Lozada’s PFC:  No financial statements?

What are financial statements?  What do these tell us?  Why should we care?

A business entity has its own identity.  It is distinct from its owner.  It has its own juridical personality.  As such, it must record and have full accounting of all its activities. These records are classified and are ultimately summarized in the form of financial statements. 

The same principle applies to government owned and controlled corporations (GOCCs).  They, too, have to record, classify and summarize their transactions.  Like privately owned institutions, government entities are required by law to have full accounting of their activities or transactions. 

In both cases, financial statements help the management or government executives make sound business decisions.  Needless to say, both entities must also show full accounting of finances before all interested parties. 

For private entities, the investing public, lending institutions, creditors, SEC, the Bureau of Internal Revenue, etc.  The responsibility is even more pronounced for GOCCs because they have to show full accounting of their transactions before the citizens of the Republic of the Philippines. 

Such right to know GOCCs financial performances, results and accountabilities is embodied in the Philippine Constitution.  The Commission on Audit (COA), the nation’s Supreme State Audit Institution, prepares an Annual Financial Report (AFR) and submits the same to the President and the Congress of the Philippines in compliance of Section 4, Article IX-D of the Philippine Constitution.

Like financial reports of private entities, COA’s AFR shows the financial position, results of operations, cash flows and changes in the equity.  Apart from the usual notes to the financial statements, they took the task of presenting meaningful financial highlights in tabular presentations and textual analyses of key accounts.

Apart from serving as a useful tool for management, the AFR is true to its intent as a “medium to enlighten the general public on how GOCCs manage their finances and operations”.

To ascertain compliance for 2006 financial reports, COA issued accounting circular letter no. 2007-003 on January 19, 2007.  Said circular established the guidelines on the submission of year-end financial statements and other report/schedules for inclusion in the AFR for GOCCs and their subsidiaries for FY 2006 and onwards.  The circular emphasized, among others, that the deadline of submission is on or before February 14 of each year.

True to its mandate, COA submitted its AFR to the President and Congress.  Unfortunately, however, such AFR wasn’t complete as there were GOCCs who never cared or complied at all.   One of these GOCCs is the Philippine Forest Corporation (PFC).  A GOCC headed by Rodolfo Noel I. Lozada, Jr. Lozada assumed the post of President and CEO of PFC, a corporate arm of the Department of Environment and Natural Resources, in 2004.  Therefore, in 2006, he was already its top executive.

PFC’s non-submission of the required financial reports to COA is an open defiance of the latter’s lawful circular.  Considering that a sizeable amount is in their trust and care, this violation should not be ignored.

As its CEO, he directed the government's program for the propagation and commercial cultivation of tuba-tuba or jatropha plant, a source of biodiesel.  This is a huge and highly ambitious project and should certainly entail an enormous amount of Filipinos’ money.

COA’s report confirms this.  In the COA’s audit of the National Resources Development Corporation (NRDC), it disclosed that NRDC invested P10 million in PFC. It further said that such investment represents only ten percent (10%) ownership in PFC. Therefore, PFC is capitalized at P100 million.  Considering, that apart from its equity, GOCCs are receiving annual subsidies from the national government and other agencies, the amount infused in this undertaking is certainly material.

We could be too naïve and assume that the PFC’s accountant is inefficient or to put it bluntly, a dumb.  True or not, like private corporations, however, the overall responsibility rests in management.  That is why, like in private corporations, CEOs in GOCCs will also sign the Statement of Management Responsibility, a very significant document that indicates top management’s responsibility on the accompanying financial statements.

As it is Lozada’s overall responsibility as President and CEO, we can only conscientiously figure out two possibilities.  That it could be a lapse or deliberate.  If it is a lapse, then he is negligent.  If it was deliberate, then he must be hiding something.  And what do a person normally hides?  Self-obliterating truth.

Therefore, in his efforts to keep the PFC financial results undisclosed, this man who insinuatingly, portrays himself and by a few disillusioned souls as a hero could be a villain himself. This man who, by mere sight, has been seemingly canonized by the ubiquitous nuns surrounding him could be a culprit himself.

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