MANAGEMENT LETTER

For the year ended 31 December 2016

POTENTIAL MANAGEMENT
OBSERVATIONS DESCRIPTIONS RECOMMENDATION
RISK RESPONSE

1.1 Emphasis of Pursuant to the mandate of the National Privacy Commission (NPC) to administer and Apart from the We recommend the The Board of Trustees
Republic Act implement the provisions of Republic Act No. 10173 also known as Data Privacy Act of reputational and following: has appointed the
No. 10173, 2012, and to monitor and ensure compliance of the country with international standards operational 1. Get acquainted Compliance Officer,
known as the set for data protection, set of rules and regulations were promulgated to effectively damage that an with the LtCol Jefferson C
Data Privacy implement the provisions of the Act. The Implementing Rules and Regulations (IRR) entity may incur compliance Almazan PA (Ret) as
Act of 2012 was promulgated August 24, 2016, and went into effect 15 days after the publication in in case of data requirements;
Data Protection Officer
the official Gazette. breach, 2. Identify your
(DPO). A Data Privacy
The act and its rules apply to the processing of personal data by any natural and applicable DPO and team
juridical person in the government and private sector except special cases enumerated penalties may e.g., Legal, Team was established
in Section 5 of IRR. Those covered will have one (1) year to comply after the effectivity also be charged Governance, and they will oversee
of the IRR. Request for extension within this one-year period may be granted by NPC as enumerated Technology; the preparation of the
for good cause shown. in Rule XIII of 3. Work on the 5 Data Privacy Manual
NPC has issued 5 key points in compliance (termed as commandments) with the law: the IRR. commandments with data processing
1. Appoint a Data Privacy Officer (DPO) NPC also released guidelines on the Penalties may issued by NPC; flow, data protection
qualification and, roles and responsibilities of the DPO involve 4. Assess and file measures and breach
2. Conduct a Privacy Impact Assessment (PIA) imprisonment an extension reporting procedures.
3. Create your Privacy Management Program (PMP) ranging from six before due date HRD will be requesting
4. Implement your Privacy and Data Protection (PDP) measures months to 5 if needed; and a schedule from the
5. Regularly exercise your Breach Reporting Procedures (BRP) years and a fine 5. Consider National Privacy
ranging from leading
Commission for the
Php500,000 to practices in
conduct of
Php5,000,000 privacy and
may be charged security in orientation/seminar for
depending on implementing the other members of
the nature of data protection the team.
the violation. measures.
2.1 Perform credit As at December 31, 2016, there are a total of 114 and 33 restructured real estate (RE) Non- Before restructuring, Management will
re-evaluation mortgage and housing loan accounts, respectively. Upon performing test of operating performance of the Association must comply with the
upon effectiveness of controls for RE loan receivables, we have noted that the Association credit re- reassess the borrowers recommendation. We
restructuring does not re-evaluate the borrowers paying capacity upon restructuring of loans. evaluation of credit standing by will review the Memo
of real Relative to this, gaps in the payments of borrowers of such loans were observed borrowers checking his net take Circular on restructuring
estate loans paying capacity home pay and of REL accounts to
may lead to an outstanding loan incorporate the credit
increase in balances. re-evaluation of
overdue and accounts and other
delinquent real issues relative to
estate loan restructuring of
accounts. accounts, extension of
repayment terms and
other relevant issues.

2.2Review During the course of our audit, we noted that the real estate housing loan account of The We recommend that Initially, we have come
ownership of Jose Ely Navida was cancelled and the collateral was reclassified as part of Noncurrent aforementioned the Management shall up with a report to
properties assets held-for-sale - real estate housing projects. However, title to the property was no issue may lead set stringent controls monitor all transactions
reclassified to longer named after AFPMBAI but is already transferred to the borrower. It was later to an over buy-out under buy-out
assets held found that the transaction was originally a buy-out transaction wherein loans are overstatement transactions andrevisit agreement for REL
for sale. refinanced to Home Development Mutual Fund or banks. However, the buy-out did not in the the ownership of its accounts, from the time
push through. This was only known by the Association when a prospective buyer was Associations assets held-for-sale of application up to the
interested in the property. assets held-for- before offering such actual receipt of
sale and assets to the payment from the
understatement prospective buyers. bank/s or other lending
in the total loan institutions. This is to
receivables .In ensure that any
addition, cases uncompleted
like this may transaction that will
require the require consolidation of
Association to the TCT back to
incur expenses AFPMBAI is executed.
that could have BCRD of Finance
 been avoided temporary handles the
(e.g. foreclosure buy-out transactions in
expenses) as a coordination with Legal
remedy of and AMD, Finance.
repossessing Likewise, a review of
the property. the process flow will be
done to come up with a
holistic policy on buy-
out of REL accounts to
include the Office
Primary Responsible
(OPR).

2.3 Monitor In 2016, the Association, in compliance with the requirement of National Internal If the liquidation To prevent penalties Management, particularly
liquidation of Revenue Code (NIRC) Section 34 subsection A(1)(b),Expenses - Substantiation of allowances of and minimize the risk of HRD will release an
transportation Requirements, started implementing the mandatory liquidation of transportation and the possible non- Memorandum Circular
and representation allowances given to rank-and-file employees, supervisors and Associations compliance in the event regarding the liquidation
representation managers. However, during the course of our audit, we noted that the Association does rank-and-file that the Association of allowances given to all
allowances not have a monitoring of the amount of liquidated and unliquidated allowances. employees, becomes a taxable MBAI employees to
given to rank- supervisors and entity on some of its ensure strict compliance.
and-file managers is not activities, we Any
employees, properly recommend that the unsupported/unliquidated
supervisors monitored, the Association shall allowances will be
and managers Association is monitor liquidation of its subjected to income tax.
exposed to allowances on a regular Likewise, monitoring and
penalties and basis. safekeeping for BIR
significant risks examination purposes
in case of will be handled by HRD.
noncompliance
with NIRC
Section 34
brought about
by unliquidated
allowances.
Unliquidated
 traveling and
representation
expenses
would,
therefore, be
considered as
either advances
or as
compensation
income subject
to
withholdingtax,
while liquidated
expenses would
be considered
as ordinary
expenses
and,therefore,
allowable as
deduction from
gross income.

3.1 Ensure proper The Association offers real estate housing loans to its members. These properties were Improper Management should Management will comply
recognition internally developed by the Association and are sold at a mark-up. During the course of recognition of properly recognize with the
and recording our audit, we noted that gain on sale of real estate properties are amortized through- revenue relating income related to its recommendation. Gross
of gain on sale out the term of the loan instead of fully recognizing the related gain in the profit or loss to sale of real real estate sales in margin from the sale of
of real estate upon completion of sale. estate accordance with PAS REHP will be recognized
properties may 18 and consider as outright income. RED
As stated in Philippine Accounting Standards (PAS) 18, Revenue, revenue shall be understate net potential impact on will provide Finance all
recognized when an entity transfers to the buyer the risk and rewards of ownership. If income reported restatement upon cost details as basis for
an entity retains only an insignificant risk of ownership, the transaction is a sale and for the year. In correction of accounting recording the mark up.
revenue is recognized, as in the case where the seller retains the legal title to the addition, since policy. Finance will correct
goods solely to protect the collectability of the amount due. Revenue shall be the entries previously made
measured at present value of the consideration, determined by discounting the Association's to conform with PAS 18
installments receivable at the imputed rate of interest. real estate loan
operations are
 currently
assessed by the
Bureau of
Internal
Revenue as
part of its
taxable
operations,
such incorrect
recognition of
gain on real
estate sales
may lead to
deficient income
taxes thereby
exposing the
Association to
payment of
penalties and
compromise as
stated in Title X,
Statutory
Offenses and
Penalties, of the
tax code.

3.2Review The Association disclosed in its December 31, 2016 financial statements that it Erroneous Management should Management will review
admitted complies with the risk-based capital ratio (RBC) requirement based on its internal classification of review assets included all recorded assets that
assets calculations. However, we noted some investments such as investment in a subsidiary, assets as in the computation of its will be included in the
included in the furniture and fixtures, transportation equipment, other equipment and prepaid expenses admitted assets RBC ratio to avoid computation of RBC in
calculation of which may be non-admitted for purposes of computing the RBC in compliance with may lead to payment of penalties accordance with the
risk-based Insurance Commission (IC) Memorandum Circular No. 11-2006.The final RBC ratio will miscalculation and possible revocation template/formula given
capital ratio only be determined upon completion of ICs audit of RBC ratio of its license. by the Insurance
which exposes Commission.
the Association
to payment of
 penalties and
revocation of its
license

3.3Ensure proper We noted that funds amounting to Php20millionplacedunderaspecialsavings account Incorrect Management should Correction already
classification was booked under investment in management agreement(IMA) instead of cash and recognition and ensure that investments effected in the 2016
of Available- cash equivalents. presentation of recognized in the Audited Financial
for-sale the investments Associations books are Statements.
financial On June 24, 2016, an interoffice memo was received by the Investment Department will result to in accordance with PAS Communication between
assets and stating the approval from the Board of Trustees regarding a future placement in a dollar misstatement of 7as at year-end. Finance and Investment
cash and cash IMA to be facilitated by BDO Unibank. Such placement was also approved by the IC. A AFS financial Office will be
equivalents $100,000 requirement is needed in order to complete the placement. However, due to assets and cash strengthened to ensure
the continuous depreciation of peso against dollar, BDO Unibank only found a $50,000 and cash proper recording of
(Php2 million) worth of investment. Hence, the Investment Department placed the equivalents in investment transaction
$50,000 worth of idle funds in a special savings dollar account. On the other hand, the the financial
remaining balance of Php18 million remains to be in the Association's BDO settlement statements.
account to gain interest income despite its idleness.

As per PAS 7, Statement of Cash Flows, cash and cash equivalents includes currency,
coins, checks received but not yet deposited, checking accounts, petty cash, savings
accounts and money market accountsand short-term, highly liquid investments with a
maturity of three (3) months.
3.4Ensure proper We have noted that accrued interest receivable amounting to Php 2miliion fixed rate Erroneous Management should Correction has been
recognition of treasury notes acquired at a premium were capitalized as part of acquisition instead of capitalization of properly recognize effected in August 2017
accrued recognizing related accrued interest receivable. accrued interest accrued interest arising Financial Statement.
interest receivable from newly acquired Communication between
receivable As per PAS 39, Financial Instruments: Recognition and Measurement, financial assets overstates the HTM investments. Finance and Investment
for newly except those measured at fair value through profit or loss, shall be measured at fair total held-to- Office will be
acquired Held- value plus directly attributable costs initial recognition. maturity (HTM) strengthened to ensure
to-Maturity investments proper recording of
investments Transaction costs are incremental costs that are directly attributable to the acquisition and understates investment transaction
of a financial asset. These include fees and commissions, levied by regulatory the interest
agencies and securities exchanges, and transfer taxes and duties. income
recognized in
the financial
statements.

3.5Recognize We have noted that professional expenses amounting to Php15 million for the year Incorrect Management should Management will comply
expenses in ended December 31, 2016 were recorded in cash basis instead of accrual basis as recognition of recognize expenses in with the
accrual basis required in the Conceptual Framework for Financial Reporting. expenses may accordance with the recommendation.
instead of not provide the conceptual framework. Expenses will be
cash basis of Based on the conceptual framework, accrual accounting depicts the effects of Association an It is important that the recognized in accrual
accounting transactions and other events and circumstances on a reporting entity's economic accurate Associations financial basis in coordination with
resources and claims in the periods in which those effects occur, even if the resulting information performance be the
cash receipts and payments occur in a different period. regarding its recognized in accrual requesting/concerned
financial basis since it provides a Offices.
performance for better basis for
the year. assessing its past and
future performance
than information solely
about cash receipts and
payments during that
period.

3.6 Document In 2016, the Association restated its 2015 audited financial statements to correct its Changing the Management should Management will comply
Analysis to recognition of rental income in accordance with PAS 17, Leases, and recognized accounting carefully evaluate with the
Support accrued rent and rental income amounting to Php109 million and Php26 million, treatment for accounting positions recommendation.
 Restatement respectively. An adjustment amounting to Php83 million was made to Retained surplus transactions taken such that there Evaluation of Rental and
of Financial as at January 1, 2015 for rental income earned prior to 2015. may expose the should be no change in Deferred Income is being
Statements Association to accounting treatment of done as stated in 3.1
In addition, the Association made an adjustment of Php1 million to retained surplus to questions from transactions when there above.
correct entry made for the condonation of real estate loan accounts initially recorded as regulators and is no change in
a deduction to Assets held-for-sale instead of deducting Miscellaneous income as per stakeholders in circumstance. Where
Associations policy. instances when there is a restatement,
the change in Management should
circumstances also ensure that the
driving the analysis of facts and
restatement is circumstances and
not apparent. accounting standards,
together with the
conclusion reached, are
documented and
preserved.

5.1 Evaluate the In 2013, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Order While a The Association should For CY 2016, the
Associations (RMO) No. 20-2013 prescribing the policies and guidelines in the issuance of tax Regional Trial continuously evaluate Management has
Tax Exemption exemption rulings to qualified non-stock, non-profit corporations and associations Court declared the tax effect of RMO already set up a
Status under Section 30 of the NIRC of 1997, As Amended. the RMO No. No. 20-2013 and provision for income tax
20-2013 as consider the possibility payable and this will be
Under RMO 20-2013, a Tax Exemption Ruling in the Philippines shall be valid for three unconstitutional, of providing a provision done yearly
(3) years from date specified in the Ruling, unless sooner revoked or cancelled. It shall the Association for future tax losses
be deemed revoked if there are material changes in the character, purpose, or method may be until the BIR has made
of operation of the corporation or association which are inconsistent with the basis for exposed to a final verdict in the
its income tax exemption. possible tax Associations tax
losses for exemption status.
The Associations tax exemption expired in December 2013. Its application for renewal transactions
is still pending as at December 31, 2016. that may be
considered as
taxable (e.g.
real estate
operations,
rental income,
etc.) if
 unfavorable
results will be
rendered
against the
Association
regarding its tax
exemption.

5.2 Implement We noted that the Association uses a methodology wherein only in-force policies are Incomplete and Controls for the Sanitation and clean-up
sanitation and considered in the calculation legal policy reserves. The list of all active policies inaccurate data calculation of legal of data is being
clean-up generated by the Associations system is reviewed and sanitized to ensure that all in- used in the policy reserves should performed regularly.
process of force policies are included. computation of be strictly imposed. Data build up of
data to be While the methodology is in place, we noted the following during our testing: legal policy The internal actuary members with automatic
used for the 171,988 policies with remittance in December 2016 were not included in the reserves may must perform sanitation deduction will also be
computation Valuation File. 2,486 of these policies were found to have Php0 face amount result to and clean-up of data done in coordination with
of legal policy due to incomplete data (i.e., birthday and effective date) in which calculation of misstatement of extracted from the Finance Centers to
reserves reserves is not possible. Information on the policyholders birthdays were the reserves policyholder database ensure completeness
obtained from the Billings and Collection Department while effectivity date was and the related prior to computation of and correctness of
assumed to be the date of the first payment. A recalculation was performed to accounts. legal policy reserves. reserve computation.
provide an estimate on the legal policy reserves for the 2,486 policies and the Further, The Association should
reserves was computed to be Php910,087. inaccurate also ensure that the
203 policies have no records. figures may be policies are clear to all
used by the employees and the
Management corresponding
for decision repercussions if they
making, failed to comply.
reporting and
regulatory
purposes.

5.3 Prepare Bank During the course of our audit, the bank reconciliations on the Regional Bank Accounts Delays in the Preparation of bank Management will strictly
Reconciliation and Head Office Carrier Fund were completed and provided only on March 13, 2017. preparation of reconciliation monitor and implement
on an timely bank statements for each the 45 days average lag
 manner reconciliation bank account on a time for bank
statements regular and timely basis reconciliation
diminish the should be properly
ability of implemented.
Management to
monitor the
Associations
balance of cash
in banks. Errors
or losses may
remain
undetected for
an extended
period of time if
bank
reconciliation
statements are
not prepared on
a timely basis.

5.4 Ensure During the interim and year-end audits, we noted that the Salary and Other Loans End-of-month GL and SL Management has started
reconciliation Receivables and Accounts Payable - Refund general ledger (GL) balances are not reconciliation of reconciliation should be the reconciliation
of General reconciled with the subsidiary ledger (SL) balances. GL balances done on a monthly process between the GL
ledger with those of basis (or at least on a and SL for the 2nd
Subsidiary Interim the SLs serves quarterly basis) to semester of 2017 to
ledger as a check on ensure the avoid accumulation of
accounts Loans Receivables: the propriety of completeness and discrepancy and ensure
Account GL SL Difference the record- accuracy of GL and SL the completeness of GL
Salary Loan Receivable P3,413,603,350 P3,432,050,717 (18,447,367) keeping recording and avoid the and SL recording.
Optional Policy Loan Receivable 2,930,604,216 2,887,485,892 43,118,324 process and accumulation of Reconciliation shall be
RE Mortgage Loan Receivable 1,096,823,024 1,099,057,007 (3,414,339) ensures that discrepancy between done on a quarterly basis
RE Housing Loan Receivable 582,661,007 586,075,346 (2,233,983) balances are those two (2) ledgers in except on REL accounts
Calamity Loan Receivable 159,193,778 156,258,209 2,935,569 accurate. good form. which shall be performed
Basic Policy Loan Receivable 62,741,633 62,973,975 (232,342) Difference annually
between the
MEDAL Loan Receivable 49,504,760 50,409,409 (904,649)
balances of the
Total P8,295,131,768 P8,274,310,555 P20,821,213
 general and
Year-end subsidiary
Salary and Other Loans Receivables: ledgers is an
Account GL SL Difference indication of
Salary Loan Receivable P3,387,471,354 P3,395,374,576 (P7,903,222) internal control
Optional Policy Loan Receivable 2,886,334,977 2,890,538,961 (4,203,984) weaknesses.
Calamity Loan Receivable 148,089,235 144,993,683 3,095,552
Basic Policy Loan Receivable 58,906,504 59,675,908 (769,404)
MEDAL Loan Receivable 48,409,194 49,423,661 (1,014,467)
Total P6,529,211,264 P6,543,323,809 (P10,795,525)

Accounts Payable Refund:

Accounts payable refund, per GL P259,893,976
Accounts payable refund, per SL 246,261,681
Difference P13,632,295

5.5 Improve We noted that after receiving the Associations trial balance on January 19, 2017, there Managements We recommend the Finance Division, in
month-end and were still several significant adjustments made resulting to several revisions of the trial ability to Management to revisit coordination with the
year-end closing balance numbers. These include adjustments resulting from loans reconciliation, legal effectively guide its financial closing concerned Offices, is
process policy reserves calculation, calculation of retirement liability, investment properties an organization process and to further currently working on
revaluation, bank reconciliation, reclassification of benefits payable, incurred but not can be strengthen the Finance process improvement for
reported claims set-up, accrued and unearned interest set-up and reversal, and adversely Accounting the completion of the trial
retained surplus reversal and appropriation, which should have been captured during affected if the Department. Also, such balance as the basis for
the year-end closing process. financial department should take the preparation of the
information is the necessary steps to financial statements.
inaccurate. ensure that Senior Currently, monthly
Critical areas Management receives financial statements are
such as current and accurate completed every 12th day
financial financial information on of the month.
analysis, a timely basis. Continuous coordination
budgetary with ITD for possible
control, and integration of Navision
cash flow can with the stand alone
all be negatively systems/report
impacted. This generation is also being
would also done
adversely affect
the efficiency of
the audit.
Moreover,
failure to
provide
Management
with accurate
information may
result to
inappropriate
Management
decisions. Also,
the risk that
errors may not
be detected
during the
financial closing
process may
compound and
magnify when
time is already
of the essence
and a deadline
has to be met.
Significant
adjustments
during the post-
closing cycle
may result in
material
differences as
against
statutory
reporting
 numbers

5.6 Monitor timely The Associations lapsation of policy contracts is performed on a monthly basis. The Delays in Monthly tagging of Lapsation of policies is
lapsation of Information Technology Department (ITD) forwards a listing of dormant accounts processing lapsed policy contracts performed on a monthly
policy extracted from ABSuite to the Membership and Policy Services Section. lapsed policies should be strictly basis based on the list
contracts may result to imposed. The provided by ITD. This is
However, upon testing the design and implementation of the control, we noted that the improper Underwriting and Policy done manually wherein
lapsation for the sample selected was only performed on-the-spot when the sanitation of Membership all policies included in
policyholder attempted to surrender his policyand the control performer detected that data used in Department must the list are individually
the policy is already lapsed. This was not part of the control attributes that were computation of process lapsed policies validated and selected.
previously documented legal policy on a monthly basis. Non-Forfeiture Options
reserves and Management should are applied first. If it
the related also ensure that the results to a negative
accounts. Associations policies cash value, then, it will
Consequently, and procedures are be tagged as lapsed in
inaccurate clear to all employees the database. The issue
figures may be and the corresponding on the timely or
used by the repercussions if they automatic lapsation of
Management failed to comply policies will be
for decision addressed once the
making and MBAI-IS is implemented
reporting
purposes.
 Repossession and
5.7Observe strict During the course of our audit, we noted that the Association exercised its action for Without the We recommend that foreclosure of long REL
compliance foreclosure for only eight (8) out of 23 real estate mortgage loan accounts with deficient consistent Management revisit the will be included in the
with the collaterals.One (1) account was fully paid in January 2017. Actions for foreclosure were application of implementation of review and revision of
Associations not yet taken by the Association forthe 14 accounts.Details are as follows: controls over controls over policy on the policy on
policy on the policy on repossession and restructuring of RE
repossession No Name Loan Status repossession foreclosure of long loans. BCRD is now
and Balance and foreclosure outstanding real estate maintaining and updating
foreclosure of 1 Buebos, Daisy Php3,865,747 Demand letter sent and received by of long loans and have it the relevant members
long 2 Francia, Noel 2,714,039 borrower outstanding real applied consistently to information (contact nos.
outstanding 3 Mangelen, Sandiale 594,336 Executed Deed of Assignment; On- estate loans, protect the Association for direct payment and
real estate going Transfer of TCT to AFPMBAI the Association from exposure to losses remedial accounts) in an
loans 4 Sales, Salvador 971,901 might not be due to uncollectibility of excel file for future
able to recover its loan receivables reference. Likewise,
5 Cid, Theresa Ann B 2,587,127 Restructured
fully what has thereby impairing its Legal Office is currently
6 Cayton, Arturo 1,988,419.21 been lent to its operations. reviewing the policy on
7 Galano, Carmenchu 448,322 borrowers redemption of foreclosed
8 Aynera, Glenn Joy 1,048,217 which poses a properties.
9 Cristobal, Saladino 2,376,339 threat to
10 Bumosao, John Voltaire 934,290 operate and
No remediating actions performed
11 Goyagoy, Edgar N 1,583,370 fulfill its primary
12 Mangoma, Elias 719,166 purpose of
13 Turla, Samuel P 2,740,931 extending
14 Daelto, Jessie 107,859 benefits and
services for the
On the other hand, in two (2) out of 158 real estate housing loan accounts covered by welfare and
Maceda Law, actions for consolidation were already exercised by the Association. financial
Demand letters and notices of delinquency and cancellation were sent to 21 out of 158 security of its
of these accounts, while 18 out of 158 real estate housing loan accounts were already members and
transmitted to the Associations Real Estate Department for cancellation, updating and their families.
restructuring. No actions were taken by the Association for the remaining 117 real
estate housing loan accounts.
5.8Negotiate Contracts pertaining to rentals of office spaces of Frederick Panaligan, Jocelyn Calip, Contracts are Management should The Management is
contract Josephina Ligueran and Melba Villalobos which expired on July 15, 2016 and Phillip evidence of maintain an inventory of now maintaining and
renewal or Dave Zamora which expired on September 15, 2016 were not yet renewed as at mutual contracts, with a updating the inventory
extension December 31, 2016. agreement summary of critical of Lease Contracts with
before between parties information such as AFPMBAI both as
expiration and can be period covered, among Lessor/Lessee, in the
used to legally others. Having formal regions/provinces and
enforce lease contracts secures in Metro Manila in
compliance the Association as the coordination with RED
should one of lessor from unpredicted and ABOD who will
the parties expenses and allows it monitor the expiry of
violate its terms to enjoy the benefits of contracts.
and conditions. lease escalation
Without it, the clauses which help
Association protect the lessors
may not be able bottom-line against
to require the increases in operating
other party to costs. Management
render service should start negotiating
or comply with for contract extension
the agreed or renewal at least
terms and three (3) months prior
conditions. to the expiration when it
is the intention of
Management to renew
the contract. All
contracts should be
renewed or extended
before expiration,
where such is the
intention of
Management.
5.9 Improve Examination of aging schedule of loans receivables disclosed that out of the total of Overdue and The Accounts Several courses of
collection effort on these accounts, Php570 million or 6.91% are past due for more than 365 days but specific Management action had been done in
the Associations within five (5) years while Php209 million or 2.54% are past due for more than five (5) delinquent Department (AMD) Finance Division to
loans years. Refer to the table below for details: accounts may should review accounts arrest remedial
become receivable aging accounts to include
Up to 1 year 1-5 years Over 5 years Total completely analysis for proper introduction of other
Salary, MEDAL, uncollectible. monitoring and prompt collection facilities.
Calamity loans P3,177,675,741 P230,171,119 P177,136,825 P3,584,983,685 action on delinquent Coordination between
Policy loans 2,807,838,339 137,403,042 - 2,945,241,381 accounts. Furthermore, AMD and BCRD as to
we also recommend accounts with stopped
Real estate loans 1,476,349,504 202,265,101 32,121,780 1,710,736,3844
that the Billings and payment(one month),
P7,461,863,584 P569,839,262 P209,258,604 P8,240,961,450 Collections Department with excess payment as
be required to report well as the preparation
Allowance for the impairment on the foregoing receivables amounting to Php209 million the past due accounts, of SOA or COA is
was recognized as at reporting date. the conditions of such currently being done for
accounts and collection billing and collection
actions taken or purposes. Coordination
proposed to effect with Legal Office for
settlement on a monthly delinquent REL
basis to Management. accounts is also done.
Subsequent reports
should show Likewise, required report
collections, if any, format showing
resulting from collection subsequent collections
actions. on delinquent accounts
are submitted monthly
and reported quarterly to
the Audit Committee
5.10
Execute formal Collection incentive fee pertains to the incentives paid to the finance centers as part of
The lack of Management should Management has
agreement the Association's collection strategy in order to continuously maintain the early contract or secure or execute executed formal
between the collection of monthly bulk remittances of premiums and loan amortization from various formal contracts or formal agreements/institutional
Association and finance centers. agreement agreements with the contracts for service fee
finance centers of could result to finance centers of each with BJMP, BFP and
each branch of In the course of our audit, we noted that there were no contracts or formal agreements scrutiny of the branch of service to PNP. Formal agreement
service with regard to support the payments and accruals of collection incentive fee due to the finance existence and support the amount of with AFP and PCG is in
to collection centers of each branch of service. misstatement of collection incentive fee process. The grant of
incentive fee the recorded recorded in the books collection incentive fee
collection of the Association. for AFP was held in
incentive fee. abeyance starting
October 2016 to present
per directive of the
former Chief of Staff Gen
Ricardo R Visaya AFP
(Ret).

5.11 Monitor Long We noted that the Accounts Payable Refund account includes overpayments on Long Management should Management will
Outstanding premiums and loans received (in a form of salary deduction) from the Associations outstanding review the process and evaluate the process to
Accounts Payable members. Ageing analysis is as follow: accounts assess the claims come up how these
Refund 3 years and below P135,680,172 55% payable probability of these payables will be
3-6 years 42,266,508 17% refund may no liabilities particularly minimized or reduced in
longer be those which are long coordination with the
6-10 years 40,695,844 17% considered as overdue. The AMD Processors of ABOD.
10 years and above 26,595,780 11% liabilities of the should establish a clear Likewise, we will come
P245,238,304 100% Association and cut policy identifying the up with criteria on how
may cause an criteria on when will these can be credited to
Note: The table above does not include refunds for real estate mortgage and housing overstatement these be reversed by the members account
loans, basic premiums, PAGIBIG and motorcycle loans. Reconciliation is as follows: of liabilities the Accounts Specialist
Total Accounts Payable Refund per ageing P245,238,304 recognized in to income or credited to
the financial the members account
Refund for: statements. and apply it
REML 1,535,306 Furthermore, consistently.
REHL 1,037,089 these could also
Basic Premium (1,554,021) be recognized
 PAGIBIG loan (2,815) as income by
Motorcycle loan 7,818 the Association
given the
Total, adjusted P246,261,861 remote
Unreconciled difference (refer to GL-SL discussion) 13,632,295 probability that
A/P Refund, adjusted P259,893,976 it will be
Per GL P259,893,976 claimed by its
members.
Difference P-

5.12 Maintain a We noted that the Associations head office does not maintain a centralized record of Non- Management should The Legal Office will be
centralized lease contracts related to operating leases of its branches. maintenance of maintain an inventory of the repository of all
record of records by the lease contracts to aid in contracts related to
lease Associations proper and accurate operating leases of the
contracts head office recording of rent Associations branches.
related to lessens the expense for the year.
operating ability of the This would also help
leases of the Management to the Association in
Associations monitor the addressing issues
branches leases involved encountered during the
with the lease term.
branches,
hence, may not
accurately
record rent
expense on a
timely basis.

Contracts are
evidence of
mutual
agreement
between parties
and can be
used to legally
enforce
 compliance
should one of
the parties
violate its terms
and conditions.
Without it, the
Association
may not be able
to require other
party to render
service or
comply with the
previously
agreed terms
and conditions.
Accounting Issues

6.1 Ensure that Real estate properties acquired through repossession or foreclosure and those from Incorrect Management should Management will comply
assets held-for- investment properties that were subsequently reclassified to assets held-for-sale recognition and evaluate the value of with PFRS 5 in
sale are account amounting to Php2 million and Php15 million, respectively, were recorded at measurement of properties qualified for coordination with RED.
recognized and carrying amount. assets held-for- transfer to assets held- NCAHS shall be
measured in sale will result for-sale account before measured and recorded
accordance As stated in Philippine Financial Reporting Standards 5, Non-current Assets Held For to misstatement reclassification, and at the lower of its
with Philippine Sale and Discontinued Operations, paragraph 15, an entity shall measure a non- of the account should ensure that carrying amount and fair
Financial current asset classified as held for sale at the lower of its carrying amount and fair and related these are measured at value less costs to sell
Reporting value less costs to sell. balances in the the lower of its carrying
Standards financial amount and fair value
Per Associations policy, repossessed or foreclosed properties are not appraised upon statements. less costs to sell at date
reclassification and are recorded at carrying value. Appraisal is performed upon of recognition.
negotiation with the prospective buyer for the sale of repossessed or foreclosed
property.
6.2Ensure proper During our audit, we have noted marketable securities amounting to Php1 billion with Incorrect Management should Management has
classification atermofmorethan90dayswereimproperlyclassifiedasCashequivalentsinsteadofShort- recognition and ensure that investments complied with the PAS
of cash terminvestments. presentation of recognized in the 7 in the classification of
equivalents the investments Associations books are cash equivalents and
and short-term As per PAS 7, cash equivalents are short-term, highly liquid investments that are will result to in accordance with PAS short-term investments
investments readily convertible to known amounts of cash and which are subject to an insignificant misstatement of as at year-end.
starting September
risk of changes in value. cash
2017 to include the
equivalents and
Cash equivalents are distinguished from other investments through their short-term short-term previous months.
existence. They mature within three (3) months, whereas short-term investments are investments in
12 months or less, and long-term investments are any investments that mature beyond the financial
12 months. statements.

6.3Review During our audit, we have noted that accrued interest receivables amounting to Php21 Exclusion of Management should Management will
calculation of million which should form part of the Associations exposure to credit risk were not accrued interest include accrued interest comply with the
collective considered in the calculation of collective impairment loss. receivables and on its calculation for recommendation.
impairment loss currently loan impairment loss to Accrued interest will be
Net credit exposure is defined as the extent to which the lender is exposed to the risk maturing loans have a clear-cut view of included in the
of loss in the event of the borrower's default, hence, the Associations interest exposure in the the Associations net
calculation of
to the corresponding loan accounts should also be included in the impairment loss computation of credit exposure.
impairment loss and this
calculation. collective
impairment loss will be incorporated in
may result to an the Memorandum
understatement Circular on Policy in the
of impairment computation of
loss recognized Impairment loss on
for the year. receivables.
6.4Record During our audit, we noted that it is the Associations policy to record premiums arising Although the We recommend that Management will
revenues in the from insurance contracts as income when received and on the issue date which amount Management perform a comply with the
proper accounting coincides with the effective date of the insurance policies for the first year premiums. involved may be review of premium recommendation.
period For the renewal business, premiums are recognized as income when still in-force and immaterial, if transactions for the Collection of revenues
in the process of collection. However, based on our sales cut-off procedures, we noted premiums were period immediately will be recorded on the
that in three (3) out of 25 samples selected, premiums pertaining to 2017 were not recorded in before and after year-
period it is due.
recorded as premiums earned in 2016 and in16 out of 25 samples selected, premiums the proper end to ensure that
earned in 2016 were only recorded in January 2017. accounting revenue transactions
period, it may are recognized in the
result in correct accounting
misstatement of period. A clear
revenue and guideline should be
premium established to define
receivables the point as to when the
recognized in revenues are recorded.
the financial
statements.

6.5Properly We noted that the Association records rental income on operating leases from its Incorrect Management should Already corrected by the
recognize the investment properties using cash basis of accounting. Rental income of Php48 million accounting ensure that rental Management in the 2016
rental income and Php47 million in 2016 and 2015, respectively, were understated by Php26 million recognition may income recognized in audited financial
on operating and Php24 million, respectively. result to a the Associations books statements.
leases misstatement in is in accordance with
As stated in PAS 17 paragraph 50, lease income should be recognized over the lease the amount of PAS 17.
term on a straight-line basis, unless another systematic basis is more representative of rent income
the time pattern in which use benefit is derived from the leased asset is diminished. recognized for
the year.
6.6Record long- We noted that the Associations refundable security deposits from its operating lease
Incorrect Management should The Management will
term with Asian Car Makers amounting to Php41 million with lease term of twenty-five (25)accounting ensure that rental comply with the
refundable years were not recorded in the books at amortized cost. Security deposits qualify asrecognition may income recognized in required recognition of
security other financial liabilities. result to a the Associations books long-term refundable
deposits misstatement in is in accordance with deposit in future lease
derived from As per PAS 39, Financial Instruments: Recognition and Measurement, other financial the amount of PAS 17. contracts.
operating liabilities, after initial measurement, are subsequently measured at amortized cost rent income and
leases at using the effective interest method. interest income
amortized cost recognized for
the year.

6.7Coordinate Management was not able to obtain the audited financial statements from its associate, Investments in Management should Management will
deadline of Centennial Financing Corporation. On the other hand,it failed to obtain timely the associates and coordinate with its coordinate with
Audited audited financial statements of the Aguinaldo Theater Enterprises, Inc. share in net associates the deadline Centennial Financing
Financial income as to when the audited Corporation and
Information to recognized in financial statements Aguinaldo Theater to
the Associates the must be provided to the observe deadlines
consolidated former. This will enable through Head, CSG and
financial the associates to plan CCSO and Head,
statements may and start their ABOD being the MBAI
result to respective audits ahead representatives in the
misstatement of time. Board.
by using
unaudited
financial
information.