EXECUTIVE SUMMARY

A. Introduction
Metropolitan Naga Water District (MNWD), Naga City, is a government-owned
and controlled corporation that operates on the powers and authority conferred to it by
Presidential Decree (PD) No. 198, otherwise known as the Provincial Water Utilities Act
of 1973, as amended by PD No. 768 and PD No. 1979. It is categorized as a “Category A”
water district with total active service connections of 45,988. Its Conditional Certificate of
Conformance (CCC) No. 106 was issued by the Local Water Utilities Administration
(LWUA) on December 7, 1979.
An audit of the financial transactions and operations of the Water District (WD) for
calendar year (CY) 2020 was conducted. Its objective is to ascertain the fairness of
presentation of the financial statements presented by the WD for the purpose of expressing
an opinion on these financial statements. It was also conducted to ascertain the validity,
propriety and compliance to prescribed rules and regulations of its financial transactions
and operations.

To attain the audit objectives, the audit was conducted in accordance with the
International Standards of Supreme Audit Institutions (ISSAIs). Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance whether the financial statements are free from material misstatement.
Due to the voluminous transactions of the WD, the audit was conducted on a test basis,
applying audit procedures and techniques such as vouching, inspections and interviews.

The following are the operational highlights for CYs 2020 and 2019 in terms of
service connections, water sales and collections from water bills:

2020

% of
Target Accomplishment
Accomplishment
Service Connections 56,428 61,030 108.16%
Sales ₱ 423,382,596.00 ₱ 300,204,450.98 70.91%
Collections from
water bills ₱ 450,479,082.00 ₱ 288,362,176.32 64.01%

2019

% of
Target Accomplishment
Accomplishment
Service Connections 53,166 58,881 110.75%
Sales ₱ 407,572,704.00 ₱ 306,027,814.94 75.09%
Collections from
water bills ₱ 433,657,357.00 ₱ 302,108,002.47 69.67%

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B. Financial Highlights

The following are the financial highlights composed of comparative financial

position and results of operations for CYs 2020 and 2019:

Increase/
2020 2019
(Decrease)
Assets ₱ 899,297,527.89 ₱ 798,395,755.55 ₱ 100,901,772.34
Liabilities 153,817,222.15 57,868,383.30 95,948,838.85
Equity 745,480,305.74 740,527,372.25 4,952,933.49

Increase/
2020 2019
(Decrease)
Service and Business ₱ 336,830,915.40 ₱ 346,564,181.01 ₱ (9,733,265.61)
Income
Other Non-Operating 4,996,966.79 4,989,816.52 7,150.27
Income
Total ₱ 341,827,882.19 ₱ 351,553,997.53 ₱ (9,726,115.34)
Expenses
Personnel Services ₱ 162,574,680.37 ₱ 155,687,793.62 ₱ 6,886,886.75
Maintenance and Other 113,824,891.21 122,401,609.36 (8,576,718.15)
Operating Expenses
Financial Expenses 17,436.00 12,226.00 5,210.00
Non-Cash Expenses 58,824,877.46 56,263,677.5 2,561,199.96
Total ₱ 335,241,885.04 ₱ 334,365,306.48 ₱ 876,578.56
Net Income ₱ 6,585,997.15 ₱ 17,188,691.05 ₱ (10,602,693.90)

C. Independent Auditor’s Report on the Financial Statements

The Auditor rendered a qualified opinion on the fairness of presentation of the
financial statements because of the following:

1. The balance of Property, Plant and Equipment (PPE) totaling ₱1.15 billion shown in the
financial statements (FS) differs by ₱0.73 billion with the Report on Physical Count of
PPE (RPCPPE) of ₱422.17 million as of December 31, 2020 and the accuracy and
existence of the PPEs were not fully ascertained due to absence of Property Cards (PCs)
by Property Unit, non-maintenance of PPE Ledger Cards (PPELC) by the Accounting
Unit and incomplete actual physical count of all its PPEs.

2. The existence and accuracy of the Inventory accounts amounting to ₱27.08 million as of
December 31, 2020 were not fully ascertained due to the existing discrepancy of ₱0.82
million between the GL balances and Report on Physical Count of Inventories (RPCI)
and incomplete physical count of Inventories.

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 3. The year-end balance of the Loans Payable account, Local Water Utilities
Administration (LWUA), in the amount of ₱94.65 million disclosed a discrepancy of
₱15.38 million against the balance of ₱79.27 million per LWUA loan records as of
December 31, 2020.

4. Septage Sanitation Fees charged to and paid by concessionaires since CY 2018, despite
the non-operational septage sanitation services, were collected by the WD and the
amount of ₱23.19 million collected in CY 2020 was erroneously recognized as revenue
in the account Waterworks System Fees affecting the reliability of the financial
statements.

D. Significant Audit Observations and Recommendations

1. Book reconciling items reflected in the Bank Reconciliation Statement (BRS)
amounting to ₱0.68 million due to unrecorded collections made through the bank
remained unadjusted as of December 31, 2020, thereby, affecting the reliability and
accuracy of the cash in bank balance and other affected accounts.

We recommended that Management coordinate with the authorized depository bank to

come up with measures on how the bank’s payment facility will capture the
concessionaires name, account and date of payment and transmit to WD, possibly on a
real time basis, to facilitate prompt recording of payments made by concessionaires
through the bank within reasonable number of days.

We also recommended that, in the meantime that the existing system of payment
through the bank has not yet been enhanced, an authorized liaison officer be designated
to coordinate with the bank on a daily/weekly basis to get a bank snap shot or report
together with a copy of bank validated deposit slip to be used as basis of the WD in
accounting and recording of the collections.

2. The accuracy of the Accounts Receivable (AR) balance of ₱32.94 million as of

December 31, 2020 is doubtful due to the existence of a variance amounting to
₱191,618 compared with the AR balance per Aging Schedule/SL in the total amount of
₱32.75 million.

We reiterated our prior year’s recommendation that Management:

a) Fast track the reconciliation of the GL and SL/Aging of AR and make the necessary
adjustments for the noted difference, if warranted; and

b) Apply the aging method to the Other Receivables Report and Septage Balances
Summary to facilitate the computation and provision of Allowance for Impairment-
AR.

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3. Semi-expendable properties totaling ₱0.88 million previously recognized as PPE were
not reclassified to the appropriate account, thereby affecting the fair presentation of the
accounts in the financial statements.

We recommended that Management require the Senior Corporate Accountant A to

reclassify the PPE with acquisition cost below the threshold to the appropriate semi-
expendable properties, expenses and accumulated surplus/(deficit)/retained earnings
accounts in accordance with paragraph 5.4 of COA Circular No. 2016-006.

4. Unserviceable properties costing ₱4.91 million as of December 31, 2020 which no

longer qualify as assets have not been disposed and are still carried in the books,
exposing the properties to the risk of further deterioration and diminished economic
value.

We recommended that Management:

a) Instruct the Senior Property/Supply Officer to prepare the Inventory and Inspection
Report of Unserviceable Property (IIRUP) for the identified unserviceable
properties, and submit the same to the Disposal Committee for appropriate action;

b) Require the Disposal Committee to immediately constitute the Bids and Awards
Committee (BAC) on Disposal, institute measures to properly dispose of all
unserviceable properties pursuant to Section 79 of PD No. 1445 and in accordance
with the procedures cited in COA Circular No. 89-296; and

c) After disposal, require the Disposal Committee to submit the duly acted IIRUP and
BAC Disposal report of action to the Senior Corporate Accountant A for the latter
to draw journal entries to derecognize the unserviceable properties in the books of
accounts.

5. Six infrastructure projects with combined project cost of ₱12.04 million were not
completed as planned, thus depriving the WD and its concessionaires with the benefit
they could have derived therefrom had these been completed as scheduled.

We recommended that Management strictly monitor compliance with the approved

project duration and hasten up the completion of the infrastructure projects so that the
intended beneficiaries could derive the expected benefits therefrom.

6. Fuel, oil and lubricants used for motor vehicles amounting to ₱1.87 million were not
supported with driver’s trip tickets, monthly report of official travels and monthly
reports of fuel consumption to substantiate the gasoline, oil and lubricants used for
official travels, contrary to PD No. 1445 and COA Circular No. 77-61 dated September
26, 1977.

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 We recommended that Management:

a) Require the Accountant to verify and ascertain that payments for fuel, oil and
lubricants are duly supported with completely filled up driver’s trip tickets for
proper evaluation on the propriety and reasonableness of fuel consumption; and

b) Direct the concerned personnel and the driver to prepare and submit, on a monthly
basis, the Monthly Report of Official Travels and the Monthly Report of Fuel
Consumption for proper analysis and verification of fuel consumption.

7. Repairs and maintenance of equipment and motor vehicles including purchases of spare
parts totaling ₱20.03 million were not supported with Pre-Repair Evaluation Reports,
Post Repair Inspection Reports and Reports of Waste Materials contrary to Section 4(6)
of PD No. 1445, Section 9.1.3.4 of COA Circular No. 2012-001 and principles of
internal control, indicative of inadequacy and ineffectiveness of the existing internal
control system of the WD relative to the repair and maintenance of government
properties.

We recommended that Management set up a Repair and Maintenance Program with

built-in control mechanisms so that economical, efficient and effective repairs of
government property are undertaken. Consider the following processes relative to
repairs and maintenance of government property:

a) Identification of property to be subjected to repair;

b) Preparation of request for Pre-Inspection;
c) Conduct of Pre-Repair Inspection;
d) Preparation of Pre-Repair Inspection Report;
e) Replacement of Damaged/Unserviceable parts;
f) Preparation of Waste Materials Report;
g) Conduct of Post-Repair Inspection Report; and
h) Other necessary procedures

We also recommended that Management require the Property Unit to maintain property
card, for each equipment or vehicle, which contains the history of the property owned or
maintained by the WD and regularly review the records to ensure that those in need for
repair and/or replacements are necessary and acted immediately.

We recommended further that Management comply with the provisions of Section

9.1.3.4 of COA Circular No. 2012-001 and Section 362 of the Government Accounting
and Auditing Manual (GAAM), Volume I particularly on the attachment of complete
documentary requirements relative to repairs of government equipment and vehicles to
facilitate validation of the legality, propriety, regularity and correctness of repair and
maintenance transactions.

Finally, we recommended that Management cause the immediate submission of valid

Pre-Repair and Post Repair Evaluation Report and Reports of Waste Materials and other

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 necessary documents related to the transactions amounting ₱20.03 million to avoid
suspension in audit.

8. The payment of per diems of the WD’s BODs amounting to ₱1.48 million were not
supported with complete documents, in violation of Section 4(6) of PD No. 1445.

We recommended that Management:

a) Comply with the provisions of Section 4(6) of PD No. 1445 and paragraph
5.7.3 of COA Circular No. 2012-001 particularly on the attachment of complete
documentary requirements for all transactions to facilitate the validation of the
legality, propriety, regularity and correctness of each and every disbursement of
public funds;

b) Submit to the Audit Team the lacking supporting documents for audit of the
payments totalling ₱1.48 million; and

c) Be more vigilant in the preparation of DVs supported with complete documents

to facilitate payment, recording and audit of transactions.

E. Summary of Total Suspensions, Disallowances and Charges as of Year-End

The ending balances of Notices of Suspension/Disallowances/Charges as of
December 31, 2020 are as follows:

Beginning Balance This Period Ending Balance

(As of December January 1 to December 31, 2020 (As of December
31, 2019) NS/ND/NC NSSDC 31, 2020)
Notice of Suspension ₱ 14,273,150.76 ₱ 0.00 ₱ 0.00 ₱ 14,273,150.76
Notice of Disallowance 51,298,215.95 0.00 0.00 51,298,215.95
Notice of Charge 0.00 0.00 0.00 0.00
Total ₱ 65,571,366.71 ₱ 0.00 ₱ 0.00 ₱ 65,571,366.71

F. Status of Implementation Prior Years’ Audit Recommendations

Out of the 60 audit recommendations incorporated in the prior years’ Annual Audit
Reports, which covered CYs 2007 to 2019, 34 were fully implemented, 25 were partially
implemented, and one remained not implemented during the year 2020.

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