RESULTS OF TEST OF CONTROLS (TOC)

A. EXECUTIVE SUMMARY

I. Scope of TOC

We performed a walkthrough of Asset Supervision (AS) Unit’s processes where we identified

various control procedures performed by the AS Unit over these processes. We documented
our understanding of the process and walkthrough procedures in a separate form. Please refer
to 2022 Asset Supervision Process_Final.

We then conducted test of controls (TOC) over the financial processes performed by the AS Unit
from January 1, 2022 to July 31, 2022 based on the following risks and risk assessments:

Risk Index Risk Description Risk Assessment

FA.C01 Monthly, AS Manager performs review of Moderate
all current month
additions/changes/disposal/retirement to
the Fixed Asset system, for accuracy and
compliance with policies/guidelines.
FA.C02 AS Manager reviews Capital Expenditure Moderate
(CAPEX) expenditures to ensure they are
properly recorded in the general ledgers as
expense or capital in accordance with
company policy/guidelines.
FA.C03 Construction Work in Progress (CWIP) are High
reviewed on a monthly basis by AS
Manager for appropriate classification of
costs and timely capitalization of assets.
FA.C04 Capitalized borrowing cost are reviewed High
monthly to ensure that it is properly
recorded in the general ledgers.
FA.C05 For capitalized assets, AS team performs High
asset transfer process by checking all
information received (i.e. asset value,
common cost allocation, Preliminary
Acceptance Certificate (PAC), approvals
and other documents) from the Network
Team via MSS before recording in SAP.
FA.C06 Depreciation is automatically calculated High
and recorded for fixed assets when the
posting run is conducted.

Please refer to Annex 1 for the complete Risks and Controls Matrix (RCM).

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II. Summary of Observations

3 out of 6 controls by AS Unit were assessed as ineffective:

Risk Related Control Impact

FA.C01 Monthly, AS Manager performs review of 1. Overstatement of CWIP balance,
all current month Understatement of Fixed Asset balances
additions/changes/disposal/retirement and Depreciation Expense – Amounts
to the Fixed Asset system, for accuracy recorded under CWIP should have been
and compliance with policies/guidelines. transferred to Fixed Asset account and
commenced depreciation in the correct
period. Although there is an automatic
catch-up depreciation based on PAC date,
the magnitude of the resulting catchup
depreciation for the PHP4.3B network
asset turnover and other non-F&T related
items may affect the integrity of the
monthly/quarterly financial reporting
which are being used by internal
stakeholders and submitted to
government regulatory bodies.

2. Overstatement of Fixed Asset balance and

Depreciation Expense – Due to duplicate
recording of assets.

FA.C02 AS Manager reviews CAPEX expenditures 1. Improper capitalization of asset due to

to ensure they are properly recorded in misclassification of Network versus Non-
the general ledgers as expense or capital Network assets.
in accordance with company
policy/guidelines.

FA.C03 Construction Work in Progress (CWIP) are 1. Overstatement of CWIP – Due to existence
reviewed on a monthly basis by AS of long outstanding items for clean-up.
Manager for appropriate classification of
costs and timely capitalization of assets. 2. Understatement of Fixed Asset balances
and Depreciation expense – For those long
outstanding balances which should have
been capitalized as part of plant, property
and equipment.

Our recommendations are discussed on Section B of this report.

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B. DETAILED OBSERVATIONS

Ref Control Description and Control Index Frequency Assessment

B1 Monthly, AS Manager performs review of all current Transactional Ineffective
month additions/changes/disposal/retirement to the
Fixed Asset system, for accuracy and compliance with
policies/guidelines.

B2 AS Manager reviews CAPEX expenditures to ensure they Transactional Ineffective

are properly recorded in the general ledgers as expense
or capital in accordance with company policy/guidelines.

B3 Construction Work in Progress (CWIP) are reviewed on a Monthly Ineffective

monthly basis by AS Manager for appropriate
classification of costs and timely capitalization of assets.

B4 Capitalized borrowing cost are reviewed monthly to Monthly Effective

ensure that it is properly recorded in the general
ledgers.

B5 For capitalized assets, AS team performs asset transfer Transactional Effective

process by checking all information received (i.e. asset
value, common cost allocation, PAC, approvals and other
documents) from the Network Team via MSS before
recording in SAP.

B6 Depreciation is automatically calculated and recorded Transactional Effective

for fixed assets when the posting run is conducted.

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Ref: Control Description: Control Assessment:
B1 Monthly, AS Manager performs review of all current month additions/changes/disposal/retirement Index: INEFFECTIVE
to the Fixed Asset system, for accuracy and compliance with policies/guidelines. FA.C01
Observations:
Based on the testing performed we have noted the following items:
 Cutoff Issues
A. F&T Asset Transfer Process
1. PACs signed and completed are submitted late by Network Team to AS Team for recording which can be classified as:
 2021 PACs submitted only in 2022 (PHP335M based on MSS report).
 2022 PACs submitted beyond 3 months after completion (PHP4.3B based on MSS report).
2. PACs received by 25th are not processed within the same month (PHP44M based on MSS report).

B. Non-F&T Asset Transfer Process

1. 2021 Non-Network CAPEX items were recorded in 2022 (PHP77M based on August 2022 SAP DepSim Report).
2. No monthly review of Non-Purchase Order (PO) CAPEX transactions leading to delayed capitalization.

 Accuracy of Recording
1. SAP Acquisition Date does not match supporting documents such as delivery receipt.
2. Duplicate recording of assets was not detected.
3. Useful life for the same asset is different.

Details of the samples from which the aforementioned observations were derived are as follows:

SAP
Delivery Acquisition Depreciation PHP Remarks/Other
No Vendor Name Asset Description
Receipt Date Date (Record Start Date Amount Observations
Date)
1 LuxCarta Population Map 4/25/2022 7/31/2022 4/25/2022 2,933,840 Delayed recording but
20m Digital Map with catchup depreciation.

2 Guangzhou TEMS Testing 6/6/2022 7/31/2022 6/6/2022 10,338,842 Delayed recording but
OCOM Toolkit with catchup depreciation.
3 Power Mac Mac Book Pro 5/5/2021 1/18/2022 1/1/2022 823,750 Cross year recording in
Center 2020, 13, iMac addition to delivery date

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 not matching to SAP
acquisition date.

4 Poundit XGIMI Elfin Mini 12/22/2021 3/25/2022 12/22/2021 283,393 Cross year recording in
Projector addition to delivery date
not matching to SAP
acquisition date.

5 Zenshin Thinkpad Laptop 2/18/2022 3/17/2022 3/1/2022 1,044,643 Delivery date not
Business matching to SAP
Corporation acquisition date.

6 Quartz MacBook Pro 2/8/2022 4/6/2022 4/1/2022 208,661 Delivery date not
Business matching to SAP
Products acquisition date.
Corporation

7 Powertech Generator 12/15/2021 6/22/2022 6/1/2022 75,892 Potential duplicate

Asia Pacific recording: documents
attached for second line
item seem to pertain to
first line item. unable to
trace supporting
documents for first line
item. Check useful life
difference. Cross year
recording in addition to
delivery date not matching
to SAP acquisition date.

These observations have resulted to:

 Overstatement of CWIP balance, Understatement of Fixed Asset balances and Depreciation Expense – Amounts recorded under
CWIP should have been transferred to Fixed Asset account and commenced depreciation in the correct period. Although there is an
automatic catch-up depreciation based on PAC date, the magnitude of the resulting catchup depreciation for the PHP4.3B network

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 asset turnover and other non-F&T related items may affect the integrity of the monthly/quarterly financial reporting which are
being used by internal stakeholders and submitted to government regulatory bodies.
 Overstatement of Fixed Asset balance and Depreciation Expense – Due to duplicate recording of assets.

Recommendations:
1. Provide reminder to the network team to ensure timely submission of completed PACs for recording.
2. Perform monthly review of CAPEX related non-PO items to detect and record any capitalizable items not covered by the F&T asset
transfer process.
3. Enhance validation procedures related to asset capitalization from recorded outside the F&T asset transfer process to prevent
duplicate submission of supporting documents.
4. Ensure that date recorded in SAP to be used as basis for depreciation should match the supporting documentation.

Process Owner:

Response:
1. Agree. The team will send out monthly reminder to Network team on the PAC submissions.
2. The team performs review of CAPEX related non-PO items that are booked directly to Construction in progress accounts however if an
item is booked to an expense, it is assumed to be covered by Financial Reporting (FR) team review. However, the team can also do a
review on certain GL accounts which can be aligned with FR team to avoid duplication of task.
3. Agree. The team will avoid manual asset capitalization of assets to avoid duplication but instead push the business units to perform the
correct process in MSS (perform goods receipt to record the asset).
4. Agree. The team will help the business users to input correct dates when performing goods receipt process – provide how to template
as necessary.

Timeline:
Not Yet Started. All recommendations will be implemented starting October 2022 except on item no. 2 which needs aligned with FR
team.

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Ref Control Description: Control Assessment:
: AS Manager reviews CAPEX expenditures to ensure they are properly recorded in the general ledgers as Index: INEFFECTIVE
B2 expense or capital in accordance with company policy/guidelines. FA.C02
Observations:
Based on the testing performed on 6 out of 10 samples, we have noted that site air-conditioning assets and power supply equipment
particularly marked as network assets are being recorded under 140090 Office Equipment and Tools GL account. Checking the asset
register as of August 31, 2022 to determine the extent, the acquisition value related to 19,458 line items amounted to PHP8.8B. The
description of these assets are as follows:

AC power distribution cabinet 5KVA Standby Portable Generator Low-voltage power factor compensation
cabinet
Fixed diesel generator set server Low-voltage metering cabinet
Three-in-three-out UPS power supply Other special transformers Monitoring host
DC power distribution panel Power cabinet UPS output power distribution cabinet
(load screen
Valve Regulated Lead Acid Battery Comprehensive cabinet NOC construction of finance tower 20th
floor
Computer room air conditioner High voltage incoming cabinet Generator PMS11000 ES Brand: Promate
Switch AC distribution box Oil-immersed transformer
Data acquisition control equipment Dry-type transformer Single input single output UPS power
supply
Wall-mounted weak current cabinet Conversion cabinet UPS input power distribution cabinet
Lithium iron phosphate battery Low-voltage incoming cabinet Universal rack
DPS power supply Low voltage contact cabinet UPS battery switch cabinet

Recommendation:
Establish a separate general ledger account to ensure that these assets would not be recorded together with other office equipment for
more accurate internal reporting of network asset data.

Process Owner:

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Response:
Agree. Two options is seen to address the recommendation.
Option 1 – to update the asset index master and align with the new general ledger account but will need to consult IT-SAP, MSS and
OSS on the overall impact of the change.
Option 2 – to reflect reclass to the new general ledger account for internal and external reporting purposes only. Will be reflected in
the Lapsing schedule and PPE variance analysis only.

Timeline:
On going. Option 2 can be implemented in the September 2022 closing while Option 1 will have to confirm with IT team/systems
involved.

Ref Control Description: Control Assessment:

: Construction Work in Progress (CWIP) are reviewed on a monthly basis by AS Manager for appropriate Index: INEFFECTIVE
B3 classification of costs and timely capitalization of assets. FA.C03
Observations:
We tested the CWIP reports that are required to be prepared by the AS Unit on a monthly basis and noted the following:
1. Lacks comprehensive monitoring and resolution of long-outstanding transactions as some items have been deemed to be for clean-
up.
2. No preparation of aging report.

These observations have resulted to:

 Overstatement of CWIP balance – Some long outstanding items are no longer valid to be recorded under CWIP.
Once validation has been completed, depending on nature, the appropriate resolution will be to:
- Expense outright; or
- Capitalize to the appropriate fixed asset account
 Understatement of Fixed Asset balances and Depreciation expense – For those long outstanding balances which should have been
capitalized as part of plant, property and equipment.

Recommendations:
1. Long-outstanding items must be properly monitored to determine validity of the CWIP balance.
2. Aging schedules should be prepared monthly to aid in the timely review of long outstanding and unusual items.
3. Perform monthly review of CAPEX related non-PO items to detect and record any capitalizable items not covered by the F&T asset

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 transfer process.

Process Owner:

Response:
Agree on the recommendations provided. The team has been working on the aging schedule of CWIP balances with target to complete
by 3rd week of October 2022. Follow up on the long outstanding items will be put in a proper documentation moving forward.

Timeline:
On going. Target to complete on or before October 31, 2022.

Annex 1 – Risks and Controls Matrix (RCM)