ANNUAL AUDIT REPORTnot submitted to COA for mandatory post audit and custody contrary to Sections 100 and 122 of PD 1445 and COA Circular Nos. 2009-006 and 95-006 , hence Management

Republic of the Philippines

COMMISSION ON AUDIT

Commonwealth Avenue, Quezon City

ANNUAL AUDIT REPORT

on the

SULTAN KUDARAT WATER DISTRICT Tacurong City, Sultan Kudarat

For the Year Ended December 31, 2017

May 28, 2018

ENGR. JOSE D. TABUGA, JR.

General Manager

Sultan Kudarat Water District

Tacurong City, Sultan Kudarat

Dear GM Tabuga,

We transmit herewith the Annual Audit Report on the audit of the

accounts and operations of the Sultan Kudarat Water District, Tacurong City,

Sultan Kudarat for the year ended December 31, 2017, in compliance with

Section 2, Article IX-D of the Philippine Constitution and pertinent provision of

Section 43 of Presidential Decree No. 1445. The audit was conducted in

accordance with applicable legal and regulatory requirements and generally

accepted auditing standards. Those standards require that we plan and perform

the audit to obtain a reasonable basis for our conclusions.

The audit was conducted to (a) verify the level of assurance that may be

placed on management’s assertions on the financial statements; (b) recommend

agency improvement opportunities; and (c) determine the extent of

implementation of prior year’s audit recommendations.

An unmodified opinion on the fairness of the presentation of the financial

statements as of December 31, 2017 has been rendered.

Summarized below are the significant findings noted during the audit. The

details and other findings and observations as well as the corresponding

recommendations are discussed in the audit observations and recommendations

portion of the report:

1. Property Plant and Equipment amounting to P172,324,513.54 could

not be ascertained as to its existence, validity and accuracy due to the

non-conduct of physical count.

2. Unserviceable Properties reclassified to Other Assets account totaling

P2,423,941.19 were not adequately supported with required reports

and were not disposed of as of the appropriate time.


COMMISSION ON AUDIT Regional Office No. XII

9506Koronadal City, Philippines

[email protected]

mailto:[email protected]

3. Eighty Six (86) disbursement vouchers for CY 2017 in the total

amount of ₱11,559,456.23 were not submitted to COA for mandatorypost audit and custody.

4. Deficiencies in Public/Competitive Bidding procedures due to non-

adherence to the Government Procurement Reform Act (RA 9184) and

its Implementing Rules and Regulations were observed, thereby

casting doubt to the propriety and regularity of procured goods and

services totaling ₱19,783,642.20.

5. Contracts, Purchase Orders and all other documents forming part

thereof were not submitted on time for auditorial review.

6. Monthly Report of Accountability for Accountable Forms (RAAF)

was not prepared and submitted.

7. The District registered an average Non-Revenue Water (NRW) of

16.06 percent for CY 2017 which is within the 20 percent acceptable

level of NRW as required under LWUA Resolution No. 444, series of

2009 and LWUA Memorandum Circular No. 004-10.

We request that the observations and recommendations contained in the

report be fully addressed, and we would appreciate being informed of the actions

taken in this regard within sixty (60) days from the receipt hereof, using the

attached Agency Action Plan and Status of Implementation (AAPSI) Form.

We acknowledge the cooperation extended to our Auditors by the officials

and employees of Sultan Kudarat Water District.

Very truly yours,

ATTY. SUSAN P. DONALVO

Director IV

Regional Director

Copy Furnished:

The President, Republic of the Philippines

The Vice-President, Republic of the Philippines

The Senate President, Republic of the Philippines

The Speaker of the House, Republic of the Philippines

The Chairperson, Senate Finance Committee

The Chairperson, Appropriations Committee

The Secretary, Department of Budget and Management

The Administrator, Local Water Utilities Administration

Presidential Management Staff, Office of the President

National Library (soft copy)

UP Law Center (soft copy)

COA Commission Central Library (soft copy)

May 28, 2018

THE BOARD OF DIRECTORS



Sirs/Mesdames,

We transmit herewith the Annual Audit Report on the audit of the

accounts and operations of the Sultan Kudarat Water District, Tacurong City,

Sultan Kudarat for the year ended December 31, 2017, in compliance with

Section 2, Article IX-D of the Philippine Constitution and pertinent provision of

Section 43 of Presidential Decree No. 1445. The audit was conducted in

accordance with applicable legal and regulatory requirements and generally

accepted auditing standards. Those standards require that we plan and perform

the audit to obtain a reasonable basis for our conclusions.




implementation of prior year’s audit recommendations.

An unmodified opinion on the fairness of the presentation of the financial

statements as of December 31, 2017 has been rendered.

Summarized below are the significant findings noted during the audit.

Thedetails and other findings and observations as well as the corresponding

recommendations are discussed in the audit observations and recommendations

portion of the report:

1. Property Plant and Equipment amounting to P172,324,513.54 could

not be ascertained as to its existence, validity and accuracy due to the

non-conduct of physical count.


P2,423,941.19 were not adequately supported with required reports

and were not disposed of as of the appropriate time.

3. Eighty Six (86) disbursement vouchers for CY 2017 in the total

amount of ₱11,559,456.23 were not submitted to COA for mandatorypost audit and custody.


COMMISSION ON AUDIT Regional Office No. XII

9506Koronadal City, [email protected]

mailto:[email protected]



its Implementing Rules and Regulations were observed, thereby

casting doubt to the propriety and regularity of procured goods and

services totaling ₱19,783,642.20.


thereof were not submitted on time for auditorial review.

6. Monthly Report of Accountability for Accountable Forms (RAAF)

was not prepared and submitted.

7. The District registered an average Non-Revenue Water (NRW) of

16.06 percent for CY 2017 which is within the 20 percent acceptable

level of NRW as required under LWUA Resolution No. 444, series of

2009 and LWUA Memorandum Circular No. 004-10.

We request that the observations and recommendations contained in the

report be fully addressed, and we would appreciate being informed of the actions

taken in this regard within sixty (60) days from the receipt hereof, using the

attached Agency Action Plan and Status of Implementation (AAPSI) Form.

We acknowledge the cooperation extended to our Auditors by the officials

and employees of Sultan Kudarat Water District.

Very truly yours,

ATTY. SUSAN P. DONALVO

Director IV

Regional Director

Copy Furnished:

The President, Republic of the Philippines

The Vice-President, Republic of the Philippines

The Senate President, Republic of the Philippines

The Speaker of the House, Republic of the Philippines

The Chairperson, Senate Finance Committee

The Chairperson, Appropriations Committee

The Secretary, Department of Budget and Management

The Administrator, Local Water Utilities Administration

Presidential Management Staff, Office of the President

National Library (soft copy)

UP Law Center (soft copy)

COA Commission Central Library (soft copy)

SKWD AAPSI 2017 AAR

Page 1 of 9

SULTAN KUDARAT WATER DISTRICT

TACURONG CITY, SULTAN KUDARAT

AGENCY ACTION PLAN and STATUS OF IMPLEMENTATION

Audit Observation and Recommendations

As of December 31, 2017

Agency Action Plan

Target

No REF AUDIT

OBSERVATIONS

Audit Recommendations Action

Plan

Person/Dept.

Responsible

From To Status of

Implementation

2017

1 Pages

19-20,

Part II of

CY 2017

AAR

Property Plant and

Equipment amounting

to P172,324,513.54

could not be

ascertained as to its

existence, validity and

accuracy due to the

non-conduct of

physical count

contrary to Sec. 490

of GAAM Volume 1,

thereby casting doubt

on the fairness of the

financial statements’presentation.

We recommended that

Management: a) require the

Property Department to

constantly monitor and

prepare the necessary reports

vis-à-vis physical count of

PPEs in conformity with the

above mentioned provisions;

b) cause regular

reconciliation of records

between the Property Unit

and the Accounting Division

to detect errors, if any and

effect necessary correction in

the affected records for the

fair presentation of PPE

accounts in the Financial

Statements.

2 Pages

20-23,

Part II of

CY 2017

AAR

Unserviceable

Properties reclassified

to Other Assets

account totaling

P2,423,941.19 were

not adequately

We recommended that

Management:

a. take appropriate action

on the insufficiency of

personnel in the Property

Department in order to

SKWD AAPSI 2017 AAR

Page 2 of 9

Agency Action Plan

Target

No REF AUDIT

OBSERVATIONS


Plan

Person/Dept.

Responsible

From To Status of

Implementation

supported with

required reports and

were not disposed of

as of the appropriate

time contrary to

Section 64, Volume II

of the NGAS Manual,

Section 79 of PD

1445 and COA

Circular No. 89-296,

thus exposing them to

further physical

deterioration, decline

in economic value

and depriving the

government from the

potential benefits had

the immediate

disposal of these

properties been

effected.

enhance the monitoring

system on asset

utilization, reporting and

disposal;

b. instruct the Property

Department and the

Inventory Committee to

initiate the conduct of

physical count of PPEs

and prepare the Report

on Physical Count of

PPE in order to

determine the actual

existence and condition

of the properties and

shall be used as basis of

reconciliation of records

with the Accounting

Unit;

c. instruct the Property

Unit and the Appraisal &

Disposal Committee to

conduct the physical

count of unserviceable

properties, prepare the

Inventory and Inspection

Report of Unserviceable

Properties and undertake

immediate disposal of

unserviceable properties

in accordance with the

procedures prescribed

under Section 79 of

SKWD AAPSI 2017 AAR

Page 3 of 9

Agency Action Plan

Target

No REF AUDIT

OBSERVATIONS


Plan

Person/Dept.

Responsible

From To Status of

Implementation

Presidential Decree 1445

and COA Circular 89-

296; and

d. instruct the Accounting

Unit to record the

disposal of unserviceable

properties by dropping

from the books of

accounts the related

Asset accounts.

3 Pages

23-25,

Part II of

CY 2017

AAR

Eighty Six (86)

disbursement

vouchers for CY 2017

in the total amount of

₱11,559,456.23 were

not submitted to COA

for mandatory post

audit and custody

contrary to Sections

100 and 122 of PD

1445 and COA

Circular Nos. 2009-

006 and 95-006 ,

hence Management’sassertions of

occurrence, accuracy,

validity and

completeness of

financial transactions

cannot be ascertained

and thereby depriving

the end users of the

We recommended that

Management:

a) cause the immediate

submission of the eighty

(86) check vouchers with

complete supporting

documents;

b) direct the accountable

officer to monitor and

ensure that the required

documents are readily

available to support the

disbursement

transactions; and

c) adhere strictly on the

prescribed timeline in the

submission of

disbursement vouchers

with the supporting

documents to the Auditor

pursuant to COA rules

and regulations.

SKWD AAPSI 2017 AAR

Page 4 of 9

Agency Action Plan

Target

No REF AUDIT

OBSERVATIONS


Plan

Person/Dept.

Responsible

From To Status of

Implementation

financial statements

on the timely and

relevant information.

4 Pages

25-28,

Part II of

CY 2017

AAR

Deficiencies in

Public/ Competitive

Bidding procedures

due to non-adherence

to the Government

Procurement Reform

Act (RA 9184) and its

Implementing Rules

and Regulations were

observed, thereby

casting doubt to the

propriety and

regularity of procured

goods and services

totaling

₱19,783,642.20.

We have recommended that

Management ensure that all

procurement transactions/

pertaining to

Competitive/Public Bidding

are in accordance with the

prescribed procedures as

stipulated in the 2016

Revised Implementing Rules

and Regulations of RA 9184.

5 Pages

29-30,

Part II of

CY 2017

AAR

Contracts, Purchase

Orders and all other

documents forming

part thereof were not

submitted on time for

auditorial review

contrary to COA

Circular No. 2009-

001 , thus casting

doubt on the propriety

and reasonableness of

the procurement

We recommended that

Management install measures

that will facilitate the timely

submission of Contracts

and/or Purchase Orders

together with the related

supporting documents within

the reglementary period to

facilitate auditorial review,

technical evaluation and

inspection pursuant to COA

Circular No. 2009-001.

SKWD AAPSI 2017 AAR

Page 5 of 9

Agency Action Plan

Target

No REF AUDIT

OBSERVATIONS


Plan

Person/Dept.

Responsible

From To Status of

Implementation

transactions and

depriving the

Management from the

prompt information

on the results of

auditorial review,

technical evaluation

and inspection.

6 Pages

30-31,

Part II of

CY 2017

AAR

Monthly Report of

Accountability for

Accountable Forms

(RAAF) was not

prepared and

submitted contrary to

Section 68, Volume II

of the New

Government

Accounting System

(NGAS) Manual and

Section 98 of

Government

Accounting and

Auditing Manual

(GAAM) ), thus

resulting in weak

monitoring system on

the movement and

status of accountable

forms.

We recommended that

Management instruct the

Accountable Officers to

strictly comply with the

preparation and submission

of the monthly RAAF as

basis for monitoring the

movement of accountable

forms at their possession to

ensure reliability of the

monthly balances of

inventory.

7 Pages

31-32,

The District

registered an average

We commended

Management for diligently

SKWD AAPSI 2017 AAR

Page 6 of 9

Agency Action Plan

Target

No REF AUDIT

OBSERVATIONS


Plan

Person/Dept.

Responsible

From To Status of

Implementation

Part II of

CY 2017

AAR

Non-Revenue Water

(NRW) of 16.06

percent for CY 2017

which is within the 20

percent acceptable

level of NRW as

required under

LWUA Resolution

No. 444, series of

2009 and LWUA

Memorandum


maintaining its NRW for CY

2017 within the acceptable

level as prescribed by

LWUA Memorandum

Circular. We have

recommended however, that

Management continue to

exert more efforts in ensuring

lower NRW rate through (a)

checking water meters and

immediately replacing worn

out or defective ones; (b)

ensuring immediate and

prompt repair of identified

leaks; and (c) identifying

and penalizing

concessionaires who do

illegal tapping and

permanently disconnect their

water service.

PRIOR YEARS

8 CY 2016

AAR

Deficiencies in

Public/Competitive

Bidding procedures

were observe due to

non-adherence to the

Government

Procurement Reform

Act (RA 9184) and its

Implementing Rules

and Regulations,

thereby casting doubt

We have recommended that

Management ensure that all

transactions/activities

pertaining to

Competitive/Public Bidding

are in accordance with the

prescribed procedures are


Revised Implementing Rules

and Regulations of RA 9184

SKWD AAPSI 2017 AAR

Page 7 of 9

Agency Action Plan

Target

No REF AUDIT

OBSERVATIONS


Plan

Person/Dept.

Responsible

From To Status of

Implementation

to the propriety and

regularity of procured

goods and services

totaling

P27,436522.47.

9 CY 2015

AAR

The propriety and

legality of various

charges imposed by

the District to its

concessionaires

cannot be ascertained

because these charges

were not subjected to

review and approval

of LWUA as provided

under Section 63 of

Presidential Decree

198 as amended.

We recommended that

Management submit to

LWUA the various imposed

charges for their review and

approval to establish

compliance with the

provisions prescribed under

Section 63 of PD 198.

10 CY 2015

AAR

The necessity,

propriety and legality

of hiring Services/Job

Orders in the District

is questionable

because Section 2

Rule XI of the

Omnibus Rules

implementing Book V

of Executive Order

(EO) No. 292, Section

209 to 211 and 517,

Volume I of the

We recommended that

Management

recommend to the

Board of Directors to

issue policy guidelines

in the hiring of job

order in accordance

with Section 2 Rule XI

of the Revised

Omnibus Rules

Implementing Book V

of EO No. 292 and

SKWD AAPSI 2017 AAR

Page 8 of 9

Agency Action Plan

Target

No REF AUDIT

OBSERVATIONS


Plan

Person/Dept.

Responsible

From To Status of

Implementation

GAAM were not

strictly followed. COA rules and

regulations cited

above;

plan and evaluate

further on how to

achieve the ideal and

realistic personnel

complement of the

District instead of

resorting to Job Order

as scheme:

evaluate the

performance and skills

of the said job order

personnel that belongs

to Category II and III

as provided under Civil

Service Commission

Memorandum Circular

No. 10, series of 2013

or the Skills Eligibility

for possible

appointment to

permanent regular

positions, if merited;

and

prioritize hiring

plumbers of regular

status in the District.

SKWD AAPSI 2017 AAR

Page 9 of 9

Agency Action Plan

Target

No REF AUDIT

OBSERVATIONS


Plan

Person/Dept.

Responsible

From To Status of

Implementation

11 CY 2014

AAR

The existence,

accuracy and validity

of the Accounts

Receivables and

Guaranty Deposit

Payable accounts

totaling to P8.98

million and P1.05

million , respectively

cannot be fully

established due to

absence of details and

not fully supported

with subsidiary

ledgers/schedules and

the existence of

Guaranty Deposits

Payable totaling to

P1.05 million which

have been dormant

for more than five

years affect the true

financial condition of

the District.

We recommended that

management,

Expedite the

installation of an IT

system that will link

the accounting records

with the billing and

collection records.

Exert more effort to

locate all the

documents that will

support the balances of

the Guaranty Deposits

Payable account;

Confirm from the list

of the creditors

whether the payables

are still valid and

legitimate obligation of

the agency

Executive summary _______________________________________________________________________

EXECUTIVE SUMMARY

Introduction

The Sultan Kudarat Water District (SKWD) was established thru

Sangguniang Bayan Resolution No.82-66 dated October 22, 1982 of the

Sangguniang Bayan of the Province of Sultan Kudarat with Presidential Decree

No. 198, as the enabling law to the creation of water districts. On August 5, 1983,

the District was issued the Conditional Certificate of Conformance (CCC No.

247) by the Local Water Utilities Administration (LWUA).

As of December 31, 2017 the District has a total workforce of 75

regular employees. The office is headed by Engr. Jose D. Tabuga Jr., General

Manager.

Audit Scope and Methodology

Pursuant to Section 2, Article IX-D of the Philippine Constitution and

Section 43 of the Government Auditing Code of the Philippines (P.D. 1445), we

have audited the accounts and operations of the District covering the period

January 1 to December 31, 2017.




implementation of prior years’ audit recommendations.

.

Financial Highlights

The financial profiles of the District for CY 2017 with comparative figures

of CY 2016 are presented as follows: (All amounts in Philippine Pesos unless

otherwise stated)

A. Financial Condition

B. Results of Operation

Particulars 2017 2016 Increase/(Decrease)

Amount Percentage Gross

Income 125,989,047.61 121,923,856.96 4,065,190.65 3%


Amount Percentage Assets Liabilities Equity

325,379,347.82

47,753,558.53

277,625,789.29

295,652,571.61

45,007,657.07

250,644,914.54

29,726,776.21

2,745,901.46

26,980,874.75

10%

6%

11%

Executive summary ______________________________________________________________________


Amount Percentage Less:

Expenses

PS 42,696,545.97 41,096,769.63 1,599,776.34 4%

MOOE 39,023,892.29 35,316,867.74 3,707,024.55 10%

Non-Cash

Expenses 15,429,558.99 12,145,670.72 3,283,888.27 27%

Financial

Expenses 646,361.47 1,702,534.83 (91,771.14) (12%)

Total

Expenses 97,796,358.72 89,297,440.70 8,498,918.02 10%

Net Income 28,192,688.89 31,662,014.04 (4,433,727.37) (14%)

Audit Opinion on the Financial Statements

The Auditor rendered an unmodified opinion on the fairness of the

presentation of the financial statements of Sultan Kudarat Water District as of

December 31, 2017.

Summary of Significant Audit Observations and Recommendations

1. Property Plant and Equipment amounting to P172,324,513.54 could not be

ascertained as to its existence, validity and accuracy due to the non-conduct of

physical count.

We have recommended that Management: a) require the Property Department

to constantly monitor and prepare the necessary reports vis-à-vis physical

count of PPEs in conformity with the above mentioned provisions; b) cause

regular reconciliation ofrecords between the Property Unit and the Accounting

Division to detect errors, if any and effect necessary correctionin the affected

records for the fair presentation of PPE accounts in the Financial Statements.


P2,423,941.19 were not adequately supported with required reports and were

not disposed of as of the appropriate time.

We have recommended that Management:

a. take appropriate action on the insufficiency of personnel in the

Property Department in order to enhance the monitoring system on

asset utilization, reporting and disposal;

b. instruct the Property Department and the Inventory Committee to

initiate the conduct of physical count of PPEs and prepare the Report

on Physical Count of PPE in order to determine the actual existence

and condition of the properties and shall be used as basis of

reconciliation of records with the Accounting Unit;


c. instruct the Property Unit and the Appraisal & Disposal Committee to

conduct the physical count of unserviceable properties, prepare the

Inventory and Inspection Report of Unserviceable Properties and

undertake immediate disposal of unserviceable properties in

accordance with the procedures prescribed under Section 79 of

Presidential Decree 1445 and COA Circular 89-296; and

d. instruct the Accounting Unit to record the disposal of unserviceable

properties by dropping from the books of accounts the related Asset

accounts.

3. Eighty Six (86) disbursement vouchers for CY 2017 in the total amount of

₱11,559,456.23 were not submitted to COA for mandatory post audit and

custody contrary to Sections 100 and 122 of PD 1445 and COA Circular Nos.

2009-006 and 95-006.

We have recommended that Management: a) cause the immediate submission

of the eighty (86) check vouchers with complete supporting documents; b)

direct the accountable officer to monitor and ensure that the required

documents are readily available to support the disbursement transactions; and

c) adhere strictly on the prescribed timeline in the submission of disbursement

vouchers with the supporting documents to the Auditor pursuant to COA rules

and regulations.

4. Deficiencies in Public/Competitive Bidding procedures due to non-adherence

to the Government Procurement Reform Act (RA 9184) and its Implementing

Rules and Regulations were observed, thereby casting doubt to the propriety

and regularity of procured goods and services totaling ₱19,783,642.20.

We have recommended that Management ensure that all procurement transactions/activities pertaining to Competitive/Public Bidding are in

accordance with the prescribed procedures as stipulated in the 2016 Revised

Implementing Rules and Regulations of RA 9184.

5. Contracts, Purchase Orders and all other documents forming part thereof were

not submitted on time for auditorial review contrary to COA Circular No.

2009-001.

We have recommended that Management install measures that will facilitate

the timely submission of Contracts and/or Purchase Orders together with the

related supporting documents within the reglementary period to facilitate

auditorial review, technical evaluation and inspection pursuant to COA


6. Monthly Report of Accountability for Accountable Forms (RAAF) was not

prepared and submitted contrary to Section 68, Volume II of the New

Government Accounting System (NGAS) Manual and Section 98 of

Government Accounting and Auditing Manual (GAAM).

We have recommended that Management instruct the Accountable Officers to

strictly comply with the preparation and submission of the monthly RAAF as


basis for monitoring the movement of accountable forms at their possession to

ensure reliability of the monthly balances of inventory.

7. The District registered an average Non-Revenue Water (NRW) of 16.06

percent for CY 2017 which is within the 20 percent acceptable level of NRW

as required under LWUA Resolution No. 444, series of 2009 and LWUA

Memorandum Circular No. 004-10.

We commended Management for diligently maintaining its NRW for CY

2017 within the acceptable level as prescribed by LWUA Memorandum

Circular. We have recommended however, that Management continue to

exert more efforts in ensuring lower NRW rate through (a) checking water

meters and immediately replacing worn out or defective ones; (b) ensuring

immediate and prompt repair of identified leaks; and (c) identifying and

penalizing concessionaires who do illegal tapping and permanently

disconnect their water service.

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

The total audit suspension, disallowances and charges found in the audit of

various transactions of the agency, as of December 31, 2017 is P3,302,952.20,

based on the Notice of Suspension (NS)/Notice of Disallowance(ND)/Notice of

Charge (NC) issued by this Commission, as summarized hereunder:

Particulars Suspensions Disallowances Charges Summary of Audit Suspensions,

Disallowances and Charges as of

December 31, 2016

P0.00 P3,302,952.20 P0.00

Add: Issuances 0.00 0.00 0.00 Less: Settlements

Prior Year 0.00 0.00 0.00 Current Year 0.00 0.00 0.00 Balance, December 31, 2017 P0.00 P3,302,952.20 P0.00

Status of Prior Years’ Unimplemented Audit Recommendations

Of the seven (7) prior year’s audit recommendations embodied in the Prior

Years’ Annual Audit Reports, four (4) were partially implemented and three (3)

were fully implemented.

PART I

AUDITED FINANCIAL STATEMENTS

TABLE OF CONTENTS

Part Subject Page No.

I. Audited Financial Statements

Independent Auditor’s Report 1

Statement of Management’s Responsibility for the Financial

Statements

3

Statement of Financial Position as of December 31, 2017

(With Comparative Figures for 2016)

4

Statement of Comprehensive Income for the year ended

December 31, 2017 (With Comparative Figures for 2016)

5

Statement of Changes in Equity for the year ended December

31, 2017 (With Comparative Figures for 2016)

6

Statement of Cash Flows for the year ended December 31,

2017 (With Comparative Figures for 2016)

7

Notes to Financial Statements 8

II. Audit Observations and Recommendations 19

III. Status of Implementation of Prior Years’ Unimplemented

Audit Recommendations

36

1

INDEPENDENT AUDITOR’S REPORT

The Board of Directors



We have audited the accompanying financial statements of Sultan Kudarat Water

District as at December 31, 2017, which comprise the statement of financial position,

statement of comprehensive income, statement of cash flows, and statement of changes in

equity for the year then ended, and a summary of significant accounting policies and

other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these

financial statements in accordance with Philippine Financial Reporting Standards and

generally accepted 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 Philippine Public Sector Standards

on Auditing. Those 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, whether 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, but not for the purpose of expressing an opinion on the

effectiveness of the entity’s internal control. An audit also includes evaluating the

appropriateness of accounting policies used and the reasonableness of accounting

estimates made by management, as well as evaluating the overall presentation of the

financial statements.

Republic of the Philippines COMMISSION ON AUDIT

Regional Office No. XII

OFFICE OF THE SUPERVISING AUDITOR CGS-A Water Districts & Other CGS Stand-Alone Agencies

9506Koronadal City, Philippines

2

We believe that the audit evidence we have obtained is sufficient and appropriate

to provide a basis for our audit opinion.

Auditor’s Opinion

In our opinion, the financial statements present fairly, in all material respects, the

financial position of Sultan Kudarat Water District as at December 31, 2017, and its

financial performance and its cash flows for the year then ended in accordance with state

accounting principles

COMMISSION ON AUDIT

By:

VENCY T. VILLARIZA

State Auditor IV

OIC-Supervising Auditor

May 15, 2018

CGS-A Water District

3



Bonifacio St., City of Tacurong

STATEMENT OF MANAGEMENT’S RESPONSIBILITY

FOR THE FINANCIAL STATEMENTS

The management of SULTAN KUDARAT WATER DISTRICT is responsible

for all information and representations contained in the accompanying Statement

of Financial Position as of December 31, 2017 and the related Statement of

Comprehensive Income, Statement of Changes in Equity and the Notes to

Financial Statements for the year then ended. The financial statements have been

prepared in conformity with Philippine Financial Reporting Standards and

generally accepted state accounting principles, and reflect amounts based on the

best estimates and informed judgment of management with appropriate

consideration to materiality.

In this regard, Management maintains a system of accounting and reporting which

provides for the necessary internal controls to ensure that transactions are

properly authorized and recorded, assets are safeguarded against unauthorized use

or disposition and liabilities are recognized.

The Commission on Audit, in pursuance of its mandate under Section 2, Article

IX-D of the Philippine Constitution and pertinent provisions of Presidential

Decree 1445, has audited the financial statements of the District in accordance

with laws, COA and INTOSAI standards has expressed its opinion on the fairness

of presentation upon completion of such examination.

Note 2017 2016

Cash and Cash Equivalents 4 102,368,504.03 97,295,848.32

Receivables – net 5 12,252,976.99 11,982,958.43

Inventories 6 11,185,090.84 10,358,240.32

Other Assets 8 178,152.59 174,536.29

125,984,724.45 119,811,583.36

Non-Current Assets

Property, Plant and Equipment – net 7 172,324,513.54 150,486,180.72

Other Assets 8 27,070,109.83 25,354,807.53

Total Non-Current Assets 199,394,623.37 175,840,988.25

TOTAL ASSETS 325,379,347.82 295,652,571.61

LIABILITIES AND GOVERNMENT EQUITY

Current Liabilities

Financial Liabilities 9 39,157,848.38 35,102,367.94

Bonds Payable-Domestic 10 708,874.41 534,779.53

Inter-agency Payable 11 501,637.02 672,219.88

Trust Liabilities 12 435,656.16 488,606.16

Total Current Liabilities 40,804,015.97 36,797,973.51

Long-Term Liabilities

Loans Payable-Domestic 13 6,911,004.45 8,171,145.45

Deferred Credits 14 38,538.11 38,538.11

Total Long-Term Liabilities 6,949,542.56 8,209,683.56

TOTAL LIABILITIES 47,753,558.53 45,007,657.07

GOVERNMENT EQUITY 15 277,625,789.29 250,644,914.54

TOTAL LIABILITIES & EQUITY 325,379,347.82 295,652,571.61

Total Current Assets

(See Accompanying Notes to Financial Statement )

ASSETS

Current Assets


STATEMENT OF FINANCIAL POSITION


(With comparative figures for CY 2016)

(In Philippine Peso)

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Note 2017 2016

Service Income 17 6,065,167.46 6,000,395.47

Business Income 17 119,923,880.15 115,923,461.49

125,989,047.61 121,923,856.96

Personal Services 18 42,696,545.97 41,096,769.63

Maintenance & Other Operating

Expenses19 39,023,892.29 35,316,867.74

Non-Cash Expenses 20 15,429,558.99 12,145,670.72

Financial Expenses 21 646,361.47 1,702,534.83

Total Expenses 97,796,358.72 90,261,842.92

NET INCOME/(LOSS) 28,192,688.89 31,662,014.04

Expenses


Income

Total Income


STATEMENT OF COMPREHENSIVE INCOME




5

Note 2017 2016

Government Equity

Donated Capital 4,365,742.00 4,365,742.00

Retained Earnings/(Deficits) 16

Beginning Balance 246,279,172.54 214,617,158.50

Prior Year's Adjustments (1,211,814.14)

Net Income/(Loss) for the period 28,192,688.89 31,662,014.04

Ending Balance 273,260,047.29 246,279,172.54

TOTAL 277,625,789.29 250,644,914.54

Reserve/Restricted Capital



STATEMENT OF CHANGES IN EQUITY




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2017 2016

Service Income 123,679,750.98 120,993,674.55

Business Income 1,926,373.71 2,101,466.79

Other Receipts 4,033,963.20 3,407,674.01

129,640,087.89 126,502,815.35

Payment of Personal Services 41,675,196.79 45,244,722.85

Payment of Maintenance & Other Operating

Expenses 23,353,980.73 16,208,900.30

Purchase of Inventories/Payment of Payables 54,690,371.57 49,636,048.70

Prepayments, Deposits and Deferred Charges 412,816.98 301,441.60

Others 985,720.71 966,467.12

Total Cash Outflows 121,118,086.78 112,357,580.57

Net Cash (Used in) Provided by Operating Activities 8,522,001.11 14,145,234.78

Interests and Dividends 275,664.82 297,756.51

275,664.82 297,756.51

Purchase/Acquisition of Property, Plant and

Equipment 1,850,298.22 886,532.00

Total Cash Outflows 1,850,298.22 886,532.00

Net Cash (Used in) Provided by Investing Activities (1,574,633.40) (588,775.49)

Loan Amortization 1,260,141.00 2,985,606.16

Financial Expenses 614,571.00 720,543.27

Total Cash Outflows 1,874,712.00 3,706,149.43

Net Cash (Used in) Provided by Financing Activities (1,874,712.00) (3,706,149.43)

Net Increase/(Decrease) in Cash and Cash

Equivalents5,072,655.71 9,850,309.86

Cash and Cash Equivalents, Beginning of Year 97,295,848.32 87,445,538.46

Cash and Cash Equivalents, End of Year 102,368,504.03 97,295,848.32

Cash Outflows

Cash Outflows

Cash Flow From Investing Activities

Cash Outflows

Cash Flow From Financing Activities

Cash Inflows

Total Cash Inflows

Total Cash Inflows


STATEMENT OF CASH FLOWS




Cash Flow From Operating Activities

Cash Inflows

7

Notes to Financial Statements

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NOTES TO FINANCIAL STATEMENTS

(All amounts in Philippine Pesos unless otherwise stated)

1. Agency Background

The Sultan Kudarat Water District was established thru Sangguniang Bayan

Resolution No. 82-66 dated October 22, 1982 of the Sangguniang Bayan of

the Province of Sultan Kudarat with Presidential Decree No. 198, as the

enabling law to the creation of water districts. On August 5, 1983, the District

was issued the Conditional Certificate of Conformance (CCC No. 247) by the

Local Water Utilities Administration (LWUA). The mandates of the District

are:

To 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;

To provide, maintain and operate waste water collection treatment and

disposal facilities; and

To conduct such other functions and operations incidental to water

resource development, utilization and disposal within the district, as

necessary or incidental to said purpose.

The powers, privileges and duties of the District are exercised and performed

by and through the Board of Directors, as the policy-making body composed

of the following:

Chairman - Engr. Nonito P. Bernardo

Vice-Chairman - Atty. Kyndell A. Hilario,CPA

Treasurer - Mrs. Norma D. Griño

Secretary - Mr. Emiliano C. Pacardo

Auditor - Mr. Eduardo T. Tono

Day to day activities is executed by its General Manager, Engr. Jose D.

Tabuga, Jr. together with the other seventy five (75) permanent employees.

2. Statement of Compliance and Basis of Preparation of Financial

Statements

The financial statements have been prepared in accordance with the

Philippine Financial Reporting Standards (PFRS) in compliance with

Commission on Audit Resolution No. 2015-040 dated December 1, 2015 and

COA Circular Nos. 2015-010 and 2016-006 dated December 1, 2015 and

December 29, 2016, respectively.


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The financial statements have been prepared on the basis of historical cost, unless

stated otherwise. The Statement of Cash Flows is prepared using the direct

method.

3. Summary of Significant Accounting Policies

Property, Plant & Equipment are carried at cost less accumulated

depreciation which is computed using the straight line method based

on the estimated service lives of the property ranging from 1 to 30

years.

The cost of maintenance and repairs are charged to operations as

incurred. Major renewals and betterments which extend the lives of the

equipment are capitalized. The cost and related depreciation are

removed from the accounts when assets are retired and disposed of any

resulting gain or loss is credited or charged to current operations.

Allowance for doubtful accounts is set-up to provide for estimated

losses due to non-collection of accounts from customers based on

past experiences.

The District uses the accrual basis of accounting. Revenues are

recorded during the period in which the services are given/rendered

and expenses are recorded at the times these are incurred.

4. Cash and Cash Equivalents

This account includes cash deposits with banks, un-deposited collections of

collecting officers, un-liquidated cash advances ( including petty cash fund )

and cash equivalents, the details of which follows:

2017 2016

Cash – Collecting Officers 283,674.50 411,829.39

Cash in Bank-Local Currency, Current

Account 82,674,103.88 77,385,072.86

Cash in Bank-Local Currency, Savings

Account 2,855,649.71 3,287,375.09

Time Deposits-Local Currency 16,555.075.94 16,211,570.98

Total 102,368,504.03 97,295,848.32


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5. Receivables - Net

This account consists of the following:

2017 2016

Accounts Receivables 12,072,085.04 10,846,080.78

Less: Allowance for Doubtful Accounts (208,183.28) (176,392.81)

Accounts Receivables, Net 11,863,901.76 10,669,687.97

Receivables-Disallowance/Charges 374,908.93 1,311,066.61

Other Receivable 2,203.85 2,203.85

Due from Officers and Employees 9,848.50

Due from GOCCs' 2,113.95

Receivables 12,252,976.99 11,982,958.43

The Accounts Receivables includes all amounts due on open accounts arising

from services rendered to customers for water sales and incidental services.

The Receivables - Others are collectibles from customers for their unpaid

application fee balances and materials loan accounts. The Due from GOCC's

are collectibles from Lebak Water District (LWD) for BAC expenses during

LWD Public Bidding.

6. Inventories

This consists of the following:

2017 2016

Merchandise Inventory 854,810.12 2,079,131.10

Office Supplies Inventory 353,895.21 537,576.73

Accountable Forms Inventory 145,403.00 181,964.92

Medical, Dental and Laboratory Supplies

Inventory 235,401.43 202,280.98

Construction Materials Inventory 8,096,284.36 4,600,329.82

Other Supplies and Materials Inventory 1,499,296.72 2,756,956.77

Total 11,185,090.84 10,358,240.32

7. Property, Plant & Equipment

This account is composed of the following:

Property, Plant and Equipment 2017 2016

Land

Land 6,729,973.55 6,729,973.55

Land Improvements


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Other Land Improvements 6,027,655.05 5,603,928.36

Accumulated Depreciation-Other

Land Improvements (2,189,830.62) (1,694,549.00)

Infrastructure Assets

Water Supply Systems 134,345,170.21 122,718,918.98

Accumulated Depreciation-Water

Supply Systems (50,581,401.25) (43,882,289.51)

Power Supply Systems 5,045,120.52 4,670,120.52

Accumulated Depreciation-Power

Supply Systems (2,733,184.24) (2,171,968.36)

Buildings and Other Structures

Buildings 28,187,396.85 20,064,504.14

Accumulated Depreciation-

Buildings (4,624,933.89) (3,439,159.08)

Other Structures 3,409,275.86 3,202,459.15


Structures (787,280.91) (664,004.65)

Machinery and Equipment

Machinery 13,345,683.17 10,420,723.17


Machinery (5,596,322.54) (4,403,914.72)

Office Equipment 3,908,306.73 2,246,370.70

Accumulated Depreciation-Office

Equipment (2,274,582.52) (1,536,356.63)

Information and Communication

Technology Equipment 8,569,436.59 7,521,928.59


Information and Communication

Technology Equipment (5,632,997.74) (4,277,023.70)

Communication Equipment 1,706,681.12 1,423,681.12


Communication Equipment (969,750.70) (804,546.22)

Construction and Heavy

Equipment 1,808,209.00 1,808,209.00


Construction and Heavy

Equipment (1,370,750.36) (1,084,294.28)

Disaster Response and Rescue

Equipment 182,638.86 121,388.86


Disaster Response and Rescue

Equipment (126,811.52) (100,119.29)

Other Machinery and Equipment 4,426,351.53 4,398,351.53


Equipment (2,276,014.53) (1,871,668.62)


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Transportation Equipment

Motor Vehicles 14,371,862.95 10,559,142.95

Accumulated Depreciation-Motor

Vehicles (7,092,674.61) (5,770,358.44)

Furniture, Fixtures and Books

Furnitures and Fixtures 2,916,531.77 2,099,731.86


Furniture and Fixtures (1,682,017.58) (1,198,386.92)

Other Property, Plant and

Equipment

Other Property, Plant and

Equipment 2,266,149.24 1,753,055.24


Property, Plant and Equipment (1,564,136.75) (1,174,491.35)

Construction in Progress

Construction in Progress-

Infrastructure Assets 21,932,873.27 10,016,461.56

Construction in Progress-Buildings

and Other Structures 2,647,887.03 9,200,362.21

Total 172,324,513.54 150,486,180.72

8. Other Assets

This account consists of the following:

2017 2016

Other Assets- Current

Prepaid Insurance 142,199.60 138,583.30

Guaranty Deposits 35,952.99 35,952.99

Total Other Assets-Current 178,152.59 174,536.29

Other Assets- Non-Current

Items in Transit 24,646,168.64 22,930,866.34

Other Assets-Unserviceable Property 2,008,010.60 2,008,010.60

Other Assets-Idle Properties 415,930.59 415,930.59

Total Other Assets- Non- Current 27,070,109.83 25,354,807.53

Total 27,248,262.42 25,529,343.82

Prepaid Insurance pertains to the balance of insurance of various service

vehicles, Pump stations, office buildings, reservoirs and insurance premium of

employees. The Guaranty Deposit pertains to the meter deposits and advance

billing to SUKELCO. The Other Assets- Non- Current consists of Items in


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Transit and Other Asset which include Unserviceable Properties and Idle PPE

which the management intended to use in the future.

9. Financial Liabilities


2017 2016

Accounts Payable 30,400,996.28 27,519,739.47

Due to Officers and Employees 8,756,852.10 7,582,628.47

Total 39,157,848.38 35,102,367.94

10. Bonds Payable

This consists of the amount due to supplier for their bid security and

performance bond.

2017 2016

Bonds Payable 708,874.41 534,779.53

Total 708,874.41 534,779.53

11. Inter-Agency Payable

This consist of the amount due to other government agencies for withholding

from payments made to suppliers and employees

2017 2016

Due to BIR 501,637.02 672,219.88

Total 501,637.02 672,219.88

12. Trust Liabilities

This consists of:

2017 2016

Guaranty Security Deposits Payable 435,656.16 488,606.16

Total 435,656.16 488,606.16

The Guaranty Security Deposit Payable pertains to the remaining amount of

deposits made by concessionaires as guaranty, water and meter deposits.


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13. Loans Payable

This consists of loans availed from the LWUA for the different water system

projects as follows:

2017 2016

LA # 3-512 (LWUA 5,957,266.45 6,670,696.45

LA # 4-2512 (LWUA) 953,738.00 1,500,449.00

Total 6,911,004.45 8,171,145.45

14. Deferred Credits

Deferred Credits account pertains to payments made in advance of

concessionaires for installation of new connection.

2017 2016

Deferred Credits 38,538.11 38,538.11

Total 38,538.11 38,538.11

15. Government Equity

This represents the grants and donated capital were those existing water

system in Tacurong City turned over by the Municipal Government to Sultan

Kudarat Water District. Subsequent capital additions, such as subsidies, will

be added to this account.

16. Retained Earnings

Retained Earnings consist of the balance of accumulated earnings or losses of

Sultan Kudarat Water District.

2017 2016

Retained Earnings, Beginning Balance 246,279,172.54 214,617,158.50

Prior Period Adjustments (1,211,814.14)

Net Income (Loss) for the Period 28,192,688.89 31,662,014.04

Retained Earnings, Ending Balance 273,260,047.29 246,279,172.54


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17. Income


2017 2016

Service Income 6,065,167.46 6,000,395.47

Business Income 119,923,880.15 115,923,461.49

Total 125,989,047.61 121,923,856.96

18. Personal Services


Personnel Services 2017 2016

Salaries and Wages

Salaries and Wages-Regular 20,719,852.92 18,525,869.76

Salaries and Wages-Casual/Contractual 6,763,111.15 6,493,345.78

Total Salaries and Wages 27,482,964.07 25,019,215.54

Other Compensation

Personnel Economic Relief Allowance

(PERA) 1,874,000.00 1,787,120.78

Representation Allowance (RA) 423,625.00 448,250.00

Transportation Allowance (TA) 423,625.00 448,250.00

Clothing/Uniform Allowance 390,000.00 375,000.00

Productivity Incentive Allowance 1,521,402.00

Honoraria 679,662.00 657,702.00

Overtime and Night Pay 61,555.52 28,768.13

Year End Bonus 3,585,059.25 3,267,969.91

Cash Gift 390,000.00 371,500.00

Other Bonuses and Allowances 1,542,083.95 1,787,499.98

Total Other Compensation 9,369,610.72 10,693,462.80

Personnel Benefit Contributions

Retirement and Life Insurance Premium 2,706,033.97 2,470,836.60

Pag-IBIG Contributions 94,000.00 89,600.00

PhilHealth Contributions 233,737.50 218,625.00

Total Personnel Benefit

Contributions 3,033,771.47 2,779,061.60

Other Personnel Benefits

Terminal Leave Benefits 2,185,199.71 1,992,529.69

Other Personnel Benefits 625,000.00 612,500.00

Total Other Personnel Benefits 2,810,199.71 2,605,029.69

Total Personnel Services 42,696,545.97 41,096,769.63


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19. Maintenance and Other Operating Expense


Maintenance and Other Operating

Expense 2017 2016

Traveling Expense

Traveling Expense-Local 650,777.15 587,528.33

Total Traveling Expense 650,777.15 587,528.33

Training and Scholarship

Expenses

Training Expenses 650,199.75 562,682.10

Total Training and Scholarship

Expenses 650,199.75 562,682.10

Supplies and Materials Expenses

Office Supplies Expenses 626,357.80 473,295.91

Accountable Forms Expenses 158,945.11 171,257.05

Non-Accountable Forms

Expenses 31,357.09 0.00

Fuel, Oil and Lubricants

Expenses 1,212,778.66 1,086,983.64

Chemical and Filtering Supplies

Expenses 3,649,931.46 2,988,061.50

Other Supplies and Materials

Expenses 1,616,410.45 1,758,106.12

Total Supplies and Materials

Expenses 7,295,780.57 6,477,704.22

Utility Expenses

Water Expenses 211,216.35 193,977.60

Electricity Expenses 15,016,478.44 14,968,759.54

Total Utility Expenses 15,227,694.79 15,162,737.14

Communication Expenses

Postage and Courier Services 7,985.00 8,495.00

Telephone Expenses 224,201.67 218,755.14

Internet Subscription Expenses 71,616.24 71,067.61

Cable, Satellite, Telegraph and

Radio Expenses 30,479.61 26,826.12

Total Communication Expenses 334,282.52 325,143.87

Awards/Rewards, Prizes and

Indemnities

Awards/Rewards Expenses 234,987.14 62,675.00

Total Awards/Rewards, Prizes

and Indemnities 234,987.14 62,675.00


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Confidential, Intelligence and Extraordinary

Expenses

Extraordinary and Miscellaneous

Expenses 106,820.40 83,449.00

Total Confidential, Intelligence

and Extraordinary Expenses 106,820.40 83,449.00

Professional Services

Legal Services 57,300.00 48,000.00

Auditing Services 175,371.48 13,259.97

Total Professional Services 232,671.48 61,259.97

General Services

Janitorial Services 403,820.41 239,130.49

Security Services 3,139,371.75 3,052,690.40

Other General Services 117,077.94 64,552.00

Total General Services 3,660,270.10 3,356,372.89

Repairs and Maintenance

Repair and Maintenance-Land

Improvements 0.00 0.00

Repair and Maintenance-

Infrastructure Assets 1,820,809.35 1,629,947.77


Buildings and Other Structures 208,884.62 186,045.31


Machinery and Equipment 245,646.00 277,926.36


Transportation Equipment 337,800.51 439,121.64


Furniture and Fixtures 28,859.58 41,753.72

Repair and Maintenance-Service

Concession Assets 0.00 0.00

Repair and Maintenance-Other

Property, Plant and Equipment 167,090.26 303,259.74

Total Repairs and Maintenance 2,809,090.32 2,878,054.54

Taxes, Insurance Premiums and

Other Fees

Taxes, Duties and Licenses 2,580,248.87 2,378,709.31

Fidelity Bond Premiums 40,500.00 40,283.82

Insurance Expenses 409,200.68 337,666.12

Income Tax Expenses

Total Taxes, Insurance Premiums

and Other Fees 3,029,949.55 2,756,659.25


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Other Maintenance and

Operating Expenses

Advertising, Promotional and

Marketing Expenses 254,591.11 243,367.00

Printing and Publication

Expenses 0.00 17,380.21

Representation Expenses 197,562.05 146,400.90

Rent/Lease Expenses 133,682.50 61,120.00

Membership Dues and

Contributions to Organizations 52,548.00 55,476.50

Subscription Expenses 13,900.00 8,100.00

Donations 287,172.97 375,012.18

Other Maintenance and

Operating Expenses 3,851,911.89 2,095,744.64

Total Other Maintenance and

Operating Expense 4,791,368.52 3,002,601.43

Total Maintenance and other

Operating Expense 39,023,892.29 35,316,867.74

20. Non-Cash Expenses


2017 2016

Depreciation-Land Improvements 495,281.62 449,352.36

Depreciation-Infrastructure Assets 7,649,973.02 6,276,185.73

Depreciation-Buildings and Other Structures 1,519,173.46 958,604.44

Depreciation-Machinery and Equipment 3,995,751.87 3,084,648.63

Depreciation-Transportation Equipment 1,285,748.36 1,004,555.45

Depreciation-Furniture, Fixtures and Books 483,630.66 372,324.11

Total 15,429,558.99 12,145,670.72

21. Financial Expenses

2017 2016

Interest Expense 614,571.00 720,543.27

Other Financial Charges 31,790.47 981,991.56

Total 646,361.47 1,702,534.83

PART II

AUDIT OBSERVATIONS AND

RECOMMENDATIONS

Audit Observations and Recommendations

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AUDIT OBSERVATIONS AND RECOMMENDATIONS

A. Financial and Compliance Audit

1. Property Plant and Equipment amounting to P172,324,513.54 could not

be ascertained as to its existence, validity and accuracy due to the non-

conduct of physical count contrary to Sec. 490 of GAAM Volume 1,

thereby casting doubt on the fairness of the financial statements’presentation.

“Chiefs of agencies are required to take a physical inventory of all the

equipment and supplies belonging to their respective offices at least once a

year, unless otherwise determined by the COA Chairman in specific cases.

Such inventory shall be made as of December 31x.x.x, and submitted to the

Auditor not later than January 31 of each year, unless extended by the

Chairman, Commission on Audit, upon prior request of the chief of agency

concerned. x.x.x”1 (Underscoring Supplied).

“Report on the Physical Count of Property, Plant and Equipment

(RPCPPE). The Report on the Physical Count of Property, Plant and

Equipment (Appendix 63) shall be used to report the physical count of

property, plant and equipment by type as of a given date. It shows the

balance of property and equipment per cards and per count and

shortage/overage, if any.” 2

As of December 31, 2017, Property, Plant and Equipment accounts as

presented in the Financial Statements (FS) aggregated to P172,324,513.54.

Evaluation of the property management system of the District

disclosed that the physical count of PPE for year 2017 was not conducted and

the annual report of District’s Property Plant and Equipment was not

submitted to the Audit Team as of this date. Verification and validation

revealed that prior years’ reports were not also furnished to auditor. In

addition, the schedule of depreciation of all the depreciable assets was not

prepared and submitted. These lapses will cause difficulty in determining the

composition/ classification and the valuation of PPE accounts and whether the

PPE were indeed properly, completely and accurately reflected and reported

in the FS.

Upon our follow-up with the concerned personnel regarding the

matter, they said that the physical count is on-going. The absence of the

current and prior year’s report as of this date is an indication of weakness of

monitoring controls on the property management system of the District.

1 Section 490a. of the Government Accounting and Auditing Manual (GAAM), Volume I

2 Section 66, Volume 2 of the New Government Accounting System (NGAS) Manual


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Hence, the safeguard of government assets from any loss or improper

utilization cannot be fully assured.

The annual report on the physical count of the Property, Plant and

Equipment is very vital in overseeing the overall operating assets of the

district which is then being reconciled to the accounting department to ensure

fair presentation on the financial statements for the best interest of the

stakeholders.

We recommended and Management agreed to: a) require the

Property Department to constantly monitor and prepare the necessary

reports vis-à-vis physical count of PPEs in conformity with the above

mentioned provisions; b) cause regular reconciliation of records between

the Property Unit and the Accounting Division to detect errors, if any and

effect necessary correction in the affected records for the fair

presentation of PPE accounts in the Financial Statements.


P2,423,941.19 were not adequately supported with required reports and

were not disposed of as of the appropriate time contrary to Section 64,

Volume II of the NGAS Manual, Section 79 of PD 1445 and COA

Circular No. 89-296, thus exposing them to further physical

deterioration, decline in economic value and depriving the government

from the potential benefits had the immediate disposal of these properties

been effected.

In conformity with the existing standards, Property Plant and

Equipment (PPE) is said to be unserviceable if it is no longer capable of

providing the entity with future economic benefits or service potential.

Section 64, Volume II of the New Government Accounting System (NGAS)

Manual specifically provides that the Inventory and Inspection Report of

Unserviceable Properties (IIRUP) shall be used as basis to record dropping

from the books the unserviceable properties carried in the Property, Plant and

Equipment accounts.

Section 79 of P.D. 1445 states that:

“When government property has become unserviceable for any cause,

or is no longer needed, it shall, upon application of the officer accountable

therefore, be inspected by the head of the agency or his duly authorized

representative in the presence of the auditor concerned and, if found to be

valueless or unsalable, it may be destroyed in their presence. If found to be

valuable, it may be sold at public auction to the highest bidder under the

supervision of the proper committee on award or similar body in the presence

of the auditor concerned or other duly authorized representative of the

Commission, x xx. In the event that the public auction fails, the property may


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21

be sold at a private sale at such price as may be fixed by the same committee

or body concerned and approved by the Commission.”

Further, pertinent provisions of COA Circular No. 89-296 dated

January 27, 1989 provides the following:

“IV. AUTHORITY OR RESPONSIBILITY FOR PROPERTY

DISPOSAL/DIVESTMENT

Pursuant to existing laws on the matter, the full and sole authority and

responsibility for the divestment or disposal of property and other assets

owned by national government agencies or instrumentalities, local

government units, and government-owned and/or controlled corporations and

their subsidiaries shall be lodged in the heads of the departments, bureaus,

and offices of the national government, the local government units, and the

governing bodies or managing heads of government-owned or controlled

corporations and their subsidiaries conformably to their respective corporate

charters or articles of incorporation, who shall constitute the appropriate

committee or body to undertake the same.

VI. AUDIT PROCEDURE: -

A. To facilitate audit of the disposal/divestment of corporate assets as

herein contemplated, the management of the government corporation

concerned shall furnish the Auditor at least twenty (20) days before the

advertisement of the call to public auction with a copy each of the following

documents:

a) Program for disposal with time schedules;

b) Inventory Report showing the itemized list and complete description of the

assets;

c) Appraisal Report showing the appraised values of the assets, prepared by

an in house and/or independent appraiser;

d) Disposal procedure adopted.

which are prepared by the concerned offices/departments of the corporation

and submitted to the proper Disposal Committee or similar body constituted

by the management thereof.”

Evaluation of the District’s property management system disclosed

that unserviceable properties that had been reclassified to Other Assets-Non-

Current account were not supported with the Report on Physical Count of

Property, Plant and Equipment (RPCPPE) and the Inventory and Inspection

Report of Unserviceable Properties (IIRUP). The RPCPPE and the IIRUP for

the current year including those of prior years were not made available to the

Audit Team for verification as to the correctness of valuation of the assets as

well as their existence and current condition. These reports could have


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22

provided adequate information as to the condition of the properties as well as

their historical cost, date of acquisition and the related accumulated

depreciation and other vital information as basis in determining the proper

disposition of unserviceable properties.

Review of the Statement of Financial Position of the District for the

years 2015 to 2017 revealed a significant amount in the Other Assets-Non-

Current account as shown below:

Particulars

Year-end balance as of

Dec. 31, 2017 Dec. 31, 2016 Dec. 31, 2015

Other Assets-Non-

Current ₱27,070,109.83 ₱25,354,807.53 ₱25,354,807.53

The District’s Notes to Financial Statements disclosed that the above

account consists of Items in Transit and Other Assets which include

unserviceable and idle PPE. From the above data, it is apparent that this

particular account along with its huge amounts was already extant even in the

previous years and even posted an increase of P1,715,302.30 in the current

year. This only shows that there was no action made as to the disposal of the

unserviceable properties. Per our interview conducted to the property

officer/storekeeper, he admitted the lapses due to the insufficiency of

personnel to handle the property department. Because of this, they only

conduct the inventory taking of the unserviceable properties when there is a

schedule of disposal. He also admitted that they are aware that the property

records do not have a proper reconciliation with the accounting records.

The District’s lapses in the property management system could affect

efficient monitoring of the District’s assets and may cause delay in decision-

making as to the proper disposition of assets that are identified as idle or

unserviceable properties. The non-disposal of these assets on the appropriate

time could result to further deterioration of the properties, decline in

economic value and depriving the government from the potential benefits had

the immediate disposal of these properties been effected.

We recommended and Management agreed to:

a. take appropriate action on the insufficiency of personnel in the

Property Department in order to enhance the monitoring system on

asset utilization, reporting and disposal;

b. instruct the Property Department and the Inventory Committee to

initiate the conduct of physical count of PPEs and prepare the Report

on Physical Count of PPE in order to determine the actual existence

and condition of the properties and shall be used as basis of

reconciliation of records with the Accounting Unit;


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23

c. instruct the Property Unit and the Appraisal & Disposal Committee

to conduct the physical count of unserviceable properties, prepare the

Inventory and Inspection Report of Unserviceable Properties and

undertake immediate disposal of unserviceable properties in

accordance with the procedures prescribed under Section 79 of

Presidential Decree 1445 and COA Circular 89-296; and

d. instruct the Accounting Unit to record the disposal of unserviceable

properties by dropping from the books of accounts the related Asset

accounts.

3. Eighty Six (86) disbursement vouchers for CY 2017 in the total amount of

₱11,559,456.23 were not submitted to COA for mandatory post audit and

custody contrary to Sections 100 and 122 of PD 1445 and COA Circular

Nos. 2009-006 and 95-006, hence Management’s assertions of occurrence,

accuracy, validity and completeness of financial transactions cannot be

ascertained and thereby depriving the end users of the financial

statements on the timely and relevant information.

Reports of disbursing officers in a government agency. Disbursing officers in

any government agency shall render monthly reports of their transactions

pursuant to regulations of the Commission to be submitted not later than the

fifth day of the ensuing month to the auditor concerned who shall conduct the

necessary examination and audit within thirty days from receipt thereof. 3

Submission of reports. Whenever deemed necessary in the exigencies of the

service, the Commission may under regulations issued by it require the

agency heads, chief accountants, budget officers, cashiers, disbursing officers,

administrative or personnel officers, and other responsible officials of the

various agencies to submit trial balances, physical inventory reports, current

plantilla of personnel, and such other reports as may be necessary for the

exercise of its functions.

(2) Failure on the part of the officials concerned to submit

the documents and reports mentioned herein shall

automatically cause the suspension of payment of their

salaries until they shall have complied with the requirements

of the Commission.4

COA Circular No. 2009-006 dated September 15, 2009 provides

that:

3Section 100, Presidential Decree (PD) No. 1445

4Section 122, PD No. 1445


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24

“Sec 7.1.1The head of the agency, who is primarily

responsible for all government funds and property

pertaining to his agency, shall ensure that:

(a) the required financial and other reports and

statements are submitted by the concerned agency

officials in such form and within the period

prescribed by the Commission; x xx

“Sec 7.2.1 The Chief Accountant, Bookkeeper and

other authorized official performing accounting

and/or bookkeeping functions of the audited agency

shall ensure that : a) the reports and supporting

documents submitted by the accountable officers are

immediately recorded in the books of accounts and

submitted to the auditor within the first ten (10) days

of the ensuing month:”

COA Circular 95-006 dated May 18, 1995 also states that:

“6.04 Disbursing officers in particular shall faithfully comply with Section

100 of Presidential Decree No. 1445 which require them to render

monthly reports of their transactions pursuant to existing auditing

regulations not later than the fifth day of the ensuing month to the

auditor concerned.

6.05 The officials involved in the daily recording of transactions in the books

of accounts shall turn over the receipts and the disbursement records

with all paid vouchers and documents evidencing the transaction to the

Auditor within ten (10) days from date of receipt of said documents.”

Based on the monthly report of Disbursement for the period January to

December 2017, the SKWD processed a total of 2,119 check vouchers in the

aggregate amount of ₱121,120,612.48.

Our audit and verification on the submitted disbursement vouchers

revealed that only 2,032vouchers or 95.80 percent were submitted while the

86vouchers or 4.23 percent of the total vouchers were not yet submitted to

COA for post audit. Interview with the agency personnel disclosed that the 86

paid vouchers were not yet submitted to the accounting department due to lack

of supporting documents.

In the exit conference, Management commented that out of the 86

unsubmitted check vouchers, 35 vouchers were already on their hands and the

remaining 51 vouchers are still to be located. They further said that they will

be implementing strict procedures regarding the payment to the suppliers that


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25

issue delayed receipts which causes the delayed completion of the required

documents which will submitted to the COA office for post audit purposes.

The incomplete submission of disbursement vouchers and their

supporting documents precluded the conduct of review, examination and post

audit of the said transactions, hence Management’s assertions of occurrence,

accuracy, validity and completeness of financial transactions cannot be

ascertained. Likewise, the end users of the financial statements were deprived

of the timely and relevant information needed in decision making.

We recommended and Management agreed to:

a) cause the immediate submission of the 86 check vouchers with

complete supporting documents;

b) direct the accountable officer to monitor and ensure that the

required documents are readily available to support the

disbursement transactions; and

c) adhere strictly on the prescribed timeline in the submission of

disbursement vouchers with the supporting documents to the

Auditor pursuant to COA rules and regulations.



its Implementing Rules and Regulations were observed, thereby casting

doubt to the propriety and regularity of procured goods and services

totaling ₱19,783,642.20.

32.2. For the procurement of Goods and Infrastructure Projects, the BAC

shall evaluate the financial component of the bids to determine the

Lowest Calculated Bid using the following steps:

32.2.1. The BAC shall immediately conduct a detailed evaluation of all

bids using non-discretionary criteria in considering the following:

a) Completeness of the bid. Unless the Instructions to Bidders

specifically allow partial bids, bids not addressing or providing

all of the required items in the Bidding Documents including,

where applicable, bill of quantities, shall be considered non-

responsive and, thus, automatically disqualified. In this regard,

where a required item is provided, but no price is indicated, the

same shall be considered as non-responsive, but specifying a

zero (0) or a dash (-) for the said item would mean that it is

being offered for free to the Government, except those required

by law or regulations to be provided for; and


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26

b) Arithmetical corrections. Consider computational errors and

omissions to enable proper comparison of all eligible bids. It

may also consider bid modifications if expressly allowed in the

Bidding Documents. Any adjustment shall be calculated in

monetary terms to determine the calculated prices. 5

The Lowest Calculated Bid/Highest Rated Bid shall undergo post-

qualification in order to determine whether the bidder concerned complies

with and is responsive to all the requirements and conditions as specified in

the Bidding Documents. 6

The post-qualification shall verify, validate, and ascertain all statements made

and documents submitted by the bidder with the Lowest Calculated

Bid/Highest Rated Bid, using non-discretionary criteria, as stated in the

Bidding Documents. 7

The post-qualification process shall be completed in not more than twelve

(12) calendar days from the determination of the Lowest Calculated

Bid/Highest Rated Bid. In exceptional cases, the post-qualification period may

be extended by the HoPE, but in no case shall the aggregate period exceed

forty-five (45) calendar days for Goods and Infrastructure Projects, or thirty

(30) calendar days in Consulting Services. 8

To enhance the transparency of the process, the BAC shall, during the

eligibility checking, shortlisting, pre-bid conference, preliminary examination

of bids, bid evaluation, and post-qualification, invite, in addition to the

representative of the COA, at least two (2) observers, who shall not have the

right to vote, to sit in its proceedings where xxx:9

During the year 2017, the District was able to award eight procurement

contracts totaling ₱19,783,642.20 as a result of public bidding, details are as

follows:

Particulars Contract Cost Date

Awarded

Supply and Delivery of Two (2) Units Brand new

Generator Sets ₱2,035,000.00 12/28/2017

Supply and Delivery of One (1) Unit Brand new

Backhoe Loader 5,035,000.00 11/03/2017

Supply and Delivery of Brass, CI, GI Fittings &

HDPE Pipes (Lot 4) 536,423.95 11/21/2017

5Section 32.2 of the Revised Implementing Rules and Regulations (IRR) of Republic Act (RA)

No. 9184 6Section 34.1 of the Revised IRR of RA 9184

7Section 34.3 of the Revised IRR of RA 9184




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27

Particulars Contract Cost Date

Awarded

Supply and Delivery of 15mm Brass Water Meter 2,173,500.00 12/08/2017

Supply and Delivery of uPVC Pipes, DI Valves,

Various Fittings & Hardware Materials 5,700,888.00 08/23/2017

Supply and Delivery of Brass Fittings (Lot 1) 2,969,291.75

No Notice of

Award on File

Supply and Delivery of Cast Iron (CI) Fitting (Lot

2) 508,937.50 12/08/2017

Supply and Delivery of Galvanized Iron (GI)

Fittings (Lot 3) 824,601.00 12/08/17

Total ₱19,783,642.20

Audit of the above transactions disclosed the following deficiencies:

a) there is no bid evaluation report, TWG report or any form of

documentation that will prove that the BAC conducted a detailed

evaluation to assess the completeness of the bid and arithmetical

corrections (Section 32, IRR);

b) documents requested for post qualification assessment do not bear the

stamped date received, hence compliance with the prescribed

reglementary period (three calendar days from receipt by the bidder of the

notice from the BAC) of submitting such documents cannot be verified;

c) the BAC did not conduct a complete detailed post qualification assessment

using non-discretionary criteria. Although the BAC prepared a post

qualification report, but this was not comprehensive enough and not

supported with any documentation/report and/or supporting documents

(e.g. inspection reports, travel orders, certifications, etc) that the post-

qualification assessment was conducted by TWG, as reviewed and

approved by BAC evidencing: (Section 34, IRR of RA 9184);

i. Validation of the authenticity of the documents submitted (licenses,

certificates, permits, tax records) and information thereon;

ii. Verification of availability and commitment, and/or inspection and

testing for the required capacities and operating conditions, of

equipment units to be owned/leased/under purchase by the bidder for

use in the contract under bidding, as well as checking the

performance of the bidder in its on-going government and private

contracts (if any of these on-going contracts shows a reported

negative slippage of at least fifteen percent (15%), or substandard

quality of work as per contract plans and specifications, or

unsatisfactory performance of the contractor’s obligations as per

contract terms and conditions, at the time of inspection, and if the

BAC verifies any of these deficiencies to be due to the contractor’sfault or negligence, the agency shall disqualify the contractor from

the award), for the procurement of infrastructure projects;


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28

iii. To verify, validate and ascertain the bid price proposal of the bidder

and, whenever applicable, the required committed Line of Credit in

the amount specified and over the period stipulated in the Bidding

Documents, or the bidder’s NFCC to ensure that the bidder can

sustain the operating cash flow of the transaction; and

iv. Verification and validation of the bidder’s stated compliance with

existing labor laws and standards, specifically compliance with a)

minimum wage rate b) regular remittance of premium to SSS,

Philhealth and PAG-IBIG c) has been finally adjudged by a court of

competent jurisdiction to have violated any labor law or social

legislation. (GPPB Circulars 01-2008 and 01-2012)

In addition, we observed that the post qualification assessment

appeared to have been conducted only for a day, which is not possible

considering that some suppliers are not located within the area, and that

validation and verification of the statements made and the documents

submitted cannot be possibly completed within the day (Section 34.8 of

the Revised IRR of RA 9184);

d) Observers were not invited in all stages of the procurement activities.

Record shows that observers were only invited during the pre-bid

conference, and opening and preliminary examination of bids stages

(Section 13.1 of the Revised IRR of RA 9184);

e) pre-procurement process were not done, the BAC is mandated to hold a

pre-procurement conference on each and every procurement, except those

contracts costing Two Million Pesos (P2,000,000.00) for procurement of

goods as provided in the IRR;

f) the management failed to assure that the winning bidder had paid its latest

business tax during the post-qualification process of two public bidding

proceedings; and

g) various documentary requirements (see Annex A) were not submitted to

the COA Auditors and were not found on file.

The above lapses in the procurement process cast doubt to the

propriety and regularity of the procurement transactions of the District during

the year. This is a reiteration of the previous year observation as rectifications

of various deficiencies were not yet acted upon.

We recommended and Management agreed to ensure that all

procurement transactions/activities pertaining to Competitive/Public

Bidding are in accordance with the prescribed procedures as stipulated in

the 2016 Revised Implementing Rules and Regulations of RA 9184.


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29


thereof were not submitted on time for auditorial review contrary to

COA Circular No. 2009-001, thus casting doubt on the propriety and

reasonableness of the procurement transactions and depriving the

Management from the prompt information on the results of auditorial

review, technical evaluation and inspection.

Within five (5) working days from the execution of a contract by the

government or any of its subdivisions, agencies or instrumentalities, including

government-owned and controlled corporations and their subsidiaries, a copy

of said contract and each of all the documents forming part thereof by

reference or incorporation shall be furnished to the Auditor of the agency

concerned.10

A copy of any purchase order irrespective of amount, and each and

every supporting document, shall within five (5) working days from issuance

thereof, be submitted to the Auditor concerned. Within the same period, the

Auditor shall review and point out to management defects and/or deficiencies,

if any xxx.11

As per verification, copies of eight (8) perfected contracts and related

supporting documents were not submitted within the prescribed period due to

lack of required supporting documents. The number of days delayed ranges

from one to sixty-six (66) days. Also, the Purchase Orders from January to

December 2017 were not submitted to the office of the Auditor thereby

casting doubt and uncertainties over these transactions.

Inquiry with the Management disclosed that the agency’s delayed

processing, recording and reporting are the main cause of the delayed

submission of the said Contracts and/or Purchase Orders to the Auditor. These

lapses hinder the Auditor to conduct timely review on the legality of the

procurement contract as well as the inspection as to the existence of the

projects and/or supplies/materials, thus defects on government contracts, if

any cannot be detected and rectified on time. This may cast doubt on the

propriety and reasonableness of the procurement transactions and also deprive

the Management from the prompt information on the results of auditorial

review, technical evaluation and inspection.

We recommended and Management agreed to install measures

that will facilitate the timely submission of Contracts and/or Purchase

Orders together with the related supporting documents within the

10Section 3.1.1 of COA Circular 2009-001

11Section 3.2.1 of COA Circular 2009-001


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30

reglementary period to facilitate auditorial review, technical evaluation

and inspection pursuant to COA Circular No. 2009-001.

6. Monthly Report of Accountability for Accountable Forms (RAAF) was

not prepared and submitted contrary to Section 68, Volume II of the New

Government Accounting System (NGAS) Manual and Section 98 of

Government Accounting and Auditing Manual (GAAM), thus resulting

in weak monitoring system on the movement and status of accountable

forms.

The Report of Accountability for Accountable Forms (Xxx) shall be

prepared by the Accountable Officer to report on the movement and status of

accountable forms in his possession. The accountable forms include those

with or without face value.12

Accountable Officers shall render a report to the COA Unit Auditor on

their accountability for accountable forms at least once a month in the

prescribed form. Such report shall also be prepared in case of transfer of office

or accountability by the accountable officer. The report shall include, among

others, the name/type, quantity and serial number and/or value, of the

accountable forms as of last month/period, the forms received and issued

during the month/period and the balances as of end of month/period.13

The Monthly Report of Accountability for Accountable Forms

(RAAF) shows the flow of receipt and issuance of accountable forms such as

the official receipts and commercial checks per month and determines the

quantity of the unissued/unused accountable forms as of the month-end. The

RAAF also serves as a control mechanism against unauthorized or unreported

usage of accountable forms.

During the conduct of cash examination, the Audit Team noted that the

monthly RAAF were not prepared and submitted. Four out of nine or 44.44%

of the Accountable Officers (AOs) do not prepare RAAF. Further, RAAF are

submitted only when requested. Interview with the AOs revealed that they are

not aware that the preparation and submission of the monthly RAAF is

mandatory, thus they failed to comply with the above cited COA regulations.

The inability of the AOs to prepare and submit the monthly RAAF is

an indication of weak monitoring system in the receipt and issuance of

accountable forms at the custody of the AOs. This will also cause difficulty in

the reconciliation of accountabilities for accountable forms and will affect the

reliability of the reported balances of inventory at the end of each period.

12Section 68, Volume II of the Manual on the New Government Accounting System (NGAS)

13Section 98, Volume II of the Government Accounting and Auditing Manual (GAAM)


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31

We recommended and Management agreed to instruct the

Accountable Officers to strictly comply with the preparation and

submission of the monthly RAAF as basis for monitoring the movement

of accountable forms at their possession to ensure reliability of the

monthly balances of inventory.

B. Performance Audit

7. The District registered an average Non-Revenue Water (NRW) of 16.06

percent for CY 2017 which is within the 20 percent acceptable level of

NRW as required under LWUA Resolution No. 444, series of 2009 and

LWUA Memorandum Circular No. 004-10.

“NOW, THEREFORE, BE IT RESOLVED, as it is hereby resolved, to

approve the immediate implementation in the reduction of the maximum

acceptable non-revenue water from the existing 25% to 20% applicable to all

Water Districts, effective upon its approval.” 14

In line with the above-cited Resolution, the Local Water Utilities

Administration (LWUA) has issued Memorandum Circular No. 004-10 dated

February 23, 2010 informing all local water districts that in order to accelerate

further improvement in the efficiency level, the maximum acceptable level of

Non-Revenue Water was reduced from 25% to 20% applicable to all Water

districts.In fact, the criteria for approval of financial assistance, water rate

adjustments, and performance evaluation of water districts shall include this

requirement.

Review of the accounts and operations of the District and verification

of the monthly data sheet disclosed the following data/information on revenue

producing water and non-revenue producing water percentages for the period

January to December 2017, as shown below:

14 Paragraph 3, LWUA Resolution No. 444, series of 2009 (adopted 15 September 2009)


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32

As can be gleaned from the table above, the District was able to

operate within the acceptable level of NRW which was set by LWUA at 20%.

This is one of the manifestations of efficient utilization of the District’sresources. However, despite the commendable result of operations, it can be

noted that the tolerable 16.06% NRW still generates a material amount of loss.

This could have been used to further enhance the performance and overall

operation of the district had the loss been totally avoided or significantly

reduced.

Nevertheless, it can be comprehended though that it is a very difficult

task to completely avoid the wastage due to the various situations faced on the

operation such as possibilities of illegal connections, pilferages, defective

water meters, leakages and etc.

We commended Management for diligently maintaining its NRW

for CY 2017 within the acceptable level as prescribed by LWUA

Memorandum Circular. We recommended however, and Management

agreed to continue to exert more efforts in ensuring lower NRW rate

through (a) checking water meters and immediately replacing worn out

or defective ones; (b) ensuring immediate and prompt repair of

identified leaks; and (c) identifying and penalizing concessionaires who

do illegal tapping and permanently disconnect their water service.

The management commented that they are glad to be able to achieve a

favorable outcome on its NRW and assured the audit team that they will

continue to improve and install different measures to further improve their

NRW level and to eventually enhance their overall operation.

MonthProduction

(in cu. m.)

Billed/Revenue

Water

(in cu. m.)

Non-

Revenue

Water

(in cu. m.)

NRW % AllowableExcess of

NRW %

January 399,671.00 333,147.00 66,524.00 16.64% 20% -3.36%

February 413,268.00 331,377.00 81,891.00 19.82% 20% -0.18%

March 369,387.00 307,732.00 61,655.00 16.69% 20% -3.31%

April 411,401.00 345,059.00 66,342.00 16.13% 20% -3.87%

May 395,841.00 336,522.00 59,319.00 14.99% 20% -5.01%

June 417,700.00 351,010.00 66,690.00 15.97% 20% -4.03%

July 394,095.00 332,641.00 61,454.00 15.59% 20% -4.41%

August 415,749.00 350,251.00 65,498.00 15.75% 20% -4.25%

September 414,365.00 333,353.00 81,012.00 19.55% 20% -0.45%

October 393,314.00 334,693.00 58,621.00 14.90% 20% -5.10%

November 409,585.00 350,891.00 58,694.00 14.33% 20% -5.67%

December 400,464.00 351,516.00 48,948.00 12.22% 20% -7.78%

Total 4,834,840.00 4,058,192.00 776,648.00 16.06% 20% -3.94%


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33

Compliance to Tax Laws

Taxes withheld from the salaries and benefits of employees, payment for the

purchase of materials and services, franchise tax and other related taxes

amounting to P6,574,014.11 in CY 2017 were regularly withheld and

remitted to the BIR in compliance with Revenue Regulations No. 2-98 dated

April 17, 1998.

Analysis of the Due to BIR account of the District for CY 2017 disclosed that all

taxes withheld were regularly and promptly remitted to the BIR pursuant to the

above revenue regulations as presented below:

Months Due to BIR

(Beginning)

Taxes

Withheld

Taxes

Remitted

Due to BIR

(End)

January P 672,219.88 P 549,692.73 P 670,564.03 P 551,348.58

February 551,348.58 704,016.99 551,348.58 704,016.99

March 704,016.99 450,282.30 704,016.99 450,282.30

April 450,282.30 456,876.40 450,282.30 456,876.40

May 456,876.40 516,888.86 456,876.40 516,888.86

June 516,888.86 565,403.35 516,888.86 565,403.35

July 565,403.35 690,841.57 565,403.35 690,841.57

August 690,841.57 414,001.85 690,841.57 414,001.85

September 414,001.85 745,195.21 414,001.85 745,195.21

October 745,195.21 581,638.39 745,195.21 581,638.39

November 581,638.39 397,539.44 581,638.39 397,539.44

December 397,539.44 501,637.02 397,539.44 501,637.02

Total P 6,746,252.82 P 6,574,014.11 P 6,744,596.97 P 6,575,669.96

We commended Management for continuously withholding and

remitting taxes regularly to the BIR pursuant to the revenue regulations


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34

Compliance to GSIS Laws

The District complied with the obligation to deduct from officers and

employee’s compensation the mandatory employee’s contribution and the

corresponding employer’s share for CY 2017 and remitted the same to the

GSIS pursuant to Section 5 and 6, respectively, of RA No. 8291 or the

Revised Government Service Insurance Act of 1997.

Months Premium

Employer's

Share

Deduction Total Premiums

(Employer &

Employee’s Share) and

Loans

GSIS

Remitted

Due to GSIS

(Ending) Premium

Employee's Share

Loan Total

Deduction

January P 223,674.64 P 162,055.98 P 260,617.42 P 422,673.40 P 646,348.04 646,348.04 -

February 225,436.76 163,302.57 277,494.98 440,797.55 666,234.31 666,234.31 -

March 225,448.88 163,311.66 271,957.26 435,268.92 660,717.80 660,717.80 -

April 225,448.88 163,311.66 255,529.77 418,841.43 644,290.31 644,290.31 -

May 226,431.04 163,991.62 275,610.53 439,602.15 666,033.19 666,033.19 -

June 224,547.12 162,560.34 273,581.77 436,142.11 660,689.23 660,689.23 -

July 224,547.12 162,560.34 267,095.40 429,655.74 654,202.86 654,202.86 -

August 220,025.56 159,319.17 219,339.17 378,658.34 598,683.90 598,683.90 -

September 225,017.04 162,828.53 218,511.09 381,339.62 606,356.66 606,356.66 -

October 229,153.20 165,789.90 228,447.17 394,237.07 623,390.27 623,390.27 -

November 229,414.80 165,986.10 274,991.93 440,978.03 670,392.83 670,392.83 -

December 226,888.93 164,166.70 275,338.60 439,505.30 666,394.23 666,394.23 -

Total P2,706,033.97 P1,959,184.57 P3,098,515.09 P5,057,699.66 P7,763,733.63 P7,763,733.63 -

We commended Management for continuously withholding premiums

and loan payments and remitting them regularly to the GSIS pursuant to the

government insurance regulations.

Compliance to HDMF Laws

The District substantially complied with the provisions ofRule VII of

IRR 9679 dated July 21, 2009 and HDMF Circular No.275 dated January 22,

2010.

Audit of Due to HDMF account showed that the District withheld

employees’ share/loans and these were remitted including the employer’s share to

the HDMF. Based on the general ledger, the summary of the HDMF employees’and employer’s contributions withheld as well as the corresponding remittances

for CY 2017 is shown below:


__________________________________________________________________

35

Months Premium Employer's Share

Deduction

Total Premiums and Loans

HDMF Remitted

Due to HDMF

(Ending)

Premium Employee's

Share Loan

Total Deduction

January P7,600.00 P 13,200.00 P 49,922.71 P 63,122.71 P 70,722.71 P70,722.71 -

February 7,700.00 14,800.00 53,918.27 68,718.27 76,418.27 76,418.27 -

March 7,700.00 14,800.00 54,118.27 68,918.27 76,618.27 76,618.27 -

April 7,700.00 14,800.00 51,899.05 66,699.05 74,399.05 74,399.05 -

May 7,800.00 14,900.00 45,569.75 60,469.75 68,269.75 68,269.75 -

June 7,800.00 14,900.00 45,569.77 60,469.77 68,269.77 68,269.77 -

July 7,800.00 14,900.00 53,436.67 68,336.67 76,136.67 76,136.67 -

August 7,600.00 14,700.00 46,888.41 61,588.41 69,188.41 69,188.41 -

September 8,100.00 15,200.00 49,859.30 65,059.30 73,159.30 73,159.30 -

October 8,100.00 15,200.00 46,433.13 61,633.13 69,733.13 69,733.13 -

November 8,100.00 15,200.00 39,805.85 55,005.85 63,105.85 63,105.85 -

December 8,000.00 15,100.00 39,805.85 54,905.85 62,905.85 62,905.85 -

Total P94,000.00 P 177,700.00 P577,227.03 P754,927.03 P848,927.03 P848,927.03 -

We commended Management for its continued adherence to rules and

regulation on HDMF Circular No. 275.

Status of Audit Suspensions, Disallowances and Charges as of Year-End

The total audit suspension, disallowances and charges found in the audit of

various transactions of the agency, as of December 31, 2017 is P3,302,952.20,

based on the Notice of Suspension (NS)/Notice of Disallowance(ND)/Notice of

Charge (NC) issued by this Commission, as summarized hereunder:

Particulars Suspensions Disallowances Charges

Summary of Audit Suspensions,

Disallowances and Charges as of

December 31, 2016

P0.00 P3,302,952.20 P0.00

Add: Issuances 0.00 0.00 0.00

Less: Settlements

Prior Year 0.00 0.00 0.00

Current Year 0.00 0.00 0.00

Balance, December 31, 2017 P0.00 P3,302,952.20 P0.00

PART III

STATUS OF PRIOR YEARS’UNIMPLEMENTED AUDIT

RECOMMENDATIONS

Status of prior years’ unimplemented audit recommendations_______________________________________________________________________________

36

STATUS OF PRIOR YEARS’ UNIMPLEMENTED AUDIT

RECOMMENDATIONS

Of the seven (7) prior year’s audit recommendations embodied in the Prior Years’Annual Audit Reports, four (4) were partially implemented and three (3) were fully

implemented, as detailed below:

Audit Observation Recommendation Ref

(AAR)

Status of

Implementa

tion

Reason for

Partial/ Non-

Implementation

1. The absence of

written policies

and procedures

on Water Meter

Calibration,

repair and

Replacement

Program may

likely lead to

risks of in

accurate water

metering and

inappropriate

decisions on

operations,

maintenance

and

procurement of

water meters,

hence may

negatively

affect the

District’sgeneration of

water sales

revenue.

We have recommended

that management develop

written policies and

procedures on Water

Meter Calibration, Repair

and Replacement

Program and ensure that

these are effectively and

efficiently implemented.

We further encourage the

District to request for the

accreditation of their

Testing and Calibration

Laboratory from PAB

and ensure that all

procured water meters

are tested and calibrated

by a PAB-accredited

calibration laboratory to

guarantee their accuracy.

2016 Fully

Implemented

2. The District’sdisbursement

transactions

totaling

P31,072,153,80

were not

adequately

supported with

relevant

documentary

requirement for

common

We have recommended

that Management instruct

the Accounting Unit to

provide the lacking

documents noted in this

audit and to strictly

comply with the

submission of the

required to support the

disbursement

transactions pursuant to

COA Circular No. 2012-

2016 Fully

Implemented


37


(AAR)

Status of

Implementa

tion

Reason for

Partial/ Non-

Implementation

government

transactions

provided under

COA Circular

2012-001 dated

June 14, 2013,

thereby casting

doubt on the

propriety and

regularity of the

transactions.

001. We have also

recommended to devise a

checklist of required

documents as guide in

checking if all the

necessary supporting

documents are present

before approving the

disbursements.

3. Deficiencies in

Public/Competit

ive Bidding

procedures were

observe due to

non-adherence

to the

Government

Procurement

Reform Act

(RA 9184) and

its

Implementing

Rules and

Regulations,

thereby casting

doubt to the

propriety and

regularity of

procured goods

and services

totaling

₱27,436522.47.

We have recommended

that Management ensure

that all

transactions/activities

pertaining to

Competitive/Public

Bidding are in

accordance with the

prescribed procedures are


Revised Implementing

Rules and Regulations of

RA 9184.

2016 Partially

Implemented Fully

implemented as

to documentary

requirements.

Procedures as

prescribed by

RA 9184 are

currently on the

process of

compliance.

4. The propriety

and legality of

various charges

imposed by the

District to its

concessionaires

cannot be

ascertained

because these

charges were

not subjected to

We recommended that

Management submit to

LWUA the various

imposed charges for their

review and approval to

establish compliance

with the provisions

prescribed under Section

63 of P.D. 198.

2015 Partially

Implemented

It was agreed

between SKWD

and LWUA for

the SKWD to

send personnel

to LWUA to

work hand in

hand with

LWUA to the

proposed rate

review. SKWD


38


(AAR)

Status of

Implementa

tion

Reason for

Partial/ Non-

Implementation

review and

approval of

LWUA as

provided under

Section 63 of

Presidential

Decree 198 as

amended.

personnel are

scheduled to

travel by July of

2018.

5. The necessity,

propriety and

legality of

hiring

Services/Job

Orders in the

District is

questionable

because Section

2 Rule XI of the

Omnibus Rules

implementing

Book V of

Executive Order

(EO) No. 292,

Section 209 to

211 and 517,

Volume I of the

GAAM were

not strictly

followed.

We recommended that

Management

recommend to the

Board of Directors to

issue policy

guidelines in the

hiring of job order in

accordance with

Section 2 Rule XI of

the Revised Omnibus

Rules Implementing

Book V of EO No.

292 and COA rules

and regulations cited

above;

plan and evaluate

further on how to

achieve the ideal and

realistic personnel

complement of the

District instead of

resorting to Job Order

as scheme:

evaluate the

performance and

skills of the said job

order personnel that

belongs to Category

II and III as provided

under Civil Service

Commission

Memorandum

Circular No. 10,

series of 2013 or the

Skills Eligibility for

possible appointment

to permanent regular

2015 Partially

Implemented

On process of

creating policy

guidelines on

Hiring of Job

orders and

Casual and

Scheduling of

Hiring and

Promotion for

the year 2018.

Converted

Position Items to

Plumber and

Instrument

Technician for

the year 2017

and filled up said

position of the

same year

(additional four

plumbers are to

be in permanent

position by June

2018)


39


(AAR)

Status of

Implementa

tion

Reason for

Partial/ Non-

Implementation

positions, if merited;

and

Prioritize hiring

plumbers of

regular status in

the District.

6. The existence,

accuracy and

validity of the

Accounts

Receivables and

Guaranty

Deposit Payable

accounts

totaling to P8.98

million and

P1.05 million,

respectively

cannot be fully

established due

to absence of

details and not

fully supported

with subsidiary

ledgers/schedule

s and the

existence of

Guaranty

Deposits

Payable totaling

to P1.05 million

which have

been dormant

for more than

five years affect

the true

financial

condition of the

District.

We recommended that

management,

Expedite the

installation of an IT

system that will link

the accounting

records with the

billing and collection

records.

Exert more effort to

locate all the

documents that will

support the balances

of the Guaranty

Deposits Payable

account;

Confirm from the list

of the creditors

whether the payables

are still valid and

legitimate obligation

of the agency

2014 Partially

Implemented

1. The SKWD

billing and

collection system

is on the process

of migration to

Integrated Utility

Management

Systems (IUMS)

from its old BC3

program.

2. The Tacurong

billing has been

pilot tested to

IUMS since

August 2017 and

now on its 95%

operational.

Isulan and

Esperanza billing

and Collection

will soon

migrate after the

completion of

Tacurong IUMS

together with

LAN connection

to Accounting

Section.

3. SKWD had

already

implemented

refund of

guaranty

deposition to

reconciled

accounts through


40


(AAR)

Status of

Implementa

tion

Reason for

Partial/ Non-

Implementation

adjustment in

their monthly

billings. As of

December 31,

2017, Guaranty

Deposit Payable

amounts

₱435,656.16.

4. The Finance

had sent letter of

confirmation of

SKWD accounts

balance as of

December 31,

2014 and had

made adjustment

and payments of

payables of more

than 5 years in

2015.

5. As of 2018

50% of the

Guaranty

Deposit Payable

accounts have

already been

offset.

7. No Internal

Audit

Service/Unit has

been created by

the agency

contrary to

Administrative

order Nos. 278

and 70 dated

April 28, 1992

and April 14,

2003,

respectively

This non

existence of

Internal Audit

We recommended that

the management organize

an IAS/IAU in

compliance with DBM

Budget Circular No. 204-

4 re: Guidelines on the

Organization and

Staffing of Internal

Auditing Units. We

would like also to remind

that it is the primary

responsibility of the

Head of the Agency to

install, implement and

monitor a sound system

if internal control as

2010 Cannot be

implemented.

Regulations

cited are

already

outdated

thus, not

applicable.

Deemed

complied as

to its status

of

implementati

on.

DBM circular

#2011-10 dated

November 18,

2011, The

Revised Local

Water District

Manual on

Categorization,

Re-

categorization

and Other

Related Matters

(LWD-Macro).

SKWD is

classified as

Category B


41


(AAR)

Status of

Implementa

tion

Reason for

Partial/ Non-

Implementation

Unit will pose a

risk of financial

irregularities

and

mismanagement

to the agency.

mandated under existing

COA and DBM issuance.

which Internal

Audit Service is

not included in

the Staffing

Pattern for Key

Positions.