EXECUTIVE SUMMARY

Introduction

The Zamboanga City Special Economic Zone Authority (ZCSEZA), also referred to as the
ZAMBOECOZONE, or Authority was created on February 23, 1995 by virtue of Republic
Act (RA) No. 7903. It is managed and operated within the framework and limitations of the
Constitution and applicable provisions of the Local Government Code by a corporate
body known as the ZCSEZA created under Section 5 of the said Act.

The ZCSEZA shall operate, administer, manage and develop the Authority into a
decentralized, self-reliant and self-sustaining agro-industrial, commercial, financial,
investment and tourist center and free port with suitable retirement and residential areas.
It shall regulate and undertake the establishment, operation and maintenance of utilities,
other services, infrastructure and other facilities in the ZCSEZA needed to attract
legitimate and productive foreign investments, generate linkage industries and
employment opportunities for the people of Zamboanga City and its neighboring towns
and cities.

The powers of the ZCSEZA are vested in and exercised by the Board of Directors (BOD).
The Board is composed of the Chairman-Administrator, Vice Chairman, one member who
is a representative from the labor sector, and two representatives from the business
sector who are presidential appointees to serve for a term of six years; with three ex
officio members: the City’s congressional representative, the mayor of the City of
Zamboanga and one representative of the City Council.

The plantilla of personnel for calendar year (CY) 2021 of ZCSEZA had a total of 104
permanent positions. As of December 31, 2021, there were 78 permanent employees, 46
job order (JO) personnel and three holding co-terminous positions.

Audit Objectives

The objectives of the audit are to: (a) ascertain the fairness of presentation of the financial
statements (FS); (b) ascertain the propriety of financial transactions and compliance with
prescribed rules and regulations; (c) recommend agency improvement opportunities; and
(d) determine the extent of implementation of prior years’ audit recommendations.

Audit Methodology

The Commission adopted the risk-based audit in the conduct of its audit services. This
requires the conduct of risk assessment to identify all possible material misstatements in
the FS and the related assertions, based on an understanding of the auditee and the
environment within which it operates.

Scope of Audit

An audit was conducted on the accounts and operations of ZCSEZA for CY 2021. The
audit consisted of review of operating procedures, evaluation of the Authority’s programs
and projects, interview of concerned government officers and employees, verification,
reconciliation, and analysis of accounts, and such other procedures considered
necessary.

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Financial Highlights

I. Comparative Financial Position and Performance (In Pesos)

Increase
Accounts CY 2021 CY 2020
(Decrease)
Assets 1,559,588,555 1,364,007,732 195,580,823
Liabilities 276,063,461 240,916,977 35,146,484
Capital 1,283,525,094 1,123,090,755 160,434,339

II. Comparative Results of Operations (In Pesos)

Increase
Accounts CY 2021 CY 2020
(Decrease)
Business and Service Income 67,923,708 48,968,329 18,955,379
Other Non-Operating Income 2,968 0 2,968
Subsidy from National
45,061,000 41,167,800 3,893,200
Government
Personnel Services 60,399,360 55,330,331 5,069,030
Maintenance and Other
26,764,964 20,002,010 6,762,954
Operating Expenses (MOOE)
Financial Expenses 0 1,427 (1,427)
Non-Cash Expenses 11,911,961 12,011,459 (99,498)
Total Expenses 99,076,285 87,345,226 11,731,059
Net Income 13,911,391 2,790,902 11,120,488

III. Comparative Data of Budget and Actual Expenditures (In Pesos)

2021
Particulars Budget Actual Variance
PS 64,137,000 60,399,360 3,737,640
MOOE 27,671,000 26,764,964 906,036
Capital Outlay (CO) 601,617,000 230,405,129 371,211,871
Totals 693,425,000 317,569,453 375,855,547

2020
Particulars Budget Actual Variance
PS 57,710,000 55,330,330 2,379,670
MOOE 30,871,000 20,002,010 10,868,990
CO 414,131,000 157,172,076 256,958,924
Totals 502,712,000 232,504,416 270,207,584

Independent Auditor’s Opinion

We rendered a qualified opinion on the fairness of presentation of the FS for the year
then ended, taking exception to the effects of the following:

1. The Property, Plant and Equipment (PPE) and Accumulated Depreciation accounts
are overstated by net amounts of P4,638,022 and P2,741,670, respectively due to: a)
unrecorded PPE; b) non-derecognition of stolen vehicle; c) non-reclassification of

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 tangible items below the capitalization threshold of P15,000 to Retained Earnings;
and d) recording of various Computer Software and PPE items under the wrong
general ledger (GL) account.

2. The accuracy and completeness of the reported Rent/Lease Income amounting to

P53,765,506 is doubtful due to: a) errors in recording prior year income in the amount
of P1,475,527 and advance rentals of P2,469,608 resulting in the overstatement of
the Rent/Lease Income account by P3,945,135; b) non-submission of lease
contracts/ memorandum of agreement (MOA), annexes and pertinent board
resolution of 42 locators/lessee; c) absence of lease agreement between ZCSEZA
and ten of its lessees, and of the board resolution approving the monthly rates; and d)
non-inclusion of the approved rates for the increase of lease/rent in the board
resolution.

3. Costs of audit services amounting to P3,807,888 remained unrecorded, thus

understating the reported liabilities by the same amount.

4. The Collective Negotiation Agreement incentives totaling P1,866,667 was improperly

recorded as MOOE thereby overstating the said account.

5. Erroneous and improper recording of advances accounts as follows: a) payment of

payroll through Authority to Debit Account and directly to JO personnel are debited to
Advances for Payroll account, while all other advances are debited to Advances to
Officers and Employees account; b) expenses and Retained Earnings accounts are
overstated by P142,796 due to error in recording expenses incurred in CY 2020 as
CY 2021 expenses; and c) non-liquidation of outstanding cash advances at year end
amounting to P417,006 which affects the timely recognition of expenses in CY 2021
and prior years.

6. Misstatements and deficiencies in the liabilities accounts were noted in audit as

follows: a) Due to Officers and Employees and Salaries and Wages accounts were
overstated by P17,123,247 and P3,586,851, respectively, due to the erroneous
recording of the money value of earned leave credits of the employees; b) the
accuracy of the remaining balance of Due to Officers and Employees of P5,287,653
cannot be determined due to the negative balances in Subsidiary Ledger (SLs)
totaling P221,761, and discrepancy between the balance per books and schedule of
P113,348; c) Leave Benefits Payable account is understated by P933,192 due to the
incorrect recording of unpaid terminal leave benefits as Accounts Payables; and d)
accuracy of the accrued leave benefits cannot be determined due a discrepancy of
384 days or estimated money value of P621,932 between the leave cards and leave
schedule, and non-presentation for verification of the leave cards of 44 employees
with equivalent money value of P9,884,603.

7. The Receivable-Disallowances/Charges account is understated by P98,293 while

Other Receivable account is overstated by the same amount due to erroneous
recording of transactions.

8. The accuracy and completeness of the Accounts Receivables (A/R) balance of

P146,884,900 is affected due to: a) difference between the recorded A/R and amount
confirmed by the locators totaling P125,976,551; b) lapses in the billing of locators; c)
lack of basis of the rates for utilities billed to locators; c) lack of details of receivables
amounting to P10,301; and d) non-computation of Allowance for Impairment Loss.

9. The accuracy of the year-end balance of the Construction In Progress account of

P792,400,221 cannot be determined due to: a) undetermined difference of

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 P9,403,603 in the balances between the SLs and the GL; b) discrepancy totaling
P333,324,017 in the balances between the records of the Finance Department and
the Project Management and Development Division; c) non-reclassification of the
completed projects to proper PPE accounts.

10. The Due to GSIS account with year-end balance totaling P2,062,172 included an
unidentified amount forwarded from prior years and under remittances amounting to
P673,156 and P28,197, respectively, which is not in consonance with Philippine
Accounting Standards 1 and pertinent provisions of RA 8291. Further, the Authority
did not maintain SLs for the Due to GSIS account, thus the details of the GL cannot
be determined and errors in recording the total amount of P18,756 were not adjusted.

11. The correctness of the Due to Philhealth account balance of P241,181 cannot be
determined due to unidentified carry-forward balance of P152,966 from prior years,
and the erroneous posting of premium contribution and government share.

12. Other Receivable account balance of P734,525 is doubtful due to the: a) discrepancy
of P17,567 between the balances per FS and per schedule; b) negative balances in
SLs; c) lack of details on the nature of beginning balances of each debtor.

13. The correctness of the Due to Pag-IBIG balance of P219,309 cannot be determined
due to unidentified carry-forward balance of P54,915 from prior years and
non-recognition of government share.

14. The Authority did not undertake proper disposal procedures for all its unserviceable
properties totaling P75,885,424 which bloats the total reported assets in the FS and is
not in keeping with Section 79 of Presidential Decree 1445.

15. The conversion of chart of accounts to the updated RCA for GCs (2019) was not fully
complied in accordance with the COA Circular No. 2021-005, thus the FS and reports
as of December 31, 2021 are not aligned with the accounting and reportorial
requirements of the COA and the PFRS.

Significant Audit Observations and Recommendations

In addition to the above-noted deficiencies, below are the significant observations and
recommendations noted during the course of audit:

1. The cash deficit for the period of five years reflects an unhealthy financial condition of
the Authority, where cash inflows from its operating activities are not sufficient to cover
current year expenditures and trust funds were utilized for other purposes, which is not
in keeping with Section 4(3) of PD No. 1445.

We recommended that Management: a) evaluate closely the movements and

fluctuations of its income and expenditures streams to determine the most optimal
strategy to improve its financial performance and condition; b) ensure that trust funds
and funds to be remitted to other government agencies are used only for its intended
purpose; c) ensure that budget for income and expenses are based on realistic
projections and include prior year expenditures and obligations that remained unpaid. d)
intensify the collection effort to improve the availability of cash needed to defray regular
expenditures for the current year and obligations that were incurred in prior years that
remained unpaid; e) adopt cost-saving measures to reduce the Authority’s expenditures
to avoid cash deficits; and, f) direct the Budget Section to ensure that incurrence of
obligations is within the limits of the appropriation and cash availability.

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2. Collection efficiency at 38.3 per cent translates to a collection of less than half of total
rent income receivables during the year.

We recommended that Management to exert best efforts to increase collection

efficiency.

3. The Various properties of the Authority with a net book value of P24,272,362 remained
idle and poorly maintained.

We recommended that Management: a) require the Planning Division to find ways to

ensure that the idle properties are put to good use to earn additional revenues for the
Authority; and b) direct the Administrative Division to ensure that these properties are
well-maintained and protected from wastage and loss to avoid accelerated decline in
monetary values.

4. Infrastructure projects totaling P687,856,000 remained uncompleted and idle, with

delays ranging from 8 to 948 days from the target dates of completion due to issues on
right of way (ROW), informal settlers and unfavorable field conditions, indicating
non-conduct of detailed engineering investigations before the bidding and award of the
contract.

We recommended that Management: a) conduct detailed engineering investigations,

surveys and designs for infrastructure projects prior to the conduct of bidding; and
ensure that awarding of such contracts are without any pending issue on right-of-way;
b) coordinate with other proper government agency/ies on the resolution of the issues
on the ROW and informal settlers; and c) coordinate with the contractor and local
electric cooperative to facilitate the provision of power connection necessary for the
operation of the two Units, 4-storey Building.

Summary of Total Suspensions, Disallowances and Charges

The reported audit suspensions, disallowances and charges of the Authority as at

December 31, 2021 were as follows:

Beginning This Period Ending

Balance January 1 to Balance
(As of December 31, 2021 (As of
1/1/2021) NS/ND/NC NSSDC 12/31/2021)
Notice of Suspension P 0 P 0 P 0 P 0
Notice of
Disallowance 150,000 0 0 150,000
Notice of Charge 0 0 0 0

Status of Implementation of Prior Years’ Audit Recommendations

Of the 100 prior years’ audit recommendations 42 were implemented and 58 were not
implemented as of December 31, 2021 as presented in Part III of this Report.