EXECUTIVE SUMMARY

A. Introduction

Urdaneta City Water District (UCWD) is a government-owned and controlled

corporation which was established in 1976 pursuant to Presidential Decree No. 198 to
provide potable water and sewerage system. The Local Water Utilities Administration
(LWUA) issued Conditional Certificate Conformance No. 024 recognizing the agency as
full-fledged water district in June 11, 1976.

The Board of Directors (BODs) is composed of five members which serves as the
policy making body of the District.

The District is headed by the General Manager who is in charge of the over-all
management and supervision of the operations. Its total manpower complement is 85
consisting of 41 regular employees and 44 Contract of Service personnel.

B. Financial Highlights

Financial Position

2018 2017
Assets ₱ 333,181,487.23 ₱ 303,141,928.71
Liabilities 113,063,298.22 122,172,543.07
Government Equity 220,118,189.01 180,969,385.64

Results of Operations

2018 2017
Income ₱ 105,135,216.22 ₱ 92,937,004.71
Expenses 64,271,580.88 58,741,799.00

Budget and Utilization

2018 2017
Budget ₱ 146,109,558.08 ₱ 117,813,901.00
Actual Expenditures 64,271,580.88 58,741,799.00

C. Scope of Audit and Methodology

A comprehensive audit was conducted on the accounts and operations of

Urdaneta City Water District for the year ended December 31, 2018. It includes review of
operating procedures, compliance with governing rules and regulations, verification and
analysis of accounts and such other procedures deemed necessary.
D. Auditor’s Opinion on the Financial Statement

The Auditor rendered a qualified opinion on the fair presentation of the financial
statements of the District for the year ended December 31, 2018 in view of the
unaccounted discrepancy of ₱81,430,279.35 between the Report on the Physical Count
of Property, Plant and Equipment and accounting records, thus, affecting the accuracy,
validity and existence of the PPE account totalling ₱296,811,625.79.

Further, the Inventory account totalling ₱14,247,379.15 was doubtful due to

incomplete inventory count and non-reconciliation of the individual Stock Cards with
the Report on Actual Count; and likewise the unreliability of the Other Receivable
account due to unaccounted balance of ₱1,459,049.55.

E. Summary of Significant Observations and Recommendations

Presented below is the summary of significant Audit Observations and

Recommendations which affects the operations and performance of the District. These
were discussed with the Agency officials concerned during the exit conference and their
corresponding comments were incorporated in Part II of the report, where appropriate.

1. The accuracy, validity and existence of the Property, Plant and Equipment (PPE)
account in the gross amount of ₱296,811,625.79 were doubtful due to unaccounted
discrepancy of ₱81,430,279.35 between the Report on the Physical Count of
Property, Plant and Equipment (RPCPPE) and accounting records, contrary to Section
122 of PD 1445 and COA Circular No. 80-124.

We recommended that Management reconcile the results of physical inventory with

accounting records and conduct complete physical inventory to ensure the fair
presentation of the Property, Plant and Equipment account.

2. The accuracy and existence of the Inventory account totaling ₱14,247,379.15 were
doubtful due to incomplete inventory count and non-reconciliation of individual
Stock Cards and Report on Actual Count, which was not in consonance with Section
122 of PD 1445 and Section 43 of NGAS-Corporate.

We recommended that Management:

a. Regularly update Inventory Stock Cards;

b. Reconcile the results of the physical count with the accounting records and effect
the necessary adjustments; and
c. Exhaust all efforts to reconcile, work back or trace with supporting documents to
ensure accuracy of the Inventories account.
3. Of the total Other Receivables account, ₱1,459,049.55 or 81% were unaccounted
thereby cast doubt on the reliability and accuracy of the account. The balance
remained uncollected for several years, hence, was also at risk of probable loss to the
detriment of the District.

We recommended that Management:

a. Reconcile and substantiate the noted balance under the Other Receivables
account;
b. Exhaust all efforts to collect these receivables; and
c. Set-up an Allowance for Impairment for Other Receivables account to present the
account at net realizable value consistent with accounting standard.

4. Three lots of the District were not covered with Certificates of Title as prescribed
under Section 39(2) of PD 1445, thus, absolute ownership over the properties were
not established and relatedly, investments made and land improvements therefrom
were not secured.

We recommended that Management secure the Certificates of Title of donated land

properties to establish the validity and legitimacy of ownership of the District and
likewise safeguard its investments on the properties.

5. Non-revenue water rate of 43% exceeding the acceptable rate prescribed by LWUA
for 2018, thus, causing the District an estimated potential revenue of ₱58.4 million
being lost for not being able to maximize the use of its water production.

Despite the huge investment on the Water Meter Replacement Project amounting to
₱10.5 million, this yielded only to 3% lower from 2017 of 46%, leading to inefficient
utilization of funds as this may have been diverted to more strategic plans that best
address the NRW problem.

We recommended that Management:

a. Conduct regular inspection of the different pipelines of the District to detect any
probable defective pipes or bursting and employ immediate repair to suppress
further leakages. Regularly and timely report of leakages and closely monitor the
status thereof;
b. Prepare an action plan to ensure efficient implementation of proposed measures;
c. Install water meters in the different fire hydrants to detect or measure the use and
hence deter unauthorized withdrawal; and
d. Investigate other causes and its corresponding counter measures to effectively
manage water losses and thus enable to reduce the NRW within the allowable rate
of 30% or below, pursuant to LWUA Memorandum Circular No. 11-18.
6. Past-due Receivables or inactive accounts accumulated to ₱10,564,739.33 covering
84% or more than half of the total outstanding receivables which remained
uncollected for several years due to lack of intensive collection efforts, thus, denied
the District recovery of funds for use in its operations.

We recommended that Management:

a. Exhaust all efforts to collect the accounts receivables;

b. Establish Policy on the Collection of Inactive Accounts which shall include the
timing and frequency of follow up visits and sending of collection and demand
letters;
c. Implement strictly collection policies; and
d. Re-enforce of manpower in the collection and monitoring accounts.

F. Statement of Audit Suspensions, Disallowances and Charges (SASDC)

The outstanding balances of suspensions, disallowances and charges of the District

as of December 31, 2018 are as follows:

SUSPENSIONS DISALLOWANCES CHARGES TOTAL

0.00 ₱17,988,884.61 0.00 ₱17,988,884.61

G. Status of Prior Year’s Audit Recommendations

Summary of the status of implementation prior year’s audit recommendations is

shown below: (Details were presented on Part III of this report.)

PARTIALLY NOT
IMPLEMENTED TOTAL
IMPLEMENTED IMPLEMENTED
3 8 3 14

Of the 14 total recommendations, nine were reiterated on Part II of this report.