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 10, 2017

THE BOARD OF DIRECTORS

Pozorrubio Water District
Pozorrubio, Pangasinan

Mesdames/Sirs:

We transmit herewith the report on the comprehensive audit of the accounts and
operations of Pozorrubio Water District, Pozorrubio, Pangasinan, for the year ended
December 31, 2016 in compliance with Section 2, Article IX-D of the Philippine
Constitution and pertinent sections of Presidential Decree No. 1445

The audit was conducted to ascertain the propriety of the financial transactions
and compliance with prescribed rules and regulations. It was also made to ascertain the
accuracy of financial records and reports, as well as the fairness of the presentation of the
financial statements.

We rendered an unqualified opinion on the fair presentation of the Financial

Statements as to the financial position of Pozorrubio Water District as of December 31,
2016, and its financial performance and cash flows for the year then ended, in accordance
with generally accepted accounting principles.

The report consists of four parts: Part I – Audited Financial Statements, Part II –
Detailed Observations and Recommendations and Part III – Status of Prior Year’s Audit
Recommendations. The observations and recommendations were discussed with the
concerned management officials and staff in an exit conference held on February 24,
2017. Management’s comments are included in the report, where appropriate.

Presented below is the summary of significant observations and recommendations

of the District:

1. Accounts Receivable from Customers reached an alarming balance of

₱ 1,947,794.04, 41.97% or ₱ 817,415.14 of which remained uncollected for over
181 days depriving the District of recovery of its investment resources on water
production and other costs of water services. The non collection of the accounts
 receivables is a manifestation of the management’s poor collection system
affecting its over-all operations.
We have recommended that Management analyze and evaluate further the
collectability status of outstanding Accounts Receivable, especially those that are
long past due. Management should intensify its collection efforts by sending
demand letters to delinquent customers, review its disconnection policy and
comply with the Provisions of Section 64 of Government Accounting and
Auditing Manual.

2. The Allowance for Doubtful Accounts of the District was not provided for the CY
2016 contrary to Section 66 of New Government Accounting System, Volume I,
resulting to misstatement of the accounts receivables.

Moreover, Aging of Accounts Receivable of more than 1 year was not accurately
and properly classified or grouped to their nearest age to be exact, thereby
understating the set up of allowance for doubtful accounts. Provision of a flat rate
of 5% to all accounts aged more than 1 year was not also a reasonable estimate to
reduce accounts receivables to its realizable values, thereby significantly affecting
the fair presentation of the receivable account in the financial statements.

We have recommended that management:

 Set up annually its allowance for doubtful accounts and make necessary
adjustment if necessary, strictly adhering to the provisions of Section 66 of New
Government Accounting System, Volume I and Section 36 of Philippine
Accounting Standards 7.

 Require the Commercial Division to classify and age Accounts Receivables of

more than 1 year into group of accounts nearest their age, say 1 year, 2 years, etc,
or 1 to 2 years, 3 to 4 years, 5 to 6 years, etc. The different age groups shall
belong to a certain bracket that will have different provision/ allowance rate.

 Formulate accounting policies to arrive at a reasonable estimate of the

allowance for doubtful accounts revising the relatively low rate for provision for
doubtful accounts considering factors such as 1) accurate aging of Accounts
Receivables; 2) account status; 3) account address/location; 4) account
collectability 5) result of client calls and field investigations.

3. Accounts receivables from concessionaires included accrued penalties amounting

to ₱ 178,733.98, despite the latter already segregated from the water bills in
violation of conservative principle of accounting, thereby causing overstatement
of asset and income accounts.
 We have recommended that Management:

 Stop the practice of recording accrued penalties under Accounts Receivables.

Instead, accrued penalties should only be recorded in the books upon collection.

 Prepare a reversing journal entry reversing the Accounts Receivable

representing ₱178,333.93 year end balance of accrued penalties to income or
Retained Earning Accounts. Proposed Entry:

Income or Retained Earnings ₱178,333.93

Accounts Receivables ₱ 178,333.93

4. Repair/plastering of perimeter water tank fence amounting to ₱37,089.00 was

undertaken without the necessary budget in violation to COA Circular No. 2012-
003 dated October 29, 2012, rendering the disbursed amount an illegal
expenditure.

We have recommended that the District should caution and limit its spending
activities to the programs, activities and priorities as included in the current year’s
budget and current Annual Procurement Plan. Otherwise, the transaction being
illegal shall be disallowed in audit.

5. Expenses incurred in the celebration of Christmas activities were beyond restraint

and economy, hence violates COA Circular NO. 2012-003 dated October 29,
2012.

We have recommended that management submit the lacking documentary

requirements to assure that the expense was authorized and in accordance with the
procurement procedures of RA 9184. Likewise, refrain from incurring
extravagant or excessive amount of celebrating Christmas season and limit the
amount of expenses to P 2,000.00 a day per employee pursuant to NBC Circular
NO. 563 dated April 22, 2016, otherwise excessive expenditures shall not be
allowed in audit in conformity with COA Circular No. 2012-003 dated October
29, 2012.

Details of other audit observations and recommendations are discussed in Part II

of the report.

We request that the audit observations and recommendations contained in the

report be fully addressed and we would appreciate being informed of the action taken in
this regard within 60 days from receipt hereof, pursuant to Section 96 of the General
Provisions of Republic Act No. 10717, otherwise known as General Appropriations Act
of 2016, by accomplishing the Agency Action Plan and Status of Implementation
attached herewith.
 We acknowledge the cooperation and support extended to us by the officials and
employees of that District.

Very truly yours,

 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 10, 2017

MR. ROLANDO N. VELASQUEZ

General Manager
Pozorrubio Water District
Pozorrubio, Pangasinan

Dear Manager Velasquez:

We transmit herewith the report on the comprehensive audit of the accounts and
operations of Pozorrubio Water District, Pozorrubio, Pangasinan, for the year ended
December 31, 2016 in compliance with Section 2, Article IX-D of the Philippine
Constitution and pertinent sections of Presidential Decree No. 1445

The audit was conducted to ascertain the propriety of the financial transactions
and compliance with prescribed rules and regulations. It was also made to ascertain the
accuracy of financial records and reports, as well as the fairness of the presentation of the
financial statements.

We rendered an unqualified opinion on the fair presentation of the Financial

Statements as to the financial position of Pozorrubio Water District as of December 31,
2016, and its financial performance and cash flows for the year then ended, in accordance
with generally accepted accounting principles.

The report consists of four parts: Part I – Audited Financial Statements, Part II –
Detailed Observations and Recommendations and Part III – Status of Prior Year’s Audit
Recommendations. The observations and recommendations were discussed with the
concerned management officials and staff in an exit conference held on February 24,
2017. Management’s comments are included in the report, where appropriate.

Presented below is the summary of significant observations and

recommendations of the District:

1. Accounts Receivable from Customers reached an alarming balance of

₱ 1,947,794.04, 41.97% or ₱ 817,415.14 of which remained uncollected for over
181 days depriving the District of recovery of its investment resources on water
production and other costs of water services. The non collection of the accounts
 receivables is a manifestation of the management’s poor collection system
affecting its over-all operations.
We have recommended that Management analyze and evaluate further the
collectability status of outstanding Accounts Receivable, especially those that are
long past due. Management should intensify its collection efforts by sending
demand letters to delinquent customers, review its disconnection policy and
comply with the Provisions of Section 64 of Government Accounting and
Auditing Manual.

2. The Allowance for Doubtful Accounts of the District was not provided for the CY
2016 contrary to Section 66 of New Government Accounting System, Volume I,
resulting to misstatement of the accounts receivables.

Moreover, Aging of Accounts Receivable of more than 1 year was not accurately
and properly classified or grouped to their nearest age to be exact, thereby
understating the set up of allowance for doubtful accounts. Provision of a flat rate
of 5% to all accounts aged more than 1 year was not also a reasonable estimate to
reduce accounts receivables to its realizable values, thereby significantly affecting
the fair presentation of the receivable account in the financial statements.

We have recommended that management:

 Set up annually its allowance for doubtful accounts and make necessary
adjustment if necessary, strictly adhering to the provisions of Section 66 of New
Government Accounting System, Volume I and Section 36 of Philippine
Accounting Standards 7.

 Require the Commercial Division to classify and age Accounts Receivables of

more than 1 year into group of accounts nearest their age, say 1 year, 2 years, etc,
or 1 to 2 years, 3 to 4 years, 5 to 6 years, etc. The different age groups shall
belong to a certain bracket that will have different provision/ allowance rate.

 Formulate accounting policies to arrive at a reasonable estimate of the

allowance for doubtful accounts revising the relatively low rate for provision for
doubtful accounts considering factors such as 1) accurate aging of Accounts
Receivables; 2) account status; 3) account address/location; 4) account
collectibility 5) result of client calls and field investigations.

3. Accounts receivables from concessionaires included accrued penalties amounting

to ₱ 178,733.98, despite the latter already segregated from the water bills in
violation of conservative principle of accounting, thereby causing overstatement
of asset and income accounts.
 We have recommended that Management:

 Stop the practice of recording accrued penalties under Accounts Receivables.

Instead, accrued penalties should only be recorded in the books upon collection.

 Prepare a reversing journal entry reversing the Accounts Receivable

representing ₱178,333.93 year end balance of accrued penalties to income or
Retained Earning Accounts. Proposed Entry:

Income or Retained Earnings ₱178,333.93

Accounts Receivables ₱ 178,333.93

4. Repair/plastering of perimeter water tank fence amounting to ₱37,089.00 was

undertaken without the necessary budget in violation to COA Circular No. 2012-
003 dated October 29, 2012, rendering the disbursed amount an illegal
expenditure.

We have recommended that the District should caution and limit its spending
activities to the programs, activities and priorities as included in the current year’s
budget and current Annual Procurement Plan. Otherwise, the transaction being
illegal shall be disallowed in audit.

5. Expenses incurred in the celebration of Christmas activities were beyond restraint

and economy, hence violates COA Circular NO. 2012-003 dated October 29,
2012.

We have recommended that management submit the lacking documentary

requirements to assure that the expense was authorized and in accordance with the
procurement procedures of RA 9184. Likewise, refrain from incurring
extravagant or excessive amount of celebrating Christmas season and limit the
amount of expenses to P 2,000.00 a day per employee pursuant to NBC Circular
NO. 563 dated April 22, 2016, otherwise excessive expenditures shall not be
allowed in audit in conformity with COA Circular No. 2012-003 dated October
29, 2012.

Details of other audit observations and recommendations are discussed in Part II

of the report.

We request that the audit observations and recommendations contained in the

report be fully addressed and we would appreciate being informed of the action taken in
this regard within 60 days from receipt hereof, pursuant to Section 96 of the General
Provisions of Republic Act No. 10717, otherwise known as General Appropriations Act
of 2016, by accomplishing the Agency Action Plan and Status of Implementation
attached herewith.
 We acknowledge the cooperation and support extended to us by the officials and
employees of that District.
 Republic of the Philippines
COMMISSION ON AUDIT
Commonwealth Avenue
Quezon City

ANNUAL AUDIT REPORT

ON THE

POZORRUBIO WATER DISTRICT

Pozorrubio, Pangasinan

For the Year Ended December 31, 2016

 EXECUTIVE SUMMARY

A. Introduction

The Pozorrubio Water District (POWAD) was established in 1980 to envision

itself to be a progressive and economically viable utility firm that provides adequate,
safe, potable and affordable water and an effective sewerage system. Its mission is
committed to undertake continuing exploration and development activities aimed at
the preservation and sustainability of water resources and to adherence to sound
practices in preserving natural environment. The District has a manpower
complement of 18 regular employees and 12 job order employees headed by the
General Manager. The Board of Directors (BOD) which has a component of five
members serves as the policy-making body of the District.

B. Highlights of Financial Operation

Presented below is the summary of financial highlights of the District for the
period ending December 31, 2016.

2016 2015
Total Income ₱12,085,560.98 ₱11,025,235.64
Assets 88,523,663.52 77,159,381.49
Liabilities 16,464,060.16 17,250,339.62
Government Equity 72,059,603.36 59,909,041.87

C. Highlights of Operations
Presented below is the summary of operational highlights of the District for
the period ending December 31, 2016:

Programs/Projects Budget Actual Variance

Lot Acquisition (Brgy. Villegas) ₱150,000.00 ₱125,000.00 ₱25,000.00
Extension of Customer's Lounge Area 405,200.00 369,496.31 35,703.69
Powerline Extension for PS #5 200,000.00 234,373.44 (34,373.44)
Drilling of One(1) Production Well - PS# 5 1,998,300.00 1,816,880.00 181,420.00
Batakil-Inoman Pipeline Extension and
Interconnection 686,813.74 711,587.00 (24,773.26)
Construction of Garage with Stockroom
Incorporated (phase 2) 180,653.73 172,728.00 7,925.73

D. Scope of Audit and Methodology

A comprehensive audit was conducted on the accounts and operations of the

Pozorrubio Water District, Pozorrubio, Pangasinan for the year ended December 31,
 2016. The audit consisted of review of operating procedures, interview with
concerned officials and employees, verification, reconciliation and analysis of
accounts and such other procedures deemed necessary.

E. Auditor’s Opinion on the Financial Statement

The Auditor rendered an unqualified opinion on the fair presentation of the

Financial Statements as to the financial position of Pozorrubio Water District as of
December 31, 2016, and its financial performance and cash flows for the year then
ended, in accordance with generally accepted accounting principles.

F. Significant Audit Observations and Recommendations

Presented below is a summary of the significant Audit Observations and

Recommendations. These were discussed with the Agency officials concerned during
the exit conference and their corresponding comments were incorporated in Part II of
the report, where appropriate:

1. Accounts Receivable from Customers reached an alarming balance of

₱ 1,947,794.04, 41.97% or ₱ 817,415.14 of which remained uncollected for
over 181 days depriving the District of recovery of its investment resources on
water production and other costs of water services. The non collection of the
accounts receivables is a manifestation of the management’s poor collection
system affecting its over-all operations.
We have recommended that Management analyze and evaluate further the
collectability status of outstanding Accounts Receivable, especially those that
are long past due. Management should intensify its collection efforts by
sending demand letters to delinquent customers, review its disconnection
policy and comply with the Provisions of Section 64 of Government
Accounting and Auditing Manual.

2. The Allowance for Doubtful Accounts of the District was not provided for the
CY 2016 contrary to Section 66 of New Government Accounting System,
Volume I, resulting to misstatement of the accounts receivables.

Moreover, Aging of Accounts Receivable of more than 1 year was not

accurately and properly classified or grouped to their nearest age to be exact,
thereby understating the set up of allowance for doubtful accounts. Provision
of a flat rate of 5% to all accounts aged more than 1 year was not also a
reasonable estimate to reduce accounts receivables to its realizable values,
thereby significantly affecting the fair presentation of the receivable account
in the financial statements.
 We have recommended that management:

 Set up annually its allowance for doubtful accounts and make necessary
adjustment if necessary, strictly adhering to the provisions of Section 66 of
New Government Accounting System, Volume I and Section 36 of Philippine
Accounting Standards 7.

 Require the Commercial Division to classify and age Accounts

Receivables of more than 1 year into group of accounts nearest their age, say
1 year, 2 years, etc, or 1 to 2 years, 3 to 4 years, 5 to 6 years, etc. The different
age groups shall belong to a certain bracket that will have different provision/
allowance rate.

 Formulate accounting policies to arrive at a reasonable estimate of the

allowance for doubtful accounts revising the relatively low rate for provision
for doubtful accounts considering factors such as 1) accurate aging of
Accounts Receivables; 2) account status; 3) account address/location; 4)
account collectibility 5) result of client calls and field investigations.

3. Accounts receivables from concessionaires included accrued penalties

amounting to ₱ 178,733.98, despite the latter already segregated from the
water bills in violation of conservative principle of accounting, thereby
causing overstatement of asset and income accounts.

We have recommended that Management:

 Stop the practice of recording accrued penalties under Accounts

Receivables. Instead, accrued penalties should only be recorded in the books
upon collection.

 Prepare a reversing journal entry reversing the Accounts Receivable

representing ₱178,333.93 year end balance of accrued penalties to income or
Retained Earning Accounts. Proposed Entry:

Income or Retained Earnings ₱178,333.93

Accounts Receivables ₱178,333.93

4. Repair/plastering of perimeter water tank fence amounting to ₱37,089.00 was

undertaken without the necessary budget in violation to COA Circular No.
2012-003 dated October 29, 2012, rendering the disbursed amount an illegal
expenditure.

We have recommended that the District should caution and limit its spending
activities to the programs, activities and priorities as included in the current
year’s budget and current Annual Procurement Plan. Otherwise, the
transaction being illegal shall be disallowed in audit.
 5. Expenses incurred in the celebration of Christmas activities were beyond
restraint and economy, hence violates COA Circular NO. 2012-003 dated
October 29, 2012.

We have recommended that management submit the lacking documentary

requirements to assure that the expense was authorized and in accordance with
the procurement procedures of RA 9184. Likewise, refrain from incurring
extravagant or excessive amount of celebrating Christmas season and limit the
amount of expenses to P 2,000.00 a day per employee pursuant to NBC
Circular NO. 563 dated April 22, 2016, otherwise excessive expenditures shall
not be allowed in audit in conformity with COA Circular No. 2012-003 dated
October 29, 2012.

G. Summary of Suspensions, Disallowances and Charges

As of December 31, 2016, the balance of unsettled audit disallowances of the

District was ₱ 786,249.50, ₱ 783,449.50 of which were being settled on instalment
basis and ₱ 2,800.00 were newly issued disallowances. There was no outstanding
suspension and charge. Audit disallowances settled by the District on instalment basis
during the year amounted to ₱ 171,296.00.
H. Status of Prior Years’ Audit Recommendations

Out of the eight prior year’s audit recommendations; five were fully
implemented; two were partially implemented but reiterated in Part II of the report
and one was not implemented.
 TABLE OF CONTENTS

PART TITLE PAGE

NO.

I AUDITED FINANCIAL STATEMENTS

 Independent Auditor’s Report 1

 Statement of Management’s Responsibility For Financial
Statements 3
 Statement of Financial Position 4
 Statement of Comprehensive Income 7
 Statement of Changes in Equity 9
 Statement of Cash Flow 10
 Notes to Financial Statements 12

II AUDIT OBSERVATIONS AND RECOMMENDATIONS 17

III STATUS OF PRIOR YEAR’S AUDIT

RECOMMENDATIONS 37
 PART I

AUDITED FINANCIAL STATEMENTS

 Republic of the Philippines
COMMISSION ON AUDIT
Office of the Regional Director
Regional Office No. I
San Fernando City, La Union
Tel. No. (072) 888-6780

INDEPENDENT AUDITOR’S REPORT

The Board of Directors

Pozorrubio Water District
Pozorrubio, Pangasinan

Report on the Financial Statements

We have audited the accompanying financial statements of Pozorrubio Water District,

which comprise the Statement of Financial Position as at December 31, 2016, and the
Statement of Comprehensive Income, Statement of Changes in Equity and Statement of
Cash Flow for the year then ended, and a Summary of Significant Accounting Policies
and other explanatory notes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial
statements in accordance with the State Accounting Principles, and for such Internal
Control as management determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our

audit. We conducted our audit in accordance with laws, COA and INTOSAI standards
and applicable Generally Accepted Auditing Standards. These standards require that we
comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the financial
statements, due to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances.
An audit also includes assessing the accounting principles used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall presentation

1
of the financial statements. We believe that the audit evidence we have is sufficient and
appropriate to provide a basis for our unqualified audit opinion.

Opinion

In our opinion, the financial statements present fairly in all material respects, the financial
position of Pozorrubio Water District as of December 31, 2016, and its financial
performance and cash flows for the year then ended, in accordance with generally
accepted accounting principles.

COMMISSION ON AUDIT

February 26, 2017

2
3
 Notes to Financial Statements

I. General Information

Basis of Reporting

a. Agency Background

The water supply system of the Municipality of Pozorrubio was established in

1962 by the National Waterworks and Sewerage Authority (NAWASA). The physical
structures of the systems comprise of a concrete water tower, one deep well and
distribution mains, all located within the Poblacion. In 1966, the operation of the system
was turned over to the municipality.

The development strategy under Presidential Decree No. 198 has reached
Pozorrubio in 1980 when the Local Government of Pozorrubio passed a resolution
organizing and forming a water district in the Municipality. The municipal authorities
transferred the operation and management including all the waterworks and facilities to
the newly created entity. On September 24, 1980, the Local Water Utilities
Administration issued Certificate of Conditional Conformance No. 133 to the new entity
named Pozorrubio Water District.

b. Objectives

1. Acquire, install, improve, maintain and operate water supply and distribution system
for domestic, industrial, municipal and agricultural uses for residents and lands within the
boundaries of the district;

2. Provide, maintain and operate water collections, treatment and disposal facilities;

3. Conduct such other functions and operations incidental to water resources

development, utilization and disposal within the district, as are necessary and incidental
to said purpose.

c. Organizational set-up

The Water District is headed by Mr. Rolando N. Velasquez, assisted by Ms. Elsie
Yu Dacasin, Administrative, Commercial and Finance Division Manager. It has 18
regular employees and 12 job order employees.

12
Basis of Financial Statements Presentation

The Financial Statement of the Pozorrubio Water District as of December 31,

2016 has been prepared in accordance with generally accepted accounting principles and
standards.

Summary of Significant Accounting Policies

a. The District converted its Financial Statements for the years 2016 and 2015 and
prepared its first PFRS Financial Statements to comply with the provisions of COA
Circular No. 2016-006 dated December 29, 2016. With the shifting from the adoption of
the Revised Chart of Accounts for National Government Agencies as per COA Circular
NO. 2013-002 dated January 30, 2013 to the Revised Chart of Accounts for Government
Corporations under COA Circular 2015-010 dated December 1, 2015, all account titles
and account codes were changed and reclassified.

b. Revenue and Expenses – the accrual method of accounting for income and
expense is used which means that income is recognized when earned regardless of when
received and expenses are recognized when incurred regardless of when paid.

c. Depreciation – Provision for depreciation is computed based on the straight line

method.

II. BALANCE SHEET

Note 1. Cash and Cash Equivalents

This account pertains to collections with the collecting officer and still
on hand pending deposit to the District depository bank, petty cash fund,
and deposit in current, savings and time deposits. The District Time Deposits
includes a monthly allocation of P100,000.00 for Retirement Plan.

2016 2015

Cash - Collecting Officers ₱ 110,568.66 ₱ 102,508.57

Petty Cash Fund 5,000.00 5,000.00
Cash in Bank - Local Currency:
Current Account WBC-LBP 22,786,134.64 14,975,545.81
Savings Account WBC-RBPI 225,853.72 334,682.51
Savings Account CMD-LBP 374,758.51 354,037.75
Time Deposit- Retirement Plan 10,383,234.79 9,104,418.72
Time Deposit-Cash Reserve 8,580,902.12 7,587,370.00
42,466,452.44 32,463,563.36

13
Note 2. Accounts Receivable

This account covers customers’ unpaid water bills as of year end shown as
follows:

2016 2015
Advances to Officers and Emp. ₱ - ₱ 20,000.00
Other Receivables (Bond-DPWH) - 22,326.08

Accounts Receivable 2,138,596.59 2,230,220.93

Allowance for Impairment-

Accounts Receivable (48,588.08) (48,588.08)
₱ 2,090,008.51 ₱ 2,223,958.93

Note 3. Inventories

This account represents unissued materials and supplies carried on stocks

for the use of the district’s operations as follows:
2016 2015

Office Supplies ₱ 107,622.79 ₱ 139,959.30

Other Supp. Inventory -Chemicals 51,300.00 16,625.00
Const. Mat. Inventory. 1,280,077.02 1,128,110.57
Total ₱ 1,438,999.81 ₱ 1,284,694.87

Note 4. Property, Plant and Equipment

This account includes assets of the district that were used and are expected
to be used in the normal operations and have expected lives of more than one
year as follows:

2016 2015
Land ₱ 5,585,800.00 ₱ 5,460,800.00
Other Structures 1,595,455.75 1,595,455.75
Power Supply Systems 5,142,542.28 4,184,052.20
Buildings 4,756,417.85 4,214,193.44
Office Equipment 780,353.35 780,353.35
Information & Comm.Technology 1,006,698.00 998,098.00
Firefighting 171,245.50 171,245.50
Medical Equipment 345,562.00 345,562.00
Motor Vehicles 1,776,527.23 1,776,527.23
Other PPE 275,913.55 237,913.55

14
Water Supply Systems 13,013,503.27 11,001,328.73
Sewer Systems (Trans. & Dist.) 33,823,305.14 33,111,718.14
Construction Work in Progress 0.00 325,707.00
TOTAL ₱ 68,273,323.92 ₱ 64,202,954.89
Less:
Accumulated Depreciation 25,745,121.16 23,015,790.56
Property, Plant and
and Equipment (net) ₱ 42,528,202.76 ₱41,187,164.33

Note 5. Inter-Agency Payables

This account represents the monthly contribution life retirement, pension as
follows:

2016 2015

Due to BIR ₱ 82,215.34 ₱ 63,285.47

Due to GSIS 127,048.57 109,977.45
Due to PAG-IBIG 21,403.81 20,928.40
Due to PHILHEALTH 7,850.00 7,575.00
₱ 238,517.72 ₱ 201,766.32

Note 6. Other Liability Account

This account consists of the following:

2016 2015

Other Payables (Retirement Plan) ₱ 1,433,287.69 ₱ 1,433,287.69

Note 7. Loans Payable

This account pertains to the outstanding interest bearing loans availed

from the LWUA to finance the district’s construction and improvements of
its water supply system and other long-term payable from supplier of
construction materials as follows:

2016 2015

Loans Payable ₱ 14,228,660.00 ₱ 14,909,728.55

Other long-term payables 60,000.00 278,772.50

₱ 14,288,660.00 ₱ 15,188,501.05

15
Note 8. Capital Contribution-Government
This account pertains to the difference between the utility assets and
liabilities at the time the Water District assumed control over the operation of
the utility.

2016 2015
₱ 4,974,857.18 ₱ 4,974,857.18

Note 9. Retained Earnings

This account represents the accumulated earnings or losses of the Water
District.
2016 2015

₱ 67,084,746.18 ₱ 54,934,184.69

16
 PART II

AUDIT OBSERVATIONS AND

RECOMMENDATIONS
 AUDIT OBSERVATIONS AND RECOMMENDATIONS

I. FINANCIAL AND COMPLIANCE

1. Accounts Receivable from Customers reached an alarming balance of
₱1,947,794.04, 41.97% or ₱817,415.14 of which remained uncollected for
over 181 days depriving the District of recovery of its investment resources
on water production and other costs of water services. The non collection of
the accounts receivables is a manifestation of the management’s poor
collection system affecting its over-all operations.
Sec. 64, Volume I, Government Accounting and Auditing Manual states that:

Quarterly, each agency accounting unit shall prepare a statement

scheduling overdue accounts receivable. The agency head, or his
authorized representative, shall review and sign this statement as an
indication that he has examined the list of overdue accounts and has
instituted, or will institute, action for their collection.

Verification of Accounts Receivable per Aging Schedule revealed that a

total balance of P 1,947,794.04 remained uncollected as of December 31, 2016,
details shown below:

Days Active Inactive Total Percentage

1-30 ₱703,986.96 ₱6,903.60 ₱710,890.56 36.50%
31-60 239,156.15 26,577.35 265,733.50 13.64%
61-90 6,982.36 39,237.06 46,219.42 2.37%
91-120 14,904.15 39,952.44 54,856.59 2.82%
121-150 371.45 39,209.00 39,580.45 2.03%
151-180 0.00 13,098.38 13,098.38 .67%
181- up 860.00 816,555.14 817,415.14 41.97%
Total ₱ 966,261.07 ₱981,532.97 ₱1,947,794.04

Analysis of Schedule of Aging of Accounts Receivable revealed the

following observations:

1. Out of the total balance of ₱ 1,947,794.04 Accounts Receivable, 49.61% or

₱966,261.07 pertains to active accounts while 50.39% or ₱ 981,532.97 was
already considered inactive.

2. 83.19% or ₱ 816,555.14 of the total balance of Inactive Accounts were

already past due for more than 181 days.

The account balance arises from the non-payment of water bills by

concessionaires excluding the corresponding penalties for late payment of water
bills.

17
 This substantial amount of Accounts Receivable is an indication of the
District’s poor/low collection policy. The said amount of Receivables, if collected
on time, could have helped the District finance for its operations and additional
expenses.

We have recommended that Management analyze and evaluate further

the collectability status of outstanding Accounts Receivable, especially those
that are long past due. Management should intensify its collection efforts by
sending demand letters to delinquent customers, review its disconnection
policy and comply with the Provisions of Section 64 of Government
Accounting and Auditing Manual.

Management commented that they will exert effort to these outstanding

accounts receivable and that they will comply with the recommendations.

2. The Allowance for Doubtful Accounts of the District was not provided for the
CY 2016 contrary to Section 66 of New Government Accounting System,
Volume I, resulting in the misstatement of the accounts receivables.

Moreover, Aging of Accounts Receivable of more than 1 year was not

accurately and properly classified or grouped to their nearest age to be exact,
thereby understating the set up of allowance for doubtful accounts.
Provision of a flat rate of 5% to all accounts aged more than 1 year was not
also a reasonable estimate to reduce accounts receivables to its realizable
values, thereby significantly affecting the fair presentation of the receivable
account in the financial statements.

Section 66 of New Government Accounting System, Volume I states that:

Bad Debts. Trade Receivables shall be valued at their face amounts

minus, whenever appropriate, allowance for doubtful accounts. Bad
Debts expense and/or any anticipated adjustments, which in the
normal course of events will reduce the amount of receivables from
the debtors to estimated realizable values shall be set up at the end of
the accounting period.

The Allowance for Doubtful accounts shall be provided in an amount

based on the collectability of receivable balances and evaluation of
factors such as aging of the accounts, collection experiences of the
agency, expected loss experiences and identified doubtful accounts.”

The determination of bad debts expense shall be derived from

computations based on percentages and aging of accounts receivable
as follows:

18
 Age of Accounts Percentage
1 – 60 days 1%
61-180 2%
181-1 year 3%
More than 1 year 5%

However, for CY 2016 the District did not provide its Allowance for
Doubtful accounts which caused misstatement of the expense account and the
Accounts Receivable in violation of Section 66 of Volume I, Accounting Policies of
New Government Accounting System.

Moreover, the Aging of Accounts Receivable uncollected for more than 1

year which includes those accounts aged even up to more than 10 years, were not
classified and grouped to their nearest age, say 1 year, 2 years, etc. or 1 to 2 years,
3 to 4 years, 5 to 6 year and so on. Included in the accounts aged by management
as more than 1 year were concessionaires whose addresses were either unknown or
their businesses closed. Since all accounts aged more than 1 year were provided
with a flat rate of only 5% pursuant to Section 66 of New Government Accounting
System, Volume I, provision amount was significantly understated as most of these
accounts were long over due. Some of these should have even been written off. Non
moving accounts for long years and whose addresses were unknown or businesses
closed and where collection efforts proved futile should have been provided even
up to 50% to 100%.

The District method of setting up the allowance for doubtful accounts

provided an unreasonable estimate that will not reduce the accounts receivables to
its net realizable values, thereby significantly affecting the reliability and fair
presentation of the receivable account in the financial statements.

Section 36 of Philippine Accounting Standards 37 hereby quotes that:

The amount recognized as a provision shall be the best estimate of the

expenditure required to settle the present obligation at the balance
sheet date”.

We have recommended that management:

 Set up annually its allowance for doubtful accounts and make

necessary adjustment if necessary, strictly adhering to the provisions of
Section 66 of New Government Accounting System, Volume I and
Section 36 of Philippine Accounting Standards 7.

 Require the Commercial Division to classify and age Accounts

Receivables of more than 1 year into group of accounts nearest their
age, say 1 year, 2 years, etc, or 1 to 2 years, 3 to 4 years, 5 to 6 years,

19
 etc. The different age groups shall belong to a certain bracket that will
have different provision/ allowance rate.

 Formulate accounting policies to arrive at a reasonable estimate of

the allowance for doubtful accounts revising the relatively low rate for
provision for doubtful accounts considering factors such as 1) accurate
aging of Accounts Receivables; 2) account status; 3) account address/
location; 4)account collectability; 5)result of client calls and field
investigations.

Management commented that they will strictly adhere to the

recommendation and to the stated provision.

3. Accounts receivables from concessionaires included accrued penalties

amounting to ₱ 178,733.98, despite this already being segregated from the
water bills by the enhanced billing and collection system of the District in
violation of conservative principle of accounting, thereby causing
overstatement of asset and income accounts.

Likewise, Accounts Receivables of the District per books did not reconcile
with the Aging Schedule as of year end by ₱ 12,468.62 in violation of Section
12 of National Government Accounting System Manual, Volume II thereby
casting doubts on the accuracy and reliability of accounts receivable
balances.

Verification of the Aging Schedule showed that the Accounts Receivable

balance of ₱2,138,596.59 as of year end includes balance of accrued penalties of
₱178,333.93 from overdue water bills. Accrued penalties were recognized as
Accounts Receivable and income upon billing. The following journal entries were
made by Management:

Upon billing
Accounts Receivable xxx
Penalty Charges (income) xxx

Upon collection
Cash xxx
Accounts Receivable xxx

This has been the practice in the past which caused the Accounts Receivable
to include accrued penalties but not yet collected. Despite the enhancement of the
Billing and Collection System of the District providing a facility that segregated
the total accrued penalties and having extracted the individual balances of accrued
penalties booked as accounts receivable for the month as well as of the year end,
management still continue recording the accrued penalties to Accounts
Receivable, resulting to continuous overstatement of the receivable and income

20
accounts. Continuously doing so was in violation of the conservative principle of
Accounting, as an asset and income was being recognized ahead of the collection
or the realization. The practice significantly affects the reliability and fair
presentation of Financial Statements.

Moreover, Section 12 of the NGAS Manual, Volume II provides:

“That the agency shall maintain Subsidiary Ledger (SL) containing

the details or breakdown of the balances of controlling accounts
appearing in the General Ledger (GL) and the totals of the SL
balances that shall be reconciled with their respective control
account regularly or at the end of each month.”

Aging of Accounts Receivable balance as against General Ledger balance as

of December 31, 2016 showed a discrepancy of P 12,468.62 as shown below:

Balance of Accounts
Receivable as of
December 31, 2016
Active ₱ 966,261.07
Inactive 981,532.97
Penalties 178,333.93
Aging of Accounts Receivable
(including penalties) 2,126,127.97
General Ledger
(including penalties) 2,138,596.59
Variance
(as of December 31, 2016) ₱ (12,468.62)

We have recommended that Management:

 Assign a personnel to look into the causes of the unreconciled

balance and reconcile the discrepancy of ₱ 12,468.62. Instruct the
assigned personnel to conduct historical analysis to determine what
period the discrepancy came about.

 Stop the practice of recording accrued penalties under Accounts

Receivables. Instead, accrued penalties should only be recorded in the
books upon collection.

 Prepare a reversing journal entry reversing the Accounts

Receivable representing ₱ 178,333.93 year end balance of accrued
penalties to income or Retained Earning Accounts. Proposed Entry:

Income or Retained Earnings ₱ 178,333.93

Accounts Receivables ₱ 178,333.93

21
 Management commented that they will comply with the recommendation.

4. The grant of rice allowance of ₱ 1,500.00 per month to each officer/employee

is unauthorized and illegal as embodied in Section 9.6 of COA Circular No.
2012-003 dated October 29, 2012 and as enumerated under Section 3.6 and
3.12 of Annex B of same Circular, hence not allowed in audit.

Section 9.6 of COA Circular No. 2012-003 dated October 29, 2012 provides
the Supreme Court affirmation on the decision of the Commission on Audit in the
issuance of disallowances on the grant of food allowances, to wit:

Grant of food allowance, rice subsidy and health care allowance as

there is no law authorizing the grant of such allowance (BFAR
Employees Union, R.O. VII vs. COA, G.R. No. 169637 dated June 8,
2007) except xxxxxxxx”

Also, illegal expenditures were enumerated in Annex “B” of the same

Circular of which the grant of rice allowance are among them, to wit:

Sections 3.6 – Additional benefits paid to officials and employees of

GOCCs based on Governing Board resolutions whose power to fix
compensation and benefits were revoked under RA No.6758 effective
July 1, 1989 unless subsequently restored (SSS, GR No. 149240
dated July 11, 2002).

Further, it bears emphasizing that the issue on the grant of allowances and
benefit to government officials and employees outside those allowed under R.A.
No.6758, have already been settled in the case of De Jesus, et.Al. vs. Commission
on Audit, G.R. No. 127515 and De Vera vs. Commission on Audit, G.R. No.
127544, May 10, 2005, where the Supreme Court held, thus:

“xxx the rice allowance subject of the instant dispute is one of such
benefits that may be given separately to LWUA officials and
employees as long as it has been granted to incumbents as of July 1,
1989 and not been integrated into the standardized salary rates. The
second sentence of Section 12 thereof, which is quoted again below
for easy reference, expressly to recognizes its continuous grant in
accordance with the principle of non-diminution of pay;

Section 12. Consolidation of Allowance and Compensation. Such

other additional Compensation whether in cash or in kind, being
received by incumbents only as of July 1, 1989 not integrated into
the standardized salary rates shall continue to be authorized”

22
 The Supreme Court further ruled that:

“Finally xxx. As explained before, under Section 12 of R.A. No.

6758, the only requirement for the continuous grant of allowance
and fringe benefits on top of the standardized salary rates are as
follows: (1) the employee must be an incumbent as of July 1, 1989;
and (2) the allowance or benefit was not consolidated in the
standardized salary rate as prescribed by R.A. No. 6758.”

For the CY 2016, Pozorrubio Water District paid rice allowance of

₱1,500.00 each month for each officer/employee or ₱ 7,500.00 for 5 recipient
officers or employee/s.

Based on the above stated decisions made by the Commission on Audit and
affirmed by the Supreme Court, the said rice allowance is not allowed except to
those incumbent granted of the allowance as of July 1,1989 and if the rice
allowance was not consolidated in the standardized salary rate as prescribed by
R.A. No. 6758.

We have recommended that Management stop the practice of paying

the monthly rice allowance to each officer/employee, pursuant to COA
Circular No. 2012-003 dated October 29, 2012.

Management committed that the payment of Rice Allowance will only be up

March 2017.

5. Repair/plastering of perimeter water tank fence amounting to ₱ 37,089.00

was undertaken without the necessary budget in violation to COA Circular
No. 2012-003 dated October 29, 2012, rendering the disbursed amount an
illegal expenditure.

Annex B of COA Circular No. 2012-003 dated October 29, 2012 re:
Updated Guidelines for the Prevention and Disallowance of Irregular,
Unnecessary, Excessive, Extravagant and Unconscionable Expenditures cites
Cases that are considered “Illegal” Expenditures or Uses of Government Funds
and Property, among of which follows:

6. Entering to contract in an amount way beyond the appropriated

amount in violation of Section 85 of P.D. 1445.

7. Entering into contracts without covering certificates of

availability of funds issued by the Chief Accountant even if the
contract is signed by the Accountant as witness.

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 Our conduct of post audit and verification of the 2016 Annual Budget and
Annual Procurement Plan of the Agency disclosed that the amount of ₱ 37,089.00
spent by the District for the repair/plastering of perimeter water tank fence was
not included in the 2016 District Budget. However, despite the absence of the
budget and some caution, the District purchased materials and hired labor to
pursue the project. As of the year end, the total cost of materials and labor
already spent by the District totaled to ₱ 37,089.00, breakdown follows:

Labor Date Check No. Amount

11/22/2016 16-11-561 1267054 P2,940.00
11/28/2016 16-11-566 1267059 3,020.00
12/16/2016 16-12-601 1267094 9,440.00
12/20/2016 16-12-605 1267098 2,150.00
Sub-total 17,550.00
Material 19,529.00
Total
₱37,079.00

The above unfunded expenditure was supported by a Board Resolution No.

2016-013 dated October 24, 2016 approving the resolve to undertake the aforesaid
project despite the absence of an approved budget.

However, COA Circular No. 2012-003 dated October 29, 2012 as above
stated provides that the above expenditure was illegal, and is a ground for
disallowance in audit.

We have recommended that the District should caution and limit its
spending activities to the programs, activities and priorities as included in the
current year’s budget and current Annual Procurement Plan. Otherwise, the
transaction being illegal shall be disallowed in audit.

Management commented that they will be more cautious in its spending

activities and will spend in accordance with the approved Annual Procurement
Plan. They committed to comply with the recommendations.

6. Seminar/convention fees paid by the Agency for the attending District

personnel/ Board of Directors exceeded the allowed rate of ₱ 2,000.00 as per
NBC Circular No. 563 dated April 22, 2016 resulting to overpayment and
disallowance in audit.

Post audit of disbursement transactions of the Water District showed the

District personnel and Board of Directors attended seminars and conventions
respectively during CY 2016. However, it was noted that seminar fees/convention
fees paid by the Agency for the attending District personnel and Board exceeded

24
 that of the allowed seminar rate as provided in NB Circular No. 563 dated April
23, 2016 hereby quoted as follows:

2.1 The Circular shall cover all activities requiring the payment of
registration and related fees pertaining to the participation of
government officials/employees in conventions, seminars,
conferences, symposia, and other similar gatherings conducted/
sponsored by non-government organization or private institutions in
the Philippines.

2.2 For purposes of this Circular, conventions, seminars and the like
shall refer to those conducted basically for purposes of sharing,
discussing or disseminating ideas or information on the
developments in a particular field or fields of interest and/ or for
common appreciation and resolution of certain issues. It includes,
but is not limited to, those conducted by professional organization or
groups of common interest where government employees are
members. It excludes those conducted for training purposes where
participants are expected to gain or strengthen skills and technical
or management expertise in their areas of endeavor.

3.2 The registration or participation fee in said convention, seminar,

etc. shall not exceed ₱ 2,000.00 per day for each participant.

Disbursement Vouchers stated herein below showed the above observation:

Allowed Excess Cost

Name of No. Of Rate Under of Seminar
Name of Seminar/ Particip NBC /Convention
Check Participan Conventi ants Seminar Circular Fee
No. Date ts on Fee Paid No. 563 Claimed
1196746 2/9/2016 Flaviano 37th 3 3(no. of 3(no. of ₱15,000.00
Cruz(BO PAWD participa participants
D) National nts) x x rate per
William Conventi rate per day(₱2,000
Perez(BO on day(₱7,0 .00) x 1
D) 00.00) x day)
Rolando 1 day = =₱6,000.00
Verlasque P21,000.
z (GM) 00
Flaviano Basic 2(no. of 2(no. of 7,000.00
1196808 3/14/2016 Cruz(BO Policy 2 participa participant)
D Makers’ nts) x x rate per
William Seminar rate per day(₱2,000
Perez(BO day(₱3,1 .00) x 3 =
D) 66.67) x ₱12,000.00

25
 3 days=
₱19,000.
00

We have recommended that Management comply strictly with NBC

Circular No. 563 dated April 23, 2016 requiring that fees for seminars
conducted/sponsored by non-government or private institution should be
limited to ₱ 2,000.00. Otherwise, claims in excess of the amount allowed will
be disallowed.

Management commented that they will comply with the recommendation.

7. Expenses incurred in the celebration of Christmas activities were beyond

restraint and economy, hence violates COA Circular NO. 2012-003 dated
October 29, 2012.

COA Circular No. 2012-003 dated October 29, 2012 defines excessive
expenditures as:

5.0 Definition

The term “excessive expenditures” signifies unreasonable expense

or expenses incurred at an immoderate quantity and exorbitant
price. It also includes expenses which exceeds what is usual or
proper, as well as expenses which are unreasonably high and
beyond just measure or amount. They also include expenses in
excess of reasonable limits.

Annex D of the said circular cites among others one example of

excessive expenditures:

15. Excessive expenditures in the celebration of Christmas,

anniversary and other special occasions.

Post audit of the disbursement transaction of the District disclosed that the
amount spent for the celebration of their Christmas activities reached ₱ 56,100.00.
Considering the manpower of the District of 18 personnel. Computation will show
that the cost per head incurred was P 3,116.67 for each employee, more than the
threshold per employee of ₱2,000.00 for those attending seminar or convention in
accordance with NBC Circular No. 563 dated April 23, 2016 One sensible mind
dictates that the amount charged for the District was excessive and was spent
without restraint.

26
 Verification of the supporting documents showed that the required canvass,
and other documentation in support for such disbursements were not completely
satisfied, rendering its regularity and validity doubtful. There was also no copy of
the Board Resolution which raises doubts as to whether the District was
authorized to undertake the said activities.

It was also gathered, that Christmas celebration of the District was attended
in addition to the District personnel by the Board exclusive of their families,
therefore the amount was unreasonable and beyond just measure and limits.

We have recommended that management submit the lacking

documentary requirements to assure that the expense was authorized and in
accordance with the procurement procedures of RA 9184. Likewise, refrain
from incurring extravagant or excessive amount of celebrating Christmas
season and limit the amount of expenses to ₱ 2,000.00 a day per employee
pursuant to NBC Circular NO. 563 dated April 22, 2016, otherwise excessive
expenditures shall not be allowed in audit in conformity with COA Circular
No. 2012-003 dated October 29, 2012.

Management commented that they will comply with the recommendation.

8. Retention money equivalent to ten (10) percent of the total amount due to the
contractor undertaking the Batakil Inoman Pipeline Extension &
Interconnection (Diversion from Buneg-Imbabalatong Pipeline Extention
and Interconnection) was not retained from every progress payment until
50% percent of the value of works are completed in violation of Section 6.1 of
RA 9184, hence the Agency has no hold over the contractor in case of any
uncorrected discovered defects and third party liabilities.

Likewise, the above project which was completed on January 14, 2016 was
finally accepted on same date without waiting for 1 year to lapse in violation
of Section 62.2.2 of Rule XVIII of RA 9184, thus, the Agency have no
recourse to demand compensation for any amount of latent defects that may
be discovered in the completed project.

Section 6.1 of Annex E of RA 9184 is hereby quoted as follows:

Progress payments are subject to retention of (10%) referred to as

the retention money. Such retention shall be based on the total
amount due to the Contractor prior to any deduction and shall be
retained from every progress payment until fifty percent (50%) of the
value of works, as determined by the procuring entity, are
completed. If, after fifty (50) percent completion, the work is
satisfactorily done and on schedule, no additional retentions shall be
made, otherwise, the ten percent (10%) retention shall be imposed.

27
 Post audit of the disbursement transactions of the Agency disclosed that the
progress payments to the Contractor “Asiatechspere Cosntruction & Development
Corporation” whose project with the Agency “Batakil Inoman Pipeline Extension
and Interconnection” was not subjected to retention money until fifty(50%) of
the value of the works has been completed as determined by the Agency.

Stated below were the three disbursement vouchers that showed three
progress payments made to the Contractor that were not subjected to retention
money in violation of Section 6.12 of the Revised RA 9184.

DV No. DV Date Check Date Amount VAT Net

No Paid(Gross) Deductions
1st 2015-09-
payment 381 9/14/2015 1196520 9/14/2015 ₱325,707.00 ₱20,356.69 ₱305,350.31
2nd 2016-01-
payment 009 1/11/2016 1196700 1/11/2016 241,314.00 15,082.13 226,231.87
3rd 1016-01-
payment 020 1/22/2016 1196711 1/22/2016 144,566.00 9,035.38 135,530.62

Total ₱ 711,587.00 ₱ 44,474.20 ₱ 667,112.80

Without the retention money, the Agency did not have any hold to protect
itself from any uncorrected discovered defects and third party liabilities. Just in
case retention money was withheld, the total amount shall be due for release upon
final acceptance of the works 1 year after the completion date pursuant to Section
6.2 of Annex E of RA 9184.

Furthermore, Management accepted the project as completed without

waiting for 1 year to lapse. As a result, the Agency was left with no chance to be
compensated from the contractor the amount of any latent defects that may be
discovered in the completed project.

We invite the attention of management to Section 62.2.2 of Rule XVIII –

Settlement of Disputes of Revised IRR of RA 9184 provides-

One (1) year from project completion up to final acceptance or the

defects liability period.

62.2.2.1. The contractor shall undertake the repair works, at his own
expense, of any damage to the infrastructure on account of the use of
materials of inferior quality, within ninety (90) days from the time
the Head of the Procuring Entity has issued an order to undertake
repair. In case of failure or refusal to comply with this mandate, the
procuring entity shall undertake such repair works and shall be

28
 entitled to full reimbursement of expenses incurred therein upon
demand.

62.2.2.2. The defects liability periods shall be covered by the

Performance Security or the contractor required in Section 39.1 of
this IRR, which shall guarantee that the contractor performs his
responsibilities stated in the immediately preceding Section. If the
contractor fails to comply with its obligations under Section 62.2.2.1
of this IRR, the procuring entity shall forfeit its performance
security, subject its property (ies) to attachment or garnishment
proceedings and perpetually disqualify it from participating in any
public bidding. All payables of the GOP in his favor shall be offset
to recover the costs.

We have recommended that Management strictly adhere with Section

6.1 of RA 9184 that for every progress payment 10% retention money should
be deducted from every billing made by the contractors to provide protection
to the Agency in cases where there would be breach of contract such as non-
compliance with project specifications and third party liabilities. Likewise,
Management should strictly comply with Section 62.2.2 of Rule XVIII of RA
9184 which strictly requires that any completed projected shall be finally
accepted only on one year after the completion date.

Management commented that they will comply with the recommendation

and will adhere to the provision of Section 6.1 of RA 9184.

9. Invitation or request for submission of price quotations for procurement of

the District was not posted by the Bids and Award Committee in the Philgeps
website, etc. for a period of 7 days in violation of Section 54.2 of Revised IRR
of RA 9184, thereby defeating the purpose of transparency to obtain the most
qualified suppliers who can offer the best price and quality of goods to be
procured most beneficial to the District.

We post audited disbursement transactions of the District, and we noted

that the District procurement of the following materials and equipments has no
proof that invitation or request for submission of price quotations was posted in
the Philgeps website, the website of the procuring entity concerned if available
and at any conspicuous place reserved for this purpose in the premises of the
procuring entity for a period of seven (7) calendar days, violating the provision of
Section 54.2 of the Revised IRR of RA 9184.

Failure to do so defeats the purpose of the law to ensure wide dissemination

of the procurement opportunity to qualified suppliers who can offer a price and
quality of the goods to be procured most beneficial to the District. The procured
materials and equipments at issue are the following:

29
 No. Check Date Particulars Amount Mode of
No. Procure
ment
adopted
by the
Agency
1 1267015 11/4/2016 1 lot Supply & Retrofit VFD ₱138,000.00 Shopping
Motor Controller “Allen Emergency
Bradley” PowerFlex 525 AC Purchase
drive, 3 phase input/output,
230 V, 60H
- for 20 HP, 200-240 VAC,
FLA-62A, enclosed in IP 21
c/w standard motor
protection & LCD.
-with built in programmable
electronic overload relay
with digital ammeter display
& optional constant pressure
ready function, enclosed in
IP 21 standard enclosure.
-labor(includes installation,
commissioning, seminar)
2 1266973 10/6/2016 Supply of powerline 234,373.44 Shopping
materials and installation to and Small
energize the pumping Value
station in Barangay Procureme
Villegas nt

Under item no. 1, the District contended that they adopted Shopping under
Section 52.1(a) where there is an unforeseen contingency requiring immediate
purchase based on the supporting BAC Resolution No.11, series of 2016 for
Emergency Purchase, but the procured amount of ₱138,000.00 exceeds the
threshold of ₱100,000.00 for GOCC like the Water District as stated in Annex H
of the Revised IRR. Therefore, they are not allowed for Emergency Purchase as
their mode of procurement but are allowed for “Shopping” as provided in Section
52.1(b) or Small Value Procurement (Section 53.9) as their mode of procurement.
Annex H hereby provides:

Annex H of the Revised IRR provides the thresholds for shopping and small
value procurement for NGAs, GOCCs, GFIs and SUCs follows:

Shopping (Section 52.1(a) When there is an unforeseen contingency

requiring immediate purchase, the amount shall not exceed
₱100,000.00.

30
 Shopping (Section 52.1 (b) and Small Value Procurement (Section
53.9) Procurement shall not exceed ₱500.000.00.

Under item No.1, Shopping under Section 52.1(b) or Small Value

Procurement (Sec.53.9), instead of Shopping–Emergency Purchase (Section
52.1(a) should be the mode of procurement that should have been adopted by the
Water District as the procured amount of ₱138,000.00 exceeds the threshold of
₱100,000.00 for contingencies requiring immediate purchase. Posting to Philgeps
website, etc. therefore should have been required under Section 54.2 of RA 9184
which is hereby quoted hereunder:

For alternative methods of procurement, advertisement and posting

as prescribed in Section 21.2.1 of this IRR may be dispenses with:
Provided, however, That the BAC, through its Secretariat, shall post
the invitation or request for submission of price quotations for
Shopping under Sections 52.1(b) and Negotiated Procurement under
Sections 53.1(two failed biddings), 53.9(small value procurement);
and 53.11(NGO Participation) of this IRR in the Phil GEPS website,
the website of the procuring entity concerned, if available, and at
any conspicuous place reserved for this purpose in the premises of
the procuring entity for a period of seven (7) calendar days.

For item no. 2, the District adopted Shopping or Small Value Procurement
mentioned in Section 52.1(b) and Section 53.9 respectively, as the mode of
Agency mode of procurement, but similar to item no. 1, however, no posting was
made to Phil GEPS, etc. pursuant to the aforesaid ruling of RA 9184.

We have recommended that the required posting of the procurement

opportunity be made to PhilGEPS Website, etc. pursuant to Section 54.2 of
the Revised IRR of RA 9184 in the procurement of office supplies and
equipment for Shopping under Section 52.1(b) or 53.9 (small value
procurement) of the Revised IRR.

Otherwise, it will be a ground for the responsible persons to be charged

with appropriate administrative charges for violating the Revised IRR.

Management commented that they will ensure that the Bids and Awards
committee will strictly comply with the due process of procurement.

II. GENDER AND DEVELOPMENT

10. The lack of information and awareness on Gender and Development (GAD),
non-implementation of GAD plans and program, improper allocation of
funds for GAD activities, and non-reporting of accomplishments and
expenses relative thereto were not in accordance with Section 10 of Joint
Circular 2012-01 of the PCW-NEDA-DBM and Memorandum Circular No.

31
2015-03 of Philippine Commission on Women (PCW), thus resulting in the
non- attainment of the objectives of the GAD.

Section 10 of Joint Circular 2012-01 of PCW-NEDA-DBM states that

“Attached agencies, attached government-owned and controlled

corporations (GOCCs), bureaus and regional offices and all other
concerned shall submit their annual GAD Accomplishment Reports
(ARs) to their respective line departments or central offices. The
agency GAD Focal Point System (FPS) shall prepare the annual
GAD AR based on the PCW- endorsed GAD Plans and Budget
(GPB) adjusted to the approved General Appropriations Act (GAA)
following the form prescribed in Annex B. Activities completed until
the end of the year may be included in the final GAD AR of agency
submitted to PCW in January.”

Examination/ verification of submitted GAD plans and budget for the year
2016, analysis as to extent of implementation as well as compliance with the
pertinent laws and regulations disclosed the following deficiencies:

1. No GAD Focal Point System/ Officer was designated by the District to

catalyze and facilitate the institutionalization of gender mainstreaming and
women’s empowerment in pursuant to the parameters set under the
aforementioned Joint Circular.

2. GAD plans and programs for the year 2016 were prepared by Management,
however, submission of the same to LWUA for review were not effected
contrary to the provision of Paragraph 2 of Memorandum Circular No.
2015-03.

Paragraph 2 of Memorandum Circular No.2015-03 hereby quotes that:

“In the case of Water Districts, the Local Water Utilities

Administration (LWUA), which exercises regulatory jurisdiction
over Water Districts, is set to be the preliminary reviewer of the
water district GAD plans and budget. Water Districts shall prepare
their GPBs following the GAD planning and budgeting cycle
provided in the PCW-NEDA-DBM Joint Circular 2012-01 and shall
submit the same to the LWUA through the Gender Mainstreaming
Monitoring System (GMMS) platform. The LWUA shall review
whether the identified gender issues and corresponding GAD
programs, activities and projects (PAPs)of water districts are
appropriate based on the parameters set under the aforementioned
joint circular and are aligned with the water district’s mandates, as
well as the sector’s GAD goals and objectives. The LWUA shall then

32
 forward the reviewed GPBs to the PCW for final review and
endorsement.”

3. Non-preparation and non-submission of GAD Accomplishment Report

despite the preparation and availability of the District GAD plans and
program for CY 2016, absence of which indicates that GAD activities
contained in the District GAD plans and program were not properly
implemented/enacted.

However, information and inquiry from Management disclosed that out of

the total budget of ₱ 271,200.00 allocated to Gender and Development, only
₱ 2,119.50 were spent on purchasing the participants’ uniform for PANAWAD
Sports Festival. Payment of such is not also within the purpose and objectives
intended for GAD activities contrary to Section 7 of Joint Circular 2012-01.

Section 7 of Joint Circular 2012-01 hereby quotes that:

The following expenses may not be charged to GAD Budget UNLESS

they are justified as clearly addressing a specific gender issue:

7.1 Physical, mental & health fitness including purchase of

equipment and information dissemination materials.

7.2 Social, rest, recreation activities

7.3 Religious activities and implementation of cultural projects

7.4Construction expenses

Further, with less than five percent spent by the District for GAD out of its
GAD budget, not much benefit was derived from it nor it was spent to address
certain gender issues improving the mandates of the District.

We have recommended that Management:

 Assign a GAD Focal Point System that shall prepare the agency’s
GAD plan and budget (GPB) designed to address certain gender issues
strictly adhering to the provisions of Section 10 of Joint Circular 2012-
01.

 Direct the concerned Agency Head to require their GAD Focal Point
System to :

a. Prepare and ensure the implementation of Annual GAD Plan

and the utilization of the GAD Budget of the Agency and submit
the corresponding report to LWUA for review.

33
 b. Coordinate with the Budget Officer and prepare the
accomplishment report for the year containing actual
accomplishments as well as the corresponding financial
resources utilized in compliance with par.2 of Memorandum
Circular No. 2015-03 of Philippine Commission on Women
(PCW).

 Utilize the GAD budget for the year in accordance with the GAD
plan to significantly address gender issues while improving the
mandates of the District.

Management commented that they will strictly adhere to the

recommendation and stated provisions to ensure the proper implementation and
utilization of DAG Budget in accordance with the District’s GAD plan.

III. COMPLIANCE WITH TAX LAWS

11. No real property tax was paid by the District for the current year in violation
of Section 193, 206 and 234 of RA 7160 effective January 1, 1992, despite a
previous observation last year.

However, for CY 2016, pursuant to tax laws and regulations, the District
withheld tax on compensation of employees, suppliers and contractors a total
amount of ₱1,007,050.03, ₱82,215.34 of which remain unremitted as of year-
end. In addition the District paid a total amount of ₱ 568,084.29 franchise
tax.

It was gathered that the District has not been paying the real property tax on
its five real properties in addition to the buildings and improvements thereon,
despite an observation reported in last year’s annual audit report. They further
said that there was no tax exemption on real property tax filed by the District with
the Bureau of Internal Revenue, contrary to Section 206 of RA 7160 or An Act
Providing for A local Government Code of 1991 effective January 1, 1992 which
states that:

Section193.Withdrawal of Tax Exemption Privileges – Unless

otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or
judicial, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under RA
6938,non-stock and non-profit hospitals and educational institutions,
are hereby withdrawn upon the effectivity of this Code.”

Section 206. Proof of Exemption of Real Property from Taxation. –

Every person by or for whom real property is declared, who shall

34
 claim tax exemption for such property under this Title shall file with
the provincial, city or municipal assessor within thirty (30) days
from the date of the declaration of real property sufficient
documentary evidence in support of such claim including corporate
charter, title of ownership, articles of incorporation, by-laws,
contract, affidavits, certifications and mortgage deeds, and similar
documents.”

If the required evidence is not submitted within the period herein

prescribed, the property shall be listed as taxable in the assessment
roll. However, if the property shall be proven to be tax exempt, the
shame shall be dropped from the assessment roll.”

Section 224. Exemptions from Real Property Tax. – One of those exempted
from payment of the real property tax is as follows:

c) All machineries and equipment that are actually, directly and

exclusively used by local water districts and government owned or
controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power.

However, the amount of District taxes withheld and paid for the calendar
year 2016 is shown as follows:

Tax Withheld Paid Unremitted

Withholding Tax
Payable -
Compensation ₱484,241.04 ₱453,624.83 ₱30,616.21
10% VAT Payable 43,956.00 40,524.00 3,432.00
5 % VAT Payable 282,601.67 255,445.00 27,156.63
2% VAT Payable 69,809.86 61,900.54 7,909.32
1% EVAT Payable 21,615.41 20,138.74 1,476.67
5/12 PANELCO 104,826.05 93,201.54 11,624.51
Total ₱1,007,050.03 ₱924,834.65 ₱82,215.34

Verification disclosed that out of the taxes withheld and payable amounting
to ₱1,007,050.03, ₱924,834.65 were paid during the year 2016, leaving an
outstanding balance of ₱ 82,215.34 as of December 31, 2016.

The outstanding balance of Withholding Taxes Payable as of December 31,

2016 amounting to ₱ 82,215.38 was remitted to the Bureau of Internal Revenue
last January 10, 2017 within the period prescribed by the regulation.

We have recommended that management:

 File tax exemption to the Assessor’s Office as proof of its exemption

in the payment of real property tax pursuant to Section 206 of RA 7160

35
 effective January 1, 1992. Otherwise, the amount of real property tax
due shall be paid.

 Continue with the prompt and regular remittance of withheld taxes

and franchise tax within the period prescribed by the BIR Regulation/s.

Management commented that they will comply with the recommendation.

IV. STATEMENT OF AUDIT SUSPENSIONS, DISALLOWANCES AND

CHARGES
As of December 31, 2016, the balance of unsettled audit disallowances of
the District was ₱ 786,249.50, ₱ 783,449.50 of which were being settled on
instalment basis and ₱ 2,800.00 were newly issued disallowances. There was no
outstanding suspension and charge. Audit disallowances settled by the District on
instalment basis during the year amounted to ₱ 171,296.00.

36
 PART III

STATUS OF PRIOR YEARS’

AUDIT RECOMMENDATIONS
 STATUS OF PRIOR YEARS’ AUDIT RECOMMENDATIONS

Presented hereunder is the status of prior years’ audit recommendations as of

December 31, 2016:

Observations and Management Status of Reason for Non

Recommendations Action/s Implementation Implementation
FI PI NI
2015

1. The Water District is maintaining X Management

an account with a private bank, commented that
other than a Government they are still
Financial Institution (GFI), but it waiting for the
failed yet to furnish the Board Resolution
Department of Finance (DOF) a to close the
copy of the vicinity map, and account.
independent Report and
Certification from the Philippine
National Provision Office
pursuant to DOF Circular No.
001-2015 dated June 1, 2015,
resulting to a weak internal
control over safeguarding of
cash and exposes the District’s
funds to possible loss due to
bank’s bankruptcy.

We have recommended that

Water District furnish the DOF a
copy of the vicinity map
showing the location, and
distance between the Water
District and Landbank Urdaneta
Branch in accordance with
Section 5.4.1 of DOF Circular
No. 001-2015 dated June 1,
2015.

Where there are prevailing

security and safety reasons, the
Water District shall also furnish
the DOF, an independent Report
or Certification from the
Philippine National Police
Provincial Office confirming the
existence of the security risks.

37
 Observations and Management Status of Reason for Non
Recommendations Action/s Implementation Implementation
FI PI NI
However, a maintaining balance
maybe allowed for operating
expenses of up to three (3)
months or up to the maximum
deposit insurance coverage of
the Philippine Deposit Insurance
Corporation (PDIC) of
₱500,000.00, whichever is
lower. Any amount in excess of
the authorized cash balance in
Section 5.4 shall be transferred
to any of the GFIs in Section
5.2.

2. Reconciliation of the discrepancy X Reiterated in this

of ₱14, 247.82 in the Accounts year’s AAR
Receivable, between the Aging under Audit
Schedule and the General Observation #3
Ledger is remote due to the of the report.
billing and collection system’s
lack of facility to generate an
Aging Schedule showing
concessionaires’ individual
receivable balances exclusive of
penalties, casting doubt on the
accuracy and reliability of
accounts receivable balances in
violation of Section 12 of the
Manual on NGAS, Volume II.

Moreover, the accounts

receivable balance was
misstated due to recording of the
accrual and collection of
penalties to the “accounts
receivables” account in violation
of the Philippine Accounting
Standard No. 1.

We have recommended that

management:

a. Contract an Information
Technology (IT) expert or a
programmer to install a facility
in the District’s billing and
collection system that will

38
 Observations and Management Status of Reason for Non
Recommendations Action/s Implementation Implementation
FI PI NI
generate an Aging Schedule of
Concessionaires’ individual
receivable balances excluding
penalties.
b. Pending the availability of
an IT expert to address the issue
herein being raised,
Management should manually
record billings and collection of
water bills exclusive of
penalties. Meanwhile, there
should be assigned personnel to
facilitate reconstruction of
concessionaires’ individual
balances exclusive of penalties
in case the system is still not
updated.

c. Adopt cash basis of

accounting/ recording penalties,
recognizing income from
penalties only upon collection
pursuant to Philippine
Accounting Standard No. 1.

3. Improper use of the account X

“Office Supplies” (830) using
the CPS/NGAS Chart of
Accounts in recording cost of
annual dues and registration,
membership fees for meetings
and conferences attended caused
overstatement of the “Office
Supplies” expense account by
₱28,200.00, and understating the
appropriate expense account
affecting its fair presentation in
the financial statements.

We have recommended that

Accounting Section record the
cost of annual dues, membership
fees and registration fee for
seminars/conference/meetings to

39
 Observations and Management Status of Reason for Non
Recommendations Action/s Implementation Implementation
FI PI NI
“Training Expense” account or
to an appropriate expense
account instead of the “Office
Supplies Expense” account
pursuant to NGAS Chart of
Accounts for corporate.

Also, prepare the necessary

adjusting journal entry to reflect
the adjustment in the books.

4. Monthly payment of ₱ 6,000.00 X

rental or annual rental of ₱72,
000.00 for the use of the lot
owned by Pozorrubio Central
School was not covered by
Contract of Lease, as a basis for
payment, thereby providing no
protection to both the Lessor and
the Lessee and may be
disallowed in audit.

We have recommended that the

lease and the payment of rental
to the lot owner be covered by a
notarized Lease Contract as a
valid basis for payment pursuant
to COA Circular No. 2005-027
dated February 27, 2005 and for
protection of both parties, the
Pozorrubio Central School
(Lessor) and Pozorrubio Water
District (Lessee).

The Lease Contract shall specify

the authorized person to receive
the payment on behalf of the
school.

Likewise, the monthly rental bill

and/or request for payment from
the Lessee shall also be required
before releasing the payment
after which an Official Receipt
shall be issued by the Lessor.

40
 Observations and Management Status of Reason for Non
Recommendations Action/s Implementation Implementation
FI PI NI
5. There was no submitted Statement X
of Budget Utilization at the end
of each month as prescribed
under the New Government
Accounting System for
Corporate Manual, thus, the
correctness of the reported
unutilized/ deficit budget during
the year was not ascertained.

We have recommended that

Accountant prepare the
Statement of Budget Utilization
at the end of each month
following format prescribed
under the NGAS for Corporate
Manual in order to closely
monitor expenditures/ charges
during the year.

6. Pozorrubio Water District spent ₱ X

91,430.40 out of ₱ 600,000.00
allocated budget for the
implementation of Gender and
Development activities and
programs, some of which were
not aligned with GAD’s goals
and objectives. There was also
no GAD plan through which
mandate, policies and plans were
assessed to integrate gender
concerns and address gender
awareness pursuant to Section
34 of RA 10651.

We have recommended that

management:

a. Comply with the

provisions of Section 32 of the
General Appropriations Act
(GAA) and establish GAD plans
and programs addressed to
enhance awareness on GAD
issues and concerns. To come up
with a properly planned GAD
Plan and Budget, assess the

41
 Observations and Management Status of Reason for Non
Recommendations Action/s Implementation Implementation
FI PI NI
District’s mandate, policies and
plans as to how gender concerns
shall be integrated to address
greater gender awareness.

b. Enhance understanding
and appreciation of gender
concepts/ principles by attending
different seminars related to
GAD.

7. For CY 2015, the District X Reiterated in this

withheld/paid tax on year’s AAR
compensation of employees and under Audit
suppliers, franchise tax in Observation #11.
accordance with BIR tax laws
with the total amount of
₱500,104.58, with the balance of
₱63,285.47 unremitted as of
year-end. However, no real
property tax was paid by the
District for the current year in
violation of Section 193, 2016
and 234 of RA 7160 effective
January 1, 1992.

We have recommended that

management:

a. Continue with the prompt

and regular remittance of
withheld taxes and franchise tax
within the period prescribed by
the BIR Regulation.

b. File tax exemption to the

Assessor’s Office as proof of its
exemption in the payment of real
property tax pursuant to Section
206 of RA 7160 effective
January 1, 1992. Otherwise, the
amount of real property tax due
shall be paid.
2014
8. Penalties charged to X
concessionaires on unpaid water
bills after due dates were booked

42
 Observations and Management Status of Reason for Non
Recommendations Action/s Implementation Implementation
FI PI NI
as Accounts Receivable-
Customer and recognized as
income in violation to Section 7
and 92 of Framework for the
Preparation and Presentation of
Financial Statements.

We have recommended that

management stop the practice of
booking penalties on unpaid
water bills after due date as
receivables and adopt cash basis
of accounting or recognize
income only upon payment of
penalties from concessionaires.

43