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 on June 4, 1987. Upon the filing of the said Resolution with the
Secretary of 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.

The ISAWAD was formed pursuant to Section 5 of PD 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.

It started its operation as a quasi-public corporation performing public service

pursuant to the provisions of PD 198 and the Conditional Certificate of Conformance
No. 330 issued on February 10, 1988. In a Supreme Court decision promulgated on
September 13, 1991 and obtained finality on March 12, 1992, local districts were
declared government owned and controlled corporations, thus, covered by Civil
Service Commission and the Commission on Audit (COA) rules and regulations.

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.

The plantilla of personnel for CY 2018 had a total of 65 regular positions duly
certified by the DBM Regional Office No. IX, in accordance with the approved
Organization Structure and Staffing Pattern effective September 1, 2012 of the
ISAWAD, and the terms and conditions stipulated under the approved Revised LWD-
MaCRO. Out of the 65 regular positions, 52 were filled and distributed to the
different offices/divisions as follows: 11 to the Administration and General Services,
18 to the Finance and Commercial Division, 16 to the Engineering and Construction
Division and seven to the Production and Water Quality Division. The workforce also
included 53 contractual and three casual employees.

Audit Methodology

The COA 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 audit was incorporated. The integration of
these two approaches, called the Integrated Results and Risk-Based Audit

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Methodology, was applied in the audit of the accounts and operations of the Water
District (WD).

Scope of Audit

A comprehensive audit was conducted on the accounts and operations of

ISAWAD for calendar years CYs 2018 and 2017. The audit consisted of review of
operating procedures, evaluation of the WD’s programs and projects, interview of
concerned government officers and employees, verification, reconciliation, and
analysis of accounts, and such other procedures considered necessary.

Specifically, the objective of the audit is to ascertain the propriety of the

financial transactions and compliance of the agency to prescribed laws, rules and
regulations. It was also made to ascertain the accuracy of the financial records and
reports as well as the fairness of the presentation of the financial statements (FS).
Performance audit was likewise conducted with the objective of informing
management where improvement can be instituted in the field of revenues,
expenditures and management of resources.

The audit covered the examination on a test basis, the accounts and operations
of the ISAWAD, Isabela City, Basilan for CYs 2018 and 2017.

Financial Highlights
I. Comparative Financial Position

Accounts 2018 2017 2016

Assets ₱190,815,169.70 ₱171,950,164.13 ₱161,171,520.66
Liabilities 40,895,375.85 40,870,094.37 40,241,295.55
Capital 149,919,793.85 131,080,069.76 120,930,225.11

II. Comparative Results of Operations

Particulars 2018 2017 2016

Business and Service Income ₱70,525,793.62 ₱63,244,815.65 ₱57,802,417.73
Other Non-Operating Income 1,884,233.39 1,724,097.49 1,878,889.34
Personnel Services (PS) 24,805,449.77 22,724,320.55 19,424,039.29
Maintenance and Other
19,285,381.08 18,955,599.94 18,915,971.32
Operating Expenses (MOOE)
Financial Expenses 1,300,200.00 1,442,570.00 1,576,157.00
Non-Cash Expenses 10,136,614.37 9,290,979.58 5,606,155.98
Total Expenses 55,527,645.22 52,413,470.07 45,522,323.59
Net Income ₱16,882,381.79 ₱12,555,443.07 ₱14,158,983.48

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III. Comparative Data of Budget and Actual Expenditures

CY 2018
Particulars Budget Actual Variance
Personnel Services ₱27,808,541.00 ₱24,805,449.77 ₱3,003,091.23
MOOE 22,992,381.00 19,285,381.08 3,706,999.92
Capital Outlay 19,927,300.00 15,898,646.00 4,028,654.00
Totals ₱70,728,222.00 ₱59,989,476.85 ₱10,738,745.15

CY 2017
Particulars Budget Actual Variance
Personal Services ₱25,742,120.00 ₱22,724,320.55 ₱3,017,799.45
MOOE 25,783,590.00 18,955,599.94 6,827,990.06
Capital Outlay 14,379,373.00 15,865,000.00 (1,485,627.00)
Totals ₱65,905,083.00 ₱57,544,920.49 ₱8,360,162.51

CY 2016
Particulars Budget Actual Variance
Personal Services ₱25,277,050.00 ₱19,424,039.29 ₱5,853,010.80
MOOE 22,518,217.00 18,915,971.32 3,602,245.68
Capital Outlay 14,030,000.00 14,504,063.42 (474,063.42)
Totals ₱61,825,267.00 ₱52,844,074.03 ₱8,981,193.06

Operational Highlights

ISAWAD’s water supply comes from five springs and two surfaces or rivers.
Total water sales (WS) for CY 2018 had increased by ₱4,265,150.45 or 7.29% over
the last year. Total WS for CY 2017 had also increased by ₱2,189,810.89 or 3.89% as
compared to that of CY 2016. Collection of the current year and current year arrears
of ₱62,149,494.92 had also increased by 8.53% as compared to the CY 2017 figure of
₱57,262,484.75. Likewise, the collection for CY 2017 had also increased by 9.41%
compared to ₱52,339,015.41 of CY 2016.

Active water connections for the year totaled 9,841 which represent the
metered and billed connection, while population served was 49,085. The breakdown
of water connections are as follows:

Classification No. of Water Connections

Residential/Government 9,026
Commercial/Industrial 805
Bulk/Wholesale 10
Total 9,841

The collection efficiency for CY 2018 is 95.55%, or an increased of 1.09%

from rate of 94.46% of CY 2017. Moreover, collection efficiency of CY 2017 also
showed an increase of 1.47% as compared to CY 2016 collection efficiency of
92.99%

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 While there was a reported increase in WS in CYs 2018 and 2017, Accounts
Receivable (A/R) continued to decrease by ₱464,294.39 or 6.57% for CY 2018 and
₱440,126.86 or 7.42% for CY 2017, indicating an improvement in the collection of
A/R for both years.

Independent Auditor’s Opinion

The Auditor rendered a qualified opinion on the fairness of presentation of the

FS for CYs 2018 and 2017 taking exception on the effects of the following:

1. The A/R balance per General Ledger (GL) at year-end is not reconciled with the
Aging of A/R generated from the computerized Billing and Collection System due
to various deficiencies in the system resulting in a difference of P1,714,086.01 and
P1,552,004.46 for CYs 2018 and 2017, respectively, thus the accuracy of the A/R
account balances cannot be ascertained. Moreover, the non-adjustment of the
Allowance for Impairment-A/R resulted in the understatement of the Receivables
and Retained Earnings accounts.

2. The reliability of the reported year-end balances of the Inventory accounts totaling
P10,758,843.43 and P7,007,267.47 for CYs 2018 and 2017, respectively, could not
be established due to unreconciled balances between the GL, and the physical
inventory report.

3. Purchase/ acquisition of Office Supplies Inventory totaling P781,145.82 and

P1,008,316.46 for CYs 2018 and 2017, respectively is directly expensed in the
book which is not in consonance with COA Circular No. 2015-010, thereby
resulting in an understatement of Office Supplies Inventory account and
overstatement of Office Supplies Expense account.

4. The accuracy and existence of the Property, Plant and Equipment (PPE) account
cannot be ascertained due to the unreconciled balances between the reported PPE
balance in the FS and Report of Physical Count of PPE amounting to
P2,552,262.96 and P853,195.73 in CYs 2018 and 2017, respectively, and the
undetermined difference between the PPE balances per GL and per FS of
P61,294.27.

5. The errors in derecognizing the carrying costs of the disposed property and non-
depreciation of PPE items, which is not in accordance with PAS 16, resulted in the
understatement of Gain on Sale of PPE account by P21,500.00 and Retained
Earnings account by P800.00, and overstatement of the Miscellaneous Income, PPE
and Accumulated Depreciation accounts by P10,000.00, P45,300.00, and
P57,600.00, respectively.

6. Semi-Expendable Properties totaling P1,005,523.10 with net book value of

P171,765.70 and P222,337.93 for CYs 2018 and 2017, respectively, were not
reclassified in the proper accounts, thus PPE, Accumulated Depreciation and
Retained Earnings accounts were overstated.

7. Notes Payable (N/P) for the purchase of Waste Water Set-Up Spectrodirect
amounting to P340,000.00 was not recognized in the books, resulting in the

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 understatement of N/P and PPE accounts and the corresponding Depreciation
Expense account for CYs 2018 and 2017.

Significant Audit Observations and Recommendations

In the audit of ISAWAD transactions, we noted the following significant
observations and recommendations, details of which are discussed in detail with the
other audit findings in Part II of the Audit Report and are summarized as follows:

1. The District did not comply with the minimum frequency of sampling for
microbiological examination. Moreover, some of the water samples submitted for
examination and physical and chemical analysis failed the standard for drinking-
water quality contrary to Department of Health Administrative Order No. 2017-
0019 dated June 23, 2017.

We recommended that Management direct the Engineering and Construction

Division to:

a) Collect and submit sufficient number of samples to properly monitor any

microbial contamination in the source, water treatment plant outlets and
service area; and

b) Investigate the causes of high turbidity and unpleasant color of the samples
in some water outlets, especially the low presence of hydrogen level which
can affect the health of concessionaires, and damage the existing pipelines
that contribute to the high Non-Revenue Water of the District.

2. The grant and liquidation of cash advances (CAs), and payment of security
expenses totaling P488,752.79 and P1,144,264.59, respectively, were not properly
and substantially supported, hence, the validity of claims for these disbursements
cannot be ascertained. Liquidation of CAs for travel included local/ inland fares
after arrival in the temporary residence and cost of meals and accommodation of
more than one person.

We recommended that Management:

a) Direct the Senior Corporate Accountant (SCA) to ensure that all the
necessary documentary evidence are attached to the disbursement
vouchers (DVs) before processing these for payment; and

b) Discontinue the reimbursement of actual travel expenses that covers more

than one person, and stop granting additional travel advances that covers
local/inland transportation after arrival in the temporary residence.

3. The District’s payments for fuel, oil and lubricants for motor vehicles totaling
P1,955,608.17 were not supported with Driver’s Trip Tickets (DTT) and Monthly
Reports of Official Travels (MROT) to validate the authenticity of the use of fuel
for official travels, and fuel amounting to P15,685.10 were issued to privately
owned vehicles, casting doubt on the reasonableness and propriety of fuel
purchases.

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 We recommended that Management:

a) Direct the vehicle drivers to properly accomplish the DTTs with the
pertinent information required; and

b) Require the SCA to verify and ascertain that claims for fuel, oil, and
lubricants are supported with properly filled out and approved DTT, MROT
and Monthly Reports of Fuel Consumption for proper evaluation on the
reasonableness and propriety of fuel consumption; and

4. The Bids and Awards Committee (BAC) did not invite sufficient number of
observers in its procurement activities affecting the transparency of the
procurement process, and it awarded two contracts to bidders who provided
warranty period of less than the required period, thereby exposing the District to
risk of non-correction in case of manufacturing defects of the procured items.
We recommended that Management:

a) Direct the BAC and BAC Secretariat to send invitations to the COA, to at
least one from a duly recognized private group in a sector or discipline
relevant to the procurement at hand, and to non-government organization
to act as observers in the District’s procurement activities;

b) Direct the BAC to include in bidding documents or requests for price

quotations conditions that they require such as warranty and after sales
service, and ensure that the bids submitted by the suppliers are sufficient
and proper before accepting and passing the same for bid-evaluation and
post-qualification.

5. The District paid in advance for procured various sizes of uPVC for the Malamawi
Water Supply Pumping System Project amounting to P989,811.30 which is not in
keeping with Section 88(1), PD 1445. It also recorded the procurement of one unit
Light Cargo Truck with contract price of P2,257,873.00 upon partial payment of
P480,806.00 on December 28, 2018, even if the said motor vehicle was not yet
received and accepted as of December 31, 2018. Further, the ISAWAD did not
deduct liquidated damages in the amount of P40,641.71 for its delayed delivery on
January 18, 2019.

We recommended that Management:

a) Stop paying for the procured items without prior delivery by the supplier
and acceptance by the District, unless with approval from the President of
the Philippines;

b) Direct the SCA to ensure that all the necessary documentary evidence is
attached to the DVs before processing these for payment, and to refrain from
recording in the books any procured assets that are not yet received and
accepted by the District; and

c) Direct the SCA to deduct the resulting liquidated damages from the
subsequent payment for the delayed delivery of the procured motor vehic.

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Summary of Total Suspensions, Disallowances and Charges

There were no unsettled disallowances, suspensions and charges issued after the
effectivity of the COA 2009 Rules and Regulations on Settlement of Accounts as of
December 31, 2018.

Status of Implementation of Prior Years’ Audit Recommendations

Out of the 19 audit recommendations contained in the CY 2016 Annual Audit

Report, five were fully implemented, 12 were partially implemented and two were
unimplemented, the reason/s and/or justifications thereof are stated in Part III of this
Report.

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