COA doubts PITC’s viability due to income decline; PITC assures turnaround

The Commission on Audit (COA) has expressed doubt on Philippine International Trading Corporation’s (PITC) viability as it flagged a further decline in the state firm’s income from international trading in 2021 and 2022.

However, the PITC assured the COA that new initiatives were in place to improve the corporation's circumstances.

“There is uncertainty in the ability of PITC to continue as a going concern due to its failure to generate substantial income from its mandate of international trading,” COA’s 2022 Annual Audit Report read.

The state auditors noted that over the years the PITC had not been able to generate a significant amount of income from international trading.

In 2022, the firm reported a further decline in its operating income, which was primarily due to the decrease of its outsourcing projects.

COA presented a table to compare the income generated by the PITC for years 2021 and 2022, and it showed a 33% decline in earnings from international trading.

The state auditing agency likewise noted the latest Governance Commission for Government Owned or Controlled Corporation (GCG) Scorecard for the year 2021, which found that PITC operations targets, such as custom bonded warehousing, export and import activities and countertrade, were not met.

The PITC’s income from government outsourcing activities also declined by 54% from 2021 to 2022. However, COA said this “significant decrease” may be the effect of the passage of Republic Act 11520, which has a provision that prohibits the agency outsourcing requests or agreements between government agencies and PITC.

COA also took note of the zero fund transfers from source agencies to PITC, which means that there was no service income from new procurement projects.

“[A]s presented in the previous years, information and analysis [show] that PITC’s income is largely derived from its government outsourcing rather than its mandate of international trading and counter trading,” the audit report stated.

According to the COA report, the PITC averred during the exit conference of the 2021 audit, that the agency outsourcing requests or agreements between PITC and government agencies were already allowed.

However, the state auditors noted that since there have been no new outsourcing projects in 2022, no service fee related to it may be recognized by the PITC in the coming years.

Furthermore, the COA flagged the issues of the PITC with the Bureau of Customs in relation to its custom bonded warehouse operation, which resulted in outstanding penalties with final demand amounting to P44.816 million.

The PITC is still exploring options on how to settle the said charges, the state auditors said.

With these issues, the COA told the PITC to make an assessment on the ability to continue as a going concern.

It cited the Conceptual Framework for Financial Reporting which states that “financial statements are normally prepared on the assumption that an entity is a going concern and will continue operation for the foreseeable future.”

COA also stated that under the Philippine Accounting Standard (PAS), when preparing financial statements, management shall make an assessment of an entity’s ability to continue as a going concern. An entity shall prepare financial statements on a going concern basis unless management either intends to liquidate the entity or cease trading or has no realistic alternative but to do so.

“Given the circumstances, PITC has yet to assess the material uncertainties in its ability to continue as a going concern,” the COA report read.

Moreover, the state auditing agency recommended the PITC to devise new programs or improve existing programs for international trading and consider enhancing commercial networks and market presence through target marketing and extensive advertisements.

The PITC was also told to intensify efforts to coordinate with various government agencies on the possible countertrade arrangements of their respective importation or procurement of foreign capital goods, equipment, machinery, products, goods and services.

Lastly, COA told the PITC to provide the necessary disclosures in the Notes to the Financial Statements, if warranted, and for the PITC to develop a comprehensive financial plan that would be a guide in managing its finances.

2023 strategic initiatives

According to the Annual Audit Report, the PITC told COA that its Countertrade Department is continuously coordinating with various government agencies to conduct briefing and orientation on the benefits of integrating countertrade in their respective procurements.

The PITC said that strategic initiatives for the year 2023 are already in place and it will continue to be on the lookout for business opportunities that the agency can undertake which are within its mandates and purposes.

The realization of the business efforts of the PITC’s International Trading Services Group would likely be perceived in the second quarter of 2024, according to PITC’s response to COA’s observations as stated in the audit report.

“PITC will continue implementing austerity measures and spends only within its means considering its financial status now,” the audit report stated, citing PITC’s comments on the audit observations.

Further, the PITC told COA that they shall thoroughly discuss the foregoing matters to determine whether there is sufficient basis to provide disclosures in the Notes to the Financial statements.

The state trading firm also informed COA on its action plans for the operations of its Custom Bonded Warehouse Department, Countertrade Department and Export and Import Department, which the state auditors commended.

COA said it would continue to monitor developments on the identified plans and programs in its 2023 audit on PITC. — DVM, GMA Integrated News