EXECUTIVE SUMMARY
INTRODUCTION
The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Republic of the
Philippines. It was established on 03 July 1993 as the country’s independent central
monetary authority, pursuant to Section 20, Article XII of the Philippine Constitution and
Republic Act No. 7653, otherwise known as the New Central Bank Act. Under the Act,
the BSP shall function and operate as an independent and accountable corporate body
in the discharge of its mandated responsibilities concerning money, banking and credit.
The BSP replaced the old Central Bank of the Philippines which was established on 03
January 1949.
A government corporation with fiscal and administrative autonomy, the BSP is
responsible for maintaining price stability conducive to a balanced and sustainable
growth of the economy; formulating and implementing policy in the areas of money,
banking and credit; and supervising and regulating banks and quasi-banks, including
their subsidiaries and affiliates engaged in allied activities. The BSP also performs the
following functions, all of which relate to its status as the Republic’s central monetary
authority.
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Liquidity management;
Currency issue;
Lender of last resort;
Financial supervision;
Management of foreign currency reserves; and
Determination of exchange rate policy.
The Monetary Board, which exercises the powers and functions of the BSP, is
composed of seven members appointed by the President of the Philippines. The seven
members are the Governor, who is the Head of the BSP and the Chairman of the
Monetary Board; a member of the Cabinet to be designated by the President of the
Philippines; and five members who shall come from the private sector, all of whom shall
serve for a term of six years except the cabinet representative who serves at the
pleasure of the President.
The BSP organizational structure is composed of (a) the Executive Management
Services (EMS); (b) three functional sectors, namely: the Monetary Stability Sector, the
Resource Management Sector, and the Supervision and Examination Sector; and (c) the
Security Plant Complex (SPC). A Deputy Governor heads each sector, except for the
EMS which is directly under the Governor and the Security Plant Complex (SPC) which
is headed by an Assistant Governor.
As at 31 December 2011, the Bank had 4,956 officials and employees assigned at the
Main Office, SPC, and regional offices and branches.
BUDGET UTILIZATION (In million pesos)
Particular
PS
Interest Expense
MOOE
Capital Outlay
Total
Budget
10,370.096
101,936.473
6,262.085
81,928.812
200,497.466
Utilization
Balance
10,010.780
96,404.672
5,370.282
58,630.088
170,415.822
359.316
5,531.801
891.803
23,298.724
30,081.644
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FINANCIAL HIGHLIGHTS (In million pesos)
I.
Comparative Financial Position
Particular
Assets
Liabilities
Capital
II.
2011
3,787,925.731
3,647,909.505
140,016.226
2010
(As restated)
3,198,465.088
3,024,017.927
174,447.161
Increase/
(Decrease)
589,460.643
623,891.578
(34,430.935)
Comparative Results of Operation
Particular
2011
2010
Increase/
(Decrease)
Income
Expenses
Net income from operations
Gain/(loss) on fluctuations in
foreign exchange rates
Net income (loss) for the period
118,734.419
116,198.905
2,535.514
113,564.916
82,482.531
31,082.385
5,169.503
33,716.374
(28,546.871)
(36,223.621)
(33,688.107)
(90,117.835)
(59,035.450)
53,894.214
25,347.343
SCOPE OF AUDIT
The audit covered the examination, on a test basis, the accounts and financial
transactions of the BSP for the period 01 January to 31 December 2011 in accordance
with the International Standards on Auditing. It also included extent of compliance with
existing laws, rules and regulations, as well as internal policies of the Bank. To a limited
extent, the evaluation of the adequacy and effectiveness of systems and procedures of
certain aspects of the Bank’s operations was also undertaken.
AUDITOR’S OPINION
The Auditor rendered an unqualified opinion on the fairness of presentation of the
financial statements of BSP for CY 2011 in accordance with applicable Philippine
Financial Reporting Standards and Philippine Accounting Standards (PAS) as aligned
with the International Reporting Standards. However, attention was drawn to Note 2.7 to
the financial statements which disclosed that as approved by the Monetary Board
effective CY2010, gains/(losses) due to changes in exchange rates are realized only
when the foreign currency is repatriated to local currency or the foreign currency is used
to pay foreign obligations, or upon maturity of a foreign exchange forward or option
contract involving the Philippine Peso. Otherwise, gains/(losses) are not recognized, as
discussed in item no.1 of the Observations and Recommendations portion of the audit
report resulting in the misstatement of the Revaluation of International Reserves account
and understatement of net loss by at least Php13.387 billion. Moreover, attention was
drawn to the same Note 2.7 to the financial statements which disclosed that change in
price and exchange rates of financial assets, liabilities, and derivative instruments are
booked under “Revaluation of International Reserves” (RIR) account, either as asset (if
loss) or liabilities (if gain) in accordance with Section 45 of RA No. 7653. These are
deviations from PAS 21 on the Effects of Changes in Foreign Exchange.
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SIGNIFICANT AUDIT OBSERVATIONS AND RECOMMENDATIONS
For the aforementioned audit observation which caused the issuance of an unqualified
opinion, with emphasis of matter paragraph, we recommend that Management re-study
its accounting policies on recognition of realized gains/losses to comply with PAS 21;
and to effect the necessary adjustments on the affected accounts to fairly present them
in the financial statements.
The other significant audit observations and recommendations are as follows:
1.
Inappropriate recording of swap costs to Realized gains/losses on FX rate
fluctuations - Matured swap transactions and erroneous computation of fair value of
derivative instruments - swaps resulted in misstatement of affected accounts by
Php18.385 billion and Php531.463 million, respectively, or totaling Php18.916 billion,
contrary to paragraph 13 of PAS 1.
We recommend that Management:
a.
Record the swap costs to an appropriate account to comply with the faithful
representation of the effects of transactions required under paragraph 13 of PAS 1 and
its accrual to comply with the accrual basis of accounting;
b.
Use the interest rates when the forward value of the swap transactions are
established to arrive at a realistic value of the Derivative Instruments on reporting date;
and
c.
Effect the necessary adjustments on the affected accounts for fair presentation in
the financial statements.
2.
Use of two different methods in determining the historical costs of foreign
securities is contrary to the principle of consistency, which resulted in the
understatement of Trading gain or loss – Foreign securities by Php18.513 billion,
overstatement of Revaluation of international reserve (RIR) – Price fluctuations - Foreign
securities by same amount and understatement of the credit balance of RIR – FX rate
fluctuations - Foreign securities by Php13.027 billion as at 31 December 2011.
We recommend that Management apply the moving average method consistently in
accordance with paragraph 39 of the Framework for Preparation and Presentation of
Financial Statements and to effect the necessary adjustments on the affected accounts
to present them fairly in the financial statements.
3.
Unreconciled balances between the Summary of Cash Accountabilities and
Details of Cash Accountability of the Integrated Regional Information System (IRIS) in
Dagupan Branch of Php6.008 billion rendered the reports unreliable, incomplete and
inaccurate resulting in difficulty in establishing the accountability of accountable officers.
We recommend that Management identify the cause of discrepancy between the
Summary of Cash Accountability and Individual Details of Accountability and enhance
the system to correct the ending cash balance in the Summary of Cash accountability.
STATUS OF IMPLEMENTATION OF PRIOR YEARS’ AUDIT RECOMMENDATIONS
Out of the 50 audit recommendations embodied in the prior years’ Annual Audit Reports,
20 were fully implemented, 27 were partially implemented and 3 were not implemented.
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