EXECUTIVE SUMMARY

A. Introduction

The Pililla Water District (PWD) is a government-owned and controlled corporation created
through Sangguniang Bayan Resolution No. 64, s. 1990, pursuant to Presidential Decree
(PD) No. 198, as amended, otherwise known as the "Provincial Water Utilities Act of 1973."
The Local Water Utilities Administration (LWUA) issued a Conditional Certificate of
Conformance (CCC) on March 4, 1991 that paved its formal creation as the 487th Water
District in the country.

The PWD is categorized as Category “C” Water District effective March 2012, pursuant to
the Revised Local Water District Manual on Categorization, Re-categorization and Other
Related Matters (LWD-MaCRO). As of December 31, 2021, the Pililla Water District has a
total of 72 employees comprising 34 regular and 38 job order employees, serving 11,312
concessionaires.

The Board of Directors is the policy-making body of the PWD. It is composed of five
members, appointed by the Municipal Mayor as provided in PD No. 198.

The following are the members of the Board of Directors as of December 31, 2017, and the
respective sectors they represent:

Name Position Sector

Mr. Pedro C. Endoma Chairperson Education Sector
Ms. Clarita I. Gipulan Vice-Chairperson Civic Sector
Ms. Natividad P. Lozano Secretary Professional Sector
Ms. Maximina P. Patenia Secretary Women’s Sector
Ms. Nenita N. Amores Member Business Sector

B. Financial Highlights

The PWD’s financial condition and results of operations for calendar years (CYs) 2021,
2020, 2019 and 2018 are summarized below and shown in detail in the attached audited
financial statements:

2021 2020 2019 2018 2017

Financial
Position:
Total Assets P220,947,257.64 P203,066,689.97 P173,745,134.13 P151,502,296.81 P136,596,812.45
Total Liabilities 11,876,955.95 13,745,342.24 15,447,557.22 16,135,703.72 17,983,427.73
Total Equity 209,070,301.69 189,321,347.73 158,297,576.91 135,366,593.09 118,613,384.72

Results of Operations:
Total Income P72,587,983.56 P67,864,793.67 P60,032,227.21 P55,808,675.19 P51,397,411.60
Total Expenses 53,190,138.27 36,841,022.85 37,101,243.39 39,436,048.02 26,969,409.45
Net
Income/(Loss) 19,397,845.29 31,023,770.82 22,930,983.82 16,372,627.17 24,428,002.15

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C. Scope and Objectives of the Audit

Financial and compliance audits were conducted on the accounts and operations of the
PWD for CYs 2021, 2020, 2019 and 2018 to ascertain the propriety of its financial
transactions, operations and compliance with the prescribed government rules and
regulations. The audit was aimed to ascertain the fairness and reliability of its financial
statements, to determine whether its operations are conducted in compliance with applicable
laws, rules and regulations, and determine the extent of the implementation of prior year’s
audit recommendations.

D. Audit Opinion on the Financial Statements

A qualified opinion was rendered on the fairness of presentation of the financial statements
of the PWD as of December 31, 2021, as of the total reported balances of the Property,
Plant and Equipment accounts for Calendar Years (CYs) 2018 to 2021, the accuracy,
validity and existence of the remaining balances of P113,651,084.52, P117,028,130.66,
P124,390,227.45 and P143,399,028.27, respectively, were not ascertained due to the non-
conduct of physical inventory of PPE accounts for the said years, and the non-submission of
the corresponding Report of Physical Count of PPE (RPCPPE), contrary to Philippine
Accounting Standard 1, Section 490 of the Government Accounting and Auditing Manual
(GAAM), Volume I, Appendix 71 of Government Accounting Manual (GAM), Volume II and
Section 5.4 of Commission on Audit (COA) Circular No. 2016-006, thus affecting the
fairness of the presentation of PPE accounts in the financial statements of the Pililla Water
District (PWD) for CYs 2018 to 2021.

Also, the Construction-in-Progress (CIP) account balances at the close of CYs 2018 to 2021
include completed projects worth a total of P19,377,824.41 and additional completed project
in CY 2021 of P3,973,000.00 or a total of P23,350,824.41 at the close of CY 2021, contrary
to Paragraph 15 of Philippine Accounting Standard (PAS) 1 and COA Circular No. 2020-
002, thus affecting fairness of presentation of CIP accounts in the financial statements of the
PWD.

For the above-mentioned observation, which caused the issuance of a qualified opinion, we
recommended that the General Manager C require the Inventory Committee to conduct a
complete inventory of its PPE at least once a year, and submit the RPCPPE in the
prescribed format to the Audit Team, in accordance with GAAM, Volume I and GAM,
Volume II. Thereafter, the Committee should reconcile the inventory report with the
Accounting records. Any discrepancies found be investigated and necessary adjustments be
taken up in the books of accounts, including those that did not meet the capitalization
threshold, pursuant to COA Circular No. 2016-006; and adopt the procedures prescribed in
COA Circular No. 2020-006 dated January 31, 2020 for the one-time cleansing of PPE
account balances to present a reliable and accurate balances in the financial statements.
This is to attain fairness in the presentation of these accounts in the financial statements at
year-end, pursuant to the provisions of PAS 1(15) and Section 490 of GAAM, Volume I.

Further, we recommended that the General Manager C direct the Engineering and
Production Division to prepare the Certificate of Project Completion for the completed
projects, and furnish the Accounting Division of the said report as basis for the
reclassification from CIP to the appropriate PPE account, so as to achieve fair presentation
of the account in the financial statements as of a given period, in accordance with Paragraph
15 of PAS 1 and COA Circular No. 2020-002; and to coordinate with the Sr. Accounting

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Processor B during preparation of the RGPPA, to arrive at a reconciled CIP as of a given
period.

E. Other Significant Observations and Recommendations

1. The yearly Loans Payable account balances of the Pililla Water District (PWD) for CYs
2018 to 2021 were not inclusive of the amount of P21,525,264.91, classified by the
LWUA as loan, but treated by the former as Paid-in Capital, while its yearly loan
obligation of P3,101,100.00 were not reported in the year-end financial Statements as
Current Liabilities - Loans Payable, but lumped under the Long-term Liabilities - Loans
Payable account for the same years of 2018 to 2021, contrary to Philippine Accounting
Standard (PAS) 1, thus affecting the accuracy, validity and reliability of the said account
as reported in the financial statements of the PWD for the subject years.

We reiterated that the General Manager C:

a. direct the Senior Accounting Processor B to draw the Journal Entry to present the
current portion of the Loans Payable under the Current Liabilities in the Statement of
Financial Position every December 31 of each calendar year, to achieve the fair
presentation of the account in the financial statements in accordance with Philippine
Accounting Standard (PAS) 1;

b. instruct the Division Manager C of the Administrative and General Services/Finance

and Commercial Division to make proper representation with the LWUA to ascertain
with finality on the exact nature of the amount released to the PWD, which as per
records of LWUA stand at P21,525,264.91, including costs of the feasibility study of
the project and supervision cost, whether it be taken up as loan or grant based on
the Financial Assistance Contract (FAC) duly signed by both parties in October 2010.
Likewise, cause the reconciliation for Loan Account No. 04-2012, where PWD’s
reports showed yearly balances from 2018 to 2020 were more than the outstanding
balance in LWUA’s books by P121,787.92 and P75,015.08 discrepancy in CY 2021;
and

c. as a result of the reconciliation, direct the Sr. Accounting Processor B to adjust the
account thru a Journal Entry Voucher (JEV), if justifiable and necessary, to ensure
correctness in reporting of the Loans Payable account in the financial statements in
accordance with Philippine Accounting Standard (PAS) 1.

2. The reported Cash in Bank balances in the financial statements (FS) of the Pililla Water
District for CYs 2018 to 2021, still consist of unaccounted reconciling items in the books
of accounts, per Bank Reconciliation Statements (BRS), totaling P570,910.63, contrary
to Paragraphs 15 and 17 of Philippine Accounting Standard (PAS) 1 and Presidential
Decree (PD) No. 1445, thus cast doubts on the accuracy, validity and reliability of the
Cash in Bank account.

We recommended that the General Manager C direct the Administrative and General
Services/Finance and Commercial Division to document the process of retrieving any
information related to the unaccounted reconciling items of P570,910.63 resulting from
the Bank Reconciliation Statements for CYs 2018 to 2021, so that appropriate
reclassification of this amount be taken up in the books of accounts of the PWD, thus
establishing the correct and accurate year-end balances of Cash in Bank account in its

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 financial statements at every given year, in accordance with Paragraphs 15 and 17 of
PAS 1.

3. The accuracy and reliability of the Accounts Receivable (AR) – Customers account
presented in the financial statements of the PWD for CYs 2018 to 2021 could not be
ascertained due to variances noted between the General Ledger (GL) and per Aging
Schedule as of December 31 of each respective year; while Allowance for Impairment
provided for said years has no basis, contrary to Philippine Accounting Standards (PAS)
1, 32, 39(58) and Paragraphs 5.5.14 and B5.5.35 of Philippine Financial Reporting
Standard (PFRS) 9 on Impairment of Assets.

We recommended that Management:

a. direct the Sr. Accounting Processor B and the Customer Service Officer B to exert
effort to trace the cause/s of the variance between the books and the supporting
aging schedule, which accumulated to P485,697.10 at the close of CY 2021, and
reconcile the balances of the two records for fair presentation of account AR -
Customers in the financial statements;

b. direct the Sr. Accounting Processor B to recognize the negative balance of the
Accounts Receivable – NSC Promo as a liability to achieve fair presentation of the
account, consistent with Paragraph 15 of PAS 1;

c. formulate a policy for approval by the Board of Directors on setting up of allowance

for impairment accounts, taking into consideration the age of receivables, results of
confirmation with debtors and overall possibility of collection for proper valuation of
Accounts Receivable; and

d. require the Sr. Accounting Processor B to recompute the allowance for impairment
accounts provided based on the rates prescribed in the policy that would be
formulated by the Board of the Directors. Thereafter, make the necessary adjusting
journal entries to correct the Allowance for Impairment provided for the Accounts
Receivable – Customers for proper valuation of the account.

4. The Non-Revenue Water (NRW) loss of the Pililla Water District (PWD) exceeded the 20
percent allowable/acceptable rate set, contrary to Local Water Utilities Administration (LWUA)
Resolution No. 444, series of 2009 and LWUA Memorandum Circular No. 014-10 with total
computed monetary loss of P5,037,893.51, P4,256,416.62, P2,562,053.99, and
P1,160,512.46 for CYs 2018, 2019, 2020 and 2021, respectively, thus could affect the
financial viability of the operation of the PWD in the ensuing years.

We recommended that the General Manager instruct the Officer-in-Charge of the

Engineering and Production Division to:

a. conduct periodic performance audit of water meters installed for more than five years
and calibrate/replace those showing errors, pursuant to LWUA Memorandum
Circular No. 014-10 dated December 2, 2010, to address the possibility of inaccurate
metering;

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 b. conduct periodic and systematic field inspections to identify possible water leakages
and pipe bursting as part of an active leakage control mechanism, while taking into
consideration the infrastructure facilities that were mostly deteriorated;

c. conduct periodic and systematic field inspections to identify possible illegal

connections for immediate action and imposition of sanction thereon; and

d. maintain and analyze concessionaires data bank for all causes of complaints on
water leakages, illegal connections, and other contributing factors causing high
NRW, and ensure documented and prompt action to help reduce to its acceptable
level, in compliance with LWUA Resolution No. 444, series of 2009.

5. The Pililla Water District (PWD) procured goods, services and infrastructure projects
totaling P30,281,207.99, P29,888,624.33, P32,729,371.35, and P35,236,406.50, during
Calendar Years (CYs) 2018, 2019, 2020 and 2021, respectively, without an approved
Annual Procurement Plan (APP) and Project Procurement Management Plans (PPMP),
in violation of Section 7 of the Revised Implementing Rules and Regulations (IRR) of
Republic Act (RA) No. 9184, thus casting doubts on the adequacy and/or propriety of the
procurement planning and transactions of the PWD.

We recommended that Management:

a. cause the immediate preparation of Project Procurement Management Plan (PPMP)

and the corresponding Annual Procurement Plan (APP) for the CY 2022 and prior
years, after pursuant to the corresponding provisions of the Revised IRR of RA No.
9184, to ensure transparency in the procurement process and to obtain the most
advantageous prices for the PWD;

b. direct all Section Heads to prepare their respective PPMP, which include, but not
limited to, supplies, materials, equipment and infrastructure projects or programs or
activities to be implemented during the current year/succeeding years, and submit to
the procuring entity’s Budget Office for evaluation;

c. direct the Budget Officer to furnish a copy of the procuring entity’s budget proposal,
as well as the corresponding PPMPs, to the BAC Secretariat for its review and
consolidation into the proposed APP, consistent with the procuring entity’s budget
proposal, pursuant to Section 7.3.4 of the same IRR;

d. direct the BAC, thru its BAC Secretariat, to finalize the modes of procurement under
the proposed APP, in accordance with Section 7 of the Revised IRR of RA No. 9184;
and

e. subject all procurements to public bidding as required under RA No. 9184, except
those allowed to be undertaken under alternative mode of procurement.

6. Progress payments made to the Contractors of the Pililla Water District (PWD) were
made multiple times in a month for its seven infrastructure projects totaling
P27,976,480.00 for CYs 2018 to 2021, contrary to Sections 5.1 and 5.2, Annex E of the
Revised Implementing Rules and Regulation (RIRR) of Republic Act (RA) No. 9184 and
its amendment per GPPB Resolution No. 07-2018, thus monitoring of the status of the

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 projects cannot be made based on the Statement of Work Accomplished as of a given
date.

We recommended, and Management agreed, to strictly observe the pertinent provisions

of RA No. 9184 and its 2016 RIRR as amended by GPPB Resolution No. 07-2018 on
the progress payments to the Contractors, to ensure effective monitoring of projects
based on the duly evaluated Statement of Work Accomplished as of a given period
before payment is to be made.

7. Various disbursements totaling P4,812,105.78 for Calendar Years (CYs) 2018 to 2021
were paid on reimbursement basis, instead of issuance of check in the name of the
suppliers/creditors, contrary to Section 93 of Presidential Decree (PD) No. 1445 and
COA Circular No. 97-002, thereby resulting in non-withholding of taxes on such
payments and non-assurance that the PWD got the most advantegous prices for the
items purchased.

We recommended that Management stop the payment of recurring expenses thru

reimbursement basis and settle obligations by drawing checks payable to
suppliers/creditors, in compliance with Section 93 of PD No. 1445 and COA Circular No.
97-002, so as to withhold the necessary taxes on its procurements and adoption of
proper procurement process in its transactions.

8. The Pililla Water District (PWD) did not prioritize the preparation of the Water Safety
Plan (WSP), which delayed its approval/implementation, contrary to Administrative
Order (AO) Nos. 2014-0027 and 2014-0027-A of the Department of Health (DOH), and
LWUA Memorandum Circular (MC) No. 010-14, hence the safe quality of water being
supplied by the PWD may not be guaranteed.

We recommended that the General Manager immediately create a WSP Committee that
will help develop and implement the PWD’s WSP to consistently ensure the safety of
drinking water from source to the end-users. Thereafter, submit the WSP to the Local
Water Utilities Administration (LWUA) for review and endorsement to the Department of
Health (DOH) for approval and issuance of Certificate of Acceptance, in compliance with
DOH Administrative Order (AO) Nos. 2014-0027 and 2014-0027-A and LWUA
Memorandum Circular No. 010-14 dated December 1, 2014.

9. The Pililla Water District (PWD) has not yet established Sewerage and Septage
Management Services, contrary to Section 29 of Presidential Decree (PD) No. 198,
Sections 7, and 22 of Republic Act (RA) No. 9275 and Supreme Court Ruling of 2008,
thus protection of water quality from its sources is not yet ensured, and the serious
environmental impact of pollution from the domestic wastewater could result in health
hazards in the community.

We recommended that Management coordinate with the Pililla Local Government Unit
(LGU) to prioritize the establishment, operation and maintenance of sewerage and
septage management facilities, the soonest possible time as mandated under Section 28
of PD No. 198, Sections 7, 16 and 22 of RA No. 9275, and Supreme Court Ruling of
2008 as part of the national policy on local operation and control of water systems, for
the safety of the environment and the consuming public.

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10. The Pililla Water District (PWD) has yet to execute Memorandum of Agreement (MOA)
with the Bureau of Fire Protection (BFP) for the usage, and maintenance of the 30 fire
hydrants installed within its jurisdiction, contrary to Section 32 of Presidential Decree
(PD) No. 198 and of the provisions of Republic Act (RA) No. 9514, thus affecting the
propriety in the usage and maintenance of these fire hydrants, including its effort on the
reduction of non-revenue water loss.

We recommended that Management:

a. set control mechanisms to limit the usage and access of water from fire hydrants by
authorized agency, which is the BFP; and

b. execute a MOA between the PWD and the BFP clearly stating the responsibilities of
each party, particularly on the following:
• Standard Operating Procedure (SOP) on the usage of fire hydrants during fire;
• cooperation between two parties on maintenance of fire hydrants; and
• possible reimbursement on the cost of installation and operation of fire protection
facilities, as prescribed under Section 32 of PD No. 198.

11. Official Receipts (ORs) issued by the Pililla Water District (PWD) to its concessionaires
for the payment of water bills were purchased from a private printing provider, contrary
to Sections 1 and 4 of the Office of the President (OP) Memorandum Circular (MC) No.
180, s. 2009; thus, exposing the PWD to the risk of possible duplication, and
unauthorized printing of accountable forms.

We recommended and Management agreed to immediately stop the use of official

receipts not printed or sourced from the National Printing Office or its authorized unit,
pursuant to the provisions of Sections 1 and 4 of the Office of the President
Memorandum Circular No. 180, s. 2009 to ensure propriety in the use of the accountable
forms in all government transactions.

12. The Pililla Water District (PWD) maintains a depository account with the Innovative
Bank, a private bank, with no authority to accept government deposits, contrary to
Department of Finance (DOF) Circular No. 01-2017, thus exposing these funds to risk of
possible loss of funds in case the Bank encountered financial difficulties leading to
stoppage of its operation.

We reiterated our recommendation that Management immediately transfer the funds

deposited and maintained in the Innovative Bank to its LBP account, in compliance with
DOF Department Circular No. 01-2017 dated May 11, 2017 to avoid the risk of possible
loss of its funds. Prior approval from the Department of Finance is required before a
private bank can be considered as authorized government depository bank.

13. The Pililla Water District (PWD) has not yet disposed of the unserviceable assets
recorded in its books of accounts, inconsistent with the provisions of the National Budget
Circular No. 425 and COA Circular No. 89-296, thus exposing the assets to further
deterioration, and deprived the PWD of a higher resale value that could have been
realized from the immediate sale of these assets.

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 We recommended, and the General Manager agreed, to:

a. create and constitute an Appraisal and Disposal Committee with its primary function
of disposing unserviceable assets in accordance with the aforementioned provisions
of DBM Manual and COA Circular, and require them to attend trainings/seminars
relative to the disposal of unserviceable properties for them to acquire sufficient
knowledge thereon; and

b. require the designated Supply Officer to prepare the prescribed Inventory and
Inspection Report of Unserviceable Property (IIRUP), as basis of dropping from the
books the said unserviceable properties carried in the PPE accounts, and to submit
the IIRUP to the Accountant upon completion of the disposal activity as basis for
dropping in the books of accounts all of those unserviceable assets that underwent
proper disposal procedures, through a duly approved Journal Entry Voucher (JEV).

14. The Pililla Water District (PWD) did not register with the Philippine Government
Electronic Procurement System (PhilGEPS), hence procurement opportunities/activities
were not posted thereon during the Calendar Years (CYs) 2018 to 2021, contrary to the
pertinent provisions of Republic Act (RA) No. 9184 and its 2016 Revised Implementing
Rules and Regulations (RIRR), thus failing to take advantage of the significant built-in
efficiencies of the system, including the widest dissemination of bid opportunities,
electronic submission of eligibility requirements and bids, and transparency on all
procurement contracts.

We recommended and the General Manager agreed to direct the BAC to cause the
immediate usage of the PhilGEPS in all its procurement activities, in compliance with RA
No. 9184 and its 2016 Revised IRR, so as to take advantage of the significant built-in
efficiencies of the system.

15. The payment of water permit fees imposed by the National Water Resources Board
(NWRB) to the Pililla Water District (PWD) amounting to P72,000.00 was not in
accordance with Sections 27, 28 and 45 of Presidential Decree (PD) No. 198 and the
Office of the Secretary of Justice (OSJ) Decision No. 01-2010, hence an irregular
expenditure.

We recommended that Management stop the practice of paying water permit to the National
Water Resources Board (NWRB) to prevent incurrence of irregular expenditures as a result
of non-compliance with the said rules and regulations, and make a representation with the
NWRB to refund the payment made amounting to P72,000.00.

16. The Pililla Water District (PWD) did not formulate Public Service Continuity Plan (PSCP),
contrary to Section 4 of Republic Act (RA) No. 10121, National Disaster Risk Reduction
and Management Plan (NDRRMC) Memorandum No. 33, s. 2018, and Civil Service
Commission (CSC) Memorandum Circular No. 2, s. 2012, thus continuity of delivery of
its essential functions during disruptions could not be ascertained.

We recommended, and Management agreed, to immediately formulate the Public

Service Continuity Plan (PSCP) and submit it to the Office of Civil Defense (OCD), in
compliance with the requirements of NDRRMC Memorandum No. 33, s. 2018 and CSC
Memorandum Circular No. 2, s. 2021, to ensure that essential functions are continuously
delivered even during disruptions.

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17. The Pililla Water District (PWD) did not establish a GAD Focal Point System (GFPS),
which would catalyze and accelerate gender mainstreaming within the agency, for
Calendar Years (CYs) 2018, 2019, 2020 and 2021, contrary to Sections 36(a), Chapter
VI and 37(C), Rule VI of the Implementing Rules and Regulations (IRR) of Republic Act
(RA) No. 9710, otherwise known as the Magna Carta of Women, as well as the other
related issuances on GAD, that led to the non-preparation of the GAD Plans and
Budgets (GPBs), hence non-conduct of GAD-related activities addressing gender issues
and concerns within the organization and its clientele.

We reiterated our recommendations that the General Manager:

a. immediately establish the GAD Focal Point System (GFPS) composed of the agency
head as Chairman, and a technical working group or secretariat composed of
representatives from various divisions or offices who will take the lead in the gender
mainstreaming; and

b. enjoin the GFPS to: (a) prepare the GAD Plan and Budget (GPB) within the context
of the agency’s mandate through conduct of sex disaggregated data/GAD database
equal to at least five percent of the Corporate Operating Budget and submit to the
LWUA for review; and (b) strictly monitor the implementation of GAD activities based
on the GPB, and prepare the GAD Accomplishment Report as prescribed by
Philippine Commission on Women - National Economic and Development Authority -
Department of Budget and Management (PCW-NEDA-DBM) Joint Circular (JC) No.
2012-01 and PCW Memorandum Circular (MC) No. 2015-03.

F. Status of Implementation of Prior Years’ Audit Recommendations

Of the 55 audit recommendations embodied in the preceding Annual Audit Report (AAR), 9
were fully implemented, 21 were partially implemented and 25 were not implemented by the
Pililla Water District (PWD).

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