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
Building, Plant, Equipment & Transmission Lines
Land & Land Improvements
Office Furniture & Other Equipment
Transportation Equipment
Total
1.5
2.
Carrying Amount (Net of
Depreciation)
(in Thousand ₱)
22,678,084
12,444,447
145,912
322,112
35,408,365
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.
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
264-01-01-02-01-LBAQ-4A
264-01-03-01-MTSP
264-01-01-02-05-ICB-1-4
Section B,D,E,F&K
264-01-01-01-03-AUX#5
264-02-02-04-03-01-mssp-5sec
b-9 & b-13
264-01-01-01-08-Fund 77-
Particulars
La Mesa/Balara Aqueduct
Consultancy Services for
Strengthening in MWSS
Capability in Water Supply
Sewerage and Sanitation
Service Provision
Supply & delivery ci adaptor, ci
bend reducer
Hydro Electric Power
supply 7 delivery of 1 diving
equipment & 1 lot inflatable
sewer plugs
Supply and delivery of various
Amount
80,476,040.31
50,677,422.49
5,002,015.25
2,991,854.00
2,478,439.72
1,989,735.17
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AWSOP BOND
264-01-03-04-02-ADB 1379
264-02-02-04-03-02-ELN-002
264-02-01-06-IS-14 Section B
264-01-01-01-11-Fund 77 Awsop
Bond
sizes of Water Meter
Umiray Angat Transbasin
Project-UATP-ADB 1379
5 units portable hypoclorination
assemblies
supply & delivery of ultrasonic
flowmeter
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
Total
2.3.3
1,366,222.87
959,145.60
629,319.12
108,955.51
146,679,150.04
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
264-01-03-03-02-ADB 2012
264-01-03-04-02-ADB 2012
264-01-03-05-02-ADB 2012
Particulars
New Water Sources
Development Project (NWSDP)ADB 2012 (For Allocation)
New Water Sources
Development Project-NWSDPADB 2012
New Water Sources
Development Project-NWSDPADB 2012
Total
2.3.4
Amount
7,282,557.76
(1,267,253.16)
2,233,479.99
P8,248,784.59
Unreconciled balances of P2,658,331.94 between the General Ledger
and the subsidiary ledger , as shown below.
Account Code
264-01-03-04-02-Forex
264-01-03-07-BC
Total
Amount
2,565,452.24
2,879.70
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
2.7
3.
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.
Management informed that the CIP account on completed project will be
capitalized in CY 2014.
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:
3.3
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.
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
44
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
Cash & Cash Equivalents
Amount
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
Due to the Regulatory Office – share in
Concession Fee
Other Liabilities (trust liabilities)
Other Payables – lawyer’s fees deducted from
claims of RATA, RA 1616,etc of employees
Deposit for Special Reserve Fund
Total Trust Liabilities/receipts for payment of loans
3.4
254,596,729
1,608,205,797
1,862,802,526
632,770,395
62,999,060
20,726,901
3,521,717
2,582,820,599
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
45
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.
4.
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.
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:
46
“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 informationa. 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
47
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. 2010029 (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
49
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.
5.
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.
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
2011
2012
2013
Total
Principal
241,071,428.58
396,085,130.82
321,428,571.44
958,585,130.84
Interest
71,819,196.43
74,656,559.38
58,797,957.92
205,273,713.73
Total
312,890,625.01
470,741,690.20
380,226,529.36
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
6.
Management informed that the issue was already discussed with the OGCC on the
possible filing of arbitration case against MWSI.
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 (10 th) 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:
st
1 Letter of Company
Name
A to D
E to L
M to Q
R to Z
6.3
Remittance Schedule
th
th
10 to 14 day of the month
th
th
15 to the 19 day of the month
th
th
20 to the 24 day of the month
th
25 to the end of the month
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:
52
Account
Due to BIR (412)
Due to GSIS (413)
Due to Pag-ibig (414)
Due to Philhealth (415)
Due to NHMFC (417)
TOTAL
Amount
29,639,558.45
562,086.88
89,701.80
12,103.55
2, 727.43
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
Value Added Taxes and
other Percentage Taxes
Type of taxes withheld
Expanded Withholding
Taxes and Taxes on
Compensation
6.3.1.2
Due date of remittance
th
On or before the fifteen (15 ) 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.
Due date of remittance
th
On or before the tenth (10 ) day of the
month following the month the withholding
was made
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
Due to BIR
Income Tax Withheld from Salaries and Other
Compensation-Regular
Income Tax Withheld from Salaries and Other
Compensation-Contractual
VAT withheld
Professional Tax
Franchise Tax
Expanded Withholding Tax
Output VAT
GMP Non VAT
TOTAL
6.3.1.3
Amount
4,216.99
(402,277,94)
45,923.12
18,810,115.25
113,789.61
58,592.18
8,176,836.23
2,229,631.44
602,678.58
29,639,558.45
The unremitted VAT withheld and Expanded Withholding Tax
consists of December 2013 transactions that include the
following:
Nature
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
VAT withheld of for the payment of Progress Billing No. 9
for the Design and Build Joint Sewage and Septage
Treatment Plant
Amount
20,829,228.80
458,397.34
53
6.3.2
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.
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
Unremitted various GSIS accounts at the end of CY 2013
Accounts with abnormal (debit) balance
Total
6.3.2.2
Amount
5,930,141.34
(5,368,054.46)
562,086.88
The unremitted accounts at the end of CY 2013 are the
following:
Account Title
Social Insurance Premium - PS – Regular
Social Insurance Premium - PS - Contractual
Policy Loan – Regular
Policy Loan Optional Contractual
Emergency Calamity Loan – Contractual
Salary/ Enhanced Salary Loan – Regular
Educational Loan – Regular
Emergency Calamity Loan – Regular
Summer One Month Salary – Contractual
Amount
406,212.25
2,446.14
35,230.94
1,475.24
500.00
5,455,191.05
4,760.00
2,000.00
188.89
54
Account Title
Cash Advance (e-card) – Regular
Emergency Loan Assistance – Regular
State Insurance Fund – Regular
Total
6.3.2.3
On the other hand, the accounts with abnormal balances are
shown below:
Account Title
Social Insurance Premium - GS- Regular
Social Insurance Premium - GS- Contractual
Policy Loan – Contractual
Policy Loan Optional Regular
Optional Insurance Prem. – Contractual
(1,047.78)
College Education Assurance Plan - Regular
(136.50)
College Education Assurance Plan - Contractual
(135.70)
(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)
Restructured Loan - Regular
Restructured Loan- Contractual
Total
(200.00)
(5,307,466.93)
(4,413.68)
(5,368,054.46)
Due to PAG-IBIG
6.3.3.1
The yearend balance of P89,701.80 pertains to prior years’
transactions which remains unremitted.
Due to Philhealth
6.3.4.1
6.4
(95.30)
(3,834.45)
State Insurance Fund -Contractual
6.3.4
Balance
(4,767.66)
(1,134.09)
(6,900.00)
Optional Insurance Prem. – Regular
Salary/Enhanced Salary Loan - Contractual
6.3.3
Amount
3,851.80
18,185.03
100.00
5,930,141.34
The balance of P12,103.55 pertains to prior years’ contributions
not remitted to Philhealth.
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
55
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
7.
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.
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
Transactions not recorded in the year incurred/earned
Costs of completed feasibility studies/consultancy
5,558,347.07
services reclassified to prior years’ adjustment due to
the non implementation of the civil works component of
the project
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
Adjustments in prior period expenses
Prior period per diems of members of Board of Trustees
and allowance of DA for Engineering
Correction of prior period depreciation
Payment of consultancy services to Marian Pastor
Prior year’s salary differentials
Adjustment of accounts
Collection of prior period rentals/disallowance
Total
Credits
3,086,966.36
1,418,294.47
415,500.00
273,543.59
200,000.00
47,949.54
29,946,576.89
12,664,392.64
655,567.59
1,770,703.02
56
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
2001
2000
2001
2001
Total
Project Description
Hydrographic survey at Angat Dam Reservoir
Consultancy for 300 MLD Bulk Water Supply Project
Consultancy-1200 MLD Bulk Water Supply Project
Consultancy-Agos River Multipurpose development
Amount
345,000.00
1,520,000.00
1,335,750.00
2,357,597.07
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
RA 1616
Code
439-23-04
Amount
39,126,380.16
57
Account
Cost of living allowance
Trust fund COLA
Trust fund AA
Amelioration allowance
Total
7.4.4
Code
439-23-02
439-21
439-09
439-23-01
Amount
29,823,714.16
26,209,179.57
361,608.82
157,896.22
95,678,778.93
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.
58
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.
7.7
We recommended and Management agreed to:
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;
59
b. Clarify/explain the issues raised on the payment of consultancy
services to Ms. Marian P. Roces.
8.
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.
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).
60
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
8.2
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.
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
Brass
Presidential Bust
Paintings
Paintings
Total
8.3
Code
222-01-01
222-01-02
222-01-03
222-01-19
Amount
27,800
16,500
475,000
23,000
542,300
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
Mother & Child on Wood 2
Diego
Diego
1980
1980
6/1/1981
6/1/1981
3,000.00
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
61
Mother And Child
Boni Arcilla
TOTAL
1981
3/19/1981
1,500.00
63,200.00
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.
62
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 nonworking 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.”
9.2
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”.
Representation Expense incurred for the year 2013 amounted to P817,165.00
(paid and accruals) broken down as follows:
Particulars
Food Expenses during Board Meetings
Reimbursable Expenses
Meal Expenses
Fuel expenses/ Parking/toll fees
Communication
Sub total
Accrued expenses
Amount
105,410.36
379,724.19
225,987.95
60,855.59
666,567.73
45,186.91
63
Total reimbursable expenses
Total representation expenses
9.3
711,754.64
817,165.00
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.
Date of Meeting
02-000533
01/09/2013
01/10/2013
01/24/2013
No. of
food
orders
10
15
15
02-000988
01/23/2013
01/18/2013
03/01/2013
10
10
9
JEV No.
04-001300
Paid Amount
No. of actual attendees
2,310.00
5,775.00
6,600.00
7
8
8
770.00
1,705.00
550.00
7
8
4
64
Date of Meeting
JEV No.
No. of
food
orders
Paid Amount
No. of actual attendees
07-002731
03/07/2013
03/14/2013
10
15
4,600.00
6,900.00
8
7
07-002841
05/06/2013
05/07/2013
05/09/2013
05/14/2013
05/30/2013
10
12
12
8
10
1,045.00
698.50
3,762.00
1,628.00
2,420.00
2
3
9
3
7
09-003667
07/03/2013
07/04/2013
07/11/2013
10
10
15
990.00
2,497.00
4,114.00
07/15/2013
10
627.00
07/23/2013
07/25/2013
10
12
1,595.00
4,785.00
53,371.50
7
6
12
No attendance Sheet
submitted for the said
date.
6
10
Total
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.”
9.8
We recommended and Management agreed to:
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;
65
10.
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.
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:
Total Number of
Meetings Attended
Name
Ramon B.
Alikpala
Gerardo A.I.
Esquivel
Emmanuel L.
Caparas
Benjamin J.
Yambao
Hermogenes
Fernando
Ma. Cecilia
Soriano
Jose Ramon
Villarin, S.J.
Board
Designation
Board
Chairman
Board
Member(Ex
Officio)
Board
Member
Board
Member
Board
Member
Board
Member
Board
Member
Per Diems Received
For CY 2012
Per Board
Secretari
at Report
to GCG
Difference
32
31
1
432,000
432,000
0
27
35
(8)
369,000
384,000
15,000
(refunded)
47
54
(7)
561,000
561,000
0
47
53
(6)
561,000
561,000
0
29
27
2
357,000
43
50
(7)
471,000
10
6
4
126,000
Per
Finance
Record
Per
Finance
Record
Per Board
Secretariat
Report to
GCG
Not
included
Not
included
Not
included
Difference
NA
NA
NA
66
11.
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.
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
following deficiencies:
the
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
67
c.

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)
Representatives were allowed to receive the salaries of the workers
without authorization letters, namely:
Worker
Michael Corañez
Jun-jun Corañez
Representative
Reynaldo Aquino
Romeo San Jose
Louie Cruz
Mario Cruz
23,400
Benito Temblor
Rogelio G Cruz
17,100
Mario Marcelino
Alwin Lago
Vicente Rodriguez, Jr.
Romeo San Jose
Christoper Mayo
Nenette Rodriguez
29,750
10,000
7,740
d.
Amount of salary
44,450
35,700
Period covered
January to May 2013.
January to April 2013
January, March, April &
May 2013)
January, March & April
2013
January to May 2013
April 2013
May 2013
Absences were not deducted from the salaries of the following workers:
Worker
Dionisio Dejano
Rogelio S. Cruz
Isagani Cruz
Vicente
Rodriguez, Jr
Marcelino San
Jose
Total
Audit finding
He did not sign the Daily Attendance Sheet on January 5, 2013.
He was marked absent on March 28, 2013 in the Daily
Attendance Sheet
He was marked absent on March 24, 2013 in the Daily
Attendance Sheet
Amount
350
380
300
He was marked absent on March 24, 2013.
430
He did not sign the Daily Attendance Sheet on March 12, 2013.
430
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.
11.4
We recommended that Management:
68
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).
12.
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.
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.”
13.
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.
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. 152010 was not complied with. Moreover, the accuracy of the Other Prepaid Expense
– Input VAT account balance of P383,771 was not established due to:
69
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 152010.
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.
b.
c.
d.
b.
13.1.2
Beginning of the year;
Current
year’s
domestic
purchases/payments xxx
Claims for tax credit/refund and other
adjustments; and
Balance at the end of the year.”
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.
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
70
the amount in the Input VAT per Summary List of Purchases/BIR
return as shown below:
Input VAT-Actual per SL
Input VAT-Actual-SLP/Return
Difference
b.
Detailed analysis of the Input VAT account is shown as follows:
2013
January
February
March
April
May
June
July
August
September
October
October
November
December
Total
c.
13.1.3
20,196,761.88
22,137,821.38
(1,941,059.50)
2,262.85
2,582,850.14
869,018.60
2,579,313.33
4,606,359.72
192,429.55
4,668,075.78
2,332,862.12
262,266.42
358,429.97
0
308,819.49
1,434,073.91
Per Summary List of
Purchases/Returns
1,991,466.30
2,682,853.80
148,316.60
1,477,843.60
1,951,041.08
192,429.95
4,532,844.47
2,323,764.94
4,744,578.02
1,458,583.57
0
308,819.49
325,279.55
20,196,761.88
22,137,821.38
Per SL
From the foregoing, we may conclude that the Prepaid Input VAT
recorded in the books was understated.
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:
71
Beginning Balance
Input Tax Claimed for 4th Quarter-2012
Input Tax Carry Over
2,172,952.70
(162,304.78)
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
Total Input VAT Actual on
purchases
Total Input VAT claimed based on
BIR remittances
Ending balance per books
2,172,952.70
20,194,761.88
21,983,943.78
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
Total Sales/
Receipts
per Return
48,229,205.16
per Guidelines
43,124,290.32
Difference
5,174,914.84
72
(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
Management agreed to:
recommended and
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 sixmonth 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
73
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
1.
2.
3.
Particulars
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.
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.
Monthly Accomplishment Reports
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
6. Report on the ADR arrived at for the third
Rate Rebasing Exercise
7. Future Cash flows
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
12. Additional Requirements
Timeline
As required
10 days from commencement date
1 month from commencement date and every
month thereafter.
4.
1.2
60 days from commencement date
45 days from commencement date
90 days from commencement date
100 days from commencement date
110 days from commencement date
110 days from commencement date
150 days from commencement date
180 days from commencement date
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.
b.
c.
1.3
50 days from commencement date
Statement of Time elapsed, if any
Approved time extension and/or suspensions/resumption orders, if any,
including supporting documents; and
Certificate of Project Completion and Acceptance
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
74
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
75
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.
2.
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.
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.
76
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
Remuneration Cost Foreign
Local
Total remuneration cost
Reimbursable cost (subject to
submission of official receipts)
Housing
Transportation
Local Vehicle rental
Consumable office supplies
Printing & Report reproduction
Communication expenses
Laptop Computers
Meeting expenses
Heavy Duty Colored printed
Computer Software
Total reimbursable costs
Total Project Cost
VAT
Grand Total
Amount
11,856,425
39,990,350
51,846,775
1,272,321
342,857
235,714
171,429
291,071
107,143
267,857
71,429
133,929
257,143
3,150,893
54,997,668
6,599,720
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.
430285/143-04/13
469741/227-05/13
469868/414-10/13
469910/469-11/13
469955/516-12/13
Total
2.1.3
Date
April 18, 2013
June 7. 2013
October 7, 2013
November 14, 2013
December 17, 2013
Amount
P2,773,802
5,478,437
714,350
10,956,874
13,696,093
P33,619,556
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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2.1.3.2
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.
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:
d.
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.
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
Advance Payment
Presentation of issues,
proposed resolution to these
issues, proposed policies to
be adopted by MWS for the
third Rate Rebasing exercise
concerning these issues.
Historical Cashflows:
Amount to be Paid (Percent of Contract
Price, PhP)
15%
5% less recovery of advance payment
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
20% less recovery of advance payment
10% less recovery of advance payment
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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.
2.1.3.4
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.
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
Equipment/material testing
Printing & Reproduction of reports
Local Transportation costs
(vehicle rental with driver and fuel/oil)
Office supplies & other supplies (including laptop and digital
cameras)
Miscellaneous expenses
Total
2.2.3
Amount
460,000
140,000
1,694,000
646,000
56,000
2,996,000
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
Digital Camera
Laptop Computer with
software
Quantity
6
Cost
P 120,000.00
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
Month 1
Activities
st
1
nd
2
3rd
4th
5th
Month 2
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:
2.2.3.3
-
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.
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.
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.
2.2.7
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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3.
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.
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
Philippine National
Bank
Combo Current Account
Land Bank of the
Philippines
Current Account
Purpose
Payment of salaries and
allowances to employees/
deposit of collections received
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.
4.
Management submitted the required documents on April 10, 2014 and committed
that henceforth, all transfer of funds will be properly supported.
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
3
4
5
Date of accomplishment report
February 20, 2009
March 15, 2010
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
5.
Management informed that to date, the closure activities for the project are still ongoing. 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.
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:
Account
Accounts Payable
Due to Officers & Employees
Dividends Payable
Interest Payable
Total
1.2
Schedule of Payables
CO Books
RO Books
12,717,473.90
177,362,832.21
11,205,979.68
52,190,237.91
139,247,720.00
0
122,799,291.92
155,241.59
285,970,465.50
229,708,311.71
Total
190,080,306.11
63,496,217.59
139,247,720.00
122,954,533.51
515,678,777.21
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”
91
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
MWSS RO
Accounts Payable
Due to Officers & Employees
Total
MWSS CO
Accounts Payable
Due to Officers & Employees
Total
Grand Total
Total
Outstanding for
more than two
years
%
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
12,717,473.90
11,205,979.68
23,923,453.58
253,476,523.70
0
9,681,960.09
9,681,960.09
181,548,434.09
86
40
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
Accounts Payable – accrued
expenses
Due to officers & employees
Total
Code
Amount
401
124,818,193
403
47,048,281
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
Due to
employees 19891997
403-02-01
8,574,214.69
Due to
employees 19992001
403-02-02
1,107,745.40
Total
Audit Finding
The amount was originally
recorded in January 2007.
Last transaction was in
December 2009
The amount was originally
recorded in January 2007.
Last transaction was in
December 2010
9,681,960.09
92
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
MWSS RO
MWSS CO
Total
Total
127,394,157.00
12,717,473.90
140,111,630.90
Amount without
documentation
24,392,533
7,787,177
32,179,710
%
19
61
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
CY 2013 accruals
Total
9,674,434
4,622,521
4,937,000
5,158,578
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
Computer Supplies
Tel. Exp. – Landline
Advertising Exp.
Rent Expense – copiers
Representation Expenses
Survey Expenses
Consultancy - Asset Condition
Security Services
Extraordinary Exp.-Athletics/Wellness
Extraordinary Exp.-GAD/Cultural
Insurance Expense-HMO
Total
118,000
43,055
15,000
55,392
20,000
4,375
5,853,847
3,100,000
18,454
6,143
126,678
313,489
9,674,434
Details of CY 2012 accruals for maintenance and other operating
expenses
Breakdown of CY 2012 accruals
Electricity Expenses
Tel. Exp. – Landline
Tel. Exp. – Mobile
Representation Expenses
320,820
11,442
85,955
250,000
93
Auditing Services
Other-Prof Services WQ Test
R&M - Motor Vehicles
Total
65
3,929,239
25,000
4,622,521
Details of CY 2013 accruals for maintenance and other operating
expenses
Breakdown of CY 2013 accruals
Other-Prof Services
Terminal leave benefits
Advertising Exp
Printing & Binding
R&M - Motor Vehicles
EME
Rent Expense
Internet Services
Security/Janitorial services
Subscription
Total
2,600,000
2,100,000
250,000
96,000
50,000
50,000
1,062
6,960
4,263
293
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:
Account Title
Amount
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
Telephone Expenses - Landline
993,465.75
62,921.15
94
Account Title
Amount
Training Expenses
12,712.88
Water Expenses
16,377.83
Due to BIR
Sub total
(16,530.00)
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
Rent
Consultancy Services
600.00
30,918.72
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
95
d.
2.
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.
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
Office Buildings
Other Structures
Office Equipment
Furniture and Fixtures
IT Equipment and Software
Library Books
Communication Equipment
Construction and Heavy
Equipment
Medical, Dental and Laboratory
Equipment
Sports Equipment
Technical and Scientific
Equipment
Other Machinery and Equipment
Motor Vehicles
Other Transportation Equipment
TOTAL
Acquisition Cost
1,103,938,145.81
60,352,642,078.84
4,522,241.83
6,895,503.63
116,531,807.38
167,507.50
1,249,392.84
Accumulated
Depreciation
872,362,296.85
37,906,133,758.19
3,946,641.49
5,020,923.90
109,799,540.88
112,345.50
682,270.69
Book Value
231,575,848.96
22,446,508,320.65
575,600.34
1,874,579.73
6,732,266.50
55,162.00
567,122.15
248,240,733.67
197,817,433.94
50,423,299.73
40,535,469.89
34,161,074.01
6,374,395.88
1,603.00
877.46
725.54
45,921,951.93
39,226,119.02
6,695,832.91
60,174,454.07
4,703,553.43
448,828,657.76
74,878,800,219.71
43,986,054.93
4,065,931.89
309,546,549.45
39,526,861,818.20
16,188,399.14
637,621.54
139,282,108.31
22,907,491,283.38
96
MWSS Regulatory
At the MWSS Regulatory Office Account Name & Code
Office Buildings- Improvements
Office Equipment
Furniture and Fixtures
IT Equipment & Software
Library Books
Communication Equipment
Medical, Dental & Lab Eqpt.
Sports Equipment
Technical & Scientific Eqpt.
Other Machineries & Eqpt.Electrical & Aircon
Other Machineries & Eqpt.-Tools
Other Machineries & Eqpt.Appliances
Other Machineries & Eqpt.-Audio
Visual
Motor Vehicles
TOTAL
2.2
Acquisition Cost
SL
Accumulated
Depreciation
Book Value
2,925,095.64
1,580,245.22
4,659,429.72
131,848,605.18
693,572.26
2,232,660.24
21,110.00
377,918.75
3,480,486.20
2,925,015.64
1,547,313.88
4,520,101.68
75,779,707.92
693,552.26
2,232,611.24
21,108.00
377,909.75
3,321,258.89
80.00
32,931.34
139,328.04
56,068,897.26
20.00
49.00
2.00
9.00
159,227.31
623,807.32
623,793.32
14.00
60,385.00
60,381.00
4.00
244,407.00
244,388.00
19.00
1,865,314.36
1,841,097.38
24,216.98
8,499,774.00
159,112,810.89
8,499,744.00
102,687,982.96
30.00
56,424,827.93
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;
97
e.
2.3
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.
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:
Particulars
Office Building
Medical, Dental
& Laboratory
Equipment
Construction and
Heavy
Equipment
Other Machinery
& Equipment
Other Structures
Total
At the MWSS CO
Recorded Net
Acquisition Cost
Book Value
130,133,968.48
15,824,110.92
Should Be
Residual value
13,013,396.85
Difference
2,810,714.07
13,511,388.40
2,657,450.11
1,351,138.84
1,306,311.27
24,306,049.16
5,137,372.65
2,430,461.33
2,706,911.32
3,742,894.49
752,354.99
374,289.45
378,065.54
19,611,521,363.59
19,783,215.664.12
3,537,976,784.19
3,562,348,072.86
1,957,385,463.39
1,974,554,749.86
1,580,591,320.80
1,587,793,323.00
At the MWSS RO
Particulars
Office Building
Office Equipment
Furniture & Fixtures
IT Equipment
Library Books
Communication Equipment
Medical, Dental & Lab. Eqpt.
Sports Equipment
Technical & Scientific Eqpt.
OME Electrical & Aircon
OME – Tools
OME – Appliances
Acquisition
Cost
2,925,095.64
1,522,914.22
4,025,085.42
15,211,622.80
693,572.26
2,232,660.24
21,110.00
377,918.75
2,832,290.66
623,807.32
60,385.00
244,407.00
Recorded
Net Book
Value
80
55
77
148
20
49
2
9
14
14
4
19
Should be
Residual
value
292,509.56
152,291.42
402,508.54
1,521,162.28
69,357.23
223,266.02
2,111.00
37,791.88
283,229.07
62,380.73
6,038.50
292,429.56
152,236.42
402,431.54
1,521,014.28
69,337.23
223,217.02
2,109.00
37,782.88
283,215.07
62,366.73
6,034.50
24,440.70
24,421.70
Difference
98
OME – Audio
Motor Vehicles
Total
2.3.2
1,816,933.36
8,499,774.00
Recorded
Net Book
Value
51
30
Should be
Residual
value
181,693.34
849,977.40
41,087,576.67
572
4,108,757.67
Acquisition
Cost
Particulars
Difference
181,642.34
849,947.40
4,108,185.67
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
Communication Equipment
Furniture & Fixture
IT Equipment & Software
Office Equipment
Other Machinery & Equipment
Sports Equipment
Technical & Scientific Equipment
Total
2.3.3
Amount
84,151.96
4,363,719.77
376,113.82
176,634.50
1,331,621.91
1,603.00
266,479.52
6,600,324.48
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
99
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
2.3.5
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
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
Code
Unit
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
235
Sports Equipment
236
Technical & Scientific Eqpt.
241
Motor Vehicles
Other Machineries & Eqpt.Electrical & Aircon
Other Machineries & Eqpt.Appliances
Other Machineries & Eqpt.-Audio
Visual
240-1
240-3
240-4
9,610.00
86,995.00
157,573.00
3,762,000.00
37,380.00
34,374.00
873,674.50
100
GL
Account Name
Code
Unit
Value
TOTAL
2.4
2.5
3.
13,002,442.20
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.
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
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
101
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
102
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
ASSETS
Other
Receivables
Office
Equipment,
Furniture and
Fixtures
Machineries and
Equipment
Transportation
Equipment
Construction in
Progress
Sub-total
Less:
Due to GSIS
Accumulated
Depreciation – IT
Equipment &
Software
Accumulated
Depreciation Machineries and
Equipment
Accumulated
Depreciation Transportation
Equipment
Account
Code
2012
498,412.16
570,602.17
(72,190.01)
221/223
146,904,805.48
262,618,569.84
(115,713,764.36)
229/233/234/
236/240
397,146,225.20
773,727,886.88
(376,581,661.68)
241
148,864,219.89
315,672,180.24
(166,807,960.35)
264
457,018,738.82
462,577,085.89
(5,558,347.07)
1,150,432,401.55
1,815,166,325.02
(664,733,923.47)
1,691,656.63
1,692,034.41
(377.78)
127,467,151.89
231,609,539.82
(104,142,387.93)
329/333/334/
336/340
387,935,632.42
658,956,412.82
(271,020,780.40)
341
155,238,035.40
317,279,114.71
(162,041,079.31)
672,332,476.34
1,209,537,101.76
(537,204,625.42)
149
413
323
Sub-total
NET of
RECONCILED
AMOUNT
1.3
Increase
(Decrease)
2013
(127,529,298.05)
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
Assets
(includes)
contra-assets
accounts
30
Amount for
Reconciliation
575,883,408.35
Percentage to
total
assets/liabilities
1
TOTAL
52,017,412,546.19
103
No. of
Accounts
(General
Ledger) for
reconciliation
Liabilities
Equity
Unreconciled
Accounts, NET
1.4
Amount for
Reconciliation
Percentage to
total
assets/liabilities
TOTAL
11
938,337,667.02
6
15,745,931,775.99
1
281,671.51
0
36,271,480,770.20
42
362,735,930.18
104,034,825,092.38
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
Account Title
Account
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
498,412.16
570,602.17
Decrease of
P72,190.01 is due
to refund of
overpayment to
Fortune Care Inc.
2,888,349.43
2,888,349.43
Other Receivables
149
Deposit on Letters of
Credit
180
Advance to
Contractors
181
78,823,893.58
78,823,893.58
Other Prepaid
Expenses
185
19,577,362.70
19,577,362.70
(10,319,400.00)
(10,319,400.00)
Still unreconciled
23,691,891.73
23,691,891.73
Still unreconciled
Land
201-01-99
Buildings
215-01-1399-1OR&AD01-00001
Dormant since
1997; Still
unreconciled
Dormant since
1997; Still
unreconciled
P11.097M
represents
Creditable
Withholding Tax for
offsetting to Income
tax payable
according to
Management’s
response. Still
unreconciled
104
Comparative Presentation of Accounts for Verification/Reconciliation
For CYs 2012 and 2013
Account Title
Accumulated
Depreciation Buildings
Account
Code
2013
2012*
315
(21,322,702.56)
(21,322,702.56)
Office Equipment,
Furniture and Fixtures
221/223
146,904,805.48
262,618,569.84
Accumulated
Depreciation - Office
Equipment, Furniture
and Fixtures
321/323
(127,467,151.89)
(231,609,539.82)
Remarks
Corresponding
Accumulated
Depreciation for
Unreconciled
Buildings account
P115,713,764.36
decrease is due
reclassification
P104,142,387.93
decrease is due
reclassification.
P376,581,661.68
decrease are due
to the following
reclassifications:
Machineries and
Equipment
229/233/23
4/236/240
397,146,225.20
773,727,886.88
Accumulated
Depreciation Machineries and
Equipment
329/333/33
4/336/340
(387,935,632.42)
(658,956,412.82)
 Account 233 P37,646,670.42
 Account 236 P33,105,402.09
 Account 240 P305,829,589.17
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
decrease is due to:
Reclassification in
the amount of
P5,558,347.07
Dormant since
2003; Still
unreconciled
Construction in
Progress
264
457,018,738.82
462,577,085.89
Other Assets
290
499,424,638.42
499,424,638.42
(519,000,421.84)
(519,000,421.84)
P575,883,408.35
P703,413,084.18
401
533,802,866.88
533,802,866.88
Still unreconciled
403
48,999,125.01
48,999,125.01
Still unreconciled
412
413
2,527,112.25
2,527,112.25
1,692,034.41
Still unreconciled;
P377.78 decrease
Allowance for Doubtful
Accounts
301-02-99
TOTAL ASSETS
Accounts Payable
Due to Officers and
Employees
Due to BIR
Due to GSIS
Still unreconciled
P127,529,675.83
decrease
105
Comparative Presentation of Accounts for Verification/Reconciliation
For CYs 2012 and 2013
Account Title
Account
Code
2013
2012*
1,691,656.63
Due to PAG-IBIG
Due to Philhealth
Due to other GOCCs
Guaranty Deposits
Payable
Performance/Bidders/
Bail Bonds Payable
Other Payables
Other Deferred Credits
due to adjustments
414
415
417
111,068.74
29,275.00
430,174.81
111,068.74
29,275.00
430,174.81
Still unreconciled
Still unreconciled
Still unreconciled
426
170,533,388.90
170,533,388.90
Still unreconciled
427
1,428,947.39
1,428,947.39
439
455
156,151,331.89
22,632,719.52
156,151,331.89
22,632,719.52
P938,337,667.02
P938,338,044.80
281,671.51
281,671.51
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)
TOTAL LIABILITIES
Capital Stock
TOTAL EQUITY
2.
Remarks
502
Still unreconciled
Account
Still unreconciled;
Still unreconciled
P377.78 decrease
Still unreconciled;
-
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.
The balance of the Land account in the amount of P12.444 billion as of December
31, 2013 was not correctly stated due to:
106
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 2012008 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:
107
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
Remaining area per
Committee report
Remaining area based on
TCT 36069
Difference
ii.
Area (sq.m.)
716,668.50
714,074.10
2,594.40
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
Remaining area per books
Remaining area per TCT 36069
Difference
Area (sq.m.)
30,290,166.59
716,668.50
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.
2.3.2
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.
Land with an area of 92.61 hectares, titled under MWSS name, was
not recorded in the books.
108
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:
List of Unrecorded MWSS Titled Properties
As of December 31, 2013
TCT No.
2.3.3
Lot
No.
15793
955-A
255999
1120
27641
752A
26284
805-A
16
5667
10103
10254
10254
27642
27643
30213
16
B1
111
87
88
795A
797A
5A1
Location
Part of Tala Estate Commonwealth/ Capitol,
Q.C.
Part of Tala Estate Commonwealth/ Capitol,
Q.C.
Luzon Avenue (Municipality of Caloocan,
Province of Rizal)
Luzon Avenue (Municipality of Caloocan,
Province of Rizal)
Matitic, Norzagaray
Sapang Palay, Sta. Maria, Bulacan
Municipality of San Mateo, Province of Rizal
San Juan
San Juan
Municipality of Caloocan (Luzon Avenue)
Municipality of Caloocan (Luzon Avenue )
th
15 Ave., E. Rodriguez Street, Cubao
th
15 Ave., Socorro Santolan, Murphy San
Juan, Rizal
Caloocan City
Quezon City
Area
(Sq.
m.)
36,738
96,953
12,263
19,309
10,699
29,047
391,677
3,843
7,890
34,261
30,827
401
Transf
er
Certific
ate of 27255
23
1,635
Titles
41028
2695
599
(TCT)
15801
697
250,000
of 128 Total area
926,142
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
109
Location
Lot Area
(sq.m.)
382,205.40
934,892.79
631,983.00
1,949,081.19
No. of Lots
Allocated to MWCI
Allocated to MWSI
Retained Assets
Total
42
63
23
128
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 MesaBalara)
Marikina river – San Juan-Balara
8
127,850
29
217,722
San Juan reservoirs & pumping station
Quezon city
Pasig
Marikina
Total land area
1
2
1
1
42
14,045
21,547.90
991
49.50
382,205.40
Allocated to MWSI
Location
La Mesa – Bagbag right of way
Bagbag-Tandang Sora aqueduct
row
Bagbag reservoir & pumping station
D. Tuazon pumping station &
reservoir
Manila
Norzagaray , Bulacan
Caloocan city
Quezon city
Total land area
No. Of
Lots
5
Lot Area
(sq.m.)
3,763
17
24,994
2
6,596
1
800
26
2
9
1
63
15,120.79
1,545
867,093
14,981
934,892.79
Retained Assets
Location
Novaliches, Caloocan city
Novaliches, Quezon City
Rodriguez, Rizal
Total land area
2.3.4
No. of
Lots
9
6
8
23
Lot Area
(sq.m.)
144,923
387,940
99,120
631,983
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.
110
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.
378154
163765
27828
Lot No.
62 B
592 A-1A
20
49-C-3A-3C-2A19349
3A-1
19349
49C-3A-3C-A1-1A
19349
49C-3A-2
35390
1B-3B-3C-2A
19350
49C-3A-3C-3A-4C
Total land area
b.
Quezon City
Quezon City
Quezon City
Area
(Sq. M.)
24,220
1,114
22,206
Quezon City
8,095
Location
Quezon City
Quezon City
Mandaluyong City
Quezon City
175
2,076
2,557
17,383
77,826
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.
2.5
We recommended that Management:
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;
Ensure that all lots owned by MWSS are properly recorded in the
books;
d.
e.
Facilitate the transfer of ownership to MWSS of land under the name
of the NHA covered by Land Title No. 11095.
111
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;
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;
c.
3.
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.
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
LBP DBP
Loan
Purpose
Date Granted
LBP DBP
Club Deal
Facility
To
partly
finance
the
MWSS’
maturing
7year
USD
150M 9.25%
Fixed
rate
Bond with the
March 30, 2011
Maturity
date
December
31, 2018
Amount
1,366,071,428
112
Breakdown of Bonds/Loans Payable account
As of December 31, 2013
Name
of
bank/creditor
Bureau
Treasury
ADB
IBRD
ADB
of
Loan
Loan
transfer
from NHA
SPIAL
779 and
780
1272/1282
1746
IBRD
4019
ADB
986
ADB
1150
ADB
1379
OECF/JBIC
1146
Purpose
BNP Paribas
which matured
last March 14,
2011.
Fund for the
transfer
of
water
and
sewer systems
in
Tondo
Foreshore,
Dagat-Dagatan
and
Kapitbahayan
Manila Water
Supply
Rehabilitation
Project
I
(MWSRP
I),
Manila Water
Supply Project
II (MWSP II)
and
Metro
Manila
Sewerage
Project
(MMSP).
Manila Urban
Development
Project
A
sanitation
component of
the loan Pasig
River
Environmental
Management
and
Rehabilitation
Sector
Development
Program
(PREMRSDP),
Manila Second
Sewerage
Project
Angat
Water
Optimization
Project
Manila South
Distribution
Project
Umiray Angat
Transbasin
Project
Angat
Water
Optimization
Date Granted
Maturity
date
Amount
Still subject to
confirmation
and subsequent
preparation of
MOA between
MWSS,
NHA
and the two
concessionaires
November 1991
and November
1996
respectively
98,795,399
May
2026
15,
355,625,715
November
1981.
15,
October
2003
13,
July
2020
15,
64,143,909
February 1,
2022
196,176,064
June 19, 1996
July
2016
1,
362,428,909
December
1989
18,
Oct
2014
1,
561,752,590
January
1992
23,
Oct
2016
15,
141,852,578
November
1995
27,
July
2020
15,
2,208,587,322
Feb
2020
20,
1,458,649391
May 11, 1990
113
Breakdown of Bonds/Loans Payable account
As of December 31, 2013
Name
of
bank/creditor
Loan
French
Republic
French
Loan
Export-Import
Bank of China
AWUAIP
II
Purpose
Project
Rizal Province
Water Supply
Improvement
Project
(RPWSIP
Angat
Water
Utilization
&
Aqueduct
Improvement
Program
Date Granted
Maturity
date
December 2002
December
31, 2018
May 7, 2010
Jan
2030
Total
3.2
Amount
21,
56,368,591
5,122,278,629
11,992,730,525
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
French Protocol
IBRD 4019 (ODA)
TOTAL
Per MWSS’s Books
56,368,590.64
362,428,909.56
418,797,500.20
Per Bank
65,552,516.03
465,732,879.18
531,285,395.21
Overstated
(Understated)
(9,183,925.39)
(103,303,969.62)
(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 lowcost 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
4.
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
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
114
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
JBIC (OECF) Loan PH
110
Special Project
Implementation
Assistance Loan
Total
Amount collected
1,608,205,797.55
254,596,729.12
Period covered
February 2006December 2013
January 2005November 2008
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
115
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:
Date
Summary of collections from concessionaires for the JBIC/OECF loan
From CY 2006 to CY 2013
MWSS
bank
MWSS bank
account
account
where the
MWCI
MWSI
where
amount
initially
was
deposited
initially
deposited
Total
CY 2006
February
31,401,634.13
September
26,071,930.61
PNB savings
account
PNB savings
account
57,473,564.74
CY 2007
355,416,404.51
54,396,758.04
January
February
21,386,917.32
August
25,020,647.05
PNB savings
account
LBP Time
deposit
24,103,738.76
25,659,154.97
PNB savings
account
LBP Time
deposit
505,983,620.65
CY 2008
242,934,653.91
14,387,827.11
January
March
20,678,461.27
August
26,247,959.61
CY 2009
February
August
27,579,426.58
31,613,033.92
PNB
Savings
Acct
LBP Time
deposit
LBP Time
deposit
LBP Time
deposit
26,989,828.69
PNB time
deposit
35,229,752.74
LBP Time
deposit
43,251,919.71
41,648,032.02
DBP Time
Deposit
LBP Current
account
366,468,483.33
144,092,412.23
116
Date
Summary of collections from concessionaires for the JBIC/OECF loan
From CY 2006 to CY 2013
MWSS
bank
MWSS bank
account
account
where the
MWCI
MWSI
where
amount
initially
was
deposited
initially
deposited
Total
CY 2010
February
25,555,171.32
August
32,092,104.65
LBP Time
deposit
LBP Time
deposit
40,940,108.25
42,476,907.47
LBP Current
account
LBP Current
account
141,064,291.69
LBP Current
account
LBP Current
account
141,589,503.62
LBP Current
account
LBP Current
account
140,138,216.83
CY 2011
February
25,879,244.88
August
32,229,215.65
LBP Time
deposit
LBP Time
deposit
40,859,818.31
42,621,224.78
CY 2012
February
26,675,245.51
August
30,625,582.04
LBP Time
deposit
LBP Time
deposit
41,730,910.62
41,106,478.66
CY 2013
February
20,700,554.88
LBP Time
deposit
32,578,597.44
August
24,342,859.09
LBP Time
deposit
33,773,693.05
Total
d.
428,099,988.51
LBP Current
account
LBP Current
account
1,180,105,809.04
111,395,704.46
1,608,205,797.55
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).
117
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
Jan. 20, 2005
MWSS bank account where the amount was
initially deposited
Included in the Collection of Performance
Bond from MWSI deposited in the BTr
Savings Account MWSS Performance Bond
Included in the collection of financial bids
(Credit Memo) of MWSI deposited under LBP
Savings Account, covering the following
periods:
Amount
364,440,021.88
Jan. 24, 2007
CY 2005
CY 2006
May 15, 2007
Nov. 15, 2007
Jan. 17, 2008
PNB Time deposit
PNB Savings Account
Included in the collection of DCRA Exit fee
deposited under LBP Special Account and
BSP Savings account
PNB Savings Account
LBP Current account
May 13, 2008
Nov. 15, 2008
Total collection
Remittance to BTr in October 2009
Unremitted amount to BTr as December 31, 2013
84,329,724.81
21,657,197.23
4,686,350.77
4,236,407.43
56,410,811.93
5,951,741.36
6,779,681.38
548,491,936.79
293,895,207.67
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
118
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.
5.
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
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
119
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
SPIAL (ADB 779 & 780)
IBRD 1272
IBRD 2676
TOTAL
6.
Per Books
355,625,714.73
64,143,909.08
0
419,769,623.81
Per BTr
526,084,422.24
67,840,144.00
358,623,638.26
952,548,204.50
Variances
(170,458,707.51)
(3,696,234.92)
(358,623,638.26)
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.
5.4
We recommended and Management agreed to:
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.
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
Balance
Particulars
Dec. 31, 2013
Guarantee Fee - Project Loans - ADB 986
15,307,571.89
120
Schedule of Inter-Agency Payables – Due to the Bureau of Treasury
As of December 31, 2013
Guarantee Fee - Project Loans - ADB 1150
3,392,535.45
Guarantee Fee - Project Loans - ADB 1379
13,488,499.38
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
3,521,716.91
unserviceable assets
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
Due from GOCCs
Guarantee fees
233,665,256.43 – Guarantee Fee
142,499,764.35
91,165,492.08
Receivables
2 Due to BTr
Due from GOCC –
Guarantee fees 0 dormant accounts
962,986,178.92 (962,986,178.92)
dormant accounts
National
Total MWSS Payables
233,665,256.43 Government
1,105,485,943.27
871,820,686.84
Receivables
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
Guarantee Fee - Project Loans - IBRD 3124
Guarantee Fee- Bridge Loans - First Metro
Guarantee Fee- Bridge Loans - RCBC
Guarantee Fee- Bridge Loans - Keppel
Guarantee Fee- Bridge Loans - Deutche Bank
Deposit to Special Reserve Fund -BTr
Interest Other Charges - SPIAL
Balance, Dec. 31, 2013 per MWSS Books
Balance
Dec. 31, 2013
P
585,767.01
7,800,000.00
8,300,550.00
5,516,900.00
58,308,600.00
3,521,16.91
101,904,653.51
P 185,938,187.43
121
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:
Particulars
Balance, Dec. 31, 2013 as computed above
Balance, Dec. 31, 2013 per BTR Books
Difference
c.
Balance
Dec. 31, 2013
P 185,938,187.43
962,986,178.92
P 777,047,991.49
The composition of dormant accounts per BTR’s records is shown as
follows:
Balance Dec. 31, 2012
Reclassification by BTr in 2013:
JBIC 110
IBRD 1647
IBRD 1814
Balance Dec. 31, 2013
187,028,115.79
P 208,160,093.10
80,141,723.37
487,656,246.66
775,958,063.13
962,986,178.92
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 GOCCsDormant 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 multicurrency 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.
6.8
We recommended and Management agreed to:
122
7.
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
representing the deposit to the Special Reserve Fund.
P3,521,716.91
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
181-01-000-000-000-042
181-01-000-000-000-058
181-01-000-000-000-063
181-01-000-000-000-076
181-01-000-000-000-110
181-01-000-000-000-137
181-01-000-000-000-160
181-01-000-000-000-170
181-01-000-000-000-197
181-01-000-000-000-351
181-01-000-000-000-355
181-01-000-000-000-356
181-01-000-000-000-357
Contractor
Consuelo Builders Corp.
FF Cruz Const. & Co. Inc.
Filipino Pipes & Foundry Corp.
Gotesco Kawalan Joint Venture
Makati Development Corp.
Pacifico Austria & Sons
R.D. Tuazon
Sigma Const.
Wilper Construction
A.M. Oreta & Co.
W.M. Lewis & Asso.
B.C. Cuerto Const. Corp.
Devt. of Environmental System
Amount
2,500,340.59
2,959,907.17
34,792,597.88
16,184,338.44
4,675,912.94
704,028.70
9,459,323.95
132,812.02
212,062.79
47,970,710.51
73,523.29
1,309,449.55
127,839.48
181-01-000-000-000-649
Bousted Technologies Inc./Salcon Ltd.
70,989,440.27
181-01-000-000-000-674
181-01-000-000-000-687
181-01-000-282-265-000
181-01-000-341-915-000
First Global Hydro Corp.
A.G. & P./Hydro Resources Const. Corp
JV Angeles Const. Corp.
DM Consunji, Inc.
25,712.45
4,418,767.89
35,495,704.55
16,170,003.29
123
181-01-000-725-926-000
181-01-110-439-160-000
Sub total
Various SL 181-01
Total
R II Builders
MMRR Construction
Various contractors
56,005.10
47,680,244.28
295,938,725.14
(3,635,198.23)
292,303,526.91
7.3
The above advances should have been deducted from the progress billings for ongoing 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:
7.5
a.
name of the project to which the above advances were made and the
status of said projects;
b.
c.
Whether the contractor was fully paid without deducting the above
advances;
Date of Payment; and
d.
Age of the advances to contractors.
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
124
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.
8.
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.
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.
125
9.
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.
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)/ABSCBN 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
MWSS
40%
No Mngt Fee and
Capex
19,184,075
With Mngt Fee,
No Capex
7,420,015
No Mngt Fee,
No Capex
(6,781,162)
126
AFI
LGQC
30%
30%
14,388,056
14,388,056
47,960,187
5,565,011
5,565,011
18,550,037
(5,085,872)
(5,085,872)
(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
9.5
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.
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.
b.
c.
d.
Signature by the parties;
Approval by proper authorities;
Review by the Office of the Government Corporate Counsel
(OGCC)
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:
9.8
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;
If the Agreement will still be found valid, we restate the prior years’
recommendation which were as follows:
127
9.9
10.
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.
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.
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:
Total Collection
No of payees
10.4
2013
2,056,659.68
36
2012
3,102,972.69
50
Decrease
1,046,313.01
14
%
34
39
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.
128
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.
10.6
We recommended that Management:
10.7
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.
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.
129
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
per Book
Bank
Difference
PNB MWSS Branch
Corporate Office (Current Account)
24,832.67
(118,139.94)
142,972.61
36,660,311.24
36,622,656.73
37,654.51
15,909.37
(718,739.54)
734,648.91
4,251,655.43
942,120.43
3,309,535.00
40,952,708.71
59,116,295.14
4,224,811.03
PNB MWSS Branch
Corporate Office (Savings Account)
PNB MWSS Branch
Main Fund (Current Account)
DBP - Makati Branch
TOTAL
11.3
The details of reconciling items are shown below:
Table of Reconciling Items
Particulars
Unrecorded Cash and Check Deposits in CYs
2000
2003
Total
Unrecorded Encashed Checks in CYs
2010
2012
Total
Debit Memos from CY 2000 -2013
2000
2001
2005
2007
2012
2013
Total
Credit Memos from CY 2000 -2013
2009
2011
2013
Total
Amount
56,991.44
743,652.95
800,644.39
20,361.69
833,660.08
(854,021.77)
3,100,758.23
10,448.66
862.50
15,000.00
101.50
203.00
(3,127,373.89)
10,000.00
0.96
84,996.43
94,997.39
130
Other Reconciling Items:
Check No. 9981 dated 11/19/03 debited twice by the bank in
11/26/03 and 12/29/03
Already encashed Check No 171017 dated 2/24/03 same
appeared on bank statement dated 3/13/03
Remaining overpayment of TC No. 2188 and 2186 due to double
debit by the bank in 2003
Overpayment of Treasury Control No.’s
2007
4797
2007
4855
2011
7829
2012
8317
Total
Erroneously credited to account 123
Adjustment of Bank Charges
Adjustment over/under of check 222993 dated 10/1/13, 223567
dated 10/30/13 and 223694 dated 11/8/13
Reconciling amount from previous bank account (prior to
privatization)
TOTAL
(15,000.00)
(8,344.49)
(6,069.96)
7,500.00
13,068.75
356.00
3,000.00
(23,926.75)
(87,350.69)
200.00
(455.26)
(998,110.00)
(4,224,811.03)
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
131
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.
132
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.
133
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 Add: Miscellaneous Expenses
EE-Sports/Wellness
Total
649,359.67
491,093.21
29,785.00
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
Chief Regulator / 29
Deputy Administrator / 28
Total
2.6
Extraordinary
Expense
50,000.00
38,000.00
2013
Miscellaneous
Expense
72,000.00
72,000.00
TOTAL
122,000.00
440,000.00
562,000.00
The excess expenditure of P608,237.88 was due to the following:
Particulars
Miscellaneous expenses paid
Sports/wellness expenses
Excess of extraordinary expenses over the DBM
approved COB computed as follows:
Actual extraordinary expenses
DBM approved budget
Total
Amount
491,093.21
29,785.00
649,359.67
562,000.00
87,359.67
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.
134
3.
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.
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
1. Isabel Bagaporo
2. Victor Cariaga
3. Candelaria Castasus
4. Alan Chuegan
5. Jose Noel Dalistan
6. Edgar Lumbres
7. Randolph Marcial
8. Crescenciano Minas
9. Mylene Joy Parras
10. Cheryll Ann Razon
11. Ma. Claudine Tenorio
12. Rosalinda Valdez
13. Maritess Victoria
14. Debbie Cachuela
15. Clarissa Jallorina
16. Vicente Avila
17. Candelaria Castasus
Total Balance
Before
Monetization
12.07
12.01
10.85
31.64
15.92
10.63
21.59
23.65
22.50
11.95
21.29
10.02
19.84
13.88
115.99
12.27
12.35
No. of Days
Monetized
15
25
13
30
15
15
50
30
40
15
20
15
20
30
115
10
10
Remarks
Negative balance
Negative balance
135
Total Balance
Before
Monetization
NAME
18. Roberto Diala
19. Edgar Lumbres
20. Christian Marcelino
21. Randolph Marcial
22. Crisanto Nagtalon
23. Cheryll Ann Razon
24 Ma. Claudine Tenorio
25. Olivia Tolentino
26. Rosalinda Valdez
27. Maritess Victoria
3.3
No. of Days
Monetized
13.94
11.04
21.56
12.02
12.27
10.29
18.20
10.91
13.80
17.58
Remarks
10
10
20
20
10
12
15
12
15
15
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
Shared expenses paid by
Corporate Office
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.
Nature
Corporate Office
(CO)
Nature
Regulatory
Office (RO)
Asset
Due from RO (143)
Liability
Due to CO (421)
Liability
Due to RO (423)
Asset
Due from CO
(141)
136
1.3
Analysis of the reciprocal accounts showed the following unreconciled balances at
the end of the year:
CO Books
Asset - Due from
254,939,771.58
R.O. (143)
Liability - Due to
632,770,398.94
R.O. (423)
1.4
RO Books
Liability - Due to
116,525,403.82
C.O. (421)
Asset - Due from
1,434,533,304.68
C.O. (141)
Net Amount
138,414,367.76
801,762,905.74
940,177,273.50
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
Book Balance 12/31/2012
Transactions for 2013 (RO)
Recognition of term extension of
MWSI
Recognition of term extension of
MWCI
Concession Fee – COB for CY 2013
Offsetting of Meralco Bills (later part
of 2012 and the year 2013)
Receipt of Partial Payment of COB
2013
Transactions for 2013 (CO)
Set-up of COB for 2014
Offsetting of Meralco Bills for the
year 2013
Partial Payment of COB 2013 to RO
Total Reconciling Items
Book Balance 12/31/2013
1.5
Difference
Due from CO
(RO Books)
1,099,161,770.38
Due to RO
(CO Books)
523,932,729.19
Difference
575,229,041.19
114,614,733.81
114,614,733.81
229,229,467.62
(3,087,400.94)
(120,000,000.00)
231,212,534.28
(2,374,864.53)
335,371,534.30
1,434,533,304.68
(120,000,000.00)
108,837,669.75
632,770,398.94
226,533,864.55
801,762,905.74
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
Book Balance 12/31/2012
Transactions for 2013 (CO)
Payment of electric bills
COA telephone/internet bill
(434-4303)
COA telephone bill (928-2516)
COA internet bill
BOT Chairman telephone bill
(435-5011)
Fuel Consumption (January)
Total Reconciling Items
DUE FROM RO
(CO Books)
254,439,743.17
DUE TO CO
(RO Books)
116,525,403.82
Difference
137,914,339.35
481,118.85
2,006.70
5,059.14
6,470.99
2,626.03
2,746.70
500,028.41
500,028.41
137
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
Transactions in Corporate Office Books:
Offsetting of Meralco bills for the year 2013
Remittance (partial payment of COB 2013)
Payment of electric bills
COA telephone/internet bill (434-4303)
COA internet bill
COA telephone bill (928-2516)
BOT Chairman telephone bill (435-5011)
Fuel Consumption (January)
Sub total
Transactions in Regulatory Office books:
COB for 2013
MWSI Extension
MWCI Extension
Offsetting of Meralco bills (later part of 2012
and 2013)
Receipt of the partial payment of COB 2013
Sub total
Net amount of unreconciled balance
1.9
231,212,534.28
(2,374,864.53)
(120,000,000.00)
(481,118.85)
(2,006.70)
(6,470.99)
(5,059.14)
(2,626.03)
(2,746.70)
P108,337,641.34
229,229,467.62
114,614,733.81
114,614,733.81
(3,087,400.94)
(120,000,000.00)
335,371,534.30
P227,033,892.96
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.
138
1.10
2.
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.
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
MWSS CO
Due from Officers and
Employees
Loans ReceivablesOthers
Other Receivables
Subtotal MWSS CO
Loan Receivable from
the Officers and
Employees
Subtotal MWSS RO
Nature
Housing Loan and car loan
Housing loan and car loan receivables from
members of the Board of Trustees and
other officers and employees detailed at
the MWSS
Seed money given to the MWSS
Employees Welfare Fund (MEWF) for Car
Assistance Program
Housing loan
Car loan
Amount
49,960,508.93
7,428,600.66
11,357,250.00
68,746,359.59
11,691,439.65
9,470,603.72
21,162,043
139
Total
2.4
89,908,402.96
Analysis revealed that during the year, collections for the abovementioned loans
receivables amounted to P2,553,836.78 as shown below:
Beginning balance ( per GL)
Loan granted in previous year
recorded only in CY 2013
Less; Collections during the year
Car and Housing loan
Ending balance
MWSS CO
70,243,817.07
MWSS RO
21,418,052.05
800,370.60
Total
91,661,869.12
800,370.60
2,297,828.10
256,008.68
2,553,836.78
68,746,359.59
21,162,043.37
89,908,402.96
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
140
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.
2.10
3.
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.
We recommended that Management:
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 MultiPurpose 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.
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.
141
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.
3.2
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.
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
Salaries and Wages - Regular
Personnel Economic Relief Allowance (PERA)
Additional Compensation (ADCOM)
Representation Allowance & Transportation
Allowance (RATA)
Clothing/Uniform Allowance
Productivity Incentive Allowance (includes
proposed budget for BOT ofP5,184 M)
Other Bonuses and Allowances
Honoraria (BOT)
Hazard Pay
Longevity Pay
Cash Gift/13th Month Pay
Life and Retirement Insurance Contributions
PAG-IBIG Contributions
PHILHEALTH Contributions
ECC Contributions
Terminal Leave Benefits
Other Personnel Benefits
Total
Actual
Expenditure
(a)
49,941
2,803
189
DBM-Approved
COB
(b)
62,023
3,672
-
8,717
4,502
(4,215)
630
765
135
8,164
14,181
6,017
7,032
2,630
1,432
5,163
4,757
5,940
150
461
150
422
9,697
108,278
51
3,456
5,934
7,443
184
503
184
528
33
103,459
(6,981)
826
(1,432)
(5,163)
1,177
1,503
34
42
34
106
(9,664)
(4,819)
Variance
(b-a)
12,082
869
(189)
a. Other Bonuses and Allowances of P7,032,000 pertains to the payment for
the following:
Allowance
Amount
142
Rice allowance
Meal allowance
Anniversary bonus
Total
2,695,541.64
3,970,790.00
366,000.00
7,032,331.64
b. On the other hand, Other Personnel Benefits consist of the following:
Allowance
Monetization of earned leave
can
5% Govt share in welfare fund
Loyalty pay
Children’s allowance
Total
Amount
4,072,431.29
3,025,000.00
2,347,403.37
224,000
28,030.04
9,696,864.70
For MWSS RO
Actual Personal Services Expense vs. DBM-Approved Corporate Budget
MWSS RO
Personal Services
Salaries & Wages
Personnel Economic Relief Allowance (PERA)
Uniform/Clothing Allowance
Year-End Bonus
Cash Gift
RATA
Honoraria
Hazard Pay
Terminal Leave Benefits
Longevity Pay
Loyalty Bonus
Performance Based Bonus
Performance Enhancement Incentive
Rice Allowance
Meal Allowance
Children’s Allowance
Provident Fund
Life & Retirement Insurance Premium
Employees Compensation Ins. Premium
Pag-I.B.I.G. Contributions
Philhealth Contributions
Total
3.3
Actual
Expenditures
24,069
1,359
295
1,970
278
5,193
167
408
2,100
1,671
125
5,007
0
3,228
34
1,595
1,232
2,918
68
68
242
52,027
DBMApproved
30,007
1,656
345
2,501
345
2,724
0
0
0
0
0
5,007
345
0
0
0
0
3,601
83
83
228
46,925
Excess
Expenditures
5,938
297
50
531
67
(2,469)
(167)
(408)
(2,100)
(1,671)
(125)
0
345
(3,228)
(34)
(1,595)
(1,232)
683
15
15
(14)
(5,102)
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
Rice Allowance
Hazard Pay
Longevity Pay
MWSS CO
2,695,541.64
1,423,522.44
5,163,462.69
MWSS RO
3,228,304.74
407,745.17
1,670,500.00
143
Provident Fund
Total
2,347,403.37
11,629,930.14
1,231,430.82
6,537,980.73
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
Monetization of earned
leave
Honorarium
Loyalty Bonus
Total
f.
4.
MWSS CO
4,072,431.29
2,630,000
224,000
MWSS RO
2,100,000
167,000
125,000
2,392,000
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.
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
144
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:
145
a.
b.
5.
Memorandum dated December 19, 2013 recommending the grant of
the said Incentive for CY 2013; and
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.
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.
146
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.
147
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 :
148
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 nonachievement 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.
149
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
Laiban site, Tanay, Rizal
Laiban,Tinucan, Sta. Ines, Mamuyaw, Tanay Rizal
Antipolo
Quezon City
Rodriguez, Montalban
Matictic, Norzagaray, Bulacan
Angono, Rizal
San Juan City
Total
2.3
Amount
484,292.00
12,273,564.48
1,716,165.69
95,751,590.36
301,040.83
8,635,468.61
19,842,183.74
4,217,690.00
143,221,995.71
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:
150
151
152
153
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.
154
d.
2.3.2
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.
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.
155
b.
2.3.3
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:
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.
156
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:
157
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:
158
b.
2.4
2.5
2.6
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:
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.
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.
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
159
MWSS – Corporate
Audit Office
Particulars
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
Notice of Disallowances which
are final and executor
Audit Disallowances for CY 2012
and CY 2013 transactions
issued in CY 2014
2.
MWSS-Regulatory
Office
105,681,064.04
900,000.00
5,571,999.13
3,392,443.22
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.
10-001-05-(09)
Date
July 16, 2010
Nature of
Disallowance
Amount
Pending Appeal with COA
Cluster B Decision No. 2011007
Year-End Financial
Assistance
6,565,910.90
Pending Appeal with the
Commission Proper
-do-
10- 02-05-(09)
July 16, 2010
Anniversary Bonus
5,417,999.39
10-003-05-(09)
July 16, 2010
5,688,443.56
-do-
10-004-05-(09)
July 16, 2010
1,178,209.03
-do-
10-005-05-(09)
July 16, 2010
686,000.00
-do-
10- 06-05-(09)
July 16, 2010
5,818,138.91
-do-
10-007-05-(09)
July 16, 2010
104,000.00
-do-
10-008-05-(09)
July 16, 2010
104,000.00
-do-
10-009-05-(09)
July 16, 2010
104,000.00
-do-
10-010-05-(09)
July 16, 2010
1,800,000.00
-do-
10-011-05-(09)
July 16, 2010
5,764,746.31
-do-
10-012-05-(09)
July 16, 2010
6,454,899.70
-do-
10-013-05-(09)
July 16, 2010
Anniversary Bonus
Monetization of
Leave credits
Traditional
Anniversary Bonus
Mid-Year Financial
Assistance
RATA for January
2009
RATA for February
2009
RATA for March
2009
Family Day
Allowance
(Regular)
Rate Rebasing
Bonus (Regular)
Family Week
Allowance
(Regular)
Performance
Enhancement
6,524,033.20
-do-
160
ND NO.
Date
Nature of
Disallowance
Amount
Pending Appeal with COA
Incentive
10-014-05-(09)
July 16, 2010
10-015-05-(09)
July 16, 2010
10-016-05-(09)
July 16, 2010
10-029-05-(09)
Aug. 16, 2010
10-017-05-(09)
July 29, 2010
10-108-05-(09)
July 29, 2010
10-019-05-(09)
July 29, 2010
10-020-05-(09)
July 29, 2010
10-021-05-(09)
July 29, 2010
10-022-05-(09)
July 29, 2010
10-023-05-(09)
July 29, 2010
10-024-05-(09)
July 20, 2010
10-025-05-(09)
July 29, 2010
10-030-05-(09)
Aug.18, 2010
10-031-05-(09)
Aug.18, 2011
10-032-05-(09)
Aug.18, 2011
10-033-05-(09)
Aug.18, 2011
Amended/Supplemental
ND No. 2012-01-(05-08) dated
March 15, 2012 (ND was issued
by FAIO)
GOCC Incentive
For CY 2008
Scholarship
Allowance (1st
Tranche)
Scholarship
Allowance (2nd
Tranche)
Corporate
Christmas Package
for
CY 2009
PX Mart Allowance
(4th Quarter)
5,471,382.77
-do-
3,985,333.71
-do-
6,603,893.90
-do-
10,730,286.97
-do-
2,630,000.00
Cluster B Decision No. 2011012 and COA CP Case No.
2011-371
2,048,273.83
-do-
2,053,273.85
-do-
2,635,000.00
-do-
5,929,843.97
-do-
5,679,037.49
-do-
5,741,017.42
-do-
1,325,375.40
-do-
2,111,192.85
-do-
77,628.50
-do-
73,747.09
-do-
Grocery Allowance
(3rd Quarter - BOT)
90,000.00
-do-
Grocery Allowance
(4th Quarter - BOT)
120,000.00
-do-
Grocery Incentive
Pay (1st Quarter)
Grocery Incentive
Pay (2nd Quarter)
PX Mart Allowance
(3rd Quarter)
Efficiency Incentive
Benefit for CY 2009
Privatization
Financial
Assistance
Educational
Assistance
Extraordinary
Expenses
Extraordinary
Expenses
Grocery Allowance
(2nd Quarter BOT)
Grocery Allowance
(1st Quarter - BOT)
Various allowances
and benefits for the
period CY 2005 to
2008
13-001-05-(12)
June 13,
2013
Amelioration
Allowance
13-002-05-(12)
June 14,
2013
13-003-05-(12)
July 1, 2013
60,483,592.40
3,680,227.14
of the consultant
COLA
14,720,328.21
-do-
RATA
6,001,992.84
-do-
161
ND NO.
Date
13-004-05-(12)
July 1, 2013
13-005-05-(12)
July 1, 2013
13-006-05-(12)
July 1, 2013
13-007-05-(12)
July 1, 2013
13-009-05-(12)
Dec. 3, 2013
Nature of
Disallowance
Amount
Pending Appeal with COA
RATA
2,704,617.28
-do-
Procurement of
private health
insurance
3,072,183.95
-do-
-do-
857,205.00
-do-
-do-
2,985,516.00
-do-
Hazard and
Longevity Pay
1,269,627.39
5,017,297.07
Total Disallowance for MWSS-Corporate Office
No appeal filed. Still within
appeal period
204,308,256.03
MWSS Regulatory Office
List of Audit Disallowances with Pending Appeals with COA
ND NO.
Date
RO10-001719-3(09)
7/16/2010
RO10-002719-3(09)
Nature of
disallowance
Amount
Status
Anniversary Bonus
(Traditional)
622,000.00
Pending Appeal with the
Commission Proper
7/16/2010
Productivity
Enhancement Pay
(PEP)
622,000.00
-do-
RO10-003510(09)
7/16/2010
Rate Rebasing
Allowance
622,000.00
-do-
RO10-004510(09)
7/16/2010
622,000.00
-do-
RO10-005510(09)
7/16/2010
416,000.00
-do-
RO10-006719-6(09)
7/16/2010
793,400.00
-do-
RO10-007510(09)
7/16/2010
793,400.00
-do-
RO10-008510(09)
7/16/2010
793,400.00
-do-
793,400.00
-do-
793,400.00
-do-
447,400.00
-do-
RO10-009510(09)
7/16/2010
RO10-010510(09)
7/16/2010
RO10-011510(09)
7/20/2010
Rate Rebasing
Incentive Pay
(Premium)
Family Day &
Educational
Allowances
Traditional
Christmas Bonus
Productivity
Incentive Bonus
(PIB) 1
GOCC Incentive
Collective
Negotiation
Agreement
(C N A) Incentive
Scholarship
Allowance
nd
(2 Tranche)
Efficiency Incentive
Bonus
162
Nature of
disallowance
ND NO.
Date
RO10-012510(09)
7/20/2010
Scholarship
Allowance
st
(1 Tranche)
597,400.00
-do-
RO10-013510(09)
7/20/2010
Family Week
Allowance
793,400.00
-do-
RO10-014510(09)
7/20/2010
Performance
Enhancement
Incentive
793,400.00
-do-
RO10-015510(09)
7/20/2010
Calamity Economic
Assistance 1
793,400.00
-do-
RO10-016510(09)
7/20/2010
Calamity Economic
Assistance 2
793,400.00
-do-
RO10-017510(09)
7/20/2010
Corporate
Christmas Package
1,033,400.00
-do-
RO10-018717-1(09)
7/20/2010
695,400.00
-do-
RO10-019510(09)
7/20/2010
311,000.00
-do-
RO10-020883-3(09)
7/22/2010
150,000.00
-do-
RO10-021717-1(09)
7/20/2010
Productivity
Incentive Bonus 3
793,400.00
-do-
RO10-022510(09)
7/22/2010
Rate Rebasing
Additional
447,400.00
-do-
RO10-023510(09)
7/22/2010
RATA Differential
756,000.00
-do-
RO10-024719-3(09)
7/22/2010
597,400.00
-do-
RO10-025719-3(09)
7/22/2010
597,400.00
-do-
RO10-026510(09)
7/22/2010
695,400.00
-do-
RO10-027717-1(09)
7/22/2010
3,175,426.20
-do-
RO10-028717-1(09)
7/22/2010
5,943,527.44
-do-
RO10-029717-1(09)
7/22/2010
3,454,313.88
-do-
RO10-030719-1(09)
7/22/2010
3,482,425.50
-do-
RO10-031717-1(09)
7/22/2010
3,451,319.10
-do-
RO10-032719-9(09)
7/22/2010
3,482,425.50
-do-
Productivity
Incentive Bonus 2
Additional
Educational
Allowance
Health & Wellness
Allowance
Privatization
Anniversary Bonus
1
Privatization
Anniversary Bonus
2
Performance
Bonus
Performance
Enhancement
Incentive
Productivity
Incentive Benefit
Productivity
Incentive Bonus
Collective
Negotiation
Agreement
(C N A) Incentive
Performance
Bonus
GOCC Incentive
Amount
Status
163
ND NO.
Date
Nature of
disallowance
Amount
Status
RO10-033-721
dated (09)
7/22/2010
Hazard Duty PayJan to June 2009
498,000.00
-do-
RO10-034-721
(09)
7/22/2010
Hazard Duty PayJuly to Dec 2009
493,800.00
-do-
RO10-035719-1 (09)
7/22/2010
Anniversary Bonus
2,712,493.34
-do-
RO10-036719-1 (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-
RO10-038883-4 (09)
7/22/2010
Grocery Incentive
st
Pay 1 Quarter
1,330,000.00
-do-
RO10-039883-4 (09)
7/22/2010
Grocery Incentive
nd
Pay 2 Quarter
1,340,000.00
-do-
RO10-040883-4 (09)
7/22/2010
Grocery Incentive
rd
Pay 3 Quarter
1,350,000.00
-do-
RO10-041883-4 (09)
7/22/2010
Grocery Incentive
th
Pay 4 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-
Productivity
Enhancement Pay
(PEP)
3,015,729.40
-do-
10/22/2010
Corporate
Christmas Package
5,554,413.46
-do-
10/8/2010
Scholarship
Allowance
3,392,897.70
-do-
Amelioration
Allowance
1,991,974.15
-do-
COLA
7,910,835.98
-do-
3,924,797.50
-do-
RO10-045-510
(09)
RO10-0467191
(09)
RO10-047717-1(09)
13-001-RO(12)
10/21/2010
13-002-RO(12)
June 10,
2013
June 10,
2013
13-004-RO(12) Amended
June 10,
2013
Productivity
Incentive Bonus
13-005-RO(12)
June 10,
2013
Representation and
transportation
allowance
13-006-RO(12)
June 10,
2013
Procurement of
health insurance
4.389,873.84
1,551,528.00
1,389,177.00
-do-
-do-
164
ND NO.
Nature of
disallowance
Date
13-007-RO(12)
Dec. 3, 2013
Hazard Duty Pay
13-008-RO(12)
Dec. 3, 2013
Longevity Pay
Total Disallowance for MWSS-Regulatory Office
Amount
Status
464,127.10
No appeal filed. Still within
appeal period
1,816,335.48
No appeal filed. Still within
appeal period
105,681,064.04
MWSS Corporate Office
Audit Disallowances – Final and Executory
ND NO.
Nature of
disallowance
Date
Amount
Status
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
AssistanceLorenzo S. Sulaik
250,000.00
Notice of Finality of Decision
and COA Order of Execution
were issued
10-028-05-(09)
July 28, 2010
Medical/Financial
AssistanceOscar Garcia
450,000.00
Notice of Finality of Decision
and COA Order of Execution
were issued
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
ND NO.
Nature of
disallowance
Date
Amount
Status
14-001-05-(12)
Feb. 4, 2014
Janitorial Services
2,855,968.14
14-002-05-(12)
April 25, 2014
Rice Allowance
2,716,030.99
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
Within appeal period
Within appeal period
21,210,432.51
165
MWSS Regulatory Office
Audit Disallowances for CY 2012 and CY 2013 Transactions Issued in CY 2014
Nature of
disallowance
ND NO.
Date
14-001-RO(12)
Feb. 5, 2014
Janitorial Services
14-002-RO(12)
Feb. 11, 2014
14-003-RO(12)
Amount
Status
686,587.61
Within appeal period
Security Services
1,334,050.05
Within appeal period
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
MWSS-CO
Contractor
Supply and Installation of
Waterproofing & Concrete
Topping for the Roof Deck
of MWSS Administration &
Engineering Buildings
OCM Steel Corporation
Angat Water Utilization
and
Aqueduct
Improvement
Project,
Phase II (AWUAIP-P2)
China International Water
and Electric Corporation
(CWE)
Contract Amount
P
4,058,160.15
5,765,312,520.62
Status
Additional
documents
required in the initial
Technical
Evaluation
report dated December
12, 2012 were submitted
on April 12, 2013.
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
166
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
Consulting Services for
technical
audit
and
evaluation of CAPEX of
MWCI/MWSI
Test Consultants Inc.
Test Consultants Inc.
21,028,000.00
14,812,000.00
Request
for
contract
review made on May 23,
2013
Request
for
contract
review was made on the
nd
2 quarter of CY 2011
167