COA-AOM No. NG-2014-08 (2013) Dated 21 March 2014

April 28, 2014 BIR MEMORANDUM FOR : DCIR Nelson M. Aspe Operations Group ACIR Elvira R. Vera Collection Service All Revenue District Officers All Chiefs, Legal Division, Revenue Regions RE : COA-AOM No. NG-2014-08 (2013) Dated 21 March 2014 In line with the recommendations of the COA-BIR in its AOM No. NG-2014-08 (2013) dated 21 March 2014, Re: Other Receivables account (SL 142-Dishonored checks thru banks) , copy attached, the following revenue officials are hereby directed: (1) The Chiefs, Legal Division of all Revenue Regions, to regularly prepare and submit to the Assistant Commissioner, Collection Service, copy furnished the concerned Revenue District Office (RDO) and the Regional Office, the Monthly Status Report of Dishonored Checks received (Annex "G" of RMO 25-001); (2) The Revenue District Officers (RDOs) to furnish the Revenue Accounting Division (RAD) with a list of dishonored checks considered as Accounts Receivable (ARs)/Delinquent Accounts (DAs) in the General Control Ledger (GCL) of the concerned Regional Office to serve as basis of the RAD to adjust the account Other Receivables ; and, (3) The DCIR for Operations and ACIR Collection Service to recommend appropriate revenue issuance on when Other Receivables arising from dishonored checks should be transferred and recorded in the GCL and should form part of Notes to the Financial Statements. EHTADa For observance and compliance of all concerned. (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue ATTACHMENT Commission on Audit Office of the Auditor AOM No. NG-2014-08(2013) Date: March 21, 2014 AUDIT OBSERVATION MEMORANDUM (AOM) For: Honorable KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue Quezon City Attention: Mr. NELSON M. ASPE Deputy Commissioner Operations Group Ms. ELVIRA R. VERA Assistant Commissioner Collection Service The validity and accuracy of the P430,863,292.92 year-end balance of Other Receivables account (SL 142-Dishonored checks thru banks) is doubtful due to the inclusion of dishonored checks totaling P112,309,409.17 which remained unredeemed since 2004. The New Government Chart of Accounts (NGAS) described the account Other Receivables (149) as amount due from all debtors not falling under any of the specific types of receivables. In the National Government (NG) books of the Bureau of Internal Revenue (BIR), said account is debited to record the amount of dishonored checks based on the Monthly List of Dishonored Checks Received and credited once these are redeemed by the taxpayer per Monthly List of Dishonored Checks Redeemed submitted by the Revenue District Offices (RDOs). The BIR Collection Manual provides that accounts receivable emanate, among others, from the non-payment of tax due arising from a dishonored check. HTDCAS Revenue Memorandum Order (RMO) No. 25-2001 dated October 16, 2001 requires the Revenue Accounting Division (RAD) to prepare a listing of all dishonored checks received and deducted from the bank's remittances based on the Consolidated Report of Collection and Deposit (CRDC) and BIR Form 12.58 submitted by the Bank Head Office of Authorized Agent Banks (AABs) for recording in the Bureau's books of accounts. The RAD validates the reported dishonored checks by comparing the list as appearing in BIR Form 12.58 attached to the CRDC against the Monthly List of Dishonored Checks Received submitted by RDOs. The Legal Division of the Revenue Regional Offices (RROs) prepare and submit a Monthly Status Report on Dishonored Checks Received (Annex G of RMO 25-2001) and file cases in court against the delinquent taxpayers for violation of Batas Pambansa Blg. 22. The RDOs submit a similar report (Annex F of RMO-2001) showing in summary the quantity of cases and the total outstanding dishonored checks for the month while the Collection Service receives the status report and monitors the progress of resolution/redemption of dishonored checks received by the RDOs and Legal Division of the Regional Offices. Dishonored checks are included in the category of Unpaid Self-Assessed Tax and if not redeemed within a certain period, they are considered delinquent account (DA) and automatically considered high priority case. BIR Operations Memorandum (OM) No. 13-03-001 dated March 12, 2013 provided for the Pilot Implementation of Centralized Arrears Management for Metro Manila Regions (Revenue Regions 5, 6, 7 and 8) which adopted the centralized administration and management of Accounts Receivable/Delinquent Accounts (AR/Das) at the Regional Collection Divisions (RCDs). Selected Seizure Agents (SAs) were assigned to test "the new procedures and policies intended to provide meaningful steps to understand the behavior of AR/DA inventory and provide efficient compliance interventions." BIR OM No. 13-03-001 dated March 12, 2013 provides that new AR/DA dockets/cases arising from unpaid self-assessed taxes shall be transmitted by the RDOs to the RCD covered by a transmittal list. For unpaid tax arising from dishonored check, the docket shall contain a certified true copy of the manually filed return, original copy of the dishonored check, and report of returned dishonored check. The physical docket shall be transmitted by the RDO to the RCD within ten (10) working days reckoned from the date when the dishonored check was physically returned by the bank. caIACE RMO No. 43-2004 dated August 5, 2004 provides the "General Control Ledger (GCL), BIR Form No. 1253" as a master control devise which shows the aging of accounts and summary of receivables (AR/DAs) of the Bureau. In order to achieve accurate inventory of AR/DAs, BIR OM No. 3-2013 dated April 15, 2013 was issued and the GCL form (BIR Form 0319) was revised to include new AR/DAs. The offices preparing the GCL were reminded of the monthly submission thereof to the Accounts Receivable Monitoring Division (ARMD), formerly the Collection Enforcement Division (CED), together with the following attachments: a. BIR Form 0335 Monthly List of New Accounts Added b. BIR Form 0311 Monthly List of Transfer-In Accounts c. BIR Form 0312 Monthly List of Transfer-Out Accounts d. BIR Form 0313 Monthly List of Accounts Cancelled by ATCA e. BIR Form 0314 Monthly List of Accounts Paid f. Updates on Delinquent Accounts/Unpaid Second Installments and Unredeemed Dishonored Checks Being Handled (Annex B, OM No. 3-2013) BIR OM No. 3-2013 required every office handling AR/DA case to submit the GCL report, including the updates on delinquent accounts, in hard and soft copies every 15th day of the following month. It was emphasized that non-submission and submission of inaccurate or delayed reports of AR/DA would result in the distortion of the database that would eventually be uploaded in the Accounts Receivable Management System (ARMS). DCScaT At present, the RAD records the redemption of dishonored checks on the basis of the Monthly List of Dishonored Checks Redeemed submitted by the RDOs. Inquiry disclosed that the RDOs submit the Monthly Status Report of Dishonored Checks Received; however, said report bears no significance to RAD since the data of the report show only the quantity and amount of delinquent cases and dockets. On the other hand, the Monthly Status Report on Dishonored Checks Received (Annex G of RMO 25-2001) being prepared by the Legal Division showing the taxpayers' name and status of cases are not regularly submitted to RAD. Thus, the RAD has no other basis to record the redemption or settlement by the taxpayer other than the Monthly Status Report of Dishonored Checks Redeemed. It has to be emphasized that the AR/DAs are not recorded in the books of accounts of the Bureau, but only disclosed in the Notes to Financial Statements. The Bureau considers them as contingent assets and recognized as revenue once these are collected. Since the RAD has no other report to use as basis in crediting the account Other Receivables in order to record redemption or other forms of settlement of the unpaid tax, there is a great probability that unredeemed dishonored checks already included as AR/DAs in the GCL and those already settled/closed are still included in the account Other Receivables of the NG books. Verification of the subsidiary ledgers of Other Receivables in the e-NGAS disclosed 94 taxpayers with aggregate dishonored checks totaling P112,309,409.17 (Annex A) . Of this amount, P1,806,175.00 has been outstanding prior to 2004, while the P110,503,234.17 has remained in the books from 2004 to 2013. In the absence of verifiable documents from Management, it could not be ascertained how much of these Other Receivables were already transferred or formed part of the GCL. Interviews made with concerned BIR officials disclosed that the Bureau has no clear cut policy on when Other Receivables arising from dishonored checks are to be transferred and recorded in the GCL. The P112,309,409.17 Other Receivables are summarized per region as follows: ESTcIA Revenue Region Amount No. of Taxpayers 5 3,297,014.52 4 6 6,812,985.71 6 7 38,533,939.80 34 8 47,672,975.54 39 Others 15,992,493.60 11 Total 112,309,409.17 94 =========== === Thus, the validity and accuracy of the reported P430,863,292.92 year-end balance of Other Receivables account (SL 142-Dishonored checks thru banks) is doubtful due to outstanding dishonored checks totaling P112,309,409.17 which have been existing from 2004 to 2013. We recommend that Management: 1. Require the Legal Division to regularly prepare and submit to the Assistant Commissioner, Collection Service, copy furnished the RDO and the Regional Office, the Monthly Status Report on Dishonored Checks Received (Annex G of the RMO 25-001); 2. Require the RDOs to furnish the RAD with a list of dishonored checks considered as AR/DAs in the GCL of the concerned Regional Office to serve as basis of the RAD to adjust the account Other Receivables ; and 3. Issue a policy on when Other Receivables arising from dishonored checks should be transferred and recorded in the GCL and should form part of Notes to the Financial Statements. May we have your comments on the foregoing audit observations within five working days from receipt hereof. caCEDA (SGD.) MA. ELEANOR C.A. CALO Audit Team Leader Audit Group F-Team 1 (SGD.) GLORIA M. BACANI Supervising Auditor Audit Group F-BIR ANNEX A Schedule of Other Receivables (142-Dishonored checks thru banks) P500,000 and above As of December 31, 2013 No. RR Code Taxpayer As of Dec Period covered 1 5 149-002-027-0008 Ernesto F. Daez/184-841-409 1,017,066.73 beg bal - 2013 2 5 149-002-027-0009 Estelita Daez/103-762-509 789,108.27 beg bal - 2013 3 5 149-002-025B-0001 Holy Trinity Realty & Development Corporation/ 923,670.00 2011-2013 000-588-437 4 5 149-002-026-0090 Delsan Transport Lines, Inc./000-257-128 567,169.52 2012-2013 Sub-total (RR5) 3,297,014.52 5 6 149-002-033-0059 Apogee Production/240-440-319 665,782.65 2007-2013 6 6 149-002-033-0076 GSIS Provident Fund/000-770-637 2,365,141.18 2008-2013 7 6 149-002-034-0090 William & Humbert Philippines, Inc./ 1,140,998.40 2006-2013 244-690-802 8 6 149-002-033-0210 New Personnel builders & Consultancy/ 1,123,572.09 2011-2013 001-291-023 9 6 149-002-034-0130 ING Life Insurance Company/005-036-937 669,503.17 2012-2013 10 6 149-002-032-0215 Adam Chua Teves/152-088-724 847,988.22 2012-2013 Sub-total (RR 6) 6,812,985.71 11 7 149-002-038-0001 I Touchpoint Tech, Inc./219-927-355 681,271.26 2004-2013 12 7 149-002-038-0004 Sales Team Marketing, Inc./003-824-545 587,431.19 2004-2013 13 7 149-002-038-0024 Energy Food & Drinks/256-609-500 2,794,875.85 2005-2013 14 7 149-002-038-0026 PMC Corp./005-417-963 791,031.26 2007-2013 15 7 149-002-045-0015 Nationwide Book Network/906-048-368 699,466.36 2005-2013 16 7 149-002-041-0032 Healthy You, Inc./000-054-490 1,032,365.44 2009-2013 17 7 149-002-038-0031 Pretiolas Phils./004-737-005 763,538.36 2008-2013 18 7 149-002-043-0047 Osram Phils. Ltd. Corp./202-375-917 1,129,555.46 2006-2013 19 7 149-002-038-0053 PMC Corporation/005-417-963 778,957.38 2007-2013 20 7 149-002-038-0085 FDI Forefront II Trading Corp./224-383-033 890,504.28 2007-2013 21 7 149-002-040-0090 Trans-electro Systems Corporation/225-732-189 525,764.18 2008-2013 22 7 149-002-043-0117 First Metro Manila Engineering/000-764-700 1,861,160.63 2008-2013 23 7 149-002-043-0140 Mejore Holdings, lnc./000-328-473 4,600,000.00 2009-2013 24 7 149-002-043B-0002 LGTM Corporation/004-637-645 525,199.13 2010-2013 25 7 149-002-041-0088 BPC Gas Corporation/202-158-185 560,439.07 2009-2013 26 7 149-002-039-0154 Electrobus Consolidated, Inc./000-390-809 691,307.55 2010-2013 27 7 149-002-040-0147 Royal era Entertainment/004-631-047 542,092.79 2012-2013 28 7 149-002-038-0156 Golden Pyramid Trading/000-382-775 1,027,891.78 2011-2013 29 7 149-002-040-0198 JT INTERNATIONAL (PHILS.), INC./ 966,800.34 2011-2013 005-519-158 30 7 149-002-041-0132 R.S.H. Marketing Philippines, Inc./004-658-546 1,150,314.00 2011-2013 31 7 149-002-028-0064 Unitrade Industrial Manufacturing Corporation/ 563,919.30 2011-2013 211-045-310 32 7 149-002-039-0264 Conservation International Foundation/ 209,686.00 2011-2013 004-731-961 33 7 149-002-040-0255 Aditya Birla Minacs Phils., Inc./006535-868 2,251,787.47 2011-2013 34 7 149-002-041-0207 Forever Flawless Face & Body Center, Inc./ 1,299,218.42 2011-2013 220-484-522 35 7 149-002-040-0283 Pacific Cebu Resort International, Inc./ 731,180.93 2011-2013 000-173-210 36 7 149-002-041-0245 STBN Manpower Agency and Allied Services 930,403.22 2011-2013 Corp./234-518-422 37 7 149-002-039-0394 Kongen Const. & Dev't Corp./007-607-243 842,527.08 2012-2013 38 7 149-002-043A-0116 Francisco Manzanares, Jr./247-875-726 4,513,650.51 2012-2013 39 7 149-002-041-0273 Jonathan C. Ng/156-959-344 2,018,460.00 2012-2013 40 7 149-002-043B-0088 Fil-Estate Network, Inc./001-838-423 571,604.75 2012-2013 41 7 149-002-039-0490 Ride and Drive Pilipinas, Inc./007-827-796 528,262.47 2012-2013 42 7 149-002-043A-0178 MJC Investments/000-596-509 589,500.00 2012-2013 43 7 149-002-053A-0075 Philippine Merchant Marine School, Inc./ 358,739.98 2012-2013 202-256-866 44 7 149-002-039-0535 Comtel Industrial Services, Inc./007-214-831 525,033.36 2012-2013 Sub-total (RR 7) 38,533,939.80 45 8 149-002-050-0004 Anoop Chaudery/579-546-000 1,438,073.05 2004-2013 46 8 149-002-050-0015 Maronilla, Jose Matias/144-901-891 1,784,638.77 2005-2013 47 8 149-002-052-0036 Pro-log Phils., Inc./211-448-846 1,059,260.96 2006-2013 48 8 149-002-050-0025 Access Worldwide (AWWC)/236-626-601 947,552.82 2006-2013 49 8 149-002-050-0048 PROV Int'l (Phils.), Inc./006-526-470 1,882,427.00 2008-2013 50 8 149-002-049-0063 Harris Stratex Network Phils., Inc./004-837-758 0.00 2010-2013 51 8 149-002-047-0061 Smart technologoes/232-269-425 543,868.91 2008-2013 52 8 149-002-050-0088 Contactcenter.com/006-813-403 500,921.05 2010-2013 53 8 149-002-050-0113 ECI Telecom Philippines, Inc./005-374-089 1,403,978.90 2011-2013 54 8 149-002-053A-0020 University of Perpetual Help/001-749-801 4,551,190.26 2011-2013 55 8 149-002-049-0125 Intex Telecom Systems Incorporated/ 1,022,567.35 2011-2013 000-164-831 56 8 149-002-050-0134 Cooper Industries International Phil. 1,496,347.43 2011-2013 Branch/248-695-088 57 8 149-002-050-0146 Mark robert Daniels/285-824-166 1,442,550.71 2011-2013 58 8 149-002-052-0169 M & H Food Corporation/002-885-314 2,147,111.80 2011-2013 59 8 149-002-048-0069 RCD Land, Inc./000-167-210 841,307.14 2011-2013 60 8 149-002-049-0146 Promo Edge Corporation/005-031-220 1,810,968.72 2012-2013 61 8 149-002-050-0151 RPS Research Philippines, Inc./007-372-742 915,541.11 2012-2013 62 8 149-002-050-0166 GHD PTY. Ltd./201-866-999 1,476,891.55 2011-2013 63 8 149-002-053B-0068 Ace Tubular Services, Ltd./234-902-710 693,736.46 2011-2013 64 8 149-002-048-0092 B & C Design, Inc./005-025-183 612,899.91 2011-2013 65 8 149-002-034-0108 NICPHIL Insurance, lnc./003-981-145 547,220.27 2011-2013 66 8 149-002-049-0186 Landbank of the Philippines/000-470-349 921,853.71 2011-2013 67 8 149-002-049-0187 Hidden Spring, Inc./004-711-797 1,375,549.59 2011-2013 68 8 149-002-050-0188 C-Quadrant Corporation/209-540-525 525,666.00 2011-2013 69 8 149-002-053B-0085 Hospitality International, Inc./201-645-477 1,303,100.85 2011-2013 70 8 149-002-047-0157 Cirlio P. Noel c/o SGV & Co./102-093-013 853,028.00 2011-2013 71 8 149-002-049-0192 Globalone Solutions, Inc./006-980-933 941,698.23 2012-2013 72 8 149-002-047-0177 Vicente B. Amador/105-333-383 927,937.69 2012-2013 73 8 149-002-052-0256 Horizon Business Group, Inc./001-840-292 561,719.34 2012-2013 74 8 149-002-053B-0102 Ronald Howard Blake/191-021-980 879,570.00 2012-2013 75 8 149-002-047-0190 Global Savant Building Technologies Corp./ 677,915.94 2012-2013 008-023-695 76 8 149-002-048-0126 Embrocal Builders, Inc./203-215-153 2,352,362.74 2012-2013 77 8 149-002-050-0251 Ski Construction Group, Inc./000-142-787 606,172.90 2012-2013 78 8 149-002-047-0206 Mary Lindbert Int'l, Inc./000-844-527 537,269.65 2012-2013 79 8 149-002-047-0218 ITRS (Phils.), Inc./008-028-230 721,037.96 2012-2013 80 8 149-002-050-0278 CBN Asia, Inc./003-946-225 575,307.73 2012-2013 81 8 149-002-044-0135 TRT Global Limited/291-380-448 1,182,567.21 2012-2013 82 8 149-002-050-0285 Fofo Distribution, Inc./008-008-398 4,963,918.18 2012-2013 83 8 149-002-052-0323 UTI Shared Services/415-149-028 647,245.65 2012-2013 Sub-total (RR 8) 47,672,975.54 84 9 149-002-058-0003 Mabel Abano/136-508-686 613,200.00 2007-2013 85 9 149-002-054A-0019 Tri-R Allied Ind. Incorporated/004-538-642 680,637.31 2011-2013 86 9 149-002-057-0120 Muntinlupa Diagnostics, Inc./004-730-468 402,551.11 2006-2013 87 9 149-002-058-0007 Isabelita Rivera/136-310-269 1,177,903.50 2011-2013 88 9 149-002-054A-0072 Mario Jose J. Jimenez/271-199-646 2,188,283.17 2012-2013 89 11 149-002-074-0036 Eon Realty & Dev't. Corp./005-443-368 1,116,984.60 2012-2013 90 12 149-002-079-0001 Verna Villanueva/140-188-758 2,167,901.00 2004-2013 91 LTDO 149-002-121-0001 Pacific Cement Phils., Inc./005-222-809 1,289,435.30 2012-2013 92 149-002-128-0002 Property Holdings, Inc./244-580-232 4,734,331.70 2011-2013 93 149-002-117-0012 Jennies Touch Pro & Ser, Inc. 555,540.88 2012-2013 94 149-002-117-0122 Polyspun Textile, Inc./000-255-416-000 1,065,725.03 2012-2013 Sub-total (Other RROs) 15,992,493.60 Grand Total 112,309,409.17 =============