EXECUTIVE SUMMARY

Background

The Labason Water District came into existence through the efforts of the then Hon. Wilfredo S. Balais and Hon. Isabel G. Brillantes, Municipal Mayor and Municipal Vice Mayor, respectively of the Municipality of Labason, del Norte on December 15, 2005 with the establishment of the Executive and Legislative Agenda (ELA) of the Local Government Unit of Labason wherein a Water System Level III was considered a priority project of the LGU.

This Water District was actually a revival of the original Labason Water District which was created through Resolution No. 29, series of 1981of the Sanggunian Bayan of Labason, , entitled “A Resolution Organizing an Autonomous Local Water District in the Municipality of Labason,” during a special session convened on May 23, 1981 for that purpose. The creation of the District was duly acknowledged and affirmed by the Local Water Utilities Administration (LWUA) that sometime in 1991, the LWUA had constructed a test production well at Sitio Kauswagan, Imelda, Labason, Zamboanga del Norte. However, said project failed due to high presence of salt water resulting to the high degree of salinity which is very dangerous for human consumption.

A. Highlights of Financial Operations

Labason Water District since its inauguration in December 11, 2009 continues to strive for excellent service by providing sustainable, potable and affordable water to its clientele. Consistent to its commitment of quality and better service, Labason Water District continues to improve by managing the district efficiently.

It derives its income from water operation by providing the following services: Metered sales or water delivery through water meters billed to residential, government entities, commercial, and bulk sales. Review of the operating highlights report for CY 2013 shows that the agency generated total net water sales of ₱ 5,477,272.63 and was able to collect a total of ₱ 5,304,172.23 from the current year water sales or a collection efficiency of 96.84%. The details are as follows, viz:

Efficiency PARTICULARS Rate

Water Sales CY 2013 ₱ 5,477,272.63 Less: Billing Adjustments 0 Total Expected Collections (Net Sales) ₱ 5,477,272.63 100% Less: Collections on Water Sales-Current ₱ 1,691,600.39 Collections on WS Current Year arrears 3,612,571.84 5,304,172.23 96.84% Receivable Balance on Current Year Sales ₱ 173,100.40 3.16%

The high collection efficiency was attributed to the collection strategies adopted by management to include among others the close monthly monitoring of accounts due and unpaid, serving the notice of disconnections consistently when concessionaires fail to settle the accounts on due date. It can also be attributed to the customers’ satisfaction and their desire for potable and quality water at an affordable cost.

The Labason Water District is being funded from the following sources for calendar year (CY) 2013 shown below with comparative figures for CY 2012. The total gross income showed an increase of 11.48%.

Income/Sources of Funds 2013 2012 Increase/(Decrease) % Income from Water Works system P5,477,272.63 P4,716,283.55 P760,989.08 16.14 Other Service Income 445,625.36 596,842.19 (151,216.83) (25.34) Fines & Penalties-Business 0.00 0.00 0.00 - Income GROSS INCOME P5,922,897.99 P5,313,125.74 P609,772.25 11.48

Likewise, total expenses for CY 2013 also showed a slight increase of 0.22% which are presented below with comparative figures for CY 2012:

EXPENSES 2013 2012 Increase/(Decrease) % Personal Services P2,313,261.58 P1,814,459.57 P498,802.01 27.49 MOOE 2,148,825.54 2,099,180.03 49,645.51 2.36 Financial Expenses 2,436,182.00 2,969,408.00 (533,226.00) -17.96 Total Expenses P6,898,269.12 P6,883,047.60 P15,221.52 0.22

The agency’s assets, liabilities and equity as of December 31, 2013 with comparative figures for CY 2012 are shown in the table below:

Particulars 2013 2012 Increase/(Decrease) % Total Assets P41,472,995.86 P42,779,784.35 P(1,306,788.49) -3.05 Total Liabilities & Deferred Charges 24,042,747.54 19,228,145.33 4,814,602.21 25.04 Total Equity P17,430,248.32 P23,551,639.02 P(6,121,390.70) -25.99

B. Scope of Audit

A financial and compliance audit was conducted on the accounts and operations of Labason Water District for calendar year 2013. The audit included the review of the operating procedures, analysis of accounts, interviews and other procedures considered necessary. Transactions pertaining to previous accounting periods were also verified as they affect the operations as of December 31, 2013.

C. Auditor’s Opinion on the Financial Statements

The Auditor rendered qualified opinion on the fairness of presentation of the financial statements for CY 2013.

D. Summary of Significant Findings and Recommendations

The audit revealed certain deficiencies which adversely affected the operations of the agency, as stated below:

1. Collections were not deposited intact daily with Authorized Government Depository Bank (AGDB) in violation of Section 21, of the NGAS Manual and Section 2 of PD No. 1445.

In view of the foregoing, we recommend that the District require the deposit of collections intact and daily as a means of better safeguarding these against theft and misappropriation.

2. The Cash in Bank – PNB account appearing in the Balance Sheet as of December 31, 2013 shows a negative balance of (Ᵽ 6,557.53), is not in keeping with Section 73, Volume I of the NGAS.

We recommend that the accounting processor accordingly review the erroneous entries to the PNB-Liloy account, make the necessary corrections and effect adjustments to Cash in Bank – PNB Liloy account. Henceforth, the accounting processor should properly review cash transactions before recording/posting these in the accounting records to ensure the accuracy of its accounts.

3. The District failed to submit the monthly Bank Reconciliation Statements of its two bank accounts in violation of Section 74 of Presidential Decree (P.D.) No. 1445. Further, Cash in Bank Account balances as of December 31, 2013 could not be properly ascertained.

We recommend that the accounting unit prepare and submit the required monthly bank reconciliation statement and to effect the necessary correcting/adjusting entries to ensure reliable accounting records and account balances.

4. The Allowance for Doubtful Accounts for the year ended December 31, 2013 was directly deducted in the General Ledger of Accounts Receivable account in violation of Section 11, Volume II of the Manual on the New Government Accounting System (NGAS) and sound accounting practices.

We recommend that the Accounting Processor be directed to provide a separate GL account for the Allowance for Doubtful Accounts so that the GL would reflect correct balances.

5. The District failed to avail the services of the Procurement Service and the Philippine Government Electronic Procurement System (PhilGEPS) of the Department of Budget and Management (DBM) in their procurement activities as required under Republic Act No. 9184 (RA 9184) and Administrative Order (A.O.) No. 17 of the President.

We recommend that the District avail of the services of the PS in procuring their common-use supplies, materials, and equipment and use the PhilGEPS so that its procurement is done in a transparent and competitive manner.

6. The current portion amounting to P464,441.00 of long-term loans payable was not reclassified as Current Portion of Long-Term Debt contrary to Item c, Paragraph 60 of the Philippine Accounting Standards (PAS), thus affecting the fair presentation of the Loans Payable account as of December 31, 2013.

We recommend that management require the Accounting Processor A to reclassify the current portion of the long-term debt in the books for a fair presentation of liabilities in the financial statements.

7. Interest Expense on Loans Payable-Non-LWUA Initiative Fund (NLIF) of P483,533.00 for the month of December 2013 was not accrued, nor was payment of P277,881.00 on Loans and Interest Payable of P35,937.00 and P241,944.00, respectively, for November 2013 recorded, resulting in the understatement of Interest Expense by P483,533.00, overstatement of Loans Payable-NLIF and Cash in Bank accounts by P35,937.00 and P277,881.00, respectively, and a net understatement of Interest Payable by P241,589.00 as of December 31, 2013.

We recommend that management direct the Accounting Processor A to make the necessary adjusting/correcting entries for fair presentation of the accounts affected in the financial statements.

8. The Chairperson of the Board of Directors also exercised administrative / ministerial duties beyond the function inherent in its position thus resulting in lack of check and balance, and in violation of Sections 17 and 18, Chapter V of Presidential Decree (PD) No. 198.

It is recommended that members of the BOD should limit their functions to policy making and refrain from participating in administrative and ministerial duties in order to attain proper segregation of power and control.

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

Of the twelve (12) audit recommendations contained in our CY 2012 Annual Audit Report, nine (9) were fully implemented, one (1) was partially implemented and two (2) were not implemented at all.