts for payment of escort fees, since it is a trust liability
under a separate fund.
6. There was an accumulated discrepancy of approximately 23,121 square meters
between the CEZ Engineering actual land area survey and the signed
Registration Agreements of seven locators, thus reliability of the bills sent to said

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locators could not be easily determined.


Moreover, no Supplemental
Registration Agreements were prepared/signed to support the noted differences,
thus possibility of resistance on the part of the locators to pay the amount billed
which were more than what were stipulated in the agreements/contracts.
Coordinate with the PEZA Head Office to resolve the discrepancy in the
preparation of RAs or issue Supplemental Agreement for the seven locators, if
necessary. Set a meeting with the Representative of Saisho Onkyo, Inc. to settle the
interest due on the additional 10,000 square meters lot.
7. The present billing system is designed to accept and print current billing only,
thus Registrants were not promptly informed/reminded of their previous unpaid
bills including penalty charges, thus, adversely affecting the collection efficiency
of the Ecozone.
Consider the possibility of having additional billing personnel and adopting the
computerized system of billing to include the unpaid balance, penalty charges and
recording of collections to facilitate verification of account and enhance collection
efficiency.
Although several unfavorable findings were noted during the audit, it is worth
mentioning that remakable/commendatory activities undertaken by the Zone Administrator and
his staff were also considered in the evaluation of the agencys year end accomplishments.
It is worth mentioning that during the post-audit of the 1999 transactions, we noted that
there were only minimal audit suspensions and disallowances incurred.
Out of the total
disbursements
amounting to P 90,883,604 , only
P 576,576.99
or .63%
was
suspended/disallowed during the year.
Moreover, the agency has been withholding and remitting taxes on salaries, goods and
services as required under National Internal Revenue Rules and Regulations and COA
Memorandum No. 91-692 dated January 21, 1991.
We discussed our findings and recommendations with the Zone Administrator and
concerned personnel during the exit conference and they assured us of the immediate
implementation of the recommendations presented. Management views and reactions were
incorporated in the report, where appropriate.

STATUS OF IMPLEMENTATION BY AUDITEE OF THE PRIOR YEARS


RECOMMENDATIONS

AUDIT

Of the eight recommendations contained in the 1998 Annual Audit Report, three were fully
implemented, and five remained unimplemented.

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