Republic of the Philippines

COMMISSION ON AUDIT
Commonwealth Avenue, Quezon City

ANNUAL AUDIT REPORT

on the

TANAUAN WATER DISTRICT

Tanauan City, Batangas

For the Year Ended December 31, 2019

 TANAUAN WATER DISTRICT
Agency

AGENCY ACTION PLAN AND STATUS OF IMPLEMENTATION

Audit Observations and Recommendations
For the Calendar Year 2019
As of _______________________

Agency Action Plan

Reason for
Target Action
Audit Audit Status of Partial/Delay/Non-
Ref. Action Person/Dept. Implementation Taken/Action
Observations Recommendations Implementation implementation, if
Plan Responsible Date to be Taken
applicable
From To

Agency Sign-Off:

________________________________ _______________
Name and Position of Agency Officer Date

Note: Status of Implementation may either be (a) Fully Implemented (FI), (b) Ongoing (O), (c) Not Implemented (NI), (d) Partially Implemented (PI), or (e) Delayed
(D)
 EXECUTIVE SUMMARY

Introduction

The Tanauan Water District (TWD) is situated along Jose P. Laurel Highway, near the
boundaries of Tanauan and Sto. Tomas, Batangas. It is a “Category B” Water District as
categorized under the Revised Local Water District Manual on Categorization, Re-
Categorization and Other Related Matters set by the Department of Budget and
Management (DBM).

The TWD was formed and became operational in May 1988 upon transfer of existing
water facilities by the Municipality of Tanauan to the Water District. It is governed by the
Local Water Utilities Administration (LWUA) rules and regulations pursuant to
Presidential Decree (PD) No. 198, otherwise known as the Provincial Water Utilities Act
of 1973 (as amended), to provide safe, sufficient and potable water supply to the
constituents of Tanauan, Batangas.

It derives its water supply from spring and wells and is distributed to the concessionaires
through its 83 active pumping stations located at various barangays of Tanauan City.

The TWD has entered into a Contractual Joint Venture Agreement (JVA) with the
Consortium of Manila Water Company, Inc. (MWCI) and Manila Water Philippine
Ventures (MWPV) on February 4, 2019. The latter’s primary purpose is to engage in the
development, improvement, upgrade and expansion of water supply and sanitation
facilities, including the financing, design, engineering and construction of such facilities
and infrastructure, and the management, operation and maintenance of such water
supply and sanitation facilities and provide services necessary or incidental thereto in the
service area. The Joint Venture (JV) implementation has started on June 1, 2019.

Ms. Feliciana V. Sumague, General Manager, heads the TWD at present while the
Board of Directors, with five members, is composed of the following:

Name Position Sector

Mr. Apolinario C. Hernandez Chairman Professional

Ms. Erlinda M. Nazareth Vice Chairman Women
Ms. Juana O. Manglo Secretary Education
Mr. Efren C. Macalindong Member Civic
Mr. Manuel C. Lascano Member Business

Financial Highlights

The TWD’s financial condition and results of operations for Calendar Years (CYs) 2018
and 2019 are summarized below and shown in detail in the attached audited financial
statements:

2019 2018 Increase

(Decrease)
Assets P214,910,329.08 P215,815,891.64 P(905,562.56)
Liabilities 14,600,203.83 24,451,910.43 (9,851,706.60)

i
 2019 2018 Increase
(Decrease)
Equity 200,310,125.25 191,363,981.21 8,946,144.04

Gross Income 91,831,066.98 146,585,116.74 (54,754,049.76)

Expenses 73,954,481.34 130,236,487.52 (56,282,006.18)
Net Income 17,876,585.64 16,348,629.22 (1,527,956.42)

Scope of Audit

Financial and compliance audits were conducted on the accounts and operations of the
TWD for CY 2019 to ascertain the propriety of its financial transactions and operations
and compliance with the prescribed government rules and regulations. The audit was
aimed to ascertain the fairness and reliability of the TWD’s financial statements.

The documents to support the total project cost amounting to P1.509 billion and the
annual Joint Venture (JV) Shares pertaining to the Joint Venture Agreement (JVA)
entered into by the TWD with Consortium of Manila Water Company, Inc. (MWCI) and
Manila Water Philippine Ventures, Inc. (MWPV) were not presented for post-audit
evaluation despite the written request by the Audit Team.

Audit Opinion

The Auditor did not express an opinion on the accompanying financial statements of the
TWD for year ended December 31, 2019 due to the following:

1. The TWD has received an Unsolicited Proposal to undertake through Joint Venture
project with the original proponent – MWCI and MWPV for the design, financing,
construction, rehabilitation, operation, maintenance, expansion and management of
the water supply system and sanitation services of TWD in the City of Tanauan.
MWCI and MWPV shall form a consortium, wherein the consortium and TWD will
enter into a JVA. With the primary purpose to engage in the development,
improvement, upgrade and expansion of water supply and sanitation facilities,
including financing, design, engineering and construction of such facilities and
infrastructure, and the management, operation and maintenance of such water
supply and sanitation facilities and provide services necessary or incidental thereto
in the service area, the JVA was mutually signed on February 4, 2019 and
commenced its operation on June 1, 2019. The results of the review of the above
JVA are enumerated below:

a. The validity, completeness and correctness of the TWD’s Government Equity

account could not be verified due to the following: i) inadequate disclosure in
the Notes to Financial Statements of the JVA specifically the total project cost of
P1.509 billion; ii) non-submission of necessary computations and documents to
support the annual Joint Venture (JV) shares ranging from P17.5 million to
P21.5 million; and iii) fund to support the project for the whole duration of the JV
was not established/deposited in a special bank account under dual control.

ii
 b. There was no Feasibility Study or a Business Case/Pre-feasibility Study of the
Project conducted by the TWD as required under Section II.1.c, Annex A of the
2013 Revised Guidelines and Procedures for Entering into JVAs of the National
Economic Development Authority (2013 NEDA Revised JV Guidelines) dated
May 11, 2013, thus there was no basis for determining whether or not the JVA
is necessary and advantageous on the part of the government, in violation of
the aforementioned Guidelines.

c. The requirements, as stated in the Selection/Tender Documents, were not

strictly complied with in a way that will promote transparency, competitiveness
and accountability in government transactions, contrary to Section 6.5 of the
2013 NEDA Revised JV Guidelines.

d. There was no detailed plan and timeline as to how and when the Consortium of
MWCI and MWPV will accomplish the objectives of the JV Project, thus
attainment of its business objectives will not be efficiently and effectively
monitored by the TWD.

e. The TWD’s contributed assets to the JVA were not properly valuated.
Moreover, the TWD did not subject its assets and facilities that will be used by
the Consortium of MWCI and MWPV to a third party independent valuation,
contrary to Section 6.2(b) of the 2013 NEDA Revised JV Guidelines.

f. The agreed tariff rates on Article 12 of the JVA were likewise not provided with
an evaluation or study made by the TWD for the protection of its
concessionaires and to determine the necessity and reasonableness of the
increases.

g. There was no public disclosure as to the acceptance of the JV Proposal

contrary to Section 28, Article II of the 1987 Philippine Constitution, Section 3.d.
of Executive Order (EO) No. 68 s. 1999 and Section (g), Chapter III of the
Commonwealth Act No. 146.

h. Several provisions of the JVA were not complied by both parties, thereby
defying the contractual intent established in the JV for the implementation of the
project.

2. The validity and propriety of the TWD’s disbursements amounting P4.531 million
could not be ascertained as Management could not submit the 44 accounted Check
Vouchers (CVs) per Voucher Register and their supporting documents for audit
purposes, contrary to Sections 107 and 122 of PD No. 1445.

Likewise, the Audit Team draws attention to the uncertainties related to the outcome of
the JVA entered by the TWD due to the significant deviations in the financial statements.

For the above cited deficiencies which caused the issuance of a disclaimer of opinion,
we recommended that Management:

1.a.i. properly disclose in the Notes to Financial Statements the total cost of the JV
Project amounting to P1.509 billion and establish/deposit in a special bank
account under dual control the total project cost as proposed by the Consortium of

iii
 MWCI and MWPV, in accordance with Section II.4(h), Annex A of the 2013
Revised NEDA Guidelines and Procedures for Entering into JVA;

a.ii. submit the necessary documents to support the JV Share computation, for further
evaluation by the Audit Team;

b. cause the submission of written explanation and justification by members of the

TWD Board of Directors and the created JVSC for the failure to conduct feasibility
study prior to acceptance of the JV proposal;

c. submit the following documents to facilitate complete review of the legal and
technical aspects of the Joint Venture Agreement and to establish effective and
efficient review process and generate relevant audit results, viz:

 justifications/reason for set amount of the non-refundable fee for a complete

set of EDs Volumes I and II amounting to P500,000.00 and P1 million,
respectively;

 rationale of the provision regarding payment of winning PSP an amount of

P30.18 million to reimburse the expenses incurred by the Original Proponent
to complete the Unsolicited Proposal; and

d. require the Consortium of MWCI and MWPV to immediately submit a detailed plan
with the corresponding project cost showing how they intend to fulfil its service
obligation per JVA, together with the timelines within which to accomplish the
same;

e. immediately apply for the dispute as provided in Article 15 of the JVA in connection
with the following deficiencies noted in the said contract:

 no proper valuation on the turned-over assets of the TWD;

 proposed tariff increase without proper evaluation of the necessity and

reasonableness thereof;

f. submit justification for the absence of public hearing prior to the acceptance of the
JVA as it is detrimental and concerns the interest of the public; and

g. review the signed JVA and make representation with the Consortium of MWCI and
MWPV that an addendum or revision be prepared and signed by both parties to
consider the following provisions on:

 the Company whom the appointment and authority was granted;

 party responsible for the collection of Accounts Receivable;
 delay on remittance of JV share and the consequence for the said delay; and
 non-interest bearing loan to support the downsizing of the TWD.

2.a. cause the immediate submission of the 44 CVs amounting to P4.531 million,
together with their supporting documents, in compliance with Sections 107 and
122 of PD No. 1445;

iv
 b. institute appropriate actions against the concerned officers for non-submission of
the said disbursement accounts; and

c. direct the Division Manager–Finance to monitor and ensure that the CVs and their
supporting documents are filed intact to avoid losses or misplacements.

Moreover, failure on the part of the officials concerned to submit the documents
mentioned herein shall cause the suspension of payment of their salaries until they shall
have complied with the requirements of the COA as provided under Section 122 of PD
No. 1445.

Summary of Other Significant Observations and Recommendations

Below is a summary of other significant audit observations and recommendations which

are discussed in detail in Part II of the Report.

1. The accuracy, reliability and validity of the recorded balances of the Property, Plant and
Equipment (PPE) accounts amounting to P121.377 million (net of Accumulated
Depreciation) as of December 31, 2019 could not be fully ascertained due to the
following:

a. The TWD was unable to conduct a complete physical count of its PPE and to
prepare the required Report on Physical Count of Property, Plant and Equipment
(RPCPPE) thereon, contrary to Sections 124 and 66 of the Manual on the New
Government Accounting System (MNGAS), Volumes I and II, respectively.

b. TWD’s ownership on parcels of land with total cost of P4.927 million remained
doubtful for lack of Transfer Certificates of Title or other documents to prove
absolute ownership thereof, contrary to Section 39 of PD No. 1445, thus the TWD’s
interest cannot be protected against third party claims.

c. PPE accounts with reported balance of P481,058.13 cannot be relied upon due
to non-provision of accumulated depreciation for some PPE items, contrary to
Sections 58 and 121(2) of PD No. 1445.

d. Tangible items below the capitalization threshold of P15,000.00 totaling P4.4

million were not accounted as semi-expendable property upon adoption of the
Philippine Financial Reporting Standards in CY 2017, contrary to Item 5.4 of
COA Circular No. 2016-006 dated December 29, 2016.

e. One unit of motor vehicle costing P83,900.00 and net book value of P8,390.00
was not derecognized in the books of account upon disposal, thereby
overstating the total PPE by P8,390.00, contrary to Philippine Accounting
Standards (PAS) 16 – Property, Plant and Equipment. The corresponding gain
on disposal amounting to P11,610.00 was, likewise, not recorded.

v
 We recommended that the OIC-General Manager:

a. require the Contract Monitoring Unit to set a deadline for the conduct of
complete physical count of Property, Plant and Equipment together with the
preparation and submission of RPCPPE;

b. exert best effort to secure all the requirements for the titling of properties in
favor of the TWD, pursuant to Section 39 of PD No. 1445 and COA Circular No.
2012-001;

c. direct the Accounting Section to review and reconcile the items of PPE with the
General Ledger and Lapsing Schedules and prepare the necessary adjusting
entries in compliance with Sections 58 and 121(2) of PD No. 1445;

d. facilitate the review of Lapsing Schedules and identify those items valued at
P15,000.00 and below from PPE for reclassification to Retained Earnings. After
which, prepare the adjusting entries to restate the correct balance of the PPE
accounts, in compliance with COA Circular No. 2016-006 dated December 29,
2016; and

e. instruct the Division Manager-Finance to prepare the necessary adjusting entries to

record the disposal of one unit motor vehicle to reflect the correct balance of the
affected accounts.

2. The accuracy, valuation and collectability of the Accounts Receivable (AR) account
amounting to P7.638 million is doubtful due to the following:

a. Computation of the Allowance for Impairment-AR estimated at P2.846 million as

of December 31, 2019 was still inconsistent with Paragraphs 5.5.14 and
B5.5.35 of Philippine Financial Reporting Standards (PFRS) 9, thus valuation of
the Net Realizable Value and computed Impairment Loss on Accounts
Receivable is doubtful.

b. One to above five years long-outstanding active and inactive accounts totalling
P6.355 million are doubtful of collection.

c. The Finance Division still failed to reconcile the AR account with the balance
per Aging Schedule of P7.670 million (gross of P18,335.20 overpayments)
resulting to a variance of P31,685.85, contrary to Section 111 of PD No. 1445.

We recommended that Management:

a. prepare and adopt a realistic policy, for approval by the Board of Directors, on
setting-up provisions for Allowance for Impairment-AR based on Paragraphs
5.5.14 and B5.5.35 of PFRS 9 taking into consideration the historical data of
collection experience and overall assessment of possibility of collections to
ensure proper, accurate valuation and fair presentation of AR in the financial
statements;

b. require the Finance Division to re-compute the Allowance for Impairment based
on the rates prescribed in the PFRS 9 or policy that would be formulated and

vi
 approved by the Board of Directors. Thereafter, make the necessary adjusting
journal entries to correct the balance of the Allowance for Impairment provided
for the AR for proper valuation of the accounts;

c. complete the service of notices to collect from the remaining delinquent

concessionaires by creating a special task force to be assigned in each
classification of past due accounts and implement a time-bound collection
action plan which shall serve as the timeframe of the TWD on its collection to
avoid the continuous loss of the quality and value of the receivables;

d. upon exhaustion of all possible ways to collect, request from the COA an
authority to write-off receivables duly documented with actions made to those
accounts considered as dormant, in accordance with COA Circular No. 2016-
005 dated December 19, 2016; and

e. reconcile the discrepancy noted between the Aging Schedule and balances per
books, including the correction of noted overpayments, and make the
necessary adjusting entries therefor.

3. The accuracy, completeness, reliability and existence of the Inventory accounts with
recorded balance of P2.683 million as of CY 2019 cannot be fully relied upon due to
failure to conduct complete physical count and non-submission of Report on the
Physical Count of Inventories (RPCI) on all inventories held by TWD, contrary to
Section 490 of the Government Accounting and Auditing Manual, Volume I and
Section 65 of the MNGAS, Volume II.

We recommended that the OIC-General Manager:

a. require the Administrative Services Officer A to take year-end count of

Construction Materials, Electrical Supplies and Materials and Other Supplies
and Materials Inventory accounts and prepare the required RPCI thereon; and

b. complete the posting of transactions in the Inventory system and reconcile the
difference between the Property and Accounting records. After which, make the
necessary adjusting entries on Inventory accounts to fairly present its balances
in the financial statements.

4. The accuracy, completeness, validity, valuation and collectability of the Other

Receivables (OR) account with recorded balance of P10.864 million for CY 2019
cannot be fully relied upon due to the following:

a. Unusual negative amounts totaling P205,853.06 were still part of the OR

subsidiary account with book balance of P1.911 million, resulting in the
understatement of the account by the same amount.

b. The OR account was still not provided with Allowance for Impairment, contrary
to Paragraphs 5.5.14 and B5.5.35 of Philippine Financial Reporting Standards
(PFRS) 9, resulting in an inaccurate presentation of the net realizable value of
the OR.

vii
 We recommended that Management:

a. continue to review, verify and validate the negative balances on the OR

account, and make necessary entries to present the correct balance of the OR
account;

b. act on the collection of payments from these debtors, otherwise, upon

exhaustion of all possible ways to collect, request from the COA an authority to
write-off receivables duly documented with actions made to those accounts
considered as dormant, in accordance with COA Circular No. 2016-005 dated
December 19, 2016; and

c. provide an Allowance for Impairment based on collectability of receivable

balances as provided in Paragraphs 5.5.14 and B5.5.35 of PFRS 9 or the Board
may also pass a resolution adopting a new policy on the computation of
percentage based on the collectability of OR.

5. Unserviceable or junked items of Property, Plant and Equipment (PPE) with a total
acquisition cost of P3.544 million and net book value of P332,407.53, were
erroneously reclassified to Other Assets account in CY 2019, in violation of
Philippine Accounting Standards (PAS) 16 – Property, Plant and Equipment, thus
understating the reported PPE account balance by P332,407.53. Moreover, these
unserviceable or junked items PPE were not disposed of, contrary to Section 79 of
PD No. 1445 and COA Circular No. 89-296 dated January 27, 1989, thus exposing
these properties to further deterioration, precluding the TWD from better chances of
recovery of their residual values if these properties have been immediately disposed
through public auction, sale or negotiation.

We recommended that the OIC-General Manager:

a. direct the Division Manager–Finance to make the necessary reclassification

entries to revert back to PPE account items that were considered junked,
obsolete or unserviceable, awaiting for its final disposition;

b. require the Division Manager–Finance to investigate and locate the reclassified

PPE items with lacking particulars or details in the amount of P569,965.60;

c. require the Disposal Committee to facilitate the disposal of the unserviceable or

junked items of PPE with book value of P332,407.53 to prevent further
deterioration of the assets and decongest the storage area, in compliance with
Section 79 of PD No. 1445 and COA Circular No. 89-296 dated January 27,
1989;

d. require the Property Officer to prepare the prescribed IIRUP as basis for
dropping from the books the subject unserviceable or junked items from the
PPE accounts; and

e. instruct the Property Officer to submit the IIRUP to the Accountant upon
completion of the disposal activity and ensure that the original copy of the report
will be the basis in the proper adjustment of the balance of affected PPE
accounts through a duly approved Journal Entry Voucher.

viii
6. Account balances of Accounts Payable and Other Payables amounting to
P432,162.66 and P1.809 million respectively, could not be fully ascertained due to
the following:

a. Accounts Payable representing staled checks from various payees amounting

to P91,888.62 remained outstanding from two to twelve years, thus doubting
the validity of its claims, contrary to COA Circular No. 99-044 dated August 17,
1999.

b. Various payables to former TWD employees charged against Other Payables

account amounting to P9,745.97 (net of negative balances) were not paid out
upon resignation or retirement of the concerned employees.

c. Items of Other Payables amounting to P64,498.70 remained dormant for more

than five years, thereby the validity of payment cannot be established and
affects the true financial position of the TWD.

We recommended that the OIC-General Manager require the Division Manager–

Finance to undertake a thorough review and analysis of the details of the payable
accounts and effect the necessary adjustments to revert to appropriate fund the
balance of liability accounts which could be supported with valid claims.

7. The balance of Guaranty Deposits (GD) Payable representing customers’ deposits

totaling P1.815 million for CY 2019 remained unreconciled for three consecutive
years with the schedule prepared by the Commercial Division personnel amounting
to P1.317 million, showing a difference of P498,224.25, thus casting doubt on the
accuracy and reliability of the account.

We recommended that the OIC-General Manager:

a. instruct the Administrative Services Officer A, Commercial Division, to

continuously retrieve the data pertaining to service connections that were
collected with GDs in order to establish a complete list of concessionaires with
Guaranty Deposits Payable;

b. after which, facilitate possible offsetting or application of GD to any unpaid or

past due bill of verified concessionaires or confirmed creditors. While for GDs of
concessionaires that were already disconnected and have no outstanding
balance, consider recording the same as income upon proper approval from the
Board of Directors; and

c. direct the Division Manager-Finance and Administrative Services Officer A to

reconcile their records and exert additional effort in retrieving the data that could
support the discrepancies noted to present the account in the financial statements
fairly.

8. The reported balance of Other Unearned Revenue/Income (OUR/I) account

amounting P8.750 million as of December 31, 2019 representing unearned portion
of fixed revenue share on the JVA is doubtful due to non-recognition of one month
earned revenue amounting to P1.458 million, thus overstating the liabilities in the
Statement of Financial Position (SFP) and understating the income in the Statement

ix
 of Comprehensive Income (SCI) for the same amount, contrary to the Philippine
Accounting Standards (PAS) 1 on the Presentation of Financial Statements and
Revised Chart of Accounts (RCA) of COA Circular No. 2015-010 dated December 1,
2015.

We recommended that the OIC-General Manager direct the Division Manager–

Finance to make the necessary adjusting entries to recognize the earned portion of
the fixed revenue share for proper reconciliation of liability account.

9. The Non-Revenue Water (NRW) of 2,411,911 cu.m was incurred by the TWD in CY
2019 which is equivalent to 34.33 per cent of its total production, higher than the
prescribed rate of 20 per cent by Local Water Utilities Administration (LWUA) under
its Resolution No. 444. s. of 2009, thus resulting in an estimated revenue loss of
P32.065 million. In addition, the TWD was unable to submit the required Monthly
Data Sheet for the months of June to December 2019 to the LWUA, contrary to
LWUA Memorandum Circular No. 009-18 dated April 16, 2018.

We recommended that Management, in coordination with Consortium of MWCI and

MWPV, facilitate the implementation of measures to reduce the NRW rate to an
acceptable level set by LWUA, pursuant to its Resolution No. 444 s. 2009 in order to
comply with the terms agreed upon in the Joint Venture Agreement. Likewise,
comply with the reportorial requirements of LWUA, in accordance with LWUA MC
009-18 dated April 16, 2018.

10. Evaluation on the implementation of the TWD’s Gender and Development (GAD)
Plan and Budget for CY 2019 could not be facilitated because the submitted GAD
Accomplishment Report (AR) does not comply with the required format for its
preparation as prescribed under Philippine Commission on Women (PCW), National
Economic Development Authority (NEDA) and Department of Budget and
Management (DBM) Joint Circular No. 2012-01.

We recommended that Management:

a. implement GAD activities in accordance with the approved GPB for the agency
to achieve its objective of addressing the TWD’s identified gender issues and
concerns and prepare the required GAD AR in accordance with the prescribed
format under the PCW-NEDA-DBM Joint Circular No. 2012-01; and

b. instruct the GAD Focal Point Systems to take the lead in monitoring the
implementation of GPBs and report on its results.

Status of Audit Suspensions, Disallowances and Charges

The TWD has unsettled disallowances totaling P3,952,295.88 as of December 31, 2019.

Status of Implementation of Prior Year’s Audit Recommendations

Of the 37 audit recommendations embodied in the preceding Annual Audit Report, 15

were fully implemented, eight were partially implemented and 14 were not implemented
by the TWD.

x
 TABLE OF CONTENTS

PART TITLE PAGE

I Audited Financial Statements

Independent Auditor’s Report 1

Statement of Management’s Responsibility 3

for Financial Statements

Statement of Financial Position 4

Statement of Comprehensive Income 5

Statement of Changes in Equity 6

Statement of Cash Flows 7

Notes to Financial Statements 8

II Observations and Recommendations 27

III Status of Implementation of Prior Year’s Audit 75

Recommendations

IV Annexes

Annex A – Inventory for Turnover - Manila Water 90

Annex B – Inventory - Property, Plant and Equipment (PPE) 91

(Retained Assets)

Annex C – Schedule of Proposed Water Rates 92

Annex D – List of Unsubmitted Check Vouchers 93

Annex E – List of Property, Plant and Equipment (PPE) Items 95

Reclassified to Other Assets

Annex F – List of Dormant Staled Checks 98

PART I – AUDITED FINANCIAL STATEMENTS
 Republic of the Philippines
COMMISSION ON AUDIT
Commonwealth Avenue, Quezon City

INDEPENDENT AUDITOR’S REPORT

THE BOARD OF DIRECTORS

Tanauan Water District
Tanauan City, Batangas

Disclaimer of Opinion

We have audited the financial statements of the Tanauan Water District (TWD), which
comprise the Statement of Financial Position as at December 31, 2019, and the
Statement of Financial Performance, Statement of Changes in Equity and Statement of
Cash Flows for the year then ended, and Notes to Financial Statements, including a
summary of significant accounting policies.

We do not express an opinion on the accompanying financial statements of the TWD.

Because of the significance of the matters described in the Basis for Disclaimer of
Opinion section of our report, we have not been able to obtain sufficient appropriate
audit evidence to provide a basis for an audit opinion on these financial statements.

Basis for Disclaimer of Opinion

The Management of the TWD was unable to submit all documents to support the
transactions of the Joint Venture Agreement (JVA) for the design, financing,
construction, rehabilitation, operation, maintenance, expansion and management of the
water supply system and sanitation services of TWD in the City of Tanauan entered into
by the TWD and the Consortium of Manila Water Company, Inc. (MWCI) and Manila
Water Philippine Ventures, Inc. (MWPV). Thus, the validity, completeness and
correctness of the TWD’s Government Equity accounts for the year then ended could
not be verified due to the following: i) inadequate disclosure in the Notes to Financial
Statements of the JVA specifically the total project cost of P1.509 billion; ii) non-
submission of necessary computations and documents to support the annual Joint
Venture (JV) shares ranging from P17.5 million to P21.5 million; and iii) fund to support
the project for the whole duration of the JV was not established/deposited in a special
bank account under dual control. Likewise, the validity and propriety of the TWD’s
disbursements amounting to P4.531 million could not be ascertained as Management
could not submit the 44 accounted Check Vouchers (CVs) per Voucher Register (VR)
and their supporting documents for audit purposes, contrary to Sections 107 and 122 of
Presidential Decree (PD) No. 1445. Likewise, the Audit Team draws attention to the
uncertainties related to the outcome of the JVA entered by the TWD due to the
significant deviations in the financial statements.
Responsibilities of Management and Those Charged with Governance for the
Financial Statements

Management is responsible for the preparation and fair presentation of these financial
statements in accordance with PFRSs, and for such internal control as management
determines is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.

Those charged with governance are responsible for overseeing the TWD’s financial
reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our responsibility is to conduct an audit on the Tanauan Water District’s financial

statements in accordance with the International Standards of Supreme Audit Institutions
(ISSAIs) and to issue an auditor’s report. However, because of the matters described in
the Basis for Disclaimer of Opinion section of our report, we were not able to obtain
sufficient appropriate audit evidence to provide a basis for an audit opinion on these
financial statements.

We are independent of the TWD in accordance with the ethical requirements that are
relevant to our audit of the financial statements, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.

COMMISSION ON AUDIT

BY:

MELANIE P. RUIDERA
OIC-Supervising Auditor

July 27, 2020

2
 TANAUAN WATER DISTRICT
STATEMENT OF FINANCIAL POSITION
As of December 31, 2019
(With Comparative Figures for CY 2018)

Note 2019 2018

ASSETS
Current Assets
Cash and Cash Equivalents 5 P 60,411,843.49 P 39,952,525.06
Other Investment 6 13,780,756.90 13,669,772.78
Receivables 7 15,655,523.88 15,914,485.80
Inventories 8 2,683,874.17 11,992,289.87
Other Current Assets 9 1,001,246.87 926,140.27
Total Current Assets 93,533,245.31 82,455,213.78

Non-Current Assets
Property, Plant and Equipment, net 10 121,377,083.77 133,360,677.86

TOTAL ASSETS P 214,910,329.08 P 215,815,891.64

LIABILITIES AND EQUITY

Current Liabilities
Financial Liabilities 11 P 432,162.66 P 11,455,744.18
Inter-Agency Payables 12 1,411,046.63 3,813,033.96
Trust Liabilities 13 1,815,839.25 2,032,703.85
Deferred Credits/Unearned Income 14 8,750,000.00 842,426.75
Other Payables 15 1,809,159.60 2,622,779.68
Total Current Liabilities 14,218,208.14 20,766,688.42

Non-Current Liabilities
Financial Liabilities 16 - 2,210,972.12
Provisions 17 381,995.69 1,474,249.89
Total Non-Current Liabilities 381,995.69 3,685,222.01

Total Liabilities 14,600,203.83 24,451,910.43

Equity 18
Government Equity 3,291,254.39 3,291,254.39
Retained Earnings/(Deficit) 197,018,870.86 188,072,726.82
Total Equity 200,310,125.25 191,363,981.21

TOTAL LIABILITIES AND EQUITY P 214,910,329.08 P 215,815,891.64

(See accompanying Notes to Financial Statements)

4
 TANAUAN WATER DISTRICT
STATEMENT OF COMPREHENSIVE INCOME
For the Year Ended December 31, 2019
(With Comparative Figures for CY 2018)

Note 2019 2018

Income
Service and Business Income 19 P 91,775,473.06 P 146,081,288.04
Gains 54,868.91 503,228.70
Other Non-Operating Income 725.01 600.00
Total Income 91,831,066.98 146,585,116.74

Expenses
Personnel Services 20 24,989,423.89 43,821,605.26
Maintenance and Other Operating
Expenses 21 31,232,472.28 68,341,004.44
Financial Expenses 22 300,167.38 629,459.36
Non-Cash Expenses 23 17,432,417.79 17,444,418.46
Total Expenses 73,954,481.34 130,236,487.52

Net Income P 17,876,585.64 P 16,348,629.22

(See accompanying Notes to Financial Statements)

5
 TANAUAN WATER DISTRICT
STATEMENT OF CHANGES IN EQUITY
As of December 31, 2019

Contributed
Retained Earnings/
Note Capital from Members' Equity TOTAL
(Deficit)
Government

BALANCE AT JANUARY 1, 2018 168,924,029.67 1,517,254.39 1,774,000.00 172,215,284.06

CHANGES IN EQUITY FOR 2018
Add/(Deduct):
Comprehensive Income for the year 16,348,629.22 16,348,629.22
Other Adjustments 2,800,067.93 2,800,067.93
BALANCE AT DECEMBER 31, 2018 19,148,697.15 - - 19,148,697.15

CHANGES IN EQUITY FOR 2019

Add/(Deduct):
Comprehensive Income for the year 17,876,585.64 17,876,585.64
Other Adjustments 4 (8,930,441.60) (8,930,441.60)
BALANCE AT DECEMBER 31, 2019 197,018,870.86 1,517,254.39 1,774,000.00 200,310,125.25

6
 TANAUAN WATER DISTRICT
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2019
(With Comparative Figures for CY 2018)

2019 2018
Cash Flows from Operating Activities
Cash Inflows
Proceeds from Sale of Goods and Services P 1,729,175.98 P 4,110,067.72
Collection of Income/Revenue 99,955,938.26 141,869,018.86
Collection of Receivables 2,144,712.91 1,691,456.19
Receipt of Intra-Agency Fund Transfers 4,038,020.00 4,600,000.00
Trust Receipts 83,078.74 -
Other Receipts 4,496,836.61 151,173.85
Total Cash Inflows 112,447,762.50 152,421,716.62
Adjustments 259,999.21 441,921.21
Adjusted Cash Inflows 112,707,761.71 152,863,637.83

Cash Outflows
Payment of Expenses 57,882,202.08 86,695,493.45
Purchase of Inventories 3,619,104.25 8,422,027.17
Grant of Cash Advances 137,435.99 43,000.00
Prepayments 463,181.92 746,070.41
Refund of Deposits 120,578.74 -
Remittance of Personnel Benefit Contributions and
12,060,097.79 17,800,046.63
Mandatory Deductions
Release of Intra-Agency Fund Transfers 4,038,020.00 4,600,000.00
Other Disbursements 436,187.35 233,769.66
Total Cash Outflows 78,756,808.12 118,540,407.32
Adjustments 388,853.65 3,065,825.04
Adjusted Cash Outflows 79,145,661.77 121,606,232.36

Net Cash Provided by/(Used in) Operating Activities 33,562,099.94 31,257,405.47

Cash Flows from Investing Activities

Cash Inflows
Proceeds from Sale/Disposal of Property, Plant and
Equipment 94,500.00 663,152.00

Cash Outflows
Purchase/Construction of Property, Plant and
Equipment 7,139,585.37 16,197,381.94
Purchase of Intangible Assets - 408,440.70
Total Cash Outflows 7,139,585.37 16,605,822.64

Net Cash Provided By/(Used In) Investing Activities (7,045,085.37) (15,942,670.64)

Cash Flows from Financing Activities

Cash Outflows
Payment of Long-Term Liabilities 6,057,696.14 3,956,108.90

Net Cash Provided By/(Used In) Financing Activities (6,057,696.14) (3,956,108.90)

Increase/(Decrease) in Cash and Cash Equivalents 20,459,318.43 11,358,625.93

Cash and Cash Equivalents, January 1 39,952,525.06 28,593,899.13

Cash and Cash Equivalents, December 31 P 60,411,843.49 P 39,952,525.06

7
 NOTES TO FINANCIAL STATEMENTS

1. GENERAL INFORMATION/ENTITY PROFILE

The financial statement of Tanauan Water District (TWD) was authorized for issue on
March 14, 2019 as shown in the Statement of Management Responsibility for
Financial Statements signed by Feliciana V. Sumague, the General Manager.

The TWD is situated along Jose Pres. Laurel Highway, near the boundaries of
Tanauan and Sto. Tomas, Batangas. It is a “Category B” water district as categorized
under the Revised Local Water District Manual on Categorization, Re-Categorization
and Other Related Matters set by the Department of Budget & Management (DBM)
effective March 31, 2012.

It was formed and became operational in May, 1988 upon transfer of existing water
facilities by the Municipality of Tanauan to the TWD. It is governed by LWUA rules
and regulations pursuant to Presidential Decree (PD) No. 198 otherwise known as
the Provincial Water Utilities Act of 1973 (as amended) to provide safe, sufficient and
potable water supply to the constituents of Tanauan, Batangas.

The TWD derives its water supply from wells and is distributed to the
concessionaires through its 83 active pumping stations located at various barangays
of Tanauan City.

The TWD has entered into Contractual Joint Venture Agreement with the Consortium
of Manila Water Company, Inc. (MWCI) and Manila Water Philippine Ventures
(MWPV) on February 4, 2019, of which the latter’s primary purpose is to engage in
the development, improvement, upgrade and expansion of water supply and
sanitation facilities, including the financing, design, engineering and construction of
such facilities and infrastructure, and the management, operation and maintenance
of such water supply and sanitation facilities and provide services necessary or
incidental thereto in the service area. The Joint Venture implementation has started
on June 1, 2019.

2. STATEMENT OF COMPLIANCE AND BASIS OF PREPARATION OF FINANCIAL

STATEMENTS

Under COA Circular No. 2016-006 dated December 29, 2016, Water Districts are
required to convert their existing accounts in accordance with the Revised Chart of
Accounts for Government Corporations prescribed under COA Circular No. 2015-010
dated December 1, 2015 and new and revised accounts prescribed under COA
Circular No. 2016-006. In compliance with the aforementioned circulars, the TWD
implemented the conversion from the Philippine Government Chart of Accounts
under the New Government Accounting System per COA Circular No. 2004-008
dated Sept. 20, 2004, as amended, to the Revised Chart of Accounts for Government
Corporations under COA Circular No. 2015-10 dated December 1, 2015.

The TWD’s financial statements have been prepared in compliance with the
Philippine Financial Reporting Standards (PFRS) prescribed by the Commission on
Audit through COA Resolution No. 2015-004 dated December 13, 2017.

The financial statements have been prepared using the measurement basis specified
by PFRS for each type of asset, liability, income and expense. These have been
prepared in the historical cost basis, except for the revaluation of certain financial

8
 assets, property, plant and equipment and investment property. The measurement
bases are more fully described in the accounting policies that follow.

The accounting policies have been consistently applied throughout the year
presented. The TWD’s financial statements have been prepared on the basis of
historical cost, unless stated otherwise. The Statement of Cash Flows is prepared
using the direct method.

The financial statements are presented in peso (P), which is also the country’s
functional currency. All values represent absolutes except when otherwise indicated.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis of accounting

The TWD adopts the accrual method of accounting. All expenses are recognized
when incurred and reported in the financial statements in the period to which
they relate. Income is on accrual basis except transactions where accrual basis
is impaired or when law requires other methods.

The District adopts the COA Revised Chart of Accounts as provided in COA
Circular No. 2015-010 dated December 01, 2015.

3.2 Financial Instruments

a. Financial assets

The TWD’s financial assets include: cash and cash equivalents and trade and
other trade receivables.

b. Financial liabilities

The TWD’s financial liabilities include trade and other payables and domestic
loans.

c. Cash and Cash Equivalents

Cash includes cash on hand and cash in banks (local currency).

Cash is valued at face value which includes petty cash and/or revolving fund.
Office collections are deposited the following day.

Petty Cash Fund shall be maintained under the Imprest System. All
replenishments are directly charged to appropriate expenses account.

d. Inventories

Inventories are stated at cost upon initial recognition, which includes purchase
price, and taxes, freight, handling and other cost incidental to the acquisition of
goods, materials and services as well as other costs incurred in bringing the
inventories to their present location and condition.

Cost of ending inventories is computed using the moving average method. A

physical count is undertaken at least twice a year.

9
Inventories include assets held for transfer and for consumption in the normal
course of TWD’s operations.

Inventories are recognized as an expense when deployed for utilization or

consumption in the ordinary course of operations of the Tanauan Water District.

e. Property, Plant and Equipment

 Recognition

An item is recognized as property, plant, and equipment (PPE) if it meets

the characteristics and recognition criteria as a PPE.

The characteristics of PPE are as follows:

i. tangible items;

ii. are held for use in the production or supply of goods or services, for
rental to others, or for administrative purposes; and

iii. are expected to be used during more than one reporting period.

An item of PPE is recognized as an asset if:

i. it is probable that future economic benefits or service potential

associated with the item will flow to the entity;

ii. the cost or fair value of the item can be measured reliably; and

iii. the cost is at least P15,000.00.

 Measurement at recognition

An item recognized as property, plant, and equipment is measured at cost.

The cost of the PPE is the cash price equivalent or, for PPE acquired
through non-exchange transaction, its cost is its fair value as at recognition
date.

Cost includes the following:

i. its purchase price, including import duties and non-refundable purchase

taxes, after deducting trade discounts and rebates;

ii. expenditure that is directly attributable to the acquisition of the items;

and

iii. initial estimate of the costs of dismantling and removing the item and
restoring the site on which it is located, the obligation for which an entity
incurs either when the item is acquired, or as a consequence of having
used the item during a particular period for purposes other than to
produce inventories during that period.

10
 Measurement after recognition

After recognition, all items of PPE are stated at cost less accumulated
depreciation and impairment losses.

In circumstances where it can be clearly demonstrated that the

expenditures have resulted in an increase in the future economic benefits
expected to be obtained from the use of an item of property and equipment
beyond its original assessed standard of performance, the expenditures
are capitalized as an additional cost of property, plant and equipment.

All other repair and maintenance costs are recognized as expense in

surplus or deficit as incurred.

 Depreciation

i. Initial recognition of depreciation

Depreciation of an asset begins when it is available for use such as when it

is in the location and condition necessary for it to be capable of operating
in the manner intended by management.

ii. Depreciation method

The straight-line method of depreciation is adopted unless another method

is more appropriate for Entity operation.

iii. Estimated useful life

The TWD uses the life span of PPE prescribed by COA in determining the
specific estimated useful life for each asset based on its experience.

iv. Residual value

The TWD uses a residual value equivalent to ten per cent (10%) of the
cost of the PPE.

Adjustments arising from the revision of the assets’ useful life were
charged to the current and subsequent year’s depreciation expenses of the
particular assets.

 Impairment

An asset’s carrying amount is written down to its recoverable amount, or

recoverable service amount, if the asset’s carrying amount is greater than
its estimated recoverable amount or recoverable service amount.

 Derecognition

The TWD derecognizes items of PPE and/or any significant part of an

asset upon disposal or when no future economic benefits or service
potential is expected from its continuing use. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net

11
 disposal proceeds and the carrying amount of the asset) is included in the
statement of comprehensive income.

f. Provisions, Contingent Liabilities and Contingent Assets

a. Provisions

Provisions are recognized when the TWD has a present obligation (legal or
constructive) as a result of a past event, it is probable that an outflow of
resources embodying economic benefits or service potential will be
required to settle the obligation and a reliable estimate can be made of the
amount of the obligation.

Where the TWD expects some or all of a provision to be reimbursed, for

example, under an insurance contract, the reimbursement is recognized as
a separate asset only when the reimbursement is virtually certain.

The expense relating to any provision is presented in the statement of

financial performance net of any reimbursement.

Provisions are reviewed at each reporting date, and adjusted to reflect the
current best estimate. If it is no longer probable that an outflow of
resources embodying economic benefits or service potential will be
required to settle the obligation, the provisions are reversed.

b. Contingent liabilities

The TWD does not recognize a contingent liability, but discloses details of
any contingencies in the notes to financial statements, unless the
possibility of an outflow of resources embodying economic benefits or
service potential is remote.

c. Contingent assets

The TWD does not recognize a contingent asset, but discloses details of a
possible asset whose existence is contingent on the occurrence or non-
occurrence of one or more uncertain future events not wholly within the
control of the TWD in the notes to financial statements.

Contingent assets are assessed continually to ensure that developments

are appropriately reflected in the financial statements. If it has become
virtually certain that an inflow of economic benefits or service potential will
arise and the asset’s value can be measured reliably, the asset and the
related revenue are recognized in the financial statements of the period in
which the change occurs.

g. Changes in Accounting Policies and Estimates

The TWD recognizes the effects of changes in accounting policy

retrospectively. The effects of changes in accounting policy are applied
prospectively if retrospective application is impractical.

The TWD recognizes the effects of changes in accounting estimates

prospectively through surplus or deficit.

12
 The TWD corrects material prior period errors retrospectively in the first set of
financial statements authorized for issue after their discovery by:

a. Restating the comparative amounts for prior period(s) presented in which

the error occurred; or

b. If the error occurred before the earliest prior period presented, restating the
opening balances of assets, liabilities and net assets/equity for the earliest
prior period presented.

h. Revenue from Exchange Transactions

a. Measurement of revenue

Revenue is measured at the fair value of the consideration received or

receivable.

b. Income from Waterworks System Fees

The TWD recognizes revenue from waterworks system fees classified into
metered, unmetered sales and other sales and service. The account also
includes fines and penalty charges on delinquent accounts, sale of meters
and other materials and other service revenues such as installation,
reconnection and inspection fees and other service revenue, etc.

i. Budget Information

The annual budget is prepared on a cash basis and is published in the

government website.

j. Employee Benefits

The employees of TWD are members of the Government Service Insurance

System, which provides life and retirement insurance coverage.
The TWD recognizes the undiscounted amount of short-term employee
benefits, like salaries, wages, bonuses, allowance, etc., as expense unless
capitalized, and as a liability after deducting the amount paid.

k. Measurement Uncertainty

The preparation of financial statements in conformity with PFRS requires

management to make estimates and assumptions that affect the reporting
amounts of assets and liabilities, and disclosure of contingent assets and
liabilities, at the date of the financial statements and the reported amounts of
the revenue and expenses during the period. Items requiring the use of
significant estimates include the useful life of a capital asset and allowance for
uncollectible accounts.

Estimates are based on the best information available at the time of

preparation of the financial statements and are reviewed annually to reflect
new information as it becomes available. Measurement uncertainty exists in
these financial statements. Actual results could differ from these estimates.

13
4. RETAINED EARNINGS ADJUSTMENTS

The TWD has determined under/over recorded depreciation expense of various

depreciable assets, water billings and penalty due to defective service connections,
audit fee and all other expenses for previous years.

As a result, total adjustments had a negative accumulated balance amounting to

P8,930,441.60, thus decreasing the current year’s retained earnings.

Summary of the Retained Earnings adjustments for the year 2019 is shown below:

Date Ref # Particulars Amount

Reimbursement of travel expenses and per diem per Travel
31-Jan-19 Voucher Register - 1,106.00
Orders 18-0585 dated 12.17.18 and 18-0595 dated 12.28.18
Reimbursement of travel expenses and per diem per Travel
31-Jan-19 Voucher Register - 560.00
Orders 18-0585/0595 dated 12.17.18 and 12.28.19
Phychem and bacti test of water samples per billing invoice
31-Jan-19 Voucher Register - 45,000.00
no. 0019022 dated 12.21.18
Personal phone calls of employees debited to expense for
31-Jan-19 JV #19-01-0147 885.35
December 2018
31-Jan-19 JV #19-01-0151 Billing Adjustment Memo for January 2019 - 32,420.10
31-Jan-19 JV #19-01-0158 Payroll - 119,984.38
Reclassification of closing of semi-expendable expenses on
31-Jan-19 JV #19-01-0163 May 31, 2018, re; JV #18-05-0167, royal cable/wire for air 15,760.00
conditioning unit at Engineering Division
Adjustment on overtime services charged to project cost last
28-Feb-19 JV #19-02-0125 - 3,092.18
November 2018
28-Feb-19 JV #19-02-0127 Billing Adjustment Memo for February 2019 - 5,901.70
Adjustment on various expenses debited to inventory account
28-Feb-19 JV #19-02-0140 - 24,790.00
last 2018
31-Mar-19 Voucher Register Legal services for months of May to December 2018 - 24,000.00
31-Mar-19 JV #19-03-0160 Billing Adjustment Memo for March 2019 - 161.20
Adjustment on cost of drilled well at Brgy Ulango shouldered
by Fujitsu but was credited to Other Deferred Credits account
31-Mar-19 JV #19-03-0174 842,426.75
and should have been decreasing thru collected Production
Assessment Cost (PAC) from Fujitsu
Adjustment of employees' accrued previous years' benefits
31-Mar-19 JV #19-03-0175 already paid but was not debited to Other Payable-Pension 781,025.77
and Benefits accounts during payment transactions
Unrecorded depreciation expense of various PPE accounts
31-Mar-19 JV #19-03-0176 - 378,057.33
for previous years
Understated recording of penalty on water bill for the months
31-Mar-19 JV #19-03-0180 of November and December 2017, March, April and 134,638.10
September 2017
30-Apr-19 JV #19-04-0121 Billing Adjustment Memo for April 2019 - 917.00
To correct/adjust cost of repair of TWD office building of
30-Apr-19 JV #19-04-0135 - 555,708.19
previous years
Cancelled PO #10-3979B per RR #5140 (Supplier cannot
31-May-19 JV #19-05-0172 484.80
deliver its items due to technical problem)
Reclassification entries on Other Receivable account with
31-May-19 JV #19-05-0188 31,063.90
negative balances as of May 31, 2019 due to error posting
30-Jun-19 JV #19-06-0060 Billing Adjustment Memo for June 2019 - 1,488.50
Power bill of Tanauan City High for the month of June 2018,
30-Jun-19 JV #19-06-0074 already paid (CV#2018--07-0979) but was debited to - 274,153.87
Accounts Payable account
31-Jul-19 Voucher Register PAWD annual dues for 2018 - 18,249.00
Previous years' money value of accumulated leave credits
31-Jul-19 JV #19-07-0062 - 4,598,447.74
debited to expense this July 2019
Previous years' money value of accumulated leave credits
31-Aug-19 JV #19-08-0080 - 2,580,807.40
debited to expense this Aug 2019
Previous years' money value of accumulated leave credits
30-Sep-19 JV #19-09-0053 - 1,188,931.01
debited to expense this Sept 2019
Previous years' money value of accumulated leave credits
31-Oct-19 JV #19-10-0062 - 262,947.95
debited to expense this Oct 2019

14
 Date Ref # Particulars Amount
Previous years' money value of accumulated leave credits
30-Nov-19 JV #19-11-0050 - 238,631.48
debited to expense this Nov 2019
Previous years' money value of accumulated leave credits
31-Dec-19 JV #19-12-0062 - 331,308.46
debited to expense this Dec 2019
Accruals of the remaining unpaid terminal leave benefits for
31-Dec-19 JV #19-12-0063 - 50,062.77
2019
31-Dec-19 JV #19-12-0075 Adjustment on Miscellaneous Expense - 0.01
Total - 8,930,441.60

5. CASH AND CASH EQUIVALENTS

This account consists of the following:

December 31, December 31,

Particulars
2019 2018
Cash – Collecting Officers P 6,801.20 P 482,556.20
Cash in Bank- Local Currency
LBP CA #2952-1022-09 43,124,771.02 28,281,246.40
LBP HYSA #2951-1323-17 1,861,096.15 1,845,943.73
LBP HYSA #2951-1323-25 2,320,270.09 2,301,583.66
UCPB SA #1025-1004-6675* 7,267,909.08 2,377,171.46
Cash Equivalents
Time Deposit – UCPB #3025-1000-5633** 5,790,995.95 4,624,023.61
Petty Cash Fund 40,000.00 40,000.00
Total Cash and Cash Equivalents P60,411,843.49 P39,952,525.06

* Portion of P7,267,909.08 amounting to P3,000,000.00 represents additional

deposit for reserved fund but was erroneously deposited to UCPB SA #1025-
1004-6675 and reclassified/adjusted the same to its intended purpose.

Cash equivalents are short term, highly liquid investments readily convertible to
known amounts of cash with original maturities of three months or less from date
of acquisition and are subject to insignificant risk of changes in value.

** Time Deposit pertains to reserved funds maintained at UCPB-Tanauan

Branch.

6. OTHER INVESTMENT

This account pertains to deposits maintained at LBP-Tanauan Branch (LBP CA

2951-1325-20), set apart in reserve for specific long term purposes such as loan
repayments, in case of default, for repairs of damaged facilities and for expansion
of the District's facilities, in cases of unforeseen events amounting to
P13,780,756.90.

15
7. RECEIVABLES

This account consists of the following:

Particulars CY 2019 CY 2018

Accounts Receivable P 7,638,247.07 P12,442,370.93
Less: Allowance for Impairment (2,846,514.61) (2,489,321.11)
Accounts Receivable-Net 4,791,732.46 9,953,049.82
Other Receivables
Due from Joint Venture – MWPV SLWC 6,689,958.48 0.00
Other Receivables-
2,104,234.97 3,930,645.85
Disallowances/Charges
Due from Officers and Employees 93,734.66 75,965.61
Other Receivables 1,975,863.31 1,954,824.52
Total Receivables P15,655,523.88 P15,914,485.80

Due from Joint Venture-SLWC pertains to construction materials and supplies

turned-over to South Luzon Water Corporation during the year 2019.

The TWD provides Allowance for Impairment equivalent to the following rates on
receivable balances as to its age:

Aging of AR Rate
0 - 90 days
91 - 180 days
181 - 365 days 1%
< than 1 year 2%
< than 2 years 3%
< than 3 years 4%

8. INVENTORIES

Inventories are stated at cost which includes purchase price, and taxes, freight,
handling and other cost incidental to the acquisition of goods, materials and
services as well as other costs incurred in bringing the inventories to their present
location and condition.

Cost of ending inventories are computed using the moving average method. A
physical count is undertaken at least twice a year.

Inventories include assets held for transfer and for consumption in the normal
course of TWD’s operations. It includes the following:

Accounts CY 2019 CY 2018

Office Supplies Inventory P 253,070.01 P 566,422.85
Accountable Forms, Plates & Stickers
Inventory 36,245.19 60,945.19
Fuel, Oil & Lubricants Inventory 112,461.55 190,601.46
Chemicals & Filtering Supplies
Inventory 36,037.64 1,307,558.43
Electrical Supplies & Materials Inventory 41,523.52 781,135.15

16
 Accounts CY 2019 CY 2018
Other Supplies & Materials Inventory -
Spare Parts 262,526.55 326,019.47
Construction Materials Inventory 1,942,009.71 8,759,607.32
Total P2,683,874.17 P11,992,289.87

9. OTHER CURRENT ASSETS

The account consists of the following;

9.1 Prepayments

Prepayments are measured at cost. These are prepaid insurance and other
expenses applicable to future period.

This account pertains to amount paid in advance for fidelity bond premiums of
accountable officers, insurance premiums of the District's insurable vehicles,
the TWD Building inclusive of its contents and other expenses.

Breakdown of the account is as follows:

Date Expiry Amount 2019 2018

Payee Particulars
Granted Date Paid Balance Balance
PREPAID INSURANCE
TWD Drillers/ Various Various
GSIS Disconnectors Dates dates P 0.00 P 0.00 P 1,416.71
Treasury of Accountable Officers/ Various Various
the Phil Employees dates dates 135,000.00 28,125.00 39,615.62
Various Various
GSIS Service Vehicles dates dates 30,084.40 15,631.23 50,588.04
TWD Building &
GSIS Contents 07.22.18 07.22.19 0.00 0.00 277,476.43
Sub Total 165,084.40 43,756.23 369,096.80
OTHER PREPAYMENTS
Sun Cellular 2 units Group Plan 900 05.26.08 05.26.10 1,998.00 1,998.00 1,998.00
50% down payment
Park Inn By; Hotel Accommodation
Radisson for PAWD Convention
Davao - 2020 37,200.00 37,200.00 0.00
Sub Total 39,198.00 39,198.00 1,998.00
Grand Total P204,282.40 P82,954.23 P371,094.80

9.2 Deposits

Guaranty Deposits account represents energy deposit posted by the District

with Batelec II covered by a contract for transformer installation.

Particulars CY 2019 CY 2018

Guarantee Deposits P455,160.00 P417,166.00

9.3 Other Assets

Deferred Charges represents balance of remitted FOREX adjustment on loan

availment under the ADB funded loans for LA# 4-2026 amortized for fifteen
(15) years.

17
 Assets declared by proper authorities as obsolete and unserviceable,
including assets of the agency no longer used, shall be reclassified to “Other
Assets” accounts from the corresponding Inventory and PPE accounts. These
are not subject to depreciation

Particulars CY 2019 CY 2018

Deferred Charges P 3,866.01 P 10,456.37
Other Assets 459,246.63 126,839.10
Total P463,132.64 P137,385.47

10. PROPERTY, PLANT AND EQUIPMENT

This account consists of the following:

Buildings
Infrastructure Furniture and Transportatio Machinery and
Land and Other Other PPE Total
Assets Fixtures n Equipment Equipment
Structures

Carrying Amount,
5,194,602.10 71,087,923.05 5,660,211.49 631,669.71 4,416,655.46 11,052,444.06 34,169,803.78 132,213,309.65
January 1, 2019
Additions/
- 144,799,048.96 11,295,050.76 2,544,541.80 10,962,403.84 23,003,316.03 93,116,132.70 285,720,494.09
Acquisitions

Total 5,194,602.10 215,886,972.01 16,955,262.25 3,176,211.51 15,379,059.30 34,055,760.09 127,285,936.48 417,933,803.74

Disposals/
Adjustment/ - 151,259,782.37 11,295,050.76 2,544,541.80 10,962,403.84 23,182,516.03 94,012,955.04 293,257,249.84
Reclassification
Depreciation (As per
Statement of
- (73,711,125.91) (5,634,839.27) (1,912,872.09) (6,545,748.38) (11,950,871.97) (58,946,328.92) (158,701,786.54)
Financial
Performance)

Accum Depreciation -
Adjustment/ (8,314,950.46) 1,494,694.11 108,892.18 733,737.63 590,281.12 2,250,550.48 (3,136,794.94)
Reclassification

Carrying Amount,
December 31, 2019
(As per Statement 5,194,602.10 285,120,678.01 24,110,167.85 3,916,773.40 20,529,452.39 45,877,685.27 164,603,113.08 549,352,472.10
of Financial
Position)

Gross Cost (Asset

Account Balance
5,194,602.10 151,190,108.07 9,274,949.96 2,544,541.80 10,168,029.02 22,521,949.72 91,536,369.39 292,430,550.06
per Statement of
Financial Position)
Accumulated
- (82,341,493.67) (5,142,183.26) (2,021,764.27) (6,543,302.11) (13,073,818.98) (61,930,904.00) (171,053,466.29)
Depreciation
Carrying Amount,
December 31, 2019
(As per Statement 5,194,602.10 68,848,614.40 4,132,766.70 522,777.53 3,624,726.91 9,448,130.74 29,605,465.39 121,377,083.77
of Financial
Position)

11. FINANCIAL LIABILITIES

This account consists of the following current payables:

Particulars CY 2019 CY 2018

Accounts Payable P 432,162.66 P 7,902,277.18
Loans Payable-Domestic-
Current Portion 0.00 3,553,467.00
Total P432,162.66 P11,455,744.18

18
 Loans Payable account represents the loan proceeds contracted by the District with
LWUA covered by a contract.

12. INTER-AGENCY PAYABLES

The account includes amounts withheld from employees and suppliers for withholding
taxes, insurance and loan premiums that are subject for remittance to the respective
government agencies.

Due to Other Funds pertain to loans of employees from Landbank of the Philippines.

The breakdown of Inter-agency Payables is as follows:

Particulars CY 2019 CY 2018

Due to BIR P1,251,803.80 P2,305,880.25
Due to GSIS 48,239.91 738,088.26
Due to Pag-IBIG 10,211.45 4,000.00
Due to Philhealth 606.46 48,422.97
Due to Other Funds 100,185.01 716,642.48
Total P1,411,046.63 P3,813,033.96

13. TRUST LIABILITIES

The account pertains to the deposits made by the concessionaires during service
connections as a security for the payment of their subsequent billings.

Particulars CY 2019 CY 2018

Guarantee Deposits Payable P1,815,839.25 P2,032,703.85

14. DEFERRED CREDITS/UNEARNED INCOME

Other Deferred Credits account pertains to the remaining balance of cost of

production well drilled at Brgy. Ulango shouldered by Fujitsu and has been
decreasing thru deductions of its billed Production Assessment Charge as agreed
upon. However, the said account was reclassified to Retained Earnings account
because Fujitsu has been inoperational since 2009.

Other Unearned Revenue/Income account represents unearned portion of Share in

the Profit/Revenue collected from the Joint Venture partner - MWPV SLWC covering
the period from January to June, 2020.

Particulars CY 2019 CY 2018

Other Deferred Credits P 0.00 P842,426.75
Other Unearned Revenue/Income 8,750,000.00 0.00
Total P8,750,000.00 P842,426.75

19
 15. OTHER PAYABLES

This account pertains to other liabilities not falling under any of the specific payable
accounts.

Particulars CY 2019 CY 2018

Other Payables P1,809,159.60 P2,622,779.68

16. FINANCIAL LIABILITIES

This pertains to the long-term portion of Loans Payable-Domestic, broken down as

follows:

Loans Payable-Domestic-Long Term

Loan Term OUTSTANDING

Date Due Amount of Int.
Acct. (in BALANCES
Granted Date Loan Rate
No. yrs) CY 2019 CY 2018
various July
dates 2020 4-2026 31,747,662.12 4% 15 0.00 P2,210,972.12
Total 0.00 P2,210,972.12

17. PROVISIONS

This account consists of the accrued money value of the accumulated leave credits
of the TWD employees amounting to P381,995.69.

Particulars CY 2019 CY 2018

Leave Benefits Payable P381,995.69 P1,474,249.89

18. EQUITY

This account includes the initial government contributions at the time the District
assumed control over its operation on March 1998 and the cumulative net earnings
of the District. Breakdown of the account is as follows:
Particulars CY 2019 CY 2018
Retained Earnings
Balance, beginning of period P188,072,726.82 P168,924,029.67
Additions (Deductions)
Net Income 17,876,585.64 16,348,629.22
Other Adjustments (8,930,441.60) 2,800,067.93
Balance, end of period 197,018,870.86 188,072,726.82

Government Equity
Balance, beginning of period 1,774,000.00 1,774,000.00
Additions (Deductions) - -
Balance, end of period 1,774,000.00 1,774,000.00

20
 Particulars CY 2019 CY 2018
Contributed Capital
Balance, beginning of period 1,517,254.39 1,517,254.39
Additions (Deductions) - -
Balance, end of period 1,517,254.39 1,517,254.39

Total P200,310,125.25 P191,363,981.21

19. INCOME

Waterworks system fees account are the main source of operating revenue, which
are classified into metered, unmetered sales and other sales and services. The
related account also includes fines and penalty charges on delinquent accounts, sale
of meters and other materials and other service revenues such as installation,
reconnection and inspection fees and the likes.

Comparative breakdown is as follows:

Particulars CY 2019 CY 2018

Service and Business Income
Waterworks System Fees P74,106,484.16 P138,765,078.56
Share in the Profit/Revenue of Joint
8,750,000.00 0.00
Venture
Fines and Penalties 2,325,553.04 4,345,388.21
Other Business Income
Production Assessment Charge 1,038,080.42 711,234.20
Miscellaneous Service Revenue 269,700.00 465,000.00
Sales from Meters & Other Materials 533,834.02 1,599,493.79
Other Business Income - MWPV SLWC 4,434,946.14 0.00
Interest Income 316,875.28 195,093.28
91,775,473.06 146,081,288.04
Gains on Sale of Property, Plant and
54,868.91 503,228.70
Equipment
Miscellaneous Income 725.01 600.00
Total P91,831,066.98 P146,585,116.74

20. PERSONNEL SERVICES

This account is composed of the following:

Particulars CY 2019 CY 2018

Salaries and Wages P13,281,655.40 P 23,152,038.25
Other Compensation 7,485,910.38 12,235,754.49
Personnel Benefit Contributions 1,809,950.95 3,249,329.42
Other Personnel Benefits 2,411,907.16 5,184,483.10
Total P24,989,423.89 P43,821,605.26

21
 Further broken down, as follows:

Salaries and Wages

Particulars CY 2019 CY 2018

Salaries and Wages-Regular P13,281,655.40 P23,086,856.25
Salaries and Wages-Casual/Contractual 0.00 65,182.00
Total P13,281,655.40 P23,152,038.25

Other Compensation

Particulars CY 2019 CY 2018

Personnel Economic Relief Allowance
P925,181.83 P1,920,000.00
(PERA)
Representation Allowance (RA) 269,475.00 339,500.00
Transportation Allowance (TA) 269,475.00 339,500.00
Clothing/Uniform Allowance 72,000.00 480,000.00
Longevity Pay 35,000.00 80,000.00
Overtime and Night Pay 905,052.37 873,277.53
Year End Bonus 1,418,132.10 1,947,620.00
Cash Gift 260,750.00 400,000.00
Other Bonuses and Allowances 3,330,844.10 5,855,856.96
Total P7,485,910.40 P12,235,754.49

Personnel Benefit Contributions

Particulars CY 2019 CY 2018

Retirement and Life Insurance Premiums P1,570,258.06 P2,767,625.99
Pag-IBIG Contributions 46,350.00 96,000.00
PhilHealth Contributions 149,942.89 289,703.43
Employees Compensation Insurance
Premiums 43,400.00 96,000.00
Total P1,809,950.95 P3,249,329.42

Other Personnel Benefits

Particulars CY 2019 CY 2018

Terminal Leave Benefits P1,022,924.23 P1,662,439.87
Other Personnel Benefits 1,388,982.93 3,522,043.23
Total P2,411,907.16 P5,184,483.10

21. MAINTENANCE AND OTHER OPERATING EXPENSES

This account is broken down as follows:

Particulars CY 2019 CY 2018

Traveling Expenses P 118,931.00 P 139,050.00
Training and Scholarship Expenses 588,423.00 1,207,556.15
Supplies and Materials Expenses 1,238,092.91 2,999,948.75
Utility Expenses 20,511,848.64 45,835,010.48
Communication Expenses 198,112.52 314,979.41

22
 Particulars CY 2019 CY 2018
Awards/Rewards, Prizes and Indemnities 3,027.97 64,149.89
Confidential, Intelligence and Extraordinary
Expenses 101,831.47 1,526,912.58
Professional Services 391,289.71 958,552.12
General Services 466,930.23 1,164,862.82
Repairs and Maintenance 3,253,051.12 7,027,413.10
Taxes, Insurance Premiums and Other
Fees 2,230,806.75 3,456,154.10
Other Maintenance and Operating
Expenses 2,130,126.96 3,646,415.04
Total P31,232,022.28 P68,341,004.44

Further broken down, as follows:

Traveling Expenses

Particulars CY 2019 CY 2018

Traveling Expenses-Local P81,931.00 P88,240.00
Traveling Expenses-RFID 37,000.00 50,810.00
Total P118,931.00 P139,050.00

Training and Scholarship Expenses

Particulars CY 2019 CY 2018

Training Expenses P588,423.00 P1,207,556.15

Supplies and Materials Expenses

Particulars CY 2019 CY 2018

Office Supplies Expenses P 106,616.60 P 395,271.81
Accountable Forms Expenses 81,180.00 137,672.11
Drugs and Medicines Expenses 0.00 563.00
Fuel, Oil and Lubricants Expenses 856,464.49 1,841,156.80
Chemical and Filtering Supplies Expenses 190,385.82 527,695.55
Other Supplies and Materials Expenses 15,050.00 82,539.48
Semi-Expendable Machinery and
Equipment Expenses 3,446.00 15,050.00
Total P1,238,092.91 P2,999,948.75

Utility Expenses

Particulars CY 2019 CY 2018

Water Expenses P 5,357.45 P 8,921.60
Electricity Expenses 20,506,491.19 45,826,088.88
Total P20,511,848.64 P45,835,010.48

Communication Expenses

Particulars CY 2019 CY 2018

Postage and Courier Services P 200.00 P 0.00
Telephone Expenses 131,522.52 212,665.70

23
 Particulars CY 2019 CY 2018
Internet Subscription Expenses 63,840.00 97,638.71
Cable, Satellite, Telegraph and Radio
Expenses 2,550.00 4,675.00
Total P198,112.52 P314,979.41

Awards/Rewards, Prizes and Indemnities

Particulars CY 2019 CY 2018

Awards/Rewards Expenses P1,500.00 P20,000.00
Indemnities 1,527.97 44,149.89
Total P3,027.97 P64,149.89

Confidential, Intelligence and Extraordinary Expenses

Particulars CY 2019 CY 2018

Extraordinary and Miscellaneous Expenses P101,831.47 P1,526,912.58

Professional Services

Particulars CY 2019 CY 2018

Legal Services P 36,100.00 P 27,500.00
Auditing Services 108,189.71 280,332.12
Consultancy Services 0.00 32,500.00
Other Professional Services 247,000.00 618,220.00
Total P391,289.71 P958,552.12

General Services

Particulars CY 2019 CY 2018

Environment/Sanitary Services P 0.00 P 62,312.25
Security Services 464,983.73 1,098,795.52
Other General Services 1,946.50 3,755.05
Total P466,930.23 P1,164,862.82

Repairs and Maintenance

Particulars CY 2019 CY 2018

Repairs and Maintenance-Semi-
Expendable Machinery and Equipment P 1,900.00 P 8,900.00
Repairs and Maintenance-Infrastructure
Assets 1,655,840.34 3,463,884.88
Repairs and Maintenance-Buildings and
Other Structures 122,149.29 330,219.05
Repairs and Maintenance-Machinery and
Equipment 122,630.25 375,173.18
Repairs and Maintenance-Transportation
Equipment 490,949.46 749,933.61
Repairs and Maintenance-Furniture and
Fixtures 26,615.49 181,797.50
Repairs and Maintenance-Other Property,
Plant and Equipment 832,966.29 1,917,504.28
Total P3,253,051.12 P7,027,413.10

24
 Taxes, Insurance Premiums and Other Fees

Particulars CY 2019 CY 2018

Taxes, Duties and Licenses P1,735,427.79 P2,868,306.98
Fidelity Bond Premiums 127,777.61 88,162.50
Insurance Expenses 367,601.35 499,684.62
Total P2,230,806.75 P3,456,154.10

Other Maintenance and Operating Expenses

Particulars CY 2019 CY 2018

Advertising, Promotional and Marketing
Expenses P 0.00 P 5,000.00
Representation Expenses 177,427.90 276,143.67
Transportation and Delivery Expenses 610.00 740.00
Rent/Lease Expenses 50,000.00 120,000.00
Membership Dues and Contributions to
Organizations 35,750.00 47,403.00
Donations 84,486.67 62,008.75
Directors and Committee Members' Fees 876,960.00 1,155,456.00
Other Maintenance and Operating
Expenses 904,892.39 1,979,663.62
Total P2,130,126.96 P3,646,415.04

22. FINANCIAL EXPENSES

This account consists of the following:

Particulars CY 2019 CY 2018

Interest Expenses P206,876.00 P621,949.00
Bank Charges 250.00 850.00
Other Financial Charges 93,041.38 6,660.36
Total P300,167.38 P629,459.36

23. NON-CASH EXPENSES

This account consists of the following:

Particulars CY 2019 CY 2018

Depreciation
Depreciation-Infrastructure Assets P8,314,950.46 P7,861,696.13
Depreciation-Buildings and Other
Structures 971,736.60 738,163.53
Depreciation-Machinery and Equipment 1,713,228.13 1,887,728.41
Depreciation-Transportation Equipment 731,291.36 819,304.52
Depreciation-Furniture and Fixtures 108,892.18 135,966.39
Depreciation-Other Property, Plant and
Equipment 5,235,125.56 5,785,988.34
Sub-total P17,075,224.29 P17,228,847.32
Impairment Loss
Impairment Loss-Loans and
Receivables P357,193.50 P215,571.14
Total P17,432,417.79 P17,444,418.46

25
24. KEY MANAGEMENT PERSONNEL

The key management personnel of the TWD are the General Manager, the members
of the governing body, and the members of the Contract Monitoring Unit. The
governing body consists of members appointed by the City Mayor. The Contract
Monitoring Unit consists of the managers from Finance and Engineering and five (5)
personnel from Administrative and Office of the General Manager.

26
PART II – OBSERVATIONS AND
RECOMMENDATIONS
 OBSERVATIONS AND RECOMMENDATIONS

1. The TWD has received an Unsolicited Proposal to undertake through Joint

Venture project with the original proponent – Manila Water Company, Inc. (MWCI)
and Manila Water Philippine Ventures, Inc. (MWPV) for the design, financing,
construction, rehabilitation, operation, maintenance, expansion and management
of the water supply system and sanitation services of TWD in the City of Tanauan.
MWCI and MWPV shall form a consortium, wherein the consortium and TWD will
enter into a Joint Venture Agreement (JVA). With the primary purpose to engage
in the development, improvement, upgrade and expansion of water supply and
sanitation facilities, including financing, design, engineering and construction of
such facilities and infrastructure, and the management, operation and
maintenance of such water supply and sanitation facilities and provide services
necessary or incidental thereto in the service area, the JVA was mutually signed
on February 4, 2019 and commenced its operation on June 1, 2019.

a. The validity, completeness and correctness of the TWD’s Government Equity

account could not be verified due to the following: i) inadequate disclosure in
the Notes to Financial Statements of the JVA specifically the total project cost
of P1.509 billion; ii) non-submission of necessary computations and
documents to support the annual Joint Venture (JV) shares ranging from
P17.5 million to P21.5 million; and iii) fund to support the project for the whole
duration of the JV was not established/deposited in a special bank account
under dual control.

Philippine Accounting Standard (PAS) 24 requires the disclosure of the nature of the
related party relationship as well as information about those transactions and
outstanding balances, including commitments, necessary for users to understand the
potential effect of the relationship on the financial statements.

The objective of PAS 24 is to ensure that an entity’s financial statements contain the
disclosures necessary to draw attention to the possibility that its financial position and
profit or loss may have been affected by the existence of related parties and by
transactions and outstanding balances, including commitments, with such parties.

A related party is a person or an entity that is related to the reporting entity:

 A person or a close member of that person’s family is related to a reporting entity if

that person has control, joint control, or significant influence over the entity or is a
member of its key management personnel.

 An entity is related to a reporting entity if, among other circumstances, it is a parent,

subsidiary, fellow subsidiary, associate, or joint venture of the reporting entity, or it
is controlled, jointly controlled, or significantly influenced or managed by a person
who is a related party. (emphasis supplied)

Review of TWD’s Notes to Financial Statements disclosed that while it was stated that
the TWD had entered into a joint venture with the Consortium of MWCI and MWPV, the
same was only disclosed in the General Information/Entity Profile section. It noted that
there were no related party disclosures in the Notes to FS with regards to the JVA
entered into by the TWD with the Consortium of MWCI and MWPV, contrary to the PAS

27
24. Thus the TWD’s Financial Statements lacks transparency as to the possibility that its
financial position and profit or loss may have been affected by the existence of related
parties and by transactions and outstanding balances, including commitments, with such
JVA.

Meanwhile, Section 9.3.1. of the JVA reads:

“9.3.1. Revenue Share

In consideration of the contribution of TWD to the Joint Venture under

Section 4.1 and the grant of the Appointment under Section 5.1, TWD shall
receive an annual Revenue Share which shall be payable on a yearly basis.

For avoidance of doubt, the Revenue Share shall be paid to TWD within one
month prior to Commencement date. Thereafter, the Revenue Share shall be
paid within one month prior to the relevant year, counted from the
Commencement Date.

The Revenue Share shall be equivalent to 17.5 million pesos, subject to an

increase of 1 million pesos every five years conditioned upon the approval by
the TWD Board and LWUA of the increase in tariff rates for the relevant
Tariff Adjustment Year as stated in Section 12.2. xxx”

Moreover, Section 4.2 of the JVA provides that “xxx In consideration of the contribution
of the Parties, TWD shall be entitled to receive from the revenues of the Joint Venture
the TWD Revenue Share as detailed in Section 9.3.1 while the Company shall receive
the residual profits and earnings of the Joint Venture after deducting the TWD Revenue
Share.”

Review of the JVA disclosed that the TWD shall be entitled to a fixed revenue share of
P17.5 million per annum for the first five years, P18.5 per annum for years 6 to 10, P19.5
million per annum for years 11 to 15, P20.5 million per annum for years 16 to 20, and
P21.5 million per annum for years 21 to 25. However, these figures are not supported
with the necessary computations and documents, therefore no assurance that the most
advantageous share and offer for the TWD were obtained. Moreover, the JVA did not
include explicit provisions on revenue sharing on the account of increase in the volume
of concessionaires considering that one of the objectives of the Joint Venture is to
expand the TWD’s service coverage.

Also, from the data below, it can be construed that the TWD is already earning an
income almost equivalent than what the Consortium of MWCI and MWPV will be
remitting to the TWD as Revenue Share. Review of the TWD’s Financial Statements for
the last five years (CYs 2014-2018) disclosed an average annual net income of P17.082
million, which is almost equivalent to P17.5 million revenue share under the JVA.
However, the former is already net of expenses while the latter is gross of any expense
to be incurred by the CMU as presented below.

Year Gross Income Expenses Net Income

2014 P108,748,922.45 P98,940,352.46 P9,808,569.99
2015 116,361,783.67 99,444,170.17 16,917,613.50
2016 125,259,400.53 101,864,897.20 23,394,503.33

28
 Year Gross Income Expenses Net Income
2017 132,555,922.15 113,610,596.65 18,945,325.50
2018 146,585,116.74 130,236,487.52 16,348,629.22
Total P629,511,145.54 P544,096,504.00 P85,414,641.54
Annual Average P125,902,229.11 P108,819,300.80 P17,082,928.31

Furthermore, the following documents were not submitted to the Audit Team for audit
purposes:

a) Description of items which were considered by the TWD in the computation of the
required budget and in determining the fixed revenue share;

b) Documents showing that the matters were likewise consulted with the
concessionaires/consumers considering that they are the ones affected in the herein
agreement; and

c) Documents/report showing the detailed evaluation/assessment made by the JVSC

regarding the evaluation of the JV Share, explaining in clear terms the basis of the
Consortium of MWCI and MWPV in arriving at the said amount of P17.5 million.

Absence of the necessary computations and evaluations made on the review of the
reasonableness of the JV Share to the TWD provided no assurance that the most
advantageous price and offer for the Government were obtained. Thus, the said fixed JV
share of the TWD in the JVA with the Consortium of MWCI and MWPV appears to be
disadvantageous on the part of the Government.

Section II.4(h), Annex A of the 2013 NEDA Revised JV Guidelines provides that the
contract shall also contain provisions on the following matters, as far as practicable:

“The establishment of a fund by the parties to finance the work, together with
the amount, type (cash, assets, etc.), and valuation of committed
contributions of each party and when such contributions will be made, with
the fund being deposited in a special bank account under dual control and all
progress payments and other revenues being deposited in such account. If
the equity/contribution of the private sector is to be borrowed, a statement
that there shall be no government guarantee of said loan;”

Article 4.2 of the JVA states that the Consortium of MWCI and MWPV’s total contribution
to the JV shall be in the amount equal to Two Hundred Fifty-One Million Pesos
(P251,000,000.00).

Contrary to the above cited provision, there was no fund established or being deposited
in a special bank account under dual control and all progress payments and other
revenues being deposited in such account. Certification that the Consortium of MWCI
and MWPV has a deposit ear-marked for the proposed JV activity was not submitted to
ensure that there was enough fund deposited to implement the said activity.

b. There was no Feasibility Study or a Business Case/Pre-feasibility Study of the

Project conducted by the TWD as required under Section II.1.c, Annex A of the
2013 Revised Guidelines and Procedures for Entering into JVAs of the

29
 National Economic Development Authority (2013 NEDA Revised JV
Guidelines) dated May 11, 2013, thus there was no basis for determining
whether or not the JVA is necessary and advantageous on the part of the
government, in violation of the aforementioned Guidelines.

The revised Guidelines and Procedures for entering into Joint Venture Agreements
between the Government and Private Entities are issued pursuant to Section 8 (Joint
Venture Agreements) of Executive Order (EO) No. 423 dated 30 April 2005, which
mandates the NEDA, in consultation with the Government Procurement Policy Board
(GPPB), to issue the necessary guidelines on JVs.

Section II.1, Annex A of the 2013 NEDA Revised JV Guidelines provides:

“1. Selection/Tender Documents. The Government Entity concerned shall

prepare the selection/tender documents which shall include the following:

xxx

c. Feasibility Study or a Business Case/Pre-feasibility Study of the Project;”

The conduct of feasibility study is essential for the TWD as basis whether to pursue or
not the planned Joint Venture. The said document was not among those submitted by
the TWD to the Audit Team. Review of documents disclosed that it is the Proponent who
conducted the feasibility study. The same was included in the unsolicited proposal
submitted by the Proponent and evaluated by the TWD.

The Audit Team, however, noted that the Joint Venture Selection Committee’s (JVSC’s)
Evaluation Report states that they found the proposal to meet the general criteria in
determining the technical feasibility, financial viability, and the proponents’ capability and
qualification in undertaking the project, thus the Proposal is found to be generally
acceptable to the TWD and is advantageous to the water consumers and
concessionaires in the City of Tanauan.

Considering the complexity of the project, the TWD’s conduct of the feasibility study or
evaluation is very much needed as this will help its officials in their decision-making
process. This is also their basis in determining whether or not the JV is needed by the
TWD and that it will be advantageous to itself and its consumers.

c. The requirements, as stated in the Selection/Tender Documents, were not

strictly complied with in a way that will promote transparency,
competitiveness and accountability in government transactions, contrary to
Section 6.5 of the 2013 NEDA Revised JV Guidelines.

The non-refundable fee for the complete set of Eligibility Documents (ED)/Terms of
Reference (TR), Volumes I and II, amounting to P0.500 million and P1 million,
respectively, are higher than the prescribed maximum fees of P75,000.00 for the
amount of the project, which is more than P0.500 million for the purchase of such
documents, contrary to Section 6.5 of the Revised NEDA guidelines and Appendix 25 of
the Implementing Rules and Regulations (IRR) of Republic Act (RA) No. 9184 of the
Government Procurement Reform Act.

30
Paragraphs 4 and 6 of the Invitation to Apply for Eligibility and to Submit a Proposal
(IAESP) provides:

“Interested PSPs shall be subject to pre-qualification in accordance with

Volume I of the Tender Documents. Volume I of the Tender Documents,
which includes the Instructions to Interested Private Sector Participants as
well as the Eligibility Requirements and Forms, is available for a non-
refundable fee of Five Hundred Pesos (Php 500,000.00) in the form of
manager’s check issued by a universal bank payable to the Tanauan
Water District. (emphasis ours)

xxx

TWD-JVSC shall thereafter issue Volume II of the Tender Documents only to

prequalified PSPs upon payment of the non-refundable fee in the amount
of One Million Pesos (Php 1,000,000.00) in the form of a manager’s
check issued by a universal bank, payable to the Tanauan Water
District.” (emphasis ours)

Section 6.5 of the 2013 NEDA Revised JV Guidelines provides:

“As may be applicable, the procurement activities financed by the

Government Entity or Government of the Philippines (GOP) regardless of
source of funds, whether local or foreign, shall comply with RA No. 9184,
otherwise known as the GPRA and its Revised Implementing Rules and
Regulations (IRR).The JV activity shall also comply with other laws, rules
and regulations, guidelines, and legal issuances on procurement, as may be
applicable.”

Correspondingly, under Section 5 on the Guidelines on the Sale of Bidding Documents

(Appendix 8) of the 8th Edition Handbook on Philippine Government Procurement
containing the RA No. 9184 and its 2016 Revised Implementing Rules and Regulations,
provides:

“STANDARD RATES. The cost of bidding documents shall correspond to the

ABC range as indicated in the table below. This shall be the maximum
amount of fee that procuring entities can set for the acquisition of bidding
documents.

Maximum Cost of
Approved Budget for the Contract Bidding Documents
(in Philippine Peso)
500,000 and below 500.00
More than 500,000 up to 1 Million 1,000.00
More than 1 Million up to 5 Million 5,000.00
More than 5 Million up to 10 Million 10,000.00
More than 10 Million up to 50 Million 25,000.00
More than 50 Million up to 500 Million 50,000.00
More than 500 Million 75,000.00”

31
Review of Bidding Documents disclosed that the cost of the ED/TR – Volumes I and II,
was more than the maximum P75,000.00 cost of bidding documents or in excess by
P425,000.00 and P925,000.00, respectively. Due to the high cost of the non-refundable
fee of said ED/TR - Volumes I and II, amounting to P0.500 million and P1 million,
respectively, it discouraged prospective Private Sector Participants (PSPs) to challenge
the unsolicited proposal.

The conditions stated in the Instruction to Interested PSPs Applying for Eligibility of
Tender Documents under Section II, Item 7.19 seems to favor the Original Proponent
which is the Consortium of MWCI and MWPV, contrary to Annex A, Section IV.4 and
Annex B, Section III.9 of the 2013 NEDA Revised JV Guidelines.

Section IV.4, Annex A of the Revised Guidelines and Procedures for Entering into Joint
Venture (JV) Agreements by and between Government and Private Entities provides:

“4 xxx.

The proposal parameters for the proposed JV activity should be transparent and
fair. It should not, in any way, be tailor-made for or meant to favor or give
advantage to a particular private sector participant.”

Paragraph 2, Item No. 9, Stage Three – Competitive Challenge, Section III of Annex B of the
same Guidelines also provides that “If the Government Entity, upon recommendation of the
JV-SC, determines that an offer made by the challenger is superior or more advantageous to
the government than the financial proposal of the original proponent, the JV contract shall be
awarded to the challenger offering the most advantageous price.”

The conditions as stated in Instruction to Interested PSPs Applying for Eligibility of TD are
not consistent with the above Guidelines. Section II, Item 7.19 reads as follows:

“7.19 Reimbursements

In case a Competitive Proposal of a PSP is more superior or advantageous

compared to the Unsolicited Proposal or to the second Financial Proposal of
the Original Proponent, the Winning PSP shall reimburse the Original
Proponent for any and all the expenses that the Original Proponent has
incurred to complete the Unsolicited Proposal. The reimbursement shall be
made within ten (10) days from issuance of Notice of Award to the Winning
PSP, in the amount equivalent to Thirty Million One Hundred Eighty Thousand
Pesos (Php30,180,000.00) (2% of the Total Capital Expenditures)”

There is nowhere in the 2013 NEDA Guidelines that the Audit Team can find the provision as
stated in Section II, Item 7.19 above, wherein the winning PSP will be required to reimburse
to the Original Proponent for the expenses it has incurred for the completion of the
Unsolicited Proposal. Instead, Paragraph 2, Item No. 9, Stage Three – Competitive
Challenge, Item III of Annex B states that if the government entity, upon the recommendation
of the JV-SC, determines that the offer of the challenger is superior and more advantageous
to the government, the JV contract shall be awarded to that challenger.

The conditions above stated affects the competitiveness of the other interested parties who
wish to participate in the JV.

32
d. There was no detailed plan and timeline as to how and when the Consortium
of MWCI and MWPV will accomplish the objectives of the JV Project, thus
attainment of its business objectives will not be efficiently and effectively
monitored by the TWD.

Section 7.1 on the Requirements/Conditions for JV Proposals of the Revised NEDA

Guidelines under Requirements/Conditions for JV Proposals, states:

“7.1 JV proposals shall comply with the following requirements/conditions:

xxx

c. The JV proposal clearly describes the proposed investment, including its total
cost, activities, objectives, sources of funding, extent and nature of the
proposed participation of the Government Entity concerned, and the relevant
terms and conditions;

d. The JV proposal establishes all the components in determining the over-all

feasibility of the JV proposal which include, among others, the technical,
financial, economic, and legal aspects;”

Article 3.1 of the JVA provides the purpose of the Contractual Joint Venture, as follows:

“3.1 The primary purpose if the Contractual Joint Venture shall be:

To engage in the development, improvement, upgrade and expansion of water

supply and sanitation facilities, including financing, design, engineering and
construction of such facilities and infrastructure, and the management,
operation and maintenance of such water supply and sanitation facilities and
provide services necessary or incidental thereto in the Service Area.

xxx”

The submitted unsolicited proposal included project components divided into three
phases, as follows:

Phase 1 - Year 1 to 3 Rehabilitation of Existing Assets

Objectives The first phase aims to maximize the utilization of the existing
assets such as rehabilitation of all deep wells to ensure
extraction capacity is in optimal level. All water network should
be assessed and determine which portions of segments shall be
repaired or replaced.
Development Plan 1. Deep well rehabilitation
2. NRW Reduction
3. Pipe Replacement Program
Project Components 1. Replacement and resizing of existing water network
2. Network restructuring and area clustering for supply
distribution
3. Introduction of meter replacement program for NRW
reduction (approximately 8,116 meters)

33
Phase 2 - Year 4 to 5 Service Coverage Expansion
Objectives The second phase of the development plan will focus on
expanding the service coverage of TWD.
Development Plan 1. Network Expansion Program
2. Completion of Rehabilitation and Upgrade of Existing
Deepwells
3. Supply Plan
4. Non-revenue Reduction
5. Geographic Information System and Asset Management
Project Components 1. Network expansion of approximately 43.7 kilometers
2. Increase water service connections from 21,796 to 25,628
3. Reduce number of deepwells from 54 to 34
4. Increase service coverage from 49% to 57%
Phase 3 - Year 6 to 25 Operational Efficiency Program
Objectives From Year 6 onwards, it is expected that the TWD’s water supply
system is already stable. This means that the proposed
performance standards have been achieved and target
customers are already served. To maintain a high level of
operational efficiency, capital expenditures (CAPEX) starting
Year 9 will be focused on keeping the assets efficient at the most
economic level possible. This will include activities aimed at
keeping NRW at 15% and the Service Coverage at 90%.

Following the target supply plan, additional requirements will be

sourced through re-energization of deep well facilities on standby
to sustain the demand of the customers.
Project Components 1. Continuous meter replacement program
2. Network maintenance program (leak repair and active
leakage reduction) to maintain NRW at 15% level
3. District Monitoring Zone (DMZ) and District Metering Area
(DMA) monitoring
4. Continuous operational efficiency through area clustering for
water system (5 clusters)

On the other hand, the proposed CAPEX for the project as provided in the unsolicited
proposal is broken down as follows:

Key Capital Expenditure Estimated Amount

Components (Php in millions)
Source Development 222.65
New Water Service Connection 84.84
Meter Replacement Program 117.38
Network Expansion Program 480.80
Existing Network Program 41.09
NRW Reduction Program 5.88
Asset Rehabilitation and Maintenance 201.66
Administrative 51.20
Septage Management Program 62.42
Contingency 165.38
Total 1,523.29*

34
 * Recomputation shows that the total CAPEX sums to P1.433 billion only.

Verification shows that the said project proposal was not supported with the name of the
project, location, and estimated cost, detailed plans, design and technical specifications,
prudent utility practice, and project milestone schedule showing how the Consortium of
MWCI and MWPV intends to fulfill the specific objectives of the Project for the timely
completion of the same. Due to the absence thereof, the TWD will not be able to
efficiently and effectively monitor the accomplishments of the JV partner as against its
targeted objectives and service obligations as stated in the JVA.

Likewise, the presented total CAPEX of P1.523 billion above does not reconcile with the
listed estimated amount per CAPEX components. Recomputation shows the total
CAPEX sums to P1.433 billion only, thus resulting to a variance of P90 million. On the
other hand, per approved JVA, the total project cost is P1.509 billion. The noted variance
creates doubt on the total CAPEX the Consortium is willing to invest to fulfill the project.

e. The TWD’s contributed assets to the JVA were not properly valuated.
Moreover, the TWD did not subject its assets and facilities that will be used by
the Consortium of MWCI and MWPV to a third party independent valuation,
contrary to Section 6.2(b) of the 2013 NEDA Revised JV Guidelines.

Section 6.2(b) of the 2013 NEDA Revised JV Guidelines provides that “Government
contribution may be through assets (including money, equipment, land, intellectual
property or anything of value) which shall be subject to a third party independent
valuation.”

Article 4.1 of the JVA provides:

“TWD's contributions to the Joint Venture are (a) the exclusive right to use
the existing Facilities and (b) the exclusive right and authority to provide
water supply and sanitation facilities and services and/or operate the water
supply and sanitation facilities and services in the Service Area of TWD. The
basis for determining the value of TWD's contribution shall be the market
value of the existing right to use its Facilities. For avoidance of doubt, the
legal ownership over the existing TWD Facilities shall remain with TWD.”

Further, Article 10.4 of the JVA states:

“Turnover of Facilities

TWD shall have the obligation to turn over its existing Facilities for the use
of the Company for the implementation of the Project, except retained
assets, if any. These turned-over Facilities are listed in Schedule 9.”

The TWD failed to conduct appraisal of its total Property, Plant and Equipment (PPE)
thru a third party independent valuation before the JVA was entered into. Hence, the
basis of the computation for the TWD’s contribution to the Joint Venture was the book
value of PPE as of December 31, 2018 less the retained assets subject to use by the
Contract Monitoring Unit (CMU). Per Schedule 9 of the JVA, the total PPE turned over to
the Consortium amounted to P127.414 million plus the completed projects in CY 2019
amounting to P0.674 million or a total contribution of P128.089 million (Annex A).

35
Consequently, the Audit Team was able to come up with a different amount of
contribution based on the audited FS of TWD as of December 31, 2018. Computation is
as follows:

Particulars Amount
Net Book Value of PPE (per CY 2018 Audited FS) P132,213,309.65
Add: Completed Projects in CY 2019 674,795.12
Less: Net Book Value of Retained Assets of TWD
(per Schedule 1 of JVA – Annex B) 4,814,538.41
Total Contribution of TWD per Audit P128,073,566.36
Total Contribution of TWD per JVA 128,089,326.39
Variance P 15,760.03

It was further noted that the contribution of TWD in terms of amount was not expressly
stipulated in the body of JVA but only on the presented Schedule, thus creating
confusion and uncertainty to the readers of the contract. Based on the computation
above, variance noted amounting to P15,760.03 creates doubt on the accuracy of the
TWD contribution.

Furthermore, it is also very vital that an appraisal of assets is conducted by the TWD
before entering into the JVA. The appraised value of the PPE is the most proper
measurement that should have been used to compute for the subject contribution.

f. The agreed tariff rates on Article 12 of the JVA were likewise not provided with
an evaluation or study made by the TWD for the protection of its
concessionaires and to determine the necessity and reasonableness of the
increases.

Article 12 Rates and Connection Charges of the JVA provides:

“12.1 Initial Water Tariff and Sanitation Fee

The initial water tariff, exclusive of VAT and/or any applicable tax to be
charged to the Customers for the first year of the Appointment shall be
based on the LWUA approved tariff table of TWD, attached as Schedule 2
(Annex C).

Subject to the enactment of an enabling ordinance for septage management

by the City Government of Tanauan and compliance with any applicable law
or regulation, a sanitation fee equivalent to twenty percent (20%) of the water
tariff shall be charged by the Company for the provision of sanitation
services which shall be recovered through the increase tariff rates for the
relevant Tariff Adjustment Year.

Xxx

12.2 Tariff-Setting Mechanism

The Tariff shall be adjusted in accordance with the table below:

36
 Total Tariff - Water + Septage Increase
Minimum charge for 1/2'' service connection from
Period
(first 10 cu.m.) Previous
Residential Commercial A Commercial B Government Period
Proposed including VAT
Year 1 239.80 479.60 359.70 239.89 0%
Years 2-3 287.76 575.52 431.64 287.87 20%
Years 4-5 345.31 690.62 517.97 345.44 20%
Years 6-7 414.37 858.75 621.56 414.53 20%
Years 8-9 497.25 994.50 745.87 497.44 20%
Years 10-11 596.70 1193.40 895.05 596.93 20%
Years 12-14 686.20 1372.41 1029.31 686.47 15%
Years 15-17 789.13 1578.27 1183.70 789.44 15%
Years 18-20 907.50 1815.01 1361.26 907.85 15%
Years 21-23 1043.63 2087.26 1565.45 1044.03 15%
Years 24-25 1200.18 2400.35 1800.26 1200.64 15%

The foregoing adjustment in Tariff shall take effect on the first day of the
relevant Tariff Adjustment Year, and shall be subject to the following
approval procedure:

(i) Within one (1) year prior to the first day of the relevant Tariff Adjustment
Year in which an adjustment in Tariff shall be implemented, the Company
shall submit the Contract Monitoring Unit a request for adjustment in Tariff
based on the table above, along with sufficient supporting information and
documents on Expenditures and other relevant matters to enable TWD to
obtain approval of such Tariff Adjustment from the LWUA. After performing
a review of the said request which shall be accomplished within thirty (30)
calendar days from submission thereof, the Contract Monitoring Unit shall
endorse the same for approval by the TWD Board which shall decide on
the aforesaid request for Tariff Adjustment within fifteen (15) calendar days
from endorsement thereof by the TWD;

(ii) Within five (5) calendar days after approval of the aforesaid request for
Tariff Adjustment to the TWD Board, TWD shall file an application with the
LWUA to implement the aforesaid Tariff Adjustment and shall comply with
the procedures and requirements imposed by LWUA and contained in
relevant laws, including the conduct of public hearings.

(iii) Any tariff increase will not exceed sixty percent (60%) of the current
rate which is in compliance with the LWUA guidelines for water tariff
setting.”

Review of the documents shows that an evaluation relative to the agreed tariff rates was
not among those submitted by the TWD. The evaluation made by the TWD on the
Consortium of MWCI and MWPV schedule of CAPEX investment and Cash Flows, if
there are any, will determine whether the existing rates are sufficient or the above

37
increases are necessary and reasonable. However, there are no documents that could
show that the increases in rates are computed or determined to be reasonable.
Additionally, Article 12.4 of the JVA reads:

“12.4 Remedy if Tariff Adjustment is not obtained

If the proposed Tariff Adjustment is not approved, the Company shall have
the right to demand from TWD, the following remedies:

(i) Corresponding adjustment in service obligations and/or capital

expenditures of the Company in connection with the Project; or

(ii) Revision of certain provisions in the Agreement, and/or in the Strategic

Plan, Business Plan and/or Operation Plan to consider implications of failure
to obtain tariff approval and to maintain the Company’s projected returns on
the Project as stated in Section 4.1.

xxx”

Given the provisions of Article 12.4, the same is grossly disadvantageous to the
government and to the concessionaires of the TWD if the JV partner does not obtain the
tariff adjustment. Also, the Consortium focuses on the returns of the project rather than
to provide quality water services or supply to the stakeholders.

g. There was no public disclosure as to the acceptance of the JV Proposal

contrary to Section 28, Article II of the 1987 Philippine Constitution, Section
3.d. of Executive Order (EO) No. 68 s. 1999 and Section (g), Chapter III of the
Commonwealth Act No. 146.

Section 28, Article II of the 1987 Philippine Constitution explicitly provides that “Subject
to reasonable conditions prescribed by law, the State adopts and implements a policy of
full public disclosure of all its transactions involving public interest.” (emphasis
supplied)

Moreover, Section 3.d. of EO No. 68 s. 1999 states that “The WD shall conduct a
project presentation with public hearing for the purpose of determining the social and
financial acceptability of the proposed project.” (emphasis supplied)

Section 20 (g), Chapter III of the Commonwealth Act No. 146, also called as the Public
Service Act provides:

“(g) To sell, alienate, mortgage, encumber or lease its property, franchises,

certificates, privileges, or rights or any part thereof; or merge or
consolidate its property, franchises privileges or rights, or any part
thereof, with those of any other public service. The approval herein
required shall be given, after notice to the public and hearing the
persons interested at a public hearing, if it be shown that there are
just and reasonable grounds for making the mortgaged or encumbrance,
for liabilities of more than one year maturity, or the sale, alienation,
lease, merger, or consolidation to be approved, and that the same are
not detrimental to the public interest, and in case of a sale, the date on

38
 which the same is to be consummated shall be fixed in the order of
approval: Provided, however, that nothing herein contained shall be
construed to prevent the transaction from being negotiated or completed
before its approval or to prevent the sale, alienation, or lease by any
public service of any of its property in the ordinary course of its
business.” (emphasis supplied)

Inquiry with the employees of the TWD revealed that there was no public hearing nor
any public disclosure regarding the JV proposal acceptance of the TWD, which is in
violation of Section 28, Article II of the Philippine Constitution, Section 3.d. of EO No. 68
s. 1999 and Section 20 (g), Chapter III of the Commonwealth Act No. 146. The TWD
should have made a full public disclosure and proper presentation of the JV Project
Proposal with public hearing since the said project involves the interest of all its existing
concessionaires as residents of the City of Tanauan. The non-disclosure of the
acceptance of the JV Proposal is disadvantageous to the concessionaires of the TWD
and to the public in general.

h. Several provisions of the JVA were not complied by both parties, thereby
defying the contractual intent established in the JV for the implementation of
the project.

The Civil Code defines a contract as “a meeting of the minds between two persons
whereby one binds himself, with respect to the other, to give something or to render
some service.” For there to be a valid contract, these three elements must present:
consent, object, and cause.

Review of the JVA by the Audit Team disclosed that several provisions that were
mutually agreed by the TWD and the Consortium of MWCI and MWPV were not
complied with during the commencement and implementation of the JV, discussed as
follows:

Articles/Provisions of JVA Actual Circumstance

Article 5.1 Appointment and Grant of Authority

On the terms and subject to the conditions set Currently, it was not the Filipinas Water
forth herein, TWD hereby appoints the Holdings Corporation that is operating as
Consortium of MWCI and MWPV, through its the joint venture partner considering it was
Consortium corporation, Filipinas Water the appointed “Company”. Instead, it is the
Holdings Corporation (the "Company"), and MWPV South Luzon Water Corp., a wholly
grants it the authority, as joint venture partner, owned subsidiary of Filipinas Water
to perform certain functions and agent for the Holdings Corporation, which is exercising
exercise of its right and powers, the sole and the rights and powers over the facilities of
exclusive right to manage, operate, maintain, TWD.
repair, refurbish, improve, expand and as
appropriate, decommission, the Facilities in
the Service Area, including the right to bill and
collect fees for the provision of water supply
and sanitation services in the Service Area.

39
 Articles/Provisions of JVA Actual Circumstance
Article 6.3 Accounts Receivable

Until the Commencement Date, TWD shall Per interview with TWD employees,
collect, on a best efforts basis, any collection of the remaining receivables was
outstanding AR from Customers for water made by TWD after the commencement
services. On the Commencement Date, TWD date and no 2% collection fee was deducted
shall transfer to the Company any remaining since it was the TWD who made the
accounts receivable from Customers. Any and collection. Likewise, the said remaining AR
all amounts that the Company is able to collect were not transferred to the consortium and
thereafter shall be remitted to TWD net of a responsibility of collection still rests with the
collection fee amounting to two percent (2%) TWD.
of the total amount collected.

Article 9.3.1 Revenue Share

In consideration of the contribution of TWD to Commencement date of the JV was on June

the Joint Venture under Section 4.1 and the 1, 2019. Revenue Share for the first year of
grant of the Appointment under Section 5.1, JV was received by the TWD on August 7,
TWD shall receive an annual Revenue Share 2019 per Official Receipt (OR) No. 1219759.
which shall be payable on a yearly basis. The same was not in compliance with Article
9.3.1 of the JVA which states that the
For avoidance of doubt, the Revenue Share revenue share should be paid within one
shall be paid to TWD within one month prior to month prior to Commencement Date, thus
Commencement date. Thereafter, the revenue share should have been received
Revenue Share shall be paid within one month by May 1, 2019.
prior to the relevant year, counted from the
Commencement Date.

Xxx In the event the Company does not make Considering the delay in payment of
a timely payment of the Revenue Share, the Revenue Share, the unpaid amount was not
equivalent of such unpaid amount may be drawn from the posted Performance
drawn from the Performance Security in Security.
accordance with Section 9.11 below.

Article 10.1 Personnel Matters

On or before the Commencement Date, TWD The Audit Team performed the audit of
shall lawfully disengage TWD personnel, payment of Terminal Leave representing the
whether hired as regular, casual or contractual earned leave credits of disengaged TWD
employees, or engaged on a job order or employees. It was noted that there was no
emergency basis, whose functions shall be granted interest-free loan in the amount of
rendered redundant by the grant of the P15.3 million to the TWD that will support its
Appointment. On the said date, TWD shall downsizing program. The paid Terminal
have completed the downsizing program Leave came from the operating budget of
through the execution of agreements and the TWD, specifically from the realigned
documents with the Disengaged TWD amount of salaries of employees, to support
Personnel and the obtention of the necessary the payment. Consequently, there shall be
government approvals. The Company shall no deductions in the revenue share for
support TWD's downsizing program under Years 2 to 4.
such terms and conditions as may be agreed

40
 Articles/Provisions of JVA Actual Circumstance
by the Parties. In this regard, any financial
support that may be agreed upon by the
Parties as necessary for TWD's downsizing
program shall be added to the Revenue Share
Payable in Year 1 as mentioned in Section
9.3.1 above.

On or before the Commencement Date, the

Company shall grant TWD an interest-free
loan in the amount of P15.3 million which TWD
shall utilize for the settlement of Terminal
Leave Credits of Disengaged TWD Personnel.
The aforesaid loan shall be paid through the
following deductions in the Revenue Share in
accordance with the following schedule:

Relevant Year Amount

Year 2 5,100,000.00
Year 3 5,100,000.00
Year 4 5,100,000.00

Considering the above-mentioned inconsistencies of actual circumstance versus the

mutually agreed provisions of the JVA, renders the enforceability of the contract
doubtful. The Audit Team solicited for any addendum or revision on the signed JVA for
the observed disparities. However, no document was provided to support the same.

We recommended that Management:

a. properly disclose in the Notes to Financial Statements the total cost of the JV
Project amounting to P1.509 billion and establish/deposit in a special bank
account under dual control the total project cost as proposed by the
Consortium of MWCI and MWPV, in accordance with Section II.4(h), Annex A
of the 2013 Revised NEDA Guidelines and Procedures for Entering into JVA;

b. submit the necessary documents to support the JV Share computation, for

further evaluation by the Audit Team;

c. cause the submission of written explanation and justification by members of

the TWD Board of Directors and the created JVSC for the failure to conduct
feasibility study prior to acceptance of the JV proposal;

d. submit the following documents to facilitate complete review of the legal and
technical aspects of the Joint Venture Agreement and to establish effective
and efficient review process and generate relevant audit results, as follows:

 justifications/reason for set amount of the non-refundable fee for a

complete set of EDs Volumes I and II amounting to P500,000.00 and P1
million, respectively;

41
  rationale of the provision regarding payment of winning PSP an
amount of P30.18 million to reimburse the expenses incurred by the
Original Proponent to complete the Unsolicited Proposal; and

e. require the Consortium of MWCI and MWPV to immediately submit a detailed

plan with the corresponding project cost showing how they intend to fulfil its
service obligation per JVA, together with the timelines within which to
accomplish the same;

f. immediately apply for the dispute as provided in Article 15 of the JVA in

connection with the following deficiencies noted in the said contract:

 no proper valuation on the turned-over assets of the TWD;

 proposed tariff increase without proper evaluation of the necessity and

reasonableness thereof;

g. submit justification for the absence of public hearing prior to the acceptance
of the JVA as it is detrimental and concerns the interest of the public; and

h. review the signed JVA and make representation with the Consortium of MWCI
and MWPV that an addendum or revision be prepared and signed by both
parties to consider the following provisions on:

 the Company whom the appointment and authority was granted;

 party responsible for the collection of Accounts Receivable;
 delay on remittance of JV share and the consequence for the said
delay; and
 non-interest bearing loan to support the downsizing of the TWD.

Management’s Comments:

The TWD management and JV Partner MWPV South Luzon Water Corp. (SLWC) will
consult the Office of the Government Corporate Counsel (OGCC) and their Legal Team
regarding the audit observations.

2. The validity and propriety of the TWD’s disbursements amounting to P4.531

million could not be ascertained as Management could not submit the 44
accounted Check Vouchers (CVs) per Voucher Register (VR) and their supporting
documents for audit purposes, contrary to Sections 107 and 122 of Presidential
Decree (PD) No. 1445.

Sections 107 and 122 of PD No. 1445 states the following:

“Section 107. Time and mode of rendering account. In the absence of

specific provision of law, all accountable officers shall render their
accounts, submit their vouchers, and make deposits of money collected or
held by them at such times and in such manner as shall be prescribed in the
regulations of the Commission.” (emphasis ours)

42
 “Section 122. Submission of Reports. Whenever deemed necessary in the
exigencies of the service, the Commission may under regulations issued by it
require the agency heads, chief accountants, budget officers, cashiers,
disbursing officers, administrative or personnel officers, and other responsible
officials of the various agencies to submit trial balances, physical inventory
reports, current plantilla of personnel, and such other reports as may be
necessary for the exercise of its functions.

Failure on the part of the officials concerned to submit the documents and
reports mentioned herein shall automatically cause the suspension of payment
of their salaries until they shall have complied with the requirements of the
Commission.”

Moreover, Section 127 of the same PD states:

“Section 127. Administrative disciplinary action. Subject to rules and

regulations as may be approved by the President (Prime Minister), any
unjustified failure by the public officer concerned to comply with any
requirement imposed in this Code shall constitute neglect of duty and shall be a
ground for administrative disciplinary action against the said public officer who,
upon being found guilty thereof after hearing, shall be meted out such penalty
as is commensurate with the degree of his guilt in accordance with the Civil
Service Law. Repeated unjustified failure to comply with the requirements
imposed in this Code shall be conclusive proof that the public officer concerned
is notoriously undesirable.”

On July 8 and 9, 2020, the Audit Team conducted a review and inventory of the TWD’s
VR and all the submitted CVs, respectively. During the initial inventory, 212 CVs and
their supporting documents were not found on file. The same was communicated thru a
letter request and required Management for the immediate submission of the
unaccounted CVs. On July 12, 2020, additional CVs were submitted. However, upon
conduct of another inventory it was revealed that a total disbursement of P4.531 million,
equivalent to 44 CVs, covering various transactions remained not submitted to the Audit
Team for audit purposes. Shown in Annex D is the list of unsubmitted CVs. A final
demand letter dated July 17, 2020 for the submission of the 44 CVs was served to
Management.

Upon inquiry with the Division Manager–Finance, she admitted that during the transition
to Joint Venture (JV) on June 1, 2019, there was no proper turnover of documents from
the previous employees who were responsible for the safekeeping of the CVs. It is in the
month of May 2019, during the final transition stage, that a notable number of CVs were
not properly turned over.

The incomplete submission of CVs and their supporting documents precluded the
conduct of review, examination, and post audit of the related transactions. Hence,
Management’s assertions of occurrence, accuracy, validity and completeness of
financial transactions cannot be ascertained. The unjustified failure of the concerned
TWD Officers to submit the subject documents could be a ground for administrative
disciplinary action, pursuant to Section 127 of PD No. 1445.

43
 We recommended that Management:

a. cause the immediate submission of the 44 CVs amounting to P4.531 million,

together with their supporting documents, in compliance with Sections 107
and 122 of PD No. 1445;

b. institute appropriate actions against the concerned officers for non-

submission of the said disbursement accounts; and

c. direct the Division Manager–Finance to monitor and ensure that the CVs and
their supporting documents are filed intact to avoid losses or misplacements.

Moreover, failure on the part of the officials concerned to submit the documents
mentioned herein shall cause the suspension of payment of their salaries until
they shall have complied with the requirements of the COA as provided under
Section 122 of PD No. 1445.

Management’s Comments:

A total of 28 CVs were submitted to the Audit Team on August 3, 2020 with equivalent
amount of P1.640 million. The remaining 16 CVs will be submitted immediately once
found. Likewise, the Management agreed to comply with all other audit
recommendations.

3. The accuracy, reliability and validity of the recorded balances of the Property, Plant
and Equipment (PPE) accounts amounting to P121.377 million (net of Accumulated
Depreciation) as of December 31, 2019 could not be fully ascertained due to the
following:

a. The TWD was unable to conduct a complete physical count of its PPE and to
prepare the required Report on Physical Count of Property, Plant and
Equipment (RPCPPE) thereon, contrary to Sections 124 and 66 of the Manual on
the New Government Accounting System (MNGAS), Volumes I and II, respectively.

Section 124 of the MNGAS, Volume I, prescribes that “physical count of property, plant and
equipment by type shall be made annually and reported on the RPCPPE. This shall be
submitted to the Auditor concerned not later than January 31 of each year”.

Moreover, Section 66 of the MNGAS, Volume II, requires the use of the prescribed form
of RPCPPE (Appendix 63 thereon) which states that “report the physical count of
property, plant and equipment by type as of a given date. It shows the balance of
property and equipment per cards and per count and shortage/overage, if any”.

The TWD was unable to conduct the physical count of all of its PPE with net book value
of P121.377 million, as required by the abovementioned regulations. Consequently, the
required RPCPPE was not prepared and submitted to the Audit Team for audit
purposes. In the absence of the RPCPPE for the year ended December 31, 2019, the
accuracy, validity and existence of the recorded PPE in the books of accounts could not
be determined. Further, reconciliation between the accounting and property records
could not be facilitated.

44
It is worthy to mention that since the TWD entered into a JV with the Consortium of
Manila Water Company, Inc. (MWCI) and Manila Water Philippine Ventures, Inc.
(MWPV) effective June 1, 2019, most of the properties were turned over to the JV
partner for their use in the operations. The Audit Team sought for the inventory report
that shall have been made before the turnover of these assets but the Team was
informed that no physical count of PPE was performed prior to the turnover.

Also, it is worth emphasizing that the purpose of the supposed periodic physical count of
properties by TWD is not only to prove the accuracy of the recorded balances of the
PPE accounts in their Financial Statements but also to substantiate the existence of the
recorded items of PPE and to reveal any unrecorded items thereof. Had the TWG
conducted the required physical count, management’s assertion as to the completeness
and existence of the recorded PPE accounts can be relied upon, however such was not
the case hereof. Moreover, the physical count of PPE, specifically those which have
been turned over to the JV partner, shall serve as a monitoring tool by the Control
Monitoring Unit (CMU) in ensuring that the government’s properties are well maintained
and taken care of by the JV partner.

b. TWD’s ownership on parcels of land with total cost of P4.927 million remained
doubtful for lack of Transfer Certificates of Title (TCTs) or other documents to
prove absolute ownership thereof, contrary to Section 39 of Presidential Decree
(PD) No. 1445, thus the TWD’s interest cannot be protected against third party
claims.

Section 39 of PD No. 1445, provides:

“Section 39. Submission of papers relative to government obligations.

1. xxx

2. In the case of deeds to property purchased by any government agency, the

Commission shall require a certificate of title entered in favor of the government
or other evidence satisfactory to it that the title is in the government.

3. It shall be the duty of the officials or employees concerned including those in non-
government entities under audit, or affected in the audit of government and non-
government entities, to comply promptly with these requirements. Failure or
refusal to do so without justifiable cause shall constitute a ground for
administrative disciplinary action as well as for disallowing permanently a claim
under examination, assessing additional levy or government share, or
withholding or withdrawing government funding or donations through the
government.”

The documentary requirements in the procurement of Real Property are enumerated in

the Revised Documentary Requirements for Common Government Transactions
prescribed under Section 13.1 of COA Circular No. 2012-001 dated June 14, 2012.

For CY 2019, the reported balance of Land account of P5.195 million remained doubtful due
to the absence of TCTs in the name of TWD for 10 parcels of land totaling P4.928 million.
This has been a recurring audit observation for the past five years. It is noteworthy that from
the 10 parcels of land, nine of which with total acquisition cost of P329,885.00 pertain to

45
purchase of portion of a land. The TWD informed the Audit Team that considering the fact
that only a small portion of a land was acquired for well drilling purposes, it would not be
economical for the TWD to spend so much for its transfer. Likewise, while these parcels of lot
are not in the name of the TWD, annotations can be found at the back of land titles conveying
that a portion of the land is owned by the TWD.

However, the Audit Team observed that a large portion of the unsupported acquisitions
relates to a parcel of land with a total land area of 4,253 sq.m, that was bought on October
31, 2014 for P4.598 million. Inquiry with Management on the status of transfer revealed that
the issued Certificate Authorizing Registration (CAR) by the Bureau of Internal Revenue
(BIR) has expired due to failure to process the transfer for the same. Consequently, TWD will
request for the issuance of a new CAR with the BIR to complete the transfer of the same.

Absence of TCT in the name of the TWD casts doubts on the validity and ownership over the
said parcels of land amounting to P4.928 million. Determined efforts should be exerted by
Management to complete the transfer of these lots in the name of TWD to protect their
interest against third party claims, considering that these lots have been acquired for a
long time.

c. PPE accounts with reported balance of P481,058.13 cannot be relied upon due
to non-provision of accumulated depreciation for some PPE items, contrary to
Sections 58 and 121(2) of Presidential Decree (PD) No. 1445.

Section 58 of PD No. 1445 states:

“Section 58. Audit of assets. The examination and audit of assets shall be
performed with a view to ascertaining their existence, ownership, valuation and
encumbrances as well as the propriety of items composing the respective asset
accounts, determining their agreement with records; proving the accuracy of such
records; ascertaining if the assets were utilized economically, efficiently and
effectively; and evaluating the adequacy of controls over the accounts.”

Section 121(2) of the same Decree also states that the financial statements shall be based
on official accounting records kept in accordance with law and the generally accepted
accounting principles and standards.

Accumulated depreciation was not provided for the four subsidiary accounts of Plant - UPIS
and Water Treatment Structures and Improvements totaling P481,058.13, contrary to the
Philippine Accounting Standards (PAS) 16 which states:

“Each part of an item of property, plant and equipment with a cost that is significant
in relation to the total cost of the item shall be depreciated separately.

The depreciation charge for each period shall be recognized in profit or loss unless it
is included in the carrying amount of another asset. The depreciable amount of an
asset shall be allocated on a systematic basis over its useful life and shall reflect the
pattern in which the asset’s future economic benefits are expected to be consumed
by the entity.”

46
As of December 31, 2019, the balance of the said four subsidiary accounts are as follows:

Reported
Items of PPE Balance
Supply Mains P143,044.16
Other Source of Supply Plant 40,608.84
Other Transmission and Distribution Plant 205,025.48
Other PPE-Power Operated Equipment 92,379.65
Total P481,058.13

This is a recurring audit observation. As per Division Manager-Finance, the

abovementioned PPE items were acquired prior to the TWD’s start of preparing a lapsing
schedule in CY 2004 and they cannot trace back the transactions pertaining to the subject
amount, thus no depreciation was provided. To date, there was no update on the status of
tracing of the related transactions.

The non-provision of depreciation overstates the total assets, thus affecting the accuracy and
reliability of the reported balances of the PPE and other related accounts.

d. Tangible items below the capitalization threshold of P15,000.00 totaling P4.4

million were not accounted as semi-expendable property upon the adoption of
the Philippine Financial Reporting Standards (PFRS) in CY 2017, contrary to
Item 5.4 of COA Circular No. 2016-006 dated December 29, 2016.

Item 5.4 of COA Circular No. 2016-006 states:

“5.4 Tangible items below the capitalization threshold of P15,000 shall be

accounted as semi-expendable property. The following policies shall be
applied as follows:

5.4.1 Semi-expendable property which were recognized as PPE shall be

reclassified to the affected appropriate semi-expendable inventory
accounts (if not yet issued to end-user), expense accounts (if issued
within the year), or accumulated surplus/(deficits)/retained earnings
accounts (if issued in prior years).

5.4.2 These tangible items shall be recognized as expenses upon issue to

the end-user.

5.4.3 Inventory Custodian Slip (ICS) shall be issued to end-user to

establish accountability over the semi-expendable property.
Accountability shall be extinguished upon return of the item to the
Property and Supply Division/Unit or in case of loss, upon approval of
the relief from property accountability.”

Since the initial adoption of the PFRS in CY 2017 and for the CY 2019, several items of
PPE below the capitalization threshold of P15,000.00 remained unadjusted to its
appropriate semi-expendable inventory account, expense account or Retained Earnings.
Per review of Lapsing Schedule, the Audit Team was able to identify PPE items totaling
P4.4 million that were below the threshold. Inquiry with the Division Manager-Finance
disclosed that due to lack of personnel, review of the Lapsing Schedule to identify the

47
 PPE items valued P15,000.00 and below was not yet performed, thus resulting in the
overstatement of PPE accounts. She added that review on this will be facilitated once an
additional employee is hired.

e. One unit of motor vehicle costing P83,900.00 and net book value of P8,390.00
was not derecognized in the books of account upon disposal, thereby
overstating the total PPE by P8,390.00, contrary to Philippine Accounting
Standards (PAS) 16 – Property, Plant and Equipment. The corresponding gain
on disposal amounting to P11,610.00 was, likewise, not recorded.

PAS 16 provides that an asset is derecognized in the books and should be removed
from the statement of financial position on disposal or when it is withdrawn from use and
no future economic benefits are expected from its disposal. The gain or loss on disposal
is the difference between the proceeds and the carrying amount and should be
recognized in profit and loss.

In CY 2019, the TWD disposed of two motor vehicle units, one unit in September 2019
while the other was in October 2019. Review of the General Ledger (GL) of the
Transportation Equipment account and the relevant Journal Entry Vouchers (JEVs)
disclosed that one of the two motor vehicle units was still recorded in the books. The
details of the said motor vehicle are as follows:

Date Property Accumulated Net Book Appraised

Acquired Particulars No. Total Cost Depreciation Value Value
TWD service
vehicle plate
number SDS
09/18/1997 897 97-SDS-02 P83,900.00 P75,510.00 P8,390.00 P19,500.00

Invitation to Quote for the Disposal of Unserviceable Vehicle was posted to invite eligible
buyers for the vehicle with plate number SDS 897 and Approved Budget for Contract
(ABC) of P19,000.00. Bidding documents for the disposal is P500.00. Three quotations
were submitted with the following bid price:

Bidder Bid Amount

ABE Junk Shop P19,200.00
Santiago Madrid Construction Co. 20,000.00
Salisi Motor Works 19,450.00

Santiago Madrid Construction Co. was awarded as the bidder with highest calculated
and responsive bid. The sale of motor vehicle was recorded in the books as follows:

Cash P20,500.00
Income from Water Works P20,500.00

The journal entry made was incorrect without derecognizing the carrying amount (i.e., its
net book value) of the vehicle from the books and recording the income/gain on disposal
within their correct accounts. As a result, the PPE was overstated by the motor vehicle’s
net book value of P8,390.00 and the proceeds of P20,500.00 was incorrectly classified

48
as Income from Water Works. Likewise, the gain on disposal of P11,610.00 was not
recognized in the books. Journal entries to record the sale should have been:

Cash P20,500.00
Accumulated Depreciation 75,510.00
Transportation Equipment P83,900.00
Other Income 500.00
Gain on Sale 11,610.00

We recommended that the OIC-General Manager:

a. require the Contract Monitoring Unit (CMU) to set a deadline for the conduct of
complete physical count of Property, Plant and Equipment together with the
preparation and submission of RPCPPE;

b. exert best effort to secure all the requirements for the titling of properties in favor
of the TWD, pursuant to Section 39 of PD No. 1445 and Section 13.1 of COA
Circular No. 2012-001;

c. direct the Accounting Section to review and reconcile the items of PPE with the
General Ledger and Lapsing Schedules and prepare the necessary adjusting
entries in compliance with Sections 58 and 121(2) of PD No. 1445;

d. facilitate the review of Lapsing Schedules and identify those items valued at
P15,000.00 and below from PPE for reclassification to Retained Earnings. After
which, prepare the adjusting entries to restate the correct balance of the PPE
accounts, in compliance with COA Circular No. 2016-006 dated December 29,
2016; and

e. instruct the Division Manager-Finance to prepare the necessary adjusting entries

to record the disposal of one unit motor vehicle to reflect the correct balance of
the affected accounts.

Management’s Comments:

Submission of RCPPE will be made on or before December 31, 2020. As for the untitled
properties, The TWD represented that the titling costs that they will be shouldering is
very expensive and unfavorable on their part. However, there were annotations in favor
of TWD on the principal titles for the above-mentioned properties.

Management agreed to comply with the recommendations on the provision of

Accumulated Depreciation on subject PPE items, reclassification of tangible PPE items
and the preparation of adjusting entries relative to the disposal of one unit motor vehicle.

Auditor’s Rejoinder:

While the Audit Team appreciates the annotation of the conveyance of the portion of the land
in the name of TWD on the principal titles, Section 39 of PD No. 1445 requires a certificate of
title entered in favor of the government or other evidence satisfactory to it that the title is in the
government.

49
4. The accuracy, valuation and collectability of the Accounts Receivable (AR)
account amounting to P7.638 million is doubtful due to the following:

a. Computation of the Allowance for Impairment-AR estimated at P2.846 million as

of December 31, 2019 was still inconsistent with Paragraphs 5.5.14 and B5.5.35
of Philippine Financial Reporting Standards (PFRS) 9, thus valuation of the Net
Realizable Value and computed Impairment Loss on Accounts Receivable is
doubtful.

Paragraph 5.5.14 of PFRS 9 provides:

“At each reporting date, an entity shall recognize in profit or loss the amount of
the change in lifetime expected credit losses as an impairment gain or loss. An
entity shall recognize favourable changes in lifetime expected credit losses as
an impairment gain, even if the lifetime expected credit losses are less than
the amount of expected credit losses that were included in the estimated cash
flows on initial recognition”.

Paragraph B5.5.35 of PFRS 9 provides:

“… A provision matrix might, for example, specify fixed provision rates

depending on the number of days that a trade receivable is past due (for
example, 1 percent if not past due, 2 percent if less than 30 days past due, 3
percent if more than 30 days but less than 90 days past due, 20 percent if 90-
180 days past due etc.). Depending on the diversity of its customer base, the
entity would use appropriate groupings if its historical credit loss experience
shows significantly different loss patterns for different customer segments.
Examples of criteria that might be used to group assets include geographical
region, product type, customer rating, collateral or trade credit insurance and
type of customer (such as wholesale or retail).”

Further, it provides that Trade Receivable shall be valued at their face amounts minus,
whenever appropriate, allowance for doubtful accounts. Bad debts expense and/or any
anticipated adjustments, which in the normal course of events will reduce the amount of
receivables from the debtors to estimated realizable values, shall be set up at the end of
the accounting period.

The Allowance for Impairment-AR shall be provided in an amount based on collectability

of receivable balances and evaluation of such factors as aging of the accounts,
collection experiences of the agency, expected loss experiences and identified doubtful
accounts.

Review of the submitted computation made by the Division Manager-Finance disclosed

the following Allowance for Impairment made on various accounts classified according to
their age.

50
 Computed
Age Rate AR balance Allowance for Per Audit
Impairment for
the year
0-60 days 1% P(18,335.20) P0 P0
61-180 days 2% 0 0 0
181-365 days 3% 1,315,157.35 39,454.72 39,454.72
Above one year 5% 6,354,775.57 317,738.78 317,738.78
Total P7,651,597.72 P357,193.50 357,193.50
Recorded Allowance for Impairment 2,846,514.61
Overstatement P(2,489,321.11)

Section 73, Volume I of the MNGAS stressed that the responsibility for the fair
presentation and reliability of financial statements rests with the management of the
reporting agency. This responsibility is discharged by applying generally accepted state
accounting principles that are appropriate to the entity’s circumstances, by maintaining
effective system of internal control, and by adhering to the chart of accounts prescribed
by the Commission on Audit.

The Finance Division still practices its method of recognizing Allowance for Impairment
on an “accumulative” basis adding up its computed allowance for impairment for the year
to the balance computed and recognized from previous years, instead of just recognizing
the computed allowance for impairment as the balance of the Allowance for Impairment-
AR account as at the end of a particular year. Further, the said policy to set up
Allowance for Impairment was not approved by the Board of Directors. As prescribed by
the PFRS 9, the result of the Aging Method should actually be the balance of Allowance
for Impairment for the year. If there is a change in experience on collection per account,
percentages should also reflect the best estimate of the uncollectability.

Upon inquiry with Division Manager-Finance, Management foresees remote collection of

the accounts aged above one year, hence the Allowance for Impairment of P2.489
million is just likely to be expected.

Nevertheless, the Audit Team requests a study based on collection experience per
account age group to justify the deviation on the prescribed percentages of Impairment
Loss to properly support the allowance to be made on the accounts of remote collection.

Absence of a study to justify the deviation on the prescribed percentages of Impairment

Loss to properly support the allowance to be made on the accounts of remote collection
resulted in an inaccurate presentation of the net realizable value of Accounts
Receivable, Allowance for Impairment and other related accounts in the financial
statements.

b. One to above five years long-outstanding active and inactive accounts totalling
P6.355 million are doubtful of collection.

A summary of Aging Schedule for CYs 2018 and 2019 are presented as follows:

51
 Increase/
Age CY 2019 CY 2018
(Decrease)
Current P(18,335.20) P4,556,817.24 P (4,556,817.24)*
31-60 days - 913,085.42 (913,085.42)
61-90 days - 263,087.49 (263,087.49)
91-120 days - 200,942.70 (200,942.70)
121-180 days - 292,157.05 (292,157.05)
181-365 days 1,315,157.35 538,280.51 776,876.84
Subtotal 1,296,822.15 6,764,370.41 (5,467,548.26)
1 to 2 years 817,668.04 851,678.55 (34,010.51)
2 to 3 years 745,191.05 665,558.85 79,632.20
3 to 4 years 614,023.20 684,531.65 (70,508.45)
4 to 5 years 635,849.75 469,703.65 166,146.10
Above 5 years 3,542,043.53 3,175,464.66 366,578.87
Subtotal 6,354,775.57 5,846,937.36 507,838.21
Totals P7,651,597.72 P12,611,307.77 (P4,959,710.05)

*exclusive of overpayments

As can be gleaned from the above table, there are unfavorable increases in the 181-365
days, 2 to 3 years, 4 to 5 years and above 5 years’ past due accounts. Sampling of
concessionaires from each account group was made and the following data on their
accounts were revealed:

a. Accounts from 181-365 days pertain to those with water bills and penalties from
January to June 2019.

b. Accounts above 365 days are bills pertaining to CY 2018 and older. The water
services of these concessionaires were already disconnected.

c. The Audit Team sampled some accounts from above five years past due accounts
thru system inquiry and the following data were observed:

 Some accounts are already outstanding since CY 2001.

 Last billing made on an account was in CY 2010.
 An account was already disconnected in CY 2007.
 One account has a special privilege of P119.90 worth of free consumption
per month granted by the TWD for being the owner of the lot where a
TWD pumping station is situated. As of July 2019, the account already
has P93,178.20 worth of excess water bill, which is receivable by the
TWD.
 Noted also are several accounts still supplied with water despite presence
of arrears from prior bills.

As noted in the previous observations, the tolerant implementation of the disconnection

policy and the continuous service of water despite outstanding balances contributed to
the bloated amount of AR. Also, TWD’s terms on the agreements with lot owners giving
the latter special privilege on water consumption were not strictly observed, hence the
accumulation of AR due them.

52
To recognize efforts made by the TWD to collect these arrears, in January and February
2020, 535 demand letters were served to concessionaires with outstanding accounts for
above five years, totalling P2.009 million worth of receivables. These comprised 18.82%
of the total 2,842 delinquent accounts as of December 31, 2019.

As per inquiry on the returned demand letters, some concessionaires opt to pay their
outstanding balances in full, while some made payments by installment. As of June
2020, P40,303.70 worth of receivables were collected from long outstanding accounts.
There were also returned letters not received by the concerned concessionaires
because either there was a change of address, or the account holder absconded, cannot
be located, or deceased already.

As the TWD entered a JVA with the consortium of Manila Water Company, Inc. (MWCI)
and Manila Water Philippine Ventures, Inc. (MWPV), an arrangement was made not to
restore the water service connection of concessionaires with outstanding balances with
the former.

It is worthy to note that before the implementation of the JVA, an agreement was also
made that arrears accruing to the TWD (i.e. ARs from May 2019 bills and older) are to
be collected independently by the TWD.

c. The Finance Division still failed to reconcile the AR account with the balance
per Aging Schedule of P7.670 million (gross of P18,335.20 overpayments)
resulting to a variance of P31,685.85, contrary to Section 111 of Presidential
Decree (PD) No. 1445.

Section 111 of PD No. 1445, also known as the State Audit Code of the Philippines, sets
a basic guideline for keeping of accounts by government agencies:

“Section 111. Keeping of accounts.

(1) The accounts of the agency shall be kept in such a detail as is necessary
to meet the needs of the agency and at the same time be adequate to
furnish the information needed by fiscal or control agencies of the
government,

(2) The highest standards of honesty, objectivity and consistency shall be

observed in the keeping of accounts to safeguard against inaccurate or
misleading information”

Based on the examination of the Aging Schedule generated by the system maintained
by the Commercial Division and General Ledger of AR maintained by the Finance
Division, the variance between the aforementioned reports as of December 31, 2019
was arrived at as follows:

Per FS/GL P7,638,247.07

Per Aging Schedule 7,669,932.92
Variance P 31,685.84

The noted variance as of December 31, 2019 was decreased by P137,251.00 or 81

percent when compared to the previous year’s variance of P168,936.84. The decrease

53
was mainly attributable to no new billings being generated from June 1 to December 31,
2019 since the TWD’s operations were already under the consortium of MWCI and
MWPV effective June 1, 2019

This has been a recurring audit observation for the last five years. Considering that AR is
no longer increasing due to the JVA, reconciliation of the differences can now be easily
facilitated.

We recommended that Management:

a. prepare and adopt a realistic policy, for approval by the Board of Directors, on
setting-up provisions for Allowance for Impairment-AR based on Paragraphs
5.5.14 and B5.5.35 of PFRS 9 taking into consideration the historical data of
collection experience and overall assessment of possibility of collections to
ensure proper, accurate valuation and fair presentation of AR in the financial
statements;

b. require the Finance Division to re-compute the Allowance for Impairment

based on the rates prescribed in the PFRS 9 or policy that would be
formulated and approved by the Board of Directors. Thereafter, make the
necessary adjusting journal entries to correct the balance of the Allowance for
Impairment provided for the AR for proper valuation of the accounts;

c. complete the service of notices to collect from the remaining delinquent

concessionaires by creating a special task force to be assigned in each
classification of past due accounts and implement a time-bound collection
action plan which shall serve as the timeframe of the TWD on its collection to
avoid the continuous loss of the quality and value of the receivables;

d. upon exhaustion of all possible ways to collect, request from the COA an
authority to write-off receivables duly documented with actions made to those
accounts considered as dormant, in accordance with COA Circular No. 2016-
005 dated December 19, 2016; and

e. reconcile the discrepancy noted between the Aging Schedule and balances
per books, including the correction of noted overpayments, and make the
necessary adjusting entries therefor.

Management’s Comments:

The Management will present on the next board meeting on August 11, 2020 the
aforecited recommendation regarding the provision for Allowance for Impairment-AR for
their reference so that a policy on providing Allowance for Impairment will be
finalized/adopted. Likewise, succeeding demand letters will be sent on August 2020 and
November 2020 to the other delinquent concessionaires not yet served with demand
letters. Moreover, the Finance Manager has already started on the reconciliation of AR
and the Aging Schedule, the expected completion of which shall be on or before
December 31, 2020. The Management agreed to comply to all other audit
recommendations mentioned.

54
5. The accuracy, completeness, reliability and existence of the Inventory accounts
with recorded balance of P2.683 million as of CY 2019 were unreliable due to
failure to conduct complete physical count and non-submission of Report on the
Physical Count of Inventories (RPCI) on all inventories held by TWD, contrary to
Section 490 of the Government Accounting and Auditing Manual (GAAM), Volume
I and Section 65 of the Manual on the New Government Accounting System
(MNGAS), Volume II.

Section 490 of GAAM, Volume I states that, “physical stock-taking is an indispensable

procedure for checking the integrity of property custodianship. In all cases, the physical
inventory-taking which is required semi-annually or annually should be regarded with
importance.”

Section 65 of MNGAS, Volume II states that “the RPCI shall be used to report the
physical count of supplies by type of inventory as of a given date. It shows the balance
of inventory items per cards and per count and shortage/overage, if any”.

Review of Inventory accounts and its pertinent documents disclosed the following
inventories held by the TWD as of December 31, 2019 and the corresponding status of
submission to the Audit Team of the RPCIs:

Particulars Amount % of Total Remarks

Inventories

Office Supplies Inventory P 253,070.01 9.43% With RPCI

Accountable Forms, Plates and With RPCI
1.35%
Stickers Inventory 36,245.19
Fuel, Oil and Lubricants Inventory 112,461.55 4.19% With RPCI
Chemical and Filtering Supplies With RPCI
1.34%
Inventory 36,037.64
Sub-total 437,814.39 16.31%
Construction Materials Inventory No submitted
72.36%
1,942,009.71 RPCI
Electrical Supplies and Materials No submitted
1.54%
Inventory 41,523.52 RPCI
Other Supplies and Materials No submitted
9.78%
Inventory 262,526.55 RPCI
Sub-total 2,245,789.78 83.69%
Total P 2,683,874.17 100.00%

As reflected in the above table, the required RPCI for all types of inventories were not
completed and prepared in CY 2019. Accomplished physical count of items of
inventories such as office supplies, accountable forms, fuel, oil and lubricants and
chemical and filtering supplies with total account balance of P437,814.39 constitutes
only 16 per cent of the total Inventory balance. As per inquiry with the Inventory
Custodian, the physical count/inventory and the required RPCI were not completed due
to the shortage of the remaining work force in the TWD after entering into the JVA
effective June 1, 2019.

55
 Likewise, posting of transactions in the inventory system was not completed. This was
evident in the electronic Stock Cards (SC) that reflect inventory items with remaining
balances while no items were counted during the physical count of the selected
inventory items, thus the electronic SC is also not reliable.

Further, comparison between the submitted RPCIs and General Ledgers (GL) revealed
discrepancies, as follows:

Inventory Account Balance per Balance per Difference

RPCI GL
Office Supplies Inventory P 399,610.90 P 253,070.01 P 146,540.89
Accountable Forms, Plates and
Stickers Inventory 33,445.50 36,245.19 (2,799.69)
Fuel, Oil and Lubricants Inventory 131,688.24 112,461.55 19,226.69
Chemical and Filtering Supplies
Inventory 1,332,302.71 36,037.64 1,296,265.07
Total P1,897,047.35 P 437,814.39 P1,459,232.96

It is worthy to note that as part of the JVA, the JV partner shall have the right to use any
inventory of the TWD, quoted as follows:

“Effective on the Commencement Date, the Company shall have the right to
use any Inventory of TWD, as listed in Schedule 5, in carrying out its
responsibility under the Appointment. Any consumable items owned by TWD
and items of Inventory not identified for use by the Company shall be subject to
the retention or disposal of TWD and the applicable rules and procedures of the
Commission on Audit shall be complied with in the event any of such disposal
of assets by TWD.”

Review of relevant documents disclosed that the following inventories were transferred
for use by the Consortium as part of the JVA. Corresponding billing statement requesting
for payment for the cost of inventories was already sent to the JV partner.

Inventory Account Amount

Office Supplies Inventory P 179,273.92
Fuel, Oil and Lubricants Inventory 7,510.80
Chemical and Filtering Supplies Inventory 1,298,634.97
Construction Materials Inventory 4,285,702.40
Electrical Supplies and Materials Inventory 663,741.15
Total P6,434,863.24

The related transaction was taken up in the subsidiary ledger of each applicable
inventory account and recorded per Journal Entry Voucher (JEV) No. 19-12-0072 dated
December 31, 2019.

Based on the foregoing deficiencies, the accuracy, completeness, reliability and

existence of Inventory balance of P2.683 million is doubtful and affects the fair
presentation of total assets in the financial statements.

56
 We recommended that the OIC-General Manager:

a. require the Administrative Services Officer A to take year-end count of

Construction Materials, Electrical Supplies and Materials and Other Supplies
and Materials Inventory accounts and prepare the required RPCI thereon; and

b. complete the posting of transactions in the Inventory system and reconcile

the difference between the Property and Accounting records. After which,
make the necessary adjusting entries on Inventory accounts to fairly present
its balances in the financial statements.

Management’s Comments:

The Management agreed to comply with the recommendations. Submission of the

complete RPCI will be on or before August 31, 2020.

6. The accuracy, completeness, validity, valuation and collectability of the Other

Receivables (OR) account with recorded balance of P10.864 million for CY 2019
cannot be fully relied upon due to the following:

a. Unusual negative amounts totaling P205,853.06 were still part of the OR

subsidiary account with book balance of P1.911 million, resulting in the
understatement of the account by the same amount.

Normally, assets like the OR account carry a debit balance or a positive amount.
Examination of the details of schedule of Other Receivables revealed that there were
debtors with negative outstanding balances. A summary of the schedule is presented
below:

Particulars Amount Remarks

New Service Connections P(175,458.36) With new transactions in CY
2019
Ballvalve (4,370.00) Forwarded negative
balances from CY 2018
Production Assessment Charge (144.70) -do-
Turnover well-Tinurik (24,190.00) -do-
Others-Malipa Registration Fee (1,690.00) -do-
Total P(205,853.06)

This is a reiteration of the previous year audit observation. Efforts to clean the account
were made on May 31, 2019 thru a Journal Entry Voucher (JEV) No. 19-05-0188
reclassifying the entries in the OR accounts totalling P31,063.90 to Retained Earnings-
Unappropriated. Still, some negative balances exist, which are actually forwarded
balances from CY 2018.

Mismanagement of the OR account was still evident for there was a noted increase in
the negative amounts in the New Service Connections account vis-à-vis the previous
year’s accumulated negative balance. New transactions with negative balances
recorded on December 31, 2019 were seen amounting to P107,320.35 with total
accumulated balance as of December 31, 2019 of P175,458.36. Upon interview with the
Division Manager-Finance, these transactions represented payments of new

57
connections who opted to avail water service connection before the Concession
Agreement started in June 2019. Due to an influx of new concessionaires who paid
during those months in CY 2019, they failed to set up the corresponding OR account,
thus completeness of the account is also questionable since the Finance Division only
relied on the payments made by the concessionaires. Also, there were two payments in
the schedule without the corresponding names of concessionaires. Further inquiry
revealed that due to lack of manpower during the transition to JVA, documents were not
properly turned over to the remaining personnel for proper recording.

The noted negative balances and unaccounted names of debtors cast doubt on the
accuracy, completeness, and validity of the OR account.

b. The OR account was still not provided with Allowance for Impairment, contrary
to Paragraphs 5.5.14 and B5.5.35 of Philippine Financial Reporting Standards
(PFRS) 9, resulting in an inaccurate presentation of the net realizable value of
the OR.

Paragraph 5.5.14 of PFRS 9 provides:

“At each reporting date, an entity shall recognize in profit or loss the amount of
the change in lifetime expected credit losses as an impairment gain or loss. An
entity shall recognize favourable changes in lifetime expected credit losses as
an impairment gain, even if the lifetime expected credit losses are less than
the amount of expected credit losses that were included in the estimated cash
flows on initial recognition”.

Paragraph B5.5.35 of PFRS 9 provides:

“… A provision matrix might, for example, specify fixed provision rates

depending on the number of days that a trade receivable is past due (for
example, 1 percent if not past due, 2 percent if less than 30 days past due, 3
percent if more than 30 days but less than 90 days past due, 20 percent if 90-
180 days past due etc.). Depending on the diversity of its customer base, the
entity would use appropriate groupings if its historical credit loss experience
shows significantly different loss patterns for different customer segments.
Examples of criteria that might be used to group assets include geographical
region, product type, customer rating, collateral or trade credit insurance and
type of customer (such as wholesale or retail).”

Based on the Financial Statements submitted on CY 2019, the Finance Department still
failed to provide Allowance for Impairment on the Other Receivable account.

The non-provision of the Allowance for Impairment casts doubt on the fair presentation
of the account in the financial statements. It is noted that some of these accounts have
been outstanding since CY 2006. It is also worthy to mention that action for collection
was yet to be made on these OR accounts.

This is a reiteration of prior year audit recommendation.

58
 We recommended that Management:

a. continue to review, verify and validate the negative balances on the OR

account, and make necessary entries to present the correct balance of the OR
account;

b. act on the collection of payments from these debtors, otherwise, upon

exhaustion of all possible ways to collect, request from the COA an authority
to write-off receivables duly documented with actions made to those accounts
considered as dormant, in accordance with COA Circular No. 2016-005 dated
December 19, 2016; and

c. provide an Allowance for Impairment based on collectability of receivable

balances as provided in Paragraphs 5.5.14 and B5.5.35 of PFRS 9 or the Board
may also pass a resolution adopting a new policy on the computation of
percentage based on the collectability of OR.

Management’s Comments:

Review of transactions for the new service connections are to be individually verified at
its Subsidiary Ledger if AR account was being set up upon payment of new service
connection fee. Transactions referring to reconnection or illegal connection fee will also
be checked as these were possibly credited to OR Account instead of Income Account.
Also, demand letters will be served to these debtors.

Likewise, the Management agreed to comply on all other audit recommendations

mentioned.

7. Unserviceable or junked items of Property, Plant and Equipment (PPE) with total
acquisition cost of P3.544 million and net book value of P332,407.53, were
erroneously reclassified to Other Assets account in CY 2019, in violation of
Philippine Accounting Standards (PAS) 16 – Property, Plant and Equipment, thus
understating the reported PPE account balance by P332,407.53. Moreover, these
unserviceable or junked items PPE were not disposed of, contrary to Section 79 of
Presidential Decree (PD) No. 1445 and COA Circular No. 89-296 dated January 27,
1989, thus exposing these properties to further deterioration, precluding the TWD
from better chances of recovery of their residual values if these properties have
been immediately disposed through public auction, sale or negotiation.

PAS 16 – PPE outlines the accounting treatment for most types of property, plant and
equipment. PPE is initially measured at its cost, subsequently measured using either a
cost or revaluation model, and depreciated so that its depreciable amount is allocated on
a systematic basis over its useful life.

With regard to the derecognition, an asset should be removed from the statement of
financial position upon disposal or when it is withdrawn from use and no future economic
benefits are expected from its disposal. The gain or loss on disposal is the difference
between the proceeds and the carrying amount and should be recognised in profit and
loss.

59
With the adoption of the Revised Chart of Accounts (RCA) for Government-Owned or
Controlled Corporation (GOCCs) provided under COA Circular No. 2015-010 dated
December 1, 2015, which aims to enhance the accountability and transparency of the
financial reports and ensure the comparability of financial information, new accounts and
its definition were added, thus revising the Philippine Government Chart of Accounts
(PGCA) under the New Government Accounting System (NGAS).

Under the RCA, property items that can only be classified as Other Assets are as
follows:

1. Foreclosed Property/Assets - this account is used to recognize the fair value of

foreclosed real and other property/assets acquired (ROPA) by government
corporations;

2. Forfeited Property/Assets - this account is used to recognize the fair value of

property or assets forfeited as payment for tax debts;

3. Confiscated Property/Assets - this account is used to recognize the fair value of

confiscated property or assets for which ownership has been finally decided in
favor of the government; and

4. Abandoned/Surrendered Property/Assets - this account is used to recognize the

fair value of abandoned or surrendered property or assets for which ownership
has been finally decided in favor of the government.

On March 29, 2019, a Journal Entry Voucher (JEV) No. 19-03-0173 was drawn to
reclassify PPE items considered as unserviceable or junk to Other Assets account.
Details are presented in Annex E and summarized as follows:

Accumulated Net Book

PPE Item Cost Depreciation Value
Transmission and Distribution Mains P 69,600.00 P 62,640.00 P 6,960.00
Information and Communication
Technology Equipment 1,743,658.96 1,575,540.50 168,118.46
Motor Vehicles 398,063.50 377,057.40 21,006.10
Other PPE-Water Treatment
Equipment 1,332,850.00 1,196,527.00 136,323.00
Total P3,544,172.46 P3,211,764.90 P332,407.56

From the details on the above table, the following entries were made for the
reclassification:

Account Title Debit Credit

Accumulated Depreciation-Transmission
and Distribution Mains 62,640.03
Accumulated Depreciation-Information and
Communication Technology Equipment 1,575,540.50
Accumulated Depreciation-Motor Vehicles 377,057.40

60
 Account Title Debit Credit
Accumulated Depreciation-Other PPE-
Water Treatment Equipment 1,196,527.00
Other Assets 332,407.53
Transmission and Distribution Mains 69,600.00
Information and Communication
Technology Equipment 1,743,658.96
Motor Vehicles 398,063.50
Other PPE-Water Treatment Equipment 1,332,850.00

Other Assets account was debited in the amount of P332,407.53 for the net book value
of PPE items considered as unserviceable or junked. Consequently, PAS 16 provides
that for an asset to be decognized, the same should be disposed or withdrawn from use
and no future economic benefits are expected from its disposal.

Prior to adoption of RCA under COA Circular No. 2015-010 dated December 1, 2015,
the MNGAS defined Other Assets as account used to record the value of obsolete and
unserviceable assets awaiting final disposition as well as those assets still serviceable
but are no longer being used. However, with the adoption of RCA to align the reportorial
requirements of GOCCs, including Water Districts, Other Assets account was defined
differently.

Unaware of the changes on Other Assets account and its necessary composition, the
Division Manager–Finance erroneously reclassified the unserviceable or junked items of
PPE, thereby derecognizing these items in the PPE account and its accumulated
depreciation. The same resulted to understatement of PPE balances by P332,407.53
and overstatement of Other Assets account for the same amount, thus affecting the fair
presentation of balances in the Statement of Financial Position.

Further examination of reclassified items disclosed that PPE items with an acquisition
cost amounting to P569,965.60 lack the necessary particulars/details, thus doubtful of its
reliability, accuracy and existence.

Likewise, despite the unserviceability of these PPE items, the Property Unit had not
prepared the Inventory and Inspection Report of Unserviceable Property (IIRUP) as
basis for dropping the unserviceable properties from PPE accounts as required.

Disposal of the items of PPE should be immediately facilitated to prevent further

deterioration, decline in economic value and loss of opportunity to earn additional
income, as provided in Section 79 of PD No. 1445 and pertinent provisions of COA
Circular No. 89-296 dated January 27, 1989.

Section 79 of PD No. 1445 provides:

“Section 79. Destruction or sale of unserviceable property. When

government property has become unserviceable for any cause, or is no longer
needed, it shall, upon application of the officer accountable therefor, be inspected
by the head of the agency or his duly authorized representative in the presence
of the auditor concerned and, if found to be valueless or unsalable, it may be

61
 destroyed in their presence. If found to be valuable, it may be sold at public
auction to the highest bidder under the supervision of the proper committee on
award or similar body in the presence of the auditor concerned or other duly
authorized representative of the Commission, after advertising by printed notice
in the Official Gazette, or for not less than three consecutive days in any
newspaper of general circulation, or where the value of the property does not
warrant the expense of publication, by notices posted for a like period in at least
three public places in the locality where the property is to be sold. In the event
that the public auction fails, the property may be sold at a private sale at such
price as may be fixed by the same committee or body concerned and approved
by the Commission.”

On the other hand, COA Circular No. 89-296 dated January 27, 1989 provides:

“IV. AUTHORITY OR RESPONSIBILITY FOR PROPERTY

DISPOSAL/DIVESTMENT

Pursuant to existing laws on the matter, the full and sole authority and
responsibility for the divestment and disposal of property and other assets owned
by national government agencies or instrumentalities, local government units and
government-owned and/or controlled corporations and their subsidiaries shall be
lodged in the heads of the departments, bureaus, and offices of the national
government, the local government units, and the governing bodies or managing
heads of government-owned or controlled corporations and their subsidiaries
conformably to their respective corporate charters or articles of incorporation,
who shall constitute the appropriate committee or body to undertake the same.”

We recommended that the OIC-General Manager:

a. direct the Division Manager–Finance to make the necessary reclassification

entries to revert back to PPE account items that were considered junked,
obsolete or unserviceable, awaiting for its final disposition;

b. require the Division Manager–Finance to investigate and locate the

reclassified PPE items with lacking particulars or details in the amount of
P569,965.60;

c. require the Disposal Committee to facilitate the disposal of the unserviceable

or junked items of PPE with book value of P332,407.53 to prevent further
deterioration of the assets and decongest the storage area, in compliance
with Section 79 of PD No. 1445 and COA Circular No. 89-296 dated January 27,
1989;

d. require the Property Officer to prepare the prescribed IIRUP as basis for
dropping from the books the subject unserviceable or junked items from the
PPE accounts; and

e. instruct the Property Officer to submit the IIRUP to the Accountant upon
completion of the disposal activity and ensure that the original copy of the
report will be the basis in the proper adjustment of the balance of affected
PPE accounts through a duly approved Journal Entry Voucher.

62
 Management’s Comments:

Reversal entry was taken up on July 2020 as per JEV No. 20-07-0040. Summary has
been shown to COA Audit Team Leader on July 25, 2020.

New Set of Disposal Committee was created effective July 30, 2020 due to resignation
of former members. Disposal of unserviceable or junked items of PPE will be made on or
before December 31, 2020.

Preparation of the prescribed IIRUP will be complied on or before October 31, 2020.

Likewise, the Management agreed to comply with all other audit recommendations
mentioned.

8. Account balances of Accounts Payable and Other Payables amounting to

P432,162.66 and P1.809 million, respectively, could not be fully ascertained due to
the following:

a. Accounts Payable representing staled checks from various payees amounting

to P91,888.62 remained outstanding from two to twelve years, thus doubting
the validity of its claims, contrary to COA Circular No. 99-044 dated August 17,
1999.

Item 3.2 of COA Circular No. 99-004 dated August 17, 1999, provides:

“a. All obligations shall be supported by valid claims

b. Payable – Unliquidated Obligations which has been outstanding for two

years or more and against which no actual claims, administrative or judicial,
has been filed or which is not covered by perfected contracts on record
should be reverted to the Cumulative Results of Operations Unappropriated
(CROU)”

Review of the schedule of Accounts Payable disclosed that 41 checks issued to various
payees were not presented to the bank for payment and became stale six months after
its issuance (Annex C). Monetary value of these staled checks totaled P91,888.62.
Once a check becomes stale, the Division Manager-Finance reverts back to Cash in
Bank account the check amount and recognizes a payable.

Noticeably, most of the staled checks have been outstanding for as long as 12 years,
thus doubting the existence of valid claims. Inquiry with the Division Manager-Finance
revealed that these payees did not contact or communicate with the TWD for check
replacement considering that these checks may be lost, voided or spoiled over the
years. Likewise, the TWD failed to contact the owners of these staled checks.

This is a reiteration of prior year’s audit observation.

b. Various payables to former TWD employees charged against Other Payables

account amounting to P9,745.97 (net of negative balances) were not paid out
upon resignation or retirement of the concerned employees.

63
 Review of the schedule of Other Payables disclosed that the TWD owed its former
employees a total sum of P9,745.97 representing underpayment for reimbursements
and the likes. Details of the amount are as follows:

Date Payee Particulars Amount

31-Aug-05 Sinando Banaag GSIS over remittance P 69.68
31-Aug-05 Eugene Lucido GSIS over remittance 267.15
31-Aug-05 Rosario Pagulayan GSIS over remittance 6,605.35
30-Apr-10 Bernadette Mangubat Funds for TESDA Training-Call Center 4,961.00
31-Jul-13 Enrico Pagulayan Reimbursement from liquidation of cash 150.00
advance during WEAP 8th Annual
convention
31-Mar-14 Charlene Mae Ortiz Reimbursement from liquidation of cash 639.00
advance during RCHRMP 21st Annual
Conference
30-Apr-16 Charlene Mae Ortiz Reimbursement from liquidation of cash 160.00
advance during BAWD Annual Planning
18-Jul-16 Leandro Salazar Advance payment to be applied on 435.00
water bill
28-Feb-17 Cynthia Lat Reimbursement from cash advance 80.00
28-Feb-17 Enrico Pagulayan Reimbursement from cash advance 470.00
31-Dec-18 Jonalyn Carandang Replenishment of petty cash fund (66.21)
31-Dec-18 Jonalyn Carandang Uniform Penalty (2,925.00)
Jan to May Arriane Joy Capili Uniform Penalty (1,100.00)
2019
Total P9,745.97

As can be gleaned from the above table, payables arose from GSIS over remittances,
underpayment of reimbursements and uniform penalties. Likewise, employees listed
above are no longer connected with the TWD due to either resignation or retirement
upon the commencement of the Joint Venture Agreement on June 1, 2019. The above
table also shows the unusual negative balances of payables amounting to P4,091.21.
Interview with the Division Manager-Finance revealed that negative balances might be
from the improper recording of transactions, which are still subject for their review and
reconciliation.

Considering that these employees were already out of government service, the related
payables should have been settled upon their resignation/retirement and upon issuance
of clearance by the Finance Division. Consequently, these were overlooked during the
processing of the employee’s retirement/resignation clearance.

c. Items of Other Payables amounting to P64,498.70 remained dormant for more

than five years, thereby the validity of payment cannot be established and
affects the true financial position of the TWD.

Dormant accounts refer to individual or group of accounts which balances remained non-
moving for more than five years. Review of the Schedule of Other Payables revealed
that there were long outstanding payables aged 5-12 years amounting to P64,498.70.
Details of which are as follows:

64
 Date Payee Particulars Amount Age
Accrued Expense
28-Feb-13 Fabian Malabanan Returned fittings for new P3,404.52 6 years and
service connection 10 months
28-Feb-13 Donato Castro Jr Returned fittings for new 3,404.52 6 years and
service connection 10 months
28-Feb-13 Teofilo dela Rosa Returned fittings for new 1,702.26 6 years and
service connection 10 months
28-Feb-13 Catherine Ramirez Returned fittings for new 3,404.52 6 years and
service connection 10 months
30-Jun-13 Romy Asuncion Overpayment on materials 620.00 6 years and
purchased for application on 6 months
his water bill
13-Feb-14 Phil British Bidder's fee 15,400.00 5 years and
Assurance Co. 10 months
Sub total 27,935.82
Others
31-Dec-07 Banaag Well Accounts payable of 35,000.00 12 years
Drilling/Kagabay Mo Montana waterworks
31-Dec-07 Nathaniel Atienza 1,000.00 12 years
31-Dec-07 Cashier's Overage Overages on collections 114.88 12 years
31-Dec-07 Batelec II Unpaid power bill 448.00 12 years
Sub total 36,562.88
Total P64,498.70

Validity of claims of the above listed payables are doubtful given the time that they have
been outstanding. As a result, monitoring and verification of the accuracy and reliability
of the account balance as reported in the financial statements cannot be facilitated.
Further, the TWD still failed to coordinate with the company/payees to verify actual
existence of the payables as recommended in the prior year’s audit.

We recommended that the OIC-General Manager require the Division Manager–

Finance to undertake a thorough review and analysis of the details of the payable
accounts and effect the necessary adjustments to revert to appropriate fund the
balance of liability accounts which could be supported with valid claims.

Management’s Comments:

The Management will conduct thorough review and analysis of the details of the payable
accounts and will make necessary adjusting entries to be taken up before the year ends.

9. The balance of Guaranty Deposits (GD) Payable representing customers’ deposits

totaling P1.815 million for CY 2019 remained unreconciled for three consecutive
years with the schedule prepared by the Commercial Division personnel
amounting to P1.317 million, showing a difference of P498,224.25, thus casting
doubt on the accuracy and reliability of the account.

65
Section 111 of Presidential Decree (PD) No. 1445 provides:

“Section 111. Keeping of accounts.

(1) The accounts of the agency shall be kept in such a detail as is necessary to
meet the needs of the agency and at the same time be adequate to furnish the
information needed by fiscal or control agencies of the government,

(2) The highest standards of honesty, objectivity and consistency shall be

observed in the keeping of accounts to safeguard against inaccurate or
misleading information”

The GD Payable account pertains to Customer’s Deposits received upon initial

connection of service, the purpose of which is to cover the unpaid water bills of
concessionaires in case of delinquency. The TWD already stopped collecting the
Customers’ Deposits in CY 2008.

Review of the GD Payable account disclosed that the recorded balance per Financial
Statements (FS) and General Ledger still did not conform with the Summary List of
Concessionaires with Customer’s Deposit for CYs 1991 to 2008 with discrepancy of
P498,224.25, as follows:

Per General Ledger P1,815,839.25

Per Commercial Division’s Record 1,317,615.00
Difference P 498,224.25

The same audit observation remains unresolved for three consecutive years already.
Based on prior year’s audit, the discrepancy was P542,618.85 or a decrease of
P44,394.60, equivalent to 8 per cent. A comparison was made between the GD
schedule being maintained by the Commercial Division for CYs 2018 and 2019. Review
of the schedule shows that some concessionaires with no Customers’ Deposit since
2008 were included. The same indicates doubt on the accuracy and reliability of the
provided schedule. Moreover, collected Customers’ Deposits for CYs 1993 and 1994
have no breakdown of the names of concessionaires and the corresponding account
numbers, and only the total amount of service connections per month was indicated.
With the discrepancies noted, it can be construed that the account was poorly
monitored.

In order to apply the GD payable to concessionaires with outstanding balances,

Management applied P217,014.60 worth of GDs to the active accounts of some
concessionaires recorded thru Journal Entry Voucher (JEV) Nos. 19-04-0121 and 19-05-
0170 dated April 30, 2019 and May 31, 2019, respectively.

However, discrepancies between the records during application of GDs were also noted,
as follows:

Year of Application Commercial Accounting Differences

of GD Records Records
CY 2018 18,840.00 45,313.45 26,473.45
CY 2019 215,190.00 217,014.60 1,824.60

66
 Further verification disclosed that the GDs of concessionaires from CY 1991 to 2008
remained unapplied to their outstanding water bill balances. Also, the Audit Team noted
that GD amounting to P68,520.00 that belongs to inactive concessionaires with
disconnected water services as of CY 2019 were not applied to or charged against
unpaid water bills. Upon inquiry, assessment and reconciliation of the records are still
ongoing.

We recommended that the OIC-General Manager:

a. instruct the Administrative Services Officer A, Commercial Division, to

continuously retrieve the data pertaining to service connections that were
collected with GDs in order to establish a complete list of concessionaires
with Guaranty Deposits Payable;

b. after which, facilitate possible offsetting or application of GD to any unpaid or

past due bill of verified concessionaires or confirmed creditors. While for GDs
of concessionaires that were already disconnected and have no outstanding
balance, consider recording the same as income upon proper approval from
the Board of Directors; and

c. direct the Division Manager-Finance and Administrative Services Officer A to

reconcile their records and exert additional effort in retrieving the data that could
support the discrepancies noted to present the account in the financial
statements fairly.

Management’s Comments:

Management agreed to comply with the foregoing audit recommendations.

10. The reported balance of Other Unearned Revenue/Income (OUR/I) account

amounting P8.750 million as of December 31, 2019 representing unearned portion
of fixed revenue share on JVA is doubtful due to non-recognition of one month
earned revenue amounting to P1.458 million, thus overstating the liabilities in the
Statement of Financial Position (SFP) and understating the income in the
Statement of Comprehensive Income (SCI) for the same amount, contrary to the
Philippine Accounting Standards (PAS) 1 on the Presentation of Financial
Statements and Revised Chart of Accounts (RCA) of COA Circular No. 2015-010
dated December 1, 2015.

PAS 1 requires that an entity prepare its financial statements, except for its cash flow
information, using the accrual basis of accounting. Under the accrual basis of
accounting, revenues are reported on the income statement when they are earned.
When the revenues are earned but cash is not received, the asset accounts receivable
will be recorded.

The RCA provided under COA Circular No. 2015-010 dated December 1, 2015 defines
OUR/I as the account used to recognize other income/revenue received in advance not
falling under any of the specific unearned revenue/income accounts. This account is
debited when revenue is earned.

67
In February 4, 2019, the TWD entered into a JVA with a Consortium of Manila Water
Company, Inc. (MWCI) and Manila Water Philippine Ventures, Inc. (MWPV) for the
design, construction, rehabilitation, maintenance, operation, financing, expansion and
management of the water and sanitation system of TWD in its service area for 25 years
with total project cost of P1.509 billion. In consideration of the contribution of the TWD to
the JV, it shall receive an annual revenue share, which shall be payable on a yearly
basis, equivalent to P17.5 million for the first five years from the commencement date,
June 1, 2019, and subject to an increase of P1 million every five years.

On August 7, 2019, fixed revenue share of P17.5 million for year one was received by
TWD by virtue of the JVA per Official Receipt No. 1219759. The same was recorded
under liability account of Other Unearned Revenue/Income. Examination of Other
Unearned Revenue/Income General Ledger (GL) and pertinent Journal Entry Vouchers
(JEV) of the account revealed the following:

Particulars Reference Amount

Receipt of Fixed Revenue Share OR No. 1219759 dated P17,500,000.00
August 7, 2019
Recognition of earned income for the JEV No. 19-08-0069 dated (2,916,666.66)
months of July and August 2019 August 31, 2019
Recognition of earned income for the JEV No. 19-09-0058 dated (1,458,333.33)
month of September 2019 September 30, 2019
Recognition of earned income for the JEV No. 19-10-0063 dated (1,458,333.33)
month of October 2019 October 31, 2019
Recognition of earned income for the JEV No. 19-11-0051 dated (1,458,333.33)
month of November 2019 November 30, 2019
Recognition of earned income for the JEV No. 19-12-0064 dated (1,458,333.35)
month of December 2019 December 31, 2019
Total P 8,750,000.00

As can be gleaned from the above table, earned revenue for the months of July to
December 2019 were recognized and recorded as income. However, there was no
recognized income for the month of June 2019 considering that the commencement date
of the JVA is June 1, 2019. The same resulted to understatement of income and
overstatement of liabilities amounting to P1.458 million representing earned revenue
equivalent to one month.

The noted discrepancy on the recorded balance of the (OUR/I) account affects the
accuracy and reliability of total liabilities presented in the financial statements.

Inquiry with the Division Manager–Finance disclosed that in the SFP as of June 2020,
the understatement for the earned portion of the fixed revenue share remained
unrecorded.

We recommended that the OIC-General Manager direct the Division Manager–

Finance to make the necessary adjusting entries to recognize the earned portion
of the fixed revenue share for proper reconciliation of liability account.

68
 Management’s Comments:

Adjusting entry was taken up this July 2020 as per JEV No. 20-07-0039.

11. The Non-Revenue Water (NRW) of 2,411,911 cu.m was incurred by the TWD in CY
2019 which is equivalent to 34.33 per cent of its total production, higher than the
prescribed rate of 20 per cent by Local Water Utilities Administration (LWUA)
under its Resolution No. 444. s. of 2009, thus resulting in an estimated revenue
loss of P32.065 million. In addition, the TWD was unable to submit the required
Monthly Data Sheet for the months of June to December 2019 to the LWUA,
contrary to LWUA Memorandum Circular No. 009-18 dated April 16, 2018.

LWUA Resolution No. 444, series of 2009 dated September 15, 2009 provides for the
immediate implementation in the reduction of the maximum acceptable non-revenue
water from the existing 25 per cent to 20 percent to all Water Districts.

Article 8.1.8 of the Joint Venture Agreement (JVA) states the NRW Reduction as part of
the service obligations of the JV partner, as follows:

“The Company shall implement a non-revenue water reduction program. From

present NRW of 28%, the Company shall reduce the NRW of TWD's water
system to 15% by the end of the fifth year from Commencement Date, which
shall be maintained until the Expiration Date. The Company shall perform an
independent measurement of the NRW on, or subsequently after, the
Commencement Date.”

Likewise, LWUA Memorandum Circular (MC) No. 014-10 dated December 2, 2010
requires all Water Districts to conduct periodic performance audit of water meters being
used by customers to ensure their accuracy. Depending on the condition of operation,
the water meters are to be tested for their accuracy after five years of utilization. Water
meters showing errors of more than the following tolerance levels should be calibrated or
replaced. From Maximum Flow to Transitional Flow of ± 2% and From Minimum Flow to
Transitional Flow of ±5%.

LWUA MC No. 009-18 dated April 16, 2018 was issued to remind on the submission
LWUA reportorial requirements such as Monthly Data Sheet, Financial Statements,
Water Quality Data, Business Plan, Water Safety Plan, Corporate Operating Budget,
Gender and Development Plan and Budget and Accomplishment Report and
Performance Targets. Furthermore, the Office of the Government Corporate Counsel
(OGCC) in its Opinion No. 058, series of 2018, dated March 27, 2018 opined as follows:
“Accordingly, it is our considered view that LWUA can compel LWDs which have existing
JVAs with private entities to regularly submit their reportorial requirements as mandated
by PD 198, as amended, without violating the confidentiality provisions in their
respective JVAs.”

Review of the Monthly Data Sheet (MDS) for the months of January to June 2019 and
Production Report for July to December 2019, disclosed the following data/information
on water production, accounted water and NRW for CY 2019 in cu.m, as shown on the
next page:

69
 Production Billed NRW NRW %
Month (a) (b) (c=a-b) (d=c/a)
January 515,383 381,807 133,576 25.92%
February 485,503 369,606 115,897 23.87%
March 520,457 351,566 168,891 32.45%
April 596,210 409,452 186,758 31.32%
May 612,912 405,582 207,330 33.83%
June 638,100 419,039 219,061 34.33%
July 540,684 384,492 156,192 28.89%
August 645,516 383,033 262,483 40.66%
September 641,955 382,057 259,898 40.49%
October 622,355 372,716 249,639 40.11%
November 625,355 383,562 241,793 38.66%
December 582,138 371,665 210,473 36.16%
Total 7,026,568 4,614,577 2,411,991 34.33%

The estimated water losses of the TWD amounted to P32.065 million, computed as
follows:

Unaccounted Water/NRW (cu.m) 2,411,991

Less: Acceptable NRW (20% of
Production) 1,405,314
Net NRW beyond the limit (cu.m) 1,006,677
Effective Rate* 31.85
NRW in monetary value P 32,065,168.45

The effective water rate is calculated as follows:

Water Sales P146,985,706.44

Divided by: Total Billed Water 4,614,577
*Effective Water Rate 31.85

From the above data, it shows that the level of NRW of the TWD for CY 2019 averaged
at 34.33 per cent which is higher than the allowable 20 per cent rate prescribed by the
above-cited LWUA Resolution.

Comparing the current NRW with that of CYs 2017 and 2018 at 19.83% and 22.75%,
respectively, it was noted that the current rate increased massively. The increase in
NRW is with due regard to the fact that the operations of water supply was already
transferred or turned over to the Consortium of Manila Water Company, Inc. (MWCI) and
Manila Water Philippine Ventures, Inc. (MWPV) on June 1, 2019. From January to June,
NRW rate averaged at 30.29 per cent when the operations is still under the TWD while
from July to December, NRW rate is at 37.49 per cent, indicating an increasing trend on
the unaccounted water losses.

One of the objectives of the JVA is to ensure the efficient use of water within the TWD’s
service area and to keep losses to a minimum. During the first year of partnership, pipe
replacement activities are set to be done to address physical losses within water
network. NRW tools and equipment shall also be acquired during the term of the project

70
 and a NRW specialist shall help ensure that the NRW will be maintained at acceptable
levels. Production meters will also be installed and shall likewise be used as Demand
Monitoring Zone (DMZ) measurements. Dividing the network into smaller manageable
DMZs is one of the strategies in achieving and maintaining a low NRW level.
Consequently, the mentioned objective together with the proposed strategies on how to
address the level of NRW are not yet reflective in the July to December NRW rates.

Moreover, upon the request of the Audit Team to submit the MDS for evaluation of NRW
level, it came to our knowledge that the JV partner was unable to provide data such as
amount of billings, level of production, quantity billed and other relevant data needed in
the preparation of MDS to the TWD for the months of June to December of 2019. It was
only during the conduct of audit that these data were provided. As a result, no MDS was
submitted to LWUA for the months of June to December considering that the same is
one of the reportorial requirements of the Administration. LWUA MC 009-18 reiterates
that under PD 198, LWUA can compel the local water districts to submit reportorial
requirements regardless of the existence of confidentiality provisions in their JVA.

We recommended that Management, in coordination with Consortium of MWCI

and MWPV, facilitate the implementation of measures to reduce the NRW rate to
an acceptable level set by LWUA, pursuant to its Resolution No. 444 s. 2009 in
order to comply with the terms agreed upon in the Joint Venture Agreement.
Likewise, comply with the reportorial requirements of LWUA, in accordance with
LWUA MC 009-18 dated April 16, 2018.

Management’s Comments:

The Management agreed to comply with the recommendation and they will coordinate
closely with their JV Partner and require them to submit monthly report of NRW.

12. Evaluation on the implementation of the TWD’s Gender and Development (GAD)
Plan and Budget for CY 2019 could not be facilitated because the submitted GAD
Accomplishment Report (AR) does not comply with the required format for its
preparation as prescribed under Philippine Commission on Women (PCW),
National Economic Development Authority (NEDA) and Department of Budget and
Management (DBM) Joint Circular No. 2012-01.

Item 10.1 of the PCW-NEDA-DBM Joint Circular 2012-01 states:

“Attached agencies, bureaus, regional offices, constituent units and all others
concerned shall submit their GAD ARs to their central offices. The agency
GFPS shall prepare the annual GAD AR based on the PCW-endorsed GPB or
the GPB adjusted to the approved GAA following the form prescribed in Annex
B. Activities completed until the end of the year may be included in the final
GAD AR of agency submitted to PCW in January.”

Item 10.4 of the same joint circular further provides that, “The annual GAD AR shall be
accompanied by the following: (1) brief summary of the reported program or project; (2)
copies of reported policy issuances; (3) results of HGDG test, if any; and (4) actions
taken by the agency on the COA audit findings and recommendations, if any.”

71
In CY 2019, the TWD allocated P21.965 million, exceeding the minimum 5 per cent
requirement of its corporate budget to GAD related programs and activities to address
the gender issues of clients and organization. TWD was able to identify gender issue
such as right of women to health and sufficient water and mandates such as Department
of Health (DOH) Administrative (AO) No. 2007-0012 or the Philippine National Standards
for Drinking Water and AO No. 2014-0027 or the National Policy on Water Safety Plan
for All Drinking-Water Service Providers, Magna Carta for Women, Presidential Decree
(PD) No. 856 also known as the Code on Sanitation that needs to be addressed. The
implemented GAD activities during the year had undergone gender analysis thru the
Harmonized Gender and Development Guidelines (HGDG) to ensure that the different
concerns of women and men are addressed equally and equitably. GAD AR for CY 2019
was duly submitted to the Local Water Utilities Administration (LWUA) on March 3, 2020.

Evaluation of the submitted GAD Plan and Budget (GPB) and GAD AR for CY 2019
disclosed that implementation of GPBs cannot be verified due to the following:

a. GAD AR was not in accordance with the format prescribed in Annex B of the
Joint Circular 2012-01, thus comparison with the GPBs cannot be performed by
the Audit Team;

b. Vital information such as actual results/outputs of the GAD activities and actual
cost or expenditure in implementing the identified GAD activities were not
provided;

c. Due to non-provision of actual costs incurred on GAD activities, evaluation of

efficiency in utilization of GAD budget is likewise hampered; and

d. While the submitted GAD AR to LWUA includes the brief description of the
activity/program and the results of HGDG test, the same did not include the
actions taken by the TWD on COA audit findings and recommendations. During
CY 2018 audit, the Audit Team noted the under utilization of GAD budget. Only
5.73 per cent of the total GAD budget was implemented, thus depriving the
intended beneficiaries of the program.

With the abovementioned deficiencies in GAD AR, implementation, monitoring and

evaluation including accounting of results of TWD’s GAD plans cannot be performed.

We recommended that Management:

a. implement GAD activities in accordance with the approved GPB for the
agency to achieve its objective of addressing the TWD’s identified gender
issues and concerns and prepare the required GAD AR in accordance with the
prescribed format under the PCW-NEDA-DBM Joint Circular No. 2012-01; and

b. instruct the GAD Focal Point Systems to take the lead in monitoring the
implementation of GPBs and report on its results.

Management’s Comments:

The Management agreed to comply with the foregoing audit recommendations.

72
STATUS OF SUSPENSIONS, DISALLOWANCES AND CHARGES

Tanauan Water District has unsettled disallowances totaling P3,952,295.88 as of

December 31, 2019 pertaining to Notice of Disallowance (ND) No. 17-01(14-15) dated
November 15, 2017 that was issued to Tanauan Water District on December 28, 2017
relative to the transactions audited in CYs 2014 and 2015. An appeal relative thereto
was already filed by the TWD to COA Region IV-A.

COMPLIANCE WITH TAX LAWS

For CY 2019, the TWD withheld and remitted the following to the Bureau of Internal
Revenue (BIR):

CY 2019
Beginning Balance P2,305,880.25
Withheld during the year 4,333,495.11
Total 6,639,375.36
Less: Remittances 5,387,571.56
Ending Balance P1,251,803.80

The amount withheld for the month of December 2019 was remitted on January 17, 8
and 25, 2020 for Compensation Tax, Creditable Withholding and Final Withholding
Taxes, and Franchise Tax, respectively.

COMPLIANCE WITH THE GSIS RULES AND REGULATIONS

For CY 2019, the TWD has withheld and remitted the following amounts to the
Government Service Insurance System (GSIS):

CY 2019
Beginning balances P 738,088.26
Contributions for the Year 4,674,722.77
Total 5,412,811.03
Less: Remittances 5,364,571.12
Ending Balance P 48,239.91

The ending balance pertains to items for reclassification and adjustment. The amount
withheld for the month of December 2019 was remitted on December 19, 2019.

73
COMPLIANCE WITH THE PAG-IBIG RULES AND REGULATIONS

For CY 2019, the TWD has withheld and remitted the following amounts to the Pag-IBIG:

CY 2019
Beginning balances P 4,000.00
Contributions for the Year 777,434.23
Total 781,434.23
Less: Remittances 771,222.78
Ending Balance P 10,211.45

The amount withheld for December 2019 was remitted on January 3, 2020.

COMPLIANCE WITH THE PHILHEALTH RULES AND REGULATIONS

For CY 2019, the TWD has withheld and remitted the following amounts to the
PhilHealth:

CY 2019
Beginning balances P48,422.97
Contributions for the Year 299,883.54
Total 348,306.51
Less: Remittances 347,700.05
Ending balance P 606.46

The ending balance pertains to item for reclassification. The amount withheld for the
month of December 2019 was remitted on December 19, 2019.

OFFICIAL DEVELOPMENT ASSISTANCE PROJECTS

The TWD has no Official Development Assistance (ODA) funded projects for CY 2019.

74
PART III – STATUS OF IMPLEMENTATION OF
PRIOR YEAR’S AUDIT RECOMMENDATIONS
 STATUS OF IMPLEMENTATION OF PRIOR YEAR’S AUDIT RECOMMENDATIONS
As of December 31, 2019

Of the 37 audit recommendations embodied in the CY 2018 Annual Audit Report (AAR), 15 were fully implemented, eight were
partially implemented and 14 were not implemented by the TWD.

Status of Reason for Partial/

Ref. Audit Observation Recommendation Management’s Action
Implementation Non-implementation
Part II, 1. The accuracy, reliability and We recommended that the
Observ validity of the recorded General Manager:
ation balances of the Property,
No. 1, Plant and Equipment (PPE)  direct the Accounting Review of balances on Fully
Pages accounts amounting to Section to review and General Ledgers and Implemented
31-37, P285,720,494.09 (gross, reconcile the items of PPE Lapsing Schedule was
AAR for excluding Land and with the General Ledger performed. Beginning
CY Construction in Progress) as and Lapsing Schedules and balances of
2018 of December 31, 2018 could prepare the necessary Accumulated
not be fully ascertained due to adjusting entries in Depreciation of PPE
the following: compliance with Sections accounts that were not
58 and 121(2) of PD No. reflected in the GL are
a. Beginning balances of 1445; already carried over.
Accumulated Depreciation
of nine PPE accounts were
not indicated or carried  direct the Accounting and Journal Entry Voucher Partially Four subsidiary PPE
over in the general ledgers, Property Sections to (JEV) No. 19-03-0176 Implemented accounts were still not
thus comparison with establish the existence of dated March 31, 2019 provided with its
lapsing schedule cannot be properties with no provision amounting to corresponding contra-
facilitated, contrary to of accumulated depre- P378,057.33 was asset account.
Sections 58 and 121(2) of ciation, exert effort to obtain prepared to recognize
Presidential Decree (PD) the documents needed for the unrecorded
No. 1445. Likewise, no the computation of depreciation expense
accumulated depreciation depreciation and prepare on various PPE
was provided on PPE the adjusting entries to accounts.
totaling P2,500,103.09, in recognize the same;
violation of Philippine
Accounting Standards  require the Inventory Team
(PAS) No. 16. to set a deadline for the Not Implemented With the turnover of

75
 Status of Reason for Partial/
Ref. Audit Observation Recommendation Management’s Action
Implementation Non-implementation
conduct of complete assets to the
b. The TWD still failed to physical count of PPE Consortium of Manila
complete the conduct of together with the Water Company, Inc.
physical count of its PPE preparation and submission (MWCI) and Manila
and to prepare the required of necessary Report on Water Philippine
report thereon, contrary to Physical Count of Property, Ventures, Inc. (MWPV),
Section 490 of the Plant and Equipment physical count of PPE
Government Accounting (RPCPPE); items was not facilitated
and Auditing Manual by the remaining
(GAAM), Volume I. personnel of the
Contract Monitoring
c. Unserviceable properties in Unit (CMU) due to
the amount of limited work force.
P3,491,579.90 were still  create an Appraisal and
not disposed of, thereby Disposal Committee to Disposal of Partially Complete disposal of
occupying storage space facilitate the disposal of the unserviceable items Implemented the identified
that can be used for other unserviceable properties amounting to unserviceable items is
properties of the TWD and with acquisition cost of P480,211.32 was not yet done due to its
exposes the properties to P3,491,579.90 to prevent performed in CY 2019. volume. However,
further deterioration, further deterioration of the Management
contrary to Section 79 of asset and decongest the committed to complete
PD No. 1445 and COA storage area, in the disposal of the
Circular No. 89-296 dated accordance with existing related PPE items by
January 27, 1989. rules and regulations and in the end of CY 2020.
compliance with Section 79
d. The TWD’s ownership over of PD No. 1445;
94.86 per cent of
P5,194,602.10 total  exert best effort to secure
recorded parcels of land is all the requirements for the Not Implemented The titling process of the
doubtful for lack of titling of these untitled subject properties is
Certificates of Title or other properties in favor of the ongoing.
documents to prove TWD, pursuant to the
absolute ownership provisions of Section 39 of
thereof, contrary to Section PD No. 1445 and COA
39 of PD No. 1445, thus Circular No. 2012-001; and
76
 Status of Reason for Partial/
Ref. Audit Observation Recommendation Management’s Action
Implementation Non-implementation
the TWD’s interest cannot
be protected against third  review the Lapsing
party claims. Schedules and identify Due to lack of
those PPE items valued Not Implemented personnel, the
e. Tangible items below the P15,000.00 and below for recommended review of
capitalization threshold of reclassification to Retained the Lapsing Schedule
P15,000.00 were not Earnings. After which, was not done. It will be
accounted as semi- prepare adjusting entries to done by Management
expendable property upon restate the correct balance the soonest when an
adoption of Philippine of the PPE accounts, in additional employee is
Financial Reporting compliance with COA hired.
Standards (PFRS) in CY Circular No. 2016-006 dated
2017, contrary to Item 5.4 December 29, 2016.
of COA Circular No.
2016-006 dated
December 29, 2016.

Part II, 2. The collectability, accuracy We recommended that

Observ and reliability of the Management:
ation Accounts Receivable (AR)
No. 2, account amounting to  instruct the personnel Not Implemented Management will review
Pages P12,442,370.93 cannot be concerned in the Finance and reconcile the
37-40, fully ascertained due to the Division, in coordination differences between the
AAR for following: with the Commercial book balance and
CY Division, to set a deadline Aging of Receivables
2018 a. The Finance Division still and exert additional effort in as soon as an
failed to reconcile the AR order to reconcile book additional employee is
account with the balance balance and the Aging hired.
per Aging Schedule Schedule of AR
prepared by the
Commercial Division,  revisit their existing The disconnection Fully
resulting in a variance of disconnection policy to process of water Implemented
P168,936.84, contrary to align with the current services of delinquent
Section 111 of PD No. practice of allowing active concessionaires has
1445. accounts aged more than been surrendered

77
 Status of Reason for Partial/
Ref. Audit Observation Recommendation Management’s Action
Implementation Non-implementation
60 days to pay thru already to the JV
b. Collectability of AR from installment basis; partner, hence revision
inactive concessionaires of the related
totaling P6,391,847.97, disconnection policy is
aging one day to more no longer applicable.
than five years was
doubtful as these were  direct the Accountant to Not Implemented Reconciliation of the
already disconnected due prepare the necessary reports is yet to be
to non-payment of water adjusting entries for the made.
bills. possible unrecorded
transactions upon
c. The Allowance for discovery of the variance
Impairment Loss-AR noted;
amounting to
P2,489,321.11 was over-  continuously send demand 535 demand letters Partially Due to lack of
stated by P2,111,003.06, letters to concessionaires were sent in February Implemented personnel, service of
inconsistent with Section for collection of AR of 2020 for accounts the remaining demand
66 of the Manual on the Inactive accounts receivables worth letters to the defaulted
New Government amounting to P2,008,834.48. concessionaires was
Accounting System P6,391,847.97 to facilitate put on hold.
(MNGAS), Volume I, thus collection thereof and if Nevertheless, the said
understating both the efforts became futile, letters were scheduled
Accounts Receivable and consider requesting for to be served after six
Net Income. authority to write-off months from February
dormant accounts that have 2020, but due to the
remained inactive for ten existing COVID 19
years or more, in conformity pandemic,
with COA Circular No. Management deferred
2016-005 dated December the service of the same
19, 2016; for humanitarian
considerations.

 reevaluate the Allowance Not implemented For recommendations

for Impairment Loss - AR of 5-7:
the inactive accounts and
78
 Status of Reason for Partial/
Ref. Audit Observation Recommendation Management’s Action
Implementation Non-implementation
make the necessary Adjusting entry for the
adjustments to fairly Allowance for
present the net realizable Impairment Loss-AR
value of the Accounts was also deferred. The
Receivable; same amount of
P2,008,834.48 has
 make necessary Not implemented been assumed/
adjustments on the estimated to be non-
Allowance for Impairment collectible and from
Loss to accurately present inactive accounts. The
the net realizable value of same will be re-
the AR; and evaluated after
completing the service
 instruct the Division of the 2nd and 3rd
Manager - Finance to adopt Not implemented demand letters.
the prescribed rate under
Section 66 of the MNGAS,
Volume I for the
computation of Impairment
Loss - AR.

Part II, 3. The accuracy and validity of We recommended that

Observ the Other Receivables (OR) General Manager instruct the
ation account with a recorded Finance Division to:
No. 3, balance of P1,954,824.62 for
Pages CY 2018 cannot be fully relied  review the Aging JEV No. 05-0188 dated Partially Retrieval of data for
40-43, upon due to the following: Schedule of OR, verify May 31, 2018 was Implemented validation of the
AAR for and validate those with drawn to adjust some negative balances is on
CY a. Unusual negative negative balances and negative balances process.
2018 amounts totaling long outstanding amounting to
P208,949.96 were part receivables and make the P31,063.90. Also, the
of OR account, necessary entries to show amount of P56,374.94,
resulting in under- the correct balance of the representing erroneous
statement of the OR account; and posting, was already
account by the same corrected in the
79
 Status of Reason for Partial/
Ref. Audit Observation Recommendation Management’s Action
Implementation Non-implementation
amount. individual customer’s
subsidiary ledger.
b. The TWD still failed to Not Implemented The OR account is still
present the Other  provide an Allowance for subject for re-evaluation
Receivables account at Impairment Loss based on and reconciliation. The
net realizable value as collectability of receivable provision for AIL will be
of December 31, 2018 balances or use the same made thereafter.
due to non-provision of percentages provided in
an Allowance for Section 66 of the MNGAS,
Impairment Loss, Volume I or the Board may
contrary to Section 66 also pass a resolution
of the MNGAS, adopting new policy on the
Volume I. computation of percentage
based on the collectability
of receivables.

Part II, 4. Inventories with reported We recommended that the Management now Fully
Observ balance of P11,992,289.87 General Manager instruct the adopts the proper Implemented
ation as of December 31, 2018 Accountant to adopt the valuation in accordance
No. 4, were valued using the inventory valuation based on with PAS 2.
Page moving average method PAS 2.
43, instead of First-In First-Out
AAR for (FIFO) or weighted average
CY method, in violation of PAS
2018 2, thus may result in
understatement of the
accounts.

Part II, 5. The balance of Guaranty We recommended that the

Observ Deposits Payable General Manager:
ation representing customers’
No. 5, deposits totaling  instruct the Commercial The Commercial and Partially For recommendations 1
Page P2,032,703.85 as of year- Division to conduct Finance Divisions Implemented and 2:
43-44, end did not reconcile with thorough verification of all already applied the
AAR for the balance per schedule customer’s deposits as The CMU team
80
 Status of Reason for Partial/
Ref. Audit Observation Recommendation Management’s Action
Implementation Non-implementation
CY prepared by the Guaranty Deposits Payable payment to unpaid/past composed of five
2018 Commercial Division, for possible offsetting from due bill of employees at present
showing a difference of any unpaid/past due bill of concessionaires will continue to work on
P542,618.85, thus casting concessionaires and amounting to the implementation of
doubt on the accuracy and verify/confirm the existence P200,574.60 per JEV the recommendation as
reliability of the account. of creditors; and No. 19-05-0170 dated soon as an additional
May 31, 2019. employee in the
Accounting Section is
Not implemented hired.
 direct the Division
Managers of Finance and
Commercial Divisions to
reconcile their records and
exert additional effort in
retrieving the data that
could support the
discrepancies noted to fairly
present the account in the
financial statements.

Part II, 6. Various items of Accounts We recommended that the

Observ Payable and Other General Manager require the
ation Payables amounting to Division Manager - Finance
No. 6, P75,859.67 and to:
Pages P841,062.77, respectively,
44-46, remained dormant for more  exert extra effort to locate Adjusting entry for Partially For recommendations
AAR for than five years. Likewise, the documents that would Other Payables- Implemented 1-3:
CY details and validity of the support the dormant Pension and Benefits
2018 same could not be fully accounts included in the Payable amounting to Verification, validation,
ascertained due to Accounts Payable and P781,025.77 was and analysis of the
unavailability of documents Other Payables accounts; already recognized per balances in the Other
to support the account JEV No. 19-03-0175 Payables account will
balance.  initiate the request for the dated March 31, 2019. Partially be continued as soon
reversion of Accounts Implemented as an additional
employee is hired.
81
 Status of Reason for Partial/
Ref. Audit Observation Recommendation Management’s Action
Implementation Non-implementation
Payable and Other
Payables that were
proven to have no valid
claims, to Retained
Earnings account thru an
approved Board
Resolution; and
Partially
 initiate the verification, Implemented
validation, review,
analysis and reconciliation
of the abovementioned
dormant payables to
effect the necessary
adjusting or correcting
journal entries for the
eventual disposition
thereof.

Part II, 7. The procurement contracts We recommended that

Observ of goods and services thru Management:
ation public bidding were
No. 7, approved despite non-  require the members of The conduct of pre- Fully
Pages compliance with the the Bids and Awards procurement Implemented
46-52, provisions of Republic Act conference is now
Committee (BAC) to
AAR for (RA) No. 9184 and its being adopted by the
CY Revised Implementing Rules observe Sections 20.1 TWD. However, with
2018 and Regulations (RIRR). and 20.2 of RA No. 9184 the takeover operations
These procurement and justify their failure to of the Consortium of
transactions were likewise conduct the pre- MWCI and MWPV,
not properly and adequately procurement conference there are no
documented, contrary to for the procurement of projects/procurements
Section 4 of PD No. 1445 with above P2 million
goods with an Approved
and COA Circular No. 2012- ABC.
001 dated June 14, 2012. Budget for the Contract of

82
 Status of Reason for Partial/
Ref. Audit Observation Recommendation Management’s Action
Implementation Non-implementation
more than P2 million.
 Pre-procurement With the taking over of Fully
Conference was not  require the TWG to Implemented
the operations by the
conducted prior to the conduct the post- Consortium of MWCI
advertisement or qualification procedures and MWPV, most of the
issuance of Invitation for all the procurements procurements are now
to Bid with an being performed by the
made thru public bidding
Approved Budget for JV partner.
the Contract (ABC) of before awarding to the
Nevertheless, the TWD
P2 million and above Lowest Calculated
assures to conduct
for procurement of Responsive Bid to ensure proper post-
goods, contrary to the the validity and legality of qualification
pertinent provisions of the submitted documents procedures.
RA No. 9184. and establish the financial
capability of the bidder to
 Conduct of post-
qualification enter into the contract.
procedures was Subsequently, prepare
performed by the BAC and submit post-
Secretariat, instead of qualification report to
the members of the document all the
Technical Working
procedures/actions taken
Group (TWG), contrary
to Section 12.1, Rule V and the results thereof.
of RA No. 9184. Fully
 refrain from paying Management now
refrains from paying Implemented
 Procurement of various transactions not completely
transactions with
goods in CY 2018 thru and properly documented,
incomplete supporting
public bidding was not in compliance with COA documents.
properly and Circular No. 2012-001 and
adequately Section 4 of PD No. 1445.
documented, contrary
to COA Circular No.  submit justifications on Management submitted Fully
2012-001 dated June the inconsistencies noted justification on the Implemented
14, 2012.
83
 Status of Reason for Partial/
Ref. Audit Observation Recommendation Management’s Action
Implementation Non-implementation
by the Audit Team for the inconsistencies noted
 Cancellation of Notice cancellation of Notice of by the Audit Team.
of Award issued to Award given to Beredo Likewise, Management
Beredo Construction & Construction & Supplies, assured that before
Supplies, Inc. for the Inc. and for the TWD’s awarding future
supply and delivery of failure to claim for projects, they will
labor, materials, tools damages for the carefully analyze the
and equipment for the contractor’s inability to contractor’s ability to
construction of water implement the project; implement the project.
production well were and
doubtful due to
inconsistencies in the  consider the forfeiture of While Management did Fully
bidding documents. the performance bond and not forfeit the submitted Implemented
possible blacklisting of performance bond, they
Beredo Construction & opt to put on hold the
Supplies, Inc. in final payment to Beredo
accordance with the Construction &
Uniform Guidelines for Supplies, Inc. for the
Blacklisting of unsubmitted required
Manufacturers, Suppliers, documents.
Distributors, Contractors
and Consultants issued by
the Government
Procurement and Policy
Board (GPPB).

Part II, 8. Various deficiencies were We recommended that

Observ noted in the procurement of Management:
ation items of Inventories and
No. 8, PPE:  direct the BAC to subject all Bidding of procurement Fully
Pages procurement to public of goods and services Implemented
52-55, a. Public Bidding was not bidding as required under is now being handled
AAR for conducted in the the pertinent provisions of by the JV partner. The
CY TWD’s procurement of RA No. 9184 and its RIRR, TWD CMU only
2018 goods totaling except those allowed to be purchases small value
84
 Status of Reason for Partial/
Ref. Audit Observation Recommendation Management’s Action
Implementation Non-implementation
P6,738,145.55, instead undertaken under the items like office
they resorted to Small- alternative methods of supplies.
Value Procurement, procurement. This will
contrary to Section 10, provide equal opportunity to
Rule IV of Republic Act all interested bidders and
(RA) No. 9184 and its obtain the most
Revised IRR. Thus, advantageous price offer in
there was no the procurement of goods;
assurance that the
most advantageous  require the BAC to explain Procurement of most Fully
price and responsive its action of recommending goods now rest with Implemented
offers for the TWD was the procurement of goods TWD’s JV partner.
obtained. thru the alternative modes
and the basis thereof. This
b. Common-use supplies is without prejudice to the
and equipment totaling initiation of appropriate
P538,699.00 were not action to all concerned BAC
procured from the members and TWD
Procurement Service Officers involved in the
of the Department of award of contracts/
Budget and Purchase Order, in violation
Management (DBM), of the pertinent provisions
contrary to Section of RA No. 9184 and its
8.1.2, Rule III of RA RIRR, if warranted by
No. 9184 evidence;

 cause the immediate Not Implemented To date, the lacking

submission of lacking documents were not yet
documents as stated in submitted to the Audit
Annex D, such as Purchase Team for verification.
Orders, BIR Tax Also, Management
Clearances, PhilGEPS noted that that the
Registration and Delivery documents were not
Receipts, in compliance properly retrieved and
with Section 4(6) of PD No. submitted to the Audit

85
 Status of Reason for Partial/
Ref. Audit Observation Recommendation Management’s Action
Implementation Non-implementation
1445 and COA Circular No. Team due to lack of
2012-001 dated June 14, workforce during the
2012; and transition to JV.

 submit documents proving Not Implemented Documents to prove the

the non-availability of non-availability of
stocks from the DBM common-used supplies
before procuring common- from the DBM were not
used supplies from outside yet submitted to the
suppliers. Audit Team for
verification.

Part II, 9. Review of the implemented We recommended that the

Observ infrastructure projects of General Manager:
ation the TWD in CY 2018
No. 9, disclosed the following  include all the infrastructure Since TWD entered into Fully
Pages deficiencies: projects that are to be a JV Agreement, all Implemented
55-58, undertaken by the TWD in procurements of
AAR for a. Implemented its APP and refrain from infrastructure projects
CY infrastructure projects implementing those are now being
2018 totaling P331,956.25 projects that are not performed by the JV
undertaken “By included in the approved partner.
Administration” were APP;
not included in the
approved Annual  require the Engineering Since the TWD already Fully
Procurement Plan Department to monitor all entered into a JV Implemented
(APP) for CY 2018, the projects being Agreement, all its
contrary to Section 7.2, implemented in accordance procurements and
Rule II and Section with the period as specified monitoring of
3.1, Appendix 1 of the in the Program of Work and infrastructure projects
RIRR of RA No. 9184. in order to serve its are now being
Likewise, actual costs intended purposes; and performed by the JV
of six implemented partner.
projects exceeded the

86
 Status of Reason for Partial/
Ref. Audit Observation Recommendation Management’s Action
Implementation Non-implementation
ABC by P422,754.73  submit justification and The Management Fully
documents for the cause of submitted justification Implemented
b. Four infrastructure delay in the project letter citing the reasons
projects started and completion as required in for the delay in project
completed in CY 2018 the Program of Work. completion. Manage-
with an aggregate ment noted that due to
amount of unexpected circums-
P1,198,120.16 tances like bad weather
exceeded the specified and alignment of
period of completion as schedule with DPWH
stated in the Program of projects caused the
Work (POW). delay on the completion
of projects. Also,
Notices of Suspensions
and Resumptions were
submitted.

Part II, 10. Collections were made by We recommended that

Observ personnel not bonded, in Management:
ation violation of Section 101 of
No. 10, PD No. 1445, thus the TWD  ensure that all AOs TWD has followed Fully
Pages is not assured of indemnity having custody of COA’s recommend- Implemented
58-60, from the Fidelity Insurance government money and dation. Effective April
AAR for Fund in the event of property are properly 2019, the corres-
CY defalcation or loss. bonded, in compliance ponding revised
2018 Moreover, Accountable with Section 4.1 of PD No. schedule of premium
Officers (AOs) were not 1445; and rates as per Treasury
adequately bonded, contrary Circular No. 02-2009
to the requirements of as in the case of
Treasury Circular No. 02- Ms. Feliciana Sumague
2009 dated August 6, 2009. and Ms. Nelie Lumbres’
renewal of fidelity bond
was applied.

 review periodically the The Management now Fully

87
 Status of Reason for Partial/
Ref. Audit Observation Recommendation Management’s Action
Implementation Non-implementation
accountability of the AOs reviews periodically the Implemented
to ensure that the fidelity accountability of the
bond requirement is AOs to ensure that the
adequate in accordance fidelity bond require-
with the Revised ment is sufficient.
Schedule of Premiums
Rates per Annex C of
Treasury Circular No. 02-
2009 dated August 6,
2009 and the afore-cited
provision of PD No. 1445.

Part II, 11. The Non-Revenue Water We recommended that Not Implemented The TWD’s NRW
Observ (NRW) of 1,311,951 cu.m Management investigate and increased continuously
ation was incurred by the TWD in identify the specific cause/s in CY 2019. With the
No. 11, CY 2018 which is on the incurrence of NRW turnover of operations
Pages equivalent to 22.75 per and facilitate implementation to the Consortium of
60-61, cent of its total production, of effective measures to MWCI and MWPV
AAR for higher than the prescribed address or minimize the effective June 1, 2019,
CY rate of 20 per cent under percentage of NRW to an the responsibility of
2018 Local Water Utilities acceptable level of 20 per minimizing the water
Administration (LWUA) cent set by LWUA, pursuant losses now lies with the
Resolution No. 444, s. of to LWUA Resolution No. Consortium, and the
2009, thus resulting in 444, series of 2009. monitoring thereof lies
estimated revenue loss of on the CMU.
P4,975,028.09.

Part II, 12. Only 5.73 per cent or We recommended that Not Implemented The implementation of
Observ P1,067,853.53 of the Management implement GAD projects cannot be
ation TWD’s Gender and GAD activities in accordance verified by the Audit
No. 12, Development (GAD) Plan with the approved GAD Plan Team due to the TWD’s
Pages and Budget for CY 2018 and Budget to achieve its non-compliance in the
61-63, was implemented in CY objective of addressing use of the prescribed
AAR for 2018, contrary to Philippine identified gender issues and format for GAD
CY Commission on Women, concerns. Furthermore, Accomplishment
88
 Status of Reason for Partial/
Ref. Audit Observation Recommendation Management’s Action
Implementation Non-implementation
2018 National Economic avoid using GAD budget for Report.
Development Authority and projects that were not
Department of Budget and included in the GAD Plan
Management Joint Circular and charge the same to
No. 2012-01, thus depriving appropriate account and
the intended beneficiaries budget.
of the program.

89
PART IV – ANNEXES
Annex A
AAR page 35

90
Annex B
AAR page 36

91
Annex C
AAR page 36

92
Tanauan Water District Annex D
List of Unsubmitted Check Vouchers AAR page 43
CY 2019

Check
Date Check No. Payee Particulars Amount
Voucher No.
January
remittance of contributions & loan amortization for
1 04-Jan-19 01-0001 0000658761 GSIS P 691,836.09
the month of December 2018
remittance of contributions (modified) for the month
2 04-Jan-19 01-0002 0000658762 PAG-IBIG 4,000.00
of December 2018
remittance of contributions for the month of
3 04-Jan-19 01-0003 0000658763 Philhealth 48,785.47
December 2018
remittance of loan amortizations for the month of
4 04-Jan-19 01-0006 0000658766 TWD Multi-Purpose Cooperative 4,286.80
December 2018
vehicular insurance premium of service vehicles
5 09-Jan-19 01-0047 0000658807 GSIS SK 4692 SJM 241, SF 6851 & SK 4691 for the year 2,627.28
2019
7units sand filter/sand separatorfor istallation at
Dragontrade Chemical and
6 10-Jan-19 01-0050 0000658810 Ibiza, Oltap, Reaville, Altura Bata #1, Pantay Bata 1,888,125.00
Industrial Corp
#4, Pantay Matanda #3 & Tinurik
token for pump operator at Brgy Janopol for the
7 24-Jan-19 01-0090 0000658850 Danilo Roxas 500.00
months of January 2019
Refund on Pag-IBIG loan of F. Natividad for the
8 31-Jan-19 01-0124 0000658884 Florencio Natividad 1,027.18
month of January 2019 due to loan renewal
Refund on Pag-IBIG loan of R. Pederoso for the
9 31-Jan-19 01-0125 0000658885 Ryan G. Pederoso 991.27
month of January 2019 due to loan renewal
Refund on Pag-IBIG loan of F. Suelto for the
10 31-Jan-19 01-0126 0000658886 Felix Suelto 798.41
month of January 2019 due to loan renewal
Sub-total 2,642,977.50

February
Token for pump operator at Brgy Cale for the
11 13-Feb-19 02-0152 0000658912 Ricardo Sumague 500.00
month of January 2019
Token for pump operator at Brgy Janopol for the
12 19-Feb-19 02-0175 0000658938 Danilo Roxas 500.00
months of February 2019
Vehicular insurance premium of service vehicles
13 21-Feb-19 02-0195 0000658958 GSIS SFZ 284, SJR 384, SAA 6454 & SK 4693 for the 8,818.30
year 2019
Dragontrade Chemical & 50 drums calcium hypochlorite granular for stock
14 27-Feb-19 02-0220 0000658984 411,696.43
Industrial Corp. (3rd installment; final payment)
Various materials for stock (4th installment & final
15 28-Feb-19 02-0221 0000658985 Hing King Construction Supply 35,491.07
payment)
Sub-total 457,005.80

March
Token for pump operator at Brgy Janopol for March
16 21-Mar-19 03-0313 0000659077 Danilo Roxas 500.00
2019
Sub-total 500.00

April
Vehicular insurance premium of service vehicles
17 05-Apr-19 04-0385 0000659149 GSIS SJD 535, SAA 2925 & Honda MC 040105 for the 12,141.39
year 2019
18 29-Apr-19 04-0430 0000659195 Jline Industries, Inc. Service maintenance of sand filter 9,375.00
Token for pump operator at Brgy Janopol for April
19 30-Apr-19 04-0450 0000659215 Danilo Roxas 500.00
2019
Sub-total 22,016.39

May
20 16-May-19 05-0512 0000659277 Mang Pids Auto Supply Various spare parts for SDS 897 1,382.40
Power Gem Motorcycle Parts &
21 16-May-19 05-0513 0000659278 Various spare parts for SK 4968 1,311.00
Accessories
Batangas II Electric Cooperative Repalcement of 1unit 25KVA transformer at Brgy.
22 16-May-19 05-0514 0000659279 67,746.30
Inc. Bilog-bilog pumping station
25pcs BI pipe casing 8" for telescopic casing
23 16-May-19 05-0515 0000659280 Up-town Industrial Sales, Inc. 444,821.43
installation at brgy. Bilog-bilog well# 5

93
 Check
Date Check No. Payee Particulars Amount
Voucher No.
27pcs copper can water meter 1/2 for transfer &
Mechanical Handling Equipment
24 16-May-19 05-0516 0000659281 change of 27 service connections at Brgy. Bagbag 49,062.85
Co., Inc.
2 (Mendoza Compound)
120 packs power detergent, 240 liters liquid
disinfectant, 120pcs plastic cleaning brush to be
Maitre-D' International Sales
25 16-May-19 05-0517 0000659282 used as cleaning materials for Brigada Eskwela 44,860.72
Corporation
2019 for 60 Public Elementary /High School in the
City of Tanauan
Uniform penalty for the months of January - May
26 17-May-19 05-0518 0000659283 Arriane Joy Capili 4,025.00
2019
Cash advance re: wages of job orders for the
27 17-May-19 05-0519 0000659284 Maria Leah Lucido 85,638.51
period of May 01-15, 2019
Microbioligical test of water samples per billing
Mach Union Water Laboratory
28 17-May-19 05-0522 0000659287 invoice nos. 20229 dtd 04/16/19 & 20468 dated 26,812.50
Inc.
05/07/19
Installation of 1unit 37.5KVA transformer & threr
Batangas II Electric Cooperative
29 17-May-19 05-0523 0000659288 phase secondary metering at Brgy. Ulango 242,668.79
Inc.
pumping station
Cash advance re: powerbill at malipa well #2 for
30 17-May-19 05-0525 0000659290 Maria Leah Lucido 9,307.63
the period of March 28 - April 27, 2019
31 18-May-19 05-0531 0000659296 Carlos Evangelista Token for pump operator at Laurel for May 2019 500.00
Token for pump operator at Brgy. Janopol for May
32 18-May-19 05-0533 0000659298 Danilo Roxas 500.00
2019
Token for pump operator at Brgy. Cale for the
33 18-May-19 05-0555 0000659320 Gemuel Dalisay 500.00
month of May 2019
Token for pump operator at Brgy. Suplang Mistika
34 18-May-19 05-0556 0000659321 Ronald Gonzaga 500.00
month of May 2019
Reimbursement of airfare in attending the 14th
35 23-May-19 05-0578 0000659343 Feliciana V. Sumague WEAP Annual Convention on June 20-21, 2019 at 68,272.00
Cebu City
Employees' water bill deducted from year-end and
36 29-May-19 05-0595 0000659360 Maria Leah Lucido 13,164.00
cash gift 2019
LBP loan remittance for the period of May 16-31,
37 29-May-19 05-0596 0000659361 Landbank of the Philippines 108,417.81
2019
Refund on Pag-IBIG loan of O. Gonzales for the
38 31-May-19 05-0611 0000659376 Olive Gonzales 275.46
month of May 2019 due to loan renewal
Refund on GSIS loan of I. Cuaro for the month of
39 31-May-19 05-0612 0000659377 Irene Cuaro 1,254.00
May 2019 due to loan renewal
Refund on GSIS loan of N. Lumbres for the month
40 31-May-19 05-0613 0000659378 Nelie Lumbres 1,845.03
of May 2019 due to loan renewal
Sub-total 1,172,865.43

July
41 12-Jul-19 07-0673 0000659445 Keylargo Industrial Sales Payment of 180 m submersible cable 2/3C 229,982.15
Sub-total 229,982.15

August
remittance of Pag-IBIG premium MP 2 for the
42 30-Aug-19 08-0766 0000659541 Pag-IBIG 1,000.00
month of August 2019
Sub-total 1,000.00

October
43 03-Oct-19 10-0811 0000659586 Nelie M Lumbres CA for registration & emission testing of VJ 0504 3,000.00

CA for registration & emission testing of SF 6850

44 03-Oct-19 10-0815 0000659590 Mardie Grace D Sanque 2,000.00
and Kawasaki Barako
Sub-total 5,000.00
Grand Total P 4,531,347.27

94
Tanauan Water District Annex E
List of Property, Plant and Equipment (PPE) Items Reclassified to Other Assets AAR page 60
CY 2019

Accumulated
Particulars Acquisition Cost Net Book Value
Depreciation
Transmission & Distribution Mains
Automated flushing gate valve 2 34,800.00 31,320.00 3,480.00
Motorized automated gate valve #2 - Sulpoc
34,800.00 31,320.00 3,480.00
Nayon
Total 69,600.00 62,640.00 6,960.00

Information and Communication Technology Equipment

Epson Laser Computer Printer (Cuaro) 17,434.00 14,121.54 3,312.46
Epson Printer LX310 9-pin Dot Matrix SN
8,950.00 7,115.25 1,834.75
#67CY047644
1 unit 18.5" LCD Monitor (Char Ortiz) 5,178.00 4,660.20 517.80
meter reading device with printer 67,325.00 60,592.50 6,732.50
meter reading device with printer 67,325.00 60,592.50 6,732.50

Epson LX 300 Computer Printer-Engineering 8,085.00 7,276.50 808.50

Samsung Printer- SCX-4300 5,995.00 5,395.50 599.50
Samsung Printer- SCX-4301 5,995.00 5,395.50 599.50

Epson LX 300 SN-#GBNY143810 S. Comple 7,978.72 7,180.75 797.97

Epson LX 300 SN-# 7,978.72 7,180.75 797.97
Epson LX 300 SN-# 7,978.72 7,180.75 797.97
Epson LX 300 SN-# 7,978.72 7,180.75 797.97
Meter Reading Device 69,115.20 62,203.68 6,911.52
Meter Reading Device 69,115.20 62,203.68 6,911.52
Meter Reading Device 69,115.20 62,203.68 6,911.52
Meter Reading Device 69,115.20 62,203.68 6,911.52
Meter Reading Device 69,115.20 62,203.68 6,911.52
Meter Reading Device 69,115.20 62,203.68 6,911.52
Canon IP1980 Inkjet Printer USB -
2,195.00 1,975.50 219.50
Engineering Division SN # HLOAO3494
Inkjet Printer USB - Engineering Division 2,195.00 1,975.50 219.50
Inkjet Printer USB - Commercial Division 2,195.00 1,975.50 219.50
17" LCD Monitor - A. Millar 7,527.00 6,774.30 752.70
Matrix Printer 7,527.00 6,774.30 752.70
Laptop - N. Macahiya MS 14212 31,694.00 28,525.00 3,169.00
Laptop - L. Dimapilis MS-14212 (defective) 31,694.00 28,525.00 3,169.00
Laptop - Training Sec MS 14212 31,694.00 28,525.00 3,169.00
Computer Set - I Cuaro 30,202.12 27,182.12 3,020.00
UPS Black 650 VA - R Manalo 5,425.53 4,882.98 542.55
UPS Black 650 VA - M Lizardo 2,553.19 2,297.87 255.32
UPS Black 650 VA - I. Cuaro 2,553.19 2,297.87 255.32
17" LCD Monitor Samsung - M. Olan 7,340.43 6,606.43 734.00
17" LCD Monitor Samsung - Engineering
7,340.43 6,606.43 734.00
Division
17" LCD Monitor Samsung 7,340.43 6,606.43 734.00
1 unit Dot Matrix Epson FX 2190 Printer 28,495.00 25,645.50 2,849.50
1 pc external hard disk ITB/ Firewire USB 7,872.34 7,086.11 786.23
17" LCD Monitor - Mangubat LG (Flatron) 7,200.00 6,480.00 720.00

95
 Accumulated
Particulars Acquisition Cost Net Book Value
Depreciation

17" LCD Monitor - Ludy LG (Flatron) L1742S 7,200.00 6,480.00 720.00

Sony Laptop - GM Pol 65,699.10 59,129.19 6,569.91
Canon Pixma 1D 1200 Printer-Nelia 1,808.51 1,628.51 180.00
1 Computer set-Engr. Losa (Engineering
44,377.76 4,930.00
Division) 49,307.76
1 unit UPS-Billing Section-Enna 5,850.00 5,265.00 585.00
1 unit Epson LX 300 Printer-Aimee 7,635.00 6,625.90 1,009.10
1 unit UPS-Jeng 6,200.00 5,580.00 620.00
80GB Seagate SATA Hard Disk (Eric) 3,790.00 3,467.85 322.15
512MB Geil DDR 400 Memory 1,550.00 1,418.25 131.75
HP DVD 640i Lightscribe DVD-RW 5,400.00 4,941.00 459.00
Printer- HP Laser Jet 1020- dette 10,000.00 9,000.00 1,000.00
1 Toshiba Laptop Computer Model L20 P440
71,828.00 64,645.00 7,183.00
- B Capule
1 LCD Projector - Epson EMP-X3 69,995.00 62,995.00 7,000.00
2 pcs hard disks 80 GB, SATA, Seagate 2,086.00
2 pcs hard disks 36 GB, SATA, Seagate 20,860.00 18,774.00 -
2 pcs computer mobile rack, RHA-black -
1 unit Tally T2250 (Billing) Printer 43,800.00 39,420.00 4,380.00
Epson LX 300 CEBY030611 5,750.00 5,175.50 574.50
Printer Inkjet-Commercial Division 2,289.00 2,060.10 228.90
7,150.00 6,435.00 715.00
75,082.00 67,574.00 7,508.00
Computer set-Commercial Division 57,084.75 51,376.50 5,708.25
Epson LX300-CEBY165654 Model P170A 7,150.00 6,435.00 715.00
Computer speaker-Finance 1,350.00 1,215.00 135.00
Computer-Admin (Nhel) 33,329.75 29,997.00 3,332.75
Consair-USB Flashdrive-Admin 1,150.00 1,035.00 115.00
Computer set-ADB (Edgar) 43,323.00 37,956.00 5,367.00
Printer w/ scanner 11,500.00 11,385.00 115.00
Computer set-Admin Div-Fely 44,550.00 40,095.00 4,455.00
Canon Pixma IP1000 SN-K10241 2,100.00 1,890.00 210.00
Computer-Back up Billing 35,000.00 33,833.17 1,166.83
Computer set-networking 14,541.75 13,087.58 1,454.17
Computer set-Billing System 47,318.00 42,871.00 4,447.00
Epson LX 300 4,200.00 3,780.00 420.00
Computer set-Finance (Ludy) 52,357.00 47,860.10 4,496.90
Printer HP Laserjet 1010 10,890.00 9,801.00 1,089.00
1 pc Epson LX300+ printer-Coml SE #
6,380.00 6,379.00 1.00
CEBY030611 Model # P170A
Computer set pentium 4 w/ printer FX 1170-
48,080.00 48,079.00 1.00
Admin
6,223.60 5,636.69 586.91
Total 1,743,658.96 1,575,540.50 168,118.46

Motor Vehicles
1 Mitsubishi Unicab 4 w 0.5 ton Cargo CBU-
135,500.00 121,950.00 13,550.00
SNU 4IT-0130542 SHX- 409
Bicycles 29,138.50 29,127.50 11.00
Ownertype jeep / SFY 726 233,425.00 225,979.90 7,445.10
Total 398,063.50 377,057.40 21,006.10

96
 Accumulated
Particulars Acquisition Cost Net Book Value
Depreciation

OPPE-Water Treatment Equipment

1 pc metering pump 12,660.00 11,394.00 1,266.00
1 pc metering pump 10,100.00 9,090.00 1,010.00
2 pc metering pump 10,130.00 6,078.00 4,052.00
25,200.00 22,680.00 2,520.00
25,200.00 22,680.00 2,520.00
19,700.00 17,730.00 1,970.00
19,700.00 17,730.00 1,970.00
19,700.00 17,730.00 1,970.00
19,700.00 17,730.00 1,970.00
19,700.00 17,730.00 1,970.00
19,700.00 17,730.00 1,970.00
19,700.00 17,730.00 1,970.00
19,700.00 17,730.00 1,970.00
19,700.00 17,730.00 1,970.00
25,200.00 22,680.00 2,520.00
23,680.00 21,312.00 2,368.00
10 unit metering pump 220,875.00 198,788.01 22,086.99
electromagnetic pump 22,087.50 19,878.50 2,209.00
22,770.00 20,493.00 2,277.00
22,770.00 20,493.00 2,277.00
22,770.00 20,493.00 2,277.00
22,770.00 20,493.00 2,277.00
22,770.00 20,493.00 2,277.00
22,770.00 20,493.00 2,277.00
22,770.00 20,493.00 2,277.00
22,770.00 20,493.00 2,277.00
22,770.00 20,493.00 2,277.00
1 unit electromagnetic metering pump w/
22,087.50 19,878.50 2,209.00
complete accessories
10 units metering pump 220,875.00 198,788.00 22,087.00
10 units metering pump 220,875.00 198,788.00 22,087.00
2 units chlorinator machine 41,900.00 37,710.00 4,190.00
3 units chlorinator machine 69,750.00 62,775.00 6,975.00
Total 1,332,850.00 1,196,527.00 136,322.99
Grand Total 3,544,172.46 3,211,764.90 332,407.56

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Tanauan Water District Annex F
List of Dormant Staled Checks AAR page 63
CY 2019

Outstanding
Stale Checks Date
Balance
1 Ceferino Terrones 9-May-07 300.00
2 Arnell Cellphone & Electronics 7-Mar-07 22,560.00
3 Ceferino Terrones 12-Jan-09 300.00
4 Vicman Enterprises 6-Jul-09 1,478.40
5 Ceferino Terrones 2-Sep-09 300.00
6 Ceferino Terrones 8-Oct-09 300.00
7 Batelec II 15-Feb-10 33,910.93
8 Vicente Daygo 12-Jan-10 300.00
9 Makiling Refrigeration 11-May-10 4,945.54
10 Glenn Richard Miranda 13-Jan-11 300.00
11 Rodolfo Precilla 13-Jan-11 300.00
12 League of General Managers 7-Mar-11 1,200.00
13 Armando Franco 9-Jun-11 300.00
14 Armando Franco 7-Jul-11 300.00
15 Leopoldo Liquido 11-Jan-12 300.00
16 Domingo Lapidante 11-Jan-12 300.00
17 Roman Moreno 1-Oct-12 300.00
18 Roman Moreno 1-Nov-12 300.00
19 Glenn Richard Miranda 8-Jun-12 300.00
20 Ceferino Terrones 8-Jun-12 300.00
21 Ortiz Villanueva 8-Jun-12 300.00
22 Leopoldo Liquido 10-Jul-12 1,800.00
23 Glenn Richard Miranda 10-Jul-12 300.00
24 Rodolfo Precilla Dec 12; Feb 13 300.00
25 Ortiz Villanueva 9-Oct-12 300.00
26 Ortiz Villanueva 12-Nov-12 300.00
27 Ortiz Villanueva 12-Dec-12 300.00
28 Ortiz Villanueva 11-Jan-13 300.00
29 Librada Regalado 11-Jan-13 1,080.00
30 Glenda Mejorada 13-Nov-13 300.00
31 Glenda Mejorada 6-Dec-13 300.00
32 Flow Harmonic 26-Sep-14 13,593.75
33 Ceferino Terrones 1-Jun-16 500.00
34 Celestino Pamute 3-Jan-17 500.00
35 Filomeno Castillo Sep 2014 300.00
36 Lino Mutia 14-Sep-17 320.00
37 Helaberto Santua 8-Jan-18 500.00
38 Victor Perez 22-Mar-18 500.00
39 Glenda Mejorada 20-Apr-18 500.00
40 Cefrerino Terrones 20-Apr-18 500.00
41 Ceferino Terrones 5-May-18 500.00
Total 91,888.62

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