Republic of the Philippines

COMMISSION ON AUDIT
Regional Office No. VIII
OFFICE OF THE AUDIT TEAM LEADER
LGS B- Province of Leyte I, Team R8-01
Capitol Building, Tacloban City

AOM No. 2019- 0_ (2018)

Date: February 28, 2019

AUDIT OBSERVATION MEMORANDUM

For: HON. LEOPOLDO DOMINICO L. PETILLA

Governor
Province of Leyte
Capitol Bldg, Tacloban City

Attention: MA. DORIS M. BELOY GERARDO R. AVORQUE

Provincial Accountant Provincial Treasurer

We have conducted review of compliance with Tax Laws and withholding and remittance
of GSIS and HDMF contributions of the Provincial Government of Leyte and observed that:

The Provincial Government of Leyte (Province) was not fully compliant with the (a)
Bureau of Internal Revenue (BIR) regulations on the withholding and remittance of
taxes from payments of purchases and business contracts; (b) RA No. 8291 or
Government Service Insurance System law, on the withholding of GSIS monthly
premiums from employees’ compensation and in the remittance thereof together with
the government share and (c) RA No. 9679, the Home Development Mutual Fund law,
on the withholding of Pag-IBIG monthly premiums from employees’ compensation
and in the remittance thereof together with the government share within the
prescribed period.

Compliance with Tax Laws

As prescribed by the BIR RMC No. 23-2012 dated February 14, 2012, the
government withholding agent should withhold tax on compensation, on income payments
subject to expanded withholding tax and final withholding tax and on government money
payments to VAT-registered taxpayer and Non-VAT registered taxpayers subject to
percentage tax.

Further, the above circular also requires that the responsible officials and
employees, as withholding agents, should see to it that taxes withheld are accordingly
remitted on or before their due dates.
 Records showed that the balance of the Due to BIR account as of December 31,
2018 amounted to ₱20,498,634.9 as shown in Table 1 below:

Table 1
Due to BIR account Balance as of December 31, 2018

Fund Balance
General Fund ₱ 16,815,430.72
Special Education Fund 116,381.67
Trust Fund 3,566,822.53
Total ₱ 20,498,634.92

During the year, the Province has withheld and remitted taxes on compensation and
payments to suppliers/contractors amounting to ₱168,453,981.80 and ₱164,531,775.19,
respectively, the details of which are given in Table 2 below.

Table 2
Analysis of Tax Withheld and Taxes Remitted
For the period from January to December 31, 2018

Due to BIR Taxes Taxes Due to BIR

Month Total
(beginning) Withheld Remitted (ending)
(1) (2) (3) (4) (5) (6)
January ₱16,576,428.31 ₱7,703,397.40 ₱24,279,825.71 ₱16,197,976.88 ₱8,081,848.83

February 8,081,848.83 11,935,404.93 20,017,253.76 6,774,700.77 13,242,552.99

March 13,242,552.99 16,489,357.48 29,731,910.47 12,792,213.28 16,939,697.19

April 16,939,697.19 13,643,894.34 30,583,591.53 15,658,448.57 14,925,142.96

May 14,925,142.96 18,367,917.61 33,293,060.57 13,270,972.13 20,022,088.44

June 20,022,088.44 10,948,471.57 30,970,560.01 18,966,607.26 12,003,952.75

July 12,003,952.75 18,011,668.58 30,015,621.33 11,766,393.87 18,249,227.46

August 18,249,227.46 12,229,040.60 30,478,268.06 17,704,500.22 12,773,767.84

September 12,773,767.84 10,787,282.62 23,561,050.46 12,462,770.48 11,098,279.98

October 11,098,279.98 14,201,885.03 25,300,165.01 10,055,670.75 15,244,494.26

November 15,244,494.26 15,964,438.72 31,208,932.98 11,731,741.02 19,477,191.96

December 19,477,191.96 18,171,222.92 37,648,414.88 17,149,779.96 20,498,634.92

Total ₱168,453,981.80 ₱164,531,775.19
 However, verification with the general ledger as of January 31, 2019, the Province has
remitted only the total amount of ₱19,654,026.86, hence, leaving a total unremitted balance from
December 2018 taxes withheld of ₱844,608.06.

In addition, review of the General Ledger of the account Due to BIR for the period from
January to December 2018 disclosed that the taxes withheld for the month were not remitted intact
or in full in the ensuing month with an average monthly unremitted balance of ₱1,129,741.48 as
shown in the Table 3:

Table 3
Schedule of Monthly Unremitted Balance from Previous Month’s Taxes Withheld

Unremitted
Month
Balance from
Beginning Taxes previous
Balance Remitted month’s taxes
withheld
January
₱16,576,428.31 ₱16,197,976.88 ₱378,451.43
2018
1,307,148.06
February 8,081,848.83 6,774,700.77
450,339.71
March 13,242,552.99 12,792,213.28
735,248.62
April 16,939,697.19 15,658,448.57
1,654,170.83
May 14,925,142.96 13,270,972.13
1,055,481.18
June 20,022,088.44 18,966,607.26
237,558.88
July 12,003,952.75 11,766,393.87
544,727.24
August 18,249,227.46 17,704,500.22
310,997.36
September 12,773,767.84 12,462,770.48
1,042,609.23
October 11,098,279.98 10,055,670.75
3,512,753.24
November 15,244,494.26 11,731,741.02
2,327,412.00
December 19,477,191.96 17,149,779.96
Average Monthly Unremitted Balance ₱1,129,741.48

Compliance with GSIS Regulations

At the start of the year, the account had an outstanding balance of ₱24,608,590.95.
The GSIS contributions withheld and remitted by the Province totaled to ₱176,742,909.11
and ₱172,397,250.65 respectively, leaving an ending balance of ₱28,954,249.41 as of year-
end as shown on the Table 4:
 Table 4
Analysis of GSIS Remittances
For the period from January to December 31, 2018

Due to GSIS Amount Amount Due to GSIS

Month Total
(beginning) Withheld Remitted (ending)
(1) (2) (3) (4) (5) (6)
January ₱24,608,590.95 ₱13,735,732.02 ₱38,344,322.97 ₱11,901,133.63 ₱26,443,189.34

February 26,443,189.34 13,492,936.50 39,936,125.84 8,142,003.27 31,794,122.57

March 31,794,122.57 16,884,107.14 48,678,229.71 10,981,003.44 37,697,226.27

April 37,697,226.27 14,075,277.49 51,772,503.76 19,341,147.36 32,431,356.40

May 32,431,356.40 13,743,776.12 46,175,132.52 11,668,325.63 34,506,806.89

June 34,506,806.89 13,308,552.50 47,815,359.39 17,853,333.70 29,962,025.69

July 29,962,025.69 15,919,800.44 45,881,826.13 16,732,296.94 29,149,529.19

August 29,149,529.19 17,136,586.80 46,286,115.99 16,378,030.31 29,908,085.68

September 29,908,085.68 15,033,080.09 44,941,165.77 14,175,259.35 30,765,906.42

October 30,765,906.42 14,590,488.96 45,356,395.38 16,930,964.80 28,425,430.58

November 28,425,430.58 14,509,348.69 42,934,779.27 20,012,369.90 22,922,409.37

December 22,922,409.37 14,313,222.36 37,235,631.73 8,281,382.32 28,954,249.41

Total ₱176,742,909.11 ₱172,397,250.65

Section 6 of RA No. 8291, the GSIS law, states that:

Section 6 - The employer shall report to the GSIS the names of all
its employees, their corresponding employment status, positions, salaries
and such other pertinent information, including subsequent changes therein,
if any, as may be required by the GSIS; the employer shall deduct each
month from the monthly salary or compensation of each employee the
contribution payable by him in accordance with the schedule prescribed in
the rules and regulations implementing this Act.

Each employer shall remit directly to the GSIS the employees' and
employers' contributions within the first ten (10) days of the calendar month
following the month to which the contributions apply. The remittance by
the employer of the contributions to the GSIS shall take priority over and
above the payment of any and all obligations, except salaries and wages of
its employees.
 On January 9, 2019, the amount totaling ₱15,132,596.08 under the general fund
was remitted to the GSIS. However, the balance of ₱10,096.46 and ₱187,225.54 under the
SEF and Trust Fund, respectively were still not remitted as of January 31, 2019, hence a
total unremitted balance of ₱14,018,975.33.

In the same manner as the account Due to BIR, review of the General Ledger of the
account Due to GSIS disclosed that the premiums and contributions deducted from
employees were not remitted in full or intact in the ensuing month as required by law, vis:

Table 5
Schedule of Monthly Unremitted Balance from Previous Month’s Deductions

Unremitted
Amount Balance from
Beginning
Month Remitted Previous
Balance
Month’s
Deductions
January ₱24,608,590.95 ₱11,901,133.63 ₱12,707,457.32
18,301,186.07
February 26,443,189.34 8,142,003.27
20,813,119.13
March 31,794,122.57 10,981,003.44
18,356,078.91
April 37,697,226.27 19,341,147.36
20,763,030.77
May 32,431,356.40 11,668,325.63
16,653,473.19
June 34,506,806.89 17,853,333.70
13,229,728.75
July 29,962,025.69 16,732,296.94
12,771,498.88
August 29,149,529.19 16,378,030.31
15,732,826.33
September 29,908,085.68 14,175,259.35
13,834,941.62
October 30,765,906.42 16,930,964.80
8,413,060.68
November 28,425,430.58 20,012,369.90
14,641,027.05
December 22,922,409.37 8,281,382.32
Average Monthly Unremitted Balance ₱15,518,119.06

Compliance with R.A. No. 9679 or Home Development Mutual Fund Law of 2009

At the start of the year, the account had an outstanding balance of ₱2,537,905.46.
The Pag-IBIG contributions withheld and remitted by the Province totaled to
₱16,089,646.11 and ₱15,319,751.97, respectively, leaving an ending balance of
₱3,307,799.60 as of year-end as shown in Table 6:
 Table 6
Analysis of Pag-Ibig Remittances
For the period from January to December 31, 2018

Due to Pag- Due to Pag-

Amount Amount
Month IBIG Total IBIG
(beginning) Withheld Remitted (ending)
(1) (2) (3) (4) (5) (6)
January ₱2,537,905.46 ₱1,245,436.55 ₱3,783,342.01 ₱1,039,520.21 ₱2,743,821.80
February
2,743,821.80 1,200,760.32 3,944,582.12 1,930,826.91 2,013,755.21
March
2,013,755.21 2,193,242.09 4,206,997.30 1,342,493.67 2,864,503.63
April
2,864,503.63 1,254,902.02 4,119,405.65 1,228,903.79 2,890,501.86
May
2,890,501.86 1,238,069.45 4,128,571.31 1,106,427.61 3,022,143.70
June
3,022,143.70 1,189,322.22 4,211,465.92 1,453,521.44 2,757,944.48
July
2,757,944.48 1,246,354.80 4,004,299.28 1,156,148.68 2,848,150.60
August
2,848,150.60 1,352,019.42 4,200,170.02 1,257,894.41 2,942,275.61
September
2,942,275.61 1,348,008.09 4,290,283.70 1,298,961.29 2,991,322.41
October
2,991,322.41 1,306,602.36 4,297,924.77 1,323,568.73 2,974,356.04
November
2,974,356.04 1,268,158.50 4,242,514.54 1,174,211.25 3,068,303.29
December
3,068,303.29 1,246,770.29 4,315,073.58 1,007,273.98 3,307,799.60
Total ₱16,089,646.11 ₱15,319,751.97

Section 25 of RA No. 9679 or the HDMF law, states that:

Section 25 - Refusal or failure without lawful cause or with

fraudulent intent to comply with the provisions of said law and these Rules,
particularly with respect to registration of employees, collection and
remittance of employee-savings as well as the required employer
contributions, or the correct amount due, within the time set under these
Rules or the policies and guidelines adopted by the Board, or specific call
or extension made by the Fund Management, shall constitute an offense
punishable by a fine of not less than, but not more than twice, the amount
involved or imprisonment of not more than six (6) years, or both such fine
and imprisonment, in the discretion of the Court, apart from the civil
liabilities and/or obligations of the offender or delinquent.

In case of government instrumentalities, agencies or corporations,

the treasurer, finance officer, cashier, disbursing officer, budget officer or
other official or employee who fails to include in the annual budget the
 amount corresponding to the employers’ contributions, or who fails or
refuses or delays by more than thirty (30) days from the time such amount
becomes due and demandable or to deduct the monthly contributions of the
employee shall, upon conviction by final judgment, suffer the penalties of
imprisonment of not more than six (6) years, and a fine of not less than, but
not more than twice the amount involved.

As of January 31, 2019, the amount of P 997,681.36 was remitted to Pag-IBIG

representing HMDF premiums and contribution, hence, leaving a balance of
P 2,310,118.214.

Moreover, review of the General Ledger of the account Due to Pag-IBIG disclosed
that Pag-IBIG premiums and contributions were not remitted in full in the ensuing month,
with an average monthly unremitted balance of P 1,527,936.01 as shown in the Table 7.

Table 7
Schedule of Monthly Unremitted Balance from Previous Month’s Deductions

Unremitted
Balance from
Beginning Amount
Previous
Month Balance Remitted
Month’s
Deductions

January ₱2,537,905.46 ₱1,039,520.21 ₱1,498,385.25

February 2,743,821.80 1,930,826.91 812,994.89
March 2,013,755.21 1,342,493.67 671,261.54
April 2,864,503.63 1,228,903.79 1,635,599.84
May 2,890,501.86 1,106,427.61 1,784,074.25
June 3,022,143.70 1,453,521.44 1,568,622.26
July 2,757,944.48 1,156,148.68 1,601,795.80
August 2,848,150.60 1,257,894.41 1,590,256.19
September 2,942,275.61 1,298,961.29 1,643,314.32
October 2,991,322.41 1,323,568.73 1,667,753.68
November 2,974,356.04 1,174,211.25 1,800,144.79
December 3,068,303.29 1,007,273.98 2,061,029.31
Average Monthly Unremitted Balance 1,527,936.01

We recommend that the Provincial Accountant and Provincial Treasurer to

immediately remit the unremitted balance to BIR, GSIS and Pag-IBIG and
henceforth, be compliant in the withholding and remittance of the appropriate taxes
as well as the withholding and remittance of GSIS and Pag-IBIG contributions within
the prescribed period pursuant to pertinent tax laws, R.A. 8291 and R.A. 9679 by
remitting in full the total amount withheld for the month in the ensuing month.
 May we have your comments on the foregoing audit observations within fifteen
(15) calendar days from receipt hereof.

JUDITH E. REGAÑON
State Auditor IV
Audit Team Leader

LEONIDES B. MODESTO
State Auditor V
Supervising Auditor

Proof of Receipt of AOM:

Date
Name of Office Name of Receiving Officer Signature Received
Governor's Office
Provincial Accountant
Provincial Treasurer