EXECUTIVE SUMMARY A. INTRODUCTION

treatment and disposal facilities conducting such other functions and operations incidental to water resource development, utilization and disposal wi...

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EXECUTIVE SUMMARY

A.

INTRODUCTION The existence of Bais City Water District began on 06 October 1993 when Resolution No. 93-332 was approved by the Sangguniang Panlungsod of Bais City. The Resolution was submitted to the Local Water Utilities Administration and a Conditional Certificate of Conformance No. 530 dated 04 February 1994 was issued to Bais City Water District. Pursuant to the LWD-MaCRO, the district has been classified as Category “C” effective March 2012, as per letter from LWUA dated April 12, 2012. As mandated by P. D. 198, Title II, Chapter II, Section 5, thereof, the water districts shall have the following purposes:  acquiring, installing, improving, maintaining and operating water supply and distributions systems for domestic, industrial, municipal, and agricultural use for residents and lands within the boundaries of the districts,  providing, maintaining, and treatment and disposal facilities

operating

wastewater

collection,

 conducting such other functions and operations incidental to water resource development, utilization and disposal within the district, as necessary or incidental to said purpose The administration of the water district and the exercise of its corporate powers is vested exclusively in the Board of Directors and the General Manager as authorized by the Board. As of December 31, 2013, the water district had a total workforce of 40 personnel composed of 23 permanent employees, 10 casuals and 7 job order employees.

B.

FINANCIAL HIGHLIGHTS Below is a comparative presentation of the financial condition of the water district for calendar years 2013 and 2012: CY 2013 45,951,935.84 14,810,244.73 31,141,691.11 45,951,935.84

Assets Liabilities Equity Total Liabilities and Equity i

CY 2012 47,364,145.09 17,886,594.30 29,477,550.79 47,364,145.09

The water district also garnered a total income of P26,439,106.65 in the current year or an increase of P1,997,219.14 or approximately 8.17% over that of last year’s which was P24,441,887.51. The bulk of the increase was attributable to the service income.

C.

OPERATIONAL HIGHLIGHTS As of December 31, 2013 the water district had total active service connections as follows: Classification Domestic Commercial TOTAL

CY 2013 3,978 310 4,288

CY 2012 3,777 335 4,112

Shown also below are the meter readings and bills served by the water district in CYs 2013-2012:

Month January-December

CY 2013 No. of Meters Read/Bills Served 50,363

CY 2012 No. of Meters Read/Bills Served 47,530

The water district was also able to disconnect and reconnect some service connections, as follows: CY 2013 No. of No. of Disconnection Reconnection 885 815

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CY 2012 No. of No. of Disconnection Reconnection 694 638

E.

AUDITOR’S REPORT The auditor expressed a qualified opinion on the financial statements of the Water District due to various account balances that cannot be relied upon as discussed in detail in Part II of this report and in brief, in Part III.

F.

OBSERVATIONS AND RECOMMENDATIONS The following are the findings and corresponding audit recommendations contained in the Report:

1.

The balance of the Accounts Receivable-Trade in the amount of P2.660 million cannot be relied upon for the following reasons: (a) The General Ledger balance still differed with the subsidiary ledger records by P86,916.93 and (b) There is no assurance that the account balance has been stated at its estimated realizable value since the Allowance for Doubtful Accounts of P300,000 was not reviewed/adjusted in CY 2013 even if the total of the inactive accounts was still over P1 million. Moreover, the first condition partly negates the purpose of maintaining a subsidiary ledger as set forth in Section 64 of the Government Accounting and Auditing Manual, Volume I and Section 12, Manual on the New Government Accounting System, Volume II; We recommended that management require the Utilities/Customer Service Assistant C and the Senior Accounting Processor A to reconcile their records on customer’s account on a monthly basis so that the cause/s of the recurring differences can easily be identified/located . Thereafter, we recommend that the necessary adjustments be drawn immediately after validating the reconciling items to bring the GL and SL in agreement. We further recommended that Management require a review of the adequacy of the Allowance for Doubtful Accounts at the end of the accounting period using as reference the accounting policy adopted under the New Government Accounting System (NGAS) and the current status of the inactive accounts. We also recommend that the Commercial Division send collection letters to all customers under the “inactive status” as this will determine the collectibility of these accounts which is one factor to be considered in the review of the Allowance.

2.

The five percent discount granted to Senior Citizens after full payment of the water bills was recorded in the books of accounts as debit to Generation, Transmission and Distribution Income (Water Sales) and credit to Discounts, an accounting treatment which is erroneous as it has not reduced the recorded water sales by the discount granted. iv

As reported by the water district, shown below are projects undertaken by them: Project/Program/ Activity Name

Budget

Project Status % of Completion Total Cost 100% 53,630.76

4 units intake tank

83,970.00

Talaptap WSS

56,550.00

100%

Bin-bin WSS

323,360.00

100%

1 unit reinforced concrete intake tank (A) 1 unit reinforced concrete intake tank (B) Mambunay WSS Upper Cambaguio WSS Upper Nalandan WSS Sitio Cantulingi WSS Panalaan Proper WSS Dansulan Proper WSS 1 unit concrete ground reservoir Panam-angan WSS Mabunao WSS Frewas Water Supply System Bangkoloon-Kawayan WSS Repair, rehab., & maintenace of various Brgy. Hinterland WSS Mansangaban Proper Water Supply System D.

Date Completed May 2013

Completed

43,616.50

May 2013

Completed

210,134.25

March 2013

Completed

March 2013

Completed

March 2013

Completed

100% 29,223.00

Remarks

20,248.50 100%

217,188.00

100%

135,980.00

May 2013

Completed

144,300.00

100%

75,870.55

April 2013

Completed

105,940.00 145,750.00 90,540.00 213,000.00

100% 100% 100% 100%

70,143.55 93,566.75 36,134.25 129,286.50

May 2013 April 2013 May 2013

Completed Completed Completed Completed

83,000.00

100%

45,897.15

June 2013

Completed

316,200.00 143,240.00

100% 100%

251,550.00 49,005.00

June 2013 April 2013

Completed Completed

65,670.00

38.88%

25,532.50

Ongoing

317,878.00

89.39%

250,306.50

Ongoing

185,660.00

52.22%

56,180.00

Ongoing

578,037.00

8.10%

46,825.00

Ongoing

SCOPE OF AUDIT The audit covered the financial transactions of Bais City Water District for calendar year 2013. The audit was primarily aimed at ascertaining the reliability of financial reports and the adequacy of the books of accounts in order to express an opinion on the fairness of presentation of the financial statements. On a test basis, it also included a review on the propriety of disbursements and other financial transactions to determine whether or not the transactions were made in accordance with existing laws, rules and regulations. iii

We recommended that Management direct the Senior Accounting Processor A to review and correct the accounting entries made on Senior Citizens Discounts granted thru the issuance of Billing Adjustments Memo (BAM) to put in order all affected account balances. 3.

3.1) Unserviceable equipment costing P432,524.19 are still carried in the PPE accounts, a condition which is not in conformity with PAS No. 16 and overstates the PPE account balance. We recommended that management reclassify the above properties from the PPE account to the Other Assets account while waiting for the disposal of the items to comply with PAS No. 16 and the guidelines prescribed under the NGAS Manual. We further recommend that these items be disposed following the provisions of Section 79 of PD 1445. 3.2) The depreciation expense/accumulated depreciation of all the PPE items was reflected only under Plant (UPIS) because the properties listed in the Lapsing Schedule prepared by management was presented in chronological order (when the items were acquired/purchased) instead of being grouped according to the account classification in the books of accounts. This presentation, if not revised, deprives the users of the financial statements of information on the carrying value of the other PPE accounts and ultimately can delay the reconciliation of the said Schedule with the PPE account balances per General Ledger and the results of the physical inventory count. We recommended that management instruct the Senior Accounting Processor A to revise the presentation of the items listed in the Lapsing Schedule according to the PPE grouping/classification in the books of accounts to facilitate validation of the PPE account balances and reconciliation with related property records.

4.

Some Check Vouchers with the corresponding checks were approved despite the lack of the necessary and appropriate supporting documents for the transactions which is contrary to the instructions under COA Circular No. 2012-001 dated June 14, 2012 which treats on the subject: Prescribing the Revised Guidelines and Documentary Requirements for Common Government Transactions. This condition is not only an indication of weak internal control but may also result in the payment, if tolerated, of illegal and irregular expenditures.

We recommended that management instruct the Senior Accounting Processor A to thoroughly check the supporting documents for each claim/disbursement of funds prior to issuance of the check, using as v

reference the requirements enumerated under COA Circular No. 2012-001 dated June 14, 2012, as this will assure management of the validity of the paid claims. 5.

The buildings and other structures, particularly where the water district is holding its office, were not insured with the General Insurance Fund of the GSIS contrary to the instructions under RA 656 and reiterated in Administrative Order No. 141, thereby exposing the water district to unnecessary losses in the event of damage to, or loss of such assets and properties due to fire, earthquake and other risks. We recommended that management insure all their insurable properties and interests with the General Insurance Fund of the GSIS to comply with the provisions of RA 656, as reiterated in AO Nos. 33 and 141, in order to protect the interests of the government.

6.

The water district incurred an unnecessary expense, in the form of penalties for late payment of loan amortizations, totaling P375,387.24 which condition is indicative of either an unrealistic cash projection or poor cash management. We requested management to prepare a one-year Cash Flow Projection, divided into twelve months, using as reference the actual cash inflows from regular operations of the preceding three years as this will provide management with a realistic data for its projected cash outflows for mandatory/necessary expenses and loan repayments.

7.

The reported water production data cannot be fully relied upon since the water supplied by four pumping stations with defective production flow meters were not considered in the report. This condition clearly misstates the production data and is grossly disadvantageous as top Management and the Board of Directors of the Water District cannot be provided with accurate data on water production which is a necessary input for income projection and in determining the actual Non-Revenue Water percentages, a measurement vital in assessing the effectiveness of the agency’s operations. We recommended that management instruct the Production Division to include in the Production Data the volume of water supplied/produced by all pumping stations and other water sources to accurately compute the percentage of Non-Revenue Water and provide Top Management and the Board of Directors with correct information for income projections and other economic decisions. Moreover, we recommend that management consider in their 2014 Corporate Operating Budget the purchase of new production flow meters to replace the defective units.

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We further recommended that Management re-evaluate the method used for determining the volume of water produced through gravity flow in order to come out with a realistic production report. The above audit observations and recommendations were discussed with the General Manager and concerned officials of BCWD in an exit conference held on January 30, 2014.

G.

IMPLEMENTATION OF PRIOR YEAR’S AUDIT RECOMMENDATIONS Of the fourteen (14) audit recommendations contained in the Biennium Audit Report CY 2012/2011, two (2) were fully implemented, seven (7) were partially implemented, and five (5) were not implemented.

H.

COMPLIANCE WITH TAX LAWS Bais City Water District (BCWD) has substantially complied with all tax laws on withholding of income taxes from compensation and Value-Added Taxes (VAT) on goods and services purchased. These taxes were remitted to the Bureau of Internal Revenue on a regular basis along with the franchise tax due from BCWD as seller of water. The details of the taxes remitted to the BIR during the year are, as follows: BIR Form No. 1600 1601-C 1601-E 2551-M TOTAL

I.

Taxes VAT Withheld Income Tax Withheld on Compensation Income Tax Withheld – Expanded (EWT) Franchise Tax

P

P

Amount 120,786.11 352,484.78 31,688.74 517,079.21 1,022,038.84

ON GENDER AND DEVELOPMENT (GAD) The water district appropriated a total amount of P500,000.00 which only represented 1.9% of the total budget of P25,200,000.00. There were no expenses for CY 2013 on GAD related activities.

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J.

ON UNSETTLED AUDIT SUSPENSIONS, DISALLOWANCES AND CHARGES Stated hereunder is the summary of unsettled suspensions, disallowances and charges as of December 31, 2013: Particulars Balance, December 31, 2012

Suspensions

Disallowances

Charges

0.00

0.00

0.00

Issued Total Settlement in CY 2013 Balance as of December 31, 2013

0.00 0.00

547,391.87 547,391.87

0.00 0.00

0.00

0.00

0.00

0.00

547,391.87

0.00

The above summary was ascertained having been issued and received by management only in the last quarter of CY 2013. Notices of Disallowance for disbursements in CY 2011-2012 are still for review. Notices of Suspensions and Disallowances for disbursements in CY 2013 shall be prepared and will be issued in CY 2014.

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