EXECUTIVE SUMMARY A. INTRODUCTION

A. INTRODUCTION Carcar Water ... furnish the Accounting Section all the papers pertaining to a completed project within the quarter when the project w...

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EXECUTIVE SUMMARY

A.

INTRODUCTION Carcar Water District (CWD) is a government-owned and controlled corporation created and existing by virtue of P.D. 198, as amended. A Certificate of Conformance, Certificate No. 117, was issued by the Local Water Utilities Administration (LWUA) to CWD on May 30, 1980 validating its operations as one of the water districts of the country. On March 29, 2012, pursuant to the Revised Local Water District (LWD) Manual on Categorization, Re-Categorization and Other Related Matters, LWUA has categorized Carcar Water District as Category “C”. The primary objective of Carcar Water District is to provide sufficient potable water to the residents of the town of Carcar (now a City) utilizing available sources of water and applying appropriate water treatment measures to ensure that water is safe for the consumption of its concessionaires. As of December 31, 2013, the Water District had a total workforce of 68 employees composed of 41 regular personnel and 27 casuals. The water district is headed by a General Manager. The present General Manager is still Engr. Edward L. Remo.

B.

FINANCIAL HIGHLIGHTS Below is a comparative presentation of the financial condition of the Water District for calendar years 2013 and 2012:

Assets Liabilities Government Equity Total Liabilities and Government Equity

2013 P84,759,256.85 28,848,675.40 55,910,581.45

2012 P81,025,854.22 33,601,066.99 47,424,787.23

Inc (Dec) P3,733,402.63 (4,752,391.59) 8,485,794.22

P84,759,256.85

P81,025,854.22

P3,733,402.63

Gross income from operations has substantially increased, from P44,224,589.67 in CY 2012 to P51,278,074.00 in CY 2013 or up by P7,053,484.33. Consequently, the net income at year-end which was P11,716,077.04 increased by P5,566,106.66 or approximately 90.51% as compared with that of the preceding year which was P6,149,970.38. The rise in net income was primarily due to the increase in water rates effective May 2013. i

C.

OPERATIONAL HIGHLIGHTS The following were among the reported accomplishments of the Water District for the year as compared with that of the same period last year, as furnished to the Audit Team: Category Service Connections Total Services Total Active Total Metered Total Billed Concessionaires Water Production Pumped Gravity

D.

2013

2012

Inc.(Dec)

13,817 11,320 11,320 11,225

12,885 10,464 10,464 10,369

932 856 856 856

573,648 cu. m. 2,738,099 cu. m.

646,770 cu. m. 2,592,566 cu. m.

(73,122 cu. m.) 145,533 cu. m.

SCOPE OF AUDIT The audit covered the financial transactions of Carcar 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.

E.

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

F.

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

1.

The account balance of the Property, Plant and Equipment which totalled P125.082 million cannot be relied upon for the following reasons:

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1.a

The Construction in Progress account balance of P6.302 million was grossly overstated since only one project with a cost of P3,259.83 was on-going at year-end. The difference of P6.299 million or approximately 99.94% of the account balance represents either completed projects, transactions for reclassification/adjustments or projects deferred due to problems in land acquisition. The delay in the transfer of the completed projects which totaled P5.275 million to the appropriate PPE accounts has resulted in the misstatement of the balances of the Plant (UPIS) and Buildings and Structures accounts and their corresponding accumulated depreciation/depreciation expense. Moreover, the PPE subsidiary ledger carried negative (abnormal) balances totaling P22,647.15 and was less by P429.06 if compared with the General Ledger Balance.

We requested management recommendations:

to

implement

the

following

audit



Direct the Division Manager C - Finance to draw the JEVs for transfer of the completed projects from the CIP accounts to appropriate PPE accounts. Thereafter, require the computation of monthly depreciation expense using as reference the guidelines forth in COA Circular No. 2004-003 dated October 4, 2004.



Instruct the OIC - O & M Division Manager to submit to the Finance Division all the papers pertaining to the reported completed projects to facilitate the transfer of these assets to the appropriate PPE accounts. Henceforth, require the Operations and Maintenance Division to furnish the Accounting Section all the papers pertaining to a completed project within the quarter when the project was validated as 100% completed so that the appropriate adjustments can be effected in the accounting books.



Require the Division Manager C – Finance to draw the JEVs for all the identified transactions for adjustments to put all PPE account balances in order. It is also recommended that the Division identify the cause of the difference between the GL and SL balances for Construction In Progress-Plant and effect the necessary adjustments in either books of accounts.



Require a semestral reconciliation of the GL balance on Construction In Progress account with the report rendered by the O & M Division on this subject matter so that errors/differences can be located/adjusted before the closing of the books of accounts.

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the the the set

1.b

The GL account balance of five PPE accounts cannot be fully relied upon because their balances were different from those appearing either in the physical inventory report, the subsidiary ledger or in the lapsing schedule. We recommended that management direct the Finance Division to identify the causes of the differences noted and to effect immediately the necessary adjustments that will correct either the GL Balance, the SL Balance or the lapsing schedule.

1.c

Unserviceable equipment costing P196,717.65 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 and management agreed to reclassify the above properties from the PPE account to Other Assets while waiting for the disposal of the items to comply with the guidelines prescribed under the NGAS Manual. We further recommended that these items be disposed following the provisions of Section 79 of PD 1445.

1.d

The lapsing schedule prepared by management did not show the equipment salvage value, the amount subject to depreciation and the book value at the end of each month. In consequence, management was not able to immediately detect/correct several erroneous balances under the column “Accumulated Depreciation.” We recommended that management require the Finance Division to provide the following columns in the lapsing schedule to be prepared at the end of each month: (a) Residual Value; (b) Amount Subject To Depreciation and (c) Book Value/Carrying Amount to facilitate review by top management and/or any review body of the computed Depreciation Expense and the Accumulated Depreciation to Date.

2.

There is no assurance that the year-end balance of the Accounts Receivable in the amount of P4.874 million was stated at its estimated realizable value, due to the following conditions: 

The adequacy of the Allowance for Doubtful Accounts in the amount of P1,558,449.13 has not been reviewed/adjusted since CY 2004. Thus, the balance at year-end did not reflect the current status of the accounts.



The audit recommendations to identify the causes of the recurring differences between the General Ledger Balance and the Aging Schedule of Account Receivable and to effect the necessary adjustments in either books are considered not implemented since a iv

difference of P376,551.23 still exists at year-end. The GL balance was still higher, which situation will not enable the agency to collect the accounts because the debtors were not identified. We recommended and Management agreed to review the adequacy of the Allowance for Doubtful Accounts using the accounting policy adopted under the New Government Accounting System (NGAS). We also reiterated our previous year’s audit recommendation for the Billing Division to send collection letters to all customers under the “inactive status” as this will determine the collectibility of their accounts which is one factor to be considered in the review of the Allowance. We further reiterated our previous year’s audit recommendation for the Accounting and the Billing Divisions to identify the causes of the difference of P376,551.23 between the GL Balance and the Aging Schedule so that appropriate adjustments can either be effected or a request for write-off be initiated. 3.

Checks issued in the name of the Cashier A for payment of personnel benefits such as allowances of caretakers, monetization of unused leave credits and daily compensation of Job Order personnel were immediately treated as expense instead of cash advance for payroll (Payroll Fund) as required under COA Accounting Circular No. 2006-001. With this practice, management cannot be provided with a ready record for monitoring the outstanding cash advances on said transactions. We recommended and management agreed to comply with the instructions on the accounting treatment for various cash advances as set forth under COA Accounting Circular No. 2006-001 dated November 9, 2006 and COA Accounting Circular Letter No. 2007-001 dated January 19, 2007 to ensure proper presentation in the financial statements of subject transactions.

4.

The purchase of the various software to automate the operating processes of the Water District was contrary to existing government procurement regulations, as follows: 

The procurement for the computerization of the water district’s various processes/operations which amounted to P380,000.00 was done without the benefit of public bidding or any of the alternative methods of procurement, a decision which is contrary to Sections 10 and 48 of the Implementing Rules and Regulations (IRR) of RA 9184. Moreover, this procurement transaction was not posted in the PhilGEPS bulletin board which is a requirement under Section 8.2.1 (a) of the aforementioned IRR. Thus, there was neither an assurance that the most advantageous price for the government was obtained nor

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was there a concrete basis to ascertain the technical capability of the firm/supplier. 

The Memorandum of Agreement (MOA) contained a provision for the payment of fifty percent (50%) of the contract amount which is not in conformity with the instructions under Item 4.3, Annex D, IRR of RA 9184.



The agreement did not include a provision on liquidated damages which is also a requirement under Section 68 of the IRR.



The MOA further contains a provision for CWD to refund all expenses incurred by the contractor during travel to the Water District such as transportation, board and lodging, and per Diems of Php 800.00/day which is considered a disadvantageous stipulation because said expense was not time-bounded nor was supported with a list of personnel authorized to travel and the purposes for said travels. As it is, this particular expense may considerably add to the cost of the project but may not be noticed by the Water District.



The Disbursement Vouchers (DVs) for the monthly installments were not supported with a Certificate of Acceptance from the Water District on the work items accomplished, a practice which is not in keeping with the rules and regulations of an effective internal control system.

We recommended that Management require strict compliance of the Implementing Rules and Regulations of RA 9184 so that all procurement activities will result in the most advantageous price/terms for the Water District. We further recommended that Management validate the accomplishments of JMK IT Solutions to serve as basis in the computation of the liquidated damages that shall be imposed on the supplier. Thereafter, we recommended that all liquidated damages be deducted from any money due or may become due to the supplier pursuant to Item 3.2 of Annex D, IRR of RA 9184. We also recommended that Management use as reference COA Circular No. 2012-001 dated June 14, 2012 on the subject: Prescribing the Revised Guidelines and Documentary Requirements for Common Government Transactions, when effecting payment to employees, suppliers and other parties. 5.

Several checks were issued and released to the creditors even if the corresponding disbursement vouchers have either not been approved by the General Manager or signed by the Division Manager C – Finance, a decision which is a violation of Section 4 (5) of PD 1445. This condition is also

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considered a serious breakdown in the internal control system of the Water District and likewise indicative of pre-signing of blank checks. We recommended that management direct the Cashier A / Disbursing Officer to prepare checks only when the covering Disbursement Voucher has been duly signed by the Accountant and approved by the Head of Office to assure that all the basic requirements for payment have been complied with by the Water District. 6.

Part of the cash advance that was granted to the General Manager for the attendance of CWDs officials in a PAWD conference was transferred to four BOD members who participated in the activity. This transfer of accountability violates Section 4.1.6 of COA Circular No. 97-002 dated February 10, 1997. Moreover, if tolerated, this arrangement may result in delayed liquidation of cash advances and/or accumulation of cash advances since the person who did the actual utilization of the funds may not immediately submit the liquidation documents for he is not the accountable officer on record. We recommended and management agreed to comply strictly the rules and regulations on the granting, utilization and liquidation of cash advances as set forth in COA Circular No. 97-002 to ensure the immediate and full settlement of all cash advances that maybe granted in any given year.

7.

The cash advances for payment of the per diem for Board Meetings were drawn in the name of the Chairman of the Board of Directors which is tantamount to allowing the official to perform disbursing function. This practice is a violation of Sections 4.1.4 and 4.1.5 of COA Circular No. 97-002 dated February 10, 1997. We recommended and management agreed to stop the practice of granting the cash advance for BOD per diem to the Chairman of the Board to comply with Sections 4.1.4 and 4.1.5 of COA Circular No. 97-002.

8.

The check for payment of the sale of various scrap items in the amount of P30,000 was accepted though it was issued as “Pay to the order of CASH” and without verification if such check was an indorsed private check. Both conditions are violations of Section 77 of the Government Accounting and Auditing Manual (GAAM), Volume I. This occurrence, in fact, is considered an indirect encashment of private checks from collections which is strictly prohibited under Section 67 (3) of PD 1445. We recommended that Management instruct the Cashier A to accept checks for payment only when it is made payable to the agency or head of agency as required in Section 77 of GAAM, Volume I. We further recommended that she be instructed to stop the accommodation of private checks to comply with Section 67 (3) of PD 1445 and prevent occurrence of dishonored checks. vii

9.

Lapses were noted in the controls over leave credits, as follows: 

Monetization of sick leave credits was allowed without any supporting document to justify the payment thereof which is required under Section 23 of the Omnibus Rules on Leave (Rule XVI of the Omnibus Rules Implementing Book V of Executive Order No. 292). Monetization of vacation leave credits was also allowed even if an employee did not have an accumulated fifteen (15) days of vacation leave balance at the time of monetization. This practice violates Section 22 of the above mentioned Omnibus Rules. Until corrected, this practice can overstate the budget for monetization of leave credits.



The expected earned leave of 2.5 days (Vacation and Sick Leave) per month was posted in the leave cards every first day of the month at which time the employee is not yet entitled to said benefit since no service has been rendered. If not corrected, an erroneous leave balance may become the basis for monetization.



There were instances when the leave balances reflected in the Applications for Leave supporting the requests for monetization differed with the balance appearing in the Leave Card. Hence, if not corrected, the Water District might monetize a non-existing leave credit.

We recommended that Management comply strictly the regulations on monetization of leave credits as contained in the Civil Service Commission (CSC) Omnibus Rules on Leave. We also recommended that Management instruct the Personnel Section to post all earned leaves at the end of each month when the related service requirements have been met by the employees. We likewise requested Management to direct a thorough review of the entries in the Leave Cards to prevent errors during monetization and/or payment of terminal leave. 10.

Properties owned by the Water District with an insurable value of P50.420 million are not insured with the General Insurance Fund of the Government Service Insurance System (GSIS) as required under R.A. No. 656 and reiterated in Administrative Order Nos. 33 and 141. Under this circumstance, the Water District is denied of adequate and reliable protection against any damage to, or loss of their properties due to fire, earthquake and other risks from forces of nature. We recommended and management agreed to insure their insurable properties and interests with the General Insurance Fund of the GSIS in compliance with the provisions of R.A. No. 656, as reiterated in AO Nos. 33 and 141, and for the protection of the interests of the government. viii

The above audit observations and recommendations were discussed with the General Manager and the Division Managers in an exit conference held on March 24, 2014.

G.

IMPLEMENTATION OF PRIOR YEAR’S AUDIT RECOMMENDATIONS Of the twelve (12) audit recommendations contained in the CY 2010-2012 Triennium Audit Report (TAR), four were fully implemented, five were partially implemented and the remaining three audit recommendations were considered not implemented as of December 31, 2013.

H.

ON GENDER AND DEVELOPMENT Carcar Water District (CWD) has formulated its GAD Plan and Budget for CY 2013 and has implemented the programs indicated therein. Of the appropriated funds totaling P3,427,046.80, P855,624.94 was spent during the year.

I.

ON COMPLIANCE WITH TAX LAWS CWD has complied with all tax laws on withholding of income tax from compensation and Value-Added Tax (VAT) on goods and services purchased. The taxes withheld were remitted regularly to the Bureau of Internal Revenue (BIR) along with the franchise tax due from CWD 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

J.

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

P

P

Amount 581,409.06 719,558.56 149,386.57 1,862,589.56 3,312,943.75

ON UNSETTLED AUDIT SUSPENSIONS, DISALLOWANCES AND CHARGES In CY 2013, the water district was not issued a notice of suspension, disallowance and charge. However, there is an unsettled disallowance on the payment of honorarium to an OGCC designated legal counsel totaling P36,000 which remained unsettled as of December 31, 2013. As informed by the Division Manager C Finance , the claimant has filed an appeal with the Commission on Audit on ND No. 2009-001-Corp. Fund (2008) dated June 4, 2009. The papers on the appeal have yet to be located. ix