EXECUTIVE SUMMARY

A. Introduction

The Puerto Princesa City Water District (PPCWD) was established on May 13,
1976 through Sangguniang Bayan Resolution No. 826-45-76, pursuant to Presidential
Decree No. 198 dated May 25, 1973. It was issued with Conditional Certificate of
Conformance No. 026 on August 05, 1976 by the Local Water Utilities Administration and
was granted the authority, under the Integrated Management Plan, to manage the 3,000
hectares Irawan Watershed through Sangguniang Panlungsod Resolution No. 631, s. 2004.

The PPCWD is classified as Category A effective January 2013 with 49,340 active
customers as of December 31, 2022 covering 47 out of the 66 barangays of Puerto Princesa
City managed by General Manager Walter J. Laurel with 212regular employees and 194
Job Order workers performing administrative and other functions. The Board of Directors
that serves as the policy-making body is chaired by Atty. Peter Winston T. Gonzales.

B. Financial Highlights

The Water District’s total assets, liabilities, equity, income and expenses for
Calendar Year (CY) 2022 with comparative figures for CY 2021 are summarized as
follows:

2022 2021 Increase (Decrease)

Assets ₱ 2,251,691,551.02 ₱ 1,965,968,065.62 ₱ 285,723,485.40
Liabilities 1,002,481,080.49 784,270,305.76 218,210,774.73
Equity 1,249,210,470.53 1,181,697,759.86 67,512,710.67
Income 507,508,083.45 450,322,249.84 57,185,833.61
Expenses 439,991,177.78 413,877,034.96 26,114,142.82

C. Scope of Audit

The Audit Team conducted Financial and Compliance Audit on the accounts and
operations of the Water District for CY 2022. It included analysis of accounts in the
financial statements, review of transactions and test of compliance with rules and
regulations. The objectives of the audit are to ascertain the fairness and reliability of the
Water District’s financial position and financial performance, and to determine whether its
operations were conducted in compliance with applicable laws, rules and regulations.

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D. Audit Opinion on the Financial Statements

The Auditor rendered a qualified opinion on the fairness of the presentation of the
financial statements of the Water District for CY 2022 due to the following:

a. The Cash in Bank account is understated by a net amount of ₱3,263,492.00 due to

failure to adjust reconciling items such as collections, returned checks and other bank
credit and debit memos from Calendar Years 2018 to 2022, thereby affecting the fair
presentation of the cash and other related accounts in the financial statements.

b. Disallowances and charges in audit totaling ₱32,652,875.00 which have become final
and executory were not recognized as receivables in the books of accounts of the Water
District thus, resulted in the understatement of the Receivables-
Disallowances/Charges, Due to BIR and Government Equity accounts by the amount
of ₱32,652,875.00, ₱15,557,690.73 and ₱17,095,184.27, respectively, while COA
Orders of Execution issued were not enforced due to failure to withhold payment of
salaries and other compensation in satisfaction of disallowances or charges contrary to
pertinent provisions of Sections 7.1 and 7.2 of COA Circular No. 2009-006 dated
September 15, 2009.

c. The accuracy of the recorded balances of Inventories, Property, Plant and Equipment
(PPE) and Other Assets accounts in the total amount of ₱1,933,676,198.30 is doubtful
due to a) discrepancy between the stock cards and book balances of various Inventory
accounts totaling ₱3,155,458.77; b) discrepancy between the physical count and book
balances of various Inventory accounts totaling ₱3,231,228.83; c) discrepancy
between the property card and book balances of various PPE accounts totaling
₱928,266,096.79; d) discrepancy between the physical count and book balances of
various PPE accounts totaling ₱2,754,524.66; e) understatement of PPE account by a
net amount of ₱44,875.00 due to non-reversal of derecognized property; f) lack of PPE
Ledger Cards (PPELCs); and g) non-reporting of unserviceable properties with net
book value of ₱10,015,803.36 thus, affecting the fair presentation of the accounts in
the financial statements.

d. Loss arising from the derecognition of disposed unserviceable properties during the
year amounting to ₱11,008,517.45 was not reported in the Statement of Financial
Performance for the year ended December 31, 2022 but was recorded instead as a
direct debit to the Retained Earnings account, thereby resulting in the overstatement
of the Net Surplus/Net Income by the same amount, contrary to pertinent provisions
in PFRS and IPSAS. Moreover, the Other Assets account was overstated by
₱418,591.11 as a result of the non-derecognition of other disposed items at the time of
disposal.

e. Property, Plant and Equipment (PPE) items below the capitalization threshold of
₱50,000.00 with total net book value of ₱5,417,237.66 were still included in the PPE
balance as of December 31, 2022 and were not retrospectively accounted in the books
as semi-expendable property, contrary to Items 4.1 and 4.2 of COA Circular No. 2022-

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 004 dated May 31, 2022 thus, overstating the PPE balance at year-end and
consequently understating the Retained Earnings by the same amount.

E. Significant Observations and Recommendations

For the exceptions cited above, we recommended that the General Manager

a. require the Accounting and Financial Management Department (AFMD) to identify

the reconciling items, furnish the Commercial Services Department with the list of
reconciling items pertaining to the collections and returned checks, and prepare the
necessary adjusting journal entries to adjust the cash in bank account and other related
accounts;

b. instruct the Commercial Services Department to submit to AFMD the information and
documents necessary in identifying the reconciling items pertaining to collections thru
banks for the preparation of the adjusting journal entries;

c. refer to the Board of Directors for the institution of policies/guidelines between the
Commercial Services Department and Accounting and Financial Management
Department on proper monitoring and recognition of collections received thru banks

d. thru the Assistant General Manager for Administration and Finance require the
Accounting Division to record the necessary adjusting entries to correct the
misstatements in the Receivables-Disallowances/Charges, Due to BIR and
Government Equity accounts;

e. thru the AFMD, send confirmation of account balances to members to facilitate

identification of collections thru banks.

e. i) thru the Assistant General Manager for Administration and Finance require the
Accounting Division to record the necessary adjusting entries to correct the
misstatements in the Receivables-Disallowances/Charges, Due to BIR and
Government Equity accounts; and ii) cause the immediate settlement of disallowances
and charges which have become final and executory and withhold payment of salaries
and other compensation, if warranted, to avoid further audit disallowances.

f. require the Accounting and Property/Supply Divisions to:

i) to reconcile their records with the RPCI to account for the discrepancis in the
balances of Inventory accounts, then make adjustments accordingly, where
applicable;

ii) reconcile their records with the RPCPPE and Property Cards to account for the
discrepancies in the balances of PPE accounts, then make adjustments
accordingly, where applicable;

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 iii) update Property Cards and Stock Cards regularly;

g. require the Accounting Division to:

i) set up the corresponding receivables from the concerned accountable personnel for
the non-existing/missing PPEs;

ii) take up the necessary reversal entries of derecognized PPE items and set up the
corresponding receivables from the concerned accountable personnel; and

iii) update PPELCs regularly to get reconciled with the balances of PPE accounts in
the General Ledger;

h. require the Disposal Committee to report in the IIRUP theunserviceable items in PPE
and Other Assets accounts with net book value of ₱10,015,803.36 duly supported with
the necessary documents.

i. the Accounting and Financial Management Department (AFMD) to

i) submit explanation on the non-reporting of the loss arising from the derecognition
of disposed items in the Statement of Financial Performance amounting to
₱11,008,517.45;

ii) prepare journal entries taking up the derecognition of disposed items included in
the Other Assets accounts amounting to ₱418,591.11;

iii) secure copies of IIRUP to support the reported amount of derecognition of

disposed items amounting to ₱13,040,126.34.

j. the Committee on Bids and Awards for Disposal to

i) submit explanation on the inclusion of Item RB-001 without appraised value in

the sale thru public auction;

ii) furnish AFMD with the complete copies of IIRUP of the assets sold at public
auction on October 28, 2022 as attachment to the derecognition in the books.

k. require the Accounting Department to account for all the PPE items with costs below
the capitalization threshold of ₱50,000.00 and make the necessary adjusting entries to
reclassify them as semi-expendable properties in accordance with COA Circular No.
2022-004. Issue the corresponding Inventory Custodian Slips taking into consideration
that high value items are those costing above ₱5,000.00.

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 Other significant observations and recommended courses of action in the audit of
PPCWD for CY 2022 which were discussed in detail in Part II of this report are as follows:

1. Uncollected past due accounts receivables increased by ₱8,928,549.71 from the

balance of ₱69,952,269.02 last year, which resulted in an aggregate amount of
₱78,880,818.73 as of December 31, 2022, indicating no improvement in the
collection of past due accounts due to failure to strictly implement the new policy
adapted on the collection of inactive accounts and accounts receivables.

We recommended that the General Manager require the Assistant General Manager
for Operations and the concerned department to exert efforts to intensify collection
of the District’s past due accounts receivable and strictly implement the procedures
prescribed in the Policy for Inactive Accounts and Accounts Receivable and to
include additional measures in the Policy for the collection of past due accounts
receivables from customers with active service connections.

2. The Water District continuously incurred rental and preventive maintenance

expenses for Ultraviolet (UV) Hydro Optic Disinfection systems which
accumulated to ₱51,902,802.00 and ₱3,084,987.64, respectively, as of December
31, 2022 and procured additional three units of UV disinfection system amounting
to ₱74,987,257.00 in February 2022, despite its capability to produce potable/safe
drinking water for its customers compliant with the quality standards set in the
Philippine National Standards for Drinking Water of 2017 thus, may result in the
incurrence of unnecessary expenditures as defined in COA Circular No. 2012-003
dated October 29, 2012. Furthermore, the amount of ₱290,746 was paid for
monthly preventive maintenance expenses which were beyond the contract period
while Liquidated Damages in the delivery of the UV Disinfectant amounting to
₱3,740,032.60 remained uncollected at year-end.

We recommended that the General Manager require the concerned department to:
a) submit the risk assessment reports and test results indicating presence of
contaminants in the water sources of the District requiring UV treatment and not
otherwise treated by chlorination to justify the expenditures incurred on UV
disinfection systems. In the absence thereof, we recommend that the Management
discontinue the rental and procurement of UV disinfection system; b) submit the
approved and BAC-recommended contract extension from April to May 2022, with
the corroboration adhering to the General Conditions for Extension. In the absence
thereof, we recommend that the Management cause the refund of preventive
maintenance payments made beyond the contract period amounting to ₱290,746; c)
require the concerned department to submit reports on the assessment of the
installation of rented UV Disinfection System in terms of water production of water
source facilities; and d) cause the collection of the liquidated damages amounting
to ₱3,740,032.60.

3. The Water District procured high-end or expensive models or brands of equipment

to be used in regular functions, duties and responsibilities of their office thus,

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 considered as unnecessary expenditures being prevented under COA Circular
2012-003 dated October 29, 2012.

We recommended that the General Manager require the concerned departments to

a) Discontinue the procurement of high-end and expensive equipment to observe
prudence in the incurrence of expenditures, particularly if the required output of
that office could be achieved by equipment that is much more economical and with
passable quality; and b) Submit a justification as to the necessity of the equipment
purchased citing among others the features of that certain brand of equipment where
the output of the department could greatly be affected if that certain feature is
absent.

4. Property, Plant and Equipment (PPE) with total acquisition costs of

₱2,384,278,494.67 as of December 31, 2022 were not insured with the General
Insurance Fund (GIF) of the Government Service Insurance System (GSIS)
inconsistent with Section 5 of Republic Act (RA) No. 656, as amended, thus, the
Water District will not be indemnified or compensated in case of damage or loss of
properties due to fire, or other fortuitous event tantamount to possible losses

We reiterated our recommendations that the General Manager a) cause the

preparation and submission of Property Inventory Form to the GSIS in accordance
with the provisions of COA Circular No. 2018-002 dated May 31, 2018 to enable
the GSIS to assess all insurable properties of the Water District to be able to have
insurance coverage pursuant to RA 656; and b) appropriate funds for the payment
of insurance premiums to adequately protect the government in case of damage or
loss of properties due to fire, typhoon or other fortuitous event

5. The programs, activities and projects (PAPs) identified in the Gender and
Development (GAD) Plan and Budget (GPB) for CY 2022 amounting to
₱39,968,373.46 do not clearly address gender issues and concerns contrary to the
provisions of the Philippine Commission on Women (PCW), National Economic
Development Authority (NEDA) and Department of Budget and Management
(DBM) Joint Circular No. 2012-01, due to the failure of the GAD Focal Point
System (GFPS) to develop the GAD Agenda to serve as basis for the annual
formulation of PAPs to be included in the GPBs for CY 2022. Thus, gender-
responsiveness of the Water District’s programs for the year was not achieved.

We recommended that the GFPS prepare and submit the GAD Agenda to PCW in
accordance with PCW MC No. 2018-04 dated September 19, 2018 and formulate
GAD Plan and Budget in accordance with GAD Agenda to ensure gender-
responsiveness of the Water District’s programs.

The above observations and recommendations were discussed with concerned

officials and staff of the Water Districtduring the exit conference conducted on June 22,
2023. Management’s comments were incorporated in the report, where appropriate.

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F. Summary of Audit Suspensions, Disallowances and Charges

The Water District has no unsettled Notices of Suspensions. However, it has

unsettled disallowances and charges amounting to ₱99,034,565.03 and ₱16,544,791.73,
respectively, as of December 31, 2022 as summarized below and shown in detail in Annex
G:

Particulars Disallowances Charges

With Notice of Finality of Decision (NFD) ₱ 3,151,500.00

With NFD and COA Order of Execution 28,966,642.02 ₱16,544,791.73
With Appeal and Petition for Review 62,394,637.87
Without NFD 4,521,785.14
Total ₱99,034,565.03 ₱16,544,791.73

G. Status of Implementation of Prior Years’ Audit Recommendations

Of the 39 audit recommendations embodied in CYs 2010 to 2021 Annual Audit

Reports (AARs), 7 were fully implemented, 17 were partially implemented and 15 were
not implemented by the Water District.

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