EXECUTIVE SUMMARY

A. Introduction

The Obando Water District (OWD) was established on September 25, 1981 through
Sangguniang Bayan Resolution No. 077 series of 1981 in accordance with the provisions
of PD 198. At present, it has served 8,472 active concessionaires covering nine barangays
out of the eleven barangays of the Municipality of Obando, Bulacan.

OWD is a Government-Owned and Controlled Corporation (GOCC) politically and

economically independent from the local government. The Board of Directors (BOD)
formulates the policies, rules and regulations of the water district. The management of the
water district is handled by Engr. Leonardo C. Landayan, a licensed mechanical engineer
and also a graduate of civil engineering, who is knowledgeable in the waterworks
business, having served as a consultant for the MWSS.

As of December 31, 2013, OWD is categorized as “C” water district with a total work
force of 28 permanent personnel, three casual, and eight job order employees. The BOD
is composed of the following:

Pancracio F. dela Cruz - Chairman

Honorato Danilo Guevarra - Vice Chairman
Teresita J. de Jesus - Member (Education)
Maria Luisa C. Papa - Member (Professional)
Jose B. Trinidad - Member (Business)
Ceferina Macdon - Sixth Member (LWUA)

B. Financial Highlights

The financial highlights of the OWD for CY 2013 with comparative figures for CY 2012
are as follows:

Particulars 2013 2012 Increase/

(Decrease)
Financial Condition
Total Assets P34,435,012.50 P 37,065,715.88 P(2,630,703.38)
Total Liabilities 131,341,796.94 118,997,454.15 12,344,341.79

Total Equity (96,906,784.44) (81,931,738.27) (14,975,046.17)

Results of Operations

Total Revenues 67,372,248.04 66,667,600.43 704,647.61

Total Expenses 79,047,350.33 84,752,328.48 (5,704,978.15)
Excess of Income over
Expenses P(11,675,102.29) (P18,084,728.05) (P6,409,625.76)

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C. Operational Highlights

For the years 2012-2013, OWD implemented programs/projects aggregating to P1.92

million, the most significant of which are listed below:

Name of Project Project Cost Accomplishment Percentage

Rehabilitation of Water P335,158.00 P335,158.00 100%
Supply along Osmena St.,
Brgy. Pag-asa with total
length of 120 linear meters
Replacement of Water 1,585,933.80 1,585,933.80 100%
Main Line Supply and
Transfer Lateral Line to
New Water Main Line
including 492 affected
house service connections
along Osmena St., Brgy.
Catanghalan and Brgy.
Pag-asa
Total P1,921,091.80 P1,921,091.80 100%

D. Scope of Audit

Our audit covered, on a test basis, the accounts and financial transactions of the Obando
Water District for the years 2012-2013 in accordance with Philippine Standards of
Auditing. The objectives of the audit were to (a) ascertain the level of assurance that may
be placed on management’s assertions on the financial statements; (b) recommend
agency improvement opportunities; and (c) determine the extent of implementation of
prior year’s audit recommendations.

E. Auditor’s Report

The Auditor rendered a qualified opinion on the fairness of presentation of the financial
statements of the Obando Water District as of December 31, 2012 and December 31,
2013 because of errors which misstated the PPE and Retained Earnings accounts, as
summarized below:

 The Property, Plant and Equipment (PPE) and Retained Earnings accounts were
overstated by at least P87,144,163.55 due to non-conformity of the computation
of accumulated depreciation with COA Circular No. 2003-07. Moreover, the
Accounting Division failed to provide individual subsidiary ledgers (SLs) for
Other Property, Plant and Equipment (OPPE) with acquisition cost of
P135,562,317.86, and to comply with the appropriate classification of accounts,
contrary to the provision under Section 39 and 48, Volume III of the GAAM, thus
the accuracy of the amounts constituting almost 96% of the recorded balance of
the PPE accounts at year-end was not fully established. (Observation No. 8)

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 For the above-cited accounting errors and deficiencies, we recommended that
management:

a) create a Committee on Inventory tasked to assist the Property Officer

in the periodic inventory-taking of all properties of the Water District;

b) facilitate the registration of motor vehicles and insure them with the
GSIS against losses and third party liability;

c) instruct the Accountant to set up the 10% residual/salvage value

before computing the depreciation, and prepare the lapsing schedule
based on documents and not by merely estimates;

d) maintain subsidiary ledgers per PPE item and to perform a regular

reconciliation of the SL balances with the general ledger controlling
accounts;

e) prepare a Journal Entry Voucher (JEV) to adjust erroneous entries

and misclassifications of accounts based on the recomputed Lapsing
Schedule.

 The expected cost of the accumulating compensated absences in the aggregate

amount of P3,300,335.08 were not recorded or recognized in the books, contrary
to the Philippine Accounting Standards (PAS) 19 on Employee Benefits, resulting
in the understatement of accrued expenses and overstatement of the Retained
Earnings account. (Observation No. 6)

We recommended that management recognize the cost of the accumulating

compensated absences as liabilities, in compliance with PAS 19 and set aside
funds so that retiring employees may be paid immediately the equivalent amount
of his/her compensated absences.

F. Significant Audit Observations and Recommendations

Summarized below are the significant observations noted during the audit and the
corresponding recommendations which are discussed in detail in Part II of the report.
Management views and comments including those given during the exit conference were
incorporated in the report, where appropriate:

1. Expenses incurred for CY 2012 and 2013 in 15 accounts exceeded the approved
Corporate Operating Budget (COB) by P2,136,900.44 and P1,012,892.02, respectively
contrary to the provision of Section 4(1) of P.D. 1445. (Observation No. 1)

We recommended that the Agency take into consideration the availability of budget
before incurring expenditures in conformity with Section 4 (1) of P.D. 1445 and to

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 implement cost-saving measure and stricter budgetary controls to keep expenses within
the approved limit.

2. The District incurred excessive expenditures due to payments of overtime pay which
exceeded the five percent (5%) limitation set under DBM Budget Circular No. 10 dated
March 29, 1996 and for activities which are not included in the authorized activities for
which overtime compensation may be authorized under National Budget Circular No.
410. (Observation No. 4)

We recommended that management observe strictly the laws, rules, and regulations on
the payment of overtime pay by requiring the key officials/department heads to adopt the
following measures:

a) limit the authorization of overtime compensation to those activities included

in the NBC 410 to avoid disallowances in post-audit. If at all authorized, limit
the overtime payments, in a given calendar year, up to 5% of the total salaries
and wages of authorized positions of the agency;

b) support payment of overtime services with complete documents to establish

the validity and propriety of the claim; and

c) submit the required supporting documents for the payment of overtime

amounting to P399,953.73 and P591,019.25, for CY 2012 and CY 2013,
respectively.

3. The District’s collections were deposited with private banks without securing the
approval of the Department of Finance (DOF) contrary to DOF Department Order No.
27-05 dated December 9, 2005, thus exposing government funds to risk of loss in case of
insolvency of the private banks especially the rural bank. (Observation No. 5)

We recommended that management obtain the appropriate approval or authority from the
Department of Finance pursuant to DOF Department Order No, 27-05, otherwise, cause
the closure of the accounts maintained with non-government banks and deposit all
collections only with the authorized government depositories.

4. The Accounting Office of the Obando Water District failed to set up the account Cash-
Collecting Officer and to maintain a general ledger and subsidiary ledger therefor,
thereby weakening accounting controls over monitoring and disposition of cash on hand
and establishing the actual cash accountability of the collecting officer. (Observation
No. 3)

We recommended that management (a) set up and maintain general ledger and
subsidiary ledger for Cash Collecting Officer to properly monitor the cash balance and to
establish cash accountability of the accountable officer; (b) ensure the correct entry upon
collection of water bills and other income which should be a debit to Cash Collecting
Officer and credit to Accounts Receivable-Customers account and a debit to Cash in

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 Bank account credit to Cash Collecting Officer upon deposit thereof; and (c) instruct the
Accountant and the Collecting Officer to reconcile their records at least quarterly to
correct and detect errors as early as possible as stated in Section 181 (c) Volume I of the
GAAM.

5. The employees of the Obando Water District (OWD) hired after July 1, 1989 were
allowed to receive additional allowances and fringe benefits amounting to P480,000.00
for CY 2012, and P462,500.00 for CY 2013 in violation of COA Resolution No. 2004-
006 dated September 14, 2004, the Salary Standardization Law (SSL) or R.A. 6758, and
related DBM issuances. (Observation No. 9)

We recommended that management (a) cause the immediate settlement/refund of the

amounts due from the employees concerned; and (b) abide strictly with the latest ruling,
laws, and issuances as regards the payment of personnel benefits, bonuses, and
allowances to avoid disallowances in future transactions.

6. Petty Cash Fund were utilized for regular and non-petty expenses such as traveling
expenses, gasoline, office supplies, telephone bill, rent, and other regular expenses.
Moreover, same expenditures were incurred through cash advances granted to officials
and employees of the District, thus the prescribed procedures for disbursements were not
observed, contrary to COA Circular No. 97-002 and Sec. 93 of PD 1445. (Observation
No. 2)

We recommended that management (a) instruct officials and employees and the Cashier
to limit disbursements from the Petty Cash Fund to those considered petty; (b) comply
strictly with rules and regulations regarding the grant of cash advances; and (c) observe
the internal control principle of check and balance in granting cash advances.

7. The Construction in Progress (CIP) account amounting to P1,453,865.64 was overstated

while PPE was understated by the same amount arising from completed projects not
transferred to the appropriate Property, Plant and Equipment (PPE) accounts.
(Observation No. 7)

We recommended that management direct the Accounting Division to transfer all

completed projects/equipment in the CIP account to their appropriate account in the PPE
group.

G. Status of Implementation of Prior Year’s Audit Recommendations

Out of the four recommendations contained in the Financial Audit Report for CY 2011,
one was fully implemented, while the remaining three were not implemented. The details
are discussed in Part III of this report.