observations and recommendations - regulatory...

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OBSERVATIONS AND RECOMMENDATIONS

A. INTRODUCTION

1. This Part consists of four sections:

Current Year’s Audit Observations and Recommendations (B)

MWSS Corporate Office (CO) – B.1

MWSS Regulatory Office (RO) – B.2

Common to MWSS CO and MWSS RO – B.3

Reiteration of Prior Year’s Audit Observations and Recommendations (C)

MWSS Corporate Office (CO) – C.1

MWSS Regulatory Office (RO) – C.2

Common to MWSS CO and MWSS RO – C.3

Value for Money (VFM) Audit (D)

Unsettled Audit Disallowances, Charges and Suspensions (E)

B. CURRENT YEAR’S AUDIT FINDINGS AND RECOMMENDATIONS 1. MWSS CORPORATE OFFICE (CO)

1. The carrying value of the Property, Plant and Equipment (PPE) at P35.408 billion

was not correctly stated due to non-conduct of revaluation/appraisal since CY 1995.

1.1 For this audit observation, we were guided by the following accounting standards and COA rule, as follows:

a. PAS 16 under paragraphs 31and 32 states that:

“31. After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, xxx. Revaluation shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date. 32. The fair value of land and buildings is usually determined from the market- based evidence by appraisal that is normally undertaken by professionally qualified valuers. The fair value of items of plant and equipment is usually their market value determined by appraisal.”

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b. COA Resolution No. 89-17 dated March 17, 1989 provides that:

“xxx, the revaluation shall be done by an independent appraiser or expert every five (5) years (on fixed assets existing as of the end of the fifth year), or even before the five year period ends, whenever there is a currency devaluation or price increase which raises price levels (based on the Consumer Price Index) xxxx”

1.2 Note 4 of the Notes to Financial Statements for CY 2013 disclosed that PPE were

stated at appraised value based on the appraisal conducted in 1995 by Cuervo Appraiser Inc. PPE acquired after said appraisal was recorded at cost.

1.3 Considering that the appraisal of assets was recommended in CY 1999 AAR,

inquiry on why no appraisal of PPE was conducted revealed that an appraisal was conducted by Cuervo Appraiser Inc. in CY 2006. However, the appraisal increments were not recorded/taken up in the books in CY 2007 because of time constraints due to the migration to eNGAS.

1.4 Since no appraisal on PPE was recorded in the books for the last 18 years, the

carrying value of the assets as of December 31, 2013 in the amount of P35,408,365,000 was not correctly stated. The PPE accounts consisted of the following:

Asset Carrying Amount (Net of Depreciation)

(in Thousand ₱)

Building, Plant, Equipment & Transmission Lines 22,678,084

Land & Land Improvements 12,444,447

Office Furniture & Other Equipment 145,912

Transportation Equipment 322,112

Total 35,408,365

1.5 We recommended and Management agreed to either:

a. Look into the possibility of using the report on the valuation of assets

used in operation by MWSS and its Concessionaires and the review and validation of the Concessionaires’ Asset Condition Report as of CY 2010 submitted by the Consultant hired for the purpose and whose report was accepted by the Regulatory Office; or

b. Immediately conduct appraisal of all its property, plant and equipment

by hiring an independent and qualified appraiser or expert as required under PAS 16 and COA Resolution No. 89-17.

2. The year-end balance of Construction-in-Progress account at P6.401 billion was not

correctly stated in view of the written information from the Deputy Administrator for Engineering & Operations, which was validated by the Audit Team, that MWSS had no on-going construction projects as of the end of CY 2013.

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2.1 The Construction-in-Progress (CIP) account should include only the costs of MWSS on-going projects at the end of the year.

2.2 The Deputy Administrator for Engineering & Operations informed the Audit Team in a letter dated January 21, 2014 that MWSS had no on-going construction projects as of the end of CY 2013. We found the information from the DA for Engineering & Operation valid. However, the trial balance showed that the CIP account had a balance of P6,401,373,993 as of December 31, 2013.

2.3 Further review of the subsidiary ledger balance of the CIP account showed that the

balance of P6,401,373,993 pertained to the following transactions, to wit:

2.3.1 The cost of the completed project - Angat Water Utilization and Aqueduct Improvement Project Phase 2 (AWUAIP) in the amount of P6,243,877,726.89

Based on the Performance Certificate issued by MWSS on September 24, 2013, the contractor of the AWUAIP Phase 2, China International Water Electric Cooperative (CWE), has fully completed its obligations under the Contract and the defects liability period of 365 calendar days reckoned from project completion on September 10, 2012. As such, the cost of the project should no longer be included in the CIP account balance.

In addition, the project was inaugurated on July 2012 and now being used by the two Concessionaires as water source. The account should have been reclassified to an appropriate Property, Plant and Equipment account subject to depreciation expense. This resulted in the understatement of the expense (depreciation) and the overstatement of the income accounts.

2.3.2 Dormant accounts of P 146,679,150.04

The subsidiary ledger showed that the sub-accounts listed in the table below have been dormant for more than five years and was the beginning balance of the account when MWSS migrated to the e-NGAS in CY 2007, as follows:

Sub account code Particulars Amount

264-01-01-02-01-LBAQ-4A La Mesa/Balara Aqueduct 80,476,040.31

264-01-03-01-MTSP

Consultancy Services for Strengthening in MWSS Capability in Water Supply Sewerage and Sanitation Service Provision

50,677,422.49

264-01-01-02-05-ICB-1-4 Section B,D,E,F&K

Supply & delivery ci adaptor, ci bend reducer

5,002,015.25

264-01-01-01-03-AUX#5 Hydro Electric Power 2,991,854.00

264-02-02-04-03-01-mssp-5sec b-9 & b-13

supply 7 delivery of 1 diving equipment & 1 lot inflatable sewer plugs

2,478,439.72

264-01-01-01-08-Fund 77- Supply and delivery of various 1,989,735.17

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AWSOP BOND sizes of Water Meter

264-01-03-04-02-ADB 1379 Umiray Angat Transbasin Project-UATP-ADB 1379

1,366,222.87

264-02-02-04-03-02-ELN-002 5 units portable hypoclorination assemblies

959,145.60

264-02-01-06-IS-14 Section B supply & delivery of ultrasonic flowmeter

629,319.12

264-01-01-01-11-Fund 77 Awsop Bond

Electrical Installation and Lighting System-1 unit 75KVA dry type transformer, Three phase 4 wire 480/20 VAC step down flr. mounted delta wye tape 15u

108,955.51

Total 146,679,150.04

2.3.3 Interest and guarantee fees paid on foreign loan – ADB 2012 Phi for the

New Water Sources Development Project in the total amount of P8,248,784.59 The above fees should have been charged to the appropriate interest and other finance charges account, with breakdown shown below:

Sub account code Particulars Amount

264-01-03-03-02-ADB 2012 New Water Sources Development Project (NWSDP)-ADB 2012 (For Allocation)

7,282,557.76

264-01-03-04-02-ADB 2012 New Water Sources Development Project-NWSDP-ADB 2012

(1,267,253.16)

264-01-03-05-02-ADB 2012 New Water Sources Development Project-NWSDP-ADB 2012

2,233,479.99

Total P8,248,784.59

2.3.4 Unreconciled balances of P2,658,331.94 between the General Ledger

and the subsidiary ledger , as shown below.

Account Code Amount

264-01-03-04-02-Forex 2,565,452.24

264-01-03-07-BC 2,879.70

Total 2,658,331.94

2.4 The failure to transfer costs of the completed CIP in the amount of P6,243,877,727

to the appropriate asset account excludes them from the depreciable assets subject to depreciation charges, thereby causing an understatement in the total annual depreciation from the time of their completion and overstatement of the income account.

2.5 In addition, the presence of dormant accounts in the amount P146,679,150,

financial expenses of P8,248,784 which should have been charged to the appropriate expenses account and the balance of P2,658,332 for allocation to the correct project account may challenge the correctness of the CIP account balance and affect the accuracy of the amount of the total assets and the retained earnings of MWSS.

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2.6 We recommended and Management agreed to:

a. Require the Controllership Division to reclassify to the appropriate asset account the cost of the completed project; Recognize corresponding depreciation on the cost of the project;

b. Require coordination between the project implementers and the Controllership Division to ensure the timely recording of projects completed; and

c. Immediately review the charges made to the CIP account which are

dormant and for reconciliation with the General Ledger account and effect the necessary adjustments.

2.7 Management informed that the CIP account on completed project will be

capitalized in CY 2014.

3. The Cash and cash equivalents in the amount of P2.149 billion was not sufficient to cover the Loans Payable to the Bureau of Treasury (BTr), which have been collected from the concessionaires and all recognized Trust Accounts, totalling P2.583 billion at the end of the year. This is indicative that the funds for remittance to the BTr and that the funds intended for specific purposes were used for other purposes. 3.1 Section 6 of the GAA FY 2013 provides that trust funds shall not be paid out except

for the fulfillment of the purpose for which the fund was received. Trust receipts includes receipts which are collected or received by department, bureaus and offices acting as trustee, agent or administrator; which have been received as guaranty for the fulfillment of an obligation; or classified by law, rules and regulations as trust receipts.

3.2 Based on the above definition, trust receipts of MWSS Corporate Office at the end of the year consist of the following:

a. Concession Fees collected from the concessionaires for debt servicing of

loans which have not been paid to the Bureau of Treasury as of yearend;

b. Unremitted share of the MWSS Regulatory Office (RO) from the collections from the concessionaires (MWSI & MWCI) of the Concession Income for the Corporate Operating Budget of MWSS Regulatory Office as provided under Section 11.3 of the Concession Agreement;

c. Receipts held in trust from SM Prime Holdings Inc. and the various financial

assistance for watershed programs and other funds withheld from employees claims.

3.3 Analysis of the account balances of the MWSS Corporate Office as of December

31, 2013 showed that the Cash and cash equivalents in the amount of P2.149 billion was not sufficient to cover the Loans Payable to lending institutions and all

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recognized Trust Accounts in the total amount of P2.58 billion at the end of the year as shown below:

Analysis of Cash & Cash Equivalents vs. Trust Accounts

As of December 31, 2013

Cash Amount

Cash & Cash Equivalents 2,149,379,985

Trust liabilities/receipts for payment of loans

Collections received from the two Concessionaires for the payment of foreign loans not yet paid to the Bureau of Treasury as of December 31, 2013:

SPIAL JBIC Phi 110

254,596,729 1,608,205,797

1,862,802,526

Due to the Regulatory Office – share in Concession Fee

632,770,395

Other Liabilities (trust liabilities) 62,999,060

Other Payables – lawyer’s fees deducted from claims of RATA, RA 1616,etc of employees

20,726,901

Deposit for Special Reserve Fund 3,521,717

Total Trust Liabilities/receipts for payment of loans 2,582,820,599

3.4 As can be gleaned from the foregoing information, the cash and cash equivalents

were not sufficient to pay the loans and various trust accounts of MWSS Corporate Office. Management failed to keep the collections/trust receipts intact so as to meet its obligations to pay the loans due to the BTr and creditors/lending institutions, the remittances to the government agencies of the statutory obligations and the possible payment of the other funds received for the performance of a specific purpose. The following explanations were made:

a. The Acting Finance Manager explained that the JBIC loan collections were collected by MWSS in various dates since December 2004. However, these were not remitted due to the absence of billing from the BTR which since 2005 were being requested from the BTR but to no avail.

b. It was further explained that in 2004, MWCI remitted the amount of

P200M for the JBIC Loan without billing received from MWSS. When remitted to the BTr, they responded that since there was no record of receivable for this particular account, the BTr decided to issue a temporary receipt and marked “For Safe Keeping”. Subsequently, OR No. 0600026 dated 4 April 2005 was issued by the BTr. The billing from the BTr was only received this 2014 and the billing for the JBIC was at P2.5B, stating that they have no proof to show that this amount are grant or equity for MWSS. According to MWSS, reconciliation with the BTR regarding this billing .will be conducted.

c. On the P632.77M Due to /due from issue with the RO, it was explained

that by CY 2014, the Due to the Regulatory Office – share in concession fee will no longer be remitted to the Regulatory Office. This is in view of

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MWSS Board of Trustees policy pronouncements under Board Resolution No. 2014-041-CO dated April 24, 2014 which stated that the distribution and allocation of Concession Fees between CO and RO will be in accordance with their Board approved Corporate Operating Budget for the calendar year subject to the limit and release schedule stipulated in Article 11.2 of the Concession Agreement.

3.5 We recommended and Management agreed to efficiently monitor its cash

flows to ensure that funds are disbursed solely for the intended purposes and strictly adhere to the provision of Section 6 of the GAA FY 2013.

3.6 In the exit conference, Management informed that the observation could also be attributed to the following:

a. Payment of Dividends in 2010 after the SONA, where the amount paid was

over the required remittance; and b. When MWSS called on the USD120M Performance bond from Maynilad

which was deposited directly to the BSP, it included the initial collection of P355M for JBIC Loan. However, the USD120M Performance Bond was used in the continuous default of Maynilad and for payment for Cost of borrowings. The said amount was not separated from such collections.

4. MWSS may face the risk of possible lawsuit arising from the lease of MWSS property along Katipunan Avenue covered by a Lease Agreement between MWSS and SM Prime Holdings Inc. which the MWSS Board of Trustees declared as null and void. MWSS received initial deposit of P33.248 million on July 13, 2010.

4.1 Perusal of the submitted documents relative to the lease contract showed that:

4.1.1 Excerpts of Minutes of the September 4, 2009 Special Meeting of the Board, under Resolution No. 2009-178, and confirmed on September 17, 2009, showed that the Board resolved (a) that based on a comparative analysis rendered by the Corporate Office as between separate proposals to lease the 1.4 hectare property of MWSS, they authorize the lease of such property to any party, at the minimum rate of P1,200.00 per square meter per annum and (b) resolved to authorize the Administrator to sign

and execute the lease agreement.

4.1.2 On October 19, 2009 the then MWSS Administrator Diosdado Jose M. Allado requested an opinion from the Office of the Government Corporate Counsel (OGCC) on (a) whether MWSS has the option to grant the lease to SM Prime Holdings Inc., pursuant to a Swiss Challenge similar to those provided in the NEDA Joint Venture Guidelines; and (b) on the appropriate procedures for such a Swiss challenge.

4.1.3 The OGCC, in a letter dated October 19, 2009 opined that:

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“Considering that the Metropolitan Waterworks Sewerage System (MWSS) would be the lessor in the subject proposal, the applicable law is EO 301 dated 26 July 1987. xxx [i]t appears that what is involved is a negotiated procurement, subject to the provisos under the above-quoted provisions of Executive Order No. 301(1987). In this connection, we note that the request of SM for conducting a competitive challenge is not required under Executive Order No. 301 (1987). Be that as it may, said request is not legally proscribed, and in fact, as a measure of prudence, may be undertaken. In this manner, MWSS will have the opportunity to validate the reasonableness of the terms of the lease and the rental rate proposed by SM.”

Likewise, the OGCC also provided a simplified and abbreviated Swiss – challenge procedure and timeline.

4.1.4 Excerpts from the Minutes of the Committee Meeting of the Board dated

February 19, 2010 stated that Resolution No. 2010-029(E) contained the following information-

a. Board Resolution No. 2009-18 dated September 04, 2009

authorizing the lease of 1.4 hectares MWSS property, to any party, under such terms and conditions beneficial to MWSS, and OGCC Opinion dated October 19, 2009.

b. Approval and confirmation of the proposed lease to SM Prime

Holdings (SM) of the 4.1 hectare MWSS property thru Unsolicited Proposal Mode with Competitive Swiss Challenge;

c. Approval and confirmation of the corresponding procedure and

timelines of the Swiss-Challenge; and d. Approval and confirmation of the creation of the Evaluation

Committee to appraise the Comparative Proposals.

However, it was noted that the Excerpts from the Minute of the Committee Meeting, although signed by Ms. Darlina T. Uy, Manager, Legal Services Dept/Board Secretary Designate, were stamped “CANCELLED”.

4.1.5 A Contract of Lease was entered into by and between the MWSS and

SM on May 27, 2010, signed by Atty. Diosdado Jose M. Allado and Mr. Hans T. Sy, for MWSS and SM, respectively. The rate of lease was P1,200.00 per square meter.

It was noted that the authority invoked for entering into the Lease Contract were Board Resolution Nos. 2008-251 and 2009-178, dated November 20, 2008 and September 04, 2009, respectively, when the

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latest Board resolution relating to the lease was Board Resolution No. 2010-029(E) dated February 19, 2010, and much earlier than the OGCC Opinion dated October 19, 2009.

4.1.6 MWSS received from SM the amount of P33,248,892.86 on July 13,

2010. Mr. Virgilio P. Matel, who was identified as the signatory of the issued Official Receipt No. 1320987 K also received the check issued by SM. The check was deposited with PNB on the same date under MWSS Account No. PSA 1165219406000506.

4.1.7 Excerpts from the Minutes of the 4th Special Meeting of the Board held on

August 12, 2010 (Annex 7) under Resolution No. 2010-113 stated that: “Considering that the Lease Agreement covering the 1.4 hectare MWSS property xxxx entered into by the former Administrator with SM Prime Holdings, Inc. is not in compliance with the policies and guidelines set by the xxx (OGCC) in its letter of 19 October 2009 and adopted by the Boards of Trustees under Board Resolution No. 2010-029 (E) dated 19 February 2010, the Board, RESOLVED, xxx, to DISAVOW any participation therein, and DIRECT Management to return the P33,248,892.86 payment made by SM Prime Holdings, Inc. thereto.”

Another Excerpt from the same special meeting and on the same date stated that:

“RESOLVED, that the purported Lease Agreement covering the 1.4 xxx not being in compliance with the policies and guidelines set by the Office of the Government Counsel (OGCC) in its letter dated 19 October 2009 and adopted by the Board of Trustees under Board Resolution No. 2010-029(E) dated 19 February 2010, be, as it is hereby declared null and void.” (emphasis ours)

Both resolutions were certified by Ms. Ma. Lourdes R. Naz, Board Secretary VI.

4.2 Our audit revealed the following:

4.2.1 In spite of Board Resolution No. 2010-113 dated August 12, 2010 where the then Board of Trustees disavowed any participation in the Lease Agreement and directed Management to return the payments received from SM, the amount was not returned and still remained with the MWSS bank account;

4.2.2 The copy of the Board Resolution No. 2010-029(E) dated 19 February 2010 submitted to COA was marked “CANCELLED”. However, there was no information if the cancellation was properly authorized or another Board Resolution was issued for the cancellation of the previous Board Resolution;

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4.2.3 O.R. No. 1320987 dated July 13, 2010, acknowledging receipt of payment from SM, was issued by the Acting Finance Manager, as admitted by the Collecting Offices upon verbal query by the auditor. This was contrary to the general rule stated in GAAM Vol. I that collection of revenues and receipts shall be done by a regularly appointed Collecting Officer/Treasurer

. 4.3 MWSS then replied that:

4.3.1 Check Nos. 0058095 and 0000033962, dated July 13, 2010 and August

17, 2010, respectively, in the total amount of P33,248,892.86, were prepared in an attempt to return the amount paid by SM Prime but were declined by SM Prime.

4.3.2 MWSS agreed with our observation that receipt of the then SM payment by then Acting Finance Manager was contrary to sound internal control, and thus written instruction will be sent to the former Acting Finance Manager to submit a reply directly to the Auditor.

4.3.3 On the issue regarding Board Resolution no. 2010-029 (E) dated

February 19, 2010, a copy of the Certification from the Board Secretary was submitted.

4.3.4 The original accounting entries taking up the payment of SM Prime were

adjusted to reflect the amount received from SM Prime as a credit to Other Payables – Trust Liabilities in the amount of P33,248,892.86.

4.4 As a rejoinder to the above, we requested for the other courses of action taken by

Management after the attempts to return the rental payments including interests were declined by SM Prime Holdings Inc; and for a copy of the informal written instruction sent to the former Acting Finance Manager to explain his issuance of the O.R. instead of the designated collecting officer.

4.5 In response, Management informed, through a letter dated February 5, 2014, that

they had filed a complaint at the Office of the Ombudsman against concerned MWSS officials on September 3, 2013. They had furnished the MWSS-OIC-SA of the copies of the complaint and their letter dated February 3, 2014 addressed to, the former Acting Finance Manager directing/advising him to comment on the AOM regarding the issuance of the OR.

4.6 On April 2, 2014, the former Acting Finance Manager furnished this Office with a

copy of his Counter Affidavit with Motion to Dismiss submitted to the Office of the Ombudsman.

4.7 The filing of the case against the concerned officials of MWSS in the Office of the

Ombudsman is an action of Management to determine any possible liability and accountability of the persons responsible for the Lease Agreement.

4.8 It is our view that another major concern on this issue is on the Lease Agreement

declared as null and void by the Board of Trustees with instruction to return the

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payment made by SM Prime Holdings Inc. in the amount of P33,248,892.86 which SM Prime Holdings Inc. declined. Considering the above, there is therefore the risk that MWSS may face possible legal action from SM Prime Holdings Inc. if the issue remains unsettled/unresolved.

4.9 We recommended that Management immediately take the best possible legal

action to resolve the issue on the Lease Agreement with SM Prime Holdings Inc.

4.10 During the exit conference, Management informed that the issue was already

discussed with the Office of the Government Corporate Counsel and are looking into the possible legal remedies of returning the money that MWSS received from SM Prime Holdings Inc. and say that the contract is void. If the same is not accepted, the money will be consigned in court.

5. Accounts Receivable from the Concessionaire – MWSI totalling US$55 million or

P2.200 billion based on current dollar rate, representing the disputed claim between MWSS and MWSI arising from MWSI’s refusal to pay for the additional COB incurred by the MWSS, remained uncollected.

Had the amount been collected, the loan could have been avoided and payments totalling P1.164 billion as of December 31, 2013 could have been used for the improvements of the Retained Assets of MWSS. 5.1 We gathered the following information from the MWSS Former Finance Manager

and confirmed by the present Acting Finance Manager :

5.1.1 Beginning on March 8, 2001, the Maynilad Water Services, Inc. (MWSI) suspended payments of concession fees to MWSS on the grounds of force majeure.

5.1.2 On December 2002, Maynilad issued a Notice of Termination of the

Concession resulting to disputes with MWSS.

5.1.3 When MAYNILAD exited from the DCRA in January 2008, the Dispute Committee created after the exit was able to establish that there is an additional Cost of Borrowings payable to MWSS in the amount of $14.79M.

5.1.4 Maynilad offered to pay the recognized Balance of Tranche B (Cost of

Borrowings) as of Jan 16, 2008 amounting to $14.79M as a result of the reconciliation made by the Committee on Disputed Claim created after the Maynilad exited from the Debt & Capital Restructuring Agreement (DCRA) in January 2008.

5.1.5 MWSS rejected the $14.79M offer because of the Quit claim that

Maynilad wanted in exchange.

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5.1.6 From January 2008, MWSS had to shoulder the Cost of Borrowings of the BNP Paribas up to its maturity in March 2011. The advances for said Cost of borrowing reached $44.75M plus the established additional of $14.79M now amounting $55.55M.

5.1.7 The non recovery of the $55.55M from Maynilad resulted jn the shortage in the total amount needed to fully pay the maturity of BNP Paribas in 2011. This led to MWSS availing of a new loan, the P2.25B DBP-LBP Club Deal Arrangement (Floating Bonds).

5.1.8 MWSS asked the opinion of the OGCC relative to the current dispute

between MWSS and Maynilad Water Services regarding the Subscription Agreement entered into by MWSS with BNP Paribas Securities Services (BNP Paribas) guaranteed by the Republic of the Philippines and the OGCC issued Opinion No. 215 series of 2011 dated October 5, 2011. Paragraph 16 of the OGCC Opinion No. 215 stated that clearly, the dispute between MWSS and Maynilad arose when Maynilad refused to pay for the additional COB incurred by MWSS, amounting to US$55,550,457.21 composed of the following:

a. Reconciled balance of Tranch B Concession Fee as of January

16, 2008 amounting to US$14,791,131; and

b. Balance of the COB of the US$150M BNP Paribas loan amounting to US$40,759,325.49

The OGCC opinion concluded that all costs incurred by MWSS for securing various loans and funding arrangement to pay for obligations which should have been covered by the unpaid concession fees should be charged to Maynilad since these are paid out of government funds which must be safeguarded with utmost fidelity by MWSS.

5.1.9 MWSS payments for the principal and interest amortization of the loan

totaled P1,163,858,844.57 as of December 31, 2013. Breakdown is as follows:

Year Principal Interest Total

2011 241,071,428.58 71,819,196.43 312,890,625.01

2012 396,085,130.82 74,656,559.38 470,741,690.20

2013 321,428,571.44 58,797,957.92 380,226,529.36

Total 958,585,130.84 205,273,713.73 1,163,858,844.57

5.2 It is our view that the payments in the total amount of P1,163,858,844.57 are to the

disadvantage of MWSS as the funds could have been used to finance the improvements of the retained assets of MWSS.

5.3 Considering the above, we recommended that Management take immediate legal action to settle the dispute and demand for the payment of the disputed claim equivalent to $55M or P2.2B from MWSI.

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5.4 Management informed that the issue was already discussed with the OGCC on the possible filing of arbitration case against MWSI.

6. Funds withheld for GSIS, PAGIBIG, Philhealth and BIR under account Inter-agency

Payables in the aggregate amount of P30.303 million as of December 31, 2013 were not remitted on time which in effect, may cause forfeiture of claims/benefits due the members/employees of MWSS and may deprive the concerned agencies of the timely use of the funds due them. 6.1 Inter-agency payables are contributions due to/collections received/amounts

withheld for remittance to the different government agencies. In the case of MWSS, these are payables to BIR, GSIS, Pagibig and Philhealth.

6.2 Our audit was guided by the following provisions of laws:

a. Section 6 of Republic Act No. 8291 (GSIS Act) states that each employer shall remit directly to the GSIS the employees' and employers' contributions within the first ten (10) days of the calendar month following the month to which the contributions apply. Under Section 7, interests on delayed remittances shall be charged on Agencies which delay the remittance of any and all monies due the GSIS as may be prescribed by the Board but not less than two percent (2%) simple interest per month. Such interest shall be paid by the employers concerned.

b. Section 20 Paragraph b of Title III Rule III of the Revised Implementing

Rules and Regulations of the National Health Insurance Act of 1995 (Republic Act 7875 as amended by Republic Act 9241) states that the monthly premium contribution of employed members shall be remitted by the employer on or before the tenth (10th) calendar day of the month following the applicable month for which the payment is due.

c. Under RA 7742, an Act amending PD 1752, known as the Pag-ibig Fund

Law, the schedule of remittances for Company-members is provided as follows:

1

st Letter of Company

Name Remittance Schedule

A to D 10th to 14

th day of the month

E to L 15th to the 19

th day of the month

M to Q 20th to the 24

th day of the month

R to Z 25th to the end of the month

6.3 Analysis of the Inter-agency Payables account showed that withholding taxes and contributions from employees/members were not remitted as required in the abovementioned regulations, as shown as follows:

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Account Amount

Due to BIR (412) 29,639,558.45

Due to GSIS (413) 562,086.88

Due to Pag-ibig (414) 89,701.80

Due to Philhealth (415) 12,103.55

Due to NHMFC (417) 2, 727.43

T O T A L 30,303,450.68

6.3.1 Due to BIR

6.3.1.1 BIR Revenue Regulation No. 2-98, as amended, requires the

remittance of withheld taxes as follows:

Type of taxes withheld Due date of remittance

Value Added Taxes and other Percentage Taxes

On or before the fifteen (15th) day of the

month following the month the withholding was made, except for taxes withheld for December which shall be paid on or before January 20 of the succeeding year.

Type of taxes withheld Due date of remittance

Expanded Withholding Taxes and Taxes on

Compensation

On or before the tenth (10th) day of the

month following the month the withholding was made

6.3.1.2 The unremitted Due to BIR of P29,639,558.45 at yearend

consists of the following:

Schedule of Due to BIR As of December 31, 2013

Account Amount

Due to BIR 4,216.99

Income Tax Withheld from Salaries and Other Compensation-Regular

(402,277,94)

Income Tax Withheld from Salaries and Other Compensation-Contractual

45,923.12

VAT withheld 18,810,115.25

Professional Tax 113,789.61

Franchise Tax 58,592.18

Expanded Withholding Tax 8,176,836.23

Output VAT 2,229,631.44

GMP Non VAT 602,678.58

TOTAL 29,639,558.45

6.3.1.3 The unremitted VAT withheld and Expanded Withholding Tax

consists of December 2013 transactions that include the following:

Nature Amount

VAT withheld of for the payment of Progress Billing No. 10 (final billing) to China International Water and Electric Corporation for the construction of Angat Water Utilization and Aqueduct Improvement Project Phase 2

20,829,228.80

VAT withheld of for the payment of Progress Billing No. 9 for the Design and Build Joint Sewage and Septage Treatment Plant

458,397.34

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6.3.1.4 Management informed that the unremitted due to the BIR was due to the provision under Article 8 of the Loan Agreement between MWSS (borrower) with The Export-Import Bank of China (lender), that all payments made by the Borrower shall be paid in full to the Lender without set-off or counterclaim or retention and free and clear of and without any deduction or withholding for or on account of any taxes imposed in the Republic of the Philippines or any charges. In the event the Borrower is required by law to make such deduction or withholding from any payment hereunder, then the Borrower shall forthwith pay to the Lender such additional amount as will result in the immediate receipt by the Lender of the full amount which would have been received hereunder had no such deduction or withholding been made. The Borrower shall promptly forward to the Lender copies of official receipts or other evidence of payment to the relevant taxation or other authorities of any tax so deducted or withheld.

6.3.1.5 During the exit conference, the Acting Finance Manager

informed that Management already billed the contractor, China International Water and Electric Company (CIWEC), for the taxes due in January 2014, but since then they have not responded to the letter. In this regard, Management is contemplating on seeking the assistance of the BIR and the DPWH to be able to collect this tax out of the CIWEC receivable from other agencies.

6.3.2 Due to GSIS

6.3.2.1 Breakdown of the unremitted yearend balance of P562,086.88,

is shown below:

Schedule of Due to GSIS As of December 31, 2013 Particulars Amount

Unremitted various GSIS accounts at the end of CY 2013 5,930,141.34

Accounts with abnormal (debit) balance (5,368,054.46)

Total 562,086.88

6.3.2.2 The unremitted accounts at the end of CY 2013 are the

following:

Account Title Amount

Social Insurance Premium - PS – Regular 406,212.25

Social Insurance Premium - PS - Contractual 2,446.14

Policy Loan – Regular 35,230.94

Policy Loan Optional Contractual 1,475.24

Emergency Calamity Loan – Contractual 500.00

Salary/ Enhanced Salary Loan – Regular 5,455,191.05

Educational Loan – Regular 4,760.00

Emergency Calamity Loan – Regular 2,000.00

Summer One Month Salary – Contractual 188.89

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Cash Advance (e-card) – Regular 3,851.80

Emergency Loan Assistance – Regular 18,185.03

State Insurance Fund – Regular 100.00

Total 5,930,141.34

6.3.2.3 On the other hand, the accounts with abnormal balances are

shown below:

Account Title Balance

Social Insurance Premium - GS- Regular (4,767.66)

Social Insurance Premium - GS- Contractual (1,134.09)

Policy Loan – Contractual (6,900.00)

Policy Loan Optional Regular (95.30)

Optional Insurance Prem. – Regular (3,834.45)

Optional Insurance Prem. – Contractual (1,047.78)

College Education Assurance Plan - Regular (136.50)

College Education Assurance Plan - Contractual (135.70)

Salary/Enhanced Salary Loan - Contractual (30,173.18)

Cash Advance (e-card) - Contractual (3,772.03)

Summer on month Salary Regular (2,977.16)

Emergency Loan Assistance - Contractual (1,000.00)

State Insurance Fund -Contractual (200.00)

Restructured Loan - Regular (5,307,466.93)

Restructured Loan- Contractual (4,413.68)

Total (5,368,054.46)

6.3.3 Due to PAG-IBIG

6.3.3.1 The yearend balance of P89,701.80 pertains to prior years’

transactions which remains unremitted.

6.3.4 Due to Philhealth

6.3.4.1 The balance of P12,103.55 pertains to prior years’ contributions not remitted to Philhealth.

6.4 We recommended the following:

a. Require the responsible officials/employees to remit immediately the withheld funds to GSIS, Pagibig, Philhealth and NHMFC funds;

b. In the case of the Due to BIR account, analyze the accounting entry made and prepare necessary adjustment to ensure that the Due to BIR account properly pertains to the amount of tax withheld from the contractors/suppliers that are to be remitted to BIR; and

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c. Require the Finance Department to reconcile the accounts with abnormal balances and make the necessary adjusting entries to correct the account balance in the balance sheet.

6.5 The Acting Finance Manager explained that in the process review, it was found

that posting of the payments were not reflected in the proper account and all payables were remitted to the concerned office. Adjustments will be taken up in CY 2014.

7. Prior years’ transactions amounting to P28.176 million were recorded only in the current year, resulting in numerous Prior Years’ adjustments. 7.1 One of the underlying assumptions in the preparation of the financial statements is

the accrual basis of accounting. Under this basis, the effects of transactions and other events are recognized when they occur and they are recorded in the accounting records and reported in the financial statements when they occur.

7.2 Timeliness is a quality subset of relevance. If accounting information is not presented in a timely manner, its usefulness to stakeholders is diminished or completely eliminated. The quality of timeliness requires the recording of the financial transaction in the appropriate accounting period.

7.3 Audit of the charges/credits to the Prior Years’ Adjustment account disclosed various transactions which are considered material omissions in the previous year’s transactions. These include the following:

Schedule of Prior Period Adjustments As of December 31, 2013

Particulars Debits Credits

Transactions not recorded in the year incurred/earned

Costs of completed feasibility studies/consultancy services reclassified to prior years’ adjustment due to the non implementation of the civil works component of the project

5,558,347.07

Adjustment from Income account 15,837,752.05

Payment of CNA Incentive for CY 2012 3,108,223.81

COLA/AA/RA 1616 payments for previous years 3,086,966.36

Adjustments in prior period expenses 1,418,294.47

Prior period per diems of members of Board of Trustees and allowance of DA for Engineering

415,500.00

Correction of prior period depreciation 273,543.59

Payment of consultancy services to Marian Pastor 200,000.00

Prior year’s salary differentials 47,949.54

Adjustment of accounts 12,664,392.64

Collection of prior period rentals/disallowance 655,567.59

Total 29,946,576.89 1,770,703.02

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7.4 Review of the charges to the account showed the following: 7.4.1 The costs of completed feasibility studies/consultancy services

reclassified as Prior Years’ Adjustment due to the non-implementation of the civil works component of the project pertained to the following:

Year incurred Project Description Amount

2001 Hydrographic survey at Angat Dam Reservoir 345,000.00

2000 Consultancy for 300 MLD Bulk Water Supply Project 1,520,000.00

2001 Consultancy-1200 MLD Bulk Water Supply Project 1,335,750.00

2001 Consultancy-Agos River Multipurpose development 2,357,597.07

Total 5,558,347.07

The total costs of P5,558,347.07 was originally recorded as CIP account. In the course of the reconciliation of the account by the Controllership Division during the year, the amount was reclassified to Prior Year Charges account.

We commend the efforts to reconcile the account; however, the consultancy costs should have been recorded as an outright expense on the year it was incurred and not as an asset account (CIP) as provided in paragraphs 52 – 56 of PAS 38.

Paragraph 54 of PAS 38 specifically state that no intangible asset arising from research or from research phase of an internal project shall be recognized. Expenditure on research or from research phase of an internal project shall be recognized as an expense when it is incurred.

7.4.2 The payment of 2012 CNA Incentive should have been recorded under the account code Personal Services – Other Bonuses pursuant to Section 4.4.4 of DBM Budget Circular No. 2012- 4 dated December 17, 2012.

The aforementioned DBM Circular prescribed the guidelines on the grant of Collective Negotiation Agreement Incentive for FY 2012. Under Section 4.4.4, the amount paid as CNA Incentive shall be recorded in the agency books under the account code “Personal Services – Other Bonuses”. In addition, the report on Management compliance to the procedural guidelines for the grant of CNA for CY 2012 enumerated under Section 7 of DBM Circular No. 2012-4 should be submitted to this Office for our reference in the audit of the CNA payments.

7.4.3 The payment of COLA/AA/RA1616 benefits in the amount of

P3,086,966.36 should have been debited to the Other Payable accounts intended for the payment of the said benefits. The trial balance as of December 31, 2013 showed that the Other Payable Accounts includes obligations made in prior years for the payment of the COLA/AA/RA 1616 benefits with a balance of P95,678,778.93 consisting of the following:

Account Code Amount

RA 1616 439-23-04 39,126,380.16

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Account Code Amount

Cost of living allowance 439-23-02 29,823,714.16

Trust fund COLA 439-21 26,209,179.57

Trust fund AA 439-09 361,608.82

Amelioration allowance 439-23-01 157,896.22

Total 95,678,778.93

7.4.4 The payments for the consultancy services of Ms. Marian P. Roces in the

total amount of P200,000 were not valid for the following reasons: 7.4.4.1 The contract was executed only on November 6, 2013 when the

period of engagement was from February 2012 to May 2012. The contract should have been executed before the rendition of services and not one year and five months after the services were rendered.

7.4.4.2 In one of the “Whereas” clauses of the Contract for Consultancy

Services it was stated that; “while working on the implementation of the foregoing approvals, MWSS discovered that the execution of the contract to renew/extend the services of the Consultant was inadvertently overlooked”.

The aforementioned statement cannot be given due consideration since the approvals being referred to from the DBM and GCG offices were already acted upon on November 5, 2012 and October 29, 2012 respectively, by the said offices as discussed in paragraphs 7.4.4.3 and 7.4.4.4 below.

Therefore, the preparation of the contract cannot be taken as intended to have a retroactive effect for reason that the renewal/extension of the contract was “inadvertently overlooked”. The contract was prepared one year after the approval by DBM. Furthermore, there was a letter from Ms Roces dated January 5, 2013 addressed to the MWSS Administrator stating her summary of accomplishments. This document could have prompted the preparation of the contract. Given the above information, it is quite difficult to simply accept the justification that the contract preparation was overlooked by the persons responsible for the hiring of the said consultant.

7.4.4.3 The Governance Commission on GOCCs has not decided yet

on Ms. Roces’ engagement on October 29, 2012 contrary to what was stated in the Contract for Consultancy Services. In the letter dated October 29, 2012 to the Chairman of the Board and the Administrator of MWSS, the GCG specifically stated that the hiring of Ms. Roces as Principal Consultant for the period January to May 2012 remained under process and was the subject of careful review and evaluation by the Commission.

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7.4.4.4 Although the DBM approved the request of MWSS for exemption from the moratorium imposed on the hiring of consultants per Circular Letter No. 2011-14 dated December 22, 2011, the hiring of Ms Roces should have been in accordance with the provisions of the IRR of RA 9184. RA 9184 states that all procurement of the Government, whether infrastructure projects, goods and consulting services shall be competitive and transparent. It also provided that all procurement shall be done through competitive bidding, however, when it is impractical to implement competitive bidding, the law provides alternative modes of procurement under certain conditions.

There were no documents attached to prove that the hiring was a result of the bidding process prescribed in RA 9184 and its IRR. The documents attached to the voucher were copies of contract, approval from DBM, GCG letter dated October 29, 2012 and the letter of Ms. Roces stating her accomplishments for the period.

7.5 These charges to Prior Period Adjustments during the year reduced the Retained

Earnings of MWSS by P28,946,576.89.

7.6 Transactions should therefore be immediately recorded as incurred to ensure the correctness of account balances and relevance of financial information.


a. Require the Controllership Division for future transactions to:

i. Coordinate with the Engineering Department to determine

whether there are other completed feasibility studies/consultancy services with the civil works component of the project not implemented; verify the account where the payments were previously debited and prepare necessary adjusting entries if necessary;

ii. Henceforth, record all payments for consultancy works on

research or from research phase of an internal project as expenditures on the year incurred in accordance with PAS 38;

iii. Strictly comply with the guidelines issued by the DBM on the

payment of CNA incentive specifically on the charging of expenses;

iv. Strictly record transactions as they occur to ensure that

account balances are correctly stated;

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b. Clarify/explain the issues raised on the payment of consultancy services to Ms. Marian P. Roces.

7.8 On the above issue on the payment of consultancy services, Management

explained during the exit conference that it is very clear that what Management did was curative. Request from DBM and GCG was post facto which was ultimately approved by the DBM.

7.9 Management also informed that the consultants whose contracts expired on

August 2013 were no longer renewed and gave assurance that in future engagements they will follow the bidding process except for highly confidential positions.

8. Fifteen pieces of paintings and four brass sculptures acquired during the old NAWASA with acquisition cost of P69,400 were missing and the accountability of the persons responsible have not been settled. Moreover, all paintings with recorded value of P0. 542 million were not appraised by the National Museum as required under COA Memo 88-569 and Financial Reporting Standard (FRS) 30, resulting in the undervaluation of the value of the assets recorded in the books. Also, the oil painting by H.R. Ocampo “Abstract in Red and Black” and the water color painting “Rooster” by Kiukok, both declared National Artists of the Philippines, were not registered in the Philippine Registry of Cultural Property of the National Museum contrary to the IRR of RA 10066. 8.1 Our audit of the account is guided by the following rules and regulations:

8.1.1 Section 3 of PD 374 dated January 10, 1974 known as the “Cultural

Properties Preservation and Protection Act”, which defines works of art as paintings, sculptures, carvings, jewelery, xxx; works of industrial and commercial art such as furniture, pottery, ceramics, wrought iron, gold, bronze, silver, wood, xxx in part or in whole;

8.1.2 Section 2 (Scope and Limitations ) of COA Memorandum 88-569 dated August 12, 1988 which states that antique property and works of arts shall be appraised by the National Museum; and

8.1.3 Sections 7.2 and 8.2 Rule IV of the Implementing Rules and Regulations (IRR) of RA 10066, an act providing for the protection and conservation of the National Cultural Heritage, strengthening the National Commission for Culture and Arts (NCCA) and its affiliate cultural agencies, and for other purposes, which requires that:

a. Undeclared property not falling under the presumption of Important Cultural Property, but contains characteristics that will qualify them as such shall be registered in the Philippine Registry of Cultural Property (Section 7.2).

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b. Works by deceased National Artists shall be considered Important Cultural Property, unless declared or its presumption removed by the Commission (Section 8.2).

8.1.4 Financial Reporting Standard (FRS) 30 on Disclosures (par 5-17),

Recognition and Measurement (par 18-22) which requires valuation of heritage assets by any method that is appropriate and relevant.

8.2 The account “Furniture and Fixtures” as of December 31, 2013 with the following

Subsidiary ledger accounts showed the following book balances:

Schedule of Furniture & Fixtures As of December 31, 2013

SL Account Code Amount

Brass 222-01-01 27,800

Presidential Bust 222-01-02 16,500

Paintings 222-01-03 475,000

Paintings 222-01-19 23,000

Total 542,300

8.3 The Reconciliation Report of MWSS Art Works revealed that there were 15 pieces

of paintings and four pieces of brass sculptures missing under the accountability of a former MWSS employee. Hereunder are the details of the missing paintings:

List of missing paintings

DESCRIPTION PAINTER DATE YR.

Acquired Acquisition

cost

Mother & Child on Wood 1 Diego 1980 6/1/1981 3,000.00

Mother & Child on Wood 2 Diego 1980 6/1/1981 3,000.00

White Sack Tiongco 1980 6/1/1981 4,000.00

Disco Daroy 1980 6/1/1981 2,700.00

Tiboli Woman George Bennet 1981 6/1/1981 1,800.00

Floral in Blue Not indicated 1981 6/1/1981 11,000.00

Weaver Diego 1981 6/1/1981 3,000.00

Sunset Alcoseba 1981 6/1/1981 2,000.00

Laro Madrilejos 1981 6/1/1981 2,200.00

Bintana 1 Memeje 1981 6/1/1981 900.00

Bintana 2 Memeje 1981 6/1/1981 900.00

Shanty 1 Malang 1981 6/1/1981 1,600.00

Shanty 2 Malang 1981 6/1/1981 1,600.00

Mag aani Dizon 1981 6/1/1981 7,500.00

Cock Fighting Hugo C. Yonzon 1981 3/13/1981 3,000.00

Man Sitting Rose Arcilla 1981 3/19/1981 7,000.00

Sculpt Lover Rose Arcilla 1981 3/19/1981 2,500.00

Dancer Fernadez Gilho 1981 3/13/1981 4,000.00

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8.4 Perusal of the documents showed that the missing paintings and brass sculptures were under the accountability of a former MWSS employee who retired in CY 1999. He has not been granted clearance from money and property accountability and that his gratuity pay of P143,965.28 remained unpaid.

8.5 Furthermore, our audit revealed that there were no appraisal and authentication conducted by the National Museum on the above mentioned works of art as certified by the Manager, Property Management Department in a letter dated January 14, 2014. The book value recorded in the books remained at its acquisition cost of P542,300 which dates back to the old NAWASA era (prior to 1997). Considering the time that had elapsed, the value of the property recorded in the books may no longer be the relevant amount at the present time.

8.6 We recommended that Management:

a. Hold liable the officials/employees responsible for the missing 15

pieces of paintings and four brass sculptures applying the measure of liability expressed in Section 105(1) of PD 1445 which reads as follows:

“Every officer accountable for government property shall be liable for its money value in case of improper or unauthorized use or misapplication thereof, by himself or by any person for whose acts he may be responsible. He shall likewise be liable for all losses, damages, or deterioration occasioned by negligence in the keeping or use of the property, whether or not it be at the time in his actual custody.”

b. Make proper representation with the National Museum on the

conduct of appraisal and authentication of all its paintings and works of arts and the registration with the Philippine Registry of Cultural Property in compliance with the IRR of RA 10066.

8.7 It is our view that the accountability of the person/s liable for the missing paintings and brass sculptures should be based on the appraised value of the painting and the brass sculptures; the rationale being that the government shall not suffer for replacing properties lost thru negligent act of persons accountable/responsible for the property.

8.8 Management informed that on February 27, 2014, requests for appraisal and authentication of its paintings and art works and registration of the works of the National Artists were made and awaiting their positive response on the said request.

Mother And Child Boni Arcilla 1981 3/19/1981 1,500.00

TOTAL 63,200.00

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9. The reimbursement of food and gasoline/toll expenses in the amount of P0.712 million by some members of the Board of Trustees lacked sufficient documentation to establish validity of the claims especially those expenses incurred during non-working days amounting to P171,144.

9.1 Our audit of the Representation Expenses of the Board of Trustees is guided by

the following rules and regulations 9.1.1 Section 2.4 of GCG-MC No. 2012-2 dated May 2, 2012 which provides

that:

“Reimbursable Expenses Should Not Be Used as a Form of Compensation – Section 12 of E.O. 24 ensures that GOCC Directors do not abuse the structure of reimbursements of expenses as a means to gain indirect compensation by: a. Making it a matter of policy that expenses of members of the

Governing Board to attend Board and other meetings and discharge their official duties shall be disbursed directly by the GOCC;

b. The only time that Directors obtain a reimbursement of

expenses can be:

(1) “when due only to the exigency of the service and subject to the submission of receipts”; and

(2) Limited only to transportation expenses for attending meetings; travel expenses for official travels; communications expenses; and for meals during business meetings.”

9.1.2 COA Circular No. 96-004 dated April 19, 1996 which provides that no

reimbursement of the cost of gasoline and oil shall be allowed when a private vehicle is used.

9.1.3 COA Circular 2012-001 dated June 14, 2012 enumerated the documentary requirements for common government transactions and one of the general requirements for all types of disbursements is “Sufficient and relevant documents to establish validity of claims”.

9.2 Representation Expense incurred for the year 2013 amounted to P817,165.00

(paid and accruals) broken down as follows:

Particulars Amount

Food Expenses during Board Meetings 105,410.36

Reimbursable Expenses

Meal Expenses 379,724.19

Fuel expenses/ Parking/toll fees 225,987.95

Communication 60,855.59

Sub total 666,567.73

Accrued expenses 45,186.91

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Total reimbursable expenses 711,754.64

Total representation expenses 817,165.00

9.3 Our audit revealed the following:

a. Of the total representation expenses of P817,165, claims for

reimbursement of expenses by some members of the Board of Trustees in the amount of P666,567.73 were only evidenced with official receipts covering mostly expenses for food, communication, gasoline, parking and toll fees. The accrual of expenses in the amount of P45,186.91 under JEV 2013-12-007445 was supported with only a memorandum from the Board Secretary submitting to the Finance Department the list of reimbursable expenses and the summary of accrued expenses for the year.

There was no documentation showing that these reimbursable expenses were incurred in the performance of official functions required in COA Circular 2012-001 which generally requires “sufficient and relevant documents to establish validity of claim”. Of the amount of P711,754.64,

expenses amounting to P171,144 were incurred on non-working days (Saturdays and Sundays). We also noted that a claim for reimbursement was paid through a credit card of another person and not of the MWSS official.

b. In the case of gasoline and toll fees claimed in the amount of

P225,987.95, only the gasoline receipts were submitted without any information on whether the vehicle was a private or government vehicle. If the vehicle is privately owned, Section 3.1.1.8 of COA Circular 96-004 dated April 19, 1996 provides that under no circumstances should fuel be issued to privately owned motor vehicles. Moreover, there was no justification that a board meeting was attended by the Board Member on the date of the receipt subject of reimbursement.

c. In addition to the reimbursements mentioned above, food expenses

during Board and Committee Meetings at the MWSS were incurred in the amount of P105,410.36.

9.4 Further review of the documents revealed that in some cases, the number of meals

served during Board Meetings costing P 53,371.50 exceeded the actual number of attendees based on the attendance sheets submitted by the Board Secretariat Office.

JEV No. Date of Meeting No. of

food orders

Paid Amount No. of actual attendees

02-000533 01/09/2013 10 2,310.00 7

01/10/2013 15 5,775.00 8

01/24/2013 15 6,600.00 8

02-000988 01/23/2013 10 770.00 7

01/18/2013 10 1,705.00 8

04-001300 03/01/2013 9 550.00 4

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JEV No. Date of Meeting No. of

food orders

Paid Amount No. of actual attendees

07-002731 03/07/2013 10 4,600.00 8

03/14/2013 15 6,900.00 7

07-002841 05/06/2013 10 1,045.00 2

05/07/2013 12 698.50 3

05/09/2013 12 3,762.00 9

05/14/2013 8 1,628.00 3

05/30/2013 10 2,420.00 7

09-003667 07/03/2013 10 990.00 7

07/04/2013 10 2,497.00 6

07/11/2013 15 4,114.00 12

07/15/2013 10 627.00 No attendance Sheet submitted for the said

date.

07/23/2013 10 1,595.00 6

07/25/2013 12 4,785.00 10

Total 53,371.50

9.5 It was also noted in the review of the attendance sheets that some attendees have

no signatures and only a check () or “present” is indicated beside the names. There were no other documents that would show proof of attendance such as minutes of board meetings where the member attended or other relevant documents.

9.6 The above observations cast doubt on the validity of the expenses

reimbursed/incurred contrary to Section 12 of EO 242 and GCG Memorandum Circular No. 2012-2.

9.7 In COA Decision 2013-130 dated September 18, 2013, it was emphasized that

“While Official Receipts have been duly submitted; this Commission does not find the same sufficient to support the validity of the expenditures. The requirement of full documentation is to establish the propriety of the expenses in relation to the purpose for which the allowance is granted.”


a. Require the concerned members of the Board of Trustees to justify

the reimbursements showing that the same were incurred in pursuance with Section 12 of EO 24 and/or GCG Memorandum Circular No. 2012-2 dated May 2, 2012;

b. Ensure that henceforth, expenses of members of the Board of

Trustees shall be supported with justification that the reimbursements were for the purpose of business meeting as provided in the above-mentioned regulations;

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c. Strictly comply with COA Circular 96-004 which provides that under no circumstances should fuel be issued to privately owned motor vehicles;

d. Require the Board Secretariat to ensure that food expenses to be

incurred during Board Meetings are limited to those who are required/invited to attend and that attendance sheets are duly signed by the attendees or supported with relevant documents that would show proof of attendance in the meetings.

10. Discrepancies between the records of the Board Secretariat and the Finance

Department in the number of board meetings attended were noted, hence the accuracy of the amount of per diems paid to the BOT under account, Personnel Expenses - Honorarium, totalling P2.877 million was not established. 10.1 GCG Authorization Letter dated July 19, 2013 authorized MWSS to grant the FY

2012 PBI to the Appointive Members of its BOT in accordance with the entitlement scheme provided under Section 2 of GCG Memorandum Circular No. 2012-14. Based on the certification from the Corporate Secretary of total actual annual authorized per diems received, four members of the BOT were granted PBI equivalent to 90% of their total actual annual authorized per diems.

10.2 Review showed discrepancies on the number of board meetings attended and the

amount of per diems received by the BOT between the records of the Board Secretariat and the Finance Department, summarized as follows:

Name Board Designation

Total Number of Meetings Attended

Difference

Per Diems Received For CY 2012

Difference Per

Finance Record

Per Board Secretariat Report to GCG

Per Finance Record

Per Board Secretariat Report to GCG

Ramon B. Alikpala

Board Chairman

32 31 1 432,000 432,000 0

Gerardo A.I. Esquivel

Board Member(Ex Officio)

27 35 (8) 369,000 384,000 15,000

(refunded)

Emmanuel L. Caparas

Board Member

47 54 (7) 561,000 561,000 0

Benjamin J. Yambao

Board Member

47 53 (6) 561,000 561,000 0

Hermogenes Fernando

Board Member

29 27 2 357,000 Not

included NA

Ma. Cecilia Soriano

Board Member

43 50 (7) 471,000 Not

included NA

Jose Ramon Villarin, S.J.

Board Member

10 6 4 126,000 Not

included NA

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10.3 Although the above differences did not result in any overpayment to the other Board Members, the noted discrepancies cast doubt on the correctness of the number of meetings attended and the amount of per diems paid.

10.4 The attendance report is a vital document in the computation of actual per diems

and the allowable Performance Based Incentive of the Board of Trustee by the GCG and should therefore be prepared with utmost care to ensure that an accurate report will be submitted.

10.5 We recommended and Management agreed to require the concerned Office

to exercise diligence in the reporting of data and that the same be validated with the Finance Department to get an accurate information.

11. Inconsistencies/differences in the signatures of the workers appearing in the Daily Attendance Sheet, the Payroll Sheet and in the Consolidated Report of Attendance were observed in the payment of salaries of the 162 workers for the Ipo Watershed reforestation program. 11.1 The disengagement of the Bantay Kalikasan from the Ipo Watershed management

activities had forced upon MWSS the obligation to manage and secure the 560 hectare plantation. Relative to the reforestation program, MWSS hired 162 workers, who are members of People’s Organization who previously reforested the area, on job order status. The payroll and the supporting documents were prepared and prepared/certified correct by the officers of the Organization and approved/noted by the concerned MWSS officers

11.2 Our audit of the payrolls for the period January to May 2013 disclosed the following deficiencies:

a. The signatures of nine workers in the Daily Attendance Sheet was in long handwriting while the one that appears in the Payroll sheet and Consolidated Report of Attendance was the printed name which anyone can write.

b. Some workers were allowed to affix their thumb marks on the Daily Attendance Sheets having no formal education. However, they were able to sign the payroll sheets and other documents as follows;

Marcelino Cruz affixed his thumb mark in the Daily Attendance Sheet

and Payroll Sheet but signed “MC” in the Consolidated Report of Attendance (from January to May 2013)

Romano Cruz signed RC in the Daily Attendance Sheet but affixed his

thumb mark in the Payroll sheet and Consolidated Report of Attendance (from January to May 2013)

Romeo Maalat signed Romeo in the Daily Attendance Sheet but affixed

his thumb mark in the Payroll sheet and Consolidated Report of Attendance for January 2013

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Jimmy Cruz signed his given name “Jimmy” in the Payroll sheet and Consolidated Report of Attendance but affixed his thumb mark in the Daily Attendance Sheet (January, February & April 2013)

Rogelio Cruz, Jr. signed his given name “Rogelio” in the Daily

Attendance Sheet but affixed his thumb mark in the Consolidated Report of Attendance and Payroll sheet (From January to April 2013)

Rogelio S.J. Cruz signed in full in the Daily Attendance Sheet but affixed

his thumb mark in the Payroll sheet and Consolidated Report of Attendance (from January to May 2013)

c. Representatives were allowed to receive the salaries of the workers without authorization letters, namely:

Worker Representative Amount of salary Period covered

Michael Corañez Reynaldo Aquino 44,450 January to May 2013.

Jun-jun Corañez Romeo San Jose 35,700 January to April 2013

Louie Cruz Mario Cruz 23,400 January, March, April &

May 2013)

Benito Temblor Rogelio G Cruz 17,100 January, March & April

2013

Mario Marcelino Romeo San Jose 29,750 January to May 2013

Alwin Lago Christoper Mayo 10,000 April 2013

Vicente Rodriguez, Jr. Nenette Rodriguez 7,740 May 2013

d. Absences were not deducted from the salaries of the following workers:

Worker Audit finding Amount

Dionisio Dejano He did not sign the Daily Attendance Sheet on January 5, 2013. 350

Rogelio S. Cruz He was marked absent on March 28, 2013 in the Daily Attendance Sheet

380

Isagani Cruz He was marked absent on March 24, 2013 in the Daily Attendance Sheet

300

Vicente Rodriguez, Jr

He was marked absent on March 24, 2013. 430

Marcelino San Jose

He did not sign the Daily Attendance Sheet on March 12, 2013. 430

Total 1,890

e. On the other hand, Cenon Reyes signed the Daily Attendance Sheet on

May 31, 2013 but the Consolidated Report of Attendance and the Payroll sheet showed that he was not paid the salary of P350 for the day.

f. There was no Daily Attendance Sheet for April 9, 2013 to support the

payment of salaries for that day.

11.3 The above observations put into question how much salaries were actually received by the workers and if the legitimate workers/payees received the salary.


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a. Submit conclusive proof that the amounts disbursed were received by the legitimate workers/payees; and

b. Require the persons who certified as to the correctness of the daily

attendance sheet and the payroll to be held liable for the overpayment of salaries to workers who were absent on the dates mentioned in paragraph 11.2 (d).

11.5 In reply, Management submitted the Identification Cards of the 118 out of the 164

Ipo Workers and informed that the other 46 workers were confirmed by the Foresters. Refunds in the total amount of P1,890 were made on May 7, 2014 for

the absences of workers not deducted from their salaries.

11.6 As a rejoinder, the Identification Cards of the Ipo workers were not complete and some did not bear the signatures of the workers. Further, the confirmation by the foresters of the receipt of the 46 workers of the salaries was not acceptable in audit. Thus, there was no conclusive proof that the amount disbursed was actually received by the legitimate workers/payees.

12. MWSS CO did not comply with the submission of Contracts/Purchase Orders/Letter Orders (PO/LO) and its supporting documents required under Section 3.1.1 of COA Circular No. 2009-001, thus, no timely review of contracts was undertaken by the Auditor. 12.1 COA Circular No. 2009-001 dated February 12, 2009 covering all contracts,

purchase orders and the like entered into by any government agency irrespective of amount involved, states:

“Within five (5) working days from the execution of a contact by the government or any of its subdivisions, agencies or instrumentalities, including government owned and controlled corporations and their subsidiaries, a copy of said contracts and each of all the documents shall be furnished to the Auditor concerned.”

12.2 We requested Management, in our letter dated August 3, 2012, to submit all

Contracts/Purchase/Letter Orders within five days from perfection thereof. However, it was observed that to date, the required submission had not been complied with.

12.3 We recommended and Management agreed that, henceforth, all contracts

and Purchase/Letter Orders and its supporting documents will be submitted in compliance with COA Circular 2009-001.

13. Disclosure in the Notes to Financial Statements on the detailed breakdown of input VAT taxes claimed during the year required under BIR Revenue Regulation No. 15-2010 was not complied with. Moreover, the accuracy of the Other Prepaid Expense – Input VAT account balance of P383,771 was not established due to:

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a. discrepancy of P1.941 million between the total debits (Actual Input VAT) during the year and the Input VAT Summary list of Purchases/BIR return submitted to BIR; and

b. non-indication of the carryover balance of input VAT of P2.011 million in

the 1st Quarterly VAT return for CY 2013, hence it appearing that there were no prepaid tax credits.

13.1 Our audit revealed deficiencies in the required disclosure relative to input VAT taxes and accuracy of the Account Other Prepaid Expense – Input VAT, as follows:

13.1.1 There was no detailed breakdown on the Input VAT tax and

withholding taxes paid during the year as required under BIR RR 15-2010.

a. Revenue Regulation No. 15-2010 which amends Section 2 of RR

21-2002 is quoted hereunder:

“xxx the Notes to Financial Statements shall include information on taxes, duties and license fees paid or accrued during the taxable year, particularly the following:

1. The amount of VAT output tax declared during the year xxx;

2. The amount on VAT input taxes claimed broken

down into:

a. Beginning of the year; b. Current year’s domestic

purchases/payments xxx c. Claims for tax credit/refund and other

adjustments; and d. Balance at the end of the year.”

b. Review of the Notes to Financial Statements showed that the

Report on Supplementary Information Required under Revenue Regulation No. 15-2010 showed only the taxes and withholding taxes paid during the year. There was no detailed breakdown on the Input VAT tax and withholding taxes paid during the year as required under BIR RR 15-2010.

13.1.2 Discrepancy of P1,941,059.50 between the total debits (Actual Input

VAT) during the year and the Input VAT Summary list of Purchases/BIR return submitted to BIR

a. Analysis of the Other Prepaid Expense – Input VAT account

revealed that the total debits (Actual Input VAT) does not tally with

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the amount in the Input VAT per Summary List of Purchases/BIR return as shown below:

Input VAT-Actual per SL 20,196,761.88

Input VAT-Actual-SLP/Return 22,137,821.38

Difference (1,941,059.50)

b. Detailed analysis of the Input VAT account is shown as follows:

2013 Per SL

Per Summary List of Purchases/Returns

January 2,262.85 1,991,466.30

February 2,582,850.14 2,682,853.80

March 869,018.60 148,316.60

April 2,579,313.33 1,477,843.60

May 4,606,359.72 1,951,041.08

June 192,429.55 192,429.95

July 4,668,075.78 4,532,844.47

August 2,332,862.12 2,323,764.94

September 262,266.42 4,744,578.02

October 358,429.97 1,458,583.57

October 0 0

November 308,819.49 308,819.49

December 1,434,073.91 325,279.55

Total

20,196,761.88 22,137,821.38

c. From the foregoing, we may conclude that the Prepaid Input VAT

recorded in the books was understated.

13.1.3 The carryover balance of input VAT of P2,010,647.92 was not shown in Line 20A of the 1st Quarterly VAT return for CY 2013, hence, it can be inferred that there are no prepaid tax credits.

a. Sec. 110. of the Tax Code provides that –

Tax Credits – (A) Creditable Input Tax – x x x (B) Excess Output or Input Tax - If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters: Provided, however, that any input tax attributable to zero-rated sales by a VAT-registered person may at its option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112.

b. The Other Prepaid expense - input tax account showed

a carryover balance from CY 2012 of P2,010,647.92 arrived at as follows:

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Beginning Balance 2,172,952.70

Input Tax Claimed for 4th Quarter-2012 (162,304.78)

Input Tax Carry Over 2,010,647.92

The amount of P2,010,647.92 was not reflected in the 4th Quarterly VAT return of 2012 (paid in January 2013) as overpayment or in the 1st Quarterly return of 2013 as Input Tax Carried Over from previous period. Based on the VAT tax returns filed, it can be inferred that there are no prepaid tax credits. However, it appears that the said tax credit of P2,010,647.92 was not fully applied against the current year’s remittances as shown below:

Beginning Balance per books 2,172,952.70

Total Input VAT Actual on purchases

20,194,761.88

Total Input VAT claimed based on BIR remittances

21,983,943.78

Ending balance per books 383,770.80

c. Likewise, the difference of the debits to Input Tax of

P2,010,647.92 as against reported Input Tax from Summary List of Purchases has been offset by the beginning balance of the account.

13.1.4 Deficiencies in the filling up of the Quarterly VAT returns for CY

2013 and in the Input VAT Summary list of Purchases/BIR return submitted to BIR

a. The 3rd and 4th Quarterly VAT returns (BIR Form 2550Q) contain

erroneous information as follows:

i. The boxes in the returns which pertain to payments for the 3rd and 4th Quarter were marked as payments for the “1st Quarter”. It was also observed that item 21P or Total Purchases from which the Input Tax Credits claimed for the 1st Quarter are sourced amounting to P40,188,639.18 also appeared on the 3rd and 4th Quarter Returns.

ii. The Net VAT Payable was footed in the Total Available Input

Tax (Item 22) and Total Allowable Input Tax (Item 24) of the 4th Quarter Return

iii. The amount of Total Sales/Receipts (Item 19A) and Total

Current Purchases (Item 21E) in the 4th Quarter return are inclusive of Value Added Tax. The guidelines provide that these items shall be exclusive of tax as basis of the 12% VAT footed in Item 19B and 21F respectively.

Description per Return per Guidelines Difference

Total Sales/ Receipts

48,229,205.16 43,124,290.32 5,174,914.84

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(19A)

Domestic Purchases (21E)

19,531,704.40 17,439,021.79 2,092,682.61

13.2 The errors mentioned above made the information indicated in the returns misleading. These however, did not involve misapplication of complex tax laws or regulations, but they nonetheless may give rise to significant tax assessments from the Bureau of Internal Revenue.

13.3 We also noted that the collection of rental amounting to P137,718.75 from leased

properties of MWSI was debited to Other Prepaid Expenses-Input Tax. This should have been recorded in Other Prepaid Expenses-Expanded Withholding Tax as this is a creditable withholding tax for rentals (5%) and not Input Tax from domestic purchases (12%).

13.4 Based on the aforementioned observations, we recommended and

Management agreed to:

a. Prepare detailed breakdown of Input VAT claimed during the year showing the Input VAT at the beginning of the year; Input Tax from Current year’s domestic purchases/payments; Claim for tax credit/refund and other adjustments; and the Input VAT balance at the end of the year pursuant to Section 2 of Revenue Regulations 15-2010 of the Bureau of Internal Revenue; thereafter, include the same in the Notes to Financial Statements; and

b. Ensure that all returns filed with the BIR are reviewed diligently to ensure that the information contained in the returns are correct; If possible amend the 3rd and 4th Quarterly VAT returns to correct inputted entries to avoid assessments from the Bureau of Internal Revenue and henceforth,

B. CURRENT YEAR’S AUDIT FINDINGS AND RECOMMENDATIONS

2. MWSS REGULATORY OFFICE (RO)

1. The consultant’s final report and other deliverables in the consultancy services

contract for the MWSS Regulatory Office 2013 Rate Rebasing in the total amount of P61.397 million contracted by MWSS Regulatory Office (RO) and Isla Lipana & Co. Joint Venture with Lahmeyer IDP Consultant, Inc. was not submitted within the six-month contract period reckoned from the receipt of the Notice to Proceed to the Consultant due to the request of the Regulatory Office for the consultant to do further evaluation of the items that were raised/disputed in the arbitration. 1.1 MWSS RO and Isla Lipana & Co. in Joint Venture with Lahmeyer IDP Consultant,

Inc. entered into contract for the CY 2013 Rate rebasing consultancy service in the total amount of P61,397,288 with a contract duration of six months reckoned from

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the receipt of the Notice to Proceed on March 1, 2013. The deliverables, which should be completed/finished by August 31, 2013, consists of the following:

Table of Deliverables

Particulars Timeline

1. Briefings to the RO, CO, the Board Advisory Committee and the MWSS Board on alternative interpretations of specific principles, CA provisions, approaches to the financial model, sensitivity analyses, and other financial issues/ treatments that affect the outcome of tariffs at specific points of the engagement as may be specified or warranted by urgency.

As required

2. Inception Report which shall include a detailed methodology for the conduct of the third Rate Rebasing exercise and establish the basic principles of Rate Rebasing.

10 days from commencement date

3. Monthly Accomplishment Reports 1 month from commencement date and every

month thereafter.

4. Presentation of issues, proposed resolution to these issues, proposed policies to be adopted by MWSS for the third Rate Rebasing exercise concerning these issues.


5. Historical Cash flows 60 days from commencement date

6. Report on the ADR arrived at for the third Rate Rebasing Exercise


7. Future Cash flows 90 days from commencement date

8. Presentation of the required Sensitivity Analysis


9. Report on final determination of compliance with RORB requirement and adjusted tariff, if applicable


10. Other Items leading to determination of Rebasing Adjustment


11. Rate Rebasing Report 150 days from commencement date

12. Additional Requirements 180 days from commencement date

1.2 Review of the contract and supporting documents revealed that there were documents not submitted, when required by the COA Technical Audit Specialist in the initial technical review of the contract dated October 29, 2013. Considering that the contract expiry period was on August 31, 2013, the following documents should have been available at the time of review, namely:

a. Statement of Time elapsed, if any b. Approved time extension and/or suspensions/resumption orders, if any,

including supporting documents; and c. Certificate of Project Completion and Acceptance

1.3 In reply to our audit observation, Management submitted the following

information/explanations:

a. The documents mentioned in paragraph B.2.1.2 above have yet to be submitted. In a letter, noted by the Acting Chief Regulator dated April 15, 2014, the Deputy Administrator for Administration and Legal Affairs informed

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that the Regulatory Office considered fair and warranted to move the final submission of the consultant’s final report and other deliverables on or before April, 30, 2014.

b. In the said letter, it was explained that in the ongoing arbitration cases filed by

the concessionaires, there were series of discussion with the Consultant. Noting after the discussion that there were a number of key items to be incorporated in the consultant’s report, the RO requested that they be considered in the final version of the documents to be submitted:

Opening Cash Position (OCP)

Appropriate Discount Rate (ADR)

Future Cashflows (FCF)

Water and Wastewater Projects

Services Obligations (SOs)

Key Performance Indicators/Business Efficiency Measures (KPIs/BEMs)

c. The RO acknowledged that the consultant has to do further evaluation of the foregoing items that were also raised/disputed in the arbitration. Said evaluation involves the inclusion of additional or enhanced data which definitely requires additional time that will impact on the deadlines set for the submission of their remaining deliverables.

d. Faced with this predicament, and in view of the critical importance of the

documents in the resolution of the issues also raised in the arbitration, RO considered fair and warranted to move the final submission date of the consultant’s final report and other deliverables on or before April 30, 2014.

e. A letter dated March 17, 2014 was sent by the RO to the Consultant

informing them of the final submission date of the reports and other contractual deliverables on or before April 30, 2014.

1.4 Given the above information, the Audit Team inquired during the exit conference

how the MWSS Regulatory Office was able to come up with the MWSS Regulatory Office Resolution Nos. 13-010-CA and 13-009-CA dated September 10, 2013 recommending to the MWSS Board of Trustees the rate rebasing determination for MWSI and MWCI for charging years 2013-2017. It was noted that one of “whereas clauses” stated that given the complexity of the rate rebasing process, the Regulatory Office engaged experts for the economic, financial, accounting, legal and technical aspects of the audit with the footnote that Isla Lipana & Co. in Joint Venture with Lahmeyer IDP Consult, Inc. was contracted for the 2013 Rate Rebasing Consultancy Services.

We noted that the communications on the submission of the deliverables to April 30, 2014 due to submission of additional and enhanced data by the Consultant did not mention whether additional costs will be incurred by MWSS RO. Likewise, there is the question on whether the moving of the submission date is considered a

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time extension which should be properly documented under the procedures in RA 9184 and its IRR.

1.5 In the exit conference, the Acting Chief Regulator explained that all the data in raw form that was submitted by the consultants during the Rate Rebasing Exercise were evaluated processed and were used for purposes of reporting and computation of the new rate. He also explained that there are plenty of reports that the consultants have to submit to RO in accordance with the deliverables which include the Rate Rebasing Manual, a manual that is very accurate with other report. The delay for the submission was attributed to the Arbitration dispute notice filed by the concessionaires. He said that the RO evaluated the issues stipulated in the complaints in terms of form, substance and processes. These things are being considered/evaluated in revisiting the raw data and suggested revisions to the consultants because RO wants to have documentation for the future Rate Rebasing exercise that are understandable and acceptable. The RO want it to be the best and make the most out of the contract.

1.6 As a rejoinder, considering the foregoing explanation of the Acting Chief Regulator that the non-submission of the deliverables on August 31, 2013 was due to the need for further evaluation that involves the inclusion of additional or enhanced data, which definitely requires additional time that will impact on the deadlines set for the submission of their remaining deliverables, it appears that the deliverables of the Consultant would include outputs during the arbitration process. Therefore, the same should have been considered in the determination of the contract duration and there would be no issue on the non-submission of final outputs on the required due date

1.7 We recommended that in future similar consultancy contract, Management, in determining timetables for deliverables or project completion should, in the procurement planning stage, set a realistic and reasonable timeframe for completion to avoid the occurrence of delay in the submission /completion of the deliverables.

2. Deficiencies were noted in the consultancy contracts for the following purposes:

a. In the Consultancy services for the 2013 Rate Rebasing in the amount of P61.597 million, changes in key personnel were not in accordance with the General Conditions/Special Conditions of the contract and Section 33.6 of IRR of RA 9184 ; and

b. In the contract for the Review and Validation of the Concessionaires’ Asset Condition Report (ACR) with a contract cost of P21.028 million, the validity of the claim for reimbursable costs was questionable due to (i) issues raised on the rental of vehicles claimed to have been used for the project and (ii) the purchase of laptops and cameras for the project were not warranted.

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2.1 Consultancy services for the 2013 Rate Rebasing in the amount of P61,597,388 -

2.1.1 MWSS – Regulatory Office and Isla Lipana & Co. in joint venture with LAHMEYER IDP CONSULT entered into a contract for the 2013 Rate Rebasing exercises for Manila Water Company, Inc. (MWCI) and Maynilad Water Services inc. (MWSI) with contract cost of P61,597,388.

2.1.2 The breakdown of the contract cost is as follows:

Particulars Amount

Remuneration Cost -

Foreign 11,856,425

Local 39,990,350

Total remuneration cost 51,846,775

Reimbursable cost (subject to submission of official receipts)

Housing 1,272,321

Transportation 342,857

Local Vehicle rental 235,714

Consumable office supplies 171,429

Printing & Report reproduction 291,071

Communication expenses 107,143

Laptop Computers 267,857

Meeting expenses 71,429

Heavy Duty Colored printed 133,929

Computer Software 257,143

Total reimbursable costs 3,150,893

Total Project Cost 54,997,668

VAT 6,599,720

Grand Total 61,597,388

Payments during the year to Isla Lipana & Co for the 2013 Rate Rebasing are covered by the following reference document and particulars:

Check/DV No. Date Amount

430285/143-04/13 April 18, 2013 P2,773,802

469741/227-05/13 June 7. 2013 5,478,437

469868/414-10/13 October 7, 2013 714,350

469910/469-11/13 November 14, 2013 10,956,874

469955/516-12/13 December 17, 2013 13,696,093

Total P33,619,556

2.1.3 Audit of the above disbursements showed the following:

2.1.3.1 Change in the key personnel of the Consultant was effected

which was not in accordance with the provisions of Section 39.5 of the General Conditions of the Contract (GCC) and the Special Conditions of the Contract (SCC) and Section 33.6 of IRR – RA 9184.

a. A comparison of the Project Organization chart of the

Consultant included in the Technical Proposal (Form 10.1)

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and the Project Organization included in the Inception Report showed a change in the key personnel of the Consultant which was not in accordance with the provisions of Section 39.5 of the General Conditions of the Contract (GCC) and the Special Conditions of the Contract (SCC) and Section 33.6 of IRR – RA 9184.

b. We noted that the proposed Economist (International Staff) in the Project Organization chart of the Consultant included in the Technical Proposal (Form 10.1 was Stuart King while in the Inception Report the position was occupied by Robert Montgomery. Another Economist Joel Yu (local staff) and an Assistant Lawyer Justine Buduan were also added in the Project Organization as per Inception Report.

c. Section 39.5 of the General Conditions of the Contract of

the IRR states that:

“No changes shall be made in the Key Personnel, except for justifiable reasons beyond the control of the Consultant, as indicated in the SCC, and only upon approval of the Procuring Entity. If it becomes justifiable and necessary to replace any of the Personnel, the Consultant shall forthwith provide as a replacement a person of equivalent or better qualifications. If the Consultant introduces changes in Key Personnel for reasons other than those mentioned in the SCC, the Consultant shall be liable for the imposition of damages as described in the SCC.”

Also, Section 39.5 of the Special Conditions of the Contract (SCC) of the IRR states that:

“The Consultant may change its Key Personnel only for reasons of death, serious illness, incapacity of an individual Consultant, or until after fifty percent (50%) of the Personnel’s man-months have been served. Violators will be fined an amount equal to the refund of he replaced Personnel’s basic rate, which should be at least fifty percent (50%) of the total basic rate for the duration of the engagement.”

d. We recommended the submission of

justification/explanation on the necessity of changing the key personnel of the Consultant as required under Section 39.5 of the GCC, the SCC and Section 33.6 of IRR of RA 9184.

e. Management submitted the following comments:

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i. The Rate Rebasing process should not be constricted or bound strictly by the sequence of suggested steps, methodologies and/or personnel assignments/ deployments in the technical proposal. In the case, Isla was not only obliged to conduct a financial and technical audit on the concessionaries, (historically for at least five (5) years), but also to make reasonable projections based on certain assumptions until the end of the CA in 2037.

ii. Significantly, it bears stressing that in its Resolution No. 2013-029-RO dated 19 February 2013, the MWSS Board of Trustees (MWSS BOT) as Head of Procuring Entity (HOPE) authorized the Acting Chief Regulator to negotiate the terms of the contract with Isla.

iii. The changes which unfolded from RO’s side were

discussed with the RR consultants, who expressed serious difficulty in adhering to the original proposal, based on the timelines and original representations, as well as the request of RO, as stated in Isla’s letter to the Acting Chief Regulator dated 7 March 2013. Mindful of the exacting requirements of the regulatory audit during the RR exercise, RO, through the Acting Chief Regulator exercising his delegated authority and sound judgment, was constrained to allow the substitution of the Economist, Stuart King, with two (2) economists, Robert Montgomery (foreign) and Joel Yu (local).

iv. The Inception Report revealed that the 2013 RR is a

very dynamic project, which was implemented in close cooperation and coordination between the RO and Isla. This is clear on pages 7, 55 and 56 of the Inception Report.

v. Considering the nature and urgency of the project, Isla

introduced several adjustments, refinements and revisions in its work plan, including changes in the timetable and personnel deployment. These were the direct result of the requests of RO, in order to manage the exercise and fulfill its requirements, as mandated.

2.1.3.2 Two personnel occupying the positions of NRW Expert

(MWSI), Sewerage/Sanitation Expert (MWCI) and Cost Engineers 4, 7, 9 and 10, were different from the submitted Project Organization Chart and in the proposed personnel (TFP Form 5) in the Technical Proposal where only one name appeared in the said positions.

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a. The Project Organization in the Inception Report showed that there were two personnel occupying the positions of NRW Expert (MWSI), Sewerage/Sanitation Expert (MWCI) and Cost Engineers 4, 7, 9 and 10, different from the submitted Project Organization Chart and in the proposed personnel (TFP Form 5) in the Technical Proposal where only one name appeared in the said positions.

b. We recommended the submission of justification/

explanation on the necessity of changing the key personnel of the Consultant as required under Section 39.5 of the GCC, the SCC and Section 33.6 of IRR of RA 9184.

c. Management submitted the following comments:

ii. They acknowledged that the submitted Inception

Report indicated two personnel occupying that positions of NRW Expert-MWSI (Elito Baldonado/ Tom Bautista), Sewerage/Sanitation Expert-MWCI (Ruel Janolino/Rene Roncesvalles), Cost Engineer 4 (Renato Custodio/Ricardo Sampong), Cost Engineer 7 (René Grino/Juanito Pagulayan), Cost Engineer 9 (Cherry Patalagsa/Ramon dela Torre) and Cost Engineer 10 (Jose Arnel Juan/Vinci Villasenor).

iii. This was the result of RO’s expressed requirement for

flexibility, in view of its situation. Given the highly technical nature of the services that it urgently needed, RO insisted on this arrangement to ensure that the second named person, who may act as an alternate, is at least as competent as the first person listed. It was not intended by the RO or Isla that there be two persons for a single position. In other words, this was merely a measure undertaken up front to guarantee that there would be no break or delay in the consultancy services nor any drop or deterioration in the quality thereof due to sudden changes in RO’s requirements, timelines or work schedules. Indeed, as it turned out, Messrs. Elito Baldonado, Jose Rene Roncesvalles, Renato Custodio and Juanito Pagulayan were eventually excluded from the team of consultants, hence their eventual non-inclusion in the implementation phase of the project.

d. As our rejoinder to the above observations, while there was

the MWSS RO requirement for flexibility given the highly technical nature of the services that it urgently needed, we cannot set aside the conditions on the change of key personnel of the consultant which are explicitly and

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categorically enumerated in Section 39.5 of the GCC and the SCC. It is necessary that the changes in the timetable and personnel deployment are properly documented to justify the replacement of the key personnel.

Moreover, the qualifications of the former key personnel of the Consultant were among the consideration when the contract was awarded to the Consultant. It is therefore necessary that the changes in key personnel were properly documented that would prove that the changes are lawful, validly justified and beneficial to the project and to MWSS in general.

2.1.3.3 Management approved the payment for the submission of

the ADR report without the historical cashflows different from the payment schedules in the contract. a. The payment for the 2nd progress billing under Check No.

469741 in the amount of P5,478,437.13 was for the 10% remuneration after the submission of the Appropriate Discount Rate (ADR) report. Section 1 of the contract provides that contract payment shall be in accordance with the following schedules:

Deliverables/Milestones Amount to be Paid (Percent of Contract

Price, PhP)

Advance Payment 15%

Presentation of issues, proposed resolution to these issues, proposed policies to be adopted by MWS for the third Rate Rebasing exercise concerning these issues.

5% less recovery of advance payment

Historical Cashflows: Detailed Audit Report of Historical Cashflows, including disallowances as well as rewards and penalties for OPEX and NRW; Report on current OCP established and on the analysis conducted on OCPs since start of the concession period Report on compliance of concessionaires with service obligations in the preceding


Report on the ADR arrived at for the third Rate Rebasing Exercise


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b. Based on the above schedule of deliverables/milestones, the submission of the historical cashflows should come first before the report on the ADR.

c. Considering that Management approved the payment for the

submission of the ADR report without the historical cashflows, it may be inferred that the said report should not be considered a deliverable item that would merit the payment of 20% of the contract price of P61,397,388 which is equivalent to P12, 279,477.60.

d. We recommended that Management submit explanation

why the payment was not in accordance with the payment schedule stated in the contract.

e. Management commented that it must be emphasized that

the determination of ADR rests on data and information totally distinct from the utilized or needed for the other reports and the activities for the former can proceed independently of the other RR tasks. Hence, the ADR report, as a deliverable, can be logically released ahead of the other reports-deliverables. In fact, this is exactly what happened – RO and the Concessionaries were both able to separately determine ADR, applying economic and financial data that was not utilized for the other reports.

f. As our rejoinder, it is our view that logically, the payments of

deliverables should be in accordance with the payments schedules provided for in the contract.

2.1.3.4 The Consulting Services Agreement (Amendment) was

notarized by a lawyer whose authorization to notarize a document and practice his profession (PTR) had already expired on December 31, 2011 and January 8, 2010 respectively. a. The Consulting Services Agreement (Amendment) was

notarized by a lawyer whose authorization to notarize a document and practice his profession (PTR) had already expired in December 31, 2011 and January 8, 2010 respectively. The Supreme Court in Nadayag vs.Grageda (A.C. 3232 dated September 27, 1994) has ruled that notarization is not an empty routine and that the notarization of a document converts such document into a public one and renders it admissible in court without further proof of its authenticity.

b. Management explained that while the RO recognizes the

importance of notarization, it also notes that defects in formal requirements, such that now in question, do not affect the

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validity of a contract. Article 1356 of the Civil Code thus states that “contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.” The defect, in other words, is not fatal and may be corrected.

c. As our rejoinder, we state that the issue on the notarization

should have been looked into and discovered at the onset by the concerned officer/employee of the RO so that the Notary Public could have been informed immediately.

2.2 Contract for the Review and Validation of the Concessionaires’ Asset

Condition Report (ACR) with a contract cost of P21,028,000 -

2.2.1 The subject contract started on March 11, 2013 and based on Section E of the Terms of Reference the project is to be completed seven months from the time the Notice to Proceed was received by the Consultant or on October 11, 2013.

2.2.2 The contract cost of P21,028,000 includes out-of-pocket/reimbursable

expenses of P2,996,000, broken down as follows:

Breakdown of Reimbursable Cost Particulars Amount

Equipment/material testing 460,000

Printing & Reproduction of reports 140,000

Local Transportation costs (vehicle rental with driver and fuel/oil)

1,694,000

Office supplies & other supplies (including laptop and digital cameras)

646,000

Miscellaneous expenses 56,000

Total 2,996,000

2.2.3 Audit of the payments for the reimbursable/ out of pocket expenses

revealed the following: 2.2.3.1 On the reimbursement for the rental of four (4) vehicles from

Kyra Enterprises in the total amount of P 1,694,000 -

a. Kyra Enterprise has no permit to engage in the rental of vehicles. The CY 2013 business permit we secured from Quezon City Hall revealed that Kyra Enterprise was authorized to operate as a wholesaler of office supplies and as a contractor for installation of electronic safety devices, installation of air-conditioning units and repair and maintenance of electronic equipment/appliances and there was no mention of rental of vehicles.

b. Moreover, verification with the Land Transportation

Office (LTO) revealed that the three cars were registered

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in the name of private individuals and not of Kyra Enterprise. Another vehicle, with plate number PQM 780 has no record with the LTO.

c. The above observations put into question the validity and

propriety of the payment of the car rental to Kyra Enterprises.

2.2.3.2 The purchase of the laptops and cameras listed below for the

project in the total amount of P520,000 was not warranted as their use for the project was found not fully maximized, as discussed in the succeeding paragraphs.

Equipment Quantity Cost

Digital Camera 6 P 120,000.00

Laptop Computer with software

8 400,000.00

i. We noted that the date of purchase did not match with the

activities in the Time (Work) Schedule where said equipment was deemed to have been utilized.

ii. Since there was no justification submitted by the consultant

for the purchase of the abovementioned equipment and neither was there an Equipment Utilization Schedule, the activity (work) schedule submitted by the Consultant was used as basis in determining the period when the equipment was utilized by the Consultant. The work schedule is shown below:

A. Field Investigation and Study Items

Activities Month 1 Month 2 1

st 2

nd 3rd 4th 5th 6th 7th 8th

Phase 1: Mobilization

Organization of audit team and orientation

Identification of information requirements

Discussion of detailed methodology

Discussion of contents ad forms of reports

Discussion of how constraints will be treated

Phase 2: Review and Validation of ACR

Review of ACR reporting requirement

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A. Field Investigation and Study Items

Activities Month 1 Month 2

Review of previous ACRS

Determination of completeness of submitted ACRs

Preparation and issuance of questionnaires

Reconciliation of 2010 ACRs with the records of MWSS-RO

Field validation of submitted 2010 ACRs

Identification of asset grouped or individual assets turned over to MWSS

Legend: - Full Time - Intermittent

iii. Based on the above work schedule, the laptops were supposed to be needed starting in Phase 1 of the project which is on Month 1 or on March 11, 2013. Verification of the receipts/invoices submitted disclosed that the eight (8) units laptops were acquired only on April 30, 2013 or fifty (50) calendar days after the start of the project.

iv. Similarly, the purchase of the six units digital cameras made

on September 2, 2013 or one month before the contract expiry date. The purchased date evidently recorded the mode of utilization of the cameras since they were purchased at a time when the Consultant was already preparing the final report as shown in the contract work schedule.

v. As may be gleaned from the contract work schedule, the

digital cameras were supposed to be utilized starting with the activities in Phase 2 which involved the review and validation of the Asset Condition Report. This was about a month after the start of the contract.

vi. Clearly, the purchase of the cameras on September 2, 2013,

or one month before the project completion, was not warranted.

2.2.3.3 Based on the physical inventory report as of December 31,

2013, the laptops and digital cameras have not been

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turned over to the MWSS RO although the project was completed on October 11, 2013. Section 36 of the General Conditions of the Contract provides that the abovementioned equipment were to be turned over to MWSS after the termination or expiration of the contract. However, the physical inventory report as of December 31, 2013 does not include the abovementioned equipment. Therefore, as of that date no turnover of the equipment had been made to MWSS RO.

2.2.3.4 The rental of vehicle and purchase of supplies and

equipment included in the reimbursable/out of pocket expenses were not subjected to value added tax required under Chapter 1 Section 108 of the National Internal Revenue Code on Value-added Tax on Sale of Services and Use or Lease of Properties.

Chapter 1 Section 108 of the National Internal Revenue Code (NIRC) on Value-added Tax on Sale of Services and Use or Lease of Properties states that:

“(A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties.

The phrase 'sale or exchange of services' means the performance of all kinds or services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; ...xxx”

(D) Determination of the Tax. –

The tax shall be computed by multiplying the total amount indicated in the invoice by one-eleventh (1/11).”

We noted that the amount of P1,694,000 and P520,000 for the rental of vehicle and purchase of equipment respectively, were not subjected to the application of value added tax contrary to the provisions of Section 108 of the NIRC.

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2.2.4 We recommended that Management:

a. Investigate to confirm and determine the propriety of allowing the payment of the reimbursable cost in view of the findings in the audit regarding questionable issues raised on the rental of service vehicles which were claimed to have been used for the implementation of the contract.

b. Justify payment of the reimbursable costs such as, for the purchase of eight (8) laptops and six (6) digital cameras, taking into account the duration of their utilization in the implementation of the contract.

In future biddings require the project proponent to include in the computation of reimbursable costs the justification for the rental or acquisition of the equipment and the proposed utilization schedule of the desired equipment as required in Volume 4 of the Manual of Procedures for the procurement of Consulting Services.

2.2.5 We further recommended and Management agreed to implement the

imposition of value added tax on transactions included in the reimbursable/out of pocket costs of Consultants that are enumerated in Section 108 of the National Internal Revenue Code on Value-added Tax on Sale of Services and Use or Lease of Properties

2.2.6 The Deputy Administrator for Administration and Legal Affairs submitted the letter of Test Consultant explaining that car rental was not the core business of Kyra Enterprise but a service it can provide whenever opportunity comes. Kyra Enterprise does need to own its vehicles it is renting out for as long as it can find a vehicle suited to the requirement of the client. BIR Certificate of Registration (OCN 3RC0000570861),of Kyra Enterprise which includes other service activities as its line of business together with wholesale and other repair works was also submitted.

2.2.7 It is our view that a BIR Certificate of Registration cannot take the place of the business permit issued by the local government unit, since they serve different purposes.

2.2.8 As explained, Kyra Enterprise does not need to own its vehicles for car rental business because car rental is not among the business they were authorized to engage in as stated in the business permit.

2.2.9 As regards the (8) Laptop Computers, while they were purchased on 30 April 2013, the MWSS RO assumed that TCI must have initially utilized its own computers from March 11 to April 30 2013. As proof, its deliverables (reports) or communications were transmitted even before procuring

them.

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2.2.10 On the digital cameras, it was explained that since 2013 was the year when 3rd Rate Rebasing exercise was actually conducted, the MWSS RO saw the need to prioritize the Reports on Full Current Asset Valuation and Real Estate Assets to be used in the computation of the Return on Rate Base (RORB). As such, the validation of the Concessionaires’ Asset Condition Reports (ACRs), where the digital cameras were necessary, was conducted on the latter part of the project/contract period. Thus, the reason for purchasing them on the latter part of the contract period.

2.2.11 As a rejoinder, the abovementioned explanations further support the audit

observation that the purchase of the equipment was not fully maximized and therefore may not be necessary.

3. Transfer of funds of P70 million from PNB Combo account to LBP current bank account, both maintained by MWSS-RO, was effected without proper documentation. 3.1. Our audit disclosed that MWSS-RO made a fund transfer in July 2013 from a

combo account to a current account, with details below.

Bank Acct Purpose

Philippine National Bank

Combo Current Account Payment of salaries and allowances to employees/ deposit of collections received

Land Bank of the Philippines

Current Account Payment of its operating expenses

3.2. We noted that said fund transfer with the purpose to augment the current account

balance as stated in the disbursement voucher was supported only with a copy of check deposit slip of the LBP.

3.3. Since the purpose of the fund transfer was to augment its fund balance at the LBP, the disbursement should have been supported with Cash Position Report showing the cash in bank balance at the LBP at the time of the fund transfer duly signed by the Chief Accountant and the Department Manager for Administration. It should also have been supported with a written request to the Acting Chief Regulator for the approval of the transfer of funds before the preparation of the disbursement voucher.

3.4. COA Circular 2013-002 dated January 30, 2013 states that one of the general requirements for all types of disbursement is that there should be sufficient and relevant documents to establish validity of claims. Without any supporting documents attached to the Disbursement Voucher, the validity of the transfer of funds recorded in the books of accounts of MWSS- RO cannot be established.

3.5. We recommended that Management, henceforth, require the Accounting Division to support the disbursement for transfer of funds with cash position report or equivalent document to establish the need to transfer the fund from one bank account to another bank account, together written request to the Acting Chief Regulator for the approval of the said fund transfer.

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3.6. Management submitted the required documents on April 10, 2014 and committed that henceforth, all transfer of funds will be properly supported.

4. Advances to UP National Engineering Center (NEC) for the Public Assessment of

Water Services Project (PAWS) Phase II Years 3-5 with outstanding balance of P6.130 million were not refunded even though the project had been completed in 2011. 4.1 Section V of the Memorandum of Agreement executed on September 24, 2007

between MWSS and the University of the Philippines provides that upon completion of the project, any savings from its total budget shall be refunded by UP Diliman to MWSS. The Agreement had a term of three years effective upon signing by the parties.

4.2 The accomplishment reports submitted showed that project had been completed as follows:

Year Date of accomplishment report

3 February 20, 2009

4 March 15, 2010

5 August 10, 2011

4.3 Although the project had been completed, the outstanding advances to UP NEC as

of December 31, 2013 amounts to P6,130,438.70

4.4 We recommended that Management demand for the immediate refund of the unexpended balance of advances to UP in accordance with the provision of the Memorandum of Agreement.

4.5 Management informed that to date, the closure activities for the project are still on-

going. The RO in coordination with the UP-NEC shall facilitate the turnover of the PAWS equipment as well as the COA verified Financial Report to be used in the reconciliation of the Advances to UP-NEC for the eventual refund of the unexpended balance.

5. The period of action on procurement activities for General Services contracts exceeded the period required under Section 38 of the IRR of RA 9184, which was disadvantageous to both contracting parties. Delay without justifiable cause in the required three months procurement process is punishable under Section 65 of the

IRR OF RA 9184.

5.1 Section 38.1 of the IRR of RA 9184 provides that the procurement process from the opening of bids up to the award of contract shall not exceed three months, or at a shorter period to be determined by the procuring entity concerned.

5.2 Audit of the contract documents showed the following procurement timelines:

Procurement stage Date conducted by MWSS RO Period of action

Procurement of security services Opening of bids August 23, 2013

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Issuance of Notice of award

December 5, 2013 received on

December 6, 2013 by the contractor

105 days or 3 months and 15 days.

Procurement of Janitorial services

Opening of bids August 22, 2013

Issuance of Notice of award

December 5, 2013 106 days or 3 Months and 16

Days

5.3 As can be gleaned from the above, it took 3 months and 15 days from the date of

the opening of bids the notice of award was issued. This is not in accordance with the provision of Section 38 of the IRR of RA 9184.

5.4 The non-compliance with the abovementioned provision resulted in the extension of the existing security and janitorial services which could be disadvantageous to both contracting parties considering that the payments for said services in CY 2012 was disallowed in audit due to lack of public bidding required under Section X Article IV of RA 9184 and that the payments were not covered with a contract agreement.

5.5 We invite your attention to the particular provisions of the IRR of R.A. 9184 which

states as follows:

“RULE XXI – PENAL CLAUSE

Section 65. Offenses and Penalties

65.1. Without prejudice to the provisions of R.A. 3019 and other penal laws, public officers who commit any of the following acts shall suffer the penalty of imprisonment of not less than six (6) years and one (1) day, but not more than fifteen (15) years:

b) Delaying, without justifiable cause (underscoring ours), the screening for eligibility, opening of bids, evaluation and post evaluation of bids, and awarding of contracts beyond the prescribed periods of action provided for in this IRR.”

5.6 Furthermore, the GPPB in its Non-Policy Opinion (NPM 057-2013) dated June 26,

2013 regarding the query of the Department of Education on the legality of the procurement process that exceeded the three (3) month period of procurement under the revised IRR of RA 9184 opined and we quote:

“xxx, we wish to clarify that the extension of mandatory period under the IRR of RA 9184, including the allowable extensions recognized by laws and rules is proscribed. Should the PE decide to extend the same, it must show and provide compelling, sufficient, valid, reasonable, and justifiable cause for such extension. Such valid justification, however, will only free officials from penal sanction or liability, but not from applicable administrative and civil sanctions or liabilities under existing laws, rules and regulations.”

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5.7 We recommended and Management agreed to strictly comply with the

provision of Section 38.1 of the IRR of RA 9184 which states that the procurement process from the opening of bids up to the award of contract shall not exceed three months, or at a shorter period to be determined by the procuring entity concerned.

B. CURRENT YEAR’S AUDIT FINDINGS AND RECOMMENDATIONS

3. COMMON TO MWSS CO AND RO

1. The validity of the Payables’ aggregated balance of P515.678 million was found doubtful due to the inclusion of:

a. Accounts totaling P181.548 million outstanding for more than two years; b. Undocumented Accounts totalling P32.180 million; and c. Accounts with abnormal or debit balance of P3.281 million.

1.1 As at year-end, the Payables’ accounts showed aggregated an balance of P515,678,777.21 consisting of the following:

Schedule of Payables

Account CO Books RO Books Total

Accounts Payable 12,717,473.90 177,362,832.21 190,080,306.11

Due to Officers & Employees 11,205,979.68 52,190,237.91 63,496,217.59

Dividends Payable 139,247,720.00 0 139,247,720.00

Interest Payable 122,799,291.92 155,241.59 122,954,533.51

Total 285,970,465.50 229,708,311.71 515,678,777.21

1.2 Our herein audit observations relative to the Accounts Payable account are

anchored on the following:

a. Section 98 of PD 1445 which provides for the reversion of unliquidated balance of accounts payable, which has been outstanding for two years or more and against which no actual claim, administrative or judicial, has been filed or which is not covered by perfected contract on record, to the unappropriated surplus.

b. Section 8 of COA Circular No. 94-001 dated January 20, 1994 which

provides:

“The Chief Accountant, Bookkeeper or other authorized official performing accounting and/or bookkeeping function of the audited agency shall ensure that (a) the reports as submitted by the accounting officers are immediately recorded in the

books of accounts and submitted to the auditor within ten (10)

days from such receipt, xxx”

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1.3 Our audit observations are as follows:

1.3.1 Payables totaling P181.548 million outstanding for more than two

years -

a. As at year-end, of the balance of the Accounts Payable, the amount of P181.55 million were outstanding for more than two years, broken down as follows:

Office/Accounts Total Outstanding for

more than two years

%

MWSS RO Accounts Payable Due to Officers & Employees Total

177,362,832.21 52,190,237.91

229,553,070.12

124,818,193.00 47,048,281.00

171,866,474.00

70 90 75

MWSS CO Accounts Payable Due to Officers & Employees Total

12,717,473.90 11,205,979.68 23,923,453.58

0

9,681,960.09 9,681,960.09

86 40

Grand Total 253,476,523.70 181,548,434.09 72

b. In the MWSS RO, the Accounts Payable (accrued expenses) and Due to Officers and Employees account showed a year - end balance of P229,708,311.71. Of this amount, P171,866,474 or 75% has been outstanding for more than two years. Most of these accounts have been outstanding since CY 2010 and prior years, to wit:

Account Code Amount

Accounts Payable – accrued expenses

401 124,818,193

Due to officers & employees 403 47,048,281

Total 171,866,474

c. In the MWSS CO, analysis revealed that of the balance of the Due to

Officers and employees account of P11,205,979.68, the amount of P9,681,960.09 or 86% of total payables had been outstanding for more than two years. Most of these accounts were set up in CY 2007 and there were no documents attached to the Journal Entry voucher. Details are as follows:

Account Code Amount Audit Finding

Due to employees 1989-1997

403-02-01 8,574,214.69

The amount was originally recorded in January 2007. Last transaction was in December 2009

Due to employees 1999-2001

403-02-02 1,107,745.40

The amount was originally recorded in January 2007. Last transaction was in December 2010

Total 9,681,960.09

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1.3.2 Undocumented Accounts totalling P32.179 million -

a. As at year-end, the undocumented accounts totalled P32.18 million

with the following details.

Office/ Accounts Total Amount without documentation

%

MWSS RO 127,394,157.00 24,392,533 19

MWSS CO 12,717,473.90 7,787,177 61

Total 140,111,630.90 32,179,710 23

b. In the MWSS RO, the accrual of the expenditures in the amount of

P24,392,533 were not supported with documents, details shown below:

Prior period accruals for maintenance and other operating expenses CY 2011 CY 2012 Board of Trustees expenditures for CY 2011 and 2012

9,674,434

4,622,521

4,937,000

CY 2013 accruals 5,158,578

Total 24,392,533

The breakdown of the CY 2011 accruals for maintenance and other operating expenses are shown below:

Breakdown of CY 2011 accruals

Training Expenses 118,000

Computer Supplies 43,055

Tel. Exp. – Landline 15,000

Advertising Exp. 55,392

Rent Expense – copiers 20,000

Representation Expenses 4,375

Survey Expenses 5,853,847

Consultancy - Asset Condition 3,100,000

Security Services 18,454

Extraordinary Exp.-Athletics/Wellness 6,143

Extraordinary Exp.-GAD/Cultural 126,678

Insurance Expense-HMO 313,489

Total 9,674,434

Details of CY 2012 accruals for maintenance and other operating expenses

Breakdown of CY 2012 accruals Electricity Expenses 320,820

Tel. Exp. – Landline 11,442

Tel. Exp. – Mobile 85,955

Representation Expenses 250,000

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Auditing Services 65

Other-Prof Services WQ Test 3,929,239

R&M - Motor Vehicles 25,000

Total 4,622,521

Details of CY 2013 accruals for maintenance and other operating expenses

Breakdown of CY 2013 accruals

Other-Prof Services 2,600,000

Terminal leave benefits 2,100,000

Advertising Exp 250,000

Printing & Binding 96,000

R&M - Motor Vehicles 50,000

EME 50,000

Rent Expense 1,062

Internet Services 6,960

Security/Janitorial services 4,263

Subscription 293

Total 5,158,578

c. In the MWSS CO, audit of the accrued expenses at the end of the

year showed that of the year end balance of P12,717,473.90, only the accruals in the amount of P4,930,297.35 were supported with documents. The journal entry vouchers and the supporting documents taking up accrual of expenditures in the amount of P7,787,176.55 have not been submitted to COA for verification; thus, the validity and accuracy of the following accounts could not be ascertained:


Advertising Expenses 37,800.00

ECC Contributions 12,100.00

Electricity Expenses 3,168,026.26

Extraordinary Expenses 86,349.26

Gasoline, Oil and Lubricants 58,314.59

Honoraria 93,000.00

Internet Expenses 87,758.42

Janitorial Services 273,156.00

Life and Retirement Insurance Contributions 474,651.36

Miscellaneous Expenses 55,678.46

Other Personnel Benefits 199,878.37

PAG-IBIG Contributions 12,100.00

PHILHEALTH Contributions 36,937.50

Repairs and Maintenance - Office Buildings 41,100.00

Security Services 993,465.75

Telephone Expenses - Landline 62,921.15

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Training Expenses 12,712.88

Water Expenses 16,377.83

Due to BIR (16,530.00)

Sub total 5,705,797.83

Accruals in CY 2012

Office Supplies Expenses 37,500.00

Gasoline, Oil and Lubricants 3,400.00

Office Supplies 5,000.00

Telephone Expenses - Mobile 600.00

Rent 30,918.72

Consultancy Services 1,579,160.00

Repairs and Maintenance - Office Buildings 120,000.00

Extraordinary Expenses 304,800.00

Sub total 2,081,378.72

Total 7,787,176.55

1.4 The non submission of the vouchers prevented this Office from conducting a timely

audit, hence, deficiencies noted, if any, could not be relayed immediately to Management for corrective action.

1.5 In the MWSS RO, we also observed that the account Due to Officers and Employees – Payroll included accounts with abnormal or debit balances of P3,281,295.

1.6 The deficiencies noted above are significant enough to cast doubt on the validity

and accuracy of the Payables’ aggregated balance.

1.7 We recommended and the Management of both the CO and RO agreed to:

a. Review the payable accounts to determine their validity and completeness; thereafter, revert to the Retained Earnings account all undocumented payables which have been outstanding for more than two years as provided under Section 98 of PD 1445;

b. Analyze the Due to Officers & Employees - Payroll account to

determine the reason for the abnormal account balance and make the necessary adjustments;

c. Require the submission of receipts/billings/invoices to support the obligation of expenditures; and in case of obligation of terminal leave benefits, ensure that there is a Board Resolution approving the accrual of earned leaves of employees; and

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d. Require the MWSS CO Finance Department to strictly comply with the provisions of COA Circular 94-001 on the timely submission of vouchers and other reports.

2. The Property, Plant and Equipment (PPE) accounts exclusive of land, with net book value of P22.907 billion as at year-end were not reasonably valued due to:

a. At the MWSS RO, depreciation for IT equipment costing P115.447 million was computed based on useful life of 20 years instead of five years required under COA Circular 2003-007; the Physical Inventory Report and the accounting records showed unreconciled difference of P29.023 million, with the amount per books of accounts more than the value of the assets in the inventory report; and unserviceable assets valued at P13.002 million were included in the PPE account and not transferred to Other Assets;

b. Property at the MWSS RO with acquisition costs of P41.087 million were carried in the books at net book value of P572.00 and in the MWSS CO, property with acquisition costs of P19.783 million were carried at net book value of P3.562 million instead of the residual value of 10% of acquisition cost, contrary to PAS 16 and COA Circular No. 2003-007; and

c. Items with acquisition cost below P10,000.00 are included in the PPE

accounts of both the MWSS CO and RO, with corresponding accumulated depreciation, contrary to COA Circular No. 1997-005.

2.1 The Property, Plant and Equipment accounts showed the following year-end balances: At the MWSS Corporate Office -

Account Name Acquisition Cost Accumulated Depreciation

Book Value

Office Buildings 1,103,938,145.81 872,362,296.85 231,575,848.96

Other Structures 60,352,642,078.84 37,906,133,758.19 22,446,508,320.65

Office Equipment 4,522,241.83 3,946,641.49 575,600.34

Furniture and Fixtures 6,895,503.63 5,020,923.90 1,874,579.73

IT Equipment and Software 116,531,807.38 109,799,540.88 6,732,266.50

Library Books 167,507.50 112,345.50 55,162.00

Communication Equipment 1,249,392.84 682,270.69 567,122.15

Construction and Heavy Equipment

248,240,733.67 197,817,433.94 50,423,299.73

Medical, Dental and Laboratory Equipment

40,535,469.89 34,161,074.01 6,374,395.88

Sports Equipment 1,603.00 877.46 725.54

Technical and Scientific Equipment

45,921,951.93 39,226,119.02 6,695,832.91

Other Machinery and Equipment 60,174,454.07 43,986,054.93 16,188,399.14

Motor Vehicles 4,703,553.43 4,065,931.89 637,621.54

Other Transportation Equipment 448,828,657.76 309,546,549.45 139,282,108.31

TOTAL 74,878,800,219.71 39,526,861,818.20 22,907,491,283.38

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MWSS Regulatory At the MWSS Regulatory Office -

Account Name & Code Acquisition Cost Accumulated

Depreciation Book Value

SL

Office Buildings- Improvements 2,925,095.64 2,925,015.64 80.00 Office Equipment 1,580,245.22 1,547,313.88 32,931.34 Furniture and Fixtures 4,659,429.72 4,520,101.68 139,328.04 IT Equipment & Software 131,848,605.18 75,779,707.92 56,068,897.26 Library Books 693,572.26 693,552.26 20.00 Communication Equipment 2,232,660.24 2,232,611.24 49.00 Medical, Dental & Lab Eqpt. 21,110.00 21,108.00 2.00 Sports Equipment 377,918.75 377,909.75 9.00 Technical & Scientific Eqpt. 3,480,486.20 3,321,258.89 159,227.31 Other Machineries & Eqpt.-Electrical & Aircon

623,807.32 623,793.32 14.00

Other Machineries & Eqpt.-Tools 60,385.00 60,381.00 4.00 Other Machineries & Eqpt.-Appliances

244,407.00 244,388.00 19.00

Other Machineries & Eqpt.-Audio Visual

1,865,314.36 1,841,097.38 24,216.98

Motor Vehicles 8,499,774.00 8,499,744.00 30.00

TOTAL 159,112,810.89 102,687,982.96 56,424,827.93

2.2 Audit of the PPE account is governed by the following:

a. Section 102 of PD 1445 COA Circular No. 80-124 dated January 18, 1980

which require that physical inventory of fixed assets shall be conducted at least once a year and that the inventory reports shall be prepared and certified by the committees in charge of the inventory taking and approved by the Head of the Agency and that the reports shall be properly reconciled with the accounting and inventory records.

b. Paragraph 53 of Philippine Accounting Standard (PAS) 16 on PPE which provides that the depreciable amount of an asset is determined after deducting its residual value.

c. COA Circular No. 2003-007 dated December 11, 2003 which prescribes the computation of depreciation expense of property, plant and equipment (PPE). As provided in paragraph 4 thereof, residual value equivalent to ten (10) percent of the acquisition cost/appraised value shall be provided for PPE which is deducted before dividing the same by the estimated useful life.

d. COA Circular No. 1997-005 dated July 01, 1997 which increases the value of items to be categorized as PPE from P1,500 to P10,000 and above;

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e. COA Circular 1997-003 dated May 22, 1997 which provides that PPE costing below P10,000 per unit of item shall be recorded as Inventories - semi-expendable property or Supplies and Materials expense as may be applicable.

2.3 Verification disclosed that the PPE accounts were not reasonably valued for the following reasons: 2.3.1 Property with acquisition costs of P19,783,215.664.12 were carried in

the MWSS CO books at net book value of P3,562,348,072.86 and in the MWSS RO books, property with acquisition costs of P41,087,576.67 were carried in the books at net book value of P572.00 instead of the residual value of 10% of acquisition cost.

a. Pursuant to Paragraph 53 of Philippine Accounting Standard (PAS) 16

on PPE and COA Circular No. 2003-007, the PPE therefore once fully depreciated should maintain a net book value equivalent to the residual value.

b. Using the formula on the computation of depreciation under COA

Circular 2003-007, the recorded net book value of the abovementioned PPE should have been as follows:

At the MWSS CO

Particulars Acquisition Cost Recorded Net Book Value

Should Be Residual value

Difference

Office Building 130,133,968.48 15,824,110.92 13,013,396.85 2,810,714.07

Medical, Dental & Laboratory Equipment

13,511,388.40 2,657,450.11 1,351,138.84 1,306,311.27

Construction and Heavy Equipment

24,306,049.16 5,137,372.65 2,430,461.33 2,706,911.32

Other Machinery & Equipment

3,742,894.49 752,354.99 374,289.45 378,065.54

Other Structures 19,611,521,363.59 3,537,976,784.19 1,957,385,463.39 1,580,591,320.80

Total 19,783,215.664.12 3,562,348,072.86 1,974,554,749.86 1,587,793,323.00

At the MWSS RO

Particulars Acquisition

Cost

Recorded Net Book

Value

Should be Residual

value Difference

Office Building 2,925,095.64 80 292,509.56 292,429.56

Office Equipment 1,522,914.22 55 152,291.42 152,236.42

Furniture & Fixtures 4,025,085.42 77 402,508.54 402,431.54

IT Equipment 15,211,622.80 148 1,521,162.28 1,521,014.28

Library Books 693,572.26 20 69,357.23 69,337.23

Communication Equipment 2,232,660.24 49 223,266.02 223,217.02

Medical, Dental & Lab. Eqpt. 21,110.00 2 2,111.00 2,109.00

Sports Equipment 377,918.75 9 37,791.88 37,782.88

Technical & Scientific Eqpt. 2,832,290.66 14 283,229.07 283,215.07

OME Electrical & Aircon 623,807.32 14 62,380.73 62,366.73

OME – Tools 60,385.00 4 6,038.50 6,034.50

OME – Appliances 244,407.00 19 24,440.70 24,421.70

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Particulars Acquisition

Cost

Recorded Net Book

Value

Should be Residual

value Difference

OME – Audio 1,816,933.36 51 181,693.34 181,642.34

Motor Vehicles 8,499,774.00 30 849,977.40 849,947.40

Total 41,087,576.67 572 4,108,757.67 4,108,185.67

2.3.2 Items with acquisition cost below P10,000.00 were included in the

PPE accounts of both the MWSS CO and RO with corresponding accumulated depreciation contrary to COA Circular No. 1997-005.

a. The lapsing schedule of PPE as of December 31, 2013 showed that

except for the office building account, all the other PPE accounts shown in the schedule above included items with acquisition costs of below P10,000.

b. The non-reclassification of the items below P10,000 pursuant to COA Circular No. 1997-005, resulted in the overstatement of the PPE and the corresponding accumulated depreciation and the understatement of the income and expense accounts of the following PPE accounts:

Particulars Amount

Communication Equipment 84,151.96

Furniture & Fixture 4,363,719.77

IT Equipment & Software 376,113.82

Office Equipment 176,634.50

Other Machinery & Equipment 1,331,621.91

Sports Equipment 1,603.00

Technical & Scientific Equipment 266,479.52

Total 6,600,324.48

2.3.3 At the MWSS RO, Depreciation for IT equipment costing

P115,446,818.30 was computed based on useful life of 20 years instead of 5 years as required under COA Circular 2003-007. a. IT equipment costing P115,446,818.30 acquired in CY 2003 were still

included in the PPE accounts with net carrying amount of P55,799,295.49 due to error in computing for its estimated useful life.

b. Under COA Circular 2003-007, IT equipment (hardware) shall have an

estimated useful life of five (5) years; however, the Regulatory Office schedule of fixed assets showed that depreciation was computed based on useful life of 20 years as shown below:

IT equipment Estimated useful life

Acquisition Cost Accumulated depreciation

Carrying amount/Net book value

IT equipment from PAWS project in CY 2003

20

115,446,818.30

59,647,522.81

55,799,295.49

100

c. Using the 5-year estimated useful life, the IT equipment should have been fully depreciated in CY 2008. As a result, the depreciation expense and the corresponding accumulated depreciation were understated. On the other hand, the PPE and income accounts were overstated.

d. The IT equipment should have been recorded at its residual value

equivalent to ten percent of acquisition cost if the equipment is still serviceable and being used in operation.

2.3.4 The Physical Inventory Report was not reconciled with accounting

records and was not signed by the committee-in-charge of the inventory taking and approved by the Acting Chief Regulator.

a. We noted that no reconciliation between the physical inventory report

and the accounting records was made. The carrying amount of PPE per books was P56,424,827.93 while the physical inventory reports showed a total amount of P27,402,016.76 or a difference of P29,022,811.17. Hence, the accuracy of the balance of the PPE account in the total amount of P159,112,810.89 cannot be relied upon. We noted that the members signed only in the transmittal letter of the inventory report to COA but not in the inventory report.

b. These were all in violation of Section 102 of PD 1445 and COA

Circular No. 80-124

2.3.5 Unserviceable assets valued at P13,002,442.20 included in the PPE account instead of the Other Asset account.

a. Review of the physical inventory report showed that there were

unserviceable assets costing P13,002,442.20 which were recorded under the PPE account instead of the Other Assets account pending sale, disposal or condemnation, with details shown below:

GL Account Name Unit

Code Value

221 Office Equipment 1,108,797.86

223 IT Equipment & Software 5,040,549.22

229 Communication Equipment 1,891,488.62

233 Medical Equipment 9,610.00

235 Sports Equipment 86,995.00

236 Technical & Scientific Eqpt. 157,573.00

241 Motor Vehicles 3,762,000.00

240-1 Other Machineries & Eqpt.- Electrical & Aircon

37,380.00

240-3 Other Machineries & Eqpt.- Appliances

34,374.00

240-4 Other Machineries & Eqpt.-Audio Visual

873,674.50

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GL Account Name Unit

Code Value

TOTAL 13,002,442.20

2.4 Considering the foregoing, we recommended and Management of both the

MWSS CO and RO agreed to:

a. Compute for the residual value of PPE which are fully depreciated in the accounting records but are still serviceable or used in operations; and

b. Comply with COA Circular 1997-005 on the recording in the books of accounts, as Inventories- semi-expendable property or Supplies and Materials expense as may be applicable, of items costing below P10,000 per unit; and prepare adjusting entries.

2.5 In the MWSS RO, we recommended and Management agreed to require the

Accounting Division to:

a. Recompute the depreciation of the IT equipment based on the 5-year estimated useful life in accordance with COA Circular 2003-007; and prepare necessary adjusting entries thereafter;

b. Reclassify to Other Assets account the unserviceable equipment

pending sale, disposition or condemnation;

c. Require the Inventory Committee to sign the inventory report and have it approved by the Acting Chief Regulator; thereafter, require the Finance & Administrative Division to reconcile the physical inventory report with the accounting records; and

d. Maintain Property Acknowledgement Receipt for all semi expendable

items for purposes of control and accountability 3. The appointment of a member of the Board of Trustee as Acting Chief Regulator of

the MWSS – Regulatory Office in concurrent capacity was in violation of the provisions of Item 2 of Exhibit A- Organization and Operation of the Regulatory Office of the Concession Agreement. 3.1 Pertinent provision of Item 2 of Exhibit A is quoted hereunder:

‘Item 2. Composition

The Regulatory Office shall be composed of five members (each a “member”) for five year terms; provided that the term of appointment of two of the initial Members (other than the Director) shall be for three years. No member of the Regulatory Office shall have any present or prior affiliation with MWSS or

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either of the Concessionaires (or any affiliate of either of the Concessionaires)”. (underscoring supplied)

3.2 The rationale for the prohibition is anchored on the fact that there are decisions of

the Regulatory Office that may require action by the MWSS Board of Trustees. (Article 11, item 11.1 of the CA). This apparent prohibition is further amplified in item 3 (Physical Location) of Exhibit A where it states that:

“3. Physical Location

The Regulatory Office shall be given suitable office in Metro Manila at a location separate from any other office or establishment of MWSS or either Concessionaire. XXX. Thereafter, the Director shall be responsible for any subsequent relocation or adjustment of office space, provided that the physical location of the Regulatory Office shall always be separate from any other office or establishment of MWSS or either the Concessionaires. (underscoring supplied)

3.3 Considering that the Acting Chief Regulator is a current member of the MWSS

Board of Trustees, he cannot therefore, perform the function of an Acting Chief Regulator of the MWSS Regulatory Office, regardless of whether he receives compensation or not.

3.4 We recommended that said member of the Board of Trustee forthwith inhibit

himself from performing the function of an Acting Chief Regulator of the MWSS Regulatory Office.

3.5 During the exit conference, the MWSS Administrator who is also the Acting

Chairman of the Board, informed that changes will be forthcoming in MWSS.

C. REITERATION OF PRIOR YEAR’S AUDIT FINDINGS & RECOMMENDATIONS 1. MWSS CORPORATE OFFICE

1. In compliance with prior years’ audit recommendation, Management was able to

reconcile Balance Sheet accounts with net amount of P127.529 million. At year-end, however, 42 General Ledger accounts with net amount of P362.735 million remained unreconciled with the Subsidiary Ledger and unverified for lack of supporting documents. 1.1 In previous years’ Annual Audit Reports, we recommended that Management

facilitate the immediate reconciliation of the various balance sheet accounts pursuant to the provisions of IAS 1 in order that the financial statements will be able to provide the financial users the accurate information about MWSS financial position, financial performance and cash flows.

1.2 Management commented that the Finance Department has been continuously in the process of reconciling its accounts. For CY 2013, we noted that there were

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reconciliation made for some accounts resulting in a decrease of P664,733,923.47 on unreconciled asset accounts and P537,204,625.42 decrease on unreconciled liabilities and contra-assets accounts, with net amount of 127,529,298.05. Details of reconciliation shown below:

Account Title Account

Code 2013 2012

Increase (Decrease)

ASSETS

Other Receivables

149 498,412.16 570,602.17 (72,190.01)

Office Equipment, Furniture and Fixtures

221/223 146,904,805.48 262,618,569.84 (115,713,764.36)

Machineries and Equipment

229/233/234/236/240

397,146,225.20 773,727,886.88 (376,581,661.68)

Transportation Equipment

241 148,864,219.89 315,672,180.24 (166,807,960.35)

Construction in Progress

264 457,018,738.82 462,577,085.89 (5,558,347.07)

Sub-total 1,150,432,401.55 1,815,166,325.02 (664,733,923.47)

Less:

Due to GSIS 413 1,691,656.63 1,692,034.41 (377.78)

Accumulated Depreciation – IT Equipment & Software

323 127,467,151.89 231,609,539.82 (104,142,387.93)

Accumulated

Depreciation -

Machineries and

Equipment

329/333/334/

336/340 387,935,632.42 658,956,412.82 (271,020,780.40)

Accumulated

Depreciation -

Transportation

Equipment

341 155,238,035.40 317,279,114.71 (162,041,079.31)

Sub-total 672,332,476.34 1,209,537,101.76 (537,204,625.42)

NET of RECONCILED AMOUNT

(127,529,298.05)

1.3 However, review of the balance sheets accounts revealed that there were 42

accounts, with total net amount of P362,735,930.18, that were still for reconciliation and verification as of December 31, 2013 as shown below:

No. of

Accounts (General

Ledger) for reconciliation

Amount for Reconciliation

Percentage to total

assets/liabilities TOTAL

Assets (includes) contra-assets accounts

30 575,883,408.35 1 52,017,412,546.19

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No. of Accounts (General

Ledger) for reconciliation

Amount for Reconciliation

Percentage to total

assets/liabilities TOTAL

Liabilities 11 938,337,667.02 6 15,745,931,775.99

Equity 1 281,671.51 0 36,271,480,770.20

Unreconciled Accounts, NET

42 362,735,930.18 104,034,825,092.38

1.4 Comparative presentation of accounts for verification/reconciliation for CYs 2012

and 2013 is shown in the table below:

Comparative Presentation of Accounts for Verification/Reconciliation For CYs 2012 and 2013


Code 2013 2012* Remarks

Accounts Receivable 121 2,993,155.09 2,993,155.09 Still unreconciled;

Due from Officers and Employees

123 17,825,117.96 17,825,117.96 Still unreconciled;

Loans Receivable 126 900,000.00 900,000.00 Still unreconciled

Receivables – Disallowances/ Charges

146 609,942.00 609,942.00 Dormant since 1997; Still unreconciled

Other Receivables 149 498,412.16 570,602.17

Decrease of P72,190.01 is due to refund of overpayment to Fortune Care Inc.

Deposit on Letters of Credit

180 2,888,349.43

2,888,349.43

Dormant since 1997; Still unreconciled

Advance to Contractors

181 78,823,893.58 78,823,893.58 Dormant since 1997; Still unreconciled

Other Prepaid Expenses

185 19,577,362.70 19,577,362.70

P11.097M represents Creditable Withholding Tax for offsetting to Income tax payable according to Management’s response. Still unreconciled

Land 201-01-99 (10,319,400.00) (10,319,400.00) Still unreconciled

Buildings

215-01-13-99-1-

OR&AD-01-00001

23,691,891.73 23,691,891.73 Still unreconciled

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Accumulated Depreciation - Buildings

315 (21,322,702.56) (21,322,702.56)

Corresponding Accumulated Depreciation for Unreconciled Buildings account

Office Equipment, Furniture and Fixtures

221/223 146,904,805.48 262,618,569.84 P115,713,764.36 decrease is due reclassification

Accumulated Depreciation - Office Equipment, Furniture and Fixtures

321/323 (127,467,151.89) (231,609,539.82) P104,142,387.93 decrease is due reclassification.

Machineries and Equipment

229/233/234/236/240

397,146,225.20 773,727,886.88

P376,581,661.68

decrease are due

to the following

reclassifications:

Account 233 - P37,646,670.42

Account 236 - P33,105,402.09

Account 240 - P305,829,589.17

Accumulated Depreciation - Machineries and Equipment

329/333/334/336/340

(387,935,632.42) (658,956,412.82) P271,020,780.40 decrease is due reclassification.

Transportation Equipment

241 148,864,219.89 315,672,180.24 P166,807,960.35 decrease is due to reclassification

Accumulated Depreciation - Transportation Equipment

341 (155,238,035.40)

(317,279,114.71)

P162,041,079.31 decrease is due to reclassification

Construction in Progress

264 457,018,738.82 462,577,085.89

decrease is due to: Reclassification in the amount of P5,558,347.07

Other Assets 290 499,424,638.42 499,424,638.42 Dormant since 2003; Still unreconciled

Allowance for Doubtful Accounts

301-02-99 (519,000,421.84) (519,000,421.84) Still unreconciled

TOTAL ASSETS P575,883,408.35 P703,413,084.18 P127,529,675.83

decrease

Accounts Payable 401 533,802,866.88 533,802,866.88 Still unreconciled

Due to Officers and Employees

403 48,999,125.01 48,999,125.01 Still unreconciled

Due to BIR 412 2,527,112.25 2,527,112.25 Still unreconciled;

Due to GSIS 413 1,692,034.41 P377.78 decrease

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1,691,656.63 due to adjustments

Due to PAG-IBIG 414 111,068.74 111,068.74 Still unreconciled

Due to Philhealth 415 29,275.00 29,275.00 Still unreconciled

Due to other GOCCs 417 430,174.81 430,174.81 Still unreconciled

Guaranty Deposits Payable

426 170,533,388.90 170,533,388.90 Still unreconciled

Performance/Bidders/Bail Bonds Payable

427 1,428,947.39 1,428,947.39 Still unreconciled Account

Other Payables 439 156,151,331.89 156,151,331.89 Still unreconciled;

Other Deferred Credits 455 22,632,719.52 22,632,719.52 Still unreconciled

TOTAL LIABILITIES P938,337,667.02 P938,338,044.80 P377.78 decrease

Capital Stock 502 281,671.51 281,671.51 Still unreconciled;

TOTAL EQUITY P281,671.51 P281,671.51 -

TOTAL LIABILITIES AND EQUITY

P938,619,338.53 P938,619,716.31 P377.78 decrease

UNRECONCILED ACCOUNTS, NET

P362,735,930.18 P235,206,632.13

P127,529,298.05 (net)

1.5 Under Section 73 of the Manual on the National Government Accounting System,

the responsibility for the fair presentation and reliability of financial statements rests in the management of the reporting agency. To achieve fair presentation and reliable information, all financial data presented should be accurate, reliable and truthful and all appropriate steps should be taken to avoid bias, unclear facts and presentation of misleading information.

1.6 Despite Management’s efforts to clean up the Agency’s books, the year-end

financial statements’ fairness and reliability, as to its financial position and performance, remained doubtful because of the various accounts still for reconciliation and verification which could overstate or understate the assets and liabilities accounts at year end.

1.7 We reiterated our previous recommendation that Management facilitate the immediate reconciliation cited above pursuant to the provisions of IAS 1 in order that their financial statements will be able to provide the financial users the accurate information about the Agency’s financial position, financial performance and cash flows.

1.8 Management informed that continuous reconciliation and clean-up of unreconciled

and dormant accounts will be a priority in CY 2014.

2. The balance of the Land account in the amount of P12.444 billion as of December 31, 2013 was not correctly stated due to:

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a. The dropping from the books of accounts of land with carrying value of P89.725 million was not effected because of the discrepancy in land area by 29.573 million square meters between the accounting records and TCT No. 36069, with the area per accounting records higher than the area per land title. Likewise, a difference of 2,594.40 square meters was noted between the area in the remaining lots per land title and the area per inventory after the sale of the lots.

b. Land with an area of 92.61 hectares, titled under MWSS name, was not

recorded in the books; c. Transfer Certificate of Titles (TCT) of 128 lots with an area of 194.91

hectares were not found during the actual inventory of land titles which were recorded in the books but were not included in the inventory list of TCTs in MWSS vault; and

d. Transfer Certificate of Titles of eight lots with an area of 7.78 hectares

were not found during the actual inventory of land titles; these were land recorded in the books and included in the inventory of TCTs in MWSS vault.

1. 2.1 The unreconciled records of the Accounting and the Property Management

Department on the Land account have always been an audit finding in the previous Annual Audit Reports. Relative thereto, Management issued Office Order 2012-008 dated January 4, 2012 to validate the veracity of the records of MWSS land and land rights.

2.2 We commended Management through the Physical Inventory Committee and the

Finance Department for the efforts in validating the veracity of the records of land and land rights of the MWSS in compliance to MWSS Office Order No. 2012-008 dated January 4, 2012.

2.3 However, audit of the land and land improvement accounts disclosed the following:

2.3.1 The dropping from the books of accounts of land with carrying value of P89,725,083.90 was not effected due to a discrepancy in land area by 29,573,498.09 square meters between the accounting records and TCT No. 36069, with the area per accounting records higher than the area per land title. Likewise, a difference of 2,594.40 square meters was noted between the area in the remaining lots per TCT and the area per inventory after the sale of the lots.

a. The land located in Balara, Quezon City has total land area of

2,047,409.70 under TCT No. 36069. Documents gathered showed that sometime in 1983, 1,333,335.60 square meters of land were sold; thus, the remaining lots should have a land area of 714,074.10 square meters.

b. Analysis revealed the following:

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i. The Physical Inventory Committee reported that the total remaining lots has an area of 716,668.50 square meters with the remaining area based on TCT is 714,074.10 square meters, thereby showing a difference of 2,594.40 square meters as shown below:

Particulars Area (sq.m.)

Remaining area per Committee report

716,668.50

Remaining area based on TCT 36069

714,074.10

Difference 2,594.40

ii. The Physical Inventory Committee in its

Investigation/Verification report dated January 7, 2014 recommended the dropping from the books of accounts the remaining parcels of land under TCT No. 36069 with total area of 716,668.50 square meters based on the Committee’s report that TCT No. 36069 was already cancelled due to the sale of the lots in 1983.

c. While the dropping from the books of accounts for the remaining

parcels of land was recommended by the Physical Inventory Committee, the Finance Department deemed it not proper to immediately record the dropping from the books of accounts the remaining lot areas due to the discrepancy of 29,573,498.09 square meters in land area with carrying value of P89,725,083.90.

d. The Finance Department’s computation of the difference of 29,573,498.09 square meters of land, with the area per accounting records higher than the area per TCT, is shown below:

Particulars Area (sq.m.)

Remaining area per books 30,290,166.59

Remaining area per TCT 36069 716,668.50

Difference 29,573,398.09

e. The discrepancies in land area noted above with a carrying value of

P89,725,083.90 caused the delay in the dropping from the books of accounts of the remaining land area. This renders the account doubtful and that the accurate value of the land account was not fairly recorded.

f. It is our view that Management should first establish the reason/cause of the discrepancies and validate the correctness of the land area before the dropping of the books is done.

2.3.2 Land with an area of 92.61 hectares, titled under MWSS name, was not recorded in the books.

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b. We conducted an inventory of the land titles kept in MWSS vault on February 24 – March 12, 2014. Verification of Transfer Certificate Titles (TCTs) of lands owned by MWSS as against Finance records and Property Management Department List of TCTs.

c. We noted that Land with an area of 926,142 square meters titled

under MWSS name, was not recorded in the books. Details shown in table below:

2.3.3 Transfer Certificate of Titles (TCT) of 128 lots with an area of 194.91 hectares were not found during the actual inventory of land titles which were recorded in the books but were not included in the inventory list of TCTs in MWSS vault.

a. We also noted that TCTs of land with an area of 1,949,081.19 square

meters were not found during the actual inventory of land titles; these were land recorded in the books but were not included in the inventory list of TCTs in MWSS vault.

b. Actual inventory of land titles showed that there were lands recorded in the books but the land titles were not found. Breakdown as follows:

i. Summary of List of land with TCTs not found during actual

inventory of land titles is shown below.

Summary list of land with TCTs not found during actual inventory of land titles

List of Unrecorded MWSS Titled Properties As of December 31, 2013

TCT No. Lot No.

Location Area (Sq. m.)

15793 955-A Part of Tala Estate Commonwealth/ Capitol, Q.C.

36,738

255999 1120 Part of Tala Estate Commonwealth/ Capitol, Q.C.

96,953

27641 752A Luzon Avenue (Municipality of Caloocan, Province of Rizal)

12,263

26284 805-A Luzon Avenue (Municipality of Caloocan, Province of Rizal)

19,309

16 16 Matitic, Norzagaray 10,699

5667 B1 Sapang Palay, Sta. Maria, Bulacan 29,047

10103 111 Municipality of San Mateo, Province of Rizal 391,677

10254 87 San Juan 3,843

10254 88 San Juan 7,890

27642 795A Municipality of Caloocan (Luzon Avenue) 34,261

27643 797A Municipality of Caloocan (Luzon Avenue ) 30,827

30213 5A1 15th Ave., E. Rodriguez Street, Cubao 401

27255 23 15

th Ave., Socorro Santolan, Murphy San

Juan, Rizal 1,635

41028 2695 Caloocan City 599

15801 697 Quezon City 250,000

Total area 926,142

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Location No. of Lots Lot Area (sq.m.)

Allocated to MWCI 42 382,205.40

Allocated to MWSI 63 934,892.79

Retained Assets 23 631,983.00

Total 128 1,949,081.19

ii. Details as to location of the lots with TCTs not found during actual

inventory of land titles are shown below:

Allocated to MWCI

Location No. of

Lots

Lot Area (sq.m.)

Aqueducts right of way (La Mesa-Balara)

8 127,850

Marikina river – San Juan-Balara 29 217,722

San Juan reservoirs & pumping station 1 14,045

Quezon city 2 21,547.90

Pasig 1 991

Marikina 1 49.50

Total land area 42 382,205.40

Allocated to MWSI

Location No. Of Lots

Lot Area (sq.m.)

La Mesa – Bagbag right of way 5 3,763

Bagbag-Tandang Sora aqueduct row

17 24,994

Bagbag reservoir & pumping station 2 6,596

D. Tuazon pumping station & reservoir

1 800

Manila 26 15,120.79

Norzagaray , Bulacan 2 1,545

Caloocan city 9 867,093

Quezon city 1 14,981

Total land area 63 934,892.79

Retained Assets

Location No. of Lots

Lot Area (sq.m.)

Novaliches, Caloocan city 9 144,923

Novaliches, Quezon City 6 387,940

Rodriguez, Rizal 8 99,120

Total land area 23 631,983

2.3.4 Transfer Certificate of Titles of eight lots with an area of 7.78 hectares

were not found during the actual inventory of land titles; these were land recorded in the books and included in the inventory of TCTs in MWSS vault.

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a. Shown below is a listing of TCTs of eight lots with an area of 77,826 square meters which were not found during the actual inventory of land titles; however, these were land recorded in the books and included in the inventory of TCTs in MWSS vault.

TCT No.

Lot No. Location Area

(Sq. M.)

378154 62 B Quezon City 24,220

163765 592 A-1A Quezon City 1,114

27828 20 Quezon City 22,206

19349 49-C-3A-3C-2A-3A-1

Quezon City 8,095

19349 49C-3A-3C-A1-1A Quezon City 175

19349 49C-3A-2 Quezon City 2,076

35390 1B-3B-3C-2A Mandaluyong City 2,557

19350 49C-3A-3C-3A-4C Quezon City 17,383

Total land area 77,826

b. The ownership of the parcel of land per TCT No. 11095, Lot No.

1B45, located in Taguig with an area of 1,773 square meters is still under the name of the National Housing Authority (NHA). Said TCT has not been transferred in the name of MWSS as of to date.

2.4 The above observations showed leniency in the custody of MWSS land titles. A

Transfer Certificate of Title (TCT) is the best evidence to prove ownership over a parcel of land. It is the evidence of the right of the owner or the extent of his interest, and by which he can maintain control and as a rule assert to exclusive possession and enjoyment of the property. It is therefore necessary that all TCTs are kept in the MWSS vault.


a. Consider conducting an independent survey of all land and land

rights to determine the actual area of MWSS-owned lands and to confirm and validate the existing TCTs with the end in view of getting the accurate carrying value of all its owned land; thereafter, prepare reconciliation with accounting records and necessary adjustments if warranted;

b. Require the Accounting and PMD to reconcile their records to

facilitate the recording of land with an area of 926,142 square meters titled under MWSS name;

c. Immediately require the person/s responsible for the custody of the

TCTs to account for the TCTs of the 1,949,081.19 square meters of land not found during the actual inventory of land titles;

d. Ensure that all lots owned by MWSS are properly recorded in the books;

e. Facilitate the transfer of ownership to MWSS of land under the name

of the NHA covered by Land Title No. 11095.

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2.6 Management informed the Audit Team that the Property Management Department

was instructed to:

a. Validate the correctness of the land area through the conduct of a re-survey of the property and sub-divided, and prepare the Terms of Reference for the procurement of an independent surveyor, so that a separate TCT may be issued in the name of MWSS;

b. Establish the reason for the discrepancies in the TCT 36069 in a full report

to be submitted to the Office of the Administrator not later than 25 April 2014;

c. Provide status or breakdown for the 1,949,081.19 square meters property which TCT were not found in the actual inventory of land titles, as these properties were recorded in the books but were not included in the inventory list of TCTs in MWSS vault;

d. On the 8 lots with an area of 77,826 square meters not found during the

actual inventory of land titles, which according to PMD is the subject of petition for reconstitution of title filed in court, give a copy of latest order and status of the petition, as these properties were recorded in the books but were not included in the inventory list of TCTs in MWSS vault; and

e. Include in the lands to be surveyed by an independent surveyor, the land in Taguig which is still in the name of NHA with annotations that portion has been donated to MWSS.

3. Of the four individual loan accounts with foreign and local lending banks under the

Bonds/Loans Payable accounts with year-end balance of P11.993 billion, two loans accounts posted variance against the confirmed balances by the foreign lending institutions with the latter higher by P112.488 million. The reconciliation between MWSS and the foreign and local lending banks records have not been consistently pursued.

3.1 As of December 31, 2013, the Bonds/Loans Payable account carried a year-end

balance of P11,992,730,525.30. These pertained to loans arising from loan agreements executed by and between MWSS and the local and foreign lending institutions such as:

Breakdown of Bonds/Loans Payable account As of December 31, 2013

Name of bank/creditor

Loan Purpose Date Granted Maturity date

Amount

LBP DBP LBP DBP Club Deal Facility

To partly finance the MWSS’ maturing 7-year USD 150M 9.25% Fixed rate Bond with the

March 30, 2011 December 31, 2018

1,366,071,428

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Amount

BNP Paribas which matured last March 14, 2011.

Bureau of Treasury

Loan transfer from NHA

Fund for the transfer of water and sewer systems in Tondo Foreshore, Dagat-Dagatan and Kapitbahayan

Still subject to confirmation and subsequent preparation of MOA between MWSS, NHA and the two concessionaires

98,795,399

ADB SPIAL 779 and 780

Manila Water Supply Rehabilitation Project I (MWSRP I), Manila Water Supply Project II (MWSP II) and Metro Manila Sewerage Project (MMSP).

November 1991 and November 1996 respectively

May 15, 2026

355,625,715

IBRD 1272/1282 Manila Urban Development Project

November 15, 1981.

July 15, 2020 64,143,909

ADB 1746 A sanitation component of the loan Pasig River Environmental Management and Rehabilitation Sector Development Program (PREMRSDP),

October 13, 2003

February 1, 2022

196,176,064

IBRD 4019 Manila Second Sewerage Project

June 19, 1996 July 1, 2016

362,428,909

ADB 986 Angat Water Optimization Project

December 18, 1989

Oct 1, 2014

561,752,590

ADB 1150 Manila South Distribution Project

January 23, 1992

Oct 15, 2016

141,852,578

ADB 1379 Umiray Angat Transbasin Project

November 27, 1995

July 15, 2020

2,208,587,322

OECF/JBIC 1146 Angat Water Optimization

May 11, 1990 Feb 20, 2020

1,458,649391

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Amount

Project

French Republic

French Loan

Rizal Province Water Supply Improvement Project (RPWSIP

December 2002 December 31, 2018

56,368,591

Export-Import Bank of China

AWUAIP II

Angat Water Utilization & Aqueduct Improvement Program

May 7, 2010 Jan 21, 2030

5,122,278,629

Total 11,992,730,525

3.2 Requests for confirmation were sent out to lending banks as regards year-end

balances. Confirmation results for Bonds/Loan Payables balances as of December 31, 2013 showed a discrepancy of P112,487,895.01 as shown in the following table.

Result of confirmation

Creditor Per MWSS’s Books Per Bank Overstated

(Understated)

French Protocol 56,368,590.64 65,552,516.03 (9,183,925.39)

IBRD 4019 (ODA) 362,428,909.56 465,732,879.18 (103,303,969.62)

TOTAL 418,797,500.20 531,285,395.21 (112,487,895.01)

a. The French Protocol is a French Treasury Credit Facility from the French Republic intended to finance the implementation of the Rizal Province Water Supply Improvement Project (RPWSIP) to mature on December 31, 2018.

b. IBRD Loan No. 4019 PH - Manila Second Sewerage Project - was

obtained on June 19, 1996. The objectives of the project were to assist the Borrower to a) reduce the pollution of Metro Manila waterways and Manila Bay; b) reduce the health hazards associated with human exposure to sewerage in Metro Manila; and c) establish a gradual low-cost improvement of sewerage services in Metro Manila by expanding the Borrower’s septage management program. It is a fifteen (15) year loan with a grace period of five (5) years which will mature on July 1, 2016.

3.3 We reiterated our prior years’ recommendation and Management agreed to

require the Finance Department to reconcile the discrepancies in the Loans Payable account in order to arrive at the correct balances of the account at year-end; and

4. The collections from the two concessionaires for the payment of foreign loans from CYs 2005 to 2013 in the total amount of P1.863 billion were not remitted to the

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Bureau of Treasury due to the unresolved issue on whether the loan was equity of the government or will remain as a loan since the concessionaires continued the implementation of the project. 4.1 In the CY 2012 AAR, we reported that the collections from the Concessionaires for

the payment of the JBIC/OECF loan during the year were not paid to the Bureau of Treasury. Management explained that non-remittance was `due to the unresolved issue on whether the loan was equity of the government or will remain as a loan since the concessionaires continued the project.

We then recommended that Management immediately resolve with the Department of Finance and the Bureau of Treasury the issue on whether the disbursements for the AWSOP before privatization recorded as Loan Payable JBIC/OECF is to be treated as equity from the National Government or will remain loan as it is the concessionaires who implemented the project. We further recommended that should the recorded loan to JBIC/OECF continue to be treated as loan, Management require the immediate remittance to the National Government of the amount received from the concessionaires intended for the debt servicing to JBIC/OECF.

4.2 For CY 2013, audit of the loans payments to the Bureau of Treasury as against the

collections from the two concessionaires for the payment of loans revealed that payments received from the concessionaires for the payment of loans were not remitted to the Bureau of Treasury. These are the following:

Loan Amount collected Period covered

JBIC (OECF) Loan PH 110

1,608,205,797.55 February 2006-December 2013

Special Project Implementation Assistance Loan

254,596,729.12 January 2005-

November 2008

Total 1,862,802,526.67

The JBIC (OECF) Loan PH 110 and the Special Project Implementation Assistance Loan (SPIAL) are classified under Long Term Liabilities - Foreign and Domestic Loans respectively.

4.3 On the JBIC/OECF Loan with unremitted collection of P1,608,205,797.55

a. JBIC (OECF) Loan PH 110 loan was contracted by Japan and the National government of the Republic of the Philippines in 1990 and is intended for Angat Water Supply Optimization Project (AWSOP). The Loan Agreement No. PH-110 dated February 9, 1990 showed that the Government of the Philippines is the Borrower of the loan and the MWSS is the Executing Agency or the implementer of the project.

The original amount of the loan was Y10,650,000,000 (US$91.90) of which Y6,593,113,021(US$61.75 million) was disbursed based on cumulative total of disbursements for the project as of May 11, 2001 and an unutilized balance

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of Y3,966,886,979 (US$37.15 million), amortization due date is February 20 and August 20 of each year, interest at 2.70% per annum

b. Based on the accounting data gathered, the last payments made to the Bureau of Treasury was on April 4, 2005 and September 20, 2005 in the amount of P200,000,000 and P111,322,049.07 respectively.

c. MWSS continuously billed and collected the amortization of the loan from the

two concessionaires. The total collections which includes principal and interest payments from the two concessionaires for the loan from CY 2006 to 2013 which has accumulated to the total amount of P1,608,205,797.55 are shown below:

Summary of collections from concessionaires for the JBIC/OECF loan From CY 2006 to CY 2013

Date MWCI

MWSS bank

account where the

amount was

initially deposited

MWSI

MWSS bank account where initially

deposited

Total

CY 2006

February 31,401,634.13 PNB savings account

57,473,564.74

September 26,071,930.61 PNB savings account

CY 2007

January 355,416,404.51

505,983,620.65

54,396,758.04

February 21,386,917.32 PNB savings account

24,103,738.76 PNB savings account

August 25,020,647.05 LBP Time deposit

25,659,154.97 LBP Time deposit

CY 2008

January 242,934,653.91

366,468,483.33

14,387,827.11

March 20,678,461.27 PNB Savings Acct

26,989,828.69 PNB time deposit


35,229,752.74 LBP Time deposit

CY 2009

February 27,579,426.58

LBP Time deposit

43,251,919.71 DBP Time Deposit

144,092,412.23 August 31,613,033.92

LBP Time deposit

41,648,032.02 LBP Current account

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Summary of collections from concessionaires for the JBIC/OECF loan From CY 2006 to CY 2013

Date MWCI

MWSS bank

account where the

amount was

initially deposited

MWSI

MWSS bank account where initially

deposited

Total

CY 2010

February 25,555,171.32 LBP Time deposit


141,064,291.69 August 32,092,104.65

LBP Time deposit


CY 2011



141,589,503.62 August 32,229,215.65

LBP Time deposit


CY 2012



140,138,216.83 August 30,625,582.04

LBP Time deposit


CY 2013





111,395,704.46

Total 428,099,988.51 1,180,105,809.04 1,608,205,797.55

d. In a letter dated April 14, 2014 to MWSS, copy furnished this Office, the

Bureau of Treasury informed that based on BTr’s records, of the total loan of Y6,593,113,021(US$61.75 million) only the amount of Y416,046,615 or P106,072.026 represents equity of the government and that there was no document that would show that this amount is to be treated as grant or subsidy of the government.

e. Further, the Bureau of Treasury’s records showed that the amount payable by MWSS to BTr for the JBIC/OECF loan as of December 31, 2013 amounted to P2,477,380,362.75 which MWSS should settle immediately.

4.4 On the SPIAL with unremitted collection of P254,596,729.12 a. The Special Project Implementation Assistance Loan (SPIAL) equivalent to US

$13.162 Million is a portion of the National Government’s multi-currency loans from the ADB under Loan Nos. 779 & 780. This was relent to MWSS to partly finance the following projects: Manila Water Supply Rehabilitation Project I (MWSRP I), Manila Water Supply Project II (MWSP II) and Metro Manila Sewerage Project (MMSP).

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b. Accounting data showed that all collection from Manila Water Company Inc. (MWCI) for the payment of the SPIAL was remitted to the Bureau of Treasury.

c. It was the collections from Maynilad Water Services Inc. (MWSI) covering the

period January 2005 to November 2008 in the amount of P254,596,729.12 that was not remitted to the Bureau of Treasury, with details below:

Date MWSS bank account where the amount was

initially deposited Amount

Jan. 20, 2005 Included in the Collection of Performance Bond from MWSI deposited in the BTr Savings Account MWSS Performance Bond

364,440,021.88

Jan. 24, 2007

Included in the collection of financial bids (Credit Memo) of MWSI deposited under LBP Savings Account, covering the following periods: CY 2005 CY 2006

84,329,724.81 21,657,197.23

May 15, 2007 PNB Time deposit 4,686,350.77

Nov. 15, 2007 PNB Savings Account 4,236,407.43

Jan. 17, 2008 Included in the collection of DCRA Exit fee deposited under LBP Special Account and BSP Savings account

56,410,811.93

May 13, 2008 PNB Savings Account 5,951,741.36

Nov. 15, 2008 LBP Current account 6,779,681.38

Total collection 548,491,936.79

Remittance to BTr in October 2009 293,895,207.67

Unremitted amount to BTr as December 31, 2013 254,596,729.12

d. From CY 2009 onwards, the collections from MWSI for the SPIAL were

remitted to the Bureau of Treasury.

4.5 We also observed that the collections for the payment of the abovementioned loans were not deposited in a single bank account and kept as restricted cash but were deposited in different bank accounts of MWSS, thus, there is the risk that the funds were used for purposes other than the payment of loans.

4.6 In the herein Audit Observation No. B.1.3 for the MWSS CO, we observed that

the cash and cash equivalents of MWSS CO were not sufficient to pay the loans, the amounts of which have been received from the concessionaires, and the other trust accounts of MWSS.

4.7 Considering that the Bureau of Treasury has billed MWSS for the loan

obligations, we reiterated our previous year recommendation that Management remit immediately to the Bureau of the Treasury all collections from the two concessionaires for the JBIC and SPIAL.

4.8 During the exit conference, the MWSS Administrator said that MWSS is mindful of the obligation to the National Government and if the amount being billed needs to be paid, then the MWSS will do as appropriate. The Administrator is looking at it in the context of the Water Security Legacy Program, because the Agency has

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several projects in line and funds are needed for expenditures related to the Project. Nonetheless, Management will address the issue and will make representation with the DBM, DOF or OP on the matter.

4.9 Management also commented that the intention was to treat as equity the JBIC

collection considering that the Government Capital Subscription is not yet fully delivered to MWSS. The Capital Stock is P8B, and only P6.2B have been released to MWSS as of 1997.

4.10 Management further informed that in compliance with the audit recommendation,

the SPIAL loan was remitted to the Bureau of Treasury and duly receipted under OR No. 4704853 dated on May 21, 2014

5. The accuracy and validity of the Loans Payable-Domestic account with outstanding

balance of P714.741 million was not established due to unreconciled variance between the MWSS books of accounts and the confirmed balance from the Bureau of Treasury with the latter higher by P532.778 million. 5.1 The Loans Payable-Domestic account as of December 31, 2013 was composed of

the following:

Schedule of Loans Payable - Domestic As of December 31, 2013

NHA 98,795,399.07

SPIAL 355,625,714.73

TSSP/IBRD 1272 64,143,909.08

PREMSDP-ADB 1746 196,176,063.72

Total 714,741,086.60

a. The NHA loan, which remained dormant since 1996, funded the transfer

of water and sewer systems in Tondo Foreshore, Dagat-Dagatan and Kapitbahayan. As disclosed in the Notes to Financial Statements, the validity of the account is still subject to confirmation and subsequent preparation of MOA between MWSS, NHA and the two concessionaires.

b. The SPIAL is a portion of the National Government’s multi-currency loans

from the ADB under Loan Nos. 779 and 780. The loan was relent to MWSS to partly finance its projects such as Manila Water Supply Rehabilitation Project I (MWSRP I), Manila Water Supply Project II (MWSP II) and Metro Manila Sewerage Project (MMSP). The loan will mature on May 15, 2026.

c. IBRD 1272/1282 are loans intended to finance the Manila Urban

Development Project. These are national government loans relent to MWSS on October 1, 1976. Based on the Loan Agreement dated October 1, 1976, MWSS shall repay the principal of the loan that started on November 15, 1981. Maturity date of the loan is July 15, 2020.

d. PREMSDP-ADB 1746 PHI is a sub-loan agreement entered into by and

between the Department of Finance and MWSS on October 13, 2003 for

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the implementation of the Pasig River Environmental Management and Rehabilitation Sector Development Program (PREMRSDP), a sanitation component of the loan. The loan will mature on February 1, 2022.

5.2 The results of confirmation with the Bureau of the Treasury disclosed variance in

the total amount of P532,778,580.69 with the year-end outstanding loan balance for the following loans:

Result of Confirmation – Loans Payable-Domestic account

Per Books Per BTr Variances

SPIAL (ADB 779 & 780) 355,625,714.73 526,084,422.24 (170,458,707.51)

IBRD 1272 64,143,909.08 67,840,144.00 (3,696,234.92)

IBRD 2676 0 358,623,638.26 (358,623,638.26)

TOTAL 419,769,623.81 952,548,204.50 532,778,580.69

5.3 It was noted that IBRD 2676, intended to finance the Manila Water Distribution Project with a principal amount of US$35.30M payable in 30 semi-annual installments until May 15, 2006, showed zero balance in MWSS books but per BTr confirmation showed that MWSS has a loan payable balance of P358,623,638.26. Based on the audited Financial Statements of CY 2006, the loan IBRD 2676 already reflected a zero balance.


a. Coordinate with NHA and BTr regarding MWSS loan with NHA.

Facilitate the confirmation and subsequent preparation of MOA between MWSS, NHA and the two concessionaires for the immediate settlement of the outstanding balance of P98,795,399.07; and

b. Reconcile with BTr the discrepancies found in the Loans Payable

account in order to arrive at the correct balances at year end. Facilitate the recording of settlement of IBRD 2676 in BTr’s book which was fully paid in CY 2006.

6. The year-end balance of the Inter-Agency Payables – Due to the Bureau of Treasury

(BTr) account in the amount P233.665 million was doubtful of accuracy due to variances of P871.821 million between the MWSS and the BTr’s books on the balances of the respective receivables and payables accounts. 6.1 The account Payable to the Bureau of Treasury which showed a year-end balance

of P233,665,256.43 pertained to the guarantee fees on existing loans, deposits for special reserve fund and interest/other charges on SPIAL loan. Details are shown below:

Schedule of Inter-Agency Payables – Due to the Bureau of Treasury As of December 31, 2013

Particulars Balance

Dec. 31, 2013

Guarantee Fee - Project Loans - ADB 986 15,307,571.89

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Schedule of Inter-Agency Payables – Due to the Bureau of Treasury As of December 31, 2013



Guarantee Fee - Project Loans - ADB 2012 746,383.75

Guarantee Fee - Project Loans - IBRD 3124 585,767.01

Guarantee Fee - Project Loans - IBRD 4019 566,888.33

Guarantee Fee - Project Loans - EXIMBANK (AWUAIP) 11,558,461.94

Guarantee Fee- Bridge Loans - First Metro 7,800,000.00

Guarantee Fee- Bridge Loans – RCBC 8,300,550.00

Guarantee Fee- Bridge Loans – Keppel 5,516,900.00

Guarantee Fee- Bridge Loans - Deutche Bank 58,308,600.00

Total Guarantee Fees 128,238,886.01

For Deposit to Special Reserve Fund -35% of Proceeds from sale of unserviceable assets

3,521,716.91

Interest Other Charges – SPIAL 101,904,653.51

TOTAL 233,665,256.43

6.2 The results of confirmation from the Bureau of Treasury showed discrepancies in

the following accounts: Result of Confirmation – Inter-Agency Payables – Due to the Bureau of Treasury

Per MWSS Books Per BTr’s books

Account Title Amount Account Title Amount Discrepancy

1 Due to BTr Guarantee fees 233,665,256.43

Due from GOCCs – Guarantee Fee Receivables

142,499,764.35 91,165,492.08

2 Due to BTr Guarantee fees - dormant accounts

0 Due from GOCC –dormant accounts 962,986,178.92 (962,986,178.92)

Total MWSS Payables 233,665,256.43 National Government Receivables

1,105,485,943.27 871,820,686.84

6.3 Analysis disclosed that no separate subsidiary ledger for the dormant accounts

payable to the BTr was maintained in the MWSS books of accounts. Instead, all accounts are lumped in the Due to BTr Guarantee Fees account.

6.4 Further review of the subsidiary records revealed the following:

a. Of the year-end balance of P233,665,256.43, 80% or P185,938,187.43

were dormant accounts. The last payments to the Bureau of Treasury were made three to seven years ago. These are the following:

Particulars Balance

Dec. 31, 2013

Guarantee Fee - Project Loans - IBRD 3124 P 585,767.01

Guarantee Fee- Bridge Loans - First Metro 7,800,000.00

Guarantee Fee- Bridge Loans - RCBC 8,300,550.00

Guarantee Fee- Bridge Loans - Keppel 5,516,900.00

Guarantee Fee- Bridge Loans - Deutche Bank 58,308,600.00

Deposit to Special Reserve Fund -BTr 3,521,16.91

Interest Other Charges - SPIAL 101,904,653.51

Balance, Dec. 31, 2013 per MWSS Books P 185,938,187.43

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b. When the above amount of P185,938,187.43 is compared with the dormant account per BTr’s records totalling P962,986,178.92, there is a difference of P 777,047,991.49 computed as follows:

c. The composition of dormant accounts per BTR’s records is shown as follows:

6.5 As shown above, the significant increase in the dormant accounts from last year’s figure of P187,028,115.79 to P962,986,178.92 was due to BTR’s reclassification of overdue and dormant accounts from Loans Receivables to Due from GOCCs-Dormant Accounts.

6.6 We considered the Interest/Other Charges on Special Project Implementation Assistance Loan (SPIAL) of P101,904,653.51 as a dormant account under the Due to BTR account (MWSS books) considering that no payment since October 2009 was made by MWSS. The SPIAL is a portion of the National Government’s multi-currency loans from the ADB under Loan Nos. 779 and 780. The loan was relent to MWSS to partly finance its projects such as Manila Water Supply Rehabilitation Project I (MWSRP I), Manila Water Supply Project II (MWSP II) and Metro Manila Sewerage Project (MMSP).

Interview with Finance Dept. revealed that BTR has continuously billed them of the Interest on SPIAL (dormant account) for which they also billed the concessionaires. However, the concessionaires refused to pay the loan since these were incurred prior to privatization.

6.7 As to the deposit to the Special Reserve Fund in the amount of P3,521,716.91, we

found that the account has been non-moving since January 2007. As disclosed in Note 12 of the Notes to Financial Statement the special reserve fund with BTr is intended as guarantee for the financial obligations of MWSS during the concession period pursuant to Article 2.1 of the Memorandum of Agreement between Department of Finance and MWSS. The amount of P3,521,716.91 should have been remitted to the BTr to serve the purpose for which the fund was established.


Particulars Balance

Dec. 31, 2013

Balance, Dec. 31, 2013 as computed above P 185,938,187.43

Balance, Dec. 31, 2013 per BTR Books 962,986,178.92

Difference P 777,047,991.49

Balance Dec. 31, 2012 187,028,115.79

Reclassification by BTr in 2013:

JBIC 110 P 208,160,093.10

IBRD 1647 80,141,723.37

IBRD 1814 487,656,246.66 775,958,063.13

Balance Dec. 31, 2013 962,986,178.92

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a. Require the Finance Department to coordinate with the Bureau of Treasury to reconcile the book balances of accounts related to foreign loans to arrive at the correct amount of liability at the end of the year;

b. Decide on the actions to be undertaken in the settlement of the

dormant accounts in the amount of P185,938,187.43 and Interest on SPIAL of P101,904,653.51; and

c. Remit immediately to the BTr the amount of P3,521,716.91

representing the deposit to the Special Reserve Fund.

7. MWSS may incur losses totalling P292.303 million due to non-recoupment of advances to contractors on various projects. 7.1 Account Advances to Contractors refers to the advance payment equivalent to

15% of the total price granted to contractors which shall be repaid/recouped by deducting 15% from their periodic progress payment. The advance payment shall be made only upon submission to and acceptance by the procuring entity of an irrevocable standby letter of credit of equivalent value from a commercial bank, a bank guarantee or a surety bond callable upon demand, issued by a surety or insurance company duly licensed by the Insurance Commission and confirmed by the procuring entity.

7.2 The Advances to Contractors in total amount of P292,303,526.91, which had been dormant for several years now based on records generated from eNGAS, were granted to the following contractors:

Schedule of Advances to Contractors Account Code Contractor Amount

181-01-000-000-000-042 Consuelo Builders Corp. 2,500,340.59

181-01-000-000-000-058 FF Cruz Const. & Co. Inc. 2,959,907.17

181-01-000-000-000-063 Filipino Pipes & Foundry Corp. 34,792,597.88

181-01-000-000-000-076 Gotesco Kawalan Joint Venture 16,184,338.44

181-01-000-000-000-110 Makati Development Corp. 4,675,912.94

181-01-000-000-000-137 Pacifico Austria & Sons 704,028.70

181-01-000-000-000-160 R.D. Tuazon 9,459,323.95

181-01-000-000-000-170 Sigma Const. 132,812.02

181-01-000-000-000-197 Wilper Construction 212,062.79

181-01-000-000-000-351 A.M. Oreta & Co. 47,970,710.51

181-01-000-000-000-355 W.M. Lewis & Asso. 73,523.29

181-01-000-000-000-356 B.C. Cuerto Const. Corp. 1,309,449.55

181-01-000-000-000-357 Devt. of Environmental System 127,839.48

181-01-000-000-000-649 Bousted Technologies Inc./Salcon Ltd. 70,989,440.27

181-01-000-000-000-674 First Global Hydro Corp. 25,712.45

181-01-000-000-000-687 A.G. & P./Hydro Resources Const. Corp 4,418,767.89

181-01-000-282-265-000 JV Angeles Const. Corp. 35,495,704.55

181-01-000-341-915-000 DM Consunji, Inc. 16,170,003.29

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7.3 The above advances should have been deducted from the progress billings for on-

going projects or recouped from the surety bonds posted by the contractors. Considering that these accounts have been dormant for several years there is the very remote possibility that the said advances to contractors will be collected. Thus, MWSS faces the risk of possible losses on the non-recoupment of the advances granted to contractors.

7.4 We also observed that information relative to the advances/ mobilization which are

necessary to facilitate the monitoring of the accounts were lacking, namely:

a. name of the project to which the above advances were made and the status of said projects;

b. Whether the contractor was fully paid without deducting the above

advances; c. Date of Payment; and d. Age of the advances to contractors.

7.5 In the CY 2008 Annual Audit Report, we recommended that Management

determine persons responsible for the non-recoupment and for the improper accounting of the advance payments to suppliers/contractors that were

181-01-000-725-926-000 R II Builders 56,005.10

181-01-110-439-160-000 MMRR Construction 47,680,244.28

Sub total 295,938,725.14

Various SL 181-01 Various contractors (3,635,198.23)

Total 292,303,526.91

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unsubstantiated and remained un-recouped for more than three years. Management commented that the recoupment of advances from progress billings may no longer be possible because the pertinent projects are no longer active.

7.6 Considering the above explanation from Management, we will issue the necessary Notice of Disallowance on advance payments that were not deducted from contractors’ claim for final billing.

7.7 As of December 31, 2013, the Advances to Contractors remained in the books of

accounts of MWSS and no action has been taken to comply with the CY 2008 audit recommendation.

7.8 We recommended and Management agreed to ensure that henceforth, all

advances to contractors are fully recouped upon completion of the projects and prior to the payment of the final billing. Otherwise, hold the officials/personnel involved in the processing of the claims/billings personally liable for any unrecouped amount.

8. As reported in the CY 2012 AAR, interest on the P2.250 billion floating rate Bond Issuance under the DBP/LBP Club Deal Arrangement guaranteed by the National Government in the amount of P203.605 million as of year-end was not recognized by MWSI as its liability to MWSS, hence its collection was doubtful.

8.1 In the CY 2012 AAR, we recommended that Management immediately take legal

action to demand for the payment of the interest on the DBP-LBP Club Deal loan to avoid further possible losses to MWSS.

8.2 The Office of the Government Corporate Counsel (OGCC) issued Opinion No. 215 dated October 5, 2011 regarding the dispute between MWSS and MWSI on the subscription agreement between MWSS and BNP Paribas, pertinent provision in page 10 3rd paragraph quoted hereunder:

Lastly, we opine that the same legal bases for the claim of interest penalty and COB may be used to support a claim for the payment of the Land Bank DBP Loan and the other loans in the 2001-2006 Bridge Loans which were incurred in order to retire the MWSS BNP Paribas Loans. These bridge loans are still a consequence of Maynilad’s failure to remit the concession fees.

8.3 Management in its letter to MWSI President Victorino P. Vargas informed that considering that the loan was secured to bridge finance the BNP Paribas Loan, MWSS Management deemed it reasonable to recover the cost of borrowings and considered the same as additional disputed claim with Maynilad.

8.4 Review of financial records showed that Other Receivables- Maynilad Water Services, Inc. account’s balance of P144,342,512.35 as of December 31, 2012 increased to P203,604,910.71 as of year-end.

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8.5 Considering the OGCC opinion, we reiterated our recommendation that Management immediately take legal action to enforce the payment of the interest in the DBP-LBP Club Deal loan to avoid further possible losses to MWSS.

8.6 Management informed that they had been in pursuit of the legal remedies to be

able to collect the disputed amount. They had written a letter to the OGCC dated February 3, 2014 requesting for the filing of dispute or arbitration against MWSI on the unresolved claims: MWSS BNP Paribas loan.

9. MWSS has not collected its 40% share in the net income from CYs 2004 to 2013 on the operation of the La Mesa Ecopark (La Mesa Resort Zone) by the ABS CBN Foundation Inc. (AFI) due to the unresolved issue on the 15% management fee being charged by AFI. Likewise, the MWSS Board of Trustees post facto approval of the Memorandum of Agreement (MOA) which will make the agreement fully effective has not been secured.

9.1 In the CYs 2011 and 2012 Annual Audit Reports, we recommended, among others, that Management:

a. Seek the approval from the MWSS Board of Trustees of the 15% management fee being charged by the AFI in order to comply with Section 1.1 of the Memorandum of Agreement; and

b. Require the post facto approval and ratification of the MOA to enable the Agreement to be fully effective. Otherwise, the MOA could be considered null and void, ab initio.

9.2 In response to the above stated recommendations, Management created an audit

team tasked to examine the financial documents of Bantay Kalikasan(BK)/ABS-CBN Foundation Inc. on the conduct of operation of the La Mesa Ecopark (La Mesa Resort Zone). The audit was conducted on April 16 and 18, 2013 at the office of the AFI.

9.3 In the MWSS letter/response dated October 30, 2013, regarding COA CY 2012 Annual Audit Report, we were informed that the MWSS audit team has submitted its findings and observations which included a table showing the Revenue Sharing Scenarios between MWSS, AFI AND LGQC in the La Mesa Ecopark operations from 2004 to 2011. Portion of the letter/report is quoted as follow:

“(b) On the issue of sharing:

(i) The amount of sharing each party should have received from 2004 to 2011 is

itemized below for the Management appreciation.

(ii) There are three considerations however, as shown below: Table 5: Revenue Sharing Scenarios between MWSS, AFI AND LGQC

No Mngt Fee and Capex

With Mngt Fee, No Capex

No Mngt Fee, No Capex

MWSS 40% 19,184,075 7,420,015 (6,781,162)

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AFI 30% 14,388,056 5,565,011 (5,085,872)

LGQC 30% 14,388,056 5,565,011 (5,085,872)

47,960,187 18,550,037 (16,952,906)

Per Section 11 of the MOA – “AFI shall share with MWSS and the LGQC the net income after tax derived annually from LMRZ operations on a 30%-40%-30% basis, respectively, subject to Section 6 hereof. The Financial Report shall be prepared and submitted by AFI to the LMEB for the LMRZ’s initial operation ending June 30, 2005. Thereafter, an Annual Financial Report shall be prepared and submitted by AFI to the LMED and the net income, if any, shall be distributed among the parties accordingly.”

(iii) Since 2005, no distribution of the share out of the net income was done by the AFI. The AFI has gone overboard by collecting Management Fees of 15% and still holding on to the 100% net income for the past 7 years.”

9.4 The report stated that the finding was presented by the MWSS audit team for Management’s information and guidance. However, it appears that no decision or action has been taken by Management on the findings by the MWSS audit team. There is no book entry as of December 31, 2013 taking up the amount of Accounts Receivable from AFI or income earned from La Mesa Ecopark Operation.

9.5 Furthermore, the post facto approval/ratification of the Memorandum of Agreement by the Board of Trustees for the agreement to be effective has not been secured to date. Section 22 of the MOA mentioned four (4) requisites of the Agreement to be effective, as follows:

a. Signature by the parties; b. Approval by proper authorities; c. Review by the Office of the Government Corporate Counsel

(OGCC) d. Ratification by the Local Government of Quezon City Sanggunian

9.6 Without the required approval/ratification of the Agreement, the MOA could be considered null and void.

9.7 We reiterated our prior years’ audit recommendation that Management:

a. Collect the 40% share in the net income from CYs 2004 to 2013 on the

operation of the La Mesa Ecopark (La Mesa Resort Zone) by the ABS CBN Foundation Inc. (AFI);

b. Settle the issue on the 15% management fee deducted from the gross

revenue as management fee of AFI; thereafter, secure the approval of the Board of Trustees in order to comply with Section 1.1 of the MOA;

c. Look into the effectivity of the MOA considering that it has no post

facto approval/ratification by the Board of Trustees as of to date and therefore not in compliance with the provision of Section 22 thereof;

9.8 If the Agreement will still be found valid, we restate the prior years’

recommendation which were as follows:

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a. Create the LMRZ-EC that will formulate policies regarding the LMRZ

aside from other functions and responsibilities stated in the MOA. Upon creation, members of said body should convene regularly to address and assess the operations and concern of the LMRZ/La Mesa Ecopark;

b. Clearly designate the stewardship and control of the Environmental

Trust Fund to either LMEB or the LMRZ-EC; and c. Comply with the provisions of Section 6 of the MOA in order to

maintain sound internal controls by opening an account in the name of the three (3) contracting parties. All transactions shall be authorized with the consent of MWSS representative.

9.9 Management explained that the lack of documents needed to present to the MWSS Board of Trustees for the needed approvals are in the process of retrieval from the Consultant of the La Mesa Watershed and as soon as ready, the issue

will be given priority. 10. Collection efficiency of rental income for the use of Right of Way properties

decreased by 34% or P1.046 million, from P 3.102 million in CY 2012 to P2.056 million in CY 2013, due to the non-renewal of the contract of lease. 10.1 Memorandum Circular 02-11 dated July 22, 2002 was issued with the objective of

generating additional income from MWSS ROW thru lease rental to adjacent and non-adjacent lot owners including unauthorized settlers/squatters who have already established their residence within the MWSS properties and who manifested their intention to lease.

10.2 In response to the similar finding in the CY 2012 Annual Audit Report,

Management informed that they will exert efforts to collect rental arrears or reasonable compensation from those occupying ROW properties.

10.3 However, audit revealed that collections from ROWs made as of December 31,

2013 showed a decrease of 34% compared to CY 2012 collections. Shown below is the comparison of actual collections for CYs 2013 and 2012:

2013 2012 Decrease %

Total Collection 2,056,659.68 3,102,972.69 1,046,313.01 34

No of payees 36 50 14 39

10.4 We noted the following:

a. Of the total collections of P2,056,659.68, the amount of P1,638,292.82 pertained to CY 2013 rental while P240,123.75 pertained to collections for prior years’ rental.

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b. The Property Management Department issued Demand to Pay and Notice to Vacate to 20 lessees and Demand to Pay to 3 ROW lessees with outstanding unpaid rental in the total amount of P5,142,330.31. The Demand Letter and Notice to Vacate required the lessee to settle the unpaid account within 30 days upon receipt of the Demand Letter and vacate the premises within the same period.

c. The Demand Letters and Notice to Vacate were prepared in December

2013; however, based on the receiving copies, nine of these lessees received it in December 2013 and the other 13 lessees received it in January 2014. After the issuance of the Demand Letters, MWSS collected only P256,637.14 from 6 lessees as partial payment of the total amount due of P5,142,330.31.

d. On the other hand, the 30 days period to settle the unpaid account has

elapsed but the lessees continue to occupy the ROW.

10.5 Furthermore, notwithstanding our previous audit recommendation to renew the lease contracts, no contracts of lease were renewed between the MWSS and the private ROW lessees. An interview conducted with lessees who paid for the year 2013 along Bignay Street, Project 2, Quezon City revealed that the reason for the non-renewal of contracts was because they were informed by the officials from the Property Management Department that the continuous payment for the rental of Right-of-Way would suffice even without the renewal of contract.


a. Revisit Memorandum Circular 02-11 on MWSS Right of Ways (ROW)

rental in conjunction with the Concession Agreement and decide on whether MWSS will continue to allow the lease of the Right of Way facilities and collect rental fees;

b. Explain why the contracts of lease were not renewed;

c. Enforce collection of all rental fees on the use/lease of MWSS

properties in accordance with existing guidelines;

d. Take appropriate actions to ensure collection of back rentals from those who are continuously occupying the properties and apply sanctions on late payment/s thereof as provided for in the respective original contracts.

10.7 The Acting Finance Manager informed that during the Management Committee

meeting, Management had instructed the Property Management Department to prepare Program of Relocation of ROW lessees/ ROW Clearing Program to arrive at a schedule for Ejectment of Informal Settlers and or whether other lessees may be allowed for Renewal for those who will not be affected by the Schedule. The objective is to justify the renewal of contracts and the non renewal of leased ROW properties. Guidelines on the issuance of contract of lease will be revised if there is a need to do so.

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11. The reconciling items appearing in the bank reconciliation statements over the

years in the amount of P4.252 million remained unadjusted; thus, the Cash-in-Bank balance of P40.952 million was not correctly stated. 11.1 In the CY 2012 Annual Audit Report, we recommended that Management effect

the necessary adjustments in the books of the reconciling items in order to arrive at the correct cash balance at year-end, giving priority to reconciling items appearing over the years.

11.2 Audit of cash accounts and review of Bank Reconciliation Statements showed the breakdown of the discrepancies as follows:

List of bank accounts with discrepancies

Bank Account Balance Balance per

Difference per Book Bank

PNB MWSS Branch

Corporate Office (Current Account) 24,832.67 (118,139.94) 142,972.61

PNB MWSS Branch

Corporate Office (Savings Account) 36,660,311.24 36,622,656.73 37,654.51

PNB MWSS Branch

Main Fund (Current Account) 15,909.37 (718,739.54) 734,648.91

DBP - Makati Branch 4,251,655.43 942,120.43 3,309,535.00

TOTAL 40,952,708.71 59,116,295.14 4,224,811.03

11.3 The details of reconciling items are shown below:

Table of Reconciling Items

Particulars Amount

Unrecorded Cash and Check Deposits in CYs

2000 56,991.44

2003 743,652.95

Total 800,644.39

Unrecorded Encashed Checks in CYs

2010 20,361.69

2012 833,660.08

Total (854,021.77)

Debit Memos from CY 2000 -2013

2000 3,100,758.23

2001 10,448.66

2005 862.50

2007 15,000.00

2012 101.50

2013 203.00

Total (3,127,373.89)

Credit Memos from CY 2000 -2013

2009 10,000.00

2011 0.96

2013 84,996.43

Total 94,997.39

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11.4 Management informed that another letter was forwarded on 25 October 2013 to DBP Bank requesting documents from DBP for commissions collected by the DBP collecting agency.

11.5 We reiterated our previous years’ recommendation that Management make a

follow-up with all the banks the submission of documents necessary to immediately reconcile the discrepancies noted, giving priority to items pertaining to prior years in order to arrive at the correct Cash in Bank book balance.

11.6 Management explained that amount remains unreconciled because the supporting

documents are no longer available in the bank since they follow the BSP 5 year standard retention period for maintaining data. They requested that the data reflected in the passbook on file with the Finance Department be used as basis for adjustments in the books and we agreed provided the bank passbooks are duly authenticated by the banks.

C. REITERATION OF PRIOR YEAR’S AUDIT FINDINGS & RECOMMENDATIONS 2. MWSS REGULATORY OFFICE

1. Deficiencies were noted in the handling of the cash advance/collections by the `accountable officers. 1.1 This is a reiteration of CY 2012 audit observation.

1.2 We conducted cash examination on the cash and accounts of Ms. Ma. Theresa V.

Makiling, Special Disbursing Officer (SDO) and Mr. Alan D. Chuegan, Cash Collecting Officer (CCO)of MWSS-RO covering the period January 29, 2013 to

Other Reconciling Items:

- Check No. 9981 dated 11/19/03 debited twice by the bank in 11/26/03 and 12/29/03

(15,000.00)

- Already encashed Check No 171017 dated 2/24/03 same appeared on bank statement dated 3/13/03

(8,344.49)

- Remaining overpayment of TC No. 2188 and 2186 due to double debit by the bank in 2003

(6,069.96)

- Overpayment of Treasury Control No.’s

2007 4797 7,500.00

2007 4855 13,068.75

2011 7829 356.00

2012 8317 3,000.00

Total (23,926.75)

- Erroneously credited to account 123 (87,350.69)

- Adjustment of Bank Charges 200.00

- Adjustment over/under of check 222993 dated 10/1/13, 223567 dated 10/30/13 and 223694 dated 11/8/13

(455.26)

- Reconciling amount from previous bank account (prior to privatization)

(998,110.00)

TOTAL (4,224,811.03)

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January 15, 2014 and April 19, 2013 to January 15, 2014, respectively, and found no shortage nor overage.

1.3 The examination was conducted as a way of apprising management of the adequacy and/or inadequacy of controls over cash in the custody of the SDO and CCO. We observed inadequacy of controls in the following instances:

a. Both the accountable officers were accounting personnel involved in the processing of disbursements and recording of accounting transactions which is contrary to the basic rule on internal control that the disbursing officers should not have access to or responsibility over the accounting records related to disbursements.

b. The designated SDO was also a Finance Officer B whose duties include

processing of all disbursements of the Regulatory Office, preparation of payroll register and summary journal for posting in the General Ledger and other accounting reports.

c. On the other hand, the Cash Collecting Officer was designated as the

Acting Chief Corporate Accountant A in concurrent capacity. He signed Box B of the disbursement vouchers and certified the correctness of the financial reports.

d. In reply to a similar audit finding in CY 2012, Management recognized

the need to segregate between two individuals the accounting and cashiering functions in the interest of sound internal control. However, the Regulatory Office could not comply with it at the present time since there are only three personnel for the Finance Section and the entire cycle of finance operation revolves around these personnel only. They further explained that the audit finding can only be addressed if their rationalization/reorganization plan is approved by the Governance Commission for GOCC’s (GCG).

e. The Cash Collecting Officer (CCO) did not maintain a cashbook/cash

receipts record or its equivalent to record his collections and deposits. Instead, the CCO presented the cash receipts journal which is an accounting record of his collection and deposits. Being both the CCO and the Acting Chief Accountant, he believed that maintaining the cash receipts journal was sufficient compliance.

f. The paid petty cash vouchers/check & disbursement Vouchers

(CVs/DVs) and supporting documents were not stamped “Paid”, thus, there is a possibility of reuse of the documents.

g. The AOs had safe or adequate cash receptacles but the office was not

properly enclosed and secured/protected against intrusion of unauthorized persons.

h. There was no change in the combination of the safe whenever there was

a change of accountable officers.

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i. Another employee, who was not designated as an accountable officer

and was not bonded, had access to the unused accountable form (checks).

1.4 In addition, the requirement under Treasury Circular No. 02-2009 dated August 6,

2009 that the Bureau of Treasury should be notified of the cancellation of the bonds of separated/retired accountable officers was not complied with.

1.5 We recommended and Management agreed that/to:

a. in view of the lack of personnel in the Finance Section which cannot

be addressed immediately, institute compensating controls to ensure reasonable assurance that the weaknesses in the ineffective segregated functions are reduced, such as:

i. increase supervisory review by the Department Manager or other higher officials of the Regulatory Office through observation and inquiry on transactions completed by the employees assigned in the cashiering and accounting functions; and

ii. improve the review being done by the Department Manager of the transactions and supporting documents to ensure that they are complete and accurately processed.

b. Instruct the Cash Collecting Officer to maintain a separate

cashbook/cash receipt record of the collections and deposits as required under Section 6.2 of COA Circular 97-002;

c. Require the accountable officers to stamp “PAID” all vouchers and its

supporting documents;

d. Ensure that the AOs’ office should be properly enclosed and secured/protected to avoid the possibility of theft and intrusion of unauthorized persons;

e. Require the accountable officers to be solely responsible for the

safekeeping of the unused checks;

f. Ensure that there is a change in the combination of the vault/safe whenever there is a newly designated accountable officer; and

g. Comply with the provisions set forth in Treasury Circular No. 02-2009

dated August 6, 2009 on the cancellation of the fidelity bond of the separated/resigned SDO.

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2. Actual Extraordinary and Miscellaneous Expenses (EME) for CY 2013 exceeded the DBM approved Corporate Operating Budget by P0. 608 million. In CY 2012, same observation was incorporated in the Annual Audit Report. 2.1 In the CY 2012 AAR, we recommended that Management grant Extraordinary and

Miscellaneous Expense only to those entitled to claim such expenditure as prescribed under the GAA to avoid the incurrence of over expenditure for EME.

2.2 However, for CY 2013, Management still incurred extraordinary and miscellaneous

expenses amounting to P 1,170,237.88 in excess of the CY 2013 DBM Approved Corporate Operating Budget of only P562,000 or a difference of P608,237.88.

2.3 The General Ledger as of the end of the year showed the following balances:

Extraordinary Expenses by MWSS-RO Officials - 649,359.67 Add: Miscellaneous Expenses 491,093.21 EE-Sports/Wellness 29,785.00

Total 1,170,237.88

2.4 The DBM approved the Corporate Operating Budget for EME with a footnote that

the disbursement for extraordinary and miscellaneous expenses shall be subject to the provision of Section 23, General Provisions of R.A. No. 10352.

2.5 Under the abovementioned provision, the prescribed rates for the payments of the

EME should be:

POSITION/SALARY GRADE

2013

Extraordinary Expense

Miscellaneous Expense

T O T A L

Chief Regulator / 29 50,000.00 72,000.00 122,000.00

Deputy Administrator / 28 38,000.00 72,000.00 440,000.00

Total 562,000.00

2.6 The excess expenditure of P608,237.88 was due to the following:

Particulars Amount

Miscellaneous expenses paid 491,093.21

Sports/wellness expenses 29,785.00

Excess of extraordinary expenses over the DBM approved COB computed as follows: Actual extraordinary expenses DBM approved budget

649,359.67 562,000.00

87,359.67

Total 608,237.88

2.7 Under COA Circular 2012-003 dated October 29, 2012, claims for EMEs and other

similar expenses of GOCCs in excess of the amounts fixed under the General Appropriation Act, are considered excessive expenditures of government funds.

2.8 It is noteworthy to mention that Management stopped the payment of EME to officials not entitled to it as provided in Section 23, General Provisions of R.A. No. 10352 effective October 2013.

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2.9 We recommended that MWSS – RO incur expenditures within the limits of the

DBM approved budget.

2.10 Management explained that the excess expenditure was due to the fact that the DBM form for detailed MOOE does not provide a separate line item for miscellaneous expenses where the above expenses were budgeted. Thus, MWSS RO lumped the budgeted amounts in it submission to the DBM of the COB For CY 2013 to follow the DBM line item classifications. They further informed that the said expenses were allowable expenditures incurred within its DBM approved total MOOE.

2.11 As a rejoinder, the expenditures recorded as miscellaneous expenses should be

taken up in the appropriate expense account to avoid excess expenditures for EME.

3. As reported in the CY 2012 AAR, the policy on monetization of leave credits under Section 22 of Omnibus Rules on Leave, Rule XVI of the Omnibus Rules Implementing Book V of Executive Order 292) was not observed, as employees were allowed to monetize their leave credits although their vacation leave credits were less than five days after monetization. 3.1 Audit of the Terminal Leave Benefits account as of December 31, 2013 showed

that several MWSS-RO employees were allowed to monetize their leave credits although their vacation leave credits are less than five days after monetization contrary to Section 22 of Omnibus Rules on Leave, Rule XVI of the Omnibus Rules Implementing Book V of Executive Order 292.

3.2 As a result, the leave balance of the employees showed negative balances as shown below:

NAME

Total Balance Before

Monetization

No. of Days Monetized

Remarks

1. Isabel Bagaporo 12.07 15

2. Victor Cariaga 12.01 25 Negative balance

3. Candelaria Castasus 10.85 13

4. Alan Chuegan 31.64 30

5. Jose Noel Dalistan 15.92 15

6. Edgar Lumbres 10.63 15

7. Randolph Marcial 21.59 50

8. Crescenciano Minas 23.65 30

9. Mylene Joy Parras 22.50 40

10. Cheryll Ann Razon 11.95 15

11. Ma. Claudine Tenorio 21.29 20

12. Rosalinda Valdez 10.02 15

13. Maritess Victoria 19.84 20

14. Debbie Cachuela 13.88 30

15. Clarissa Jallorina 115.99 115 Negative balance

16. Vicente Avila 12.27 10

17. Candelaria Castasus 12.35 10

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NAME

Total Balance Before

Monetization

No. of Days Monetized

Remarks

18. Roberto Diala 13.94 10

19. Edgar Lumbres 11.04 10

20. Christian Marcelino 21.56 20

21. Randolph Marcial 12.02 20

22. Crisanto Nagtalon 12.27 10

23. Cheryll Ann Razon 10.29 12

24 Ma. Claudine Tenorio 18.20 15

25. Olivia Tolentino 10.91 12

26. Rosalinda Valdez 13.80 15

27. Maritess Victoria 17.58 15

3.3 We reiterated our recommendation and Management agreed to strictly

comply with the provisions set forth under Section 22 of Omnibus Rules on Leave, Rule XVI of the Omnibus Rules Implementing Book V of Executive Order 292 and CSC MC No. 41, s. 1998.

C. REITERATION OF PRIOR YEAR’S AUDIT FINDINGS & RECOMMENDATIONS 3. COMMON TO MWSS CO AND RO

1. Reciprocal accounts between MWSS CO and RO in the amount of P 1.689 billion

and P749.296 million respectively, remained unreconciled with a difference of P940.177 million due to unsettled issues on sharing of concession fees and expenses, resulting in the non-elimination of the reciprocal accounts at the end of the year. Moreover, the unreconciled amount increased by P227 million during the year. 1.1 This is a reiteration of an audit finding in the MWSS Annual Audit Report since CY

2008.

1.2 The reciprocal accounts to be eliminated in the consolidation of the MWSS financial statements are the following:

Particulars Nature Corporate Office (CO)

Nature Regulatory Office (RO)

Shared expenses paid by Corporate Office

Asset Due from RO (143) Liability Due to CO (421)

Concession fees received from the two concessionaires (MWSI and MWCI) for the Corporate Operating Budget of MWSS and for the term extension of the contract.

Liability Due to RO (423) Asset Due from CO (141)

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1.3 Analysis of the reciprocal accounts showed the following unreconciled balances at the end of the year:

CO Books RO Books Difference

Asset - Due from R.O. (143)

254,939,771.58 Liability - Due to C.O. (421)

116,525,403.82 138,414,367.76

Liability - Due to R.O. (423)

632,770,398.94 Asset - Due from C.O. (141)

1,434,533,304.68 801,762,905.74

Net Amount 940,177,273.50

1.4 The year-end balance of the asset account, Due from CO (141) was

P1,434,533,304.68 while that of the liability account, Due to RO (423) was

P632,770,398.94 or a difference of P801,762,905.74 accounted for as follows:

Particulars Due from CO (RO Books)

Due to RO (CO Books)

Difference

Book Balance 12/31/2012 1,099,161,770.38 523,932,729.19 575,229,041.19

Transactions for 2013 (RO)

Recognition of term extension of MWSI

114,614,733.81

Recognition of term extension of MWCI

114,614,733.81

Concession Fee – COB for CY 2013 229,229,467.62

Offsetting of Meralco Bills (later part of 2012 and the year 2013)

(3,087,400.94)

Receipt of Partial Payment of COB 2013

(120,000,000.00)

Transactions for 2013 (CO)

Set-up of COB for 2014 231,212,534.28

Offsetting of Meralco Bills for the year 2013

(2,374,864.53)

Partial Payment of COB 2013 to RO (120,000,000.00)

Total Reconciling Items 335,371,534.30 108,837,669.75 226,533,864.55

Book Balance 12/31/2013 1,434,533,304.68 632,770,398.94 801,762,905.74

1.5 On the other hand, the year-end balance of the asset account, Due from RO was

P254,939,771.58 while that of the liability account, Due to CO was P116,525,403.82 or a difference of P138,414,367.76, with details shown as follows:

Particulars DUE FROM RO (CO Books)

DUE TO CO (RO Books)

Difference

Book Balance 12/31/2012 254,439,743.17 116,525,403.82 137,914,339.35

Transactions for 2013 (CO)

Payment of electric bills 481,118.85

COA telephone/internet bill (434-4303)

2,006.70

COA telephone bill (928-2516) 5,059.14

COA internet bill 6,470.99

BOT Chairman telephone bill (435-5011)

2,626.03

Fuel Consumption (January) 2,746.70

Total Reconciling Items 500,028.41 500,028.41

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Book Balance 12/31/13 254,939,771.58 116,525,403.82 138,414,367.76

1.6 We noted that the bulk of the reconciling items to the unsettled issue on the

sharing of concession fees received for the regular Corporate Operating Budget and from the approval of the term extension of the contract with the two concessionaires.

1.7 MWSS Management, in its letter dated October 30, 2013, informed the Audit Team

that within November 2013 they will resolve the discrepancies between the reciprocal accounts and that the same will be duly approved by the MWSS Board of Trustees. The necessary adjusting entries will be prepared upon approval.

1.8 Apparently, the issues on the sharing of concession fees and expenses have not

been settled. The year-end balances showed that the reciprocal accounts have not been reconciled and in fact increased in CY 2013 from P713,143,380.54 to P940,177,273.50 or a difference of P227,033,892.96 as shown below:

Transactions in Corporate Office Books:

Set-up of accounts on COB for 2014 231,212,534.28

Transactions in Corporate Office Books:

Offsetting of Meralco bills for the year 2013 (2,374,864.53)

Remittance (partial payment of COB 2013) (120,000,000.00)

Payment of electric bills (481,118.85)

COA telephone/internet bill (434-4303) (2,006.70)

COA internet bill (6,470.99)

COA telephone bill (928-2516) (5,059.14)

BOT Chairman telephone bill (435-5011) (2,626.03)

Fuel Consumption (January) (2,746.70)

Sub total P108,337,641.34

Transactions in Regulatory Office books:

COB for 2013 229,229,467.62

MWSI Extension 114,614,733.81

MWCI Extension 114,614,733.81

Offsetting of Meralco bills (later part of 2012 and 2013)

(3,087,400.94)

Receipt of the partial payment of COB 2013 (120,000,000.00)

Sub total 335,371,534.30

Net amount of unreconciled balance

P227,033,892.96

1.9 We reiterated our previous years’ audit recommendations that Management:

a. Immediately settle the issue on the sharing of concession fees and expenditures between the CO and RO so that the necessary reconciliation of reciprocal accounts can be effected in the books to come up with valid and reliable balances of the asset and liability accounts in the consolidated financial statements; and

b. Thereafter, make a periodic reconciliation of these accounts and see

to it that the balances are always reconciled. Ensure that only legitimate and authorized shared expenses are recorded in the books of each office.

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1.10 Management informed that the Board of Trustees has issued Board Resolution No. 2014-041-CO dated April 24, 2014 directing both MWSS Corporate Office and Regulatory Office to implement the necessary adjusting entries to reconcile their books of accounts consistent with the purely regulatory character of the RO pursuant to government accounting and auditing rules and regulations.

2. Collection of receivables from MWSS officials, employees and non-MWSS employees for car and housing loans with year-end outstanding balance of P89.908 million was doubtful due to the moratorium on the payment of MWSS-based loans granted under MWSS Memorandum Circular 2012-002 in compliance with Board Resolution No. 2012-127-H. Moreover, the grant of said loans did not show approval from the Office of the President of the Philippines in compliance with Section 5 of PD 1597. . Likewise, no demand for the return of the amount of P25.000 million fund given in CY 2005 for the land development and housing project was made to the MWSS RO Multi-purpose Cooperative.

2.1 Among the audit observations contained in the undated COA Fraud Audit Report

No. 2013-001, copy furnished this Office on October 23, 2013, on the results of audit of MWSS Allowances and Benefits received for CY 2008 was the grant of Car Assistance Plan, lot and housing benefits to the MWSS officials and employees without approval from the Office of the President.

2.2 On the other hand, the CY 2008 Annual Audit Report included an audit finding that the implementation of the Car Assistance Plan was an irregular disbursement of public funds in violation of RA 6758 and the MWSS Corporate Operating Budget. It was recommended that Management cease the implementation of the Car Assistance Plan.

2.3 The Loans Receivables from MWSS Officials, employees and non-MWSS

employees as of December 31, 2013 showed an aggregated total of P89.91 million consisting of the following:

Account Nature Amount

MWSS CO Due from Officers and Employees

Housing Loan and car loan

49,960,508.93

Loans Receivables-Others

Housing loan and car loan receivables from members of the Board of Trustees and other officers and employees detailed at the MWSS

7,428,600.66

Other Receivables Seed money given to the MWSS Employees Welfare Fund (MEWF) for Car Assistance Program

11,357,250.00

Subtotal MWSS CO 68,746,359.59

Loan Receivable from the Officers and Employees

Housing loan 11,691,439.65

Car loan 9,470,603.72

Subtotal MWSS RO 21,162,043

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Total 89,908,402.96

2.4 Analysis revealed that during the year, collections for the abovementioned loans

receivables amounted to P2,553,836.78 as shown below:

2.5 The low collection was due to the issuance of MWSS Memorandum Circular No. 2012-002 dated October 23, 2012 imposing a moratorium on the payment of loans due to the welfare fund and other MWSS based loans. This is in compliance with Board Resolution No. 2012-127-H directing the Corporate and Regulatory Offices to ensure strict and faithful compliance with the employees’ minimum take home pay requirement under Section 36, General Provisions of the GAA 2012. For CY 2013, the minimum monthly net take home pay requirement is P4,000.

2.6 While the intention of the moratorium was to comply with the law, it is emphasized

that the loans were disbursed out of government funds and should be repaid by the borrowers within the period provided for in the loan agreement. Moreover, the grant of the loans was not for public purpose and thus prohibited under Section 4(2) of PD 1445.

2.7 Section 4(2) of PD 1445 provides that government funds shall be spent or used

solely for public purpose. Although it is in the nature of a loan program, MWSS funds were used to pay for the housing and vehicles of the borrowers. When MWSS granted and released the loan, it used its funds for a purpose not within its mandate under Republic Act 6234 dated June 19, 1971 which is “to ensure an uninterrupted and adequate supply and distribution of potable water for domestic and other purposes at just and equitable rates.”

2.8 Furthermore, based on the definition of fringe benefit abovementioned, the car and

housing loans granted qualifies as fringe benefits which are subject to the approval of the Office of the President upon the recommendation of the DBM under Section 5 of PD 1597 abovementioned.

2.9 As regards the Loan Receivable from the MWSS RO Multi-Purpose Cooperative - P25,000,000, we noted the following:

a. In the CY 2012 AAR, we recommended that Management demand the

return of the P25 million fund given to the Cooperative in CY 2005 for the land development and housing project. Management explained that the P25 million was considered as a seed money and not a loan to the Cooperative and that it was envisioned that the individual

MWSS CO MWSS RO Total

Beginning balance ( per GL) 70,243,817.07 21,418,052.05 91,661,869.12

Loan granted in previous year recorded only in CY 2013

800,370.60 800,370.60

Less; Collections during the year Car and Housing loan

2,297,828.10

256,008.68

2,553,836.78

Ending balance 68,746,359.59 21,162,043.37 89,908,402.96

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Regulatory employees who will avail of the housing benefit shall be the one to execute the loan agreement with the MWSS RO. They also informed that the Regulatory Office has the actual custody of the original owner’s copy of the Transfer Certificate of Title.

b. It is our view that the housing benefits partakes the nature of a fringe

benefit defined as” side, non wage benefits which accompany or are in addition to a person’s employment xxx” (Black’s Law Dictionary).

c. Granting that it was seed money for the housing benefit of employees,

being a fringe benefit as defined above, it should have been submitted to the Office of the President for approval upon the recommendation of the DBM in compliance with Section 5 of PD 1597, which provides:

“Section 5. Allowances, Honoraria, and Other Fringe Benefits – Allowances, honoraria and other fringe benefits which may be granted to government employees, whether payable by their respective office or by other agencies of government, shall be subject to the approval of the President upon recommendation of the Commissioner of the Budget.xxx”

d. In addition, if Management intended the P25 million funds as seed

money, the amount should not have been recorded as a Loan Receivable from the MWSS RO Multi Purpose Cooperative.


a. Immediately look into other measure/options on how the unpaid loans

could be paid/settled by the concerned officers and employees. Otherwise, the unpaid balance of the loans will be disallowed in audit considering that the grant of the loans was prohibited under Section 4(2) of PD 1445 and has no approval from the Office of the President of the Philippines in compliance with Section 5 of PD 1597; and

b. For the MWSS RO, the demand for the return by the MWSS RO Multi-

Purpose Cooperative of the P25 million seed money should be made.

2.11 In the exit conference, Management informed that they have already taken up the issue with the employees and they did a survey on how much each employee will pay for the loans.

2.12 We were informed that the necessary Notice of Disallowance will be issued by the COA Fraud Audit Office in accordance with COA Office Order Nos. 2010-504 and 2010-679 dated July 29, 2010 and October 15, 2010 respectively, regarding the audit of the MWSS disbursements of funds from CY 2005 to June 30, 2010.

3. The actual expenditures for Personal Services (PS) for CY 2013 exceeded the DBM

Approved Corporate Operating Budget by P9.921 million, contrary to Section 4(1) of PD 1445 and Section 47 of PD 1177.

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3.1 We were guided by the following in this audit observation:

D. Section 4(1) of PD 1445 states:

“Section 4(1) of PD 1445 states that “No money shall be paid out of any public treasury or depository except in pursuance of an appropriation law or other specific statutory authority”

E. Section 47 of PD 1177 which prohibits the incurrence of overdraft. Heads of department, xxx, and agencies shall not incur nor authorize the incurrence of expenditures or obligations in excess of allotments released for their respective departments, xxx, and agencies. Parties responsible for the incurrence of overdrafts shall be held personally liable therefor.

3.2 The Corporate Operating Budget (COB) for CY 2013 of MWSS for its Personal Services approved by DBM amounted to P103,459,000.00 for MWSS CO and P46,925,000 for MWSS RO. Comparative presentation of MWSS’s Actual Personal Services Expense for CY 2013 as against the DBM-Approved Corporate Budget is shown in the table below:

For MWSS CO

Actual Personal Services Expense vs. DBM-Approved Corporate Budget

MWSS CO

Personal Services Actual

Expenditure (a)

DBM-Approved COB (b)

Variance (b-a)

Salaries and Wages - Regular 49,941 62,023 12,082

Personnel Economic Relief Allowance (PERA) 2,803 3,672 869

Additional Compensation (ADCOM) 189 - (189)

Representation Allowance & Transportation Allowance (RATA)

8,717 4,502 (4,215)

Clothing/Uniform Allowance 630 765 135

Productivity Incentive Allowance (includes proposed budget for BOT ofP5,184 M)

8,164 14,181 6,017

Other Bonuses and Allowances 7,032 51 (6,981)

Honoraria (BOT) 2,630 3,456 826

Hazard Pay 1,432 - (1,432)

Longevity Pay 5,163 - (5,163)

Cash Gift/13th Month Pay 4,757 5,934 1,177

Life and Retirement Insurance Contributions 5,940 7,443 1,503

PAG-IBIG Contributions 150 184 34

PHILHEALTH Contributions 461 503 42

ECC Contributions 150 184 34

Terminal Leave Benefits 422 528 106

Other Personnel Benefits 9,697 33 (9,664)

Total 108,278 103,459 (4,819)

a. Other Bonuses and Allowances of P7,032,000 pertains to the payment for

the following:

Allowance Amount

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Rice allowance 2,695,541.64

Meal allowance 3,970,790.00

Anniversary bonus 366,000.00

Total 7,032,331.64

b. On the other hand, Other Personnel Benefits consist of the following:

Allowance Amount

Monetization of earned leave 4,072,431.29

can 3,025,000.00

5% Govt share in welfare fund 2,347,403.37

Loyalty pay 224,000

Children’s allowance 28,030.04

Total 9,696,864.70

For MWSS RO

Actual Personal Services Expense vs. DBM-Approved Corporate Budget

MWSS RO

Personal Services Actual Expenditures

DBM- Approved

Excess Expenditures

Salaries & Wages 24,069 30,007 5,938

Personnel Economic Relief Allowance (PERA) 1,359 1,656 297

Uniform/Clothing Allowance 295 345 50

Year-End Bonus 1,970 2,501 531

Cash Gift 278 345 67

RATA 5,193 2,724 (2,469)

Honoraria 167 0 (167)

Hazard Pay 408 0 (408)

Terminal Leave Benefits 2,100 0 (2,100)

Longevity Pay 1,671 0 (1,671)

Loyalty Bonus 125 0 (125)

Performance Based Bonus 5,007 5,007 0

Performance Enhancement Incentive 0 345 345

Rice Allowance 3,228 0 (3,228)

Meal Allowance 34 0 (34)

Children’s Allowance 1,595 0 (1,595)

Provident Fund 1,232 0 (1,232)

Life & Retirement Insurance Premium 2,918 3,601 683

Employees Compensation Ins. Premium 68 83 15

Pag-I.B.I.G. Contributions 68 83 15

Philhealth Contributions 242 228 (14)

Total 52,027 46,925 (5,102)

3.3 Our audit disclosed that the negative variance in personal benefits was due to the

following:

a. The payment of allowances lacked the approval from the Office of the President as provided under Section 5 of PD 1597, to wit:

Allowance MWSS CO MWSS RO

Rice Allowance 2,695,541.64 3,228,304.74

Hazard Pay 1,423,522.44 407,745.17

Longevity Pay 5,163,462.69 1,670,500.00

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b. Payment of Meal allowance in the amount of P3,150/month exceeded the approved budget for CY 2013 of P66 per month;

c. Payment of Anniversary Bonus in the amount ofP366,000.00 was not approved by DBM; CY 2013 is not considered a milestone year for MWSS;

d. Payment of 40% RATA from January to July 2013 exceeded the

allowable rates per General Appropriations Act for CY 2013;

e. Payment of the following expenses should be made only when there are available savings from the approved Corporate Operating Budget as provided under DBM Circulars 2002-1 and 2007-3 and MC 17 s. 1999:

Particulars MWSS CO MWSS RO

Monetization of earned leave

4,072,431.29 2,100,000

Honorarium 2,630,000 167,000

Loyalty Bonus 224,000 125,000

Total 2,392,000

f. There were no available savings considering that actual expenditures

exceeded the approved COB of MWSS CO and RO.

3.4 We gathered that payment of hazard pay, longevity pay and the 40% RATA in excess of the allowable rates except for incumbents prior to privatization of MWSS were already stopped effective January 2014 and August 2013, respectively, due

to the COA disallowance in CY 2013.

3.5 We reiterated our previous years’ recommendation and Management agreed to ensure that all expenditures incurred are within the limits of the DBM approved budge.

4. The grant of CNA to MWSS Officials and Employees in the total amount of P4.350

million was not supported with documents that showed compliance with the pertinent guidelines under DBM Budget Circular No. 2013-4. 4.1 Budget Circular No. 2006-1 dated February 1, 2006 authorizes the grant of the

Collective Negotiation Agreement (CNA) incentives to employees, subject to some criteria and guidelines. On the other hand, Budget Circular No. 2013-4 dated November 25, 2013 provides supplemental guidelines on the grant of the CNA

Provident Fund 2,347,403.37 1,231,430.82

Total 11,629,930.14 6,537,980.73

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incentive for fiscal year 2013. Certain conditions have to be complied with to merit the grant of CNA, such as but not limited to the following:

a. The agency should have accomplished at least 70% of its FY 2013 targets on the average by October 31, 2013 under Major Final Outputs (MFOs) as specified in Annex 3 “Form A”of Memorandum Circular No. 2013-01 (MC) dated August 2, 2013, issued by the Inter-Agency Task Force ( IATF) created under AO No. 25.

b. There must be savings realized from specific Maintenance and Operating expenses enumerated under items 4.3.1 to 4.3.6 as of October 31, 2013.

c. The CNA Incentive shall not exceed P25,000 per employee.

d. There must be approval of the Agency Head on the recommendations of

the Employees’ Organization-Management Consultative Committee or a similar body on the following:

i. The total amount of unencumbered savings from the MOOE Items were realized out of cost-cutting and systems improvement measures identified in the CNAs and its supplements , and were the results of the joint efforts of management and employees.

ii. The apportioned amounts of savings cover the following items :

50% - for the CNA Incentive 30% - for improvement of working conditions and other programs,

and/or to be added as part of the CNA Incentive; and 20% - For GOCCs and FGIs, to be reverted to their corporate

funds.

iii. Actual operating income at least meets the targeted operating income in

the approved Corporate Operating Budget (COB) for the year;

iv. Actual operating expenses are less than the DBM-approved level of

operating expenses in the COB as to generate sufficient source of funds for the payment of the CNA Incentive; and

v. Dividends amounting to at least 50% of their annual earnings have

been remitted to the National Treasury in accordance with the provisions of R.A. No.7656 dated November 9, 1993.

4.2 In the MWSS CO, the Journal Entry Vouchers submitted taking up the

disbursements for the payment of CNA in the amount of P3.025 million were not supported with documents that would show proof of compliance with the abovementioned requirements under DBM Budget Circular 2013-04.

4.3 In the MWSS RO, the Payroll with Control No. RO-13-149 (12/13 P-83) dated December 20, 2013 covering the payment of CNA Incentive to MWSS-RO Officials and Employees totalling P1.325 million was supported only with the following documents:

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a. Memorandum dated December 19, 2013 recommending the grant of the said Incentive for CY 2013; and

b. Major Final Outputs (MFOs) Nos. 1 & 2.

4.4 The above mentioned documents were not complete to support the granting of CNA Incentive for CY 2013 as there are other conditions that have to be complied under DBM Budget Circular No. 2013-4.

4.5 We recommended that Management submit documents showing proof of compliance with the requirements on the payment CNA. Otherwise, the concerned officers and employees may be required to refund the amount of CNA received.

4.6 The MWSS RO submitted the required documents on May 2014. The MWS CO has not complied with the submission of documents showing compliance with the requirements on the payment CNA.

5. MWSS did not have approved Gender and Development Plan (GAD) for CY 2013 and

did not make any budget allocation of its total agency appropriation for Gender and Development contrary to Joint Circular No. 2004-1 of DBM, NEDA and Philippine Commission for Women (PCW).

5.1 For three consecutive years, MWSS did not comply with the requirements of the above cited circular pertaining to the implementation of GAD activities based on approved GAD Plan and budgetary requirements.

5.2 We reiterated our recommendation as embodied in our AAR for CYs 2010 to 2012 that Management strictly comply with the requirements set forth under Joint Circular No. 2004-1 and the provision of the GAA with regards to the preparation of GAD Plan and budget allocation of at least 5% of total agency appropriation.

D. VALUE FOR MONEY (VFM) AUDIT – CORPORATE OFFICE

1. The Pinugay Sewerage Treatment Plant (STP) project was not completed/utilized but

MWSS had paid mobilization fees of P70.989 million to the contractor and still has to pay the ADB Loan 1746 Phi for the project which as of December 31, 2013 amounted to P196.176 million.

In addition, the concessionaire, Manila Water Company Inc, assumed the obligation of MWSS to pay the amount of P375.000 million for the progress billings claimed by the contractor. As a passed-on cost, the amount was included in the rate rebasing computation, as stated in the Project Continuity Agreement, which added amount yielded a higher water rate for the consumers who did not even benefit from the project. Likewise, MWCI did not complete the project as required in the Project Continuity Agreement which according to MWSI was due to supervening events that prompted them to revisit and review the timing and implementation of the project.

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1.1 The design, construction and procurement of equipment for a sewerage treatment plant capable of processing about 600 cubic meters of septage per day is one of the sanitation components of the Pasig River Environmental Management and Rehabilitation Section Development Program. The implementation of the said Program was funded by the Asian Development Bank (ADB) through a sub-loan agreement (ADB Loan 1746 Phi) entered into by and between the Department of Finance and MWSS on October 13, 2003.

1.2 The contract for the Pinugay Sewerage Treatment Plant (STP) project was

awarded thru bidding to Salcon Pte. Ltd. with a project cost of P608.28 million. In August 2006, advance payments (mobilization fees) of P70 million was paid to implement the STP project.

1.3 When a new MWSS Administrator took over in latter part of CY 2006, he refused to pay the contractor for the progress billings due to lack of approved Construction Plan which would have served as the basis for evaluating the reasonableness of the contract price. Due to the non-payment of the progress billings, the Contractor suspended work on the project.

1.4 On September 10, 2008, Salcon Pte Ltd filed a request for arbitration against

MWSS with the Construction Industry Authority of the Philippines (CIAP). The CIAP issued a Final Award on December 18, 2009 ordering MWSS to pay P349,473,728.91 and $1,092,653.80. To forestall prolonged litigation, Salcon offered to reduce the Final Award to P375,000,000 on the condition that MWSS shall no longer appeal the final award to the Court of Appeals and/or to the Supreme Court. Considering the substantial reduction of the amount, MWSS accepted the offer of Salcon and agreed not to appeal the Final award.

1.5 MWSS and Salcon entered into an Agreement to Implement the CIAP Final Award

dated 18 December 2009 in CIAC Case No. 29-2008 dated February 9, 2010. Also, Manila Water Inc. agreed to assume the obligation of MWSS to pay the amount of P375 million and MWSS in turn agreed to assign to Manila Water all its rights, title and interest over the project. This is the subject of a Project Continuity Agreement Contract executed on February 9, 2010.

1.6 Under the Project Continuity Agreement (page 3, Nos. 2 and 3) , Manila Water Inc.

shall complete the project and that the expenditures to be incurred by Manila Water in assuming the obligation of MWSS under the Final Award/Agreement to Implement have already been considered in the approved 2008 Rate Rebasing/MWCI Business Plan Extension. (underscoring ours).

1.7 Verification of the ADB Loan 1746 PHi subsidiary ledger balance as of year-end

showed that MWSS had outstanding payables in the amount of P196,176,063.72. There were no payments made on the loan and transactions in the ledger pertain only to the loan revaluation. The amount excludes the interest and other charges which may be billed from MWSS.

1.8 Accounting records also showed that mobilization fees were paid to the contractor

from CY 2006-2007 in the total amount of P70,989,440.27.

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1.9 The validation and inspection of the project was done by the COA Special Audit Team in connection with the audit of the water rates billed by the two Concessionaires. The following pictures on the project were provided by Special

Audit Team :

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1.10 As can be gathered from the above pictures, the project was not completed since the equipment was not installed and the constructed structures were left unused/idle. This resulted in wastage of government funds and the non-achievement of the purpose for the construction of the Sewerage Treatment Plant project and would have already benefited the public in general.

1.11 Management explained that based on MWCI’s assessment, current demand renders the use of the Food Terminal septage treatment plant and the San Mateo septage treatment plant more cost efficient than the Pinugay facility and that it was recommended to redesign the facilities (Pinugay facility) in phases. MWCI further explained that while the Project Continuity Agreement stipulates that Manila Water Inc. shall have “ the right to immediately take over the Project, the Project Site, and all facilities and equipment connected with the Project,” supervening events prompted Manila Water to revisit and review the timing and implementation of the project.

1.12 We recommended that Management provide alternative courses of action to be undertaken by MWSS on the failure of MWCI to complete the project considering further that the public did not benefit from the project and yet made to assume its cost.

1.13 Management informed that the MWSS Regulatory disallowed the cost of the Pinugay Sewage Treatment Plant amounting to P326.3 million. The MWSS Regulatory Office in its assessment, deferred full recovery to a later date, when the facilities are projected to be operational. They further reported that the Regulatory Office set criteria that are directly aimed at finding a fair balance between the concessionaires’ cash flow considerations and customers’ interest not to be charged for projects from which they do not, at present, derive any benefit. They also mentioned that the assessments of the MWSS Regulatory Office are currently subjects of an on-going arbitration initiated by MWCI.

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2. Various parcels of Land with total acquisition value of P143.222 million remained idle as of December 31, 2013 and have not been serving the purposes for which they were acquired in previous years.

2.1 Some lands were classified in the Balance Sheet under the Other Asset account

due to its being an idle asset of MWSS.

2.2 The Other Asset account represents the cost of idle land acquired in the past in the following areas:

Schedule of Other Assets – Land

As of December 31, 2013

Location Amount

Laiban site, Tanay, Rizal 484,292.00

Laiban,Tinucan, Sta. Ines, Mamuyaw, Tanay Rizal 12,273,564.48

Antipolo 1,716,165.69

Quezon City 95,751,590.36

Rodriguez, Montalban 301,040.83

Matictic, Norzagaray, Bulacan 8,635,468.61

Angono, Rizal 19,842,183.74

San Juan City 4,217,690.00

Total 143,221,995.71

2.3 Lands are essential resource of MWSS as they are necessary for the expansion of

the water supply and sewerage Systems. They are to be used to build its various facilities, as stockyards for operating and maintenance materials and for other developmental and operational purposes. Physical inventory of the lands revealed the following:

2.3.1 The Lands in Laiban,Tinucan, Sta. Ines, Mamuyaw all in Tanay,Rizal,

are originally intended for the Laiban Dam project site

a. These are agricultural lands left idle since its acquisition dates due to non-implementation of the Laiban Dam Project and presumed to have been taken over by the original owners of the land as shown in the pictures below:

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b. Lot 267 in Barangay Tinucan, Tanay, Rizal, originally owned by Mr. Edilberto Fontanos, is still being cultivated and used as a farm presumably by the Fontanos as appearing in the signage “Fontanos Farm” as shown in the picture below:

c. Lot Nos. 58-61 is occupied by a public school with the sign “MARARAOT Elementary School” in Sitio Mararaot, Quezon. Based on the tax declaration, the lots are located in Laiban, Tanay, Rizal; however, based on the map and as claimed also by the elders who inhabit the place, the lot is located in Quezon Province.

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d. The MWSS lots in Barangay Sta. Ines, Tanay, Rizal, with an area of 71.15 hectares can only be reached by foot due to inaccessibility to vehicles. It is known to be the bailiwicks of government rebels.

2.3.2 Land in Sitio Pantay, Barangay San Jose, Antipolo City for the resettlement of families affected by the Laiban Dam Project

a. Several mango trees were planted without MWSS permission in the

MWSS titled property (Lots 1 and 2) with an area of 1,507 hectares. This is part of the proposed resettlement site for the families that will be affected by the Laiban Dam project as proclaimed under Proclamation No. 2480. See picture in the next page.

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b. Lot No. A located at Malinta, San Roque, Antipolo City, which has an area of 8.94 hectares is now being occupied by informal settlers. See pictures below:

2.3.3 Lands located at the Wawa Dam Watershed in Rodriguez, Rizal

a. Lot Nos B-1-A and B-1-B with an area of 2.70 hectares and 174.89

hectares respectively are occupied by squatters.

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2.3.4 Land (Lot 69) located at Norzagaray and San Jose del Monte, Bulacan

a. Portions of the land are built with permanent structures such as markets and residential houses. Other areas are fenced off by private individuals as shown below:

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2.3.5 Lands in Angono, Rizal

a. Lot No. 1-A-1 with an area of 1.63 hectares located within the compound of the Loyola Retreat House in Angono, Rizal was acquired exclusively for the construction of the proposed Angono reservoir. Inspection showed that the area is a vacant lot as shown below:

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b. Lot No.2-E-1 and 2-F-1 with an area of 2.64 hectares and 3.06 hectares respectively, acquired for the proposed Laguna Lake Water Treatment Plant, are now occupied by squatters as shown in the pictures below:

2.4 Considering the land’s acquisition dates and their original intended purposes, we recommend that Management identify alternative and other appropriate uses of these properties for the purpose of optimizing their values and/or to at least recover the amount invested by MWSS.

2.5 We likewise recommend that MWSS make a documentary inventory of the lands to confirm and validate the Transfer Certificates of Title establishing the required government land registrations and MWSS ownership over the above mentioned properties.

2.6 Management informed that the Property Management Department was instructed

to prepare full report on the status and use of the said property. The outcome of the report will be the basis for which the land identified will be used to optimize its values to recover the cost invested thereof

E. UNSETTLED AUDIT DISALLOWANCES, CHARGES AND SUSPENSIONS

1. A summary of the audit disallowances and suspensions issued as of December 31, 2013

is shown below

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Particulars MWSS – Corporate

Audit Office MWSS-Regulatory

Office

Audit Disallowances/Charges with Pending Appeal with the Cluster 3/Commission Proper or Without Appeal Received but Appeal Period has not yet Expired

204,308,256.03

105,681,064.04

Notice of Disallowances which are final and executor

900,000.00

Audit Disallowances for CY 2012 and CY 2013 transactions issued in CY 2014

5,571,999.13

3,392,443.22

2. Shown below are tables showing status of audit disallowances for transactions of the

MWSS CO and RO:

MWSS Corporate Office List of Audit Disallowances with Pending Appeals with COA

ND NO. Date Nature of

Disallowance Amount Pending Appeal with COA

10-001-05-(09) July 16, 2010 Year-End Financial

Assistance 6,565,910.90

Cluster B Decision No. 2011-007 Pending Appeal with the Commission Proper

10- 02-05-(09) July 16, 2010 Anniversary Bonus 5,417,999.39 -do-

10-003-05-(09) July 16, 2010 Anniversary Bonus 5,688,443.56 -do-

10-004-05-(09) July 16, 2010 Monetization of Leave credits

1,178,209.03 -do-

10-005-05-(09) July 16, 2010 Traditional Anniversary Bonus

686,000.00 -do-

10- 06-05-(09) July 16, 2010 Mid-Year Financial Assistance

5,818,138.91 -do-

10-007-05-(09) July 16, 2010 RATA for January 2009

104,000.00 -do-

10-008-05-(09) July 16, 2010 RATA for February 2009

104,000.00 -do-

10-009-05-(09) July 16, 2010 RATA for March 2009

104,000.00 -do-

10-010-05-(09) July 16, 2010 Family Day Allowance (Regular)

1,800,000.00 -do-

10-011-05-(09) July 16, 2010 Rate Rebasing Bonus (Regular)

5,764,746.31 -do-

10-012-05-(09) July 16, 2010 Family Week Allowance (Regular)

6,454,899.70 -do-

10-013-05-(09) July 16, 2010 Performance Enhancement

6,524,033.20 -do-

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Incentive

10-014-05-(09) July 16, 2010 GOCC Incentive For CY 2008

5,471,382.77 -do-

10-015-05-(09) July 16, 2010 Scholarship Allowance (1st Tranche)

3,985,333.71 -do-

10-016-05-(09) July 16, 2010 Scholarship Allowance (2nd Tranche)

6,603,893.90 -do-

10-029-05-(09) Aug. 16, 2010 Corporate Christmas Package for CY 2009

10,730,286.97 -do-

10-017-05-(09) July 29, 2010 PX Mart Allowance (4th Quarter)

2,630,000.00 Cluster B Decision No. 2011-012 and COA CP Case No.

2011-371

10-108-05-(09) July 29, 2010 Grocery Incentive Pay (1st Quarter)

2,048,273.83 -do-

10-019-05-(09) July 29, 2010 Grocery Incentive Pay (2nd Quarter)

2,053,273.85 -do-

10-020-05-(09) July 29, 2010 PX Mart Allowance (3rd Quarter)

2,635,000.00 -do-

10-021-05-(09) July 29, 2010 Efficiency Incentive Benefit for CY 2009

5,929,843.97 -do-

10-022-05-(09) July 29, 2010 Privatization Financial Assistance

5,679,037.49 -do-

10-023-05-(09) July 29, 2010 Educational Assistance

5,741,017.42 -do-

10-024-05-(09) July 20, 2010 Extraordinary Expenses

1,325,375.40 -do-

10-025-05-(09) July 29, 2010 Extraordinary Expenses

2,111,192.85 -do-

10-030-05-(09) Aug.18, 2010 Grocery Allowance (2nd Quarter - BOT)

77,628.50 -do-

10-031-05-(09) Aug.18, 2011 Grocery Allowance (1st Quarter - BOT)

73,747.09 -do-

10-032-05-(09) Aug.18, 2011 Grocery Allowance (3rd Quarter - BOT)

90,000.00 -do-

10-033-05-(09) Aug.18, 2011 Grocery Allowance (4th Quarter - BOT)

120,000.00 -do-

Amended/Supplemental ND No. 2012-01-(05-08) dated March 15, 2012 (ND was issued by FAIO)

Various allowances and benefits for the period CY 2005 to 2008

60,483,592.40

13-001-05-(12) June 13, 2013

Amelioration Allowance

3,680,227.14 of the consultant

13-002-05-(12) June 14, 2013 COLA 14,720,328.21 -do-

13-003-05-(12) July 1, 2013 RATA 6,001,992.84 -do-

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13-004-05-(12) July 1, 2013 RATA 2,704,617.28 -do-

13-005-05-(12) July 1, 2013 Procurement of private health insurance

3,072,183.95 -do-

13-006-05-(12) July 1, 2013 -do- 857,205.00 -do-

13-007-05-(12) July 1, 2013 -do- 2,985,516.00 -do-

13-009-05-(12)

Dec. 3, 2013

Hazard and Longevity Pay

1,269,627.39 5,017,297.07

No appeal filed. Still within appeal period

Total Disallowance for MWSS-Corporate Office 204,308,256.03

MWSS Regulatory Office List of Audit Disallowances with Pending Appeals with COA


disallowance Amount Status

RO10-001-719-3(09)

7/16/2010

Anniversary Bonus (Traditional)

622,000.00 Pending Appeal with the

Commission Proper

RO10-002-719-3(09)

7/16/2010 Productivity Enhancement Pay (PEP)

622,000.00 -do-

RO10-003-510(09)

7/16/2010 Rate Rebasing Allowance

622,000.00 -do-

RO10-004-510(09)

7/16/2010 Rate Rebasing Incentive Pay (Premium)

622,000.00 -do-

RO10-005-510(09)

7/16/2010 Family Day & Educational Allowances

416,000.00 -do-

RO10-006-719-6(09)

7/16/2010 Traditional Christmas Bonus

793,400.00 -do-

RO10-007-510(09)

7/16/2010 Productivity Incentive Bonus (PIB) 1

793,400.00 -do-

RO10-008-510(09)

7/16/2010 GOCC Incentive 793,400.00 -do-

RO10-009-510(09)

7/16/2010

Collective Negotiation Agreement (C N A) Incentive

793,400.00 -do-

RO10-010-510(09)

7/16/2010 Scholarship Allowance (2

nd Tranche)

793,400.00 -do-

RO10-011-510(09)

7/20/2010 Efficiency Incentive Bonus

447,400.00 -do-

163



RO10-012-510(09)

7/20/2010 Scholarship Allowance (1

st Tranche)

597,400.00 -do-

RO10-013-510(09)

7/20/2010 Family Week Allowance

793,400.00 -do-

RO10-014-510(09)

7/20/2010 Performance Enhancement Incentive

793,400.00 -do-

RO10-015-510(09)

7/20/2010 Calamity Economic Assistance 1

793,400.00 -do-

RO10-016-510(09)

7/20/2010 Calamity Economic Assistance 2

793,400.00 -do-

RO10-017-510(09)

7/20/2010 Corporate Christmas Package

1,033,400.00 -do-

RO10-018-717-1(09)

7/20/2010 Productivity Incentive Bonus 2

695,400.00 -do-

RO10-019-510(09)

7/20/2010 Additional Educational Allowance

311,000.00 -do-

RO10-020-883-3(09)

7/22/2010 Health & Wellness Allowance

150,000.00 -do-

RO10-021-717-1(09)

7/20/2010 Productivity Incentive Bonus 3

793,400.00 -do-

RO10-022-510(09)

7/22/2010 Rate Rebasing Additional

447,400.00 -do-

RO10-023-510(09)

7/22/2010 RATA Differential 756,000.00 -do-

RO10-024-719-3(09)

7/22/2010 Privatization Anniversary Bonus 1

597,400.00 -do-

RO10-025-719-3(09)

7/22/2010 Privatization Anniversary Bonus 2

597,400.00 -do-

RO10-026-510(09)

7/22/2010 Performance Bonus

695,400.00 -do-

RO10-027-717-1(09)

7/22/2010 Performance Enhancement Incentive

3,175,426.20 -do-

RO10-028-717-1(09)

7/22/2010 Productivity Incentive Benefit

5,943,527.44 -do-

RO10-029-717-1(09)

7/22/2010 Productivity Incentive Bonus

3,454,313.88 -do-

RO10-030-719-1(09)

7/22/2010

Collective Negotiation Agreement (C N A) Incentive

3,482,425.50 -do-

RO10-031-717-1(09)

7/22/2010 Performance Bonus

3,451,319.10 -do-

RO10-032-719-9(09)

7/22/2010 GOCC Incentive 3,482,425.50 -do-

164



RO10-033-721 dated (09)

7/22/2010 Hazard Duty Pay- Jan to June 2009

498,000.00 -do-

RO10-034-721 (09)

7/22/2010 Hazard Duty Pay- July to Dec 2009

493,800.00 -do-

RO10-035-719-1 (09)

7/22/2010 Anniversary Bonus 2,712,493.34 -do-

RO10-036-719-1 (09)

7/22/2010 Anniversary (Bigay Pala I)

2,737,201.58 -do-

RO10-037-510 (09)

7/22/2010 Rate Rebasing Incentive 1

9,358,872.69 -do-

RO10-038-883-4 (09)

7/22/2010 Grocery Incentive Pay 1

st Quarter

1,330,000.00 -do-

RO10-039-883-4 (09)


nd Quarter

1,340,000.00 -do-

RO10-040-883-4 (09)


rd Quarter

1,350,000.00 -do-

RO10-041-883-4 (09)


th Quarter

1,375,000.00 -do-

RO10-042-510 (09)

7/22/2010 Educational Assistance 1

1,513,200.00 -do-

RO10-043-510 (09)

7/22/2010 Rate Rebasing Incentive 2

2,451,400.00 -do-

RO10-044-510 (09)

7/22/2010 Educational Assistance 2

1,519,000.00 -do-

RO10-045-510 (09)

10/21/2010 Productivity Enhancement Pay (PEP)

3,015,729.40 -do-

RO10-046-719- 1 (09)

10/22/2010

Corporate Christmas Package

5,554,413.46 -do-

RO10-047-717-1(09)

10/8/2010

Scholarship Allowance

3,392,897.70 -do-

13-001-RO-(12)

June 10,

2013

Amelioration Allowance

1,991,974.15 -do-

13-002-RO-(12)

June 10, 2013

COLA 7,910,835.98 -do-

13-004-RO-(12) Amended

June 10, 2013

Productivity Incentive Bonus

3,924,797.50 -do-

13-005-RO-(12)

June 10, 2013

Representation and transportation allowance

4.389,873.84

-do-

13-006-RO-(12)

June 10, 2013

Procurement of health insurance

1,551,528.00 1,389,177.00

-do-

165



13-007-RO-(12)

Dec. 3, 2013 Hazard Duty Pay 464,127.10 No appeal filed. Still within

appeal period

13-008-RO-(12)

Dec. 3, 2013 Longevity Pay 1,816,335.48 No appeal filed. Still within

appeal period

Total Disallowance for MWSS-Regulatory Office

105,681,064.04

MWSS Corporate Office Audit Disallowances – Final and Executory



10-026-05-(09) July 28, 2010 Cash Token- Jim G. Fondevilla

200,000.00 Notice of Finality of Decision and COA Order of Execution were issued

10-027-05-(09) July 28, 2010 Financial Assistance- Lorenzo S. Sulaik


10-028-05-(09) July 28, 2010 Medical/Financial Assistance- Oscar Garcia


Disallowances which are final and executory – Corporate Office

900,000.00

MWSS Corporate Office Audit Disallowances for CY 2012 and CY 2013 Transactions Issued in CY 2013



14-001-05-(12) Feb. 4, 2014 Janitorial Services 2,855,968.14 Within appeal period

14-002-05-(12) April 25, 2014 Rice Allowance 2,716,030.99 Within appeal period

14-003-05-(12) May 21, 2014 Welfare Fund –Government Share

11,848,750.23 Within appeal period

14-004-05-(13) May 26, 2014 Welfare Fund –Government Share

3,789,683.15 Within appeal period

Total Disallowances for MWSS CO 21,210,432.51

166

MWSS Regulatory Office Audit Disallowances for CY 2012 and CY 2013 Transactions Issued in CY 2014



14-001-RO-

(12) Feb. 5, 2014 Janitorial Services 686,587.61 Within appeal period

14-002-RO-

(12) Feb. 11, 2014 Security Services 1,334,050.05 Within appeal period

14-003-RO-

(12) April 25, 2014 Rice Allowance 1,371,805.56 Within appeal period

14-005-RO -

(12) May 21, 2014

Welfare Fund –

Government Share 7,121,527.82 Within appeal period

14-005-RO -

(13) May 26, 2014

Welfare Fund –

Government Share 1,231,430.82 Within appeal period

Total Disallowances for MWSS RO 11,745,401.86

F. STATUS OF REVIEW OF MWSS CONTRACTS

As of December 31, 2013, a number of contracts are still being reviewed and/or for compliance by Management for the submission of documentary requirements required by the Technical Services Office of the Special Services Sector, as follows:

Name of Project and Location

Contractor Contract Amount Status

MWSS-CO

Supply and Installation of Waterproofing & Concrete Topping for the Roof Deck of MWSS Administration & Engineering Buildings

OCM Steel Corporation P 4,058,160.15

Additional documents required in the initial Technical Evaluation report dated December 12, 2012 were submitted on April 12, 2013.

Angat Water Utilization and Aqueduct Improvement Project, Phase II (AWUAIP-P2)

China International Water and Electric Corporation

(CWE) 5,765,312,520.62

Additional documents required in the initial Technical Evaluation report was submitted by MWSS Management on December 13, 2013 and was forwarded to Technical Services Office on January 20, 2014.

MWSS-RO

2012 Rate Rebasing Consultancy Services Contract

Isla Lipana & Co,/Lahmeyer IDP

Consult Inc. 61,597,388.00

Additional documents required in the initial Technical Evaluation report dated October 29, 2013 were requested to be submitted by MWSS RO

167

Name of Project and Location

Contractor Contract Amount Status

on October 29, 2013.

Valuation of Assets used in operation and review and validation of Concessionaires asset condition reports

Test Consultants Inc. 21,028,000.00 Request for contract review made on May 23, 2013

Consulting Services for technical audit and evaluation of CAPEX of MWCI/MWSI

Test Consultants Inc. 14,812,000.00

Request for contract review was made on the 2

nd quarter of CY 2011