EXECUTIVE SUMMARY

Introduction

The Isabela City Water District (ISAWAD) was organized by virtue of Resolution No. 1109
of the Sangguniang Bayan of the Municipality of Isabela, Province of Basilan adopted on
June 4, 1987. Upon the filing of the said Resolution with the Local Water Utilities
Administration (LWUA) pursuant to Section 7 of Presidential Decree (PD) No. 198,
ISAWAD was deemed duly formed and existing on July 5, 1987, with a Conditional
Certificate of Conformance No. 330 issued on February 10, 1988.

The ISAWAD was formed pursuant to Section 5 of PD No. 198 for the purpose of: a)
acquiring, installing, improving, maintaining, and operating water supply and distribution
systems for domestic, industrial, municipal, and agricultural uses for residents and lands
within the boundaries of such districts; b) providing, maintaining and operating
wastewater collection, treatment, and disposal facilities; and c) conducting such other
functions and operations incident to water resources development, utilization, and
disposal within such districts, as are necessary or incidental to said purpose.

In compliance with the guidelines as provided for in the Department of Budget and
Management (DBM) approved Revised Local Water District Manual on Categorization,
Re-categorization, and Other Related Matters (LWD-MaCRO) under DBM Circular Letter
No. 2011-10 dated November 18, 2011, the ISAWAD was classified as Category C
effective March 2012 per Certificate of Category issued by the LWUA on April 2, 2012.

For calendar year (CY) 2023, there are 12,754 total service connections with 11,117
active and 1,637 inactive service connections consisting of Residential/Domestic - 10,109,
Government - 182, and Commercial - 886. The District also has 310 new connections,
3,856 water line reconnections, and 2,865 disconnections during the year.

The District has a personnel complement of 86 regular positions headed by the General
Manager, as duly certified by the DBM Regional Office No. IX in accordance with the
approved Organization Structure and Staffing Pattern effective September 1, 2012, and
the terms and conditions stipulated under the approved Revised LWD-MaCRO. Out of the
86 regular positions, 18 were vacant and 68 were filled and distributed to the different
offices/divisions as follows: two to the Office of General Manager, 14 to the Administrative
and General Services Division, 16 to Finance and Commercial Services Division, 23 to
Engineering and Construction Division, and 13 to Production and Water Quality Division.

Audit Objectives

The objectives of the audit are to (a) ascertain the fairness of presentation of the financial
statements (FS); (b) ascertain the propriety of financial transactions and compliance with
prescribed rules and regulations; (c) recommend agency improvement opportunities; and
(d) determine the extent of implementation of prior years’ audit recommendations.

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Audit Methodology

The Commission has been implementing risk-based audit in the conduct of its audit
services. However, to meet the evolving developments in public governance and fund
management, the results-based approach in the audit was incorporated.

Scope of Audit

An audit was conducted on the accounts and operations of ISAWAD for 2023. The audit
consisted of a review of operating procedures, evaluation of the water district’s (WD)
programs and projects, interview of concerned government officers and employees,
verification, reconciliation, and analysis of accounts, and such other procedures
considered necessary.

Financial Highlights

I. Comparative Financial Position

Increase
Accounts CY 2023 CY 2022
(Decrease)
Assets P 224,466,833 P 208,437,083 P 16,029,750
Liabilities 22,801,255 23,041,759 (240,504)
Capital 201,665,578 185,395,324 16,270,254

II. Comparative Results of Operations

Increase
Particulars CY 2023 CY 2022
(Decrease)
Business and Service Income P 86,450,200 P 82,129,478 P 4,320,721
Other Non-Operating Income 312,459 112,668 199,791
Personnel Services (PS) 36,315,372 32,812,167 3,503,205
Maintenance and Other
22,566,914 23,479,949 (913,034)
Operating Expenses (MOOE)
Financial Expenses 644,210 806,669 (162,459)
Non-Cash Expenses 12,910,451 12,015,735 894,716
Total Expenses P 72,436,947 P 69,114,520 P 3,322,427
Other Comprehensive Income
(7,842) 0 (7,842)
(Losses)
Net Income P 14,317,870 P 13,127,627 P 1,190,243

III. Comparative Data of Budget and Actual Expenditures

CY 2023
Particulars Budget Actual Variance
PS P 40,888,313 P 36,315,372 P 4,572,941
MOOE 25,460,262 22,566,914 2,893,348
Capital Outlay (CO) 30,390,987 11,892,682 18,498,305
Totals P 96,739,562 P 70,774,968 P 25,964,594

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 CY 2022
Particulars Budget Actual Variance
PS P 36,652,748 P 32,812,167 P 3,840,581
MOOE 26,393,799 23,479,948 2,913,851
Capital Outlay (CO) 27,151,954 10,839,230 16,312,724
Totals P 90,198,501 P 67,131,345 P 23,067,156

Independent Auditor’s Opinion

We rendered a qualified opinion on the fairness of the presentation of the FS of ISAWAD

for the year then ended, taking exception to the effects of the following:

1. The accuracy of the Cash in Bank (CIB) account is affected due to: a) non-existent
and non-moving Philippine National Bank - CIB savings accounts amounting to
P224,787 for 21 years caused by the absence of documents to substantiate and
reconcile records thus overstating the Cash account balance; and b) unreconciled
and unrecorded bank and book adjusting entries at year end.

2. Franchise tax from water sales for CY 2023 was overstated by P123,042 which
resulted in an overpayment of tax for the first to third quarters by P93,720 and an
overstatement of Due to BIR [Bureau of Internal Revenue] by P29,322 upon accrual
of the fourth-quarter franchise tax.

3. The accuracy and completeness of the Accounts Receivable (A/R) account are
affected due to: a) a discrepancy of P1,083,943 between the A/R balance in the
general ledger (GL) and the balance reflected in the Aging of A/R generated from the
Billing and Collection for Windows; and b) lack of details of A/R amounting to P5,409.

4. The accuracy of the year-end balance of the Other Receivables account of P918,056
is affected due to the absence of details, schedules, and supporting documents for
the other receivables totaling P916,756.

5. The accuracy and reliability of the Inventory account balance totaling P8,953,181
cannot be ascertained due to: a) discrepancies between the actual physical count and
stock cards amounting to P556,670; b) discrepancy between the stock cards and GL
balance amounting to P36,263; c) undetermined negative quantity balances in the
Supply Ledger Cards; and, d) weakness or absence of internal controls related to
inventory management.

6. The Due to Officers and Employees and Other Deferred Credits year-end account
balances of P143,386 and P86,872, respectively, are unreliable due to previous
years’ unidentified excess liquidations on cash advances (CAs) in the Due to Officers
and Employees account and lack of details of Other Deferred Credits account.

7. The accuracy of the Due to Pag-Ibig account is affected due to the balance of
P32,950 carryforward from prior years that remained unreconciled.

8. The Loans Payable account balance is unreliable due to the untraced discrepancy of
P4,528 in the balance between the GL and the amortization schedule of the LWUA.

9. The subsidiary ledgers of Due to GSIS account are not in accordance with the
updated Revised Chart of Accounts as provided in COA Circular No. 2020-002.

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Significant Audit Observations and Recommendations

In addition to the above-noted deficiencies, below are the significant audit observations
and recommendations noted in the course of the audit:

1. The Non-Revenue Water (NRW) of 21.5 per cent exceeded the maximum acceptable
level of 20 per cent prescribed under LWUA Memorandum Circular No. 004-10 or an
excess of 1.5 per cent, equivalent to 67,737 cubic meters (m3) water loss with a
potential sales value of P1,083,792.

We recommended that Management intensify the implementation of the existing NRW

reduction plans, strategies, and activities to address the identified causes of NRW to
reduce it to 20 per cent or lower.

2. The District did not conduct an initial and periodic examination of water samples from
all water sources in terms of their radiological constituents which is not aligned with
Department of Health (DOH) Administrative Order (AO) No. 2017-0010.

We recommended that Management direct the Officer-in-Charge - Production and

Water Quality Division to ensure that the water produced by the District is tested for
radiological parameters in the frequency prescribed by DOH AO No. 2017-0010.

3. The District incurred tax penalties totaling P278,033 for late filing of its expanded
withholding tax and withholding tax on Value-Added Tax for the periods May 2018,
July 2019, March 2020, and March 2021 in the total amount of P83,033, and for
non-filing of quarterly tax from March 2018 to March 2022 in the amount of P195,000,
which is considered unnecessary expense for the District as provided under COA
Circular No. 2012-003.

We recommended that Management: a) ensure the filing of Returns and payment of

taxes to the BIR are done appropriately and on or before the deadlines set by the BIR;
and, b) ensure that penalties for late filing of returns will be for the account of the
personnel responsible for the delay in filing the said returns.

4. The District did not strictly adhere to pertinent provisions of Republic Act (RA) No.
9184 and its revised Implementing Rules and Regulations (IRR) such that: a)
scheduled procurement activities were not in accordance with prescribed timelines; b)
direct contracting was unduly resorted and specific brands were referenced; c)
contract to print Official Receipts (ORs) were awarded to private printers without any
certification from the recognized government printers (RGPs); and, d) procurement
activities were not supported with necessary documentations.

We recommended that Management direct the Bids and Awards Committee to: a)
strictly adhere to the timeline prescribed in the revised IRR of RA No. 9184 to avoid
possible failure of procurement activities by considering the geographical difficulties
when planning the procurement activities; b) avoid referencing to specific brand when
procuring goods, equipment, or components of infrastructure projects. Instead, state
the relevant characteristics, functionality, or performance requirements; c) stop the
unwarranted use of alternative methods of procurement - Direct Contracting without
adhering to the conditions outlined in Section 50 of the revised IRR of RA No. 9184; d)
stop procuring the services of private printers in the printing of the ORs, instead, use
the alternative method of procurement i.e., Negotiated Procurement - Agency to
Agency Procurement. Otherwise, secure from the RGPs a certification that they are
unable to cater to the District’s printing needs; and, e) ensure that all disbursements

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 related to procurement are sufficiently supported with required documentation in
coordination with the Accounting Section.

5. The District did not undertake the write-off procedures of its dormant unliquidated CAs
which is not in keeping with COA Circular No. 2023-008 dated August 17, 2023.

We recommended that Management undertake the proper disposition procedures of

its unliquidated dormant CAs in accordance with COA Circular No. 2023-008.

Summary of Total Suspensions, Disallowances, and Charges

There were no notices of disallowance, suspension, and charge issued after the
effectivity of the COA 2009 Rules and Regulations on Settlement of Accounts (RRSA) as
of December 31, 2023. However, Notices of Disallowance Nos. 2007-01, 2007-02, and
2008-01 issued before the effectivity of RRSA have an outstanding balance of P361,202.

Status of Implementation of Prior Years’ Audit Recommendations

Of the 63 audit recommendations in the prior years’ Annual Audit Reports 42 were
implemented and 21 were not implemented.