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The basis of the Qualified Opinion and the details of the foregoing and the other

findings, are discussed in the Independent Auditors Report and in the Observations and
Recommendations portion of the report.
We request that the recommendations be implemented and we will appreciate being
informed of the action(s) taken thereon by submitting the duly accomplished Agency Action
Plan and Status of Implementation (AAPSI) Form, copy attached, within 60 days upon receipt
hereof, pursuant to Section 88 of R.A. No. 10633, otherwise known as the General
Appropriations Act for FY 2014.
We acknowledge the cooperation extended to the Audit Team by the Officials and
Staff of that Agency, thus facilitating the conduct of Audit and submission of this Report.

Very truly yours,

For the Commission on Audit:

RODULFO J. ARIESGA
Director IV
Regional Director
CC:
President of the Republic of the Philippines
Malacanang Palace, Compound J.P. Laurel St.,
San Miguel, Manila
Vice-President
7th Floor, PNB Financial Center,
President Diosdado Macapagal Boulevard
Pasay City
President of the Senate
Rm. 606 & 22 GSIS Bldg., Financial Center,
Roxas Blvd., Pasay City
Speaker of the House of Representatives
Batasang Pambansa Complex,
Batasan Hills, Quezon City
Chairperson-Senate Finance Committee
Rm 517 5/F GSIS Bldg., Financial Center,
Roxas Blvd., Pasay City
Chairperson-Appropriation Committee
Basement, North Wing Bldg,,
House of Representatives, Quezon City
Secretary of the Department of the Budget and Management
G/F, DBM Bldg . I, General Solano St.
San Miguel, Manila
Governance Commission for Government-Owned and/or Controlled Corporations
3rd F Citibank Centre, Citibank Plaza,
Paseo de Roxas, Makati City
Presidential Management Staff, Office of the President
10/F PMS Bldg, Arlegui Street,
San Miguel, Manila 1005

The basis of the Qualified Opinion and the details of the foregoing and the other
findings, are discussed in the Independent Auditors Report and in the Observations and
Recommendations portion of the report.
In our transmittal-letter of even date, we requested the General Manager to implement
the Recommendations embodied in the report and to inform this Office of the action(s) taken
thereon by submitting the duly accomplished Agency Action Plan and Status of
Implementation (AAPSI) Form, copy attached, within 60 days upon receipt hereof, pursuant
to Section 88 of R.A. No. 10633, otherwise known as the General Appropriations Act for
FY 2014. We will appreciate any action(s) you may take towards the implementation of the
audit recommendations.
We acknowledge the cooperation extended to the Audit Team by the Officials and
Staff of that Agency, thus facilitating the conduct of Audit and submission of this Report.

Very truly yours,

For the Commission on Audit:

RODULFO J. ARIESGA
Director IV
Regional Director
CC:
President of the Republic of the Philippines
Malacanang Palace, Compound J.P. Laurel St.,
San Miguel, Manila
Vice-President
7th Floor, PNB Financial Center,
President Diosdado Macapagal Boulevard
Pasay City
President of the Senate
Rm. 606 & 22 GSIS Bldg., Financial Center,
Roxas Blvd., Pasay City
Speaker of the House of Representatives
Batasang Pambansa Complex,
Batasan Hills, Quezon City
Chairperson-Senate Finance Committee
Rm 517 5/F GSIS Bldg., Financial Center,
Roxas Blvd., Pasay City
Chairperson-Appropriation Committee
Basement, North Wing Bldg,,
House of Representatives, Quezon City
Secretary of the Department of the Budget and Management
G/F, DBM Bldg . I, General Solano St.
San Miguel, Manila
Governance Commission for Government-Owned and/or Controlled Corporations
3rd F Citibank Centre, Citibank Plaza,
Paseo de Roxas, Makati City
Presidential Management Staff, Office of the President
10/F PMS Bldg, Arlegui Street,
San Miguel, Manila 1005

Republic of the Philippines


COMMISSION ON AUDIT
CGS-Water District & Other Stand Alone Agencies
Regional Office No. II
Tuguegarao City, Cagayan

March 2, 2015
MR. RODULFO J. ARIESGA
Director IV
Commission on Audit
Regional Office No. 2
Tuguegarao City
Sir:
In compliance with Section 2, Article IX-D of the Philippine Constitution and
pertinent provisions of Presidential Decree No. 1445, we conducted a financial and
compliance audit on the accounts and operations of the Lal-lo Water District, Lal-lo, Cagayan
for the year ended December 31, 2014. We also conducted a value for money audit in selected
areas.
The audit was conducted to ascertain the propriety of financial transactions,
compliance with prescribed rules and regulations and the determination of the economical,
efficient and effective utilization of resources. It was also made to ascertain the accuracy of
financial records and reports, as well as the fairness of the presentation of the financial
statements.
The report consists of four parts: Part I- Financial Statements, Part II- Observations
and Recommendations, Part III- Status of Implementation of Prior Years Recommendations
and Part IV- Annexes. The observations and recommendations were discussed with
management officials in an exit conference held on February 26, 2015. Management
comments were included in the report, where appropriate.
We rendered a qualified opinion on the fairness of presentation of the financial
statements of the Agency because the accuracy of the Loans Payable, Current Portion of
Long-Term Debt, Interest Payable and Penalty Payable accounts cannot be ascertained due to
the non reconciliation of the balance in the general ledger against the LWUA records,
showing a discrepancy of P
=5,476,837.68, P
=817,459.87, P
=965,969.99 and P
=1,047,486.19,
respectively. Also, the correctness and accuracy of the Accounts Receivable account with a
balance of P
=716,179.47 is unreliable due to the variance between the balances per general
ledger and per customer ledger cards in the amount of P
=13,312.44.

Our audit was conducted in accordance with generally accepted auditing standards and
we believe that it provides reasonable bases for the results of audit.

Very truly yours,

KATHLEEN C. BAUTISTA-MABAZZA
OIC Supervising Auditor

Republic of the Philippines


COMMISSION ON AUDIT
Commonwealth Ave., Quezon City

ANNUAL AUDIT REPORT

on the

LAL-LO WATER DISTRICT


Lal-lo, Cagayan

For the Year Ended December 31, 2014

EXECUTIVE SUMMARY
A. Introduction
The Lal-lo Water District (LWD) was created in early 1990s. However, it did not
attain its normal business operations and was abandoned due to unknown reasons. Later,
in April 2003, thru the initiative of Mayor Florante C. Pascual, together with the Municipal
Council, Lal-lo Water District was formed pursuant to Presidential Decree No. 198, as
amended. The Agencys Mission is to make quality water accessible to every Lalloqueno and its Vision is to promote good health and sanitation through potable water
service. The Agency is categorized as a small water district (Category D) with eight (8)
permanent employees.
A financial and compliance audit was conducted on the accounts and operations of
the Lal-lo Water District for the year ended December 31, 2014. We also conducted a
value for money audit in selected audit areas. The audit consisted of review of operating
procedures, interview of concerned government officials and employees, verification,
reconciliation and analysis of accounts, and such other procedures considered necessary to
ascertain the fairness of presentation of the financial statements and compliance by the
agency to laws, rules and regulations, as well as the determination of the economical,
efficient and effective utilization of agency resources.

B. Financial Highlights
Presented below is the comparative information of the financial condition and
operation of the Lal-lo Water District for CYs 2014 and 2013:
Accounts
Assets
Liabilities
Equity
Income
Expense
Net Loss

2014
= 49,187,068.71
P
74,813,931.40
(25,626,862.69)
7,722,094.52
15,063,168.29
7,341,073.77

2013
= 49,327,917.43
P
66,710,257.34
(17,382,339.91)
7,343,673.42
13,442,637.20
6,098,963.78

Increase/
(Decrease)
= (140,848.72)
P
8,103,674.06
8,244,522.78
378,421.10
1,620,531.09
1,242,109.99

Also presented below is the comparative information of the budget and actual
expenditure of Lal-lo Water District for CYs 2014 and 2013:
2014
Corporate Operating Budget
Actual Expenditure

= 8,617,300.29
P
15,063,168.29

2013
= 6,926,793.86
P
13,442,637.20

Increase/
(Decrease)
1,690,506.43
1,620,531.09

C. Auditors Opinion on the Financial Statements


The Auditor rendered a qualified opinion on the fairness of presentation of the
financial statements because the accuracy of the Loans Payable, Current Portion of LongTerm Debt, Interest Payable and Penalty Payable accounts cannot be ascertained due to the
non reconciliation of the balance in the general ledger against the LWUA records, showing a
discrepancy of P
=5,476,837.68, P
=817,459.87, P
=965,969.99 and P
=1,047,486.19, respectively.
Also, the correctness and accuracy of the Accounts Receivable account amounting to
=716,179.47 is unreliable due to the variance between the balances per general ledger and per
P
customer ledger cards in the amount of P
=13,312.44.

D. Significant Observations and Recommendations


1. The Loans Payable, Current Portion of Long-Term Debt, Interest Payable and
Penalty Payable accounts cannot be ascertained due to the non reconciliation of the
balance in the general ledger against LWUA records, showing a discrepancy of
=5,476,837.68, P
P
=817,459.87, P
=965,969.99 and P
=1,047,486.19, respectively.
We recommend that Management reconcile their accounts with the records of
LWUA and in order to ascertain to correct amount of liabilities and to record the
appropriate adjustments.
2. The land donated by the LGU of Lal-lo, where the plant and building and other
structures of the Agency are erected amounting to P5,524,649.99 and P504,838.08,
respectively, are not yet registered in the name of the Agency.
We recommend that management secure the Deeds of Donation of the two lots and
submit the same to the Registry of Deeds to facilitate the immediate transfer of
title of ownership on the land where the Agencys plant and building and other
structures are erected.
3. Purchases of common-use supplies and supplies and materials were not made
through the Procurement Service (PS) and the Philippine Government Electronic
Procurement System (PhilGEPS), as required under Republic Act (RA) No. 9184
and Administrative Order (AO) No. 17 of the President.
We recommend that Management procure common-use supplies with the
Procurement Service of DBM; and to use PhilGEPS in the procurement of
infrastructure, supplies and materials and services.
4. Insurable properties of the Agency were not covered with appropriate property
insurance with the Government Service Insurance System (GSIS) as required in
COA Circular No. 92-390 dated November 17, 1992.

We recommend that Management adhere to the provisions of COA Circular No.


92-390 dated November 17, 1992.
5. The Agency failed to implement projects designed to address disaster risk
reduction and to create plans to mitigate adverse effects of climate change on the
environment, which is not in compliance with Sections 38 and 39 of General
Appropriations Act (GAA) for CY 2014.
We recommend that the Agency comply with Sections 38 and 39 of the GAA for
CY 2014.
E. Compliance with Tax Laws
The Agency failed to withhold and remit the tax on the Board of Directors
honorarium as discussed in Part II, Finding No. 6 of this Report.

F. Compliance with the DBM-approved Corporate Operating Budget (COB)


The Agency has a Corporate Operating Budget.

G. Remittances of GSIS, Pag-ibig and Philhealth premiums


The Agency has timely remitted the GSIS, Pag-ibig and Philhealth premiums in
accordance with laws.

H. General Insurance of government properties with the GSIS


The Agency failed to insure all its government properties with the GSIS as
discussed Part II, Finding No. 9 of this Report.

I. Gender and Development


The Agency failed to appropriate 5% of its annual budget for GAD purposes as
discussed in Part II, Finding No. 8 of this Report.

J. Disaster Risk Management


The agency failed to comply with Sections 38 and 39 of the General
Appropriations Act of 2014 as discussed in Part II, Finding No. 10 of this Report.

K. Summary of total Suspensions, Disallowances and Charges as of year-end


The Status of Audit Suspensions, Disallowances and Charges (SASDC) as of
December 31, 2014 is presented as follows:

Suspensions
Disallowances
Charges
Total

Current year
Beginning
Balance
NS/ND/NC
NSSDC
=0.00
P
=0.00
P
=0.00
P
0.00
0.00
0.00
0.00
0.00
0.00
=0.00
P
=0.00
P
=0.00
P

Ending
Balance
= 0.00
P
0.00
0.00
= 0.00
P

L. Status of Implementation of Prior Years Audit Recommendations


Out of six (6) audit recommendations contained in the CY 2013 Annual Audit
Report, one (1) recommendation was fully implemented, one (1) was partially implemented,
and four (4) were not implemented and were reiterated in Part II of this report.

TABLE OF CONTENTS

Part I - Financial Statements

Independent Auditors Report


Statement of Management Responsibility for Financial Statements
Statement of Financial Position
(with Comparative figures for 2013)
Statement of Profit or Loss
(with Comparative figures for 2013)
Statement of Changes in Equity
(with Comparative figures for 2013)
Statement of Cash Flows
(with Comparative figures for 2013)
Notes to Financial Statements

1
3
4
6
8
9
10

Part II - Observations and Recommendations

Financial and Compliance Audit


Value for Money Audit

16
26

Part III - Status of Implementation of Prior Years Audit Recommendations


Status of Implementation of Prior Years Recommendations
29
Part IV - Annexes

Annex A Schedule of Payments of CY 2013 Productivity Based Bonus

PART I - FINANCIAL STATEMENTS

Republic of the Philippines


COMMISSION ON AUDIT
Commonwealth Avenue, Quezon City, Philippines
INDEPENDENT AUDITORS REPORT
The Board of Directors
Lal-lo Water District
Lal-lo, Cagayan
Pursuant to Section 2, Article IX-D of the Philippine Constitution and pertinent provisions of
Presidential Decree No 1445, we have audited the accompanying financial statements of the
Lal-lo Water District, Lal-lo, Cagayan, which comprise the Statement of Financial Position as
of December 31, 2014 and the Statement of Profit or Loss, Statement of Changes in Equity
and Statement of Cash Flows for the year then ended, and a summary of significant
accounting policies and other explanatory information.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with International Financial Reporting Standards, 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.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance whether the financial statements are free from material
misstatements.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditors
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risks assessment, the auditor
considers internal control relevant to the entitys 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
entitys 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.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our qualified audit opinion.
Basis for Qualified Opinion
As discussed in Part II-Observations and Recommendations portion of this report, the
accuracy of the Loans Payable, Current Portion of Long-Term Debt, Interest Payable and
Penalty Payable accounts cannot be ascertained due to the non reconciliation of the balance in
the general ledger with the LWUA records, showing a discrepancy of P
=5,476,837.68,
=817,459.87, P
P
=965,969.99 and P
=1,047,486.19, respectively. Also, the correctness and
accuracy of the Accounts Receivable account amounting to P
=716,179.47 is unreliable due to
the variance between the balances per general ledger and per customer ledger cards in the
amount of P
=13,312.44.
Qualified Opinion
In our opinion, except for the effects on the financial statements of the matters referred to in
the preceding paragraph, the financial statements presents fairly, in all material respects, the
financial position of the Lal-lo Water District as of December 31, 2014 and of its financial
performance and its cash flows for the year then ended in accordance with International
Financial Reporting Standards.

COMMISSION ON AUDIT

By:

KATHLEEN C. BAUTISTA-MABAZZA
OIC Supervising Auditor

February 27, 2015

LAL-LO WATER DISTRICT


Statement of Financial Position
As of December 31, 2014
(With comparative figures for 2013)
2014

2013

15,449.12 P
10,000.00
4,124,778.89

13,821.81
10,000.00
4,732,157.88
4,755,979.69

ASSETS
CURRENT ASSETS
Cash (Note 5)
Cash- Collecting Officer
Working Fund
Cash in Bank- Local Currency
Cash in Bank- Foreign Currency
Total
Receivables (Note 6)
Accounts Receivable
Allowance for Doubtful Accounts
Accounts Receivable- Net
Other Receivable
Total
Inventories (Note 7)
Office Supplies Inventory
Chemicals and Filtering Supplies Inventory
Other Inventories
Total
Prepayments, Deposits and Deferred Charges (Note 8)
Guaranty Deposits
Other Prepayments and Deposits
Other Deferred Charges
Total
TOTAL CURRENT ASSETS

4,150,228.01
716,179.47
(45,354.86)
670,824.61
54,511.51
725,336.12

650,804.19
(32,112.60)
618,691.59
34,490.75
653,182.34

685.00
10,891.95
629,717.50
641,294.45

10,045.00
16,500.90
560,872.08
587,417.98

(3,000.00)
27,600.00
24,600.00
5,541,458.58

(3,000.00)
27,600.00
24,600.00
6,021,180.01

NON-CURRENT ASSETS
PROPERTY, PLANT AND EQUIPMENT (Note 9)
Land and Other Improvements
Land
Land Improvements
Accumulated Depreciation- Land Improvements
Total
Plant, Buildings and Structures
Plant (UPIS)
Accumulated Depreciation- Plant
Buildings and Other Structures
Accumulated Depreciation- Buildings and Other Structures
Total
Equipment and Machinery
Office Equipment
Accumulated Depreciation- Office Equipment
Land Transport Equipment
Accumulated Depreciation Land Transport Equipment
Other Machinery and Equipment
Accumulated Depreciaton- Other Machinery and Equipment
Total

456,000.00
126,890.00
582,890.00

456,000.00
456,000.00

37,274,057.50
(6,685,132.10)
4,435,075.83
(463,194.63)
34,560,806.60

35,641,486.74
(5,698,931.72)
1,949,493.11
(363,725.04)
31,528,323.09

225,576.35
(184,473.23)
114,550.00
(41,416.81)
6,379,432.93
(3,138,788.28)
3,354,880.96

208,976.35
(158,356.16)
114,550.00
(28,337.88)
6,643,806.82
(2,659,165.58)
4,121,473.55

Furniture, Fixtures and Books


Furniture and Fixtures
Accumulated Depreciation- Furniture and Fixtures
Total
Construction-in-Progress
Construction-in-Progress- Plant
Construction-in-Progress- Buildings and Other Structures
Total
TOTAL PROPERTY, PLANT AND EQUIPMENT

89,933.20
89,933.20
38,608,578.52

1,115,285.77
2,167,520.72
3,282,806.49
39,414,413.95

OTHER ASSETS (Note 10)


Intangible Assets
Other Assets
TOTAL OTHER ASSETS
TOTAL ASSETS

38,000.00
4,999,031.61
5,037,031.61
49,187,068.71 P

3,892,323.47
3,892,323.47
49,327,917.43

63,983.50
(43,915.74)
20,067.76

63,983.50
(38,172.68)
25,810.82

LIABILITIES AND EQUITY


CURRENT LIABILITIES (Note 11)
Payable Accounts
Accounts Payable
Total
Inter-Agency Payables
Due to National Government Agencies (BIR, etc.)
Due to Government Owned and/or Controlled Corporation
Total

29,750.00 P
29,750.00

29,605.25 P
46,460.91
76,066.16

26,609.99
41,592.66
68,202.65

521.06
472,098.00
472,619.06

Other Payables
Due to Officers and Employees
Other Payables
Total
Loans/ Lease Payable
Current Portion of Long-term Debt
Interest Payable
Loan Penalty Payable
Lease Payable
Total

5,426,943.14
18,374,765.49
12,739,278.68

36,540,987.31

4,017,065.14
15,189,789.49
7,384,076.12
26,590,930.75

11,572.91
11,572.91

13,071.86
13,071.86

TOTAL CURRENT LIABILITIES

36,658,376.38

27,144,824.32

NON-CURRENT LIABILITIES (Note 12)


Loans Payable
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES

38,155,555.02
38,155,555.02
74,813,931.40

39,565,433.02
39,565,433.02
66,710,257.34

DEFERRED CREDITS
Deferred Tax Liability (Franchise Tax)
TOTAL DEFERRED CREDITS

EQUITY
Donated Capital (OPIC)
Retained Earnings
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY

17,367,227.70
(42,994,090.39)
(25,626,862.69)
49,187,068.71 P

(See acompanying Notes to Financial Statements)

16,698,942.70
(34,081,282.61)
(17,382,339.91)
49,327,917.43

LAL-LO WATER DISTRICT


Statement of Cash Flows
For the Year ended December 31, 2014
(With comparative figures for 2013)
2014
Cash Flows from Operating Activities
Cash Inflows:
Collection of Water Bills
P
Collection of Other Revenues
Refund of overpayment of expenses and Cash Advances
Receipt from Project
Working Fund
Guarantee Deposit from customer
Total Cash Inflows
Cash Outflows:
Payment of Operating Expenses:
Payroll
Fuel/Power for Pumping
Chemicals
Other Operation and Maintenance Expenses
Purchase of Supplies Inventory
Total Cash Outflows
Total Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Cash Inflows:
Proceeds from Short-Term Investments
Total Cash Inflows
Cash Outflows:
Purchase/construction of
PPE/UPIS
Total Cash Outflows
Total Cash Used by Investing Activities
Cash Flows from Financing Activities
Cash Inflows:
Proceeds from Borrowings (Loans Payable)
Cash Outflows:
Cash Payment of interest on loans payable and other financial charges
Payment of Financial Charges
Payments of domestic and foreign loans
Total Cash Used by Financing Activities
Cash Provided (Used) by Operating, Investing and Financing Activities
Add: Cash and Cash Equivalents, Beginning
Cash and Cash Equivalents, Ending
P

2013

7,465,496.62
1,028,145.79
13,303.68
8,506,946.09

(2,219,350.45)
(1,477,573.31)
(29,270.00)
(3,509,106.68)
(951,664.88)
(8,186,965.32)
319,980.77

(925,732.45)
(925,732.45)
(925,732.45)

(605,751.68)
4,755,979.69
4,150,228.01 P

7,071,186.57
695,389.09
14,727.76
837,256.18
5,000.00
3,000.00
8,626,559.60

(1,664,101.22)
(1,179,561.11)
(32,359.72)
(3,299,769.11)
(566,549.74)
(6,742,340.90)
1,884,218.70

(1,822,196.93)
(1,822,196.93)
(1,822,196.93)

62,021.77
4,693,957.92
4,755,979.69

LAL-LO WATER DISTRICT


Statement of Changes in Equity
For the Year ended December 31, 2014
(With comparative figures for 2013)

2014

Government equity, beginning of period


Additions (deductions)
Government equity, end of period

Donated capital, beginning of period


Additions (deductions)
Donated capital, end of period
Retained earnings (deficit), beginning of period
Prior Period Adjustment
Net Loss
Retained earnings (deficit), end of period
Total Equity

2013

16,698,942.70
668,285.00
17,367,227.70

15,873,897.61
825,045.09
16,698,942.70

(34,081,282.61)
(1,571,734.01)
(7,341,073.77)
(42,994,090.39)

(26,639,647.98)
(1,342,670.85)
(6,098,963.78)
(34,081,282.61)

(25,626,862.69) P

(17,382,339.91)

LAL-LO WATER DISTRICT


Statement of Profit or Loss
For the Year ended December 31, 2014
(With comparative figures for 2013)
2014
Business and Service Income:
Generation, Transmission and Distribution Income
Other Business and Service Income
Fines and Penalties- Service Income
Discounts
Rebates
Total Business and Service Income
Less: Operating Expenses:
Operation Expenses:
Personal Services
Salaries and Wages
Personnel Economic Relief Allowance (PERA)
Additional Compensation (ADCOM)
Representation Allowance
Transportation Allowance
Clothing and Uniform Allowance
Honoraria (Directors' Fees & Remunerations,etc)
Year-end Bonus
Overtime and Holiday Pay
Other Bonuses and Allowances
Life and Retirement Insurance Contributions
PAG-IBIG Contributions
PHILHEALTH Contributions
ECC Contributions
Vacation and Sick Leave Benefits
Total Personal Services
Other operations Expenses
Office Supplies Expense
Fuel, Oil and Lubricants Expenses
Travel Expenses
Training and Scholarship Expenses
Electricity
Postage and Deliveries
Telephone Expenses- Landline
Telephone Expenses- Mobile
Internet Expenses
Printing Expenses
Advertising, Promotional and Marketing Expenses
Taxes, Duties and Licenses
Representation Expenses

7,294,805.06 P
69,080.44
285,258.43
(15,109.01)

2013

7,634,034.92

6,872,953.73
52,973.00
275,607.98
(5,831.62)
(7,701.83)
7,188,001.26

2,308,442.45
95,681.90
94,136.34
60,000.00
60,000.00
40,000.00
185,472.00
148,330.00
40,248.08
90,000.00
181,408.32
9,600.00
19,500.00
7,200.00
43,970.28
3,383,989.37

1,867,477.82
74,499.98
74,499.93
58,000.00
58,000.00
25,000.00
176,256.00
113,649.00
30,628.13
61,000.00
139,712.16
7,500.00
14,812.50
6,000.00
65,784.29
2,772,819.81

41,524.25
43,873.65
102,680.07
59,280.46
42,699.31
2,802.00
17,988.00
3,471.00
80,599.00
23,196.00
176,375.03
53,368.00

43,494.20
40,568.76
125,924.00
96,510.00
40,688.71
2,139.60
11,062.61
16,200.00
2,988.00
61,972.00
12,095.00
172,167.78
59,974.00

Research, Exploration and Development Expnses


Generation, Transmission and Distribution Expenses
Membership Dues and Cont. to Organizations
Cultural and Athletic Expenses
Donations
Legal Services
Auditing Services
General/Janitorial Services
Doubtful Accounts Expenses
Depreciation - Plant (UPIS)
Depreciation - Buildings and Other Structures
Depreciation - Office Equipment
Depreciation - Land Transport Equipment
Depreciation - Other Machinery and Equipment
Depreciation - Furniture and Fixtures
Other Maintenance and Operating Expenses
Total Other Operations Expenses
Total Operation Expenses
Maintenance Expenses:
Maintenance Supplies Expenses
Repairs and Maintenance - Plant (UPIS)
Repairs and Maintenance - Buildings & Other Structures
Repairs and Maintenance - Office Equipment
Repairs and Maintenance - Land Transport Equipment
Repairs and Maintenance - Other Mach.and Equipment
Repairs and Maintenance - Furniture and Fixtures
Total Maintenance Expenses
Total Operation and Maintenance Expenses
Utility Operating Income
Other Income
Total Income
Miscellaneous Income Deductions
Net Income Before Interest & Financial Charges
Bank Charges
Interest Expenses
Loan Penalty Expenses
Net Loss for the Period
P

22,706.20
1,658,657.04
10,200.00
48,997.00
6,700.00
400.00
1,540.00
13,242.26
986,200.38
99,469.59
26,117.07
13,078.93
479,622.70
5,743.06
4,020,531.00
7,404,520.37

1,451,113.54
900.00
360.00
10,300.00
100.00
36,205.63
1,500.00
13,616.61
945,218.03
58,484.87
24,165.57
13,079.11
513,531.30
7,549.95
2,005.00
3,763,914.27
6,536,734.08

231,373.83
54,573.90
5,000.00
9,573.00
54,831.50

216,455.44
5,200.00
13,232.00
24,750.00
295.00
259,932.44
6,796,666.52
391,334.74
155,672.16
547,006.90

355,352.23
7,759,872.60
(125,837.68)
88,059.60
(37,778.08)
(37,778.08)
(3,184,976.00)
(4,118,319.69)
(7,341,073.77) P

547,006.90
(4,270.00)
(3,337,213.00)
(3,304,487.68)
(6,098,963.78)

NOTES TO FINANCIAL STATEMENTS


CY 2014
1. Agency Background
1.1

The Lal-lo Water District (LWD) was created in early 1990s. However, it did not
attain its normal business operations and was abandoned due to unknown reasons.
Later, in April 2003, thru the initiative of Mayor Florante C. Pascual, together with
the Municipal Council, Lal-lo Water District was formed pursuant to Presidential
Decree No. 198, as amended.

1.2

The Districts Mission is to make quality water accessible to every Lal-loqueno


and its Vision is to promote good health and sanitation through potable water
service.

1.3

The programs and expansion were made and carried out by the Lal-lo Water District
Board of Directors and management, in partnership with LWUA, so that water,
which is an essential part of life, reaches the taps of all if not majority of the people
in the service area of the municipality.

1.4 The Agency is categorized as a small water district (Category D). The Lal-lo Water
District is managed through policies formulated by its Board of Directors, in
accordance with the regulation imposed by the Local Water Utilities Administration,
National Government Agencies and other regulatory and oversight bodies.
2. Basis of Financial Statements
2.1

The Agency adopts the Commercial Practices System- New Government


Accounting System (CPS-NGAS) Manual for Local Water District prescribed by the
Local Water Utilities Administration (LWUA). The Financial Statements were
presented using the chart of accounts in the CPS-NGAS.

3. Significant Accounting Policies


3.1

Accrual Basis of Accounting Expenses/Income are recognized when


incurred/realized and reported in the financial statements in the period to which they
relate. Payable accounts are likewise recognized and recorded in the books of
accounts only upon acceptance of the goods/inventory/other assets and rendition of
services to the agency.

3.2

Disbursement Procedure In recording expenditures, the Voucher System is


followed in which vouchers payable is credited prior to payment and debited when
paid.
10

3.3

First-In, First-Out Costing Method - Supplies and materials purchased for


inventory purposes are recorded at cost using the First-In, First-Out (FIFO) method.

3.4

Property, Plant and Equipment (PPE) Property, Plant and Equipment are
recorded at historical cost including installation, survey services, freight and other
incidental expenses incurred in the acquisition less accumulated depreciation.
Construction in progress account is used for all capital expenditures relating to the
implementation of a project and shall be closed to the proper account upon project
completion.

3.5

Method of Depreciation - The straight line method is used in the computation of


depreciation. A residual value equivalent to 10% is maintained before dividing the
cost by the estimated useful life.

4. Correction of Fundamental Errors


Errors of prior years are corrected by using the Prior Period Adjustment account and
eventually closed to Retained Earnings at year end. Errors affecting current year
operations are charged to the current years accounts.

5. Cash
5.1 This account is composed of the following:
Accounts
Cash on Hand
Working Fund- District
Working Fund- Project
Cash in Bank (LBP-LWUA)
Cash in Bank (PNB, Bank Reserve)
Cash in Bank (Coop. Bank of Cagayan)
Cash in Bank (LBP-District)
Cash in Bank (PNB, Terminal Pay)
Cash in Bank (PNB, Loan Amortization)
Total

2014
P 15,449.12
5,000.00
5,000.00
29,469.53
503,368.86
76,465.73
320,099.02
540,878.14
2,654,497.61
P 4,150,228.01

2013
P
13,821.81
5,000.00
5,000.00
955,201.98
770,841.45
120,818.61
273,057.44
360,430.13
2,251,808.27
P 4,755,979.69

5.2. Cash on Hand includes undeposited collections from water sales.


5.3. Working Fund represents amount set aside which is used for small expenditures.

11

5.4. Cash in Bank (LBP-LWUA) represents proceeds of loans from Local Water Utilities
Administration.
5.5. Cash in Bank (PNB-Bank Reserve) represents the 3% bank reserve of the District for
future projects.
5.6. Cash in Bank (Cooperative Bank of Cagayan) represents daily collection depository
account of the District.
5.7. Cash in Bank (LBP District) represents funds for the normal operations of the
District.
5.8. Cash in Bank (PNB Terminal Pay) represents amount set aside for payment of
terminal leave benefits of the employees of the District.
5.9. Cash in Bank (PNB-Loan Amortization) represents amount set aside for payment of
loan to LWUA.

6. Receivables, net
6.1. This account consists of the following:
Accounts
Accounts Receivable
Other Receivables
Total
Allowance for Doubtful Accounts
Receivables, net

2014
P 716,179.47
54,511.51
770,690.98
(45,354.86)
P 725,336.12

2013
P 650,804.19
34,490.75
685,294.94
(32,112.60)
P 653,182.34

6.2 Accounts Receivable represents amount due from customers for water sales.
6.3 Other Receivables represents material service connection fees due from customers.
7. Inventories
7.1

This account consists of the following:

Accounts
Office Supplies Inventory
Chemicals and Filtering Supplies Inventory
Other Inventories
Total
7.2

2014
685.00
10,891.95
629,717.50
P 641,294.45
P

2013
P 10,045.00
16,500.90
560,872.08
P 587,417.98

Other Inventories account consists of pipes, water meters and other materials used
for service connections.
12

8. Prepayments and Deferred Charges


This account pertains to deposit of the District to CAGELCO I.
9. Property, Plant and Equipment, net
9.1

This account is composed of the following:


Accounts

Land
Land Improvements
Plant
Building and Other Structures
Office Equipment
Land Transport Equipment
Other Machinery and Equipment
Furniture and Fixture
Sub-total
Less: Accumulated Depreciation
Property, Plant & Equipment, Net
Add: Construction Work in Progress-Plant
Construction Work in Progress-Buildings
and Other Structures
Total Property, Plant & Equipment, Net
9.2

2014
P 456,000.00
126,890.00
37,274,057.50
4,435,075.83
225,576.35
114,550.00
6,379,432.93
63,983.50
49,075,566.11
10,556,920.79
38,518,645.32
0.00
89,933.20

2013
P 456,000.00
0.00
35,641,486.74
1,949,493.11
208,976.35
114,550.00
6,643,806.82
63,983.50
45,078,296.52
8,946,689.06
36,131,607.46
1,115,285.77
2,167,520.72

P38,608,578.52

P39,414,413.95

The composition of Accumulated Depreciation is the following:


Accumulated Depreciation

2014
P 6,685,132.10
463,194.63
184,473.23
41,416.81
3,138,788.28
43,915.74
P10,556,920.79

Plant
Building and Other Structures
Office Equipment
Land Transport Equipment
Other Machinery and Equipment
Furniture and Fixture
Total

13

2013
P 5,698,931.72
363,725.04
158,356.16
28,337.88
2,659,165.58
38,172.68
P 8,946,689.06

10. Other Assets


This account consists of unserviceable properties of the Agency broken down as follows:
Accounts

2014
38,000.00
4,999,031.61
P 5,037,031.61

Intangible Assets
Other Assets
Total

2013
P

0.00
3,892,323.47
P 3,892,323.47

11. Current Liabilities


11.1

This account consists of the following:


Accounts

Accounts Payable
Interest Payable
Due to National Government Agencies
Due to GOCC (GSIS Payable)
Due to GOCC (GSIS Loans Payable)
Due to GOCC (HDMF Payable)
Due to GOCC (HDMF Loans Payable)
Due to GOCC (Philhealth Payable)
Current Portion on Long Term Debt-2014
Current Portion on Long Term Debt-prior years
Loan Penalty Payable
Deferred Tax Liability (Franchise Tax)
Other Payables
Total
11.2

2014
P
29,750.00
18,374,765.49
29,605.25
29,503.39
7,852.78
3,200.00
2,654.76
3,249.98
1,409,878.00
4,017,065.14
12,739,278.68
11,572.91
0.00
P36,658,376.38

2013
P

0.00
15,189,789.49
26,609.99
21,741.29
10,256.45
2,700.00
3,819.94
3,074.98
1,173,947.00
2,843,118.14
7,384,076.12
13,071.86
472,619.06
P27,144,824.32

Other Payables account was reclassified to Accounts Payable which consists of the
following:

Particulars
Materials received on account
Due to officers and employees (refunds BIR)
Total

2014
P 29,750.00
0.00
P 29,750.00

2013
P 472,098.00
521.06
P472,619.06

11.3 Due to National Government Agencies represents taxes withheld from payroll and
from purchases of goods and services.

14

12. Non Current Liabilities


This pertains to Loans Payable account which represents various loans received from
LWUA on various dates, with different terms and interest rates, to wit:
Particulars
Long term debt
Current portion of long term debt -2012
Additional loan releases
Total

2014
2013
P 39,565,433.02 P 40,320,921.93
(1,409,878.00) ( 1,173,947.00)
418,458.09
P38,155,555.02 P39,565,433.02

15

PART II - OBSERVATIONS AND RECOMMENDATIONS

PART II - OBSERVATIONS AND RECOMMENDATIONS


Financial and Compliance Audit
Unreconciled balances of Liability accounts between the books of accounts of the
Agency and LWUA records
1.

The Loans Payable, Current Portion of Long-Term Debt, Interest Payable and
Penalty Payable accounts cannot be ascertained due to the non reconciliation of
the balance in the general ledger against LWUA records, showing a
discrepancy of P
=5,476,837.68, P
=817,459.87, P
= 965,969.99 and P
= 1,047,486.19,
respectively.
1.1

Section 73(a) of the New Government Accounting System (NGAS) Manual,


Volume I provides that:
All financial data presented shall be accurate, reliable and truthful.
The requirement for accuracy does not rule out the inclusion of
reasonable estimates when the making of precise measurements is
impracticable, uneconomical, unnecessary, or conducive to delay.
All appropriate steps shall be taken to avoid bias, unclear facts and
presentation of misleading information.

1.2.

Also, Section 4 (u) of same Manual states that:


All borrowings and loans incurred shall be recorded to the
appropriate liability accounts.

1.3.

Analysis of the Loans Payable account showed that the balance in the general
ledger of the Agency did not tally with the balance as recorded in the LWUA
books of accounts. The balance of the said account in the books of the
Agency totaled to P
=38,155,555.02, while Local Water Utilities
Administration (LWUA) records totaled to P
=32,678,717.34, hence showing
a discrepancy of P
=5,476,837.68.

1.4.

Moreover, verification of records disclosed that the current liability accounts


in connection with the Loans Payable to the LWUA presented in the
Financial Statements do not reconcile with the Statement of Account

16

provided by the LWUA by P


=2,830,916.05, as follows:
Balance per
LWUA record
(SOA)

Difference

= 5,426,943.13
P

= 6,244,403.00
P

= (817,459.87)
P

Interest Payable

18,374,765.49

19,340,735.48

(965,969.99)

Loan Penalty Payable

12,739,278.68

13,786,764.87

(1,047,486.19)

Total

=36,540,987.3
P

=39,371,903.35
P

=(2,830,916.05)
P

Account
Current Portion of
LongTerm Debt

Balance per
General Ledger

1.5.

Hence, the validity of the Loans Payable, Current Portion of Long Term
Debt, Interest Payable and Loan Penalty Payable recorded in the books of
accounts cannot be ascertained, thereby affecting the fair presentation in the
financial statements.

1.6.

Management in its reply to the Audit Observation Memorandum commented


that the Agency commits to reconcile the balance per general ledger and
LWUA records the soonest possible time.

1.7.

We recommend that Management reconcile their accounts with the


records of LWUA and in order to ascertain to correct amount of
liabilities and to record the appropriate adjustments.

Donated land without Transfer Certificates of Title


2.

The land donated by the LGU of Lal-lo, where the plant and building and other
structures of the Agency are erected amounting to P5,524,649.99 and
P504,838.08, respectively, are not yet registered in the name of the Agency.
2.1.

Article 708 of the New Civil Code states that:


The Registry of Property has for its object the inscription or
annotation of acts and contracts relating to the ownership and
other rights over immovable property.

2.2.

Item V.4 of COA Circular 89-296 dated January 27, 1989 states that:
Where the property or assets involved are no longer serviceable
or needed by the department, agency, corporation or local
government unit concerned, they may be transferred to other
government entities/agencies without cost or at an appraised value
upon authority of the head or governing body of the said agency or
17

corporation, and upon due accomplishment of an Invoice and


Receipt of Property (Cf., Sec. 76, P.D. 1445).
2.3.

Verification of records disclosed that the land where the Agencys plant and
building and other structures are erected amounting to P5,524,649.99 and
P504,838.08, respectively, were not yet titled in the name of the Agency. No
Transfer Certificates Title (TCTs) or any other documents showing proof of
ownership were presented during the audit.

2.4.

Management alleged that there are Deeds of Donation of the land where the
office building and other structures are located. However, management failed
to produce these Deeds, thereby belying their existence.

2.5.

This is a reiteration of a previous years observation.

2.6.

Management in its reply to the Audit Observation Memorandum commented


that the Agency will secure Deeds of Donation of the two lots and submit the
same to the Registry of Deeds to facilitate the immediate transfer of Title of
Ownership on the land.

2.7.

We recommend that management secure the Deeds of Donation of the


two lots and submit the same to the Registry of Deeds to facilitate the
immediate transfer of title of ownership on the land where the Agencys
plant and building and other structures are erected.

Unreconciled balances between the General Ledger and Customer Ledger Cards
3.

The correctness and accuracy of the Accounts Receivable account amounting to


P
= 716,179.47 is unreliable due to the variance between the balances per general
ledger and per customer ledger cards in the amount of
P
=13,312.44.
3.1.

Section 12, Volume II of New Government Accounting System Manual,


states that:
xxx The totals of the SL balances shall be reconciled with their respective
control account regularly or at the end of each month. Schedules shall be
prepared periodically to support the corresponding controlling GL
accounts.

3.2. Subsidiary ledgers show in detail the same information in summary by the
controlling account hence, the balance of the controlling account at the end of
the posting period should be equal to the total of the balances of the accounts
in the subsidiary ledger.

18

3.3.

However, in the review of accounts, it was observed that the total of


receivables from customers per customer ledger cards both active and
inactive accounts do not reconcile with that of the general ledger by
P
=13,312.49, computed as follows:
Balances as of 12/31/2014
Per FS/General ledger
Balance per customer ledger cards
Difference

P716,179.47
=
729,491.91
= 13,312.44
P

3.4.

The correctness of the balance of Accounts Receivable presented in the


Financial Statements amounting to P
=716,179.47 is unreliable due to non
reconciliation of the General Ledger and the Customer Ledger Cards.

3.5.

Management in its reply to the Audit Observation Memorandum commented


that the Agency commits to reconcile the balances between the general
ledger and subsidiary ledgers.

3.6.

We recommend that Management undertake the reconciliation of the


balances of the general ledger and subsidiary ledgers of Accounts
Receivable and make the necessary adjustments thereon.

Payment of Productivity Based Bonus for CY 2013


4.

Performance-Based Bonus (PBB) was paid to permanent employees and Board


of Directors of the Agency amounting to P
= 207,628.00 for CY 2013, without
satisfying all the requirements under the IATF Memorandum Circular No
2013-01 dated August 2, 2013.
4.1.

Inter-Agency Task Force (IATF) on the Harmonization of National


Government Performance Monitoring, Information and Reporting Systems
Memorandum Circular No. 2013-01 dated August 2, 2013; re: Guidelines on
the Grant of Performance Based Incentives for Fiscal Year 2013 under
Executive Order No. 80 provides:
4.0 GENERAL INFORMATION AND ELIGIBILITY CRITERIA
4.1 To be eligible for the PBB, a department/agency must satisfy the
following criteria:
a. Achieve at least 90% of each one of their performance targets for
the delivery of MFOs, Support to Operations (STO) and General
Administration and Support Services (GASS) for FY 2013;

19

b.

Achieve at least 90% of each one of the priority


program/project targets agreed with the President under the
five KRAs of EO No. 43;

c.

Satisfy 100% of the good governance conditions set by the IATF


for FY 2013;and,

d. Rank performance of bureaus or delivery units and the personnel


within these units.
4.2 For FY 2013, inability to meet any of the targets above will render
departments/agencies ineligible for the PBB. Inconsistency and
inaccuracy of the compliance reports/certifications made by the
department/agency may also be considered a ground for
disqualification to the PBB, upon proper determination and due
process.
4.2.

Verification of disbursement vouchers disclosed that the Agency granted


Performance-Based Bonus (PBB) amounting to P
=207,628.00 to its
permanent employees and Board of Directors for CY 2013, without
satisfying all the requirements under the IATF Memorandum Circular No
2013-01 dated August 2, 2013. (Annex A)

4.3.

Review of supporting documents showed that the assessment of the


Agencys performance was not validated by appropriate authorities. Thus,
the achievement of at least 90% of each one of their performance targets for
the delivery of MFOs cannot be established.

4.4.

Moreover, said Circular requires that the good governance conditions set by
the IATF for FY 2013 be satisfied 100%. However, inquiry with the
management revealed that the Agency does not have the Agency
Transparency Seal and failed to post all invitations to bid and awarded
contracts in the Philippine Government Electronic Procurement System for
CY 2013.

4.5.

Further, the payment of PBB was supported with Board of Resolution No.
02, Series of 2014, Approving the Adoption of the Local Water Utilities
Administration (LWUA) Established Guidelines in the Implementation and
Granting of PBB for Local Water Districts Directors and Officers and
Employees Circulated in Year 2012 and for the Purpose of Releasing the Lallo Water Districts 2013 PBB, which is contrary to COA Circular 2012-003
dated October 29, 2012.

4.6.

In view of the noted deficiencies, the Agency failed to meet all the
requirements stated under the IATF Memorandum Circular No 2013-01
dated August 2, 2013, thus rendering the Agency ineligible for the PBB.
20

4.7.

Consequently, the corresponding Notice of Disallowance for the PBB


granted shall be issued to the persons liable in the Agency.

4.8.

Management in its reply to the Audit Observation Memorandum commented


that the Employees and the Board of Directors made an agreement and a
commitment to refund the total PBB granted and to refrain from making
additional allowances and benefits unless supported with sufficient legal
basis.

4.9.

We recommend that Management refund the total amount of PBB


granted and refrain from making payments of additional allowances and
benefits unless supported with sufficient legal basis.

Failure to Procure common-use supplies and supplies and materials at PS-DBM


and to use PhilGEPS
5.

Purchases of common-use supplies and supplies and materials were not made
through the Procurement Service (PS) and the Philippine Government
Electronic Procurement System (PhilGEPS), as required under Republic Act
(RA) No. 9184 and Administrative Order (AO) No. 17 of the President.
5.1.

The Procurement Service (PS) by virtue of Letter of Instruction No. 755 and
Executive Order No. 359, is tasked with the implementation of a
government-wide procurement system for common-use office supplies,
materials, and equipment for all government agencies.
Mandatory
compliance by all government agencies was also required in RA 9184 which
set forth the state policy of the government that the procurement process of
government supplies, materials and equipment shall be done in the most
transparent and competitive manner.

5.2.

Section 1 of A.O. No. 17 provides that:


xxx all government agencies shall procure their common-use
supplies from the PS and use PhilGEPS in all their Procurement
activities, including publishing all their bid opportunities and
posting all their awards and contracts in it, in accordance with R.A.
No. 9184.

5.3.

DBM Circular Letter No. 2013-14 dated November 29, 2013 was issued
reiterating the Submission of Annual Procurement Plan for Common-Use
Supplies and Equipment (APP-CSE). The Circular Letter, in support of the
governments policy for transparency in government transactions and
efficiency in procurement processes, directs all government agencies to:

21

a. Procure their common-use supplies and equipment from the DBM


Procurement Service without need for public bidding; and
b. Use the PhilGEPs in all procurement activities pursuant to Section
53.5 of the IRR of RA 9184.
5.4.

Review of the Agencys procurement process disclosed that the Agency did
not procure common use supplies and materials from the Procurement
Service of the Department of Budget and Management.

5.5.

Moreover, the Agency failed to use PhilGEPS in all their Procurement


activities, including publishing all their bid opportunities and posting all their
awards and contracts in it, in accordance with R.A. No. 9184.

5.6.

Management in its reply to the Audit Observation Memorandum commented


that the Agency commits to purchase common-use supplies and materials
through the Procurement Service and the PhilGEPs.

5.7.

We recommend that Management procure common-use supplies with


the Procurement Service of DBM; and to use PhilGEPS in the
procurement of infrastructure, supplies and materials and services.

Compliance with Tax Laws, Rules and Regulations


6.

The Agency failed to withhold and remit the tax on the Board of Directors
honorarium amounting to P
=18,547.20, which is contrary to Revenue
Memorandum Circular No. 34-2008 dated April 15, 2008, thus depriving the
national government of tax collection.
6.1.

Revenue Memorandum Circular No. 34-2008 dated April 15, 2008 which
provides tax treatment of directors fees for income tax and business tax
purposes ,states among others that:
The fees received by the director who is not an employee of the
payor corporation are subject to ten (10%) creditable withholding
tax if his gross income for the current year does not exceed
=720,000.00 or fifiteen percent (15%) if his gross income exceeds
P
=720,000.00pursuant to Revenue Regulations No. 30-2003.
P

6.2.

Verification of the Agencys compliance on taxes disclosed that the Agency


remitted taxes withheld from suppliers and employees amounting to
P
=229,608.38 and P
=217,219.53, respectively. Also, the Agency paid franchise
tax amounting to P
=149,749.51 to the Bureau of Internal Revenue for CY
2014.

22

6.3.

However, the Agency failed to withhold the tax from directors


honorarium/fees amounting to P
=18,547.20 which is equivalent to 10% of the
total honoraria paid to the board of directors amounting to P
=185,472.00.

6.4.

Management in its reply to the Audit Observation Memorandum commented


that the Agency has started withholding and remitting tax from the Directors
honorarium on January 2015.

6.5.

We recommend that Management comply strictly with the rules and


regulations of the BIR on withholding and remittance of taxes.

GSIS Premiums and Contributions


7.

The Agency remitted Insurance premiums, personal and government share


amounting to P
=136,056.24 and P
=181,408.33, respectively. Also, the total amount of
P
=7,200.00 Employees Compensation Contribution was remitted to the Government
Service Insurance System in accordance with R.A No. 8291.

Gender and Development


8.

The Agency failed to appropriate five percent (5%) of its corporate operating
budget for GAD purposes, which is not in compliance with Section 33 of the
General Provisions of the General Appropriations Act (GAA).
8.1.

Sec. 33 of 2014 GAA.-Programs and Projects Related to Gender and


Development provides:
All agencies of the government shall formulate a Gender and
Development (GAD) Plan designed to address gender issues within
their concerned sectors or mandate and implement applicable
provisions under R.A. 9710 or the Magna Carta of Women,
Convention on the Elimination of All Forms of Discrimination
Against Women, the Beijing Platform for Action, the Millennium
Development Goals (2000-2015), the Philippine Plan for GenderResponsive Development, (1995-2025), and the Philippine
Development Plan (2011-2016).The GAD Plan shall be integrated in
the regular activities of the agencies, which shall be at least five
percent (5%) of their budgets.xxx

8.2.

Verification disclosed that the Agency failed to prepare GAD Plan and
appropriate five percent (5%) of its annual budget for CY 2014 for GAD
purposes, which is not in compliance with the GAA Provisions stated above,
thereby compromising their capability to effectively address gender issues
and promote womens empowerment.
23

8.3.

Management in its reply to the Audit Observation Memorandum commented


that the Agency has already prepared GAD Plan and allocated 5% of its CY
2015 budget for the implementation of GAD related activities.

8.4.

We recommend that the Agency prepare GAD Plan and allocate 5% of


its total budget for implementation of GAD related activities.

General Insurance of government properties with GSIS


9.

Insurable properties of the Agency were not covered with appropriate property
insurance with the Government Service Insurance System (GSIS) as required in
COA Circular No. 92-390 dated November 17, 1992.
9.1.

Item 1.1.2 of COA Circular No. 92-390 dated November 17, 1992 provides
that:
xxx All insurable assets and properties of the government should be
adequately covered/insured with the General Insurance Fund of the
GSIS xxx.

9.2.

Item 3.1 of the same Circular provides that:


All heads of national agencies, local government units and
government-owned and controlled corporations shall be responsible
for the preparation and submission of the inventory of all insurable
physical assets xxx.

9.3.

All insurable properties of the Agency must be covered with the appropriate
property insurance with the Government Service Insurance System (GSIS) in
order to indemnify or compensate the Agency for any damage to, or loss of,
its properties due to fire, earthquake, storm, or other casualty.

9.4.

Verification of the Agencys PPE disclosed that insurable assets such as


buildings, machineries, equipment and Other Property, Plant and Equipment,
are at risk of loss without indemnification in case of fire or other fortuitous
event because they were not insured with the property insurance with the
General Insurance Fund of the GSIS.

9.5.

Management in its reply to the Audit Observation Memorandum commented


that the Agency commits to insure all its properties with the Government
Service Insurance System.

9.6.

We recommend that Management adhere to the provisions of COA


Circular No. 92-390 dated November 17, 1992.

24

Disaster Risk Management


10. The Agency failed to implement projects designed to address disaster risk
reduction and to create plans to mitigate adverse effects of climate change on the
environment, which is not in compliance with Sections 38 and 39 of General
Appropriations Act (GAA) for CY 2014.
10.1.

Section 38 of GAA. Disaster Prevention, Mitigation and Preparedness


Projects, provides that:
All agencies of the government are encouraged to implement
projects designed to address disaster risk reduction and
management activities under R.A No. 10121.
Section 39 of GAA. Climate Change Mitigation, stated that:
All agencies of the government, particularly the DPWH, shall
integrate energy-savings solutions in the planning and
implementation of all infrastructure projects to mitigate the effects of
climate change pursuant to the provisions of R.A. No. 9729.

10.2.

Inquiry with Management disclosed that no plans and projects were designed
to address disaster risk reduction, as well as the mitigation of the adverse
effect of climate change in the environment for CY 2014, contrary to the
provisions of Sections 38 and 39 of the GAA.

10.3.

During the exit conference, Management did not comment on the audit
observation, however they agreed to comply with the recommendation.

10.4.

We recommend that the Agency comply with Sections 38 and 39 of the


GAA for CY 2014.

Programs/Projects Funded by PDAF and DAP


11. The Agency did not receive funds nor implement programs/projects funded by the
Priority Development Assistance Fund (PDAF) and the Disbursement Acceleration
Program (DAP).

Programs for Persons with Disability and Senior Citizens


12. The Agency provides a priority lane for persons with disability and senior citizens.
Also, senior citizens are given 5% discount on their water bills.

25

Value for Money Audit


13.

Two wells with a total cost of P


=2,925,481.46 were constructed but became
unproductive due to insufficient discharge of water hence, the Agency failed to
achieve its projected return of investment from the project.
13.1.

The Agency availed loan from the Local Water Utilities Administration
(LWUA) from its Non LWUA Initiated Funds amounting to P
=25M on a 50%
loan and 50% grant basis on December 2009 for the improvement of its
water supply system.

13.2.

The project includes construction of new wells as water sources for Lal-lo
Water District with the assistance of LWUA.

13.3.

Verification of records disclosed that the Agency constructed a well outside


the compound of Cagayan State University at Lal-lo campus on March 28,
2010 with a cost of P
=1,169,713.46 and another well inside the campus with a
cost of P
=1,175,768.00 on Aril 28, 2011. However, both wells became
unproductive due to insufficient discharge of water. As a result, the Agency
failed to achieve its projected return of investment from the project.

13.4.

During the exit conference, the Management commented that they relied the
study and test conducted by LWUA on the possible sources of water, hence
they constructed the two wells believing that they could come up with
productive wells as sources of water. Nevertheless, they committed to be
more prudent on the implementation of their future projects.

13.5.

We recommend that the Agency carefully study the projects proposed


by LWUA and at the same time LWUA should be accurate with the
engineering study of the projects in order to avoid waste of funds.

Unaccounted Water Loss


14. The Agency could have generated more revenue in CY 2014 had the
Management installed adequate control measures that would minimize the causes
of water loss equivalent to an estimated amount of P
=895,059.20 or 13% of the
total water produced during the year.
14.1.

LWUA Memorandum Circular No. 014-10 dated December 2, 2010 provides


that:
There is a need for Water Districts to reduce the Non-Revenue Water
(NRW) in order to enhance its operational efficiency and improve its
financial viability.

26

All Water Districts are therefore enjoined to periodically conduct


performance audit of water meters being used by customers to ensure
its accuracy.
Depending on the condition of operation, the water meters should be
tested for its accuracy after five (5) years of utilization. Water meters
showing errors of more than the following tolerance levels should be
calibrated or replaced.
From Maximum Flow to Transitional Flow:
From Minimum Flow to Transitional Flow: 5%

2%

14.2.

The revenue of the Agency is mainly sourced from water sales from its water
connections from residential/domestic, governments, commercial and
industrial concessionaires in the locality.

14.3.

Records disclosed that there was a total water production for the year of
302,359 cubic meters, of which only 262,901 cubic meters were
billed/accounted, while 39,958 cubic meters were unbilled/unaccounted.

14.4.

The 39,958 cubic meters represent the Non-Revenue Water (NRW), wherein
the Agency could have generated an estimated sales revenue of
P
=895,59.20 had the unaccounted 39,958 cubic meters been sold at
224 per 10 cu. meters, the minimum rate for residential/government
category.

14.5.

Though, the Non-Revenue Water for CY2014 is within the allowable 20%
prescribed rate by LWUA. The unaccounted water of 39,958 cubic meters or
an estimated sales revenue of P
=895,59.20, is lost revenue which affects the
financial viability and operational efficiency of the Agency.

14.6.

The lost revenue could have been used to finance more projects for the
maintenance and improvement of water system of the Agency.

14.7.

During the exit conference, Management commented that the Non Revenue
Water (NRW) of the Agency is within the allowable rate prescribed by
LWUA. However, they agreed to implement the recommendation.

14.8.

We recommend that Management install adequate safeguard and


protection measures in the use of water and facilities. Leakages and
defective water meters be immediately attended to minimize the revenue
losses.

27

Status of Unsettled Suspensions, Charges and Disallowances


The Status of Audit Suspensions, Disallowances and Charges (SASDC) as of
December 31, 2014 is presented as follows:

Suspensions
Disallowances
Charges
Total

Current year
Beginning
Balance
NS/ND/NC
NSSDC
=0.00
P
=0.00
P
=0.00
P
0.00
0.00
0.00
0.00
0.00
0.00
=0.00
P
=0.00
P
=0.00
P

28

Ending
Balance
= 0.00
P
0.00
0.00
= 0.00
P

PART III - STATUS OF IMPLEMENTATION OF PRIOR


YEARS RECOMMENDATIONS

20

PART III - STATUS OF IMPLEMENTATION OF PRIOR YEARS


RECOMMENDATIONS
Out of six (6) audit recommendations contained in the CY 2013 Annual Audit
Report, one (1) recommendation was fully implemented, one (1) was partially implemented,
and four (4) were not implemented and were reiterated in Part II of this report.

Audit Observation
/Recommendation

Ref.

Management
Action

1. The validity of the Loans Payable AAR


account amounting to P39,565,433.02 2013
as of December 31, 2013 in the books
of accounts cannot be ascertained due
to the non reconciliation of the balance
in the general ledger with the balance
per records of the Local Water Utilities
Administration (LWUA) having a
discrepancy of P10,326,172.65.
We recommended that the Accounting
Processor reconcile the balance of the
Loans Payable per book of the Agency
and per LWUA record in order to
ascertain the correct amount of Longterm Loans and to reflect the
appropriate adjustments.
2. The land donated by the LGU of Lal- AAR
lo, where the plant and building and 2013
other structures of the Agency are
erected amounting to P5,524,649.99
and P504,838.08, respectively, are not
yet registered in the name of the
Agency thus exposing the risk of
divestment on the possession of land.
We recommended that management
secure the Deeds of Donation of the
two lots and submit the same to the
Registry of Deeds to facilitate the
immediate transfer of title of
ownership on the land where the
Agencys plant and building and other
structures are erected.
29

Status of
Implementation
/Reasons for
Partial/Non
Implementation
Not
Implemented
Reiterated in
Part II, Finding
No. 1 of this
report.

Management
coordinated with
the
Local
Government Unit.
However, there
are differences in
the
technical
description of the
lots
hence,
management
failed to register
the lots in the
Registry
of
Deeds.

Not
Implemented
Reiterated in
Part II, Finding
No. 2 of this
report.

Audit Observation
/Recommendation

Ref.

3. The three parcels of land purchased AAR


from 2004 to 2012 and recorded in the 2013
books of accounts amounting to
P456,000.00 were not yet titled in the
name of the Agency contrary to Sec.
39 of Presidential Decree (PD) No.
1445, hence, ownership over the
property is not absolute
We recommended that management
facilitate the titling of the three lots in
the name of the Agency to protect the
interest of the government and avoid
the possibility of third party claims
over said property.

Management
Action
Management
requested the
Register of Deeds
to make
annotations/
encumbrances on
the mother titles
of the lots, since
these are not yet
subdivided.

4. The Agency is not using its Philippine AAR


Government Electronic Procurement 2013
System (PhilGEPS) account in the
conduct of its procurement activities
contrary to the requirement of Article
No. III Section 8 of the Republic Act
No. 9184 or otherwise known as
Government Procurement Reform
Act of the Philippines.

Status of
Implementation
/Reasons for
Partial/Non
Implementation
Partially
Implemented

Not
Implemented
Reiterated in
Part II, Finding
No. 5 of this
report.

We recommended that the Agency


post an Invitation to Apply for
Eligibility and to Bid in the PhilGEPS
to promote transparency in all of its
procurement transactions and to extend
equal opportunity to private suppliers
who are eligible to participate in public
bidding.
5. The account Other Payables was used AAR
instead of Accounts Payable to account 2013
for unpaid purchases of material from
suppliers contrary to the definition of
accounts embodied in the chart of
30

Management
reclassified the
Other Payables
account to
Accounts

Fully
Implemented

Audit Observation
/Recommendation

Ref.

account used by the water Agency in


recording its financial transactions.

Management
Action

Status of
Implementation
/Reasons for
Partial/Non
Implementation

Payable.

We recommended that the Accounting


Processor reclassify the unpaid
purchases of materials booked in the
Other Payable account to Accounts
Payable and to use said account in
recording purchases of all types of
inventories.
6. The agency did not appropriate five AAR
percent (5%) of its annual budget for 2013
2013 for GAD purposes which is not
in compliance with the General
Provisions
of
the
General
Appropriations Act (GAA) for CY
2013, particularly Section 28 thereof,
thereby compromising the agencys
mandate and capability to effectively
address gender issues and promote
womens empowerment.
We recommended that the Agency
prepare a GAD Plan and allocate 5%
of its total budget for implementation.

31

Not
Implemented
Reiterated in
Part II, Finding
No. 8 of this
report

Lal-lo Water District


Schedule of Payments of CY 2013 Productivity Based Bonus
CY 2014

Date

Check Voucher
No.

Board of Directors
2014-03-03
2014-03-03
2014-03-03
2014-03-03
2014-03-03
2014-03-03
Permanent Employees
2014-03-03
2014-03-03
2014-03-03
2014-03-03
2014-03-03
2014-03-03
2014-03-03
2014-03-03
TOTAL

Payee

2014-03-01
2014-03-01
2014-03-01
2014-03-01
2014-03-01
2014-03-01

Teodoro R. Collera
Reynol P. Balatico
Eduardito C. Israel
Angeles Siriban
Ritalinda Q. Manuel
Romeo Diaz

2014-03-02
2014-03-02
2014-03-02
2014-03-02
2014-03-02
2014-03-02
2014-03-02
2014-03-02

Jose Jacob S. Medinaceli


Gloria C. Domingo
Ronnie L. Metila
Rachelle . Sales
George I. Colosaga
Emelyn I. Israel
Rolio C. Ragat
Virgilio P. Milabao

Prepared by:

Reviewed by:

ELFINA M. CAMARAO
State Auditor II
Audit Team Member

GERALDIN B. ANIAG
State Auditor III
OIC-Audit Team Leader

Annex A
Page 1 of 1

Amount
19,008.00
15,840.00
14,400.00
15,840.00
15,840.00
7,200.00

25,000.00
13,500.00
13,500.00
13,500.00
13,500.00
13,500.00
13,500.00
13,500.00
207,628.00