After monster typhoon Yolanda – internationally called Haiyan – in early November 2013 devastated much of the Philippines’ Leyte and Samar islands, the humanitarian aid machinery was quick to get going, with spectacular footage of a US aircraft carrier supplying the horrified locals dominating the world’s TV screens for days. Less headline grabbing but equally important for the survival of thousands has been the work of auditors and financial reporters on the ground. The Philippines had just been shaken by a massive “Pork Barrel Scandal” implicating dozens of lawmakers, officials and private citizens in the outright theft of money intended for relatively small infrastructure and other development projects, so that one cannot but wonder how much of the Yolanda donations and reconstruction funds has been, and likely will be, stolen. Between theft and efficient aid dispersion is now standing the army of auditors, who also play a key role in bringing the region’s small businesses back on their feet in the longer run. This is a daunting task, given that not only lives and property were destroyed but also much financial data.
“Of course, our challenges are plenty; to begin with it’s the unprecedented scope of the disaster and the need to deal with very immediate expenditures and disbursements,” says Maria Gracia M. Pulido Tan, Chairperson of the Philippine Commission on Audit (COA), in an interview with Accounting & Business.
“Relief goods such as rice and noodles have to be procured in huge quantities with little paper trail because the survivors simply cannot wait for bureaucracy to sort out the red tape,” she elaborates.
Pulido Tan took over as head of the COA in 2011, and it was her together with two other female officials in key positions who exposed the Pork Barrel scandal, earning the trio the nickname “the three furies” with the Philippine media. The COA is mandated per Constitution to audit the receipts and distribution of Yolanda donations that is coursed through the national government agencies, with Pulido Tan’s strategy to keep corruption at bay being based on two pillars: The first is that the audit has all along been conducted almost simultaneously with the dispersion of relief goods and funds, and the second one that the COA has an overwhelming number of auditors on the ground.
“The persistent threat of corruption is why we audit as relief work happens — where relief goods have been brought, where funds came from and so forth,” she says.
Pulido Tan brings into account that she is not aware of the actual number of auditors, but that there are “many”. To achieve this, the COA has in mid-November brought in the Philippine Institute of Certified Public Accountants (PICPA), as well as the National Federation – Junior Philippine Institute of Accountants (NFJPIA).
“PICPA has its regional chapters involved, which gives us sufficient boots on the ground,” she notes.
According to PICPA Executive Director Jose M. Ireneo, under normal circumstances PICPA would not audit the receipts and distribution of donations going through government agencies, but those going through private organizations, if commissioned to do so. “That the COA now fields a new approach by choosing us as partners is probably because we have made a name for ourselves participating in the audit of resources and accounting for the last national elections,” he says.
Small businesses worst hit
Another big challenge to auditors is to deal with individual enterprises that have been devastated by Yolanda. According to Ben Punongbayan, founder of Philippine accounting and consultant firm Punongbayan & Araullo, it is first necessary to distinguish between big businesses, particularly those based in Metro Manila, and the independent, stand-alone businesses in the calamity areas, which will typically be small.
“The losses of the affected entity in the first group generally would not be significant in relation to the total operations of its parent company or head office; but it is the small businesses that were severely affected in relative terms,” he says. He elaborates that their buildings, warehouses, facilities and inventories might have been either lost due to the typhoon or due to the subsequent looting resorted to by some typhoon victims.
Punongbayan notes that if accounting records were also lost or damaged, record reconstruction is a big problem for stand-alone entities that operated only in the typhoon-affected areas, as they have no Manila head office to turn to for a backup.
“But even with their data re-captured, they will most probably not be able to pay their debts to banks and suppliers, as collaterals for bank loans may no longer exist, except for parcels of land which the bank may foreclose,” he says.
Punongbayan adds that to make matters worse, the stand-alone businesses in the calamity areas may have receivables from customers who in most instances are also typhoon victims, hence, will not be able to pay their accounts. The businesses concerned will have to write off such receivables, adding such write-offs to their losses, he predicts.
Bureau of Internal Revenue (BIR) Commissioner Kim Henares has relatively quickly announced that taxpayers who are Yolanda victims may file sworn statement of loss and other requirements necessary to substantiate claim of losses within 40 days if the losses are not paid by their insurance company. Tax deductions will also be given to businesses that can prove their losses were due to theft, and they can prove this, for instance, by filing a police report. As of press time, it was not known whether the BIR will grant some tax breaks or other reliefs, such as relaxation of documentary and substantiation requirements, or extension of deadline for filing reports of losses and documents, to the typhoon victims.
In terms of audits of the tax reductions, Punongbayan points again at the difference between Manila-based businesses and those operating solely in the typhoon-affected areas.
Particularly for the latter, “external auditors will have difficulties in auditing the losses to be reported by a business in its financial statements, as copies of previous annual financial statements were required to be filed with agencies which offices typically have been located in the same typhoon-affected areas,” he says. Furthermore, the original copies of supporting documents, such as invoices, official receipts and contracts, might have all been lost as well, according to him.
As to how the BIR is to deal with all that, Punongbayan sees only one plausible direction. “The BIR may be lenient, and most likely it will be,” he says, adding that to get restarted, it is not far-fetched to assume that small businesses affected by Yolanda may receive some aid from the Philippine government coming from the government’s own funds or donated funds, or both.
And Josephine Adrienne A. Abarca of the Philippine professional services firm SGV weighs in that ”the BIR may more rely on other means of verifying the amount of taxable income of a taxpayer, for instance by securing third party information.”