Republic of the Philippines

Commission on Audit
Office of the Regional Director
Regional Office No. I
City of San Fernando, La Union
Tel.No. (072) 888-6780

March 29, 2019

The Board of Directors

Urdaneta City Water District
Urdaneta City, Pangasinan

Dear Sirs/Mesdames:

We transmit herewith the Annual Audit Report on the accounts and operations of
the Urdaneta City Water District, Urdaneta City, Pangasinan for the year ended
December 31, 2018, pursuant to Section 2, Article IX – D of the Philippine Constitution
and Section 43 of Presidential Decree No. 1445 or the Government Auditing Code of the
Philippines.

The audit was conducted to ascertain the propriety and accuracy of financial
transactions, determine compliance with prescribed rules and regulations as well as
evaluate the efficiency and effectiveness of operations.

The report consists of four parts: Part I – Audited Financial Statements, Part II –
Detailed Observations and Recommendations, Part III – Status of Implementation of
Prior Year’s Audit Recommendations, and Part IV – Annexes. The observations and
recommendations were discussed in an exit conference held on February 22, 2019.
Management’s comments were incorporated in the report, where appropriate.

We rendered a qualified opinion on the presentation of the financial statements as

of December 31, 2018 because of the following:

1. The accuracy, validity and existence of the Property, Plant and Equipment (PPE)
account in the gross amount of ₱296,811,625.79 were doubtful due to unaccounted
discrepancy of ₱81,430,279.35 between the Report on the Physical Count of
Property, Plant and Equipment (RPCPPE) and accounting records, contrary to Section
122 of PD 1445 and COA Circular No. 80-124.

We recommended that Management reconcile the results of physical inventory with

accounting records and conduct complete physical inventory to ensure the fair
presentation of the Property, Plant and Equipment account.
2. The accuracy and existence of Inventory account totaling ₱14,247,379.15 were
doubtful due to incomplete inventory count and non-reconciliation of individual
Stock Cards and Report on Actual Count, which was not in consonance with Section
122 of PD 1445 and Section 43 of NGAS-Corporate.

We recommended that Management:

a. Regularly update Inventory Stock Cards;

b. Reconcile the results of the physical count with the accounting records and effect
the necessary adjustments; and
c. Exhaust all efforts to reconcile, work back or trace with supporting documents to
ensure accuracy of the Inventories account.

3. Of the total Other Receivables account, ₱1,459,049.55 or 81% were unaccounted

thereby cast doubt on the reliability and accuracy of the account. The balance
remained uncollected for several years, hence, was at risk of probable loss to the
detriment of the District.

We recommended that Management:

a. Reconcile and substantiate the noted balance under the Other Receivables
account;
b. Exhaust all efforts to collect these receivables; and
c. Set-up an Allowance for Impairment for Other Receivables account to present the
account at net realizable value consistent with accounting standard.

In addition to the audit observations which were the basis of a qualified opinion,
the following are significant observations and recommendations:

1. Three lots of the District were not covered with Certificates of Title as prescribed
under Section 39(2) of PD 1445, thus, absolute ownership over the properties were
not established and relatedly, investments made and land improvements therefrom
were not secured.

We recommended that Management secure Certificates of Title of donated land

properties to establish the validity and legitimacy of ownership of the District and
likewise safeguard its investments on the properties.

2. Non-revenue water rate of 43% exceeded the acceptable rate prescribed by LWUA
for 2018, thus, causing the District an estimated potential revenue of ₱58.4 million
being lost for not being able to maximize the use of its water production.

Despite the huge investment on the Water Meter Replacement Project amounting to
₱10.5 million, this yielded only to 3% lower from 2017 of 46%, leading to inefficient
 utilization of funds as this may have been diverted to more strategic plans that best
address the NRW problem.

We recommended that Management:

a. Conduct regular inspection of the different pipelines of the District to detect

probable defective pipes or bursting and employ immediate repair to suppress
further leakages. Regularly and timely report of leakages and closely monitor the
status thereof;
b. Prepare an action plan to ensure efficient implementation of proposed measures;
c. Install water meters in the different fire hydrants to detect or measure the use and
hence deter unauthorized withdrawal; and
d. Investigate other causes and its corresponding counter measures to effectively
manage water losses and thus enable to reduce the NRW within the allowable rate
of 30% or below, pursuant to LWUA Memorandum Circular No. 11-18.

3. Past-due Receivables or inactive accounts accumulated to ₱10,564,739.33 covering

84% or more than half of the total outstanding receivables which remained
uncollected for several years due to lack of intensive collection efforts, thus, denied
the District recovery of funds for use in its operations.

We recommended that Management:

a. Exhaust all efforts to collect the accounts receivables;

b. Establish Policy on the Collection of Inactive Accounts which shall include the
timing and frequency of follow up visits and sending of collection and demand
letters;
c. Implement strictly collection policies; and
d. Re-enforce manpower in the collection and monitoring of accounts.

We request that the comments and observations and recommendations contained

in the said report be fully addressed and we would appreciate being informed of the
action taken in this regard within sixty (60) days from date of receipt hereof, pursuant to
Section 93 of the Republic Act No. 10964, otherwise known as the General
Appropriations Act of 2018 by accomplishing the Agency Action Plan and Status of
Implementation attached herewith.

We acknowledge the cooperation extended to the audit team by the officials and
staff of the agency.
 Republic of the Philippines
Commission on Audit
Office of the Regional Director
Regional Office No. I
City of San Fernando, La Union
Tel.No. (072) 888-6780

March 29, 2019

ATTY. EFREN B. DOMAGAS

General Manager
Urdaneta City Water District
Urdaneta City, Pangasinan

Dear Atty. Domagas:

We transmit herewith the Annual Audit Report on the accounts and operations of
the Urdaneta City Water District, Urdaneta City, Pangasinan for the year ended
December 31, 2018, pursuant to Section 2, Article IX – D of the Philippine Constitution
and Section 43 of Presidential Decree No. 1445 or the Government Auditing Code of the
Philippines.

The audit was conducted to ascertain the propriety and accuracy of financial
transactions, determine compliance with prescribed rules and regulations as well as
evaluate the efficiency and effectiveness of operations.

The report consists of four parts: Part I – Audited Financial Statements, Part II –
Detailed Observations and Recommendations, Part III – Status of Implementation of
Prior Year’s Audit Recommendations, and Part IV – Annexes. The observations and
recommendations were discussed in an exit conference held on February 22, 2019.
Management’s comments were incorporated in the report, where appropriate.

We rendered a qualified opinion on the presentation of the financial statements as

of December 31, 2018 because of the following:

1. The accuracy, validity and existence of the Property, Plant and Equipment (PPE)
account in the gross amount of ₱296,811,625.79 were doubtful due to unaccounted
discrepancy of ₱81,430,279.35 between the Report on the Physical Count of
Property, Plant and Equipment (RPCPPE) and accounting records, contrary to Section
122 of PD 1445 and COA Circular No. 80-124.

We recommended that Management reconcile the results of physical inventory with

accounting records and conduct complete physical inventory to ensure the fair
presentation of the Property, Plant and Equipment account.
2. The accuracy and existence of Inventory account totaling ₱14,247,379.15 were
doubtful due to incomplete inventory count and non-reconciliation of individual
Stock Cards and Report on Actual Count, which was not in consonance with Section
122 of PD 1445 and Section 43 of NGAS-Corporate.

We recommended that Management:

a. Regularly update Inventory Stock Cards;

b. Reconcile the results of the physical count with the accounting records and effect
the necessary adjustments; and
c. Exhaust all efforts to reconcile, work back or trace with supporting documents to
ensure accuracy of the Inventories account.

3. Of the total Other Receivables account, ₱1,459,049.55 or 81% were unaccounted

thereby cast doubt on the reliability and accuracy of the account. The balance
remained uncollected for several years, hence, was at risk of probable loss to the
detriment of the District.

We recommended that Management:

a. Reconcile and substantiate the noted balance under the Other Receivables
account;
b. Exhaust all efforts to collect these receivables; and
c. Set-up an Allowance for Impairment for Other Receivables account to present the
account at net realizable value consistent with accounting standard.

In addition to the audit observations which were the basis of a qualified opinion,
the following are significant observations and recommendations:

1. Three lots of the District were not covered with Certificates of Title as prescribed
under Section 39(2) of PD 1445, thus, absolute ownership over the properties were not
established and relatedly, investments made and land improvements therefrom were
not secured.

We recommended that Management secure Certificates of Title of donated land

properties to establish the validity and legitimacy of ownership of the District and
likewise safeguard its investments on the properties.

2. Non-revenue water rate of 43% exceeded the acceptable rate prescribed by LWUA
for 2018 and thus causing the District an estimated potential revenue of ₱58.4 million
being lost for not being able to maximize the use of its water production.

Despite the huge investment on the Water Meter Replacement Project amounting to
₱10.5 million, this yielded only to 3% lower from 2017 of 46%, leading to inefficient
 utilization of funds as this may have been diverted to more strategic plans that best
address the NRW problem.

We recommended that Management:

a. Conduct regular inspection of the different pipelines of the District to detect

probable defective pipes or bursting and employ immediate repair to suppress
further leakages. Regularly and timely report of leakages and closely monitor the
status thereof;
b. Prepare an action plan to ensure efficient implementation of proposed measures;
c. Install water meters in the different fire hydrants to detect or measure the use and
hence deter unauthorized withdrawal; and
d. Investigate other causes and its corresponding counter measures to effectively
manage water losses and thus enable to reduce the NRW within the allowable rate
of 30% or below, pursuant to LWUA Memorandum Circular No. 11-18.

3. Past-due Receivables or inactive accounts accumulated to ₱10,564,739.33 covering

84% or more than half of the total outstanding receivables which remained
uncollected for several years due to lack of intensive collection efforts, thus, denied
the District recovery of funds for use in its operations.

We recommended that Management:

a. Exhaust all efforts to collect the accounts receivables;

b. Establish Policy on the Collection of Inactive Accounts which shall include the
timing and frequency of follow up visits and sending of collection and demand
letters;
c. Implement strictly collection policies; and
d. Re-enforce manpower in the collection and monitoring of accounts.

We request that the comments and observations and recommendations contained

in the said report be fully addressed and we would appreciate being informed of the
action taken in this regard within sixty (60) days from date of receipt hereof, pursuant to
Section 93 of the Republic Act No. 10964, otherwise known as the General
Appropriations Act of 2018 by accomplishing the Agency Action Plan and Status of
Implementation attached herewith.

We acknowledge the cooperation extended to the audit team by the officials and
staff of the agency.