EXECUTIVE SUMMARY

Introduction

The Maramag Water District’s (MWD) mission is to serve the people of Maramag, Bukidnon
by providing abundant, safe and potable water supply to their homes and continuously
improve the water system facilities, to actively participate in the protection of watersheds
manned by efficient, effective and service oriented workforce with the highest degree of
integrity.

The MWD is a duly constituted water district as evidenced by its Conditional Certificate of
Conformance No. 496 approved by the Local Water Utilities Administration (LWUA) on June
11, 1991 and Water Permit No. 15268 per National Water Resources Board Resolution No.
01-0796 on July 23, 1996.

All Local Water Districts in the Philippines were declared as government-owned or controlled
corporations (GOCC) with original charter (PD No. 198) in a case decided by the Supreme
Court on September 13, 1991 docketed as GR No. 95237-38 entitled “Davao City Water
District, et al. vs. Civil Service Commission, et al.”

As of December 31, 2020, the District served a total population of 44,630 and has total
service connections of 10,460 and was classified as Category C - Average water district
(WD) pursuant to Local Water District – Manual on Categorization, Re-Categorization and
Other Related Matters (LWD – MaCRO).

Financial Highlights

The comparative figures for CY 2020 and 2019 financial data showed a net increase in
equity from increases in assets and liabilities; but a decrease in net income of the District
due to a higher increase in total expenses compared to the increase in total income, as
shown below:

Increase /
Particulars 2020 2019
(Decrease)
Total Assets ₱ 83,023,760.11 ₱ 79,695,802.27 ₱ 3,327,957.84
Total Liabilities 20,330,030.47 19,117,303.04 1,212,727.43
Total Equity 62,693,729.64 60,578,499.23 2,115,230.41

Total Income 44,783,644.58 40,795,178.11 3,988,466.47

Total Expenses 42,244,153.58 38,243,500.53 4,000,653.05
Net Income/(Loss) 2,539,491.00 2,551,677.58 (12,186.58)

Scope of Audit

Financial and compliance audits were conducted on the accounts and operations of the
Maramag Water District (MWD) for Calendar Year (CY) 2020 to ascertain the propriety of its
financial transactions and operations. The audit was aimed to ascertain the fairness and

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reliability of the MWD’s financial position and results of operation. Management comments
on the audit observations were considered, where appropriate.

Independent Auditor’s Report on the Financial Statements

A modified qualified opinion was rendered on the financial statements due to the following
observations:

1. Property, Plant and Equipment consisting of the donated Land, Reservoir, Spring and
Tunnels and Power Operated Equipment were not recorded in the books of the
District, due to their undetermined value contrary to Paragraph 15 of Philippine
Accounting Standards (PAS) 1 and Section 63 of P.D. No. 1445, resulting to an
understatement of the PPE account.

2. Past Due Accounts Receivable and Dormant Other Receivable accounts aging one to
more than ten years amounting P2,467,091.74 and P387,177.29, respectively,
remained uncollected and were classified under current assets and were not provided
with adequate allowance for impairment contrary to Philippine Accounting Standards
(PAS) 1 and 39 and COA Circular No. 2016-005, resulting to the overstatement of the
realizable value of the accounts receivable.

3. The accuracy of the Property, Plant and Equipment (PPE) account with net book value
of P58.482 million was not reasonably substantiated due to, among others, non-
submission of inventory report as of December 31, 2020, inadequate accounting and
property records, and the inclusion of unserviceable properties contrary to Section 58
of PD 1445, paragraph 15 of PAS 1, and COA Circular 2020-006, thus, casting doubt
on the existence, completeness and valuation of the PPE accounts in the Financial
Statements.

Summary of Significant Audit Observations and Recommendations

Other than the bases for the modified qualified opinion stated above, the following are the
other significant audit findings with corresponding recommendations, which need immediate
action:

1. The water district purchased a parcel of land with deficiencies and defects such as, (a)
Original Certificate of Title is in the name of the deceased spouse of the seller; (b)
there was no judicial settlement in favor of the surviving spouse; (c) absence of an
Independent Appraisal Report, contrary to Republic Act No. 10753 and COA Circular
2012-001, thereby posing risk on the recovery of the capital exposure of the District.

We recommended that Management:

a. Strictly adhere to the provisions of Republic Act 10752 on land acquisition and
comply with the documentary requirements cited under COA Circular 2012-01;

b. Require the seller to immediately submit the Transfer Certificate of Title, Tax
Declaration, Real Property Tax Certificate, and other documents necessary to
transfer the title; and

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 c. Facilitate the annotation on the Transfer Certificate of Title.

2. The District spent a total amount of P2.418 million from CY 2002 to CY 2020 for the
repairs and maintenance of the outmoded and fully depreciated vehicles equivalent
94.79% of the total cost of P2.551 million, without due regard of the 30% maximum
allowable limit of the cost of repair based on the current market value, provided for
under COA Circular No. 85-55A, as amended by COA Circular No. 2012-003.

We recommended that Management:

a. Revisit its policy on repairs with due consideration on COA allowable limit for repairs
under COA Circular Nos. 85-55-A and 2012-003;

b. Require the Property/General Services Unit to prepare a comprehensive list and

monitoring of vehicles, especially on repairs and maintenance; and

c. Consider the purchase of new vehicle if the maintenance and repairs of old and fully
depreciated vehicles exceeded its replacement cost and current market value.

3. Copies of Purchase Orders (POs)/Contracts totaling P6.913 million, more or less,

together with their supporting documents and the corresponding delivery documents
were not submitted to the COA Auditor within the prescribed period contrary to COA
Circular Nos. 2009-001 and 2009-02 dated February 12, 2009 and May 18, 2009,
respectively, thereby affecting the timely review and inspection of deliveries and
correction of any deficiencies.

We recommended that Management:

a. Strictly adhere to the prescribed period of submission of copies of approved POs to

the Office of the Auditor for the timely conduct of evaluation and auditorial review;

b. Require the Supply/Property Officer to notify the Office of the Auditor within 24
hours from receipt of deliveries of procured items to enable the auditor to conduct
inspection;

c. Direct the personnel assigned in the preparation of POs/Contracts to indicate all

necessary information regarding the items purchased in compliance with the
provisions of COA Circular No. 2009-001; and

d. To ensure compliance of said requirement of law, direct Accounting Unit not to pay
DVs without complete documentation and unacknowledged receipt of Purchase
Order by COA.

4. Payment for insurance premium amounting to P171,473.21 was immediately recorded

as expense instead of recognizing a prepayment to be taken up as Prepaid Expense,
contrary to Section 111, Title III of P.D. 1445 and PAS 1, thereby understating the
appropriate asset and income accounts for the unexpired portion thereof.

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 We recommended that Management:

a. Require the Accountant to adhere strictly with the provisions of Section 111, Title III
of PD 1445 and PAS 1 by taking up the insurance premium covering the whole
year as Prepaid Insurance and only the portion of the prepayment that has been
used up be recognized as Insurance Expense;

b. Instruct the Accountant to draw a JEV effecting the necessary adjusting entry and
recognize the Prepaid Insurance account for the unexpended portion thereof.

5. The District paid overtime services amounting P66,700.75 to security guards who were
agency-employed, through cash advances made by its cashier, contrary to the
provisions of the Labor Code of the Philippines, and the Civil Code of the Philippines,
thereby making itself liable to something which is not its obligation.

We recommended that Management:

a. Stop the practice of paying overtime services directly to the security guards; and

b. Review and consider the necessity of augmenting the existing security guards, then
renegotiate with the security-agency for the terms and conditions of the contract.

6. The reliability of the amount of Intangible Assets account presented in the financial
statements amounting P498,000 as of December 31, 2020 is doubtful in view of the
non-recognition of amortization of the Intangible Assets-Computer Software since it
was used contrary to the provisions of PAS 38, thereby understating the Amortization
Expense and overstating the assets and income accounts.

We recommended that management compute for the amortization of the Intangible

Assets-Computer Software in accordance with PAS 38 and prepare the necessary
adjusting entry to record the same.

7. The District registered a year-to-date (YTD) rate of 51.9% for its Non-Revenue Water
(NRW) for CY 2020, which is well above the maximum acceptable level of NRW of
20% as prescribed under LWUA Resolution No. 444, series of 2009, with estimated
monetary loss equivalent to P28,002,182.23, thus affecting the District’s efficiency
level and financial viability.

We recommended that Management:

a. Require the Engineering and Technical Division to submit report on their

assessment of the accuracy and reliability of all existing production and individual
meters;

b. Coordinate with the Department of Works and Highways (DPWH) as to the

implementation of infrastructure projects in the area so as to prevent and/or
minimize leakages;

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 c. Make use of the procured Leak Detection Equipment to maximize its utilization.
There might be a lot of constraints in using the same but just find ways, it can still
aid in tracing the source of leaks; and

d. Intensify efforts in monitoring the area/coverage of the District, particularly those

with questionable equipment/meters, to mitigate further revenue loss and promote
operational efficiency and financial viability.

8. Warranty Security/Retention money was not strictly required/deducted from the

payment of goods amounting to P2.940 million contrary to Section 62.1 of the Revised
Implementing rules and Regulations (IRR) of the Republic Act 9184. Thus, the
assurance that the District will be indemnified for possible losses that may be incurred
through manufacturing defects of goods delivered is not ensured.

We recommended that Management require contractors/suppliers of the afore-cited

transactions, as well as contractors of related transactions in the future, to post
warranty security or pay retention money to the Agency for their deliveries of goods in
compliance with Section 62.1 of the Revised IRR of RA 9184 to assure that any
defects discovered within the warranty period be indemnified.

9. The District granted and released Covid-19 Hazard Pay amounting P360,250.00, to its
regular, casual and job order personnel contrary to the provisions of Administrative
Order No. 26 and DBM Budget Circular 2020-1, thus resulting to overstatement of
expenses and understatement of income by the same amount.

We recommended that Management:

a. Strictly observe the provisions of AO 26 and DBM Budget Circular 2020-1 in

granting Covid-19 Hazard Pay; and

b. Refund the payment of Covid-19 Hazard Pay totaling P360,250 which was granted
and released contrary to existing laws, rules and regulations.

10. The reliability of the Other Service Income and Generation, Transmission and
Distribution Expenses accounts presented in the financial statements amounting
P1,103,111.89 and P 9,417,664.18, respectively, as of December 31, 2020 is doubtful
due to erroneous sentries made during installation of new water connections contrary
to Section 112 of P.D. 145 and paragraph 15 of PAS 1, thus resulting to overstatement
of both accounts.

We recommended that Management:

a. Require the accountant to affect the necessary adjustments to correct the

overstatement of the Other Service and Income Generation, Transmission and
Distribution Expenses accounts; and

b. Prepare a memorandum informing the accountant and other personnel concerned

of the breakdown of the installation fees/charges on the water connections for
proper recording in the books of the District.

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Status of Suspensions, Disallowances and Charges

Balance, Issued Settlement Balance,

Particulars
1/1/2020 This period This period 12/31/2020
Notice of Suspension (NS) ₱ 21,289.14 - - ₱ 21,289.14
Notice of Disallowance (ND) 138,253.83 - - 138,253.83
Notice of Charge - - - -
₱ 159,542.14 - - ₱ 159,542.14

Implementation of Prior Years’ Audit Recommendations

Of the sixty seven (67) prior years’ audit recommendations, fifty five (55) were fully
implemented, six (6) were partially implemented; and six (6) were not implemented. Details
are in Part III of the Report.

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