After monster typhoon Haiyan 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 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 ‘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. This has left storm victims wondering how much of the donations and reconstruction funds for recovering from Yolanda – as the storm was called in the Philippines – has been, and probably will be, stolen.
Between theft and efficient aid dispersion now stands the army of auditors, who also play a key role in helping the region’s small businesses to get 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. Along with the estimated 6,000-plus people who have died (the count at 3 January was 6,166 and rising), direct economic losses could be at least US$6.5bn, according to catastrophe-modelling analyst AIR Worldwide.
‘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,’ explains Maria Gracia M Pulido Tan, chairperson of the Philippine Commission on Audit (COA), in an interview with Accounting and 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 she, 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 by the country’s constitution to audit the receipts and distribution of Haiyan donations that have coursed through the national government agencies. Pulido Tan’s strategy to keep corruption at bay is twofold: the audit needs to be conducted almost simultaneously with the dispersion of relief goods and funds, and the COA must have 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 to, where funds came from and so forth,’ she says.
Pulido Tan admits she is not aware of the exact number of auditors at work on the relief effort, but that there are ‘many’. To achieve this, the COA drafted in the Philippine Institute of Certified Public Accountants (PICPA) to help, as well as the National Federation – Junior Philippine Institute of Accountants (NFJPIA).
According to PICPA executive director Jose M Ireneo, under normal circumstances the institute would not audit the receipts and distribution of donations going through government agencies, but only those going through private organisations, 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.
Another big challenge to auditors is how 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 the metropolitan area of the capital Manila, and the independent, standalone 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 victims.
Punongbayan notes that if accounting records were also lost or damaged, record reconstruction is a big problem for standalone 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 recaptured, they will 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 standalone businesses in the areas hardest hit by the storm 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, he predicts.
The country’s Bureau of Internal Revenue (BIR) has said that taxpayers who are Haiyan victims may file sworn statements 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 claim their losses were due to theft, and can prove this, for instance, by filing a police report.
At the time of writing, it was not known whether the BIR would 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.
Auditing the losses
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 whose 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.
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 small businesses may receive some aid from the Philippine government coming from the government’s own funds or donated funds, or both.
This article was first published in the February 2014 editions of Accounting and Business magazine.
Jens Kastner, journalist based in the Philippines