EXECUTIVE SUMMARY

A. INTRODUCTION

The Palauig Water District (PWD) was formed on November 24, 1993 by former Mayor
Felicito M. Aranda and the Palauig Sangguniang Bayan, pursuant to Presidential Decree
(PD) No. 198 as amended by Nos. 786 and 1479, otherwise known as the “Provincial
Water Utilities Act of 1973”.

The Conditional Certificate of Conformance (CCC) No. 529 was awarded to the District
in the same year by the Local Water District Utilities Administration (LWUA). This CCC
is the accreditation of LWUA to a newly-formed water district to operate under the
standard specification.

The primary objective of the District is to provide and supply safe, adequate, reliable and
economically viable water services to its constituents. The District started with the
appointments of five members to sit as Board of Directors and the designation of a
General Manager. Through the untiring effort of Ex-Mayor Aranda, Congressman
Antonio M. Diaz was convinced and shared the much needed congressional fund of ₱3
million intended for Zambaleño scholars to the District. Likewise, thru the persistence of
Congressman Diaz, LWUA extend a regular loan of ₱300,000.00 to the District. The said
funding was able to construct a shallow well, pumping station, an elevated reservoir and a
2,000 meter length of transmission line which was completed in December 1998. The
said project was able to supply the needs of three barangays.

In January 1999, the District was fully operational with only three personnel including
the General Manager.

At present, the District, despite its category of being a small water district and under a
fourth class municipality, was able to construct six pumping stations and a 23.73-
kilometer transmission line and to note that the District is enjoying a 90% water bill
collection. Its Board of Directors (BOD), the policy-making body for water districts is
composed of the following:

Position Sector
Ms. Clemencia A. Encarnacion Chairperson Education
Ms. Delia M. Maniago Vice Chairperson Women
Mr. Fernando A. Reyes, Jr. Secretary Professional
Ms. Jean D. Viray Member Business
Ms. Fe A. Monterola Member Civic

To date, the District is supplying safe and potable water to 13 barangays on a 24-hour
service. It has four regular employees including the General Manager. The District’s
success and viability was reached together with the hard work, dedication and devotion of
its employees.

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We conducted our audit of the financial transactions and operations of the District for the
years ended December 31, 2015 and 2014 in accordance with Philippine Standards on
Auditing and we believe that it provided a reasonable basis for the audit results. The audit
was conducted to (a) ascertain the degree of reliance 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
years’ audit recommendations.

B. FINANCIAL HIGHLIGHTS

The comparative analysis of the District’s Financial Condition and Results of Operations
for CYs 2015, 2014 and 2013 are shown below:

2015 2014 2013

FINANCIAL CONDITION
Assets ₱18,770,198.84 ₱18,258,079.25 ₱18,253,571.31
Liabilities 9,443,948.32 9,024,906.27 9,064,846.12
Equity 9,326,250.52 9,233,172.98 9,188,725.19
RESULTS OF OPERATIONS
Income 5,713,008.94 5,102,028.01 4,494,801.35
Expenses 5,264,400.06 5,290,702.42 4,764,014.19
Excess of Income over Expenses 448,608.88 (188,674.41) (269,212.84)

C. INDEPENDENT AUDITOR’S REPORT

The Auditor rendered a qualified opinion on the fairness of presentation of the financial
statements of the District for the years ended December 31, 2015 and 2014 due to the
following deviations: (a) unaccounted discrepancy of ₱1,291,966.47 or 29 per cent
between the Cash in Bank, Local Currency, Current Account (CIB-LCCA) and the bank
statement, thus, the accuracy and reliability of the reported balance was doubtful; and (b)
inclusion of unserviceable property items with net book value of ₱242,764.20 in the
Property, Plant and Equipment that resulted in the overstatement of the PPE and
Accumulated Depreciation accounts and understatement of the Other Assets account.

For the above deficiencies, we recommended that Management:

(a) Prepare and submit regularly the Bank Reconciliation Statement to support the
balances appearing in the books and exert efforts in tracing the discrepancy and
accordingly effect the necessary adjustment/s, where appropriate; and

(b) Reclassify the unserviceable property items to Other Assets as prescribed under
Section 143 of the Manual on the NGAS, Volume III.

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D. OTHER SIGNIFICANT OBSERVATIONS AND RECOMMENDATIONS

The other significant observations noted during the audit and the corresponding
recommendations were discussed with the concerned officials and employees of the
District. Their comments are incorporated in the report, where appropriate.

1. The District did not strictly apply the Perpetual Inventory Method of accounting
for inventories and recorded the purchases of various office supplies amounting to
₱99,342.00 and ₱8,000.00 for CYs 2015 and CY 2014, respectively, as outright expenses
contrary to Section 43 of the Manual on the New Government Accounting System
(NGAS), Volume I. (Observation No. 3)

We recommended that the Senior Accounting Processor A apply the Perpetual Inventory
Method of accounting for inventories pursuant to the Manual on the NGAS, Volume I for
proper charging of expenses in the period these were incurred.

2. The current portions of Loans Payable to Local Water Utilities Administration

(LWUA) were not properly classified at year-end pursuant to the provisions of Philippine
Accounting Standards (PAS) 1, thereby understating the Current Liabilities by ₱7,653.00
and overstating the Non-Current Liabilities by the same amount. (Observation No. 5)

We recommended that Management (a) properly classify the current portion of the Loans
Payable-Domestic at year-end in compliance with PAS 1; and (b) record in the books the
accrued interest separately from the principal balance of the loans for fair presentation of
the financial statements.

3. The Office of the designated Cashier was not properly enclosed/amply protected
against intrusion by unauthorized persons, thereby exposing the District’s funds to
possible losses. (Observation No. 8)

We recommended that Management provide the designated Cashier with an available and
secured space to ensure that funds and documents in his custody are properly secured.

E. SUMMARY OF AUDIT SUSPENSIONS, DISALLOWANCES AND

CHARGES

Based on the Statement of Audit Suspensions, Disallowances and Charges (SASDC) as

of December 31, 2015, the District has ₱28,855.84 audit disallowances under ND No.
2014-001 (12 and 13), dated October 13, 2014 which was already settled under Notice of
Settlement of Suspension/Disallowance/Charge (NSSDC) Nos. 2016-001 and 2016-002
dated January 22, 2016 and March 17, 2016, respectively.

For CYs 2015 and 2014, audit of transactions resulted in audit disallowances of
₱13,134.88 as discussed in observation nos. 6 and 17 of this report.

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F. STATUS OF IMPLEMENTATION OF PRIOR YEARS’
UNIMPLEMENTED AUDIT RECOMMENDATIONS

Of the 27 recommendations embodied in the CYs 2013 and 2012 Financial Audit Report,
16 were fully implemented, six were partially implemented and five were not
implemented.

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